A major transition in government is well underway. As we look back over the past 12 months, we are reminded of employment, labor, and workforce management issues that remain top of mind to all employers. In this Take 5, the final issue of 2016, we will reexamine top high-stakes issues, the impact on managing a workforce, and compliance efforts employers should continue to maintain as we enter a new year:
- Key Trade Secret and Non-Compete Developments in 2016
- The Number of Paid Sick Leave Laws Expands Rapidly in 2016
- Is the NLRB at a Turning Point?
- Preliminary Injunction Enjoins the New Overtime Rule
- Transgender Employment Law – Uncertainty Ahead
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By Peter A. Steinmeyer and Jonathan L. Shapiro
Below is a summary of the most significant developments in the law regarding trade secrets and non-competes in 2016.
The Enactment of the Federal Defend Trade Secrets Act
The most significant development of 2016 was the enactment of the federal Defend Trade Secrets Act (“DTSA”). The DTSA creates a private, federal cause of action for trade secret misappropriation—regardless of the dollar value of the trade secrets. Because the DTSA’s remedies largely overlap with those already available under state law, it is a not a radical expansion of available remedies. However, both the provision for federal court jurisdiction and the forthcoming creation of a uniform body of federal law in this area are of great significance to employers. Additionally, the DTSA does have some unique provisions, including the authorization of ex parte seizure orders in extreme circumstances and protections for whistleblowers who disclose trade secrets under certain circumstances (e.g., in confidence to a government official or an attorney solely for the purpose of reporting or investigating a suspected violation of law, or in a complaint filed under seal). The DTSA also mandates notice about such whistleblower protections in new or updated employment agreements that govern the use of trade secrets or other confidential information.
Political Winds Blow Against Non-Competes
A March 2016 report from the U.S. Department of the Treasury found that non-compete agreements harm worker welfare and job mobility. Similarly, a May 2016 White House report questioned whether non-competes for low-wage workers protect legitimate business interests or merely hamper labor mobility. And in October 2016, the White House issued a “Call to Action,” asking states to ban non-compete clauses for certain categories of workers, improve transparency and fairness of non-compete agreements, and incentivize employers to draft enforceable non-compete agreements, rather than overbroad agreements that may have a chilling effect on employee mobility.
The Attorneys General of at least two states (Illinois and New York) have heard “this call to action.” In the summer of 2016, New York Attorney General Eric T. Schneiderman announced that his office had reached agreements with a number of companies to curtail their use of non-competition agreements with respect to non-executive and low-wage employees. Similarly, Illinois Attorney General Lisa Madigan has publicly signaled that scrutiny of such agreements will be a high priority for her office in 2017.
New State Non-Compete Statutes
On the state level, several states enacted laws regarding non-competes:
- Consistent with the White House “Call to Action,” Illinois passed the Illinois Freedom to Work Act, which bars non-compete agreements for workers who earn the greater of (i) the federal, state, or local minimum wage or (ii) $13.00 an hour.
- Utah enacted a law limiting restrictive covenants entered into on or after May 10, 2016, to a one-year time period from termination, subject to certain limitations.
- Connecticut and Rhode Island enacted laws restricting physician non-competes.
- Alabama codified a “middle of the road” approach, allowing two-year non-compete and 18-month non-solicitation clauses for employees, provided that they are limited to the geographic area where the company operates a similar business.
Additional legislation regulating non-compete agreements is anticipated in 2017—especially with respect to lower-level employees.
California Closes a Restrictive Covenant Loophole
California is particularly hostile to post-employment restrictions and has a statutory ban against most restrictive covenants. California courts generally refuse to honor choice-of-law provisions in non-compete agreements if the designated law permits enforcement of a post-employment restriction. However, employers did have one tool to help them enforce restrictive covenants against employees who reside in California: they could include a mandatory choice-of-forum provision designating a forum state that is friendlier to restrictive covenants.
Traditionally, the trend in California has been to close that loophole by rejecting non-California forum selection provisions. Indeed, in 2015, a California court held that a forum selection provision is not enforceable if it would deprive an employee of a non-waivable statutory right. This year, California further narrowed that loophole when legislators enacted California Labor Code Section 925 (signed into law on September 25). Section 925 provides that an employer cannot require employees, as a condition of employment, to agree to a provision that requires them to adjudicate a dispute outside California or deprives them of the substantive protection of California law. This law does not apply, however, to employees represented by counsel. While there is likely to be litigation on this topic as employers may still seek to file suit in other states, it appears that the door is closing on an employer’s ability to enforce restrictive covenants against California employees.
What Employers Should Do Now
In light of the enactment of the DTSA, employers should ensure that any new or updated agreements with employees that govern the use of trade secrets or confidential information provide notice regarding whistleblowing activities, in accordance with the terms of the DTSA. Further, employers (especially in those states that codified non-compete laws in 2016) should review their agreements that contain restrictive covenants to make sure that they would withstand judicial scrutiny, and, if they will not, revise them so that they are narrowly tailored to a reasonably protectable interest. Finally, with narrow exceptions, employers in California going forward must not require employees to agree to adjudicate disputes outside California or otherwise deprive them of California law.
By Marc A. Mandelman and Amy B. Messigian
Workers in San Francisco have had access to compulsory paid sick time since 2006, when that city enacted the first paid sick time ordinance in the United States. In the absence of federal action establishing a federal paid leave law, the movement to mandate paid sick leave for American workers has shifted to a patchwork of state and municipal laws around the nation and has caught fire over past two years. As of January 1, 2014, only five jurisdictions had operative paid sick time laws. As of November 30, 2016, there are 39 separate paid sick leave laws currently in effect or becoming effective in 2017 or 2018.
While the crux of these laws is the same—they all provide time off for an employee’s health needs as well as the care of family members—the particulars of the laws vary in numerous instances. Many of these various laws have different amounts of leave that an employer must permit each year, different eligibility requirements, different qualifying reasons for leave, various definitions of covered “family members,” and different requirements on accrual, use, verification, and carryover. The challenges faced by employers attempting to comply with all of the various sick leave laws will increase in 2017 as additional paid leave laws take effect, and even more laws are passed.
In addition to the eight laws that took effect this year, another 10 new laws will take effect in 2017. Some key distinctions of those laws are as follows:
- Federal Contractors: Effective January 1, 2017, employees who work on certain types of federal contracts will be entitled up to 56 hours of paid sick leave per year. Defining which employees are covered and which are not, and how to deal with employees who work only part of their time or year on a qualifying federal contract will be a challenge. “Family member” under the executive order is defined to include common law spouses, domestic partners, and persons whose close association with an employee is the equivalent of a family relationship.
- Arizona: On July 1, 2017, Arizona will become the sixth state to implement a statewide paid sick leave statute. The statute has a tiered accrual cap based on the number of employees. Of note, employees may take time off under the statute for exposure to a communicable disease.
- Vermont: Vermont’s paid sick leave statute takes effect on January 1, 2017, though small employers may defer compliance until 2018. Employees accrue paid sick time at a rate of one hour for every 52 hours worked up to 24 hours per year and then increasing to 40 hours per year beginning in 2019. Employers may impose a one-year waiting period on use.
- Berkeley, California: The Berkeley ordinance takes effect in October 2017. In addition to the usual forms of leave, the ordinance allows leave to care for a “service dog.” The ordinance has a tiered accrual cap based on the number of employees.
- Chicago and Cook County, Illinois: Effective July 1, 2017, employers will be required to provide paid sick time at a rate of one hour for every 40 worked up to 40 hours of paid sick time per year. Employers may impose a 180-day waiting period on use for new employees. “Family member” covers individuals whose close association with an employee is the equivalent of a family relationship.
- Minneapolis and St. Paul, Minnesota: Also effective July 1, 2017, employers must provide sick time, which must be paid time off, except for Minneapolis employers with five or fewer employees. The ordinance does not proscribe any limits on use, though employers may cap accrual. Among other purposes, leave may be taken for closures due to inclement weather.
- Santa Monica, California: Santa Monica will become the sixth city in California to require paid sick leave, effective January 1, 2017. Accrual caps vary based on the number of employees, and increase in 2018.
- Spokane, Washington: As of January 1, 2017, employers with 10 or more employees will be required to permit employees to take at least 40 hours of paid sick time per year. Smaller employers may limit use to 24 hours per year. In addition to the standard reasons for leave, time off may be taken for bereavement.
What Employers Should Do Now
The end of the year is a good time to ensure compliance with existing and new laws by reviewing leave policies and practices and by training managers to be aware of applicable local leave requirements. It is a common misconception by employers that their provision of paid leave (even generous amounts of paid leave) obviates the need for further consideration of compliance with paid leave laws.
Existing policies often do not comply in all respects with newer statutory leave policies in terms of eligibility (length of service and full-time vs. part-time employee eligibility), accrual rates, qualifying reasons for leave, restrictions on employer verification, and carryover requirements. The passage of additional new laws makes it particularly important to evaluate whether further changes are needed to make an existing policy compliant. Employers that have previously adopted separate policies for each jurisdiction with a paid sick leave ordinance may also want to reassess whether the administrative ease of a global sick leave policy makes sense. Similarly, federal contractors and subcontractors should also determine if the new federal contractor paid leave requirements apply to their employees, even if the employees work in a city or state that has an existing paid sick leave law.
By Steven M. Swirsky and Laura C. Monaco
The National Labor Relations Board (“Board”) has been quite active in the waning days of the Obama administration. The Board issued a number of decisions addressing key issues in the second half of President Obama’s final year in office. While the lasting impact of some or all of these decisions in the wake of Donald Trump’s election is presently uncertain, it is almost certain that the Board’s Democratic majority under the Obama administration will not survive, and that President-elect Trump’s appointments will give rise to a Republican majority in the near future. Indeed, two of the five seats on the Board are presently open, and with the terms of both Member Philip Miscimarra, who is a Republican, and General Counsel Richard Griffin set to expire in 2017, President-elect Trump will soon have the opportunity to use his appointment powers to change drastically both the composition of the Board and its litigation and enforcement priorities. It can be expected that a new Board, with a Republican majority, will likely reexamine decisions of the Obama Board on a wide range of issues, including the Board’s decisions that found class action waivers and requirements that employees arbitrate (rather than seek relief in the courts for wage and hour and similar claims) to be unenforceable, and that redefined the standards for finding joint-employer relationships, as well as other decisions seen as “pro-union” or anti-employer.
This year, the Board issued decisions that affected employers in several key areas.
In July 2016, the Board issued Miller & Anderson, 362 NLRB No. 39 (July 11, 2016), a decision that expanded the already-relaxed joint-employer standard adopted by the Board in its August 2015 decision in Browning Ferris Industries. The Board made clear that it will now hold elections and require bargaining in “petitioned-for units combining solely and jointly employed workers of a single user employer,” in those cases in which a union asks for such a mixed employer unit, so long as the Board finds the jointly and solely employed workers “share a community of interest” under the Board’s “traditional community of interest factors for determining unit appropriateness.” Moreover, the Board overturned its 2004 decision in Oakwood Care Center, 343 NLRB 659 and held that when a union petitions for a representation election in a unit that includes both “solely employed” and jointly employed employees of a single “user employer,” the Board will no longer require the consent of the employer or employers before directing such an election and certifying a union to represent such a unit.
The Board’s decision in Miller & Anderson can also be viewed as the next step in the progression that began with the Board’s change in its representation election rules, which permit quicker elections and representation proceedings and which deny employers their rights to both litigate critical unit and supervisory status issues prior to an election and to appeal a Regional Director’s direction of election before that election is conducted.
The Board’s Assistance to Union Organizing
The Board’s decision in Trustees of Columbia University, 364 NLRB No. 90 (Aug. 23, 2016), was part of a broader trend by the Board’s majority efforts to jump-start collective bargaining and union organizing and bring unions into new settings where they have not previously been found. In this case, the Board ruled that graduate students working as teaching assistants and research assistants were “employees” within the meaning of the National Labor Relations Act (“Act”) and, thus, have the right to join unions and engage in collective bargaining with the universities and colleges at which they study. This decision is yet another example of the Obama Board’s broad approach in examining the nature of the employer-employee relationship, not only in the context of joint employment and co-employment but also in new areas of the gig economy, where unions and employees are arguing that workers traditionally recognized to be independent contractors have been “misclassified” and that such misclassification is in and of itself an unfair labor practice.
The Board’s Aggressive Review of Employment Policies and Handbooks
Throughout 2016, the Board has continued its aggressive approach to reviewing, invalidating, and finding unlawful employment policies and other documents once viewed as standard by employers—class action waivers, separation agreements, workplace conduct, email use policies, and social media policies. In Chipotle Services LLC, 364 NLRB No. 72 (Aug. 18, 2016), the Board took aim at a social media policy maintained by Chipotle Services, LLC. In that case, the company asked one of its non-unionized employees to delete several tweets posted on his personal Twitter account, because they violated Chipotle’s Social Media Code of Conduct. The Board concluded that the company’s social media policy, which prohibited employees from spreading “incomplete, confidential, or inaccurate information” through their online activity, and also forbid employees from making “disparaging, false, misleading, harassing or discriminatory statements” regarding the company and its employees, suppliers, customers, competition, or investors,” violated the Act because it could reasonably be construed as restricting employees’ exercise of their Section 7 rights to engage in concerted activity.
What Employers Should Do Now
The Board has continued to scrutinize employers’ policies and practices this year and has not hesitated to reverse prior precedent in order to accomplish its strategic initiatives. With the incoming administration, employers will have to take a wait-and-see approach to determine whether some (or all) of the Board’s inroads will be rolled back in 2017.
By Jeffrey H. Ruzal and Kristopher D. Reichardt
The Fair Labor Standards Act (“FLSA”) provides that all employees are entitled to overtime compensation unless they meet the legal standard for one or more “exemptions” from overtime that are identified in the FLSA. For an employee to be exempt from the FLSA’s overtime pay requirement pursuant to the executive, administrative, and professional exemptions (often referred to as the “white collar” exemptions), employees must satisfy both a $455 weekly minimum salary requirement and perform certain exempt-qualifying duties identified in U.S. Department of Labor (“DOL”) regulations. In addition, the “highly compensated employee” exemption provides that the overtime exemption will apply to employees who are paid at least $100,000 per year and perform at least one of the exempt-qualifying duties of an exemption.
The DOL’s New Overtime Rule
On May 18, 2016, the DOL published amendments to its white-collar exemption regulations that would more than double the current $455 minimum to $913 per week (“Final Rule”). In addition, the Final Rule would increase the highly compensated employee exemption threshold from $100,000 to $134,004 per year. The Final Rule would also automatically update the salary threshold levels every three years, beginning in the year 2020. The Final Rule had been scheduled to take effect on December 1, 2016.
Lawsuits Challenging the Final Rule
As many employers are already aware, on September 20, 2016, 21 states and a coalition of business organizations filed separate legal challenges, in the Eastern District of Texas, seeking to invalidate the Final Rule and requesting injunctive relief to effectively block the DOL’s December 1, 2016, effective date. On November 22, 2016, just over a week prior to the expected implementation of the Final Rule, U.S. District Judge Amos Mazzant III issued a nationwide preliminary injunction blocking the DOL from implementing the Final Rule. The decision held that the plaintiffs satisfied all prerequisites for a preliminary injunction and that they also established a prima facie case that the DOL’s salary level under the Final Rule and the automatic updating mechanism are without statutory authority. While the court’s preliminary injunction is a strong indicator that the court would ultimately find the Final Rule unlawful, the underlying merits of the lawsuit and the constitutionality of the Final Rule have yet to be decided.
On December 1, 2016, the DOL filed a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit. In addition to appealing Judge Mazzant’s order, the DOL may file a motion to stay the order in order to lift the injunction pending the appeal to the Fifth Circuit.
Depending on the timing of the DOL’s appeal, it is possible that any decision would be issued after President-elect Trump’s inauguration, which could very well affect the DOL’s decision to continue its appeal or instead comply with the preliminary injunction.
What Employers Should Do Now
Since the DOL published the Final Rule this past May, many businesses have conducted comprehensive audits of their currently exempt workforce to determine whether any salary adjustments would be necessary to maintain compliance with the Final Rule. In fact, many businesses have already implemented certain changes.
For businesses that have already implemented or announced changes to their classification or pay scales, it is important to consider the potential employee relations impact that could result by rescinding salary raises or changes in exempt status. Businesses that have already implemented changes have likely considered the financial impact of the reclassification decisions and have been able to accommodate those planned changes in a financially sound manner. Therefore, any potential employee relations risks may outweigh the actual financial impact of increased salaries for exempt employees or paying overtime to newly reclassified non-exempt employees. Businesses in these circumstances may also be able to absorb these new costs by offsetting future salary increases, bonuses, or other forms of compensation.
Businesses that have not yet implemented or announced changes should consider whether to take a “wait and see approach” pending resolution of the Final Rule litigation, or to begin proactively reviewing FLSA compliance under the current exemption criteria (including the unchanged duties test criteria).
In addition, regardless of the future of the Final Rule, it is important for businesses to be mindful of any current or impending relevant state law requirements that set forth standards for exemption that are more exacting than the current federal requirements. For example, states such as New York and California maintain their own minimum salary thresholds that exceed current federal requirements and are expected in the coming years to exceed the minimum salary threshold prescribed by the Final Rule.
By Kate B. Rhodes and Nathaniel M. Glasser
Over the last 18 months, employment protections for transgender individuals have expanded greatly. While employees seeking such protections in court have been greeted with mixed results, the Equal Employment Opportunity Commission (“EEOC”) and the Department of Justice (“DOJ”), through the issuance of guidance and rulemaking and the pursuit of litigation, have steadfastly pursued the expansion of the definition of “sex discrimination” under Title VII of the Civil Rights Act of 1964 (“Title VII”) to include discrimination based on gender identity and transgender status. In addition, President Barack Obama has issued executive orders granting additional protections to the transgender community. With the new presidential administration taking shape and with President-elect Donald Trump assuming power on January 20, 2017, many of these actions and expanded protections could be rolled back in short order, creating uncertainty and unpredictability for both employees and employers.
New Administration, New Rules
While President-elect Trump has not spoken directly about his intentions concerning employment protections for transgender individuals, many of his recent cabinet appointments, as well as Vice President-elect Mike Pence, have made clear their desire to do away with employment protections, broader student rights, and expanded health coverage for transgender people. At a minimum, over the next year, employers face a great deal of uncertainty with respect to their obligations to transgender employees and applicants, and it is important to be mindful of the potential actions President-elect Trump could take soon after assuming office in January 2017 that may affect the legal landscape in this quickly evolving area.
With the exception of cases already adjudicated and pending and future lawsuits brought by private individuals, the Trump administration could quickly alter the current rights of transgender individuals in several ways, especially with respect to employment protections.
First, President-elect Trump has stated he intends to “cancel every unconstitutional executive action, memorandum, and order issued by President Obama” but has not specified which orders he intends to cancel. This could include Executive Order 13672, which amended Executive Orders 11246 and 11478 to prohibit the federal government and federal contractors and subcontractors from discriminating on the basis of sexual orientation or gender identity. President-elect Trump could unilaterally cancel these executive orders on his first day in office, automatically altering the legal obligations of the federal government and federal contractors and eliminating the bases of lawsuits brought by employees of these groups.
Second, President-elect Trump could effectively halt the efforts by the EEOC to expand the scope of Title VII to encompass transgender individuals. Over the last several years, the EEOC has issued guidance, filed lawsuits, and even obtained favorable rulings on the premise that Title VII prohibits discrimination against transgender employees. President-elect Trump’s authority to appoint a new General Counsel and Commissioners to the EEOC, however, could stop these efforts in their tracks.
The EEOC General Counsel and, to a lesser extent, the Commissioners set the agency’s litigation agenda. The current General Counsel, David Lopez, has already announced that he will be stepping down in early December, and President-elect Trump will nominate his replacement after taking office in January. In addition, the term of the EEOC Chair, Jenny Yang, ends July 1, 2017, making way for another new appointment by President-elect Trump. As such, it is possible that soon after inauguration day, the EEOC may no longer pursue cases seeking to expand the scope of Title VII to encompass gender identity as a protected class. We note, however, that any potential change in the EEOC’s agenda will not affect the rights of private individuals to file lawsuits alleging that Title VII prohibits discrimination based on gender identity.
This is also true for the DOJ’s lawsuit against the state of North Carolina, filed in May of 2016, challenging North Carolina’s H.B. 2, a state law that nullified city and local ordinances granting expanded protection for LGBT individuals and prohibited individuals from using a public restroom that did not correspond with the gender on their birth certificate. With the announced nomination of Senator Jeff Sessions as the next Attorney General, there is a possibility that the new administration may drop this lawsuit soon after assuming office, which could open the door for other states to pass laws that would essentially void existing city and local laws that expanded employment protections to transgender individuals.
Finally, although likely not to make waves immediately, President-elect Trump may have the opportunity to alter the makeup of the Supreme Court of the United States if another justice leaves the bench. His pick to fill Antonin Scalia’s seat will likely not change the political makeup of the Court, particularly with respect to the rights of transgender individuals, but any other vacancies could alter the balance of the Court. Notably, the Supreme Court recently agreed to hear a case concerning the rights of transgender students under Title IX of the Education Amendments of 1972 (“Title IX”) to use the bathrooms and locker rooms of their choice in public schools. In Gloucester County School Board v. G.G., the Court will decide whether public schools are required to follow guidance from the federal government that advises schools receiving federal funds to permit transgender students to use the bathroom that aligns with their gender identity.
Although the outcome of this decision will not directly affect employment cases under Title VII, it likely will signal the Court’s view as to whether gender identity is encompassed under Title VII, largely because the language concerning sex-based discrimination in Title VII and Title IX are very similar. Notably, in its decision, the U.S. Court of Appeals for the Fourth Circuit relied heavily on case law interpreting Title VII, stating “[w]e look to case law interpreting Title VII of the Civil Rights Act of 1964 for guidance in evaluating a claim under Title IX.” Moreover, President-elect Trump not only could influence this decision by making appointments to the Court but also could rescind the “significant guidance” issued by the Obama administration in May of this year directing public schools to “not treat a transgender student differently from the way it treats other students of the same gender identity” and “allow transgender students access to [restrooms and lock rooms] consistent with their gender identity.”
What Employers Should Do Now
While the scope of Title VII and the durability of the Obama administration’s efforts to establish and expand protections for transgender individuals are not clear, employers must be aware of the potential drastic changes ahead in 2017, especially the outcome of Gloucester County. As there is currently a split in the federal circuit courts of appeals as to whether Title VII encompasses gender identity, it is likely that this issue will soon find its way to the Supreme Court, the outcome of which will likely rely heavily on Gloucester County. Regardless of the current state of case law, employers must continue to be mindful that at least 21 states and Washington, D.C., as well as dozens of cities, prohibit employment discrimination based on gender identity.
Employers should work with legal counsel to closely monitor the changing legal landscape in their jurisdictions, as this area of unsettled law is ripe for great changes, increased media scrutiny, and future litigation.
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For additional information about the issues discussed above, please contact the Epstein Becker Green attorney who regularly handles your legal matters or any of the authors of this Take 5:
Nathaniel M. Glasser
Marc A. Mandelman
Amy B. Messigian
Laura C. Monaco
Kristopher D. Reichardt
Kate B. Rhodes
Jeffrey H. Ruzal
Jonathan L. Shapiro
Peter A. Steinmeyer
Steven M. Swirsky
 Verdugo v. Alliantgroup, L.P., 2015 Cal. App. LEXIS 558 (Cal. Ct. App., 4th App. Dist., 2015).