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.

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!

We wrote recently about the Trump Administration’s efforts to roll back the Obama-era NLRB’s workplace handbook and rule restrictions. It’s time to update you further on where that effort stands.

As a reminder, the Obama NLRB held in December 2017 in The Boeing Company case that facially-neutral employment policies and rules will now be classified into one of three categories:

  • Category 1 includes policies that are legal in all cases since they can’t reasonably be interpreted as interfering with workers’ rights or because any interference is outweighed by business interests.
  • Category 2 includes policies that are legal in some cases, depending on their application.
  • Category 3 includes policies which are generally always unlawful.

The fact that legitimate business justifications associated with workplace rules would be given more weight when being evaluated by the NLRB was positive news for employers. What was still to be seen was how these categories would be applied to real cases.

A decision issued by an Administrative Law Judge last month gives us more insight on how the Board will apply these categories going forward. The case is Lowe’s Home Centers, LLC, Case No. 19-CA-191665 (NLRB 2018). The case involved a challenge to a provision of the company’s Code of Business Conduct and Ethics which included a section on “Confidential Information,” that stated:

Employees must maintain the confidentiality of information entrusted to them by Lowe’s or its suppliers or customers, except when disclosure is authorized by Lowe’s General Counsel and Chief Compliance Officer or disclosure is required by law, applicable governmental regulations or legal proceedings. Whenever feasible, Employees should consult with the company’s General Counsel and Chief Compliance Officer before disclosing confidential information if they believe they have a legal obligation to do so. Confidential information includes all non-public information that might be of use to competitors of the company, or harmful to Lowe’s, its suppliers or customers, if disclosed. It includes all proprietary information relating to Lowe’s business such as customer, budget, financial, credit, marketing, pricing, supply cost, personnel, medical records and salary information.

The provision’s reference to “salary information,” caused the challenge, but the company argued that its rule did not prevent employees from discussing salary information with each other (which is protected by Section 7 of the National Labor Relations Act), but referred instead to situations involving a person entrusted with non-public information relating to the company, and also that its business justifications for the rule outweighed employees’ Section 7 rights.

The ALJ did not look favorably on this Code provision or the company’s arguments. Her ruling held that the “provision may be read to preclude employees from discussing their salary information with one another, as well as non-employees such as union representatives and Board agents, which the Board has found to infringe on employees’ Section 7 rights to discuss terms and conditions of their employment with others.” Further, the ALJ emphasized that “[e]mployee discussions regarding wages, the core of Section 7 rights, are ‘the grist on which concerted activity feeds,’” and that “the Board has consistently held that rules or provisions which prohibit employees from discussing wages are unlawful.”

The ALJ explained that rules prohibiting employees from discussing salary information are per se unlawful (falling in Category 3), obviating the need to even conduct a balancing test (as would relevant with Category 1 or 2). Even if a balancing test were used, the ALJ found that the adverse impact on the employees’ Section 7 rights outweighed the company’s asserted business justifications. So, the company was ordered to rescind the unlawful policy and to notify employees of the change.

The lesson for employers here is that existing policies need to be carefully reviewed and new policies scrutinized even considering the Board’s current, more employer-friendly analysis. This case shows us that something as seemingly innocuous as the definitions section of an employee policy can still cause an employer significant problems.

For the past several years, folks in the HR space have had to pay special attention to the language in their handbooks and employment policies out of fear of violating rules established by a series of decisions from the National Labor Relations Board (NLRB). Those decisions established a tough standard for evaluating facially neutral employment policies that complied with their interpretations of labor law. Combined with an aggressive NLRB enforcement strategy, employers have understandably been on edge with respect to their workplace rules and policies.

Under that standard, the NLRB found that employers violated the National Labor Relations Act (NLRA) by maintaining workplace rules that did not explicitly prohibit protected activities, were not adopted in response to such activities, and were not applied to restrict such activities, if the rules would be “reasonably construed” by an employee to prohibit the exercise of his or her NLRA right to engage in “protected, concerted activity.”

On December 14, 2017, however, the NLRB replaced that standard with a new one. In The Boeing Company, 365 NLRB No. 154 (2017), the NLRB established a new test for workplace rules and policies:  when evaluating a facially neutral policy, rule or handbook provision that, when reasonably interpreted, would potentially interfere with the exercise of NLRA rights, the NLRB will evaluate two things: (i) the nature and extent of the potential impact on NLRA rights, and (ii) legitimate justifications associated with the rule.

This standard is much more favorable to employers. Many policies which would have violated the previous standard will now be considered appropriate and lawful.

Additionally, the NLRB also announced three categories of rules will be delineated to provide greater clarity and certainty to employees, employers, and unions:

  • Category 1: This will include rules that the NLRB designates as lawful to maintain, either because (i) the rule, when reasonably interpreted, does not prohibit or interfere with the exercise of NLRA rights; or (ii) the potential adverse impact on protected rights is outweighed by justifications associated with the rule. (An example of a Category 1 rules is the no-camera requirement maintained by Boeing in the case.)
  • Category 2: This will include rules that warrant individualized scrutiny in each case as to whether the rule would prohibit or interfere with NLRA rights, and if so, whether any adverse impact on NLRA-protected conduct is outweighed by legitimate justifications.
  • Category 3: This will include rules that the NLRB will designate as unlawful to maintain because they would prohibit or limit NLRA-protected conduct, and the adverse impact on NLRA rights is not outweighed by justifications associated with the rule.

In the Boeing case, the NLRB concluded that Boeing lawfully maintained a no-camera rule that prohibited employees from using camera-enabled devices to capture images or video without a valid business need and an approved camera permit.  The NLRB explained that the rule potentially affected the exercise of NLRA rights, but that the impact was comparatively slight and outweighed by important justifications, including national security concerns.

Overall, while employer policies and rules must still be evaluated to ensure compliance with the NLRA, such policies and rules will now be judged under much less stringent standards than they have been for the past several years, which is very good news indeed for employers.

Reversing itself, the Second Circuit held on Monday, February 26, that sexual orientation discrimination is discrimination “because of . . . sex” under Title VII in Zarda v. Altitude Express. The Second Circuit’s decision aligns it with the Seventh Circuit and places it squarely at odds with the Eleventh Circuit.

Continue Reading at Above The Law

Part I of this post offered predictions related to DOL Opinion Letters and a likely rule increasing the minimum exempt salary level under the FLSA.  This Part II offers three more predictions involving legal issues quite different from wage and hour concerns.

Prediction 3: Continuing and Increasing Focus on Harassment in the Workplace.

2017’s #MeToo movement empowered and emboldened individuals to bring forward stories of sexual harassment and assault in and out of the workplace. Allegations of sexual harassment continue to dominate headlines and this trend shows no signs of slowing down. 2018 will likely see these claims leveled against managers and executives at companies of all sizes and types, not just celebrities or very high-profile figures. It seems that the #MeToo movement has greatly reduced the negative stigma associated with raising these allegations, so the overall volume will likely increase as the year continues.

If you have not already done so, your Company should implement appropriate written policies and training at all levels of the organization to actively try to change or better the culture at work. The two-part process of training employees and holding them strictly accountable is the only proven way to create the major paradigm shifts that some employers need to end and prevent this type of behavior from happening in the workplace.

Prediction 4: Retaliation Claims Will Continue to Dominate.

The EEOC’s data shows that the number of retaliation claims continue to outpace other claims in charges of discrimination filed with that agency. One reason for this is because retaliation claims are often included with other claims as “tag-along” claims. While there are certainly instances where a retaliation claim is filed alone, most frequently retaliation claims (often flimsy ones) are tacked on to more substantive discrimination allegations.

There are two primary reasons behind this. First and foremost, the more claims there are in a charge or lawsuit, typically the more it will cost the employer to defend the case. Charging parties (and their attorneys) try to use the greater defense costs of additional claims as leverage for a more favorable settlement. Second, retaliation claims are often easier to pursue than other claims, since all an employee must do in many instances to survive summary judgment and get their case in front of a jury is complain verbally about discrimination or harassment to someone in management relatively close in time prior to the employee’s termination or other adverse employment action. Sometimes that’s all they need to show to get in front of a jury.

So, it’s no huge surprise at all that retaliation claims continue to surge, and there’s no reason to think this trend will slow in 2018. Employers should consider any complaints from employees (either in writing or verbally) prior to taking any action against employees to help prevent retaliation claims arising (and to reduce the risk they might have any merit).

Prediction 5: Marijuana in the Workplace Will Get Renewed Focus.

Medical and recreational marijuana is now legal in 8 states. More than half of all states allow for limited use of medical marijuana under certain circumstances. For instance, Louisiana, West Virginia, and a few other states allow only cannabis-infused products, such as oils or pills, for medical uses. Other states have passed narrow laws allowing residents to possess cannabis only if they suffer from select medical illnesses. There are 21 states with broader medical marijuana laws.

Marijuana is, however—whether for medicinal or recreational purposes—still illegal as a Schedule I controlled substance under federal law. So, the question remains: If an employee in a state where medical marijuana is legal has been prescribed the medication by a physician, can the employee be fired for testing positive for marijuana on a drug test?

The answer remains unclear. One case from Colorado held that while marijuana is illegal under federal law as a Schedule I drug (which means it officially has no medicinal uses under federal law), an employee is not protected for discipline or discharge for a positive test. Another case from Rhode Island held that an employer could not refuse to hire a medical marijuana cardholder when the prospective employee said that she would fail a pre-employment drug screening. A third case from Massachusetts held that an employee’s off-duty use of medical marijuana was not a “facially unreasonable accommodation” under state law.

Amid this backdrop of uncertainty, employers with operations in states with legalized medical marijuana should evaluate their current drug testing policies (if they haven’t done so recently), consider their legitimate reasons for testing their employees (such as safety or business-related reasons), and be sure to engage in the interactive process when dealing with employees who establish their marijuana use is prescribed for medical purposes.

Conclusion

2018 is sure to be full of exciting and even surprising developments in the world of labor and employment law. We will continue to update you on these topics, re-visit our “predictions” and address any unexpected changes throughout the year.

With the holidays now over and everyone settling back into our regular work routines, some predictions on labor and employment law developments for 2018 might be helpful. Overall, federal agencies are expected to continue last year’s trend of taking more employer-friendly positions under the current Administration. In addition to that general theme, however, here are five specific “predictions” for what employers will likely see in 2018.  

Prediction 1: We’ll Get (A Lot of) New Opinion Letters from the Department of Labor.

For years the U.S. Department of Labor’s (DOL) Opinion Letters were a helpful source of information for employers as they answered questions received from members of the community (primarily on wage and hour issues). For example, if an employer or other entity had a question about how a particular wage and hour regulation applied to its employees and an answer wasn’t clear from the case law or administrative decisions, the employer could send in its question and DOL officials would issue an Opinion Letter offering guidance.

While the Opinion Letters functioned as the DOL’s official, written opinion on how a specific law applied to a given situation, they weren’t binding authority on the DOL or any courts. But they were certainly helpful for employers when there was no other guidance (or differing opinions) available on a sticky issue. Courts also found the letters helpful and they were (and still are) cited to support reasoning offered in judicial decisions.

In 2010, however, the DOL stopped issuing Opinion Letters. Instead it started issuing more general “Administrator Interpretations” which were intended to provide general interpretations of certain laws applied to a specific type of employee or industry. Notably, the DOL only issued 11 Administrator Interpretations between 2010 and 2016. Opinion Letters were issued with much greater frequency, sometimes with dozens being issued in a single year.

Now, however, the DOL has reinstated the issuance of Opinion Letters. “Reinstating opinion letters will benefit employees and employers as they provide a means by which both can develop a clearer understanding of the Fair Labor Standards Act and other statutes,” said Labor Secretary Alexander Acosta. The DOL “is committed to helping employers and employees clearly understand their labor responsibilities so employers can concentrate on doing what they do best: growing their businesses and creating jobs.”

So, it seems probable that the DOL will issue many Opinion Letters in 2018 on a variety of topics.  To date, the DOL has already issued 17 Opinion Letters in 2018 on the FLSA. The Department’s Opinion Letters can be found at https://www.dol.gov/whd/opinion/flsa.htm. Keep an eye on the site for plenty more this year.

Prediction 2: We’ll See A(nother) New Overtime Rule.  

According to the DOL’s regulatory agenda (which you can see here), a new overtime rule will likely be issued this coming October. Based on comments from Labor Secretary Acosta, it seems like a good bet that the new rule will raise the exempt salary threshold for white-collar workers above the current $23,660 minimum annual salary threshold, though almost certainly not as high as was proposed under the Obama Administration’s ill-fated 2016 rule (which more than doubled the annual minimum to $47,476).

In addition to raising the minimum exempt annual salary level, the new rule may again contain a provision allowing for automatic adjustments so that the numbers keep pace with inflation (as the 2016 rule did as well). Inclusion of such a provision is far from certain, however, because there is some debate as to whether the DOL has the authority to implement such a feature under the language of the FLSA. Assuming such a provision is included, this could cause some problems for employers as it may require them to implement pay raises at times that do not coincide with employers’ fiscal years or follow performance evaluations.

Employers should begin planning now for a possible increase to the minimum exempt salary level. Speculation is that the new threshold will be in the $30,000 to $35,000 range. Planning and considering options and impacts now could be smart business strategy.

United States executive agencies are practically always on the same page when presenting to the public. So, it is incredibly unusual to see two such agencies taking positions directly contrary to one another in pending litigation. This, however, is exactly the current situation between the U.S. Department of Justice (DOJ), headed by Attorney General Jeff Sessions, and the Equal Employment Opportunity Commission (EEOC), chaired by Victoria Lipnic.

Last week, Mr. Sessions issued a memo setting out the Justice Department’s stance that Title VII does not protect individuals against discrimination on the basis of “gender identity per se, including discrimination against transgender individuals.” The memo states that the DOJ is now taking the position that “sex” (as used in Title VII) only means “biologically male or female.” This is a reversal of its 2014 policy under then-Attorney General Eric Holder that the word “sex” in the statute “extends to claims of discrimination based on an individual’s gender identity, including transgender status.”

Notably, the DOJ’s position now is directly contrary to the EEOC’s position on the matter. The EEOC’s position is that transgender status is protected under Title VII. In fact, the EEOC just filed suit against a tire company in Denver over alleged discrimination against a job applicant on the basis of transgender status. This is consistent with the EEOC’s 2016 Strategic Enforcement Plan, which includes “[p]rotecting lesbians, gay men, bisexuals and transgender (LGBT) people from discrimination based on sex” as a top enforcement priority.

The DOJ has also come out swinging against the EEOC in a pending lawsuit on this very issue. In a case pending in the U.S. Court of Appeals for the Second Circuit, Zarda v. Altitude Express, the plaintiff, a skydiver, claimed that his employer fired him because of his sexual orientation. A three-judge Court of Appeals panel previously ruled that the instructor had no claim for sex discrimination under Title VII. However, the full court (as opposed to a three-judge panel) has agreed to review that decision.

So, the Second Circuit then asked the EEOC to file an amicus (“friend of the Court”) brief in the case. The EEOC argued that sexual orientation discrimination claims “fall squarely within Title VII’s prohibition against discrimination on the basis of sex.” Among other reasons, the EEOC’s brief states that any line drawn “between sexual orientation discrimination and discrimination based on sex stereotypes is unworkable and leads to absurd results.”

Not to be outdone, the DOJ also filed an amicus brief with the Second Circuit in opposition to the EEOC (even though the Second Circuit had not asked for the DOJ’s input). The DOJ argued that this issue has been “settled for decades” and that Title VII does not prohibit sexual orientation discrimination “as a matter of law.” The DOJ went on to state that the question of whether “sexual orientation discrimination should be prohibited by statute, regulations, or employer actions” is one of “policy” and “[a]ny efforts to amend Title VII’s scope should be directed to Congress rather than the courts.” The Court heard oral arguments in the case in late September 2017, with the EEOC and DOJ completely at odds.

This is not the only case where the DOJ has taken a position adverse to the EEOC’s position.  In a well-known case involving a Colorado cake shop which refused to make a cake for a gay couple in 2012 known as Masterpiece Cakeshop v. Civil Rights Commission (which is now pending before the U.S. Supreme Court), the Colorado Civil Rights Commission relied on a state statute that prohibits sexual orientation discrimination in public accommodations to order the cake shop to stop discriminating against same-sex couples. The shop owners contend that violates their First Amendment rights to free speech and free exercise of religion.

The DOJ has recently filed an amicus brief in favor of the cake shop owners. The DOJ argues that baking a cake for money is “expressive conduct” and “association” that raises First Amendment concerns, and a state’s interest in protecting gay residents is not strong enough to justify “compelling” this “creative process” for same-sex couples. While not an employment case, this position is clearly contrary to the EEOC’s position on these issues when the workplace is involved.

It seems that the EEOC and the DOJ will remain at odds on these issues in the coming months (and possibly years). It will be interesting to watch how this impacts courts’ analysis in these cases and whether any enforcement efforts or positions will change as a result.

Religious issues in the workplace are challenging both from a legal and practical standpoint. Managers and HR professionals want employees to feel accepted and included, and they don’t want anyone to feel targeted or mistreated based on their religious beliefs or practices. Problems can arise, however, where an employee’s religious practices interfere with the employee’s job or professional interactions. How do you accommodate the employee’s beliefs while also ensuring that the employee meets the job’s requirements? Continue Reading Handling An Employee Who Won’t Shake Hands For Religious Reasons