Fifth Circuit Clarifies and Complicates Choice of Law Analysis of Interstate Restrictive Covenants

Posted in Restrictive Covenants

As companies grow and expand into multiple U.S. states, particularly in our increasingly knowledge and relationship-based economy, determining the applicable law for companywide restrictive covenants can be puzzling. Determining which law applies can make the difference between enforcement or the inability to enforce the covenants.

In Cardoni et al. v. Prosperity Bank (Case Nos. 14-20682 and 15-20005), decided on Oct. 29, 2015, the Fifth Circuit provided a useful roadmap for how a court should analyze various covenants involving interstate parties and interests. Simplifying the facts somewhat, Prosperity Bank in Texas acquired F&M Bank in Oklahoma by merger. In connection with the purchase, Prosperity signed several of the F&M employees to new employment agreements that included noncompete, customer nonsolicitation, and confidential information nondisclosure provisions. These agreements were governed by Texas law and had an exclusive Texas choice of forum provision, even though the employees did most of their work, both before and after signing the agreements, in Oklahoma. Four of the employees later became parties to the litigation. Those four individuals also had been very small shareholders in F&M, and sold their stock in exchange for cash and Prosperity stock as part of the merger transaction; however, the covenants at issue in their new employment agreements were not included in the merger agreement.

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2015 California Employment Law Legislative Update

Posted in Compensation, Discrimination, Immigration, Legislation, State Law, Wage & Hour

At Greenberg Traurig, we live our motto “built for change” and apply it for the benefit of the businesses we serve. Our California Labor and Employment Practice appreciates that although California presents opportunity, it also presents an often unique set of employment risk propositions, and these risks are often just one set among a constellation of others that require management.

We also believe that while employers need to manage that risk, neither a stream of the “sky is falling” communications regarding every court rumination, nor a list of developments so comprehensive that the significant and the idiosyncratic blur together is the correct approach.

We address the developments by issue and add some thoughts on why we think it may matter to your company.

The Statewide Minimum Wage and Minimum Salary for Exempt Status are Going Up.
Although not the product of new legislation, on Jan, 1, 2016, the statewide minimum wage increases to $10 per hour. Because the salary threshold for exempt status must be at least twice the full-time equivalent of the minimum wage, exempt employees will need to make at least $3,466.67 per month or $41,600 per year. Apart from issues of compliance, as the minimum wage continues to increase, the salary cost of preserving the exemption for that lowest level supervisor also increases. At some point that begs the question as to how important the exemption is in context.

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Seasonal Employment: Tips and Traps

Posted in Employee Policies

Whether due to holiday shopping, increased tourism, or winter weather, employers across the country are turning to seasonal workers to help with increased customer demands this time of year. Industry fluctuations may necessitate the use of temporary help to meet your businesses’ short-term staffing requirements. Employers should be aware of some tips and traps when directly hiring and managing seasonal employees.

The Difference Between Part-Time, Temporary and Seasonal Workers

Most states define part-time employees as individuals who work less than 35 hours per week, compared to full-time employees who typically work 40-plus hours per week. Temporary employees are usually hired to provide services for absent employees, temporary job vacancies, or to provide assistance on special, finite projects. Seasonal employees, on the other hand, are generally hired to work on a part-time basis for a particular season, such as at retail stores preparing for increased holiday sales.

Conduct Background Screenings on Seasonal Candidates

Just as with your permanent applicants, follow applicable laws and screen each potential employee before hiring to make sure they will not pose any undue risk to your organization, your brand or your customers.

Inform Seasonal Employees about the Duration of the Work

Applicants for seasonal roles should be advised about the seasonal nature of the position in job postings, during the interview process and at the time of job offer. Also tell them what benefits are not extended to seasonal employees so there is no confusion down the road (e.g. certain fringe benefits such as paid vacation time, insurance or telecommuting options).

Follow Labor Laws

The Fair Labor Standards Act (FLSA) does not define full-time versus part-time employment, and seasonal employees are still subject to the FLSA. Accordingly, unless local laws provide otherwise for seasonal workers, they are entitled to minimum wage and overtime. Moreover, state and federal laws that cover harassment, discrimination, and workplace health and safety apply to seasonal employees, just as to any other member of your workforce. Also be aware that seasonal or temporary employees may factor into the headcount required under state and federal labor laws, such as ADA, WARN and EEOC requirements.

You Must Still Provide Certain Benefits

The specific requirements vary by state, but most jurisdictions require employers to provide unemployment benefits to temporary workers. However, there may be certain exemptions for short term “seasonal employers” (e.g. those who require temporary employees for 10 weeks or less). Likewise, businesses must still withhold part of Social Security and Medicare taxes, as well as provide workers compensation insurance for seasonal employees.

Train Your Seasonal Employees

Seasonal employees must be trained not only on how to do the job, but also on appropriate company standards, procedures and policies. In fact, employment handbooks should clearly state which benefits and policies are not extended to seasonal or temporary staff. Orientation for seasonal employees should include anti-discrimination and anti-harassment training, which should be documented.

Be Prepared to Conclude the Seasonal Employment

When it is time to end the seasonal employment, follow the same procedures as you would with a full-time or permanent employee. Remove the seasonal workers from your payroll and, should they return to your company down the road, treat them as a new employee. Conduct one-on-one sessions and be prepared to explain why the position is not being extended into a permanent role. Also, be consistent in your treatment of employees, and follow your routine procedures with regard to issuing the final paycheck and handling the employee’s return of company property.

Be Mindful of Issues When Using a Staffing Firm

If you elect to partner with a staffing firm to meet your seasonal employment needs, be sure to delineate the agency’s roles and watch for co-employment issues.

US Supreme Court Decision May Sharply Curtail the Wave of FCRA Employment Litigation

Posted in Federal Law


Recent Surge of FCRA Employment Lawsuits

The Fair Credit Reporting Act (FCRA) requires employers to take important compliance steps before obtaining and using consumer reports to make employment-related decisions such as hiring, promotion, and termination. Consumer reports include, but are not limited to, criminal records, motor vehicle reports, credit checks, reference checks, education verification, employment verification, and professional license or certification verification.

Recently, the number of FCRA lawsuits has significantly increased. There were 1,940 FCRA lawsuits filed in 2011; 2,223 filed in 2012; 2,289 filed in 2013; and 2,327 filed in 2014. As of Sept. 30, 2015, 2,446 FCRA lawsuits have been filed.

The growing popularity of FCRA employment lawsuits is not surprising. The overtly plaintiff-friendly law is riddled with perplexing, technical obligations for employers. Moreover, the FCRA offers plaintiffs potential actual or statutory damages, as well as the ability to recover costs, attorneys’ fees, and punitive damages. A plaintiff may allege that a defendant negligently or willfully violated the FCRA. A plaintiff alleging a negligent violation is limited to recovering actual damages, which compensate for the harm, loss, or injury actually suffered by the plaintiff. A plaintiff alleging a willful violation may recover either actual damages or statutory damages of $100 to $1,000 per violation.

Notably, plaintiffs who plead a willful violation may recover statutory damages without ever having to prove harm, loss, or injury suffered. As FCRA violations are highly technical in nature, proving harm, loss, or injury is difficult for the majority of plaintiffs. We will discuss how these unharmed plaintiffs have insinuated themselves into federal courts later on.

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Greenberg Traurig Publishes a 50-State and DC Survey with the ACC on Covenants Not to Compete

Posted in Publications, Trade Secrets

Greenberg Traurig recently published an InfoPAKSM on covenants not to compete through the Association of Corporate Counsel (ACC). Covenants not to compete are important for employers to consider in order to protect proprietary information such as trade secrets, intellectual property, and highly confidential information. However, these post-employment restrictions vary state by state.  These differences should be considered to ensure an employer enters into an enforceable agreement with an employee.

The InfoPAKSM provides a comprehensive summary of the law governing covenants not to compete in each of the 50 states and D.C., including the key statutes, whether consideration is required, whether they are enforceable, and the geographic and time restrictions courts have found to be reasonable. The InfoPAKSM is intended to be used by in-house counsel to understand the law surrounding covenants not to compete in each state. This resource can aid in the counseling and drafting of covenants and provide guidance regarding commonly-occurring contract issues, including factors that courts consider when analyzing a covenant not to compete.

Members of the ACC can download the InfoPAKSM on the ACC’s website.

Individual Manager Liability for Wage and Hour Violations Comes to California

Posted in State Law, Wage & Hour

California is not known as the most employer-friendly state from a wage and hour perspective. However, unlike federal courts, California courts have thus far been reluctant to allow claims to proceed against individual managers, officers and directors. Effective January 1, 2016, those high-level employees may refer to that reluctance as “how it was in the good old days.” Tucked away in Section 10 at the end of Senate Bill 588 that Governor Brown recently signed into law is the following:

Section 558.1 is added to the California Labor Code, to read:

  • (a) Any employer or other person acting on behalf of an employer, who violates, or causes to be violated, any provision regulating minimum wages or hours and days of work in any order of the Industrial Welfare Commission, or violates, or causes to be violated, Sections 203, 226, 226.7, 1193.6, 1194, or 2802, may be held liable as the employer for such violation.
  • (b) For purposes of this section, the term “other person acting on behalf of an employer” is limited to a natural person who is an owner, director, officer, or managing agent of the employer, and the term “managing agent” has the same meaning as in subdivision (b) of Section 3294 of the Civil Code.
  • (c) Nothing in this section shall be construed to limit the definition of employer under existing law.

We can expect this addition to have a variety of impacts as the plaintiffs’ bar adjusts to this new tool in their tool kit. Removal of cases to federal courts will become more challenging because the addition of individual defendants may destroy diversity of citizenship, which is often the basis for removal. Challenges of multiple representation (of the employer and individual defendants) that have been present in harassment and other discrimination claims will become more prevalent. As a result, the costs of litigating wage and hour cases in California may increase.

In light of this change, this would be a good time for employers to evaluate their overall compliance strategies and the scope of their directors and officers insurance coverage. A report on other legislative developments will follow.

Order Grants Federal Contractors 7 Sick Days a Year: What Could These Additional Benefits Mean For You?

Posted in Benefits, Federal Law

On Monday, Sept. 7, 2015, President Barack Obama issued an Executive Order (the “Order”) that requires federal contractors to grant at least seven days of annual paid sick leave to their employees. The Order gives an estimated 300,000 federal contractors new access to paid sick leave.

Under the Order, employees of federal contractors will earn one hour of paid leave for every 30 hours of work when the policy enters into force with 2017 federal contracts after a public comment period. The paid sick leave can be used for absences resulting from illness, domestic violence, sexual assault, or stalking and can be used by the federal contractors themselves or for their family members. The Order is thus very similar to sick leave laws in California, Connecticut, the District of Columbia and Massachusetts that were enacted or amended in 2015. The president’s announcement was made in Boston and expressly praised Massachusetts’s new sick leave law.

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Get Ready for Even Quicker ‘Quickie’ Elections—NLRB Abandons Requirement for Signed Authorization Cards

Posted in NLRB, NLRB Elections, Unions

As we’ve previously reported, on April 14, 2015, the National Labor Relations Board (NLRB or Board) implemented new union election rules (Election Rules), which made significant changes to the Board’s procedures for processing election petitions, holding hearings, and conducting secret-ballot elections. Most significantly, the Election Rules paved the way for union elections to be held in as few as 14–21 days after the filing of a union petition, a dramatic decrease from the current median time of 38 days.

As predicted, since the Election Rules went into effect, the median time between the filing of a union petition and the election has decreased dramatically. Prior to the implementation of the Election Rules, union elections were typically held approximately six (6) weeks after the petition was filed (and sometimes longer if the parties litigated contested issues before the Region). According to recent data, the median time for elections held in the three months following the implementation of the Election Rules was just 23 days. And, the number of petitions filed rose sharply, increasing by 32 percent in the first month after the Election Rules took effect.

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NLRB Expands Joint Employer Standard in Browning-Ferris Decision

Posted in NLRB, Unions

Recently, the National Labor Relations Board made sweeping changes to its “joint employer” standard, announcing a new test that will surely lead to more findings of joint employment relationships under the National Labor Relations Act. Under the new standard announced in Browning-Ferris Industries, a company is a joint-employer if it exercises “indirect control” over working conditions or if it has “reserved authority” to do so. This marks a significant departure from the joint employer test that the Board has used for decades, which required that a putative joint employer actually exercise control over terms and conditions of employment, as opposed to merely possessing the ability to do so.

In its 3-2 decision, the Board determined that Browning-Ferris Industries of California, Inc. (BFI), an owner and operator of the Newby Island Recycling facility, should be considered a joint-employer with Leadpoint Business Services (Leadpoint), a Phoenix-based temporary staffing agency, which supplies workers to the facility. BFI employs approximately 60 employees, most of whom work outside the recycling facility, moving and preparing materials to be sorted inside the facility. BFI contracts with Leadpoint to provide in-facility sorters, screen cleaners, and housekeepers under a temporary labor services agreement.

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IRS Chief Counsel: CA Waiting Time Penalties Are Not Wages

Posted in Compensation, Tax, Wage & Hour

For years now, Section 203 of the California Labor Code has required employers to pay a penalty for willful failure to provide a departing employee with their final wages on their last day of employment (or within 72 hours for employee who suddenly quit). The amount of this penalty, often referred to as “waiting time penalty,” equals one day of pay for each day the employee is made to wait for the final paycheck, up to a limit of 30 days.

There was some ambiguity and disagreement over the years regarding whether these waiting time penalties should be considered wages and subject to applicable tax withholdings. However, on May 29, 2015, the IRS Chief Counsel’s Office issued interpretative guidance (CCA 201522004) to clarify the tax treatment of such late payment penalties, concluding that they are not wages for the purposes of FICA, FUTA, or federal income tax withholding.

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