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Category Archives: Employment Law In Focus

Employment Law In Focus – August 2017

Employee v. Independent Contractor Status and North Carolina’s New “Employee Classification” Law

One of the “hottest” topics in federal and state wage & hour law continues to be the proper classification of workers. In short, are they “employees” subject to W-2 withholdings, company-provided benefits and state workers’ compensation laws, or are they “independent contractors” paid under an IRS Form 1099 without withholdings, benefits or workers’ comp coverage from the company?

On August 11, Gov. Roy Cooper signed into law the North Carolina Employee Fair Classification Act, N.C. Gen. Stat. § 143-761 et seq., which beginning December 31 takes our state further down the path of determining this key classification issue. Although the new legislation does not change existing definitions of “employee” and “independent contractor”, it does create an Employee Classification Section of the North Carolina Industrial Commission which, among other duties, administers our state’s workers’ compensation law. This Section will be empowered to receive and investigate reports of worker misclassification, and to provide for information sharing among various state agencies, including the Department of Labor, the Division of Employment Security, the Department of Revenue, and the Industrial Commission.

In short, the law provides a mechanism for workers to make complaints and may make it easier for affected state agencies to pursue employers who misclassify their workers. State licensing boards will be required to ask applicants to disclose investigations for employee misclassification and the outcome for a period of time to be determined. Failure to comply will result in denial of the license or permit.

Employers will be required to post a notice that includes the following information:

* That workers must be treated as employees unless they are independent contractors.
* That workers who believe they have been misclassified have the right to report the alleged misclassification to the Employee Classification Section.
* The physical and email addresses and telephone number where alleged misclassifications can be reported.

The classification provisions apply to “employees” as defined in the North Carolina Wage and Hour Act, the Employment Security Act, the Workers’ Compensation Act, and Chapter 105 of the General Statutes (Taxation). Elsewhere, the legislation also authorizes the Industrial Commission to adopt guidelines for the use of opioids and pain management treatment for compensable workplace injuries and illnesses.

All of which brings us to a quick reminder of how our courts and the United States and North Carolina Departments of Labor generally determine whether an individual is an “employee” or an “independent contractor.” The issue reached new heights when the US DOL in July 2015 issued a new Guidance on the existing “economic realities” test for making that determination. To help the inquiry, the DOL established six primary factors, none of which alone are likely controlling but all of which should be considered:

1) Is the work an integral part of the employer’s business? [The less integral the better for independent contractor status.]

2) Does the worker’s managerial skill affect the worker’s opportunity for profit or loss? [The more a worker manages his or her own business regarding profits and losses, the better for independent contractor status.]

3) How does the worker’s relative investment compare to the employer’s investment? [The smaller the worker’s investment the better for independent contractor status.]

4) Does the work performed require special skill & initiative? [The more special the skill & initiative, the better for independent contractor status.]

5) Is the relationship between the worker and the employer permanent or indefinite? [The more indefinite (and generally short-term), the better for independent contractor status.]

6) What is the nature and degree of the employer’s control? [The less control over the worker the better for independent contractor status.]

Notice that whether or not an individual has an independent contractor agreement isn’t even an itemized consideration. The reason is that while agreements like that can certainly help – and are generally recommended – the critical inquiry is how individuals are actually treated and conduct themselves in the workplace. In other words, the “economic realities” of the relationship, not what someone is called by agreement or otherwise.

Needless to say, the potential liabilities for employee misclassification can be tremendous, ranging from back payments for minimum wage obligations, overtime and benefits to FICA contributions and certain employer-employee tax requirements. All the more reason why every company should closely examine whether any worker engaged as an independent contractor satisfies the above six factors, taking appropriate corrective steps as needed.

 

This article was written by Kenneth P. Carlson, Jr. and Robin Shea of Constangy, Brooks, Smith & Prophete, LLP.

Employment Law In Focus – July 2017

An Evolving Tension: The NLRB, our Federal Courts and Civility in the Workplace

So what do a government agency, our federal court system and civility in the workplace have in common?  More than you might think, and this month’s Employment Law in Focus is intended to provide at least a beginning road map for navigating those issues.

It should first be said that the National Labor Relations Board (“NLRB” or the “Board”) is a federal agency whose sole existence is based on the employer-employee relationship.  In its own website words, the NLRB is “vested with the power to safeguard employees’ rights to organize and to determine whether to have unions as their bargaining representative. The agency also acts to prevent and remedy unfair labor practices committed by private sector employers and unions.”  In addition to those lofty goals, the NLRB has – according to many employers – unfortunately been an agency whose rulings over the past number of years have virtually endorsed incivility in the workplace.  How?  Simply stated, by shielding certain employee actions from disciplinary consequences under an ever-broadening interpretation of “protected, concerted activity” under the federal National Labor Relations Act (“NLRA” or the “Act’).

Protected, concerted activity refers to a provision in the NLRA that protects employees from adverse employment consequences based on having exercised certain workplace rights in a “concerted” manner (two or more individuals) to act for their mutual aid or protection regarding the terms and conditions of their employment.  Those terms and conditions are typically understood as wages, safety, policies & procedures, and other workplace conditions.  Significantly, those rights exist in both unionized and non-unionized workforces – so with the ever-declining union membership in the United States, the NLRB has revitalized its relevancy by addressing matters that don’t depend on whether a union actually represents employees of a particular company.  Combined especially with the impact of social media, where statements and writings by employees can be broadcast with the click of a computer mouse or a finger on a smartphone, then shared instantaneously with untold numbers of co-workers, management and individuals with no connection to either, certain actions that once existed only internally now have implications far beyond the walls of a corporate building.

So how has this led to civility concerns in the workplace?  Primarily through a series of NLRB opinions regarding disciplinary action taken against employees who, at least according to the employees and any union standing behind them, have done nothing more than exercise their purported protected, concerted activity “rights.”   However, certain examples of exercising those “rights” have also involved conduct that employers and even casual observers of common sense and decency have considered an outrage – all of which has led to courts upholding or reversing the disciplinary action, depending on the court, the law and the circumstances.

This tension between actions and comments that are protected by the NLRA and those that aren’t protected is perhaps best summarized by a well-settled principle that employees’ disparaging actions and comments lose the protection of the NLRA when they are “misleading, inaccurate or reckless or otherwise outside the bounds of permissible speech.”  Endicott Interconnect Technologies, 345 NLRB 448, 450 (2005) enf. denied in part on other grounds by Endicott Interconnect Techs., Inc. v. NLRB, 453 F.3d 532, 533 (D.C. Cir. 2006); see also Radisson Muehlebach Hotel, 273 NLRB 1464 (1985) (holding that an employer may lawfully maintain a rule that prohibits “malicious statements,” i.e. statements deliberately and maliciously made, with knowledge of their falsity or with reckless disregard of the truth.”).  Moreover, employers are entitled to establish rules to maintain a civil workplace, with the primary validity test being whether a reasonable employee would view a particular rule as supporting that proposition rather than viewing it as unlawfully prohibiting protected, concerted activity.  Costco Wholesale Corporation, 358 NLRB No. 106 (2012). 

All of that being said, a recent opinion from U.S. Court of Appeals for the Second Circuit (covering New York, Connecticut and Vermont) helps illustrate the dynamics that affect court interpretations of what constitutes protected, concerted activity – and in the process, it provides some helpful guidance for employers.

In Pier Sixty, LLC, an employer discharged an employee for the “protected concerted activity” of cussing about a supervisor on Facebook two days before a union election. Among other things, the employee posted, “Bob [the supervisor] is such a NASTY MOTHER F***ER don’t know how to talk to people!!!!!! F**k his mother and entire f***ing family!!!!What a LOSER!!!! Vote YES for the UNION!!!!!!!” (Asterisks not in original.)

The NLRB, after adopting an administrative law judge’s factual findings, had applied a “totality of factors” standard to determine whether the conduct warranted protection under the NLRA or was so vulgar and offensive as to lose the Act’s protection.  Perhaps surprisingly to many in the business world, the Board majority found the outburst protected – and here are the primary reasons:  (1) the employer had previously tolerated similar comments without imposing disciplinary action; (2) none of the comments actually disrupted anything involving customers; and (3) according to the Board majority, the employer had already shown enough hostility to the union that it transformed the comments into part of the campaign debate about management conduct itself.

Although the Second Circuit did not endorse the “totality of factors” standard, and even though it acknowledged that the conduct at issue was “at the outer bounds of protected, union-related comments,” it nevertheless gave deference to the Board’s interpretation and its finding that the conduct was not so vulgar or offensive that it lost the NLRA’s protection.  The court also allowed for how the Board could have reasonably determined the conduct was part of the union campaign debate, how the employer had previously tolerated similar conduct,, and how Facebook was a key means for employee communications in the union organizing efforts. Despite the public social media posting, the court also found that it was reasonable for the Board to determine that the employee had not done anything disruptive in front of customers.

While that decision might prompt outrage in the business community, it should also serve as a reminder of how important it is for employers to have and consistently enforce rules regarding employee misconduct and insubordination.  Both the NLRB’s and the Second Circuit’s outcome may have been different if the employer had been able to demonstrate consistent disciplinary consequences for similar vulgar and offensive behavior, all of which depends on appropriate employer policies, procedures and their consistent enforcement in the workplace. 

Helping that potential, and what should give employers a bit more hope for more favorable Board and court determinations, is that a change in majority on the NLRB from Democrat to Republican should give employers a more level playing field in the future.  And that change may occur soon.  In fact, on June 20, 2017, President Trump announced the nomination of attorney Marvin Kaplan to fill one of the two open NLRB seats expected to go to Republican nominees.  Mr. Kaplan is counsel for a commissioner at the Occupational Safety Health and Review Commission, which hears occupational safety and health (OSHA) matters. Earlier this week, the Trump administration also announced the nomination of William Emanuel, a management-side labor and employment lawyer, to fill the other vacancy. After the nominees’ anticipated confirmation by the Senate, the five-member Board will have a Republican majority.  In addition, Chairman Philip Miscimarra, a Republican appointed by President Obama, has a term ending in December 2017, and he could accept another term if nominated.

 

This article was written by Kenneth P. Carlson, Jr. of Constangy, Brooks, Smith & Prophete, LLP with contributions by David Phippen of Constangy’s Washington DC Metro Office.

Employment Law In Focus – June 2017

Immigration, OSHA, the Supreme Court and the White House – Navigating the Most Recent Developments

Two of the most recent developments under the Trump administration affecting employers include the Supreme Court’s allowance of a limited “travel ban” for travelers to the United States from certain countries based on potential terrorism concerns, and a delay and further potential changes regarding OSHA’s new requirement to electronically submit injury summaries.  The following are brief summaries of both developments that should help navigate them.

 

What the Supreme Court’s “Travel Ban” Means for Employers
By Will Krasnow, Boston Office – Constangy, Brooks, Smith & Prophete, LLP

The U.S. Supreme Court issued a preliminary ruling on June 26, 2017 in the Trump Administration’s challenges to lower court decisions on the “travel ban.” The Administration had sought to:

* stay preliminary injunctions issued against the revised travel ban issued March 6 and upheld by U.S. Courts of Appeal for the Fourth and Ninth Circuits; and
* seek Supreme Court review on the merits of the Court of Appeals decisions.

In its ruling, the Court granted the Administration’s request for a stay of the preliminary injunctions, but only in part. The Court also granted the Administration’s petition for certiorari and directed that the cases be consolidated and set for argument in the first session of its October 2017 term.

The revised travel ban applied to foreign nationals of six countries – Iran, Libya, Somalia, Sudan, Syria, and Yemen – with certain exceptions, including ones for lawful permanent residents of the United States. The revised travel ban was a moderated version of the original ban, which was issued on January 27 and was almost immediately enjoined by a federal court in Washington State, which was affirmed by the Ninth Circuit. After the revised travel ban was issued in March, the revised ban was enjoined in part by a federal court in Maryland (affirmed by the Fourth Circuit) and in total by a federal court in Hawaii (affirmed in large part by the Ninth Circuit). The Government is seeking Supreme Court review of the Fourth Circuit decision and the Ninth Circuit decision related to the Hawaii case.

The Supreme Court said that the injunctions would remain in place (meaning that the travel ban will not be enforced) where the foreign national from one of the six designated countries has “a credible claim of a bona fide relationship with a person or entity in the United States.” Personal relationships could include family members in the United States. Relationships with entities could include employment, or acceptance or enrollment at a university, in the United States. According to the Court, relationships with entities “must be formal, documented, and formed in the ordinary course, rather than for the purpose of evading [the revised travel ban].”

To this extent, the majority on the Court agreed with the lower courts that the harm to the affected U.S. family members and entities resulting from enforcement of the revised travel ban arguably outweighed the Government’s national security interests.

On the other hand, with respect to foreign nationals who lack these bona fide relationships with persons or entities in the United States, the Court stayed the injunctions (meaning that the travel ban will be enforced), finding that “the balance tips in favor of the Government’s compelling need to provide for the Nation’s security.”

Justice Clarence Thomas, joined by Justices Samuel Alito and Neil Gorsuch, dissented in part, arguing that the injunctions should have been stayed in their entirety.

What is the practical impact of the Court’s decision?

Until the Supreme Court issues a final decision after arguments in the fall, the revised travel ban will not be enforced with respect to foreign nationals from the six designated countries who are coming to the United States pursuant to a “close relationship” with a family member in the United States or a documented, pre-existing relationship with a U.S. entity.

The revised travel ban will be enforced with respect to foreign nationals from the six countries who do not have these relationships, including – for example – “a nonprofit group devoted to immigration issues” that “contact[s] foreign nationals from the designated countries, add[s] them to client lists, and then secure[s] their entry by claiming injury from their exclusion.”

These same distinctions will apply to the refugee cap in the revised travel ban.

There is some concern that U.S. Customs and Border Protection officials at the port of entry will be burdened with deciding in some cases whether the applicant (e.g., a person entering on a tourist visa) has a sufficiently documented connection to a U.S. source. That decision making may slow the entry process and could lead to further litigation when entries are denied.

However, it does not appear that this will be a problem in clear cases, such as students with student visas, or individuals with family or employment-based visas.

 

OSHA Proposes To Give Employers Until Dec. 1 to Electronically Submit Injury Summaries — and Will Propose Changing Other Parts Of The Rule.
By Bill Principe and Pat Tyson, Atlanta Office – Constangy, Brooks, Smith & Prophete, LLP

The Occupational Safety and Health Administration (OSHA) announced some time ago that it was going to require certain employers to submit their Form 300A annual injury and illness summaries electronically. This requirement was part of the Agency’s new final rule to “Improve Tracking of Workplace Injuries and Illnesses,” promulgated during the Obama Administration. Electronic versions of the Form 300A summaries for 2016 would have been due July 1, 2017.

However, the Agency published a Notice of Proposed Rulemaking in the June 28, 2017 Federal Register to extend the July 1 deadline for five months, until December 1, 2017. In addition to proposing the five-month delay, OSHA announced in the Notice that it intends to issue a separate proposal to reconsider, revise, or remove other provisions of the new injury and illness tracking rule. Besides the electronic submission requirement, that new rule, issued on May 12, 2016, also includes controversial new anti-retaliation requirements that OSHA interpreted as restricting post-injury drug testing and incident-based safety incentive programs. Also controversial, and likely to be part of OSHA’s planned reconsideration, was the Obama Administration’s plan to post the injury and illness information submitted by employers on OSHA’s website. OSHA will accept comments on the due date extension proposed in this most recent Notice until July 13, but will not yet consider any comments on other provisions of the new rule.

Primarily, the new injury and illness tracking rule requires larger establishments with at least 250 employees at any time during the previous calendar year to submit their OSHA 300 Logs, 301 Incident Reports, and 300A Annual Summaries to the Agency through a new website that would allow, with very limited exceptions, for public access to that information. Smaller establishments, with at least 20 employees, in certain industries with high injury and illness rates, are required to submit the information from their 300A Annual Summary to the new OSHA injury and illness website each year. These electronic submission requirements were to be phased in over a two-year period. Before this proposed extension, both larger and smaller establishments would have been required to submit their 300A Forms – but not the OSHA 300 logs or the 301 Incident Reports – by July 1.

This article was written by Kenneth P. Carlson, Jr. of Constangy, Brooks, Smith & Prophete, LLP

Employment Law In Focus – May 2017

Nine Traits of a Bang-Up Investigation

What makes a workplace investigation so good that you can’t wait to show the EEOC investigator or a plaintiff’s attorney what you did?  All right, maybe nothing would make it that good – but here are nine things employers can do to help ensure that they at least won’t be ashamed of their workplace investigations:

No. 1:  The investigator is unbiased.  And ideally doesn’t have extensive, intimate knowledge about all of the personalities involved. An investigator who knows too much may have a hard time keeping an open mind. That’s one reason why larger companies often send in someone from the corporate office to investigate. Smaller companies may find it more difficult to find an investigator with that blissful ignorance. But they can consider bringing in someone from outside, like a lawyer or an HR consultant. If that isn’t possible, then the investigator will just have to temporarily put aside what he knows, to the best of his ability, while the investigation takes place.

No. 2:  The investigator doesn’t have a “conflict of interest.” In this context, that means the investigator has authority over everyone involved in the alleged incident, including the authority to take appropriate action against whomever is determined to be the wrongdoer. She should be in a position to “let the chips fall” and to recommend corrective action without having to fear retaliation.

No. 3:  The investigator knows how to conduct a workplace investigation. Oh, the horror stories we’ve seen! Here’s one: Employee accuses supervisor of sexual harassment. “Investigator” asks supervisor whether he did it. Supervisor says no. OK! Case closed! If your investigator is inexperienced, have him read points 4-9 below – or attend a seminar. You won’t regret it.

No. 4:  The investigator talks to everybody who might know something. This would obviously include the accuser and the accused. But it also includes any witness identified by the accuser or the accused. It also includes any witness identified by the witnesses. And any witnesses identified by the witnesses’ witnesses. Yes, this could go on for some time.  But you don’t ever want to be accused of failing to follow all possible leads that might reasonably generate relevant information. And if during the process you get an admission or other conclusive evidence, then you may be able to stop before having to talk with everyone.

No. 5: The investigator knows the difference between a “fact” and a “conclusion,” and knows that “facts” are better. Which of these tells you what you need to know? (1) “Joey is a sleazebag” (a conclusion), or (2) “Joey grabbed Mary on Friday, and I saw him do it” (a fact — or, at least, a specific factual allegation)?

No. 6:  The investigator knows to review other evidence as applicable. This could include things like personnel records, work schedules, financial records, security camera footage, voice mail messages, and emails and other IT information. And much more, depending on the circumstances. The investigator should not be afraid to ask for help from a qualified expert (such as an IT professional) when she needs it.

No. 7:  The investigator frequently refers to the applicable company policy while conducting the investigation to make sure he is following it.  Plaintiffs’ attorneys love to get copies of employer policies, and then point out all the ways the employer didn’t follow them. (Often referred to as “shooting fish in a barrel.”) For this reason, if no other, whoever conducts a workplace investigation should frequently refer to any applicable policy as an investigation “checklist” of sorts – and especially if the policy itself is on conducting investigations.

No. 8:  The investigator maintains confidentiality as much as practicable.  Perfect confidentiality is not possible — otherwise, how would it be possible to investigate anything? But the investigator can refrain from sharing information with those who do not have a legitimate need to know. And witnesses should also be cautioned to keep the investigation confidential, identifying only the investigator or certain designated management officials for contacting in the future if the witness thinks of any additional information.  (Note: Our National Labor Relations Board has been challenging certain “confidential” designations like this – but we’ll see if that continues under the current administration.)

No. 9:  The investigator consults with others as needed during the course of the investigation and in determining what happened. This may include legal counsel, but it might also include other experienced Human Resources personnel, the employee’s manager and supervisor, “experts,” and others, depending on the nature of the investigation.

This article was written by Robin E. Shea of Constangy, Brooks, Smith & Prophete, LLP

Employment Law In Focus – April 2017

Covenants Not to Compete and Trade Secrets: Protecting Your Company Against Unfair Competition

It always seems to happen when you least expect it.  Employment ends for a valuable worker who soon transforms into the corporate version of Benedict Arnold. But instead of a country, it’s a company being betrayed – and instead of military secrets, it’s financial data, customer lists, marketing strategies or other confidential information being taken or used.  Not to mention the act of suddenly going to work for a direct competitor.

So management meets and the question is asked:  “Can we stop this?”  The answer, of course, is usually the truest words spoken in trade secret and covenant not to compete law:  “It depends.”

There are two main strategies to protect a company against unfair competition and the misappropriation of trade secrets.  First is the more traditional approach of using and enforcing covenants not to compete – also known as noncompetition or noncompete agreements – which often include confidentiality and nondisclosure provisions as well.  Second is implementing a trade secret protection program, or at least taking reasonable steps to preserve the secrecy of confidential information, so you can at least argue the information is a “trade secret” when litigating a misappropriation claim in the future.

Both strategies have advantages and disadvantages, and depending on the circumstances, can be quite valuable in protecting customers and confidential corporate information.  This article provides a general overview of the most critical points for companies to be aware of in this rapidly developing area of law.

Covenants Not To Compete

Contrary to popular belief, covenants not to compete are enforceable in North Carolina and most states.  The key is whether they’re in writing, signed by the employee, supported by valuable “consideration” (such as new employment, a monetary payment or other tangible benefit), reasonable as to time and territory, and whether they satisfy any other particular requirements of the applicable state.  But it is also true that courts consistently look for ways to defeat noncompete agreements, placing the factual and legal burden squarely on the company to have drafted and executed these restrictive covenants in a proper manner.  If so, then the chance of enforcement is usually good.  If not, then count on a difficult time before a judge or jury.

Assuming that valuable consideration has been provided through the act of employment or another form of payment, the critical inquiry is whether a noncompetition agreement protects only the “legitimate business interests” of a company.  This inquiry is extremely fact-specific, and is usually a function of whether the time and territory restrictions, and any definitions of “competition,” are reasonable enough to enforce or unenforceable due to being unreasonably broad.  As a general rule, time and territory are considered in tandem, with the longer the time period the smaller the territory in order to be valid – and vice-versa.  In North Carolina, two years is usually considered the outer limit for an enforceable covenant not to compete in the employer-employee context, and the geographical territory should usually be tailored to only where the company actively conducts a significant amount of business.  In addition, North Carolina law has developed in such a way that former employees should only be restricted from actually working in those areas of their new employer that are actually competitive with the former employer, and preferably to only those areas of business in which the employee was formerly actively engaged.

Closely linked to noncompetition agreements are “nonsolicitation” restrictive covenants.  These are often part of the same written agreement, but can also be executed independently or instead of a more traditional noncompete.  Nonsolicitation agreements usually protect against a former employee soliciting to sell or selling to a company’s customer base for a limited period of time (two years again being a general maximum), with the key legal inquiry being: (1) whether the customers at issue are narrowly enough defined; (2) whether the activity being prohibited is truly competitive in nature; and (3) whether the former employee actually had material contact with the customers, or at least held a high enough position in the company (such as a vice president of sales) to where he or she regularly received confidential information regarding them, or had broad authority over other employees responsible for soliciting them.

As with noncompete agreements, the more limited the restriction the more likely a nonsolicitation agreement will be enforceable.  Unlike noncompete agreements, however, nonsolicitation restrictions usually do not require a geographical territory – rather, they’re primarily based on where the company’s customers are located.  In this sense, many courts consider nonsolicitation agreements to be a more limited, and therefore more enforceable, form of restrictive covenant, provided of course that the other requisites for an enforceable agreement are met.

Unfortunately for companies, what may be reasonable and legitimate in one set of circumstances may be quite unreasonable and illegitimate in another.  This inquiry is also governed by state law, which can be a hidden trap for multi-state corporations that use “form” noncompete agreements, as what works in one state might not work in another.

As a general rule, multi-state covenants not to compete should be avoided in favor of state-specific agreements – or at least fine-tuned for a specific state’s law if they’re used.  However, if a single format is implemented, the noncompete agreement should be drafted to satisfy the law of the most conservative state – i.e., the state where it is most difficult to enforce them.  In short, if that state’s requirements are satisfied, then odds are the requirements of less restrictive states will also be met.  But since taking this approach may sacrifice certain restrictive covenant goals that are quite valid in other states, extra care should be given to help ensure that the concern for enforcement in general does not override any critical interests which might justify state-specific formats.

If the noncompetition agreement has confidentiality and nondisclosure provisions, this can also be a helpful avenue for protecting trade secrets.  That way, even if the noncompete portion of the agreement is for some reason unenforceable, the confidentiality section might remain in effect and provide another type of breach of contract action for protecting the company.

But what happens when there is no covenant not to compete?  Or when the noncompete agreement and its confidentiality provisions are unenforceable or not comprehensive enough to adequately protect the company?  Enter the world of trade secret protection – a rapidly growing area of intellectual property law that’s usually quite separate from the traditional intellectual property fields of patent, trademark and copyright law.

Trade Secret Protection

Trade secret law frequently overlaps with enforcing covenants not to compete, but is so distinct that it can and often does stand alone.  In fact, if trade secrets truly are at issue, it can be the preferred avenue for litigation, especially in light of a poorly drafted or improperly executed noncompete agreement that probably is not enforceable.

Unlike covenants not to compete, which are usually governed by a state’s common law, trade secret law is often governed by statute.  In fact, all but two states have now adopted some version of the Uniform Trade Secrets Act, including North Carolina.  Unlike covenants not to compete, a written agreement is helpful but not required to protect trade secrets.  Therefore, trade secret law has much more flexibility than litigation involving covenants not to compete — assuming, of course, that you can prove trade secrets actually exist and have been misappropriated.

On this point, think of the Venn diagrams you probably learned in ninth grade geometry.  Then place a small circle consisting of trade secrets within a larger circle of information your company considers confidential and proprietary.  This illustrates the first key principle in trade secret law:  All trade secrets are confidential, but not all confidential information is a trade secret.  Which directly leads to the second key principle:  No matter how confidential the trade secret, if not properly cared for and protected it may lose its “trade secret” status.

Although case law varies as to what constitutes a “trade secret”, courts have generally held that it can include such diverse information as pricing, cost and other financial data, marketing strategies, product design information, research & development, feasibility forecasts, compilations of commonly known information into a unique formula, and in certain circumstances, even customer lists.  In short, trade secrets can consist of virtually any information, process, method or system if it has “independent actual or potential commercial value” and reasonable steps have been taken to preserve the very secrecy from which its value derives.

Once a trade secret is proven, then for legal action it must also be “misappropriated.”  Again, what constitutes misappropriation varies according to state law.  Typically, misappropriation is defined as the acquisition, disclosure or use of someone else’s trade secret through improper means or at least without express or implied authority or consent – unless the trade secret was arrived at by independent development, reverse engineering, or was obtained from another person with a right to disclose it.  To establish a valid claim of misappropriation, a party usually must show that the defendant knew about the trade secret and had a specific opportunity to acquire it for disclosure or use, or did in fact acquire, disclose, or use it through improper means or without the trade secret owner or possessor’s authority or consent. 

Because confidential information is not always a trade secret, the stories are legion of companies that fail the initial requirement of demonstrating a trade secret exists, regardless of whether the information has been “misappropriated.”  In addition, this realization often comes too late – after the company sues for misappropriation only to have its opponent show how reasonable steps were never taken to maintain the information’s secrecy.  In other words, if a company is going to allege trade secrets, it must be proactive from the start.  Long before a lawsuit is filed to protect them.

One of the best methods for designating confidential information as trade secrets is to implement a corporate program to achieve this objective – and since “reasonable steps to preserve secrecy” are critical to proving that trade secrets, those measures should be taken sooner rather than later.  The steps in a trade secret protection program may vary by company and the type of information being protected, but in general the process involves at least the following:  (1) identify and classify all information you consider “confidential”;  (2) improve internal and external physical security [from passwords and confidential markings to limiting facility access];  (3) address employee relationships by implementing internal confidentiality policies, noncompete agreements and/or other security measures; and  (4) protect against third-party disclosures by taking appropriate confidentiality measures with vendors, suppliers, co-manufacturers and visitors.

Conclusion

Although much more can and should be considered about covenants not to compete and implementing a trade secret protection program, this article provides a general overview of the key concepts in drafting restrictive covenants and protecting against unfair competition.  Always remember, though, that each company’s situation is different and should be analyzed separately with agreements and programs tailored to its specific needs.  Although the burden is squarely on employers when enforcing noncompete agreements and pursuing trade secret claims, the good news is that unfair competition can be avoided, and that customers, marketing strategies, financial data and other confidential information can be protected.  The key is doing it in the right manner at the right time – and unlike Benedict Arnold, for all the right reasons.

This article was written by Ken Carlson of Constangy, Brooks, Smith & Prophete, LLP

Employment Law In Focus – March 2017

Religion at Work – Rights & Responsibilities

Every year at this time of year, with Christmas and Hanukkah behind us and Easter just weeks away, employers often receive questions about religion at work that may not be raised at other times.  So it might be helpful to summarize certain rights and responsibilities of both employers and employees when addressing religion in the private workplace.

First, most work-related issues concerning religion normally fall under three areas:  discrimination, harassment and accommodation.  Claims under each of those areas have risen dramatically through the years – to the point that last year, various federal agencies announced a new interagency initiative to oppose religious discrimination and promote religious freedom in the workplace.  Those agencies at least included the United States Equal Employment Opportunity Commission (EEOC), Department of Justice and the Department of Labor’s Office of Federal Contract Compliance, with the EEOC taking the lead due to its role in enforcing Title VII of the Civil Rights Act of 1964, our primary federal law prohibiting religious and other forms of discrimination at work.

Concerning Title VII – which only applies to employers with at least 15 employees – the main provision expressly addressing religion at work is Section 2000e-2.  This section states (with emphasis added):

(a) It shall be an unlawful employment practice for an employer –

(1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin; or

(2) to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual’s race, color, religion, sex, or national origin.

Like many employment laws prohibiting workplace discrimination, however, the devil is in the details with religion.  For example, “religion” under Title VII is not just the primary religious faiths most encountered in the United States, such as Christianity, Judaism, Islam, Buddhism and Hinduism, but rather any “sincerely held belief” or practice.  This standard is generally interpreted quite broadly to include any belief system addressing ultimate ideas about life, death and the purpose of existence – including belief systems that are comparatively “new” or “uncommon.”

Workplace protections also apply to conduct motivated by religion, such as prayer, worship, clothing and personal hygiene, which can and often do have a direct impact on commonly accepted practices such as work hours, work schedules and dress codes.  Although in limited circumstances an employer may satisfy the “religious organization” or “ministerial” exception that enables preferring one religion or religious faith over another (such as being Methodist in order to be hired as the director of Christian education at a Methodist church), most employers and job positions do not satisfy that standard.  Rather, like society at large, most workplaces are quite diverse and secular enough in practice that Title VII’s mandates and prohibitions apply.

Perhaps the best way to understand an employer’s obligations not to discriminate against employees on the basis of religion is to summarize Title VII’s legal requirements for stating one of the most commonly alleged claims – failure to “reasonably accommodate” the individual’s religious practices.  To state a failure to accommodate claim, the employee-plaintiff must generally demonstrate:  (1) a bona fide religious belief that conflicts with the employer’s requirement; (2) that he or she informed the employer of that belief; and  (3) that he or she was disciplined, not permitted to engage in a particular religious practice, or suffered some other adverse action for not complying with the conflicting employment requirement.

Assuming those elements can be shown, the employer-defendant must generally demonstrate that it did, in fact, provide the employee with a reasonable accommodation that sufficiently allowed the employee’s religious practice or observance, or that it could not provide such an accommodation without creating an “undue hardship” on the company.  Significantly, any reasonable accommodation that adequately addresses the situation will satisfy the employer’s obligation – and it does not need to be the employee’s “preferred” accommodation.  However, it will also be difficult to deny a particular accommodation as an undue hardship unless it adversely affects seniority rights concerning certain workplace practices (such as time off or work schedules), or if its effect imposes “more than a de minimis [minimal] cost or burden on business operations.” (EEOC Questions and Answers: Religious Discrimination in the Workplace, www.eeoc.gov/policy/docs/qanda_religion.html).  In making that determination, the EEOC usually considers “administrative costs” for enabling work assignment rescheduling to be only de minimis, factoring in the costs expended relative to the employer at issue along with the number of employees that would be accommodated.  In addition, other factors that can show “undue hardship” include at least the following:

* Diminishing efficiency or impairing safety
* Infringing on other employees’ rights or benefits
* Making co-workers carry the employee’s share of potentially hazardous or burdensome work
* Conflicting with another law or regulation

Examples of potential religious discrimination provided by the EEOC include the following, which also serves as a good overview of the type of issues that employers often face with employees or applicants:

Religious observances or practices include, for example, attending worship services, praying, wearing religious garb or symbols, displaying religious objects, adhering to certain dietary rules, proselytizing or other forms of religious expression, or refraining from certain activities. Whether a practice is religious depends on the employee’s motivation. The same practice might be engaged in by one person for religious reasons and by another person for purely secular reasons (e.g., dietary restrictions, tattoos, etc.).

Discrimination based on religion within the meaning of Title VII could include, for example: not hiring an otherwise qualified applicant because he is a self-described evangelical Christian; a Jewish supervisor denying a promotion to a qualified non-Jewish employee because the supervisor wishes to give a preference based on religion to a fellow Jewish employee; or, terminating an employee because he told the employer that he recently converted to the Baha’i Faith.

Similarly, requests for accommodation of a “religious” belief or practice could include, for example: a Catholic employee requesting a schedule change so that he can attend church services on Good Friday; a Muslim employee requesting an exception to the company’s dress and grooming code allowing her to wear her headscarf, or a Hindu employee requesting an exception allowing her to wear her bindi (religious forehead marking); an atheist asking to be excused from the religious invocation offered at the beginning of staff meetings; an adherent to Native American spiritual beliefs seeking unpaid leave to attend a ritual ceremony; or an employee who identifies as Christian but is not affiliated with a particular sect or denomination requests accommodation of his religious belief that working on his Sabbath is prohibited.

. . . .

Religious harassment in violation of Title VII occurs when employees are: (1) required or coerced to abandon, alter, or adopt a religious practice as a condition of employment (this type of “quid pro quo” harassment may also give rise to a disparate treatment or denial of accommodation claim in some circumstances); or (2) subjected to unwelcome statements or conduct that is based on religion and is so severe or pervasive that the individual being harassed reasonably finds the work environment to be hostile or abusive, and there is a basis for holding the employer liable.

 EEOC Questions and Answers: Religious Discrimination in the Workplace, www.eeoc.gov/policy/docs/qanda_religion.html.

As a practical matter, most religion-at-work issues involve the following concerns, with employer responses guided by the principles discussed above along with other issue-specific variations:

1. Clothing, Jewelry, Makeup & Body Piercing – Employer considerations include at least safety and dress code issues, and can be influenced by factors such as regulatory compliance, manufacturing or production requirements, and in certain situations even community standards, public image or customer relations concerns. For example, an employee in a safety-sensitive job operating dangerous machinery could be prohibited from wearing a flowing religious robe or headdress due to safety rules, provided that other forms of loose-fitting clothing, hats or headgear are also prohibited.  That same prohibition, however, might not apply to a receptionist, sales person or administrative assistant because their positions do not have similar safety-related issues.  And given their relatively non-intrusive nature, it could be quite difficult if not impossible to legally prohibit certain forms of makeup, perfumes, facial markings or body piercings based on a sincerely held religious belief or practice.  However, such a prohibition could occur if they’re offensive in content or otherwise violate a reasonable community-based standard, or if they could reasonably be seen as adversely affecting the employer’s public image or customer relations in a manner that has nothing to do with unlawful discriminatory behavior.

2. Speaking About Religion or Religious Views – As a general rule, and surprisingly for many people, if an employer allows other non-work related discussions at work (which virtually all employers permit), it cannot have a blanket prohibition against religious discussions. However, there are limits – and those limits usually involve crossing an often unclear line from merely discussing religion to actual evangelism or proselytizing, which generally can be prohibited (especially if complained about by other employees).  Employers can also open the door to Title VII liability if they have employer-mandated religious practices, such as prayer sessions or Bible readings, or allow a work environment to exist that arguably pressures employees to participate in those practices even if not actually “required.”

3. Accommodating Religious Practices with Work Schedules and During Working Hours – Employees who ask not to work on a particular day because it’s their Sabbath or other day of worship (such as a Sunday or Saturday), or on specific shifts (such as Wednesday evenings that might interfere with a weekday service or Bible study), may need accommodating – provided, of course, that their request is based on a “sincerely held” religious belief or practice. Normally, employers facing such requests are required to provide any reasonable adjustment that allows the employee to practice his or her religion without undue hardship to the employer.  Those adjustments could at least include the following: flexible scheduling, voluntary substitutions or swaps, job reassignments and lateral transfers, providing short breaks and a private room for daily prayer (unpaid time for hourly, nonexempt employees), modifying workplace policies or practices (such as dress code and personal appearance policies), or other “de minimis” steps that are reasonable under the circumstances.

Certain “red flags” in the workplace can also be helpful in terms of recognizing potential Title VII problems:  (1) if religion is being used as a basis for hiring, raises, promotions or discipline; (2) if the employer refuses to consider any accommodation for religious preferences; (3) if any evangelism, proselytizing or other religious action is unwelcome; or (4) if an adverse employment action is based on a customer preference based on religion. 

To summarize, as a general rule employers must allow religious talk and activities to the extent they allow other non-work related discussions and behavior in the workplace.  While employers can be vocal about religious preferences, they cannot require or take adverse action against employees who do not agree with or subscribe to those preferences.  Employers should also avoid actions that could reasonably be understood as creating implied pressure for employees to conform to a specific religion or religious view.

In addition, any complaint about religion, religious practices or religious behavior in the workplace, or any request to accommodate an employee’s religious faith or observance, should be promptly addressed.  It is especially important that employers take every such complaint or request seriously, investigating or considering it as appropriate.  If reasonable accommodations are requested, and can be made in accordance with Title VII, then those steps should be taken.  If not, the employee should be informed as to the legitimate business reason why their accommodation request is being denied.  If a complaint or concern is made over religious discrimination, harassment or other inappropriate actions based on religion, then it should be properly investigated.  If the complaint or concern is found to have merit, then prompt remedial action should be taken.  Employers should also have a strong policy against religious discrimination and harassment in the workplace, distributing it to their employees and enforcing it as needed.  Not only are those steps the “right” thing to do under federal law and for purposes of proper employee management, they can also provide certain key defenses if the employer is ever sued.

In short, religion in the workplace can be a minefield of sorts, often due to its somewhat ill-defined nature as any “sincerely held” belief or practice.  But the minefield can be successfully navigated, and the rights and responsibilities as discussed above – of both employers and employees – hopefully help that process.  Not only throughout, but especially at, this time of year.

This article was written by Ken Carlson of Constangy, Brooks, Smith & Prophete, LLP

Employment Law In Focus – February 2017

So Whose Employee Are You Anyway?

With little if any fanfare, the U.S. Court of Appeals for the Fourth Circuit recently established a new legal “test” that will impact federal wage & hour and likely other Department of Labor (DOL) obligations in North Carolina and other states within its jurisdiction.  The test is for when two business entities should be considered “joint employers” of the same employee, at least for minimum wage and overtime purposes of the Fair Labor Standards Act (FLSA) – and its primary effect will likely be most evident in contractor-subcontractor and temporary help services arrangements.

In Mario Salinas v. Commercial Interiors, Inc., the Fourth Circuit reversed a lower federal district court in Maryland which had granted a pre-trial summary judgment motion to the defendant contractor and led to the case being dismissed.  However, due to the reversal, the contractor was now liable for wages, including overtime wages, of the defendant subcontractor’s employees due to being a “joint employer”, as the subcontractor had since gone out of business leaving a large number of workers unpaid for work performed.

The case was decided on January 25, 2017, and essentially began by noting a number of facts that demonstrated the contractor’s direction and control of the subcontractor’s employees.  Those facts at least included daily supervision by the contractor, regular required meetings in which the subcontractor’s employees were provided instructions on the projects they needed to complete and the methods for doing so, and the contractor’s ownership and providing of virtually all the tools, equipment and material needed for the employees to complete their tasks.

The Fourth Circuit then discussed how “the joint employment doctrine: (1) treats a worker’s employment by joint employers as ‘one employment’ for purposes of determining compliance with the FLSA’s wage and hour requirements and (2) holds joint employers jointly and severally liable for any violations of the FLSA.”  The Court then provided six factors that will now control the joint employer determination, none of which are all-controlling or all-inclusive:

“(1) Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to direct, control, or supervise the worker, whether by direct or indirect means;

(2) Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to—directly or indirectly—hire or fire the worker or modify the terms or conditions of the worker’s employment;

(3) The degree of permanency and duration of the relationship between the putative joint employers;

(4) Whether, through shared management or a direct or indirect ownership interest, one putative joint employer controls, is controlled by, or is under common control with the other putative joint employer;

(5) Whether the work is performed on a premises owned or controlled by one or more of the putative joint employers, independently or in connection with one another; and

(6) Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate responsibility over functions ordinarily carried out by an employer, such as handling payroll; providing workers’ compensation insurance; paying payroll taxes; or providing the facilities, equipment, tools, or materials necessary to complete the work.”

The Court further emphasized that since these six factors are not exhaustive, additional facts may also apply to any joint employer determination.

So, in what situations can employers expect this new test to be applied? In answering that question, the Court started with the DOL’s regulations, which draw a distinction between “separate” or “entirely independent” employment versus “joint” employment (when “two persons or entities are ‘not completely disassociated’”) (citing 29 C.F.R. § 791.2(a)). In making that distinction, the Court observed how the DOL also identifies several “nonexclusive scenarios in which joint employment, as opposed to separate employment, generally exists:

(1) Where there is an arrangement between the employers to share the employee’s services, as, for example, to interchange employees; or

(2) Where one employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee; or

(3) Where the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.”

In short, the new Salinas joint employer test will apply to any business setting in which employees are shared between employers, where one employer acts in the interests of the other in a manner that affects the employee(s) at issue, where there is direction and control by one employer over the other employer’s employees, or where there is enough “common control” by one employer of the other to effectively “associate” the two entities in such a manner that joint employment may occur. Employers that do not want “joint employer” status in any of these settings would be wise to consult with their labor and employment counsel to proactively institute measures that take into account the new “six factors”. And which, if properly implemented in their specific situation, might avoid such a determination if an employee’s “separate” status is ever challenged before the DOL or in court.

This article was written by Ken Carlson of Constangy, Brooks, Smith & Prophete, LLP

Employment Law In Focus – January 2017

DON’T GO AWAY! What President Trump’s Immigration Executive Order means for employers and the foreign nationals they employ.

This month’s Employment Law in Focus addresses President Trump’s recent Executive Order entitled “Protecting the Nation From Foreign Terrorist Entry Into the United States.”  Signed last Friday, January 27, 2017, the Order has caused days of chaos at the nation’s airports, numerous protests in this country and abroad, reprisals by at least one foreign state, the termination of the acting U.S. Attorney General, and at least four federal courts to enjoin portions of its mandates.

Although a partial reversal and some clarification was issued on Sunday evening, much about the Order is still in a state of flux.  So this article is intended to provide at least some employer guidance as to what the Executive Order actually does and doesn’t mean for them and their foreign nationals – as of January 31, that is.  It’s written by two of Constangy’s top immigration attorneys, Will Krasnow in Boston [(617) 849-7878; wkrasnow@constangy.com] and Jeanette Phelan in Jacksonville, Florida [(904) 357-2663; jphelan@constangy.com], with a major caveat in mind:  stay tuned.

In summary, the best guidance at this point for employers of non-immigrant visa holders from the countries specifically identified in the Order is to caution those employees to stay in the United States if they are already here. Indeed, even if the individual is a permanent lawful resident (holder of a green card) or is from a Muslim-majority country that is not on the list, non-essential travel outside the United States should be avoided, as will be discussed in more detail below.

Key provisions of the Executive Order

Rationale. The stated rationale for the Order is to prevent terrorists and terrorist sympathizers from coming to the United States. Section 2 of the Order says, “The United States must be vigilant during the visa-issuance process to ensure that those approved for admission do not intend to harm Americans and that they have no ties to terrorism.” The Order also says that immigrants coming to the United States should share “American” values – that is, they should not hold “violent ideologies,” “engage in acts of bigotry or hatred” based on religion or sex, or advocate “oppression” based on “race, gender, or sexual orientation.”

Suspension of admission to United States. Section 3 of the Order directs the Secretary of Homeland Security to determine what information is needed from countries to confirm the identity of the person seeking a “visa, admission to the United States,” adjudication, or other “benefit” under the Immigration and Naturalization Act, and to determine that the person “is not a security or public-safety threat.” The DHS report is due 30 days from January 27, the date of the Order

In the meantime, entry of individuals (both immigrant and non-immigrant) from seven specified countries is suspended for a period of 90 days from the date of the Order.  The affected countries are Iran, Iraq, Libya, Somalia, Sudan, Syria, and Yemen. A “Practice Alert” from the American Immigration Lawyers Association notes that the Order does not define “from.” “Thus, in an abundance of caution,” the AILA publication says, “it may be best to interpret the term broadly to include passport holders, citizens, nationals, dual nationals, etc.”

The Order did not make an exception for individuals from these countries who were already lawful permanent residents of the United States. However, Section 3(g) of the Order allows the State and Homeland Security departments to make exceptions to the suspension “on a case-by-case basis” “in the national interest.”

On Sunday evening, after several courts had enjoined various parts of the Order, John Kelly, Secretary of Homeland Security, apparently taking advantage of the Section 3(g) exception, issued a statement saying that admission of “lawful permanent residents” was determined to be “in the national interest.” In the statement, Secretary Kelly also said that “absent the receipt of significant derogatory information indicating a serious threat to public safety and welfare, lawful permanent resident status will be a dispositive factor in our case-by-case determinations.”

This indicates that green card holders – even if they are from one of the seven “suspended” countries – should now be admitted into the United States notwithstanding the 90-day suspension.

Section 3 of the Order provides that, once the Secretary of Homeland Security determines what information is needed to “vet” foreign nationals, the Secretary of State will notify the affected countries and give them 60 days to begin complying. After that 60-day period, State and Homeland Security will prepare a revised list of “suspended” countries. The Order authorizes State and Homeland Security to revise the list as needed, and to add other countries to the list.

Refugee suspension. Section 5 of the Order also suspends the U.S. Refugee Admissions Program for 120 days. During this period, the State and Homeland Security departments are directed to review the relevant procedures and determine what more needs to be done “to ensure that those approved for refugee admission do not pose a threat to the security and welfare of the United States, and shall implement such procedures.” Section 5(c) of the Order specifically suspends the admission of Syrian nationals.

Other provisions. Some other noteworthy provisions of the Order provide for accelerating “the completion and implementation of a biometric entry-exit tracking system for all travelers to the United States”; suspension of the Visa Interview Waiver Program, meaning that “individuals seeking a nonimmigrant visa undergo an in-person interview,” which could result in delays; and a review of reciprocity agreements.

Recommendations for employers of foreign nationals

The following is obviously subject to change, depending on what happens in the future. But as of now, here are some recommendations for employers trying to assist foreign nationals:

*Non-immigrant visa holders from the seven “suspended” countries should not travel outside the United States because it is possible that they will not be admitted back. This would include, for example, holders of F-1, L-1, and H-1B visas.

*Non-immigrant visa holders who are not from the seven “suspended” countries but who are from Muslim-majority countries should avoid non-essential travel outside the United States. Because the admission ban can be expanded at any time and without prior notice, it is possible that another Muslim-majority country will be added to the list while the visa holder is out of the country, preventing him or her from being admitted back – as happened with many travelers this weekend.

*Permanent legal residents, likewise, should avoid non-essential travel outside the United States. Green-card holders may be protected by Secretary Kelly’s statement, but there are no guarantees because the statement is not entirely consistent with the terms of the Order First, the Order appears to authorize admissions “in the national interest” only if the determinations are made on a “case-by-case basis,” not on a “blanket” basis. Second, Secretary Kelly did not say that green card holders were “exempt” from the Order, and the Order by its terms does not exempt them.

*Delays are likely. As already noted, the requirement that visa interviews be conducted in person are likely to result in delays.

Employment Law In Focus – December 2016

Employment Law 2017: Potential Expectations in a Year of the Unexpected

So a New Year is fast approaching – and with it, a new administration in Washington.  A lot of questions are being asked about what to expect in the world of labor and employment law.  While no one really knows until it actually happens, for what they’re worth in that world of the unexpected, here are some thoughts from attorneys around our law firm about some of the primary areas of employer concern.

Happy holidays and a (hopefully) happy and prosperous New Year to all!

Litigation (By Randy Loftis and Ken Carlson, Winston-Salem office) From a litigation perspective, the largest impact will be the appointment of judges. There will obviously be new Supreme Court justices, with one seat open already, and the strong possibility that some additional justices will retire during a Trump term. Although the impact in the federal district courts and U.S. Courts of Appeal will not be immediate, there could be a significant impact over time. Long-term, it may be easier for employers to get summary judgment and other more employer-friendly rulings.  We might also expect a more disciplined EEOC that focuses more on compliance and working with employers to correct any unlawful discrimination, harassment and retaliation in the workplace, rather than continuing its highly adversarial path of employment law enforcement that in many ways pushes the proverbial envelope with new and novel theories of discriminatory treatment.

(By Maureen Knight, Metro Washington, DC, office) A Trump Administration will have an impact through federal judicial appointments. Although Mr. Trump supports LGBT rights, it remains to be seen whether he will support federal legislation expressly covering LGBT rights.

Trade Secrets/Unfair Competition (By Ken Carlson, Winston-Salem office) Especially given President-Elect Trump’s focus on promoting U.S.-based business and industry, we can likely expect even greater attention to trade secret and unfair competition concerns – in particular, economic espionage by foreign companies (and governments).  While state trade secret statutes and covenant not to compete laws will likely still dominate the litigation, the federal Economic Espionage Act, Theft of Trade Secrets Clarification Act, Foreign and Economic Espionage Penalty Enhancement Act, and the new 2016 Defend Trade Secrets Act could become major players on the field of unfair competition law in federal courts.

Wage and Hour (By Jim Coleman, Metro Washington, DC office) With a Trump Administration come January 2017, I think we can expect to see a much more employer-friendly Department of Labor and Wage and Hour Division. The big question will be what a Trump Administration and Trump-appointed Secretary of Labor may ultimately do with the overtime exemption regulations under the Fair Labor Standards Act, which were set to take effect on December 1 but have been temporarily enjoined by the courts.  If a Trump Administration wishes to rescind or modify the new regulations, it will have to do so in compliance with the Administrative Procedure Act – so stay tuned.

A Republican president and Republican control of both houses of Congress – albeit only a slight majority in the Senate – should bode well for employers, and certainly for filling the current vacant seat on the Supreme Court, and potential replacements over the next four years. President-Elect Trump will have a great opportunity to affect the make-up of the Supreme Court, which in turn, can affect the outcome of many issues of significance to employers.

I would urge employers not to put on the lampshade hats and break out the champagne just quite yet, as the federal government is a behemoth, and even more so after the last eight years. It will take time to reverse course, and employers will need to be patient.

Immigration (By Penni Bradshaw, Winston-Salem office) An estimated 5 percent of the current U.S. workforce consists of undocumented workers. Hundreds of thousands of young people have applied for and received Deferred Action for Childhood Arrivals, which permits them to receive Employment Authorization Doctrine work cards. So President-Elect Trump’s promises to take steps to remove (deport) the undocumented and do away with the DACA will obviously have an impact on employers. His stated intention to make E-Verify mandatory for all employers would make it more difficult for undocumented persons to be hired, but would also probably mean that some employers cannot hire all the workers they need. The impact of mandatory E-Verify could be particularly acute for employers in agriculture.

What remains to be seen is how Mr. Trump might strike a balance between his “they are taking our jobs” rhetoric and businesses’ need for foreign talent, especially in STEM fields, as current quotas for the H-1B professional work visa program have prevented many employers from being able to retain their foreign workers.

(By the Immigration Practice Group) It is also hoped that the U.S. Immigration and Customs Enforcement and the Office of Special Counsel will be instructed to ease up on employers who make minor paperwork or inadvertent procedural errors. We have routinely seen ICE fines in the hundreds of thousands of dollars in cases where there were errors on I-9s but not a single undocumented worker was found.

Labor Relations (By Cliff Nelson, Atlanta office) The National Labor Relations Board has lurched to the left under the Obama Administration, including the areas of quickie elections, employee handbook policies, protected concerted activity, and “micro” bargaining units. President-Elect Trump will have the opportunity to appoint a majority of Republican Board members, which should stop the “lurch” dead in its tracks. We also hope that this means the “Persuader Rule” is not only dead, but buried as well. In other words, we hope to see the U.S. Department of Labor in a Trump Administration abandon its appeal of the preliminary injunction that was issued this past summer, barring the Rule from taking effect.  That very well might happen now that the same federal judge in Texas has recently issued a permanent injunction prohibiting the Rule, which amazingly enough would have required employers, labor consultants, and attorneys retained by employers to report detailed financial and other information with respect to broadly-defined labor “persuader activity” related to union campaigns and activity in the workplace.  Among other legal problems such as constitutional free speech and association rights, the costly regulation would have also intruded on the time-honored and nearly sacred attorney-client privilege, and enjoining its enforcement can only be a positive development for companies and their employees facing ever-increasing levels of competition.

(By Zan Blue, Nashville office) Sixty million voting employees want something to be fundamentally different. Some years ago an employer won a union election by a ratio of about 2-1. The company’s president, considering the results at 2 a.m., concluded a third of the employees were so unhappy with their employer that they were willing to take a chance on something they didn’t understand. He didn’t celebrate the win—he focused on the need to address the things that brought the company to the edge. He was wise.

Sixty million voting employees want something to be fundamentally different. Most basically, these voting employees want their needs and wants considered when decisions are made by the powerful. Many, if not most, probably don’t have specific things in mind because collectively they know they were not voting on specific things. Each person considering the election results will see something different. Consider all the facts you know, all of them, and find out what motivation explains all the facts in the most simple and clear way. Be thoughtful. Make time to think about this. What do the employees in your organization want to be different, and what will you do about it?

(By David Phippen, Metro Washington, DC, office) Enough is enough. Eight years of deliberate attack on employers and business models systematically destroying employment opportunities of and for millions of Americans will be coming to an end. President-Elect Trump will bring sanity and fact-based employment and labor law enforcement and regulation instead of the cognitive distortion of reality, the “us against them” mentality, and the routine denial of basic laws of economics. The everyday prosecutorial attack on employers that has negatively affected workers for the last eight years will be replaced by a more balanced, even-handed, common-sense approach, consistent with the laws as written, and not as the regulators wish they were written. The increased job opportunities created by Mr. Trump’s policies can be expected to rain economic gains down on labor and management alike, which organized “big labor” will be forced to begrudgingly accept. In a Trump Administration, the federal government, employers, and workers will have the incentive to work in partnership to make things better.

Affirmative Action/OFCCP Compliance (By Cara Crotty, Columbia, SC, office) Will President-Elect Trump take some pressure off federal contractors? For the past eight years, as President Obama was unable to push much of his legislative agenda through Congress, federal contractors have faced an onslaught of increasing regulatory burdens and an aggressive enforcement agency. Will the positions of the Office of Federal Contract Compliance Programs soften under a Trump Administration?

* Fair Pay & Safe Workplaces – The Executive Order and its regulations requiring contractors to report labor law violations when bidding on government were recently enjoined. Given Corporate America’s steadfast opposition to and the cost of these mandates, the new administration may either abandon efforts to enforce this or significantly change the scope to reduce the impact on contractors.

* Paid Sick Leave – Although Mr. Trump has voiced support for paid maternity leave, his administration may determine that the new sick leave rules are overly expansive and exceedingly difficult to administer. A complete rescission may be too much to hope for, but perhaps a modification of the recordkeeping and tracking requirements could be in the works.

* Pay Transparency – Don’t expect any changes here! Not controversial, and largely in line with existing law anyway.

* Sex Discrimination Regulations and LGBT Non-Discrimination – Again, I would not expect significant changes here. Mr. Trump has espoused general support for LGBT rights, and most of the OFCCP’s rules are consistent with the stance taken by the Equal Employment Opportunity Commission anyway.

* New Regulations Implementing Section 503 and VEVRAA – Don’t hold your breath waiting for these to be rolled back. Who’s not in favor of hiring more veterans and individuals with a disability?

* TRICARE Jurisdiction – It is possible that a new Secretary of Labor may decide to accept Congress’ interpretation of the National Defense Authorization Act and decline to assert jurisdiction over TRICARE network providers.

* EEO-1 Reporting – Employers and federal contractors will be required to report detailed information on employees’ total wages and total hours worked. Given Mr. Trump’s (and Ivanka Trump’s) clearly articulated position on equal pay, this may be here to stay.

Class Action Litigation (By Maureen Knight, Metro Washington, DC, office) From a class action perspective, I think the biggest and most immediate impact of a Trump Administration will be the Supreme Court nominees and whether they will be appointed in time to affect the split in the U.S. Courts of Appeal regarding the enforceability under the National Labor Relations Act of class waivers in arbitration agreements.

(By Steve Moore, Los Angeles office) Focusing just on class action litigation, Mr. Trump will have the power to appoint the next justice to the Supreme Court and restore a conservative majority that will affect the landscape of labor and employment law for years to come. In recent times, the Supreme Court has issued a series of decisions that have made it difficult for the private plaintiffs’ bar to file class and collective actions. These decisions have included, for example, Wal-Mart v. Dukes (which made it more difficult to certify an employment class action) and AT&T Mobility v. Concepcion (which found that the Federal Arbitration Act preempts state laws that invalidate class action waivers in arbitration). At one of the presidential debates, Mr. Trump said that he would appoint someone “in the mold” of the late Justice Antonin Scalia.

Workplace Safety (OSHA) (By Bill Principe, Atlanta office) The 78 percent increase in penalties that went into effect on August 2 was the result of an act of Congress, which was already controlled by the Republicans, so that seems unlikely to change. There will be a new head of OSHA who will obviously be more employer-friendly, but typically in Republican administrations there are more inspections conducted than under Democratic ones.

The Agency will go back to promoting consultation, as opposed to enforcement. Most of the people who run the Agency are obviously people who have been put into their positions in the last eight years. They are unlikely to suddenly change their mindset just because there’s a new President.

There will probably be fewer if any new standards, and it’s possible that some of the ones that are being challenged or are close to being promulgated will be buried, like the new anti-retaliation regulation that limits post-accident drug testing and safety incentive programs. There’s also a regulation in the works that would try in essence to change the statute of limitations to allow more expansive enforcement of recordkeeping violations, and one that would require OSHA 300 Log data to be sent to the Agency on an ongoing basis throughout the calendar year.

In sum, there may be a substantive difference with respect to new standards, and the day-to-day operation of the Agency may appear to be a somewhat more hospitable to employers. That said, I would not expect any dramatic changes.

(By Pat Tyson, Atlanta office) In addition to what Bill has said, I would expect for Voluntary Protection Programs to get much higher priority under a Trump Administration.

This article was written by Ken Carlson of Constangy, Brooks, Smith & Prophete, LLP

Employment Law In Focus – November 2016

Recruiting Employees and the FTC/DOJ – Opening the Door to Criminal Liability!

So you need to hire some employees, and you want to pay them well, but not more than necessary. You call a friend who works for one of your competitors and ask what her company is paying new hires in these positions. Your friend tells you, and also mentions what benefits they’re currently offering. You say that your company will “cap” its offered salaries so they don’t exceed what your friend’s company pays – then proceed with your hiring plans.

Believe it or not, according to the Federal Trade Commission (FTC) and the U.S. Department of Justice Antitrust Division (DOJ), you and your friend have likely just committed a per se violation of the U.S. antitrust laws that can result in civil and criminal liability for you and your friend and your respective employers.

The FTC and the DOJ have jointly issued Antitrust Guidance for Human Resources Professionals and a related document entitled Antitrust Red Flags for Employment Practices. According to the Guidance, the following practices are unlawful:

*Agreeing with a competitor to set wages or benefits at a certain level, or agreeing that you will offer similar terms and conditions of employment.

*Agreeing not to hire a competitor’s employees.

*Exchanging company-identifiable information with competitors about employee wages, benefits, or terms and conditions of employment – whether formally or informally, in writing or orally, at work, at trade shows, or in social settings.

*Discussing any of the above topics with competitors.

The White House has also issued a Fact Sheet on the FTC-DOJ Guidance, tying it in with other Obama Administration measures designed to protect workers, including requiring paid sick leave and discouraging aggressive use of non-compete agreements. It is unclear at this time what position President-Elect Trump will take on these issues.

The guiding principle behind the antitrust laws is that competition is good for consumers because it allows companies to improve their products and lower prices. When companies get together and agree that they will not undercut each other’s prices, refrain from operating in another company’s geographical area, or not implement certain innovations or improvements, those “conspiracies” hurt the consuming public.

Applied to the hiring and recruitment process, the FTC-DOJ Guidance document says, “Just as competition among sellers in an open marketplace gives consumers the benefits of lower prices, higher quality products and services, more choices and greater innovation, competition among employers helps actual and potential employees through higher wages, better benefits, or other terms of employment.”

Per Se Violations

Certain practices are treated by the FTC-DOJ as “per se violations,” meaning that they violate the law whether they actually have an adverse effect on competition or not.

“Wage-fixing.” An agreement between competitors to keep compensation and benefits at or below a certain level is called “naked wage-fixing” by the FTC-DOJ and is subject to criminal penalties, as well as civil damages for the employees who were adversely affected. Charges may be brought “against the culpable participants in the agreement, including both individuals and companies.”

“No-poaching” agreements. An agreement between competitors not to recruit or hire each other’s employees, like a naked wage-fixing agreement, is considered “hardcore cartel conduct” and is subject to criminal and civil liability. However, the FTC-DOJ qualify this: “Legitimate joint ventures (including, for example, appropriate shared use of facilities) are not considered per se illegal under the antitrust laws.”

Other Violations

Sharing information with competitors about wages, benefits, and other terms and conditions of employment. Merely sharing information with a competitor is not per se illegal and does not result in criminal prosecution, but it may result in civil antitrust liability if the FTC-DOJ find that it has an “anticompetitive effect”. According to the Guidance, an industry Human Resources organization was sued for facilitating the exchange of wage information for nurses employed at various member hospitals. As a result, the wages for nurses in the relevant geographical area were kept “artificially low”. (The HR organization entered into a Consent Judgement to resolve the case.)

On the other hand, information exchanges may be lawful if:

*a neutral third party manages the exchange;

*the exchange involves information that is relatively old [according to guidance issued by the FTC-DOJ in the 1990s (Statement 6) “old” would be three months old or older];

*the information is aggregated to protect the identity of the underlying sources; and

*enough sources are aggregated to prevent competitors from linking particular data to an individual source [according to the same 1990s guidance referenced above, this would mean a minimum of five sources].

Quoted from FTC-DOJ Guidance at 5.

In the context of a merger or acquisition, “[s]uch information gathering may be lawful if . . . appropriate precautions are taken.”

The same legal principles apply to all types of HR information sharing among competitors, regardless of whether the sharing is in writing, oral, “unwritten,” via a “gentleman’s agreement,” or through a trade show or industry organization. There is no exception for non-profit organizations, and a desire to cut costs is not a defense.

Preventive guidance for employers

The Antitrust Division of the DOJ offers a “business review process” that allows employers to ask in advance about whether a proposed practice or merger would be deemed to be a violation of the law. Alternatively, employers can request an “advisory opinion” from the FTC. Employers should consult with their antitrust counsel before pursuing either of these routes.

“Leniency” policies: Throwing each other under the bus?

The government encourages companies and their HR professionals to turn each other in by way of its “corporate leniency” and “leniency for individuals” policies. These policies essentially provide that the Antitrust Division will not bring criminal charges against the first person or entity to report the alleged violation if certain other conditions are also present. If, for example, an HR professional at Company A suggests entering into a no-poaching agreement to an HR professional at Company B, the latter may report the conduct to the Antitrust Division. If Company B and the HR professional at Company B meet the other requirements for leniency, then the government will not pursue criminal charges against Company B or its HR professional.

On the other hand, if Company B and its HR professional keep quiet about the conversation and then Company A gets caught, it will be too late for Company B and its HR professional to qualify for leniency, and they may be subject to prosecution as well.

Employers and HR professionals who are considering reporting violations or seeking leniency should obtain advice from their antitrust counsel before doing so.

This article was written by Robin Shea of Constangy, Brooks, Smith & Prophete, LLP