Recruiting, Hiring, and Retention

The Philadelphia City Council recently passed Bill No. 160840, a wage equity ordinance (the “Ordinance”), that will amend Philadelphia’s Fair Practices Ordinance to prohibit employers or employment agencies from inquiring about the wage history of potential employees.  Among other things, the Ordinance also includes an anti-retaliation provision, which prohibits any form of retaliation against a prospective employee for failing to comply with a wage history inquiry.

More specifically, the Ordinance provides that it is an unlawful employment practice for a covered employer to:

  1. inquire about a prospective employee’s wage history;
  2. require disclosure of wage history;
  3. condition employment or consideration for an interview on disclosure of wage history; or
  4. retaliate against a prospective employee for failing to comply with any wage history inquiry.

Furthermore, the ordinance also makes it an unlawful employment practice for an employer to “rely on the wage history of a prospective employee from any current or former employer when determining the wages for such individual at any stage in the employment process,” which includes the negotiation or drafting of any employment agreement.  However, the Ordinance does provide an exception that permits an employer to rely on any wage information that is knowingly and willingly disclosed by an applicant.

It is important to note that this Philadelphia Ordinance will take effect 120 days after it is signed into law by Mayor Jim Kenney, who has expressed his support.  Accordingly, if the Ordinance is signed this month, employers in Philadelphia can expect to see the Ordinance take effect in May of this year.

In anticipation of the enactment of this Ordinance, Philadelphia employers can prepare by:

  1. removing any questions on employment applications that may in any way seek information about salary or wage history;
  2. train hiring managers and interviewers to avoid asking questions about an applicant’s wage history;
  3. refrain from relying on an individual’s wage history (if known) when deciding the appropriate wages/salary to pay a prospective employee; and
  4. review existing policies and practices to ensure compliance with the Ordinance.

This Philadelphia Ordinance is recent example of a growing trend to prohibit employers from requesting and relying on an applicant’s wage history.  This trend has emerged in an effort to address what many call the “gender pay gap.”  In light of these recent actions by state and local governments, employers across Pennsylvania and beyond should stay informed about further developments in this area, as similar laws may soon be proposed and enacted in other locations.

U.S. Citizenship and Immigration Services (UCIS) has released a revised version of the I-9 Employment Eligibility Verification Form.  The revised form must be used exclusively beginning on January 22, 2017; until then, employers may use either the new version or the old version (which is dated 3/8/2013).  Most of the revisions to the I-9 operate to allow for easier electronic completion, while others aim to streamline the employment eligibility verification process.  Changes to the form include:

  • Drop-down menus in (electronic format)
  • On-screen instructions for completing the form (electronic format)
  • Prompts to ensure the entry of accurate information (electronic format)
  • More space for providing additional information
  • Areas to enter the names of multiple preparers or translators

Despite these changes, the purpose of the I-9 Form remains the same: to verify the identity and employment eligibility of individuals seeking work in the United States.  Electronic and printable versions of the revised I-9 can be accessed here.

On September 9, 2016, the Pennsylvania Superior Court upheld an award of $4.5 million in punitive damages against several former employees, who violated non-compete/non-solicitation agreements with their former employers.  In B.G. Balmer & Co. Inc. v. Frank Crystal & Co., Inc., et al., the court determined that among other things, the former employees’ used confidential information and trade secrets they obtained during their employment to solicit more than twenty-five of their former employer’s more profitable clients.  The actions of the former employees were also in violation of the non-solicitation provisions contained in their employment agreements. The Superior Court’s full opinion can be found here.

In affirming the $4.5M punitive damages award, the Superior Court found that there was extensive evidence showing the blatant efforts of the former employees to lure away other Bamler employees as well as clients. More specifically, the Court noted that the former Executive Vice President and President of Strategic Planning formulated a plan with the new employer, a competing insurance brokerage agency, to entice other employees to leave and work for the new company.   As part of this plan, the former employees were encouraged to bring clients and customers with them after they departed their employment.

During the process of finalizing the planned departure, the new company was made aware that each of the employees were subject to the non-solicitation restrictions within their employment agreements.  Despite knowing this, the new company extended offers to all Balmer sales and marketing employees, which represented all Balmer’s employees other than the owner himself.  Prior to resigning from employment, several of the employees took confidential information and trade secrets including client lists and insurance policy details.  Shortly after receiving employment offers, all of the employees resigned from Balmer and utilized the confidential information and trade secrets to attempt to solicit and/or transfer clients’ to the new company.

The Superior Court affirmed the trial court’s finding that such conduct was sufficiently outrageous to award punitive damages. This decision is a reminder for employers about the potential value post-employment restrictive covenants, like non-solicitation provisions, have in protecting their workforce and customer/client base.  While punitive damages may not always be warranted as they were in the Balmer case, employers who utilize enforceable restrictive covenants like non-solicitation provisions, may be entitled to injunctive relieve as well as some form of compensatory and other damages when former employees breach restrictive covenants.

From a different perspective, this case is also a warning of the potential risks associated with hiring employees who may be subject to post-employment restrictions such as non-solicitation provisions.  When hiring new employees who are subject to restrictive covenants, employers would be well advised to understand the limitations imposed by such covenants and provide the new employee with specific directives to avoid any form of conduct that may be in violation of the restrictive covenants.  A failure to abide by the limitations of an enforceable restrictive covenant, may lead to exposure.

There has been a lot of buzz recently about “ban the box” initiatives prohibiting employers from asking job applicants about their criminal records.  Proponents of these initiatives argue that employers should not consider an applicant’s old or minor criminal record to deny job opportunities.  On February 16, 2016, Pennsylvania took a different approach to this conundrum when Governor Wolf signed Senate Bill 166 into law.

The new law limits information that is released as part of employment-related criminal background checks in two ways.  First, it requires law enforcement agencies to remove records of arrests or the filing of criminal charges where at least three years have elapsed from the time of the arrest, no conviction occurred, and there are no pending proceedings seeking a conviction.  This requirement won’t have much of an impact on the hiring process; it only conceals an individual’s record of arrests that do not lead to conviction. Pennsylvania employers are already prohibited from rejecting an applicant because of an arrest without a conviction.

The second change implemented by the new law is farther-reaching.  Individuals with criminal records can now petition their county’s Court of Common Pleas to enter an order granting limited access to their criminal record.  In order to obtain such an order, a person must be either free from arrest for 10 years, or released from incarceration for 10 years, whichever occurred later.  The order will direct law enforcement agencies to withhold any information relating to second or third degree misdemeanor convictions and ungraded offenses that carry a prison term of less than two years.  It will be binding on all state and local law enforcement agencies in Pennsylvania.  Police agencies will still be able release information regarding misdemeanor convictions for witness intimidation, intimidation or obstruction in child abuse investigations, and information relating to sex offender registration status.  Felony convictions will also be included in criminal history reports, regardless of how long ago they occurred.

The implications for employers are obvious; even if a criminal background check is performed, some or all of an applicant’s criminal history may not be provided.  Under the new law, individuals will be able to prevent employers from gaining access to misdemeanor convictions relating to offenses such as DUI, drug possession, reckless endangerment, retail theft, and others. For example, a retailer who has a policy of rejecting applicants with a history of retail theft may now not be made aware of an applicant’s retail theft conviction if the applicant obtained an order granting limited access to his or her criminal record.

Unless prohibited from doing so by local ordinances, Pennsylvania employers may still continue to require job applicants to submit to criminal background checks.  Under the new law, however, they may not receive as much information about an applicant’s criminal history.

Recently, an agricultural company faced more than $100,000 in fines after U.S. Immigration and Customs Enforcement (ICE) auditors identified more than 100 substantive violations – each carrying a $1,100 maximum penalty.

Not only did the fine impact the company’s bottom line, but the violations created the likelihood of more stringent oversight from the government and the possibility of steeper fines for future errors pertaining to an employee’s work status.

The federal government has again begun to crack down on companies that employ undocumented workers, and the financial consequences for businesses can be catastrophic.

Employees are required to confirm workers’ eligibility for employment by completing Form I-9, but there are ways undocumented workers can circumvent this process, including fraud and identity theft. Businesses that rely on subcontractors, such as employment agencies, face even greater risks because they often cannot independently review and confirm each employee’s eligibility. Nondiscrimination laws can also make it difficult for businesses to dig too deeply into an employee’s status when a potential I-9 discrepancy is identified.

The federal E-Verify program was created in 1997 to help businesses determine employment eligibility.  Many business owners believe participating in E-Verify offers them protection against prosecution, but that is not always the case. E-verify creates a rebuttable presumption that you have not knowingly violated the law.

Using this system essentially enters a company into a contract with the federal government, and a business must be aware of all of its responsibilities under this agreement. A business that fails to meet program requirements is just as susceptible to corrective action as a company that elects not to use the system.

Here are three ways you can limit the threat to your company from the hiring of undocumented workers:

1. Conduct regular I-9 reviews

Many businesses fail to review I-9 forms until an ICE audit is scheduled. At that point, an assessment is too late. Businesses should establish an ongoing internal review plan to be conducted at regular intervals. Larger companies that might have trouble reviewing all I-9 forms each year can still show a reasonable commitment by creating a policy to review 10 to 15 percent of forms annually.

In addition to identifying potential mismatches, a regular review process might be helpful in demonstrating to federal investigators that the company is taking meaningful steps to prevent violations.

2. Establish a policy to terminate employees who misrepresent employment status

A written policy calling for the termination of employees who are not honest during the hiring process also signals a good-faith effort to comply with the law. A lack of a clear policy can create the appearance that a business is complicit in employing undocumented workers, which will lead to larger fines and increased scrutiny.

It is crucial for employers to implement the policy consistently to minimize the risk of violating anti-discrimination laws. Navigating this legal gray area might require the advice of an attorney who understands the complexities of immigration and employment law.

3. Include an indemnification clause in labor contracts

Temporary employment agencies are responsible for determining a person’s eligibility for employment, but businesses that use their services can be held financially responsible and may even be considered joint employers, if the employment agency doesn’t perform its due diligence. However, a business can take steps to protect itself by including a clause in the contract that holds a contractor financially responsible for any damages resulting from the co-employment of an undocumented worker.

The Pennsylvania Supreme Court recently re-affirmed the principle that in order to have an enforceable non-compete agreement in Pennsylvania, the agreement must be supported by adequate consideration and that a statement merely agreeing to be “legally bound” doesn’t meet that requirement. The Court ruled against a waterproofing company hoping to enforce a non-compete agreement against one of its former salesmen.  The employer did not provide consideration but unsuccessfully based its argument on language from a 1927 state law called the Uniform Written Obligations Act (“UWOA”). The full opinion, Socko v. Mid-Atlantic Systems of CPA Inc., can be read here.

In the Socko case, after the start of his employment, a salesman (Socko) signed a non-compete agreement. The salesman was not given any additional consideration (such as a raise or access to new, confidential information) but the agreement did state that the parties intended to be “legally bound.” In seeking to enforce the non-compete, the employer attempted to rely on the UWOA which provides that a written promise “shall not be invalid or unenforceable for lack of consideration, if the writing also contains an additional express statement, in any form of language, that the signer intends to be legally bound.” The “magic” statutory language seems pretty clear, so the employer should easily win, right?  Several employers had won on this issue in prior Pennsylvania federal court decisions, so they felt optimistic about their chances.  However, the issue is ultimately controlled by state law, and that is interpreted by the Pennsylvania Supreme Court.

The Supreme Court rejected the employer’s approach. It noted that, while courts typically do not inquire into the adequacy of consideration, “the area of restrictive covenants in employment contracts is an exception to the general rule” and a non-compete agreement is unenforceable in Pennsylvania unless the employee receives an actual benefit in consideration for his/her agreement. Recognizing that non-competes have historically been disfavored by courts as a restraint on trade that prevent a former employee from earning a livelihood, the Court concluded that the salesman’s agreement lacked actual, valuable consideration and struck down the agreement as unenforceable.

What does this all mean? Well, without the availability of the UWOA’s “magic” language, for a non-competition agreement to be enforceable in Pennsylvania, non-compete agreements must be entered into either at the commencement of employment or, if entered during employment, supported by new and valuable consideration. In addition to the required consideration, the non-compete must also be reasonably necessary for the protection of an employer’s legitimate business interests and reasonably limited in scope, duration, and geographic coverage. In plain English, to be enforceable in court, the Agreement needs to be reasonable and either a) signed at the start of employment or b) supported by other adequate consideration (such as a monetary payment or a promotion).

Because reliance on the UWOA had been an iffy proposition for years, employers not wishing to test the parameters of the law had been following the consideration rules for years despite the potential beneficial language of the UWOA. The proposition that non-competes are generally disfavored by Pennsylvania courts and valuable consideration is needed to enforce them is not news to them. However, If you wish to review your current non-compete agreements or explore entering into non-competition agreements or other restrictive covenants for your employees (or if your business is considering hiring somebody subject to a non-competition agreement), contact any of the attorneys in the McNees Labor & Employment Group for guidance. If a competitor is trying to enforce a non-competition agreement on you or you are seeking to enforce a non-competition agreement against a current or former employee, legal action could be necessary within a matter of days, if not hours. If you find yourself in a situation where you need to prevent or stop the release of trade secrets or other confidential business information, contact the McNees Injunction team for immediate assistance.

On March 1, 2015, New Jersey’s Opportunity to Compete Act (also known as “Ban the Box”) went into effect.  The Act applies to employers with 15 or more employees over 20 calendar weeks that do business, employ people, or take applications for employment in the Garden State.  During the initial employment application process, employers are prohibited from requiring applicants to disclose their criminal history on applications, from making any inquiry (oral or written) into an applicant’s criminal record, and posting job advertisements which exclude applicants with a criminal background. However, employers can make such inquiries after the initial process is complete.  Additionally, if the applicant voluntarily brings up his or her criminal history during the initial process, the employer can make a limited and reasonable inquiry into the history that has been disclosed.

The Act also provides for several exceptions, including whether the position being sought is in law enforcement, the judiciary, homeland security, corrections or emergency management; where a criminal background check is required by law, where an arrest or conviction may preclude the person from holding such a position as required by law, or where the employer is restricted by law, rule or regulation from engaging in specified business activities based on its employees’ criminal records; or where the position sought is designated as part of a program designed predominantly to encourage the employment of persons who have been arrested or convicted.  The Act also includes significant civil penalties for the first, second, and subsequent violations.

While the New Jersey Department of Labor and Workforce Development has issued a draft rule (which is currently in the comment period) in order to clarify some portions of the Act, employers should ensure they are compliant with the Act.  Employers should review their applications and job advertisements for any questions or information which may be considered violative of the Act.  Employers should also review the Act with and consider training its employees or agents responsible for handling the initial employment application process.

This post was contributed by Stephanie Carfley, a Member in McNees Wallace & Nurick LLC’s Litigation and Injunction practice groups in Lancaster, Pennsylvania.

In a case of first impression for the appellate courts of this Commonwealth, the Pennsylvania Superior Court recently ruled in Socko v. Mid-Atlantic Systems of CPA, Inc. that language contained in an employment agreement entered into after commencement of employment, which indicated the parties’ "intent to be legally bound" was insufficient consideration to support a non-compete agreement. In reaching its decision, the Superior Court rejected the application of the Uniform Written Obligations Act ("UWOA"), which provides that a written agreement may not be avoided for lack of consideration if it contains language expressing the intent of the parties to be legally bound, in the context of an agreement containing a covenant not to compete. The Superior Court declined to follow the reasoning of a Pennsylvania federal court which previously had held that the UWOA applied to non-competition agreements and permitted enforcement of such agreements even in the absence of any additional consideration. In so holding, the Superior Court also clearly distinguished between the "valuable consideration" required to support a non-compete entered into after employment had commenced and the consideration that would support other types of contracts, i.e. continuation of at-will employment, contracts signed under seal and nominal consideration ($1.00).

The Superior Court’s ruling in Socko definitively resolves the issue of the insufficiency of "intent to be legally bound" language as consideration for a restrictive covenant agreement and offers employers and employees alike some clear guidance as to the "valuable consideration" required to uphold the validity of a non-compete entered into after the commencement of employment. Employers should keep this decision in mind when preparing non-compete agreements for current employees and when considering whether to hire an employee subject to a non-compete agreement.

This post was contributed by Eric N. Athey, Co-Chair of McNees Wallace & Nurick LLC’s Labor and Employment Law Practice Group

In Pennsylvania, a non-compete agreement (NCA) must be supported by legal "consideration" in order to be enforceable. If a newly hired employee signs a NCA at the time of hire as a condition of employment, the new job is the consideration for the agreement not to compete in the future. On the other hand, once an employee is already employed, his employer cannot foist an NCA on him and expect it to be enforceable unless new consideration is given (e.g. a special bonus, job protection, promotion, severance benefits, etc.). These basic principles are well established under Pennsylvania law.  But what happens if an employer presents a NCA to a new hire after he accepts a written job offer but before he actually starts work?  This scenario was recently addressed by the Supreme Court of Pennsylvania in Pulse Technologies, Inc. v. Notaro.

In Pulse Technologies, the company provided Mr. Notaro with a 2 ½-page offer letter that included a description of the job, salary, benefits, and start date. The letter also stated: "You will also be asked to sign our employment/confidentiality agreement. We will not be able to employ you if you fail to do so." The letter further explained that the employment agreement would contain "definitive terms and conditions" of employment. Mr. Notaro signed and returned his offer letter as instructed. On his first day of employment, he was provided with an "employment/confidentiality agreement" that contained a non-compete provision. Notaro read and signed the agreement without objection, understanding that it contained restrictions on his ability to compete in the future. Significantly, he signed the agreement before he began performing his new job.

Over four years later, Mr. Notaro left Pulse Technologies to take a managerial position with one of the company’s competitors.

Continue Reading You’ve Got the Job, Details Will Follow – Employment Offer Letters & Non-Compete Agreements

This post was contributed by Jennifer LaPorta Baker, Esq., an attorney in McNees Wallace & Nurick LLC’s Labor and Employment Law Practice Group and based in the Scranton, Pennsylvania office.

U.S. Citizenship and Immigration Services (USCIS) recently released the revised Employment Eligibility Verification Form I-9, which employers are required to use to verify the identity and employment authorization of newly hired employees. Starting May 7, 2013, employers must use the new Form I-9 (with a revision date of 03/08/13) to comply with their employment eligibility verification responsibilities. The new Form I-9 was first published by U.S. Immigration and Customs Enforcement (ICE) on March 8, 2013, and had been authorized for use, along with the previous Form. Now, use of the new Form I-9 will be mandatory.

An electronic version of the new Form I-9 is available on the USCIS website. USCIS has also released an updated Handbook for Employers (M-274) available here (pdf). A Spanish version of the new form is also available on the USCIS website for use in Puerto Rico only. Spanish-speaking employers and employees in the 50 states, Washington, DC, and other U.S. territories may use the Spanish version for reference, but must complete the English version of the form.

Employers using an electronic version of the Form I-9 should receive an updated product from their software providers. Those employers must transition electronically to the new Form I-9, or otherwise take steps to implement a compliant system for completing the new Form I-9, by May 7.

Employers who fail to use the new Form I-9 on and after May 7 may be subject to penalties issued by ICE and/or the Department of Justice.

Employers should conduct internal audits of immigration policies and protocols as necessary to assess and maintain legal compliance and reduce the significant risks and liabilities associated with non-compliance. Failure to maintain compliance may result in hefty fines and stiff penalties. Common employer violations include failure to obtain the correct employee documentation as required by federal law, as well as improperly completed I-9s. Remember, there is no “good faith” defense for I-9 paperwork violations. The best defense is to conduct annual self-audits and correct defective I-9 Forms before an aggressive government agency is at your door.