Our friends in the Intellectual Property Group know that an employer’s trade secrets are among its most valuable assets. In this podcast, Carol Steinour Young shares the ways in which employers can protect trade secrets in the midst of employee defections.
Picture this. You have just settled a problem workers’ compensation case and you or your carrier have disbursed settlement checks totaling $100,000 in exchange for a full and complete compromise and release of “any and all past, present and/or future benefits, including but not limited to, wage loss benefits, disfigurement benefits, medical benefits, or any other monies of any kind including, but not limited to, interest, costs, attorney’s fee and or penalties for or in connection with the alleged 08/12/2015 work injury claims Employee may have with or against Employer…”
Several months later, the same employee sues your company in Federal Court for violating his FMLA rights, retaliation for exercising FMLA rights, and for wrongful discharge based upon unlawful retaliation for filing a workers’ compensation claim in violation of Pennsylvania common law.
“What on Earth,” you say. “But we just paid out a $100,000 settlement!” Unfortunately, the employee may pursue these additional claims because they were not properly released at the time of the workers’ compensation settlement. The United States Court of Appeals for the Third Circuit recently held that a Compromise and Release Agreement under the Pennsylvania Workers’ Compensation Act, covers only those matters which “may fairly be said to have been within the contemplation of the parties when the release was given.” Zuber v. Boscov’s, No. 16-3217 (United States Court of Appeals for the Third Circuit, opinion filed September 11, 2017). In Zuber, the agreement referenced only work injury claims and as such, the settlement document was only read to prevent the employee from seeking additional money related to an alleged work injury claim. Likewise, the employee certification page of the subject agreement specifically stated that the employee “understands that the Compromise and Release is a settlement of his workers’ compensation claim only” and thus, the document was “unambiguously” a specific and limited release rather than a general release.
The above problems could have been avoided, of course, by utilizing separate release documents, coupled with a properly worded letter of resignation, to make it clear that the employee was indeed consenting to and bargaining for a global resolution of all employment issues, including a full compromise and release of his workers’ compensation rights, and a settlement and release of other potential employment claims under other laws and statutes including the FMLA, ADA, ADEA and wrongful discharge.
Often times defense counsel assigned by an insurance carrier in workers’ compensation matters will proceed to settlement without proper consideration of other ancillary employment matters and exposures. Accordingly, employers must be vigilant in making sure that their interests are properly protected and that employees who accept workers’ compensation settlements do not return to court seeking other costly benefits or remedies. Fully insured employers should insist that the carrier appointed attorney consult with employment law counsel on the settlement. Employers who are self-insured or have large deductible plans, who have more leeway in selecting defense counsel should insist on hiring workers’ compensation defense counsel who are familiar with employment laws and statutes, to avoid the result in the Zuber case.
For further information, on this subject, please feel free to contact Denise Elliott, Micah Saul or Paul Clouser, in our Lancaster office.
The United States Supreme Court will address again whether service advisors are exempt from overtime compensation requirements of the Fair Labor Standards Act (“FLSA”).
In a case involving several procedural twists and turns, the Supreme Court, for the second time, will hear Encino Motorcars, LLC v. Navarro. That case involves five service advisors who were employed by a California Mercedes-Benz dealership. In 2012, the employees sued the dealership, under the FLSA, after it refused to pay them overtime compensation. The employees alleged, among other things, that as a part of their job duties, they were required to upsell customers for additional automobile services, but were not required to actually sell cars or perform auto repairs. They further alleged that they were only paid by commission and were “mandated” to work from 7 a.m. to 6 p.m. at least five days a week.
The FLSA requires that employers pay employees overtime compensation equal to 1 and 1/2 times their regular rate for all hours worked in excess of forty per week, unless an exemption applies. Section 213(b) of FLSA is at issue in this case and provides that overtime compensation is not required for an employee who is a “salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles…”
A California district court dismissed the case, but the Ninth Circuit Court of Appeals reversed that decision, finding that the service advisors were eligible for overtime compensation, as they did not fall within the meaning of a “salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” The Ninth Circuit rested its decision on a Department of Labor regulation, issued in April 2011, which the Supreme Court later found invalid.
In its first time reviewing the case, instead of determining the issue of whether the service advisors were qualified for the Section 213(b) exemption, the Supreme Court kicked the question back to the Ninth Circuit for reconsideration, instructing the lower court to rule without considering the Department of Labor’s regulation. Although the Supreme Court side stepped the issue in 2016, Justice Thomas in a dissenting opinion joined by Justice Alito projected how they would resolve the issue, opining that Section 213(b) covered the employees.
After reconsideration, the Ninth Circuit again found that service advisors do not fall with Section 213(b) of the FLSA. The Ninth Circuit’s ruling is at odds, as it acknowledged, with several other courts, including the Fourth Circuit, Fifth Circuit, and the Supreme Court of Montana. Given this discrepancy, the Supreme Court will hear the case yet again to hopefully put this topic to rest by issuing a final resolution.
In the meantime, there is a clear ambiguity in how auto dealers should classify employees in service advisor type roles. Until this case is resolved, auto dealers who wish to classify service advisors as exempt from overtime should consider the applicability of Section 7(i) of the FLSA. That section provides an overtime exemption applicable to employees who are employed by a retail or service establishment and are paid primarily on a commission basis.
LGBTQ workplace rights is perhaps the most rapidly evolving area in employment law. On October 4, 2017, United States Attorney General Jeff Sessions formally weighed in on the topic. He issued a memorandum to all federal prosecutors declaring that Title VII of the Civil Rights Act of 1964 does not prohibit employment discrimination based on transgender status. According to the memo, “Title VII’s prohibition on sex discrimination encompasses discrimination between men and women but does not encompass discrimination based on gender identity per se, including transgender status.”
So, does the Attorney General’s memo mean that employers can freely discriminate on the basis of gender identity? Not exactly. A number of federal courts have held that employment bias based on an individual’s transgender status is a form of unlawful sex discrimination under Title VII (the United States Courts of Appeals for the First, Sixth, and Eleventh Circuits have all issued such rulings, as have several federal district courts). Attorney General Sessions’ memo certainly does not preempt these rulings. Additionally, the Equal Employment Opportunity Commission has issued enforcement guidance stating that the Commission also views gender identity as a protected trait under the Law.
Employers must also be aware of state laws on the issue. Currently, 19 states’ anti-discrimination laws bar employment discrimination based on gender identity for at least some workers. Pennsylvania is among those states. Governor Tom Wolf has signed two executive orders relevant to the subject: one prohibiting discrimination against state employees based on their sexual orientation, gender identity, or HIV status; the other banning state contractors from discriminating against their LGBTQ employees. The Pennsylvania Human Relations Commission has also indicated that it will investigate all complaints of gender identity discrimination in the workplace as a form of unlawful sex bias, including complaints against private sector employers.
While the law regarding transgender individuals’ employment rights remains in flux, employers are well-advised to address the issue with sensitivity and diligence. Treating transgender employees the same as their similarly situated, non-transgender co-workers remains the best way for all employers to avoid liability for gender identity discrimination.
The federal Fair Labor Standards Act (FLSA) establishes requirements for minimum wages and overtime pay. The FLSA’s requirements can be complex, and employers can face significant liability for unpaid wages and liquidated damages by failing to ensure compliance with its myriad requirements.
The FLSA contains a somewhat unique quirk regarding its statute of limitations. The statute of limitations for FLSA violations is two years. However, if the plaintiff(s) can show that the violation was willful, the statute of limitations is extended to three years. In other words, employers who commit willful violations face a potential additional year of damages (if the unpaid wages date back at least three years before the filing of the lawsuit).
In an FLSA case filed against Lackawanna County, the Third Circuit recently clarified what constitutes a willful violation to trigger the third year of liability under the FLSA. In Souryavong v. Lackawanna County , the County failed to aggregate the hours worked by part-time employees who worked multiple jobs for the County. For overtime pay purposes, all hours worked by a non-exempt employee for an employer must be recorded and counted. If the total hours worked in any workweek exceeds 40, the employee is entitled to overtime pay, regardless of whether the hours were worked in one or multiple positions for the same employer.
Thus, it was undisputed that the County violated the FLSA by failing to aggregate weekly the hours worked for these part-time employees. It also was undisputed that the County was liable for unpaid overtime pay and liquidated damages dating back two years from the date the lawsuit was filed. What was in dispute was whether the County’s violation was willful, which would trigger a third year of damages.
The plaintiffs claimed that the violation was willful and pointed to testimony by the County’s chief financial officer and HR director that the County had been generally aware of its FLSA obligations since 2007. The plaintiffs also identified an e-mail from the HR director to two other County officials regarding “wage and hour issues.”
The Third Circuit rejected the plaintiff’s willfulness argument. Specifically, the Third Circuit found that the evidence did not establish that the County was aware of the specific overtime pay issue (i.e., aggregating hours worked by part-time employees who worked multiple jobs for the County) before or at the time that the FLSA violations occurred. General awareness of the FLSA’s existence and its general requirements is not enough to prove a willful (i.e., intentional) violation of one of its specific requirements.
There are two important takeaways from the Third Circuit’s Souryavong decision:
- To prove a willful FLSA violation and get that third year of potential damages, employees will need to prove that the employer actually knew of the specific FLSA requirement at issue at the time of the violation and intentionally did not comply with it. General FLSA awareness is not sufficient to prove a willful violation of a specific requirements.
- Employers should keep this decision in perspective and understand what it means and what it does not. Even with the Third Circuit’s favorable decision, the County still was liable for two years of unpaid wages for multiple employees, an equal amount in liquidated damages, an additional $56,000 for the plaintiffs’ attorneys’ fees, and an additional undisclosed amount for its own attorneys’ fees. FLSA violations present significant potential liability for employers, and it is in every employer’s interest to audit its pay practices and ensure compliance before a lawsuit is filed or a Department of Labor investigation begins. While this decision confirms that it can be hard to establish a willful violation, employees need to prove only a violation of the FLSA (regardless of whether the violation was intentional) to get two years of damages plus their attorneys’ fees paid by the employer.
Every year, Pennsylvania’s appellate courts seem to issue a handful of decisions addressing the enforceability of non-compete agreements. However, there are relatively few court decisions addressing non-solicitation agreements. A non-solicitation agreement is the less restrictive cousin of the non-compete. Under a non-solicitation agreement, a former employee is permitted to work anywhere, including competitors of his or her former employer. A non-solicitation agreement merely prohibits a former employee from soliciting (or perhaps even contacting) the former employer’s customers, prospective customers and/or employees. In Metalico Pittsburgh, Inc. v. Newman, the Superior Court of Pennsylvania recently addressed some fundamental points regarding enforcement of these less restrictive agreements.
In Metalico, two executives of a scrap metal broker left their employer (“Metalico”) to join a competitor, Allegheny Raw Materials, Inc. (“ARM”). Upon joining Metalico, they had both signed employment agreements which included non-solicitation provisions that prevented them from soliciting any of Metalico’s suppliers for up to two years after their employment ended. Their employment agreements were each for three year terms and, once these terms expired, the agreements were not renewed. Both executives continued to work for Metalico for a period of time as “at will” employees; i.e. their salaries and bonuses were no longer contractually guaranteed.
After leaving Metalico, both executives began soliciting Metalico’s suppliers for their new employer. Metalico sued to enforce the non-solicitation provisions in the expired employment agreements. The trial court ruled for the executives and refused to enforce the non-solicitation restrictions, holding, once the employment agreements expired, they “were replaced with at-will relationships that did not include non-solicitation provisions.”
On appeal, the Superior Court of Pennsylvania reversed the trial court and enforced the non-solicitation restrictions. The Court began with the basic premise that both executives received adequate consideration for their non-solicitation covenant when they signed [their agreements] “as part of their initial employment relationship.” Citing several earlier decisions, the Court then observed that “it is possible for a non-solicitation covenant to survive the end of a term of an employment contract, when the employee stays on as an at-will employee” if the written agreement provides for this. Looking to the terms of each executive’s employment agreement, the Court then noted that the non-solicitation provision was clearly intended to be in effect during three relevant time periods: (a) during the three-year term of the employment agreement; (b) during any period of continued employment after the employment agreement expired; and (c) up to two years after the executives left Metalico’s employment.
Since the non-solicitation restrictions were supported by adequate consideration (i.e. initial employment) and were never mutually disavowed by the parties, the Superior Court held that the restrictions remained enforceable – notwithstanding the expiration of the agreements in which they appeared.
It is not uncommon for employees to continue working for a company after their written employment agreements expire. The Metalico case serves as a good lesson as to how to draft restrictive covenants that will survive the expiration of the agreement in which they appear. Another approach taken by many employers is to have employees sign two separate agreements – an employment agreement with a fixed term, and a separate restrictive covenant agreement that remains in effect for the duration of employment and for a fixed period afterward. Regardless of which approach is taken, the Metalico case demonstrates that careful drafting is the key to ensure enforceability.
Employers with 100 or more employees (and federal contractors with 50 or more employees) must submit an EEO-1 Report annually, detailing the race, gender, and ethnicity of its workforce. In September of 2016, the Equal Employment Opportunity Commission (“EEOC”) issued a revised EEO-1 Form, which would have required employers to submit extensive data related to employee compensation. For each EEO category, the revised EEO-1 Form would have required employers to identify the number of employees in each of twelve pay bands. Starting with 2017 data, the filing deadline was also pushed back to March 31.
Over the past several months there were calls from the business community for the new Director of the Office of Management and Budget (“OMB”) to initiate a review of the revised EEO-1 Form pursuant to OMB’s authority under the Paperwork Reduction Act – which requires every federal agency to obtain approval from OMB to collect information from the general public in order to ensure that the benefit of the information collection outweighs its burden. On August 29, 2017, the OMB answered that call and issued an immediate stay of the compensation data collection portion of the revised EEO-1 Form. The basis of the stay? Since issuing the revised form, EEOC released data file specifications for employers to use to submit the data. OMB stated that these specification were not included in the public comment process and the specifications change the burden estimate. OMB also found that the revised EEO-1 Form contrary to the standards of the Paperwork Reduction Act and questioned the utility of collecting the information.
So what does this mean for employers submitting EEO-1 Reports? Most importantly, the compensation aspects of the revised EEO-1 Form do not need to be reported. However, the revised filing deadline remains intact. So the 2017 EEO-1 Reports are not due until March 31, 2018. Just as before the revised EEO-1 Form was issued, the reports must contain data related to employee race, gender, and ethnicity. Finally, for our federal contractor subscribers, the stay does not impact the filing of your VETS 4212 form, which must be filed by September 30, 2017.
On August 31, 2017, Judge Amos L. Mazzant III of the U.S. District Court for the Eastern District of Texas issued an order holding that the 2016 Fair Labor Standards Act white-collar overtime exemption regulations were invalid. In November 2016, Judge Mazzant had issued a nationwide preliminary injunction blocking the new FLSA white-collar overtime exemption regulations from taking effect on December 1, 2016. With the order issued on August 31, 2017, Judge Mazzant formally struck down the challenged regulations, granted summary judgment for the plaintiffs, and closed the case.
As you may recall, the 2016 regulations more than doubled the minimum weekly salary requirement for most white-collar overtime exemptions from $455 to $913. The regulations contained a number of additional provisions, the vast majority of which were not viewed favorably by employers.
In his decision, Judge Mazzant clarified that the DOL has the legal authority to create a minimum salary requirement for the white-collar overtime exemptions, but in this case exceeded that authority by more than doubling the existing minimum salary requirement. In a separate decision also issued on August 31, 2017, Judge Mazzant denied a motion to intervene in the case filed by the Texas AFL-CIO, finding that the motion was untimely and that the DOL adequately represented whatever interests the Texas union had.
On the same day that the Court issued its order granting summary judgment and closing the case, the DOL asked the appeals court that was set to hear the appeal of the November 2016 preliminary injunction decision to hold that appeal in abeyance “pending further discussions by the parties in an attempt to narrow the dispute and potentially eliminate the need for this appeal.” It is unclear what the next steps for the parties in this matter will be, but the events of August 31, 2017 decrease significantly the likelihood of the 2016 regulations ever taking effect.
Where are we now and where to we go from here?
A future decision by an appeals court overturning Judge Mazzant’s decision appears unlikely, primarily because the Trump Administration’s DOL likely will not pursue such an appeal and Judge Mazzant denied the Texas AFL-CIO’s motion to intervene in the case. Thus, the requirements for the white-collar overtime exemptions remain (and should remain for the near future) what they were before the 2016 regulations, with a minimum weekly salary requirement of $455.
The Trump DOL has indicated that it intends to issue new regulations that would revisit, and likely increase, the white-collar exemptions’ minimum salary requirement. Unless and until those regulations are issued and take effect, $455 remains the minimum weekly salary requirement, and the existing regulations, which date back to 2004, remain in effect.
For years, employers have struggled with properly completing the requirements of the I-9 Form. Every employee hired after November 6, 1986 must have an I-9 Form on file with the employer. The Form is proof that the employer has examined documents sufficient to establish the employee’s right to work in the United States. While the purpose of the I-9 is relatively straightforward, some large employers have faced fines amounting to hundreds of thousands of dollars for errors these Forms.
With the electronic Form’s release on July 17, 2017, many of the violations that created liability should be a thing of the past. The new form provides drop down boxes which offer options in filling out sections of the form. The options will help in eliminating some of the common errors employers have made in the past like properly completing sections on; citizenship, immigration status, document title and state of residence. The form’s electronic version also provides instructions for completing each section when the user clicks on the question mark in that section.
In spite of these revisions which are designed to assist in preparation of the form, some employers have chosen to print the form and fill it out on paper. As a result, many easily avoidable mistakes remain an issue. We advise clients to fill out the form on a computer if at all possible, thus taking advantage of the individualized instructions and drop down boxes in each section of the new I-9 Form. We note as well that the “N” at the end of the release date in the bottom left hand corner of the form means that it is the only version currently authorized for use. Finally, we continue to see employees who use E-Verify failing to fill out I-9s in the mistaken belief that participation in the E-Verify program releases them from the requirement to have an I-9 for each employee. It does not. You must prepare a new I-9 for every employee regardless of whether you participate in E-Verifying.
The new electronic I-9 Form is available at USCIS website. Use it online and make your lives easier.
Most employers take proactive steps to prevent and eliminate workplace harassment. Until recently, courts recognized and rewarded the proactive approach. Businesses in Pennsylvania, New Jersey and Delaware could avoid liability for hostile work environment claims if they rooted out the problem before it became “severe and pervasive.”
Courts had long held that a single slur, even if highly offensive, was not pervasive and therefore could not trigger employer liability. The United States District Court for the Middle District of Pennsylvania upheld that standard in Castleberry v. STI Group, a 2015 case involving African American workers who were subjected to a racial slur and threatened with termination in a single incident. The District Court dismissed the claim.
On appeal, the Third Circuit overturned the District’s ruling. In doing so, the Court noted that the “plaintiffs alleged that their supervisor used a racially charged slur in front of them and their non-African-American co-workers…Within the same breath, the use of this word was accompanied by threats of termination (which ultimately occurred).” Under these facts, the Third Circuit held that a single, isolated slur constitutes severe conduct that could create a hostile work environment.
Castleberry is now the law of the land for all Pennsylvania employers (and those in New Jersey and Delaware) who are subject to federal anti-discrimination laws. And it is certainly bad news for employers. The ruling makes it much easier for a hostile work environment plaintiff to survive summary judgment, leading to increased defense costs and greater potential for a costly verdict.
In light of the Third Circuit’s holding, employers would be wise to take inventory of its anti-discrimination and anti-harassment policies to ensure that they are up to date and prohibit all occurrences of discriminatory harassment. Supervisors and managers should also be made aware that even a single, isolated racial slur can now lead to liability.
We will continue to monitor Third Circuit cases that develop under Castleberry and any updates will be reported here on our blog.