Allyn & Fortuna LLP
Paula Lopez, November 22, 2016.
On November 16, 2016, Mayor Bill de Blasio signed into law the “Freelance Isn’t Free Act,” which amends Title 10 of the N.Y.C. Administrative Code to provide certain protection to freelance workers. In passing this law, New York City is the first city in the country to enact legislation that affords protections to freelance workers. Proponents of the law note that independent contractors and freelance workers make up the fastest growing sector of the workforce and should have protections that ensure full and timely payment for their work. While the law does not afford freelancers the full scope of protection that an employee would enjoy, it does establish enhanced protections for freelancers such as the right to a written contract under certain circumstances, the right to be paid timely and in full, and the right to be free from retaliation.
The Freelance Isn’t Free Act defines “freelance worker” as “any natural person or any organization composed of not 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.” Excluded from the definition are “sales representatives” as defined under Labor Law 191-a, attorneys, and doctors. The Act defines “hiring party” as “any person who retains a freelance worker to provide services” and excludes from the definition of “hiring party” the federal, state and city government.
The following protections are afforded to freelance workers under Act:
1. Under Section 20-928, a written contract is required whenever the value of the contract between the hiring party and freelancer is $800 or more, either by itself, or when aggregated with all contracts entered into by the same parties within the preceding 120 days. The contract must include the following information:
- The name and mailing address of both parties;
- All services to be provided by the freelance worker, the value of the services, and the rate and method of compensation; and
- The date of payment under the contract or the means for determining such date.
The director of the New York City Office of Labor Standards may implement additional rules regarding the required contract terms.
2. Under Section 20-929, the hiring party must pay the freelance worker on or before the date due under the contract or, if the contract does not specify a date certain, no later than 30 days after completion of the services under the contract. After the freelance worker has commenced performance of the contract, the hiring party is prohibited from requiring as a condition of timely payment that the freelance worker accept less compensation than originally contracted for.
3. Under Section 20-930, a hiring party is prohibited from retaliating against a freelance worker for exercising or attempting to exercise any right afforded under the Act or from obtaining future work opportunities.
A freelance worker aggrieved by a violation of the law must elect to either file a private cause of action against the hiring party or an administrative complaint with the New York City Office of Labor Standards. A freelance worker who prevails in his claim can recover the contract amount of compensation, double the amount of proven damages, reasonable attorney’s fees and costs, injunctive relief, and certain enumerated statutory damages based on the type of claim alleged.
The Freelance Isn’t Free Act also permits the City to commence a civil action against a hiring party engaged in a “pattern or practice of violations” of the new law and recover a civil penalty of up to $25,000.00, payable into the general fund of the city.
The law will take effect on May 15, 2017 and will apply only to contracts entered into after such date. The Act provides that any contract provision waiving the rights afforded under the Freelance Isn’t Free Act is void against public policy. Therefore, New York City employers that rely on freelance workers should ensure that their policies and procedures comply with the requirements under the Act before its effective date.
By: Megan J. Muoio, October 31, 2016
On October 25, 2016, the White House issued a “call to action” to states regarding non-compete agreements. The call to action was the result of the White House’s May 2016 analysis of the usage, potential issues, and state responses to the implementation of non-compete agreements by private employers, which was based on a report from the United States Treasury Office of Economic Policy regarding the economic impact of the use of non-compete agreements on the labor market and the U.S. economy in general. The White House concluded that, although non-competes can protect trade secrets and can be used to spur employers to invest in specialized employee training, they are often overused and an unjustified restriction on worker mobility.
Fewer than half of workers who have non-competes report possessing trade secrets, and many workers who have non-competes work in fields in which they are not in possession of trade secrets or specialized training, such as personal services. Many employers are requiring entry-level or lower wage workers to sign non-competes in an attempt to limit employees’ job mobility and hamper competition in the labor market. Employers predominately ask employees to sign non-compete agreements only after the employee has accepted a job offer and offer no additional consideration. Employees often sign these agreements without understanding their implications or assessing their enforceability. Moreover, the overuse of non-compete agreements can create unintended consequences. For example, workers who have been laid off may be prohibited from finding employment in their field due to a non-compete agreement. The White House highlighted individual state legislative efforts to curtail the use of non-compete agreements and called on all states to enact legislation to restrict the unnecessary use of non-compete agreements.
New York Attorney General Eric T. Schneiderman has proposed legislation limiting the use of non-compete agreements by New York employers. The Attorney General’s office has been active in this area, entering into three settlements with employers in 2016 who had required that their employees enter into overbroad or unnecessary non-compete agreements. The most recent of those settlements was against Law360, a legal news website that used non-compete agreements to restrict the employment options of nearly all employees, including entry-level news assistants. The use of non-competes was so pervasive at Law360 that an entry level news assistant lost a job offer from another new organization when the new employer learned of the agreement. Another recent settlement involved workers at counter-service sandwich shop Jimmy Johns, who were required to sign a non-compete that prevented them from seeking or taking employment with a competing sandwich shop located within three miles for two years after employment. This restriction prevented cashiers and sandwich-makers at the chain from finding any other similar employment in New York City, despite the fact that they had no trade secret or confidential job information. The New York Attorney General was able to obtain agreements from both employers in these circumstances to stop using non-compete agreements.
Schneiderman announced that he would pursue legislation to restrict non-competes in New York in 2017. The proposed legislation would:
- Prohibit the use of non-competes for any employee below the salary threshold set by Labor Law Section 190(7), which is currently $900 per week;
- Prohibit non-competes that are broader than needed to protect the employer’s trade secrets or confidential information;
- Require non-competes to be provided to employees before a job offer is extended;
- Require employers to pay employees additional consideration if they sign non-competes;
- Limits the time duration for non-competes; and,
- Creates a private right of action with liquidated damages for violations.
The proposed legislation has support among New York State Senators Diana J. Savino and Andrew Lanza and Assemblymembers Jeffrey Dinowitz and Pilliop G. Stack. Employers should limit their use of non-compete agreements to specific circumstances – when employees are exposed to valuable trade secret information or are working in areas that are unique to the business. Employers who rely on non-competes should review those agreements with an eye to their enforceability and should review them in light of this proposed legislation.
Nicholas Fortuna, October 14, 2016
In Smiley v. EI DuPont, decided on October 7, 2016, the Third Circuit ruled that DuPont’s policy of paying employees for meal breaks cannot be used to satisfy its obligation to pay for overtime under the Federal Labor Standards Act (FLSA). The unanimous three judge panel sent the case back to the lower court for further proceedings.
Prior to the appeal, the District Court had found DuPont’s argument persuasive that its voluntary payment for thirty minute breaks could be used to offset overtime liability and dismissed the plaintiffs’ action. The Third circuit reversed and remanded the District Court’s grant of summary judgment in favor of DuPont.
The plaintiffs, Bobbi-Jo Smiley, Amber Blow, and Kelsey Turner filed a putative collective action and class action against DuPont seeking overtime compensation for time spent donning and doffing before and after their shifts. One hundred sixty workers opted into the class action.
The plaintiffs worked twelve-hour shifts at a DuPont Manufacturing plant in Towanda, Pennsylvania. Employees were required to be onsite before and after their shifts to put on and take off uniforms and protective gear. The employees were also required to participate in “shift relief” which involved sharing of information and status updates before and after shifts. The extra time spent totaled between thirty and sixty minutes a day.
Although DuPont chose to compensate Plaintiffs for meal breaks, the FLSA has no such requirement. The company policy is to give employees who worked four twelve-hour shift schedules a thirty-minute paid lunch break and two non-consecutive thirty minute breaks. The paid break-time always exceeded the amount of time plaintiffs spent donning and doffing and providing shift relief. The compensation for the breaks was included as part of the employees’ regular rate of pay and the total hours worked each week.
For the Third Circuit, the fact that the break-time compensation was part of the employees’ regular rate of pay was a determining factor under the FLSA. The Court looked to the circumstances as to when an employer may use certain compensation already given as a credit against overtime owed to the employee under the FLSA. The Act explicitly permits offsetting against overtime in three categories of compensation: (1) compensation given by a premium rate because an employee worked in excess of an eight-hour day; (2) premium compensation paid for work done on weekends and holidays; (3) premium payments made pursuant to a contract, such as a collective bargaining agreement. The premium had to be at least one and a half times the employee’s regular rate of pay.
The Court found that nothing in the FLSA authorizes the type of offsetting DuPont advocated in this instance. Since payment for breaks was part of the employees’ regular rate of pay and did not fall into one of the statutory exemptions, it could not be used to offset overtime owed. The Third Circuit further stated that the District Court erred in finding that since there was no prohibition in the Act for the type of offsetting DuPont sought to do, it would be permitted.
It is interesting to note that the Third Circuit did not consider it relevant that break-time payments were voluntary on the part of DuPont and could be stopped at any time. The Court reasoned that once a decision was made to pay for non-work time as part of the employees’ regular pay, it could not be used toward overtime credit, despite that the payment for breaks was not required.
Paula Lopez, September 29, 2016.
On September 25, 2016, California Governor, Jerry Brown, signed into law legislation that voids contract provisions in any agreement entered into between an employer and a California resident that requires, as a condition of employment, that an employee agree to have disputes adjudicated (includes litigation and arbitration) outside of California and under the laws of another state.
The law, known as Senate Bill 1241[1], will apply to contracts entered into, modified or extended on or after January 1, 2017. Key provisions of the law prohibit employers from requiring employees who primarily work and reside in California, to adjudicate a claim that arose in California outside of California and to deprive the employee of the protection of California’s laws, which are often viewed as favorable to employees. Under the new law, any contract provision in violation of the law is voidable, at the employee’s request, and the dispute will be adjudicated in California and under California law.
An employee who challenges a contract provision under S.B. 1241 is entitled to recover injunctive relief and reasonable attorney’s fees. However, the law does not apply to employment contracts containing venue, forum selection and choice of law provisions, where the employee was represented by counsel in negotiating the terms of the agreement. The proponents of the law tout its effect in preventing national companies doing business in California from circumventing California’s robust labor laws.
It is not surprising for California to enact this new law as the trend in California’s courts has been to invalidate forum and choice of law provisions that restrict employees from pursuing unwaivable California employment law rights, like wage and hour violations. Last year, in Verdugo v. Alliantgroup L.P., a wage and hour class action filed by an employee in California against a Texas employer, the California appellate court refused to enforce forum selection and choice of law contract provisions invoking Texas court and law. In asserting the forum selection clause and seeking to stay the action, the employer had the burden of showing that the provisions did not diminish the plaintiff’s “unwaivable Labor Code rights.” The court suggested that Alliantgroup L.P. stipulate to have the Texas court apply California law but the employer refused to do so, arguing that Texas would likely apply California law. The appellate court determined this to be an insufficient protection of the employee’s substantive rights afforded by California law, refused to enforce the contract provisions and allowed the action to proceed in California.
Also in California, class waivers in arbitration agreements between employers and employees have come under attack. Last month, the Ninth Circuit, having appellate jurisdiction over Federal District Courts in California and 12 other states, ruled in Morris v. Ernst & Young LLP that class action waivers in arbitration agreements are invalid because they violate Sections 7 and 8 of the National Labor Relations Act (NLRA). The court found that the rights afforded under the NLRA—right for employees to engage in concerted activity in pursuing work-related claims is a federal substantive right and the Federal Arbitration Act, while favoring arbitration, does not mandate the enforcement of contract terms that waive substantive federal rights. The Ninth Circuit’s ruling conflicts with rulings from a number of circuits courts holding that class action and collective action waivers in employment agreements are valid. Ernest & Young has requested the U.S. Supreme Court to review the Ninth Circuit’s ruling.
The enactment of S.B. 1241 is merely a continuation of the protective trend in California in favor of employees and to ensure that California law takes precedence over the laws of other states even if it curtails parties’ freedom of contract. This can end up being a significant burden on large corporations with multiple offices and headquarters outside of California who include choice of law and venue and forum selection clauses to streamline the litigation process within their home state. Companies with a workforce in California, regardless of where their headquarters are based, should review their employment agreements to ensure compliance with the law.
[1] To be codified as Section 925 of the California Labor Code.Nicholas Fortuna, August 25, 2016
On Tuesday the Ninth Circuit Court of Appeals held in Morris v. Ernst & Young LLP that the “concerted action waiver” in Ernst & Young’s employment agreements requiring that employees pursue legal claims as individuals in separate arbitration proceedings violates sections 7 and 8 of the National Labor Relations Act (NLRA). The decision is important because it adds to the conflict between appeals courts that have ruled on this issue. The Ninth Circuit is the largest, covering nine western states. As a result, this increases the likelihood the Supreme Court will weigh in and resolve the split between the courts and determine the validity of class and collective action waivers in employment agreements.
The Ninth Circuit said that an agreement precluding employees from bringing, in any forum, a concerted legal claim regarding wages, hours, and terms and conditions of employment violates the NLRA. The court stated that it is well-established that employees have the right to pursue work-related legal claims together and the right to act together is an essential, substantive right set forth by the NLRA. By defining the issue broadly, the Ninth Circuit applied this rule to virtually all employment agreements in its jurisdiction.
The brewing dispute over whether employers can require employees to waive concerted action in filing legal claims has been between the NLRB’s interpretation of employees’ rights under the NLRA and the courts’ interpretation of the Federal Arbitration Act (FAA) requiring enforcement of agreements to resolve legal disputes by arbitration. The NLRB holds that employees’ right to “engage in concerted activity” cannot be waived. Some courts have found that the FAA permits employees to waive “concerted activity” with respect to legal claims in arbitration. Those courts reasoned that the FAA requires courts to enforce arbitration agreements by its terms even if it includes class and collective legal action waivers.
The Ninth Circuit disagreed. Importantly, the court found that the Federal Arbitration Act (FAA) does not require a court to enforce waivers of concerted activity. The requirement of “separate proceedings” in this case appears in the agreement that directs employment-related disputes to arbitration. The obstacle, according to the court, is not that claims must be arbitrated, but that they must be done separately. NLRA does not ban arbitration.
The FAA requires courts to “place arbitration contracts on equal footing with all other contracts.” As a result of the savings clause in the FAA, not all contract terms are entitled to enforcement. Arbitration agreements may be invalidated under recognized contract defenses, such as fraud, duress, or unconscionability.
The Ninth Circuit asserted that the problem with the contract at issue is not that it requires arbitration; it is that the contract term defeats a substantive federal right to pursue work-related legal claims in concert. The court stated that if an “illegal provision not targeting arbitration is found in an arbitration agreement, the FAA treats the contract like any other; the FAA recognizes a general contract defense of illegality. The term may be excised, or the district court may decline enforcement of the contract altogether.” Therefore, portions of the contract may be severed if it’s not crucial to the parties’ agreement.
The court found that the FAA does not mandate the enforcement of contract terms that waive substantive federal rights. Concerted activity in employment is considered a substantive right. The court stated It would be illegal to require an employee to waive it and the FAA does not require such a waiver to be enforced.
The NLRB has been unyieldingly attacking class and collective action waivers in employment agreements to preserve an employee’s right to “concerted activity” under the NLRA. The Ninth Circuit adopted the NLRB’s approach to the issue in Ernst & Young.
This sets up a showdown for Supreme Court Review. A number of circuits have rejected the NLRB’s position and held that class action and collective action waivers in employment agreements were valid, notably the Second, Eleventh and Fifth Circuits. There are reportedly 28 cases pending in the appellate courts on this issue. Observers believe the time is right for the Supreme Court to take it up.