Nicholas Fortuna, July 17, 2017
Bucking the national trend, Idaho is making it easier for employers to enforce employee non-compete agreements that prevent employees from leaving to go to work for a competitor. The State passed new legislation that provides, if a court finds a key employee or a key independent contractor breaches a non-compete agreement, a rebuttable presumption of irreparable harm to the employer is imposed. The burden of overcoming that presumption shifts to the former employee to show that their employment with a competitor does not adversely affect their former employer’s legitimate business interests.
Nationwide, state lawmakers have been considering whether to make it easier or harder for companies to block workers from jumping to competitors. For the most part, states have concluded that it is better for the local economy to make it easier for employees to move from job to job.
From a business prospective, the impact of strict enforcement of non-competes falls disproportionately on start-ups and high growth companies because it makes it harder for them to recruit workers with relevant experience. Given the choice of locations, such companies will shy away from establishing or moving to jurisdictions where the ability to hire employees is limited.
California does not recognize non-competes and, in part, attributes the rise of Silicon Valley and technology businesses to this policy. Massachusetts, which recognizes non-competes, has a technology sector known as the Route 128 corridor outside Boston that never could reach the economic level of Silicon Valley, despite its strong start in the early 1980s. Economists attribute California’s freedom from the burdens of non-competes, which allows new companies to open and permits employees to move to different jobs, as an important factor in its dominance of the technology industry there.
Boise, Idaho has been looking to be a center for high growth technology companies and startups. The consensus, however, is that the enhanced enforcement of non-competes will be an impediment to developing a thriving technology sector. While older established companies favor strict enforcement because they are trying to protect their position and insulate themselves from the demands of the marketplace, new companies will stay away.
At the federal level, the White House published a report on non-compete contracts in May that concluded that they impose substantial costs on workers, consumers and the economy. The Treasury Department also issued a report criticizing excessive use of non-competes.
An economic study examined the impact of non-competes of people in the state of Michigan who registered at least two patents from 1975 to 2005. In 1985, Michigan reversed a longstanding policy of prohibiting non-compete agreements. The study found that the rate of emigration of inventors from Michigan was twice that of states which prohibited non-competes. The authors concluded that enforcement of non-competes in Michigan after 1985 resulted in a brain drain. Worse, the most talented inventors were found to be the ones most likely to flee.
While proponents of non-competes continue to argue that companies must protect their investment in training and development of employees through the use of such agreements, the evidence suggests that they harm growth, limit opportunities for entrepreneurs, and workers, causing talented people to seek more accommodating jurisdictions.
Paula Lopez, July 10, 2017.
New York City’s recently passed package of bills, referred to as “Fair Work Week” laws, impose significant scheduling and notice requirements on certain businesses operating in New York City. The laws will go into effect on November 26, 2017. Employers covered by this law include retail businesses and fast food establishments, which are known for subjecting employees to changing work schedules.
A “fast food establishment” covered by the new law is defined in the same way as a “fast food establishment” subject to New York State’s fast food minimum wage requirements, which is one that:
- Primarily serves food or drinks, including coffee shops, juice bars, donut shops, and ice cream parlors; and
- Offers limited service, where customers order and pay before eating, including restaurant with tables but without full table service, and places that only provide take-out service; and
- Is part of a chain of 30 or more locations, including individually owned establishments associated with a brand that has 30 or more locations nationally.
The new law defines “retail business” as any entity with 20 or more employees that is engaged primarily in the sale of consumer goods at one or more stores within New York City. Full-time, part-time, and temporary employees are counted in calculating the number of employees working for a retail business. The law defines “consumer goods” as “products that are primarily for personal, household, or family purposes, including but not limited to appliances, clothing, electronics, groceries, and household items.” Examples of covered retail businesses include clothing stores, shoe stores, department stores, grocers, and retail pharmacies.
New York City’s Department of Consumer Affairs, Office of Labor Policy & Standards (“OLPS”) will be responsible for enforcing the law and has been authorized to impose monetary penalties against employers found to have violated the law. OLPS will also be publishing posters detailing the rights afforded by the new law and which covered employers are required to conspicuously post in the workplace. Employers are prohibited from retaliating against employees who assert their rights under the law. Aggrieved employees have the right to either file a claim with the OLPS or file an action in court against an employer for violations of the law within two years of the alleged violation.
The requirements of the laws differ for fast food establishments and retail business.
Beginning November 26, 2017, retail businesses are prohibited from scheduling “on-call” shifts for all employees (salaried or non-salaried), and must provide at least 72 hours’ notice of an employee’s work schedule and any change to the schedule. The work schedule must be posted in the workplace 72 hours prior to the earliest scheduled shift. An employer who makes any changes to the posted schedule must note the changes directly on the posted schedule AND directly notify the affected employees. This includes sending a copy of the schedule by electronic means, if the parties customarily communicate in such a manner.
The restriction prohibiting an employer from canceling a scheduled shift with less than 72 hours’ notice will not apply in circumstances where the employer cannot operate due to emergencies (natural disasters, fires, floods, public transportation outages, etc.) An employee can waive the restriction prohibiting an employer from requiring an employee to work a shift with less than 72 hours’ notice by providing written consent. Also, the law does not prevent employers from permitting employees to swap shifts or from granting requests for time off.
The law contains a record-keeping component, which requires employers to maintain and provide an employee, upon request, with a written copy of that employee’s work schedule for any week the employee worked during the prior three years, along with a copy of the most current work schedule for all retail employees at the work location.
Fast Food Employers
The scheduling requirements under the new law apply only to non-salaried fast food employees whose duties include customer service, cooking, food or drink preparation, delivery, security, stocking supplies, cleaning or routine maintenance. Employers are required to do the following with regard to scheduling:
- Provide each new hire with a “good faith” estimate of the employee’s work schedule in writing (estimated number of hours expected to work in a week, times expected to work, and location of the work.) If an employer makes any long-term changes to the employee’s anticipated schedule, it must provide the employee with an updated good faith estimate, before the schedule change goes into effect.
- An employer must provide each employee with 14 days’ advance notice of the work schedule covering a period of at least 7 days (containing all regular and on-call shifts for an employee).
- An employer must also conspicuously post the work schedule at the workplace 14 days in advance of the start of the schedule.
- If a fast food employer makes changes to an employee’s schedule with less than 14 days’ notice, it must pay the employee a schedule change premium (the amount of which varies based on the type of change and amount of notice given), in addition to the employee’s regular pay for shifts worked.
Amount of Premium
-$10.00 for each change made with at least 7 days’ notice where hours or shifts are added or the start and end time of a shift changes but there is no loss of hours. $15.00 for the same changes if made with less than 7 days’ notice.
-$20.00 for each change made with at least 7 days’ notice where hours are subtracted from a shift or a shift is cancelled. A $45.00 premium must be paid for the same changes if made with less than 7 days’ notice.
-$75.00 for each change made with less than 24 hours’ notice where hours are removed from a shift or a shift is cancelled.
Exceptions to Employer’s Obligation to Pay Change Premium
-Schedule change is requested by employee in writing or a result of a voluntary shift swap by employees.
-The employer is required to pay the employee overtime for the added shifts/hours.
-The change in schedule is due to an inability of the employer to operate because of an emergency (natural disasters, fires, floods, public transportation outages, etc.)
- The law prohibits an employer from scheduling an employee to work a closing shift followed by an opening shift where the two shifts are less than 11 hours apart unless the affected employee requests or consents, in writing, to working the two shifts. Absent the employee’s written consent, an employer who schedules an employee to work a consecutive closing/opening shift must pay a $100 premium to the employee.
- The law requires a fast food employer to first offer additional work shifts to existing employees at the location where the shifts are available, and then at other locations before hiring new employees to fill the available shifts. This requirement does not apply if existing employees have already rejected the additional shifts, or an employer would be required to pay the existing employee overtime for the additional shifts.
- The law also imposes a 3-year record-keeping requirement on the employer with regard to employee work schedules. Upon request of an employee, an employer must provide an employee with a copy of an employee’s work schedule for any week during the prior 3 years and a copy of the most current version of the work schedule for all fast food employees at the same location.
In addition to the various scheduling requirements, the new law permits all fast food employees (salaried and non-salaried) to make voluntary contributions to a registered not-for-profit organization through payroll deductions. This imposes a requirement on fast food employers to set up a payroll deduction process to withhold wages and pay them directly to the not-for-profit organization requested by the employee. An employer is not required to honor an employee’s contribution request if it is less than $3.00 (weekly) or $6.00 (bi-weekly). Also, an employer can request the not-for-profit to reimburse it for the costs associated with the deduction and remittance of the contribution as per DCA’s rules. In processing an employee’s contribution request, employers must remain cognizant of New York’s Labor Laws and ensure that the requested deductions do not bring the employee’s hourly wage below the minimum wage rate, and may refuse to honor the employee’s contribution request if it would result in a violation of New York’s minimum wage laws.
Employers in the retail and food establishment industry should familiarize themselves with the various requirements imposed by the Fair Work Week laws and contemplate the operational and payroll changes that will need to be implemented to comply with the various requirements.
By: Megan J. Muoio, June 2, 2017
On March 27, 2017, a three-judge panel of the United States Court of Appeals for the Second Circuit decided in favor of the plaintiff in Christiansen v. Omnicom Group, Inc., a case involving the issue of sexual orientation discrimination under Title VII of the Civil Rights Act of 1964. In Christiansen, a gay employee brought a suit against his employer under the sex discrimination provision of Title VII. The employer moved to dismiss the complaint, arguing that sexual orientation discrimination is not discrimination based on sex under federal law.
The Second Circuit disagreed with the employer, but cited different reasoning. The Court held that the discrimination described by the employee, which involved crude drawings of the employee dressed as a woman and comments about his alleged effeminate conduct, was gender stereotyping, a cognizable sex discrimination claim under Title VII. The Court declined to extend Title VII further to hold that sexual orientation discrimination is sex discrimination, citing its precedents in Simonton v. Runyon and Dawson v. Bumble & Bumble. But a strong concurring opinion by two of the three judges on the panel urged the full court to reconsider and overturn their precedents on this issue. Now, the full Second Circuit Court of Appeals has agreed to hear Christiansen, setting up a possible significant shift in Title VII jurisprudence in the Second Circuit.
Since the three-judge panel decision in Christiansen, the Seventh Circuit Court of Appeals, which covers Illinois, Indiana, and Wisconsin, became the first circuit court to rule that sex discrimination under Title VII includes sexual orientation discrimination. In Hively v. Ivy Tech Community College, a community college instructor brought a suit under Title VII, alleging that she was terminated after 14 years of employment because of her sexual orientation. The Seventh Circuit cited the 2012 Equal Employment Opportunity Commission ruling in Baldwin v. Foxx, which held that sexual orientation discrimination is sex discrimination under Title VII.
The Seventh Circuit in Hively advanced the same two arguments made by the Christiansen concurring justices in finding for the plaintiff. The first is that the employee was discriminated on the basis of sex because she would not have been terminated if she was a man in a relationship with a woman instead of a woman in a relationship with a woman. The second argument is that the employee was discriminated on the basis of sex because of her association with a woman in a relationship.
Employers should monitor the Second Circuit’s consideration and decision in Christiansen over the next few months because of its impact on employment law in the New York region.
Nicholas Fortuna, May 17, 2017
On Monday, the Supreme Court ruled by a surprise 7-1 margin that the Federal Arbitration Act (FAA) preempts states from passing laws to restrict the use of arbitration. The decision came in Kindred Nursing Centers L.P. v. Clark, overturning the Kentucky Supreme Court which held that a general power of attorney does not authorize the holder to enter into arbitration agreements.
The wife and daughter of Joe Wellner and Olive Clark held a power of attorney with broad authority. When Joe and Olive moved to a nursing home operated by Kindred, the holders of the power of attorney completed all necessary paperwork. As part of the process, each signed an arbitration agreement on her relative’s behalf providing claims arising from the relative’s stay at the facility would be resolved through arbitration. After Joe and Olive died, their estates filed wrongful death suits against Kindred. Kindred sought to dismiss the cases arguing that the claims had to be arbitrated. The state courts ruled in favor of the estates and the U.S. Supreme Court reversed and found the FAA prevented the Kentucky state courts from blocking the enforcement of arbitration agreements.
The Court reiterated that an arbitration agreement may be invalidated only on generally accepted contract defenses, such as that the agreement was made under duress, or it lacked consideration. Those defenses, however, may not make it harder to form arbitration agreements than any other contract.
The Supreme Court’s decision was derived from the Court’s landmark ruling in AT&T Mobility LLC v. Concepcion, in which the Court held that the FAA prevents states from interfering with arbitration agreements. Concepcion was decided in a 5-4 decision. The Court has moved to near universal acceptance of the principles stated in Concepcion. The only dissent in Kindred came from Justice Clarence Thomas, who holds a longstanding view that the FAA does not apply to state courts.
The next big decision in this area will come later this year in three Supreme Court cases that will be consolidated. The National Labor Relations Board (NLRB) has ruled that employers who require workers to sign arbitration agreements waiving their right to file class actions as a condition of employment violate workers’ collective action rights under the National Labor Relations Act (NLRA), (known as the D.R. Horton rule). This conflicts with the FAA, which holds arbitration agreements valid unless the contract underlying them is illegal. There is a split between the circuits over the viability of the NLRB’s stance. The Seventh and Ninth Circuits have found the NLRA’s guarantee of worker’s right to engage in concerted activity supersedes the FAA, rendering an agreement to arbitrate which impedes on such rights unenforceable. The Fifth Circuit has said the NLRA does not override the dictates of the FAA.
The interaction between the FAA, a federal law, and state law – Kindred – will not necessarily indicate how the Court will decide the interaction of the FAA and the NLRA, both federal laws.
In the meantime, the Court’s decision in Kindred is considered a victory for employers.
Diana Uhimov, May 15, 2017
On May 15, 2017, New York City’s “Freelance Isn’t Free Act” (FIFA), N.Y.C. Administrative Code §§ 20-927 et seq., went into effect, impacting companies that hire independent contractors in New York City (NYC). This is the country’s first law shielding freelancers from nonpayment and it is likely that similar laws will be passed in other states given trends in the workforce toward the “gig economy”. FIFA aims to protect freelancers from non-payment and employer retaliation for exercising their new rights.
FIFA defines a freelancer as “any natural person or any organization composed of no more than one natural person, whether or not incorporated or employing a trade name, that is hired or retained as an independent contractor by a hiring party to provide services in exchange for compensation,” excluding certain sales representatives, legal practitioners and medical professionals. The law mandates that that employers enter into a written contract with all independent contractors retained to provide services valued at $800 or more.
The contract must set forth the services to be provided, the compensation to be paid, and the date that payment is due or the conditions that determine that date, such as completion of the task. Furthermore, the director of the newly-created Office of Labor Policy & Standards (OLPS) with the Department of Consumer Affairs (DCA) is empowered to issue regulations requiring additional contract terms. The director is also required to make sample contracts available for companies and the general public. Actions for violation of the contract requirement can be brought by freelancer plaintiffs within two years of a violation of this provision. If a plaintiff succeeds in proving this claim, they would receive statutory damages of $250 as well as reasonable attorneys’ fees and costs.
Under the act, the compensation provided for in the written contract must be paid either on or before the date set therein, or if not provided, no later than 30 days after the completion of the freelancer’s services under the contract. FIFA further states that, once a freelancer has commenced performance of the bargained-for services, the hiring party cannot require that the freelancer accept less compensation than the contract provides as a condition of timely payment. Freelancer plaintiffs can bring a civil action for unlawful payment practices within six years of a violation of this provision. A prevailing plaintiff could be entitled to double damages as well as reasonable attorneys’ fees and costs.
The anti-retaliation provision prohibits NYC businesses from denying a work opportunity to, discriminating against, or taking any action that penalizes a freelancer, or deters them from exercising any right secured by the act. Freelancers who allege a violation of this provision can commence a civil action within six years. If they succeed in proving their claim, freelancer plaintiffs are entitled to reasonable attorneys’ fees and costs, as well as statutory damages in the amount of the underlying contract.
There is also a procedure that allows freelancers to file complaints with the OLPS within two years of an alleged FIFA violation. The director will subsequently draft a certified letter to the employer within twenty days, explaining how the freelancer’s contract was allegedly breached. If a hiring party fails to respond to the complaint and the freelancer brings a civil action, there will be a rebuttable presumption that the hiring party committed the violations alleged in the complaint.
In addition to the private remedies imposed by the law, the city may commence a civil action where there is reasonable cause to believe that a hiring party is engaged in a pattern or practice of violations of the act. This type of action can result in the imposition of civil penalties of up to $25,000, paid into the general fund of the city.
NYC employers should familiarize themselves with the increased obligations and risks now associated with hiring independent contractors in NYC under the law. Although the director will provide model contracts as a resource for businesses, they will likely require additional language to mitigate liability and clarify undefined terms such as “completion” of services. Moreover, the act does not address the business’s recourse if the freelancer only partially performs, or if the performance is defective. Companies may also want to supplement the contract to ensure that settlement of disputes regarding performance, or a modification of a contract, is not precluded.