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?
In the past year, employers in the US have been faced with laws providing for increased protections, at the state and local level, for workers against discrimination and harassment, as well as laws designed to eradicate gender-based pay inequities, increase minimum wages, curtail reliance on criminal records in considering job applicants and provide for paid family leave.
Initially, a number of states and localities significantly expanded the protections against discrimination and harassment that are afforded to employees. Broadly, these laws have, among other things, and varying by jurisdiction:
- added prohibitions against discrimination based on sexual orientation and gender identity, as well as other protected characteristics;
- lowered the applicable threshold of conduct that constitutes unlawful harassment;
- eliminated certain defences to claims of discrimination – such as the Faragher-Ellerth defence, which permits an employer to avoid liability if an employee fails to utilise an employer’s complaint reporting procedure; and
- increased potential damages that an employee may recover.
In addition, a number of states and localities have added mandatory anti-harassment training requirements and further require employers provide employees with a written anti-harassment policy that includes a procedure for raising internal complaints of discrimination.
While no federal legislation regarding discrimination or harassment has been passed, it is worth noting that the US Supreme Court will hear three cases in October 2019 regarding whether Title VII (the federal anti-discrimination law) prohibits discrimination based on sexual orientation and gender identity. A decision likely will be forthcoming in 2020, at the earliest.
Along similar lines, an increasing number of states and localities have passed legislation designed to eliminate historical pay disparities between women and men. These laws typically prohibit prospective employers from asking about a job applicant’s salary history or relying on the same in setting the salary for a position. The goal is to encourage employers to set pay rates for jobs based on the value of the position itself and avoid having gender-based pay disparities follow workers from one job to another.
A number of jurisdictions have also significantly increased employee minimum wages over the past year and will continue to do so moving forward, with many of these minimum wages being roughly double of the federal minimum wage. Employers need to be aware of changing local minimum wages in jurisdictions in which they operate and ensure that they are proactively taking steps to increase employee pay where applicable.
The US has also seen a trend of states and cities implementing laws that prohibit, or limit, a prospective employer’s ability to inquire about an applicant’s criminal history. These are colloquially referred to as ‘ban the box’ laws. Broadly, the purpose of these laws is to prohibit employers from requiring applicants to disclose criminal histories at the outset of the application process, so as to not prejudice employers against persons with potentially minor or irrelevant criminal convictions. Different jurisdictions have implemented these laws in different ways, with some prohibiting inquiries into criminal histories altogether, while others permit inquiries only after a conditional offer of employment has been made. In most cases, employers are permitted to rely on a criminal history in denying employment if it is sufficiently related to the position in question or required by law or regulation, although improper reliance on the criminal history may subject an employer to potentially significant damages – though this varies by jurisdiction.
Lastly, the US has seen a proliferation of paid family leave laws at the state level. This includes California, New York and Rhode Island, with Washington State and Washington, DC set to implement paid leave laws beginning in 2020. Broadly, these laws provide employees with job protection for leave in connection with the birth or adoption of a child, or in the event of a need to take time off due to a medical need or to care for a family member. These laws provide for certain wage payments – typically, up to a threshold amount, based on the employee’s compensation rate – and ordinarily are paid by an insurer through payroll taxes.
2 What upcoming legislation or regulation do you anticipate will have a significant impact on employment law in your jurisdiction?
The US Department of Labor (USDOL) has recently issued a new Final Rule, to go into effect 1 January 2020, setting new salary rates for employees to be exempted from the overtime requirements of the Fair Labor Standards Act (FLSA). The USDOL estimates that this will make more than one million additional Americans eligible for overtime pay.
Generally, the FLSA requires that employees who work more than 40 hours in a given work week are entitled to an overtime premium rate equal to an additional 50 per cent of their regular rate of pay for all time worked above 40 hours. However, employees who earn a regular base salary of US$455 per week (US$23,660 annually) and meet certain duty-based criteria may be ‘exempt’ from the overtime provisions of the FLSA. There is an additional exemption for highly-compensated employees who earn US$100,000 or more in a given year and also meet certain lesser duty-based requirements.
Beginning 1 January 2020, the USDOL’s new Final Rule will increase the applicable salary threshold for exemption to US$684 per week (US$35,568 annually), with the highly-compensated employee exemption increasing to US$107,432 per year. In addition, the new Final Rule permits up to 10 per cent of the applicable salary thresholds to be satisfied through the payment of non-discretionary bonuses or commissions, if paid annually or more frequently. There will be no changes to the duty-based criteria, which still must be satisfied for a worker to be entitled to the exemption.
All of this said, employers must remain mindful of any state or local wage and hour laws, many of which have salary-based thresholds for exemption under those laws that exceed the FLSA’s proposed threshold.
3 How has the #MeToo movement impacted the investigation or settlement of harassment or discrimination claims in your jurisdiction?
Since the #MeToo movement hit full stride in 2017, many states and local jurisdictions have made significant efforts to offer increased protections for employees against sexual harassment and discrimination, while placing a heavier burden on employers in investigating and remediating workplace discrimination and harassment. At the same time, many states have limited defences available to employers where claims of harassment are asserted, including lowering the level of misconduct necessary to support a harassment claim and eliminating the Faragher-Ellerth defence, which generally has permitted an employer to avoid liability where an employee failed to utilise the employer’s complaint procedures.
With this legal background in mind, as well as the heightened public scrutiny facing employers who are subject to harassment claims, the #MeToo movement has placed an increased emphasis on employers conducting prompt and thorough investigations following internal complaints of discrimination. Whereas in the past some employers might let minor issues linger, employers must be increasingly willing to institute investigations as soon as learning about potential discrimination, so as to both redress any potential discrimination at the outset – before becoming a substantial liability – and to avoid public fallout associated with indifference. Moreover, employers must be cognisant of employees being increasingly aware of, and focused on, their rights under anti-discrimination laws – in fact, many jurisdictions have implemented, or are considering passing, laws requiring employee training on these subjects, along with mandatory employer policies. Employers must anticipate that employees are more willing to raise discrimination internally and potentially externally.
Pragmatically, a number of jurisdictions have passed legislation regarding the settlement of discrimination claims and, in particular, whether non-disclosure agreements are permissible in that context. For instance, New York has passed legislation that prohibits an employee from agreeing to a non-disclosure provision as to a discrimination claim unless it is at the employee’s ‘preference’, demonstrated by providing the employee with 21 days to consider the non-disclosure provision, seven days to revoke it after signing and a signed document affirming such was at the employee’s preference. Other states have gone even further. Recently enacted New Jersey legislation, for instance, provides that employers cannot enforce any non-disclosure agreement with respect to an employee’s claim of discrimination (although the employee can enforce a non-disclosure provision against the employer). Employers need to be aware of the increasing number of state and local laws placing limitations on non-disclosure provisions and ensure that, where utilised, such are compliant with applicable law.
In addition, a number of states have passed legislation that would prohibit employers from enforcing mandatory arbitration agreements against employees who allege claims of sex-based discrimination or harassment. Whether such laws are enforceable, however, is an open question, as many commenters believe they will be pre-empted by the Federal Arbitration Act (FAA), which broadly favours arbitration and would restrict state and local laws contravening this policy. Consistent with this, at least one New York federal court has considered the issue and found that a state law prohibiting mandatory arbitration of discrimination claims was unenforceable and pre-empted by the FAA.
While state and local efforts at passing anti-discrimination laws have been significant, the reaction at the federal level has been notably more tepid. The only legislative response to #MeToo at the federal level has been as part of the Tax Cuts and Jobs Act of 2017, which provided – among many other changes to the Tax Code – that employers would no longer be entitled to deduct any settlement payments related to sexual harassment or sexual abuse claims, and related attorneys’ fees, if such settlement includes a non-disclosure agreement.
4 What are the key factors for companies to consider regarding the enforcement of restrictive covenants against departing employees?
Most US courts will enforce reasonable post-employment restrictive covenants against employees, including non-compete agreements and non-solicit provisions regarding both customers and employees. 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. Moreover, an increasing number of jurisdictions, including Massachusetts and Washington, have passed legislation aimed at significantly limiting the scope of non-competition covenants, particularly as to lower wage earners, and similar legislation has been discussed at the federal level.
Broadly speaking, courts require that, to be enforceable, a restrictive covenant must be narrowly tailored to protect a legitimate business interest of the employer. Courts also will consider the burden on the employee in enforcing the restrictive 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, among other things, protecting trade secrets or other proprietary information, protecting client and customer goodwill developed at the employer’s expense and protecting against competition by a former employee whose services are unique or extraordinary.
In deciding if a restrictive covenant is enforceable, courts will look to the temporal length of the restrictive covenant and the scope of the restrictions that it imposes. Most courts will enforce covenants to the extent that 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 they are overbroad. Many courts will enforce non-compete covenants without a defined geographic scope, where the scope of the restrictions are 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 typically are reluctant to enforce covenants approaching or exceeding a duration of two years.
Employers should also be cognisant of what the applicable jurisdiction deems sufficient consideration for a post-employment restrictive covenant. For instance, many jurisdictions – such as New York – consider employment to be sufficient consideration to enforce a restrictive covenant. Similarly, certain jurisdictions will consider continued employment (ie, providing an already employed 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, like Pennsylvania, will not.
Finally, as noted above, some jurisdictions have taken legislative steps to limit the use, or overuse, of non-compete agreements. While California has long prohibited non-competes, Massachusetts recently instituted legislation placing significant limitations on the enforceability of non-competes and a number of other states have looked to follow suit. Among other restrictions, 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 where the non-compete is offered at the start of employment or during the course of employment.
5 In which industry sectors has employment law been a hot topic recently? Why?
In recent years, the online ‘gig’ economy has been subject to significant scrutiny for its frequent use of independent contractors, instead of employees, to provide services.
Under US law, independent contractors are not entitled to many of the legal protections afforded to employees. For instance, they:
- are not entitled to pay at an overtime premium rate after working 40 hours in a week;
- do not receive health insurance or similar benefits;
- ordinarily carry the costs of their business (eg, for a driver, vehicle costs, gas, among others);
- are responsible for their own taxes;
- are not protected by federal anti-discrimination laws, as well as those of many states; and
- need not be paid for waiting time (ie, time waiting for the next assignment), among other differences.
As a result, contractors typically carry many of the costs that are ordinarily borne by employers, while employers are incentivised to classify workers as contractors, whether rightfully or not.
The increased shift towards classifying workers as contractors in the ‘gig’ economy has forced the issue of worker classification into the forefront. Historically, whether an individual is a contractor or employee has been focused on a number of factors, such as whether the contractor is integral to the employer’s business, the degree of supervision and control over the contractor by the employer, the contractor’s personal investment in his or her own business, the parties’ agreement and certain related factors. Simply put, courts would balance a broad array of factors and the fact that the parties agreed that an engagement was a contractor relationship would not be determinative.
Under the Trump administration, the federal Department of Labor has sought to expand the scope of who may be deemed an independent contractor, focusing on the amount of control the worker has over his or her ability to earn compensation and not on the control exercised by the ‘employer’. Conversely, states increasingly have sought to redefine the contractor–employee paradigm by narrowing the scope of workers who are appropriately deemed contractors. Perhaps most significantly, a number of states, including California, Massachusetts and New Jersey, have adopted – through legislation or judicial decisions – what has become known as the ‘ABC Test’, which examines three factors:
- if the worker is free from control or direction of the ‘employer’;
- if the worker performs work outside the ordinary course of the ‘employer’s’ business; and
- if the worker is customarily engaged in an independently established trade or occupation.
Under this analysis, a failure to meet any one of these criteria is fatal and the worker will be deemed an employee.
At this juncture, there is no clear resolution in sight: states likely will continue to narrow the scope of who is appropriately a contractor, while no federal legislation is imminent. As such, employers should take steps to ensure that they are complying with all applicable state and local laws, as well as their obligations under federal law.
6 What are the key political debates about employment currently playing out in your jurisdiction? What effects are they having?
In addition to the anti-discrimination and pay equity laws discussed above, all of which are occurring at the local and state levels, the rights of unionised workers have been the subject of substantial scrutiny. In the past year, the National Labor Relations Board, which implements the National Labor Relations Act, the principal legislation governing unions, has substantially rolled back a number of longstanding protections afforded to unionised workforces. At the same time, states have increasingly passed ‘right to work’ rules – permitting non-union employees to avoid paying dues in unionised workplaces – and recent US Supreme Court decisions have further curtailed union activity in the workplace. Broadly, these recent decisions, laws and rulings have worked to incrementally reduce the ability of unions to picket and protest employers and to solicit new membership, while also significantly undercutting their ability to receive union dues to support their initiatives.
Beyond this, the use and propriety of arbitration agreements by employers have been at the centre of substantial debate, including very public pushback by employees at prominent US companies who have objected to mandatory arbitration provisions. In recent years, the US Supreme Court has issued a number of decisions holding that arbitration is the preferred method of resolving claims if agreed to by the parties, upholding class action waivers in the arbitration context and instructing courts that they must refer the issue of arbitrability to an arbitrator, if at all provided by the governing arbitration provision. While no federal legislation is imminent – though proposals have been discussed – a number of states have attempted to curtail the use of arbitration provisions in the employment context, including by prohibiting class action waivers and mandatory arbitration of discrimination claims. While it appears that state legislation will likely be struck down as pre-empted by federal law, federal legislators may ultimately need to address the issue of mandatory arbitration.
The Inside Track What are the particular skills that clients are looking for in an effective labour and employment lawyer?
Employment law is diverse, covers a multitude of subjects, and is, in many cases, highly personal, involving claims of discrimination or harassment, often against senior executives. 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 be exceptionally diverse, both in substance and procedure. Typical claims can vary from allegations of discrimination to non-payment of wages to claims of retaliation for whistleblowing. Likewise, employment counsel may be engaged at all stages of a dispute, from providing real-time employment counselling to negotiating pre-litigation demands to litigating 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 are essential at all times. Moreover, counsel needs to ensure that he or she is 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?
We have handled an array of interesting and challenging matters, including, among other things, internal investigations of sexual harassment and retaliation claims; the defence of claims asserted by the federal government concerning a purported pattern or practice of citizenship status discrimination against non-citizens and dual citizens; matters pertaining to the accommodation of transgender employees in the workplace; wage and hour class and collective actions; restrictive covenant disputes; independent contractor misclassification cases; and a variety of employment discrimination and whistleblower claims. In short, we have handled a wide spectrum of matters, touching on all aspects of the employment relationship.