Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the Labour & Employment volume featuring discussion and analysis of legal developments, the enforcement of restrictive covenants and political debates about employment within key jurisdictions worldwide.
1 What are the most important new developments in your jurisdiction over the past year in employment law?
Like all employers globally, the most pressing issue in the US has been the covid-19 pandemic. Since March 2020, the US has faced record unemployment and while some jobs have returned as businesses have begun reopening, a staggering number of workers remain without jobs (with many job losses expected to be permanent). Many businesses have also been forced to restructure or make other changes, including adopting greater teleworking while re-evaluating the need for on-site staff.
The legislative response to covid-19 has been patchwork: while there has been some legislation at the federal level, this has largely provided for limited paid leave benefits and small business loans. Federal agencies such as the Centers for Disease Control and Prevention, Occupational Safety and Health Administration, US Department of Labor (DOL), and US Equal Employment Opportunity Commission also have issued guidance for employers.
States and local jurisdictions have taken the lead in developing and implementing plans for business closures and openings, adopting different strategies and metrics for determining when and to what extent businesses should reopen. Additionally, states and localities have passed differing legislation to protect employees and businesses in response to the pandemic. For instance, certain jurisdictions (eg, New York, Colorado) have enacted laws providing for paid sick leave for employees for covid-related reasons. Other states – like Georgia and Ohio – have passed legislation limiting the liability companies may face from employees and third parties who contract covid-19 at their places of business.
Apart from covid, one of the most significant employment-related developments in 2020 is the US Supreme Court’s decision in Bostock v Clayton County. There, the Court held that Title VII, the federal anti-discrimination law, protects gay and transgender workers from employment discrimination and harassment. While many state and local anti-discrimination laws already afforded such protections, the Bostock decision significantly expands Title VII’s protections, and resolves a longstanding split among federal courts regarding whether Title VII’s reach included LGBTQ persons. More states and localities have also enacted LGBTQ protections.
Finally, 2020 marked an increase in the amount of rule-making by federal administrative agencies. For example, the DOL’s new Final Rule on overtime exemptions took effect at the start of 2020. The Rule significantly increased the salary that an employee must earn to be exempt from the overtime requirements of the Fair Labor Standards Act (FLSA), which sets federal minimum wage and overtime premium requirements. Now, in addition to meeting certain longstanding, duties-based criteria, employees must earn at least US$684 per week, or US$35,568 annually – up from US$455 per week, or US$23,660 annually – to be exempt from the FLSA’s overtime requirements. This new Final Rule greatly expanded the number of persons eligible to receive overtime premiums.
2 What upcoming legislation or regulation do you anticipate will have a significant impact on employment law in your jurisdiction?
Legislation aimed at easing the challenges presented by covid-19 on the US economy is likely to significantly impact employment law in the United States. In particular, states and localities may continue to take the lead in enacting laws to address the health and safety and economic impacts of the pandemic, further complicating the compliance landscape for employers operating in multiple jurisdictions.
A key issue to watch will be the continued development of business reopening protocols across different states. Presently, states and localities are at very different stages, with some jurisdictions at or near fully reopened and others still under stringent restrictions. Employers will need to continually monitor obligations, including those related to protecting employee health and safety – a challenge given the still-evolving understanding of covid-19 – and take steps to minimise the risk of litigation. For instance, a number of lawsuits have already been filed by employees and their family members against employers for allegedly failing to provide a safe working environment. Some jurisdictions have passed laws or regulations concerning covid-19 exposure in the workplace, such as a presumption that such illnesses are covered by workers’ compensation or, in some instances, limiting employer liability if employees become ill due to covid-19. Other states and localities may follow suit, particularly if federal legislation on these issues is not forthcoming. Additionally, other trends to watch include the alleged misclassification of employees as independent contractors and potential DOL regulations to address that issue, a continued focus on anti-discrimination and anti-harassment laws and regulations, and potential new laws mandating corporate diversity at the board-of-directors level.
3 How has the #MeToo movement impacted the investigation or settlement of harassment or discrimination claims in your jurisdiction?
Since 2017, the #MeToo movement has pressed for legislative changes, including increased anti-harassment and anti-discrimination protections. State and local governments have responded, enacting new laws that generally increase protections for workers, while simultaneously limiting employers’ ability to avoid scrutiny through arbitration and non-disclosure agreements. There has been limited response at the federal level, although existing federal law provides protections against sex-based harassment and discrimination.
Notably, jurisdictions such as New York, California and Illinois have implemented laws requiring employers to develop and maintain detailed anti-discrimination programmes. While varying by jurisdiction, these laws broadly require that employees be notified of their legal protections and internal or external complaint reporting procedures. They may also mandate that employers provide interactive anti-harassment and anti-discrimination training to employees (with some states developing sample policies and training to support employer efforts).
In addition, some jurisdictions have passed laws increasing substantive protections for employees, such as limiting available defences to discrimination claims. Other state laws have expanded coverage by imposing anti-discrimination and harassment requirements on smaller companies, independent contractors or third parties.
Certain states also have limited the confidentiality obligations that employers can place on an employee who objects to harassment. For example, some states have passed laws that prohibit mandatory arbitration of discrimination and harassment claims (however, these have largely been found to be pre-empted by the Federal Arbitration Act (FAA) and thus unenforceable). Other states have attempted to limit the use of non-disclosure agreements in the discrimination and harassment context. For instance, New Jersey currently provides that confidentiality agreements can only be for the benefit of the alleged victim, not the employer, while New York requires employees to be given 21 days to review and consider a confidentiality agreement and seven days to revoke after signing, along with other procedural requirements.
Given these changes and the increased public relations concerns associated with harassment and discrimination claims, employers are faced with a heightened need to take additional protective measures to avoid potential claims, and to promptly investigate and redress internal complaints of discrimination and harassment if and when they arise (as well as to be mindful of anti-retaliation obligations).
Also on the equal pay front, an increasing number of states and localities have passed legislation prohibiting employers from using an employee’s salary history in making compensation decisions (under the theory that doing so perpetuates discriminatory pay inequities). Significantly, the federal Ninth Circuit Court of Appeals recently held that, under the federal Equal Pay Act, reliance on salary history is not a defence to a claim of gender-based pay discrimination.
Likewise, some states have amended their laws to make it easier to establish pay discrimination claims, such as expanding the scope of comparator employees to whom employees can contend they are similarly situated – generally expanding this from personnel who perform ‘equal’ work to ‘similar’ work – or limiting the factors employers can use to explain differences in compensation. This includes states such as New York, California and Massachusetts.
4 What are the key factors for companies to consider regarding the enforcement of restrictive covenants against departing employees?
Most jurisdictions permit reasonable post-employment restrictive covenants with employees, including non-compete agreements and non-solicit provisions regarding both customers and employees, to the extent necessary to protect the employer’s legitimate business interests. That said, certain jurisdictions – most notably California – will refuse to enforce post-employment non-competition or non-solicitation restrictions outside of the sale of business context (and even the extent and validity of the use of such covenants in that context is currently in question).
Moreover, an increasing number of jurisdictions, including Massachusetts, Washington, Maryland and Virginia, have passed legislation aimed at significantly limiting the scope of non-competition covenants, particularly for lower wage earners. Similar legislation has been discussed and proposed at the federal level, including a bill that would ban non-competes except in connection with the sale of a business and another that would permit them only for FLSA-exempt employees. The Federal Trade Commission also caught employers’ attention in early 2020 when it raised the possibility of implementing a final rule that would limit the use of non-competes. However, none of the proposed federal laws have been enacted or are imminent.
Broadly, courts require that, to be enforceable, a restrictive covenant must be narrowly tailored to protect a legitimate business interest of the employer. Courts will consider the burden on the employee in enforcing the covenant, such as an inability to earn a living or obtain other employment. As to what constitutes a ‘legitimate interest’, this varies by state, but typically includes protecting trade secrets or proprietary information, maintaining client and customer goodwill developed at the employer’s expense, and protection from competition by a former employee whose services are unique or extraordinary.
In deciding if a covenant is enforceable, courts look to factors such as its temporal length and the scope of its restrictions. Most courts will enforce covenants to the extent they are reasonable and necessary to protect the legitimate interest in question, although jurisdictions take differing views on whether courts can ‘blue pencil’, or alter, the terms of a restrictive covenant to modify them if overbroad. Many courts will enforce non-compete covenants without a defined geographic scope, where the scope of the restrictions is tailored to limit business activities so as to protect the employer’s legitimate business interests. Likewise, while most courts do not have an express limitation on the length of a restrictive covenant, they are frequently reluctant to enforce covenants approaching (or in excess of) two years’ duration.
Employers should also be cognisant of what the applicable jurisdiction deems to be sufficient consideration for a post-employment restrictive covenant. For instance, many jurisdictions – such as New York – consider employment itself to be sufficient consideration to enforce a restrictive covenant. Similarly, certain jurisdictions will consider continued employment (ie, providing a current employee with a non-compete as a term of future employment) without any additional payments to be sufficient consideration to enforce a non-compete, while other jurisdictions, such as Pennsylvania, will not.
Finally, as noted above, some jurisdictions have taken legislative steps to limit the use, or overuse, of non-competes. While California for example has long prohibited non-competes, Massachusetts has instituted legislation limiting the enforceability of non-competes, and other states have looked to follow suit. The Massachusetts statute limits the duration of non-competes and who can be subject to them, defines what is a protectable interest and creates certain requirements that employers must follow if the non-compete is offered at the start or during the course of employment. Similarly, Maryland and Virginia each recently banned non-competes for low wage workers.
5 In which industry sectors has employment law been a hot topic recently? Why?
One of the hottest topics this year across a majority of sectors has been employee teleworking, given the substantial shift to remote work in the covid era. Within a matter of days, large segments of the workforce were essentially forced to move from traditional in-office settings to full-time remote work, often on an indefinite basis. This has created challenges for employers, from tax compliance obligations and employee compensation to general management practices.
For example, employers must ensure that non-exempt workers (eg, workers entitled to overtime if they work more than 40 hours in a week) are paid for all working time. Generally, employers must pay non-exempt employees for all time worked, including recorded and unrecorded time of which the employer was reasonably aware. This becomes challenging when employees work remotely, as they may perform work outside of their ordinary shift times, such as taking a quick call or answering an email. This is compensable working time, but how does an employer know about it if the employee does not record the time? How far is an employer required to go to ensure that all time is paid? At the federal level, the DOL recently issued guidance on this issue, explaining that so long as an employer provides for a reasonable mechanism for employees to report time and corrections, the employer is not obligated to search non-payroll electronic records to ascertain if and when an employee worked (eg, email timestamps, system logins, etc). Of course, some state wage and hour laws may place a greater burden on employers. To minimise wage and hour risk, employers should have clear policies regarding the reporting of worktime, and make sure managers are trained to identify potential timekeeping issues.
Employers also have been forced to address employee expense reimbursement issues. For instance, must employers reimburse employees for WiFi or cellular phones if now used for business purposes? While at the federal level there is no general reimbursement obligation unless the expense drops the employee below the applicable minimum wage, state laws may have different reimbursement requirements – for instance, California requires reimbursement for substantially all employment-related expenses. This has created issues for employers as they have had to learn, on the fly, what expenses their employees are incurring, the amount of those expenses, and to what extent, if any, they must be reimbursed.
Another challenge involves employees who, due to working remotely, are now based in a different state. This raises issues about which state’s laws apply – for instance, if an employee based in New York is now temporarily working in New Jersey, which state’s minimum wage law applies? There are also tax-related questions, such as identifying which state’s tax rate applies, or to which state the employer must pay unemployment insurance premiums. Many states have passed temporary measures or issued advisory letters allowing employees temporarily teleworking due to covid-19 to continue paying taxes as if the employee was not teleworking out of state, but this is far from universal, and as these changes become more permanent, employers may need to revisit these issues.
6 What are the key political debates about employment currently playing out in your jurisdiction? What effects are they having?
We mentioned in last year’s edition that organised labour has been a key political issue, with legislation like ‘right to work’ laws (permitting non-members to avoid paying union dues, despite working in a union shop and having the benefits of a collective bargaining agreement) and Supreme Court and agency decisions limiting the reach and rights of unions. This trend continued in 2020, predominantly at the federal agency level, with the National Labor Relations Board (NLRB) issuing numerous decisions that curtailed longstanding protections traditionally enjoyed by unions.
For instance, in late 2019, the NLRB issued a decision holding that in certain circumstances, employers can mandate confidentiality in workplace investigations without violating the National Labor Relations Act (NLRA). This broke from prior precedent, which, while not universally prohibiting confidentiality, promoted a more employee friendly standard. Subsequently, in early 2020, the NLRB issued its Final Rule with respect to ‘joint employment’ – when an employee is directly employed by one entity and simultaneously jointly employed by a second entity, making the latter liable for potential employment-related claims. Traditionally, the NLRB had followed a common law rule for analysing the existence of a joint employer relationship, which analysed the degree of control that the nominal employer exercised over the employee, relying on a broad array of potential factors. The Final Rule pulled back from this substantially, finding that joint employment could exist only where the nominal employer possessed and exercised control over the ‘essential terms and conditions’ of employment, thus significantly increasing an employee’s burden to show joint employment.
Similarly, another NLRB decision rolled back a prior precedent that provided employees with wide latitude to use profane and abusive language when engaging in concerted union activity, permitting employers to take disciplinary action against an employee so long as the employer can demonstrate that it would have taken the same action against the employee absent the profane speech. And in August 2020, the NLRB issued a host of new advisory opinions, many of which touched on covid-19 issues. Maybe most compelling was a decision in which the NLRB held that the discharge of an employee who complained about the use of shared PPE and subsequently refused to work a shift had not engaged in concerted activity, since his objection was not for the purpose of mutual aid or protection – it was an individual complaint and, thus, not subject to the NLRA’s protections.
The Inside Track
What are the particular skills that clients are looking for in an effective labour and employment lawyer?
To be most effective, employment counsel should operate like a partner in the client’s business, with deep knowledge of the client’s specific business and its goals, while offering pragmatic, business-oriented solutions to difficult problems. Counsel must be knowledgeable about the law, but also about the client, and be able to provide prompt and thorough advice in a cost-effective manner.
What are the key considerations for clients and their lawyers when handling employment disputes?
Employment disputes can involve an array of issues, both substantive and procedural. Typical claims can vary from allegations of discrimination and harassment to wage and hour concerns or retaliation for whistle-blowing, and may involve individual or class action claims. Likewise, employment counsel may be engaged at all stages of a dispute, from real-time, pre-litigation employment counselling to negotiating pre-litigation demands to defending disputes once they are filed. As a result, having an open dialogue with the client about strengths and weaknesses of positions and the client’s desired outcome is essential. Moreover, counsel needs to ensure that they are looking ahead and analysing potential risks to the client at all times, while ensuring that the client is apprised of same.
What are the most interesting and challenging cases you have dealt with in the past year?
The predominant challenge this year has been assisting clients through the covid-19 crisis. This has included ensuring that clients are kept up to date and understanding the ever-changing landscape of their legal obligations, from closing to reopening their business, conducting furloughs and layoffs, modifying employee pay structures, implementing remote work protocols and implementing procedures to promote a safe and productive work environment once employees return. Of course, employers have had to manage this while continuing to handle their ordinary day-to-day issues and we have worked hand-in-hand with them for the duration of the pandemic, frequently around the clock. Overall, this has been a uniquely challenging year in the employment space for clients in all sectors throughout the country.