The Bloomberg Editorial Board recently published an article entitled “Too Many Workers Are Trapped By Non-Competes” arguing that the practice of requiring relatively low-wage and/or unskilled workers to sign non-compete agreements is a drag on the economy and is contributing to wage stagnation. The article contends that restricting unspecialized workers’ ability to freely change jobs hinders competition in the marketplace and decreases worker bargaining power.

An economist could best say whether the article’s assessment of the effects of non-compete agreements on low-wage workers and the U.S. economy more generally is accurate. But as a lawyer who frequently deals with non-compete agreements it is easy to highlight some risks for companies who use non-compete agreements with unspecialized workers en masse.

The first problem is that some state attorneys general have recently come after employers using this practice. Take for example a nation-wide sandwich chain that required its hourly employees to sign an agreement which prohibited workers during their employment and for two years after from working at any other business that sold “submarine, hero-type, deli-style, pita, and/or wrapped or rolled sandwiches” within two miles of any the chains locations in the United States. The New York Attorney General opened an investigation into the company and the Illinois Attorney General filed a lawsuit against it alleging violations of state law. The company settled both matters by, among other things, agreeing to stop requiring workers to sign such agreements (at least in those two states).

Another example of reportedly ubiquitous use of similar agreements attracting litigation is popular west-coast fast-food chain which was sued for allegedly requiring many of its workers to sign agreements containing strict anti-poaching provisions. They were effectively prevented from going to work at other fast-food restaurants – which is normally quite common for this group of employees.  These kinds of requirements on lower-level workers has attracted very public enforcement actions, and likely will continue to do so.

Another problem is that some states now (and more may soon) have legislation prohibiting the use of non-compete agreements for low-wage and/or relatively unskilled workers. For example, the Illinois Freedom to Work Act prohibits applying “covenants not to compete” agreements on anyone earning less than the greater of: (1) the hourly rate equal to the minimum wage required by the applicable federal, state, or local minimum wage law, or (2) $13.00 per hour. Other states, such as California, Oklahoma, and North Dakota, generally prohibit nearly all non-compete agreements no matter the employee’s position or pay rate. Several other jurisdictions have also recently considered legislation that would restrict the use of non-compete agreements, including states like Pennsylvania, New Hampshire, Vermont, Washington, and cities like New York.

An additional issue with using non-competes with low-skill or low-wage workers is that they may not be enforceable as written or may cost more to enforce than they are worth. These agreements can be tricky to write correctly from state to state, and the costs associated with enforcing a non-compete agreement will most likely be in the tens of thousands of dollars in even the best-case scenario – and often even greater. The filings and hearings required take a considerable amount of time to complete even for lawyers experienced in handling these types of cases, not to mention the distraction to company officials required to prove the claim.

This leads some companies to think, “Well, I can just have the employees sign a non-compete agreement and let the mere looming threat of the company possibly enforcing the agreement discourage them from violating it.” But issues with that approach are obvious, including that once the word gets out, the threat disappears.  Plus, sometimes an employee will sue the company to invalidate the agreement. The company must then spend money defending a lawsuit, possibly against an employee that it never even intended to enforce the agreement against, or else the whole thing collapses like a house of cards.

Overall, whether a company should use non-compete agreements with particular employees or various levels of its organization is a business decision that needs to take several factors into consideration.  But a one-size-fits-all approach is rarely going to be the best strategy.

With the continued rise of the #MeToo movement, New York has taken the reins as one of the leaders in combating sexual harassment in the workplace.  All employers who have employees located in New York state must now provide sexual harassment training to all employees at least once a year.  New York joins California, Connecticut, Delaware, and Maine as states requiring sexual harassment training.  This requirement applies to employers of all sizes, and employers must train all employees (not just supervisors).

In addition to this new state requirement, New York City has enacted a law called the “Stop Sexual Harassment in NYC Act,” which goes into effect on April 1, 2019.  This law also requires sexual harassment training, but mandates that certain content be addressed.  The new law goes beyond what any previous sexual harassment training laws require by requiring employers to:

  • Address bystander intervention
  • Describe the complaint process available through the City’s Commission on Human Rights, the State Division of Human Rights, and the EEOC
  • Provide the contact information for all three agencies.

Unlike the state law, this in-depth training is only required for employers of 15 or more employees, and the only employees who must be trained are those who work more than 90 hours per calendar year in New York City.  Additionally, the claw requires all new employees who work 80 or more hours per year to be trained within 90 days of hire.  The state law only encourages prompt training.  Also, unlike the state law, the NYC law requires employers to keep records of all sexual harassment training for at least three years, including a signed employee acknowledgment of such training.  Lastly, both the state and city law require the training to be “interactive,” meaning that employees must participate in some manner.  For example, if the training is web-based, then there must be a quiz at the end the employee must pass.

At this time, only New York State has created a model training document.  New York City is still developing its model training but has made it clear that this will be a bare minimum threshold.  In practical terms, employers are much better off hiring experts to develop a comprehensive training that will safely satisfy both state and city law.

Lastly, New York State has updated a few other laws related to sexual harassment.  First, the State now prohibits the inclusion of non-disclosure agreements (“NDAs”) in the settlement of sexual harassment claims, unless the alleged victim prefers one.  If the alleged victim asks to have an NDA, then he or she has 21 days to consider the NDA and seven days to revoke it after it is signed.  New York State now also prohibits requiring employees to arbitrate sexual harassment claims.  (It is, however, unclear whether this prohibition is invalid due to the Federal Arbitration Act.)  The State has also expanded coverage of protection from sexual harassment to include non-employees like contractors, subcontractors, vendors, or consultants.  Finally, New York State now requires employers to post employee anti-sexual harassment rights and responsibilities in English and Spanish, and provide, at the time of hire, a sexual harassment fact sheet to all new employees.

We anticipate that more and more states and localities will follow New York’s lead in taking efforts to prevent sexual harassment in the workplace.  Our Labor and Employment team can help your business both adapt to the new laws and get ahead of the curve to prevent the need for changes to your sexual harassment training and policy in the future, preventing fire drills when new laws are enacted, and further reducing the risk of litigation and disruptive harassment claims.

The National Labor Relations Board is signaling yet another change to the joint employer test in its recent issuance of a new proposed rule.  The Board has waffled back and forth on this important issue recently, creating a lot of uncertainty for employers.  Here’s an explanation of what has been going on and what is likely to come.

Remind Me: What’s Been Going On?

Many of you will remember the Board’s 2015 decision in Browning-Ferris Industries.  That decision rocked the labor world because it held that two or more companies are joint employers of the same employees if they “share or co-determine those matters governing the essential terms and conditions of employment.”  Our earlier coverage of that decision is here.

That new standard was a significant departure from the Board’s earlier, well-established precedent which held that a company must exert direct and immediate control over hiring, firing, discipline, supervision, and direction to be a joint employer.  Under Browning-Ferris, indirect control or a reserved—even if unexercised—right to control was sufficient.  The Board also expanded the “essential terms” to include scheduling, seniority, overtime, assigning work, and determining the manner and method of work performance.

Employers and management-side labor lawyers were obviously not happy with the Browning-Ferris decision, while employee and union-side folks were pleased.  Luckily, however, the decision had a relatively short (initial) lifespan.

The Board overturned Browning-Ferris in December 2017 in its Hy-Brand Contractors Ltd. decision.  That case adopted a test more closely resembling the pre-Browning-Ferris joint employer test, requiring proof that:  (1) a putative joint employer actually exercised control rather than merely had a (an unexercised) right to do so; (2) the control is direct and immediate (as opposed to indirect); and (3) the joint employer will not result from “limited and routine” control.

It looked like we’d gone back to the old standard and would have some stability on this issue.  But then some drama emerged at the Board.

Just a couple of months after the Hy-brand opinion’s publication, the Board’s Inspector General reported that new Board member William Emanuel should not have participated in the Hy-Brand decision because his former law firm represented one of the two alleged joint employers in the Browning-Ferris case.  Based on the report, the other four members of the Board then unanimously vacated Hy-Brand, effectively reinstating the Browning-Ferris standard.

And now there’s a new development.

What’s Happening Now?

On September 13, 2018, the Board released a draft rule to re-define the joint employer test.  Under the proposed rule, a company would only be considered a joint employer if it:  “possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment and has done so in a manner that is not limited and routine.”  Further, “[i]ndirect influence and contractual reservations of authority” will not establish a joint employer relationship under the proposed new rule.

The proposed new rule requires a 60-day public comment period. The Board will then consider the public comments prior to publishing a final version of the rule, which we probably won’t see until early- to mid-2019.

So, to recap (and to make sure we’re all on the same page): Browning-Ferris’s broad test is still in place for joint employer liability under current Board law.  It will remain that way – until it is either reversed (again) by another decision or a final rule is published by the Board setting a new standard.  Employers, therefore, need to continue to use caution when evaluating the extent to which their contractual relationships or actions might be interpreted as giving them indirect control over another company’s employees.  And, of course, keep paying attention here for the latest updates!

On September 7, 2018, the U.S. Department of Labor’s Bureau of Labor Statistics announced the most recent employment numbers for the United States.  As of August, total payroll employment had increased by 201,000, and the unemployment rate remained at 3.9%.  The positive trend has also impacted an often-overlooked category of potential employees:  disabled adults of prime working age.

Employment for this group has been steadily rising in recent years.  For example, the Bureau of Labor Statistics reported on June 21 of this year that 18.7 % of disabled adults of prime working age (25-54) were employed in 2017 (compared with 65.7% of those without a disability).  The news overall was good; the employment-population ratios for both persons with and without disabilities had increased from 2016 to 2017.

Highlights from the 2017 data included:

  • Nearly half of all persons with a disability were age 65 and over, three times larger than the share of those with no disability.
  • Across all age groups, the ratio of persons employed continued to be much lower for persons with a disability than for those with no disability.
  • In 2017, 32 percent of workers with a disability were employed part-time, compared with 17 percent for those with no disability.

Other reports have noted that people with disabilities tend to be employed at higher rates in regions with tighter labor markets where a larger share of the overall working-age population is employed and tend to have higher employment rates as their educational levels increase.

Although there is still plenty of room to improve, this increase in employment of disabled adults is part of a growing trend.  As one economist wrote recently, after many years (including during the 2001 and 2008 recessions) of relatively rapid increase in the number of Americans citing disability as a reason not to work, this number has begun to steadily fall for the past four years.  And, the news is good for the market as a whole; some economists have opined that the labor market’s ability to show this type of change and growth indicates that there is still room for employment numbers to continue to improve even further for everyone.  If that’s true, and the market continues to grow, it appears likely that more working-age adults with disabilities will seek employment, increasing the pool of applicants available to employers across the country.  Prudent employers should pay attention and take advantage of the increased opportunity to widen and diversify their workforce.  While there can be challenges in hiring workers with disabilities, many employers report that disabled workers are among their most loyal and hardworking, and have a much lower rate of turnover than non-disabled employees.  In a tight labor market, those factors have real value.

Since the federal government vowed to take strong measures against employers and unauthorized foreign workers under the “Buy American Hire American” (BAHA) Executive Order, we have seen an increase in the number of worksite enforcement visits and arrests.  U.S. Immigration and Customs Enforcement (ICE) has increased its workforce by four to five times, and as a result, there has been a dramatic increase in the number of worksite enforcement visits.  A review of this increase has also made it more difficult to predict which employer(s) might be targeted.

Here are some of the key worksite visits by ICE from the first nine months of 2018:

  • Last month ICE arrested 364 individuals during 30-days of enforcement visits in the midwestern states of Illinois (134), Indiana (52), Kansas (43), Kentucky (60), Missouri (42), and Wisconsin (33).
  • Also, last month ICE conducted a worksite visit at a family-owned business in Texas with 500+ employees and arrested ~160 foreign nationals. In 2014, the employer had paid a $445,000 fine for hiring individuals without proper work authorization.  (This likely put the employer on ICE’s continued radar.)  Remember that if a business has previously been audited by the government and fined, repeat violations can result in higher monetary fines and more serious charges.  So, it is in the business’s interest to implement measures to avoid committing the same types of violations in the future.
  • ICE served search warrants at various businesses in Nebraska and Minnesota resulting in the apprehension of 133 foreign nationals this summer. The businesses included a grocery store, restaurants, a private ranch, and a grain company.  According to ICE, these enforcement actions were part of a 15-month on-going investigation based on evidence that these employers were knowingly employing unauthorized workers.
  • In June 2018, 200 federal officers raided an Ohio gardening and landscaping company, arresting 114 foreign nationals suspected of being in the U.S. without lawful status. ICE also obtained volumes of business records to investigate and determine whether to file charges against the business.  It has been reported that the Department of Homeland Security had been receiving tips about the employer’s unlawful business practices for years, and it began investigating the employer after arresting a woman suspected of operating a document mill.
  • In April 2018, 97 foreign nationals working at a meat processing plant in Tennessee were arrested on federal and state charges. This was a joint operation between the Homeland Security Investigations arm, the Internal Revenue Service, and the Tennessee Highway Patrol.  According to the IRS, the business is under criminal investigation for evading taxes, filing false tax returns, and hiring immigrants without work authorization.  The government opened a case to investigate the business after the employer’s bank noticed large sums of money being withdrawn every week, supposedly to pay the unauthorized workers in cash.  The IRS alleges that the business failed to report $8.4 million in wages and failed to pay at least $2.5 million in payroll taxes.
  • In January 2018, ICE raided nearly one hundred 7-Eleven stores in 17 states and D.C. to issue Notices of Inspection and interview employees. The investigation led to 21 arrests.  ICE stated that this should be a clear message to employers who hire foreign nationals without proper work authorization.  ICE stated this raid was a follow-up enforcement operation on a 2013 raid where nine 7-Eleven owners and managers were charged with various crimes, including conspiring to commit wire fraud, stealing identities, and concealing and harboring undocumented individuals employed at their stores.

As these incidents make clear, employers need to take action now to review and assess their company’s hiring practices and get everything in order.  Even if your company does not routinely hire foreign nationals, you are still subject to immigration laws, most notably the ones relating to keeping proper Form I-9s and using E-Verify (where applicable).  Fixing a problem now, especially with help from immigration counsel, is much smarter – and less expensive – than fixing a problem after an ICE raid or other government enforcement action.

Employers and consumer reporting agencies beware: a change to a commonly used form required by the Fair Credit Reporting Act (“FCRA”) becomes effective on September 21, 2018, and the price of non-compliance could be class action lawsuits.

On September 21, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act’s changes to the FCRA Summary of Rights form will take effect. The Act requires new language to be added to the form explaining a consumer’s right to obtain a security freeze.

Read more at Troutman.com

Employers are well aware of the requirement to post various notices from the EEOC, DOL, and other acronym-bearing state and federal agencies.  Unfortunately, many employers have a “post it and forget it” mentality and fail to regularly update those posters and required notices.

These agencies, however, are often issuing updated required postings and employers who fail to heed those requirements can be assessed fines and potentially face criminal charges.  In California alone, there were 40 mandatory changes in 2017 and more than 30 mandatory changes in the first seven months of 2018, with more on the way.

A few recent noteworthy changes for employers in California and New York City deserve attention:

  • The California Employment Development Department has made a mandatory change to the notice to employees that provides information about unemployment insurance, disability insurance, and paid family leave. The EDD released this new, mandatory posting on July 3, 2018, although the revision date is May 2018.

    California employers should print the updated notice and post it where employee notices are generally posted.  The new notice (EDD 1857A) is available in both English and Spanish and may be downloaded here.

  • Beginning September 6, 2018, the “Stop Sexual Harassment in NYC Act” requires all employers with employees working in New York City to post a formal notice in a conspicuous location on their premises and distribute a fact sheet to newly hired employees. These documents, issued by the New York City Commission on Human Rights, provide information on the Act, as well as on what constitutes sexual harassment, how to report sexual harassment, and where to find additional resources.

The NYC legal notice can be downloaded here.

The NYC fact sheet is available here.

In addition to making these required updates, all employers should develop and maintain a tracking system to regularly check for mandatory updates for both federal and state postings and replace any out of date notices.

Refusing to serve a patron is a hot topic right now, and it is not something any employer should take lightly. When recently asked about this issue by Thomson Reuters, partner Seth Ford and staff attorney Matt Anderson outlined the do’s and don’ts for a refusal of service policy. The main point is that employees themselves should have very little leeway to make such decisions on their own or based on their own opinions, save for extenuating circumstances.

These quotes can be found in Thomson ReutersEmployment Alert dated August 6, 2018 in an article titled, “Stop Trouble Before It Starts With A Refusal Of Service Policy” by Maureen Minehan, found here (used with permission).

A recent ruling by the California Supreme Court could have lasting consequences for timekeeping practices and the payment of wages for hourly employees. In the case of Troester v. Starbucks Corp., the court ruled on July 26, 2018 that Starbucks had to pay the plaintiff for time spent on regular, off-the-clock tasks. The court found that, at least in this particular case, plaintiff’s claims for unpaid wages were not exempt from payment under the FLSA de minimis rule and declined to apply the longstanding federal rule to California wage claims of the type raised by plaintiff. The court, however, did not entirely eliminate the possibility of the de minimis rule applying to state wage claims.

In Troester, the plaintiff routinely had to perform tasks related to closing the store after he had clocked out. These tasks included things like shutting down the computer system and locking the doors. Under the FLSA de minimis rule, infrequent and insignificant periods of work that occur outside work hours and cannot be precisely recorded need not be counted as work time. The court found that the routine, regular nature of the tasks performed by plaintiff was the crux of the issue: because employees are regularly doing these tasks, employees should be compensated for them and Starbucks’ argument that the time was de minimis was not accepted. Indeed, the court said: “The relevant statutes and wage order do not allow employers to require employees to routinely work for minutes off-the-clock without compensation.” (emphasis added).

Because this ruling applies to all hourly workers in California, the implications could be quite broad. Retailers will have to ensure that employees who open and/or close a shop have a consistent way to capture time spent doing the required tasks if those functions would normally not be recorded as hours worked. Employers will then need to go further and evaluate what sort of tasks are regularly expected from their hourly workers when they are off the clock, whether it’s opening/closing activities, bank deliveries, or other functions that may take place outside of work. Employers will need to determine whether these tasks are routine enough to devise a system to capture the time. For example, if an employer expects an hourly employee to routinely respond to emails or texts during off hours, there will need to be a way to capture this time and policies and procedures should be put in place to ensure that happens.

Currently, this ruling is limited to California, whose wage and hour laws do not make mention of a de minimis exception. However, this issue could potentially spread to other states with similarly drafted statutes regarding hours of work. Given the ubiquity of technology, and the increased pressure to stay connected to work via smartphones, VPNs, etc., it would be no surprise to see more and more plaintiffs attempt to use this ruling to work to capture what may have previously been considered de minimis time. Employers should be looking carefully at their policies and procedures for timekeeping and to help protect from any potential legal issues.

Last week, I attended the annual American Immigration Lawyers Association Conference in San Francisco with 3,500+ others from all over the country (and some from outside the U.S.).  The consensus from the conference reiterated that the immigration landscape is shifting rapidly, and employers must adapt to those significant changes.  Here are some of the most notable changes:

Imputing constructive knowledge to employers

The government is conducting more site visits, audits, and raids to go after undocumented workers and employers who hire them.  Sometimes, an employer may not have actual knowledge that an employee does not have proper authorization to work, but the government can argue that the employer had constructive or implied knowledge, defined as “knowledge that one using reasonable care or diligence should have, and which therefore is attributed to it by law.”  A recent record-breaking case offers a notable example.  A landscaping company was fined $95 million in civil and criminal penalties for ongoing employment of unauthorized workers, among other violations.  The company thought it could escape liability if just the lower-level foremen had knowledge that some of their workers had no proper work authorization.  The government did not buy that argument. So, employers who, using reasonable care or diligence, should know that there are employees in their workforce without proper work authorization, will not likely escape liability by explaining that they did not actually know what was going on.

The trickle-down effect of the Buy American, Hire American (BAHA) Executive Order

The BAHA Order has had an all-around, profound impact on the immigration landscape, and employers may see changes in the following areas:

  • Employees in H-1B status. The Immigration Service will no longer give deference to previously approved H-1B petitions, meaning any extensions or amended petitions will be reviewed as brand new, initial filings.  At the same time, the Service has been issuing more Requests for Evidence as well as denials (a huge 17% increase in denials last year).  As a result, instead of routine and rather “simple” extensions of an individual’s H-1B status, employers can expect an uphill battle in obtaining approvals, especially with certain entry-level positions.
  • H-1B employees’ spouses with H-4 work permit cards (EAD’s). The Service will likely get rid of the work permit currently available to certain H-4 spouses.  If you have anyone working with an H-4 EAD, they will soon need to find an alternative source of work authorization (but you cannot terminate them now for that reason!).  The exact timeline on when this will take effect is unclear, but it could be as early as later this year.
  • NAFTA (North American Free Trade Agreement) might be going away. Soon. NAFTA has made it relatively easy for Canadian citizens with qualifying credentials to obtain work authorization in the U.S. in TN status, but based on recent events, this might not be an option much longer for employers.  As with H-4 EAD’s, now might be a good time for employers to consider other ways to keep current TN employees, especially for prospective employees you might want to keep long-term.
  • Increasing pushback on Employers who have H-1B employees at end-user client sites. The Immigration Service has released a policy memo creating more hurdles to jump through to obtain an H-1B approval for an employee who will be stationed at a third-party site.  Moreover, the validity period of your H-1B employee will be limited to the end date of an existing Statement of Work or other similar agreement you will need to submit with the petition.  Whereas the Service used to approve such extensions for up to 3 years (presuming the employee had 3 years or more left on their H-1B status), the Service is no longer being that generous.  So, an employer may be required to file extensions more frequently (meaning more legal and filing fees).  Obtaining a SOW for a three-year period between you and the end-user client would be the surest way to obtain the maximum possible period on these extension filings.
  • Increasing H-1B denials on various job occupation codes. Various computer-related occupation codes have been met with extreme skepticism by the Service, requiring more proof than ever before that the position offered to the foreign national employee is indeed a specialty occupation level position requiring a minimum of a bachelor’s degree.  Computer Systems Analyst, Computer Programmer, as well as Software Developer codes have been hardest hit.  Pushback on business-related codes are also on the rise, and the Market Research Analyst code continues to be met with resistance by the Service.

Questions about any of the above changes or others on the horizon?  Contact immigration counsel right away.  These changes are very real and already very much affecting employers.