If your company is planning to hire in 2020, now is a good time of year to revisit policies and agreements to make sure that you’re in compliance and to avoid potential disputes. Several issues — namely with vacation/sick pay, authorizations for deductions from pay, and non-competition and non-solicitation agreements — frequently arise and could potentially be avoided with the right employment policies and agreements in place.
First Things First: At Will Employment
As North Carolina employers know, employment in North Carolina is generally at will and can be terminated at any time, for any reason, by either the employer or the employee. Employment contracts are not required, and many employers do not use written employment agreements other than for their high-level or specialized positions. Nevertheless, there are some policies or agreements that employers should have in order to comply with North Carolina laws.
Vacation and Sick Pay
Employers are not required to provide paid vacation or sick leave, but if they do, they must follow their policy or practice. This type of paid leave falls within the definition of wages under North Carolina’s Wage and Hour Act, so the rules for payment of wages also apply to promised leave.
The simplest way for an employer to make sure that its vacation policies and practices comply with North Carolina law is to include them in an employee handbook that is kept up-to-date. A vacation policy must include the following:
- How and when vacation is earned or accrued;
- Whether and how vacation time may be carried forward into the next year;
- Any rules about when vacation time may be taken;
- Whether and under what conditions employees may elect to be paid for vacation time in lieu of taking the time off;
- Whether and under what conditions vacation pay will be forfeited upon termination of employment.
Accrued but unused vacation cannot be forfeited and must be paid to the employee upon termination, unless the employer provides written notice to the employee of any policy or practice that will result in the loss or forfeiture of vacation time or pay. During the course of the employment, employees must be notified in writing at least 24 hours in advance of any change in the policy. Employers may not decrease any wages that have been earned prior to the notification, but such wages may be increased retroactively.
The North Carolina Department of Labor’s position on sick leave is different. Even absent a written policy addressing forfeiture of sick leave, the NCDOL does not require payment of sick leave upon termination; such payment is required only if the employer’s policy specifically states that sick leave will be paid at termination, or if the employer has a practice of making such payments.
One final, important note: if a policy is ambiguous, it will be interpreted in the employees’ favor.
Authorization for Deductions from Pay
Employers who provide employees with company property or equipment, such as phones, computers, uniforms, and tools for use during the course of their employment want to ensure that employees keep the property in good condition and return it if employment ends. Many employers have employees sign a written authorization for deduction from their pay in the event that company property is lost, damaged, or not returned.
What employers may not realize is that there are very specific laws applicable to such deductions, and simply having a new employee sign a blanket authorization that a deduction will be taken from a future or final paycheck is not valid grounds for making such a deduction. If an employer wants an authorization that will be valid for such future deductions, and that the employee may not subsequently withdraw, authorization must:
- Be in writing, signed by the employee;
- State the reason for the deduction;
- Include the actual dollar amount of the deduction (or percentage of wages to be deducted).
For this type of deduction, payment for overtime wages may not be reduced, but the employer may reduce wages for non-overtime wages to minimum wage.
Non-competition and Non-solicitation Agreements
To be enforceable under North Carolina law, non-competition agreements must be:
- in writing;
- part of an employment contract or contract for the sale of a business;
- based on valuable consideration;
- reasonably necessary to protect a legitimate business interest; and
- reasonable as to time and territory.
North Carolina courts are strict in their review of such agreements, and they will not re-write an overly broad agreement to make it enforceable, even if the parties agree that it may. A court’s ability to alter an overly broad agreement is quite limited; it will only strike an overly broad provision if it is clearly severable from the rest of the agreement and the remaining provisions would be enforceable.
Non-competition and non-solicitation agreements are frequent subjects of litigation, so the case law is constantly evolving. That said, there are a few key points that employers should keep in mind.
- The offer and acceptance of the job is sufficient to meet the “valuable consideration” requirement that is necessary to create a valid agreement This is true only if the non-competition agreement is entered into at the beginning of the employment.
- If the non-competition agreement is entered into at some later time during the employment, additional consideration is required. Examples of additional consideration would include a raise, or a bonus, or something else of value to the employee.
- Don’t make the agreement too broad; the broader it is, the less likely it is to be enforceable.
- Agreements are more likely to be enforced if they are tailored to the type of job that the employee actually performs for the employer.
- The time period and geographic scope should be no greater than really necessary to protect the employer’s actual business interest.
While there are some differences between non-competition and non-solicitation agreements, non-solicitation agreements are generally analyzed by North Carolina Courts in the same manner as non-competition agreements.
Having clear and effective policies and agreements as outlined above when hiring new employees will provide clarity at the beginning of the relationship and hopefully avoid potential issues in the long run.
About the Author
Charlot F. Wood is an employment law attorney at the law firm of Bell, Davis & Pitt. Charlot’s practice also encompasses litigation, administrative & governmental law, and construction law. She has been recognized in the category of employment law by Business North Carolina’s Legal Elite awards and Best Lawyers®.