Let’s check in with the January 2017 case filed in the United States District Court for the Eastern District of Texas challenging the Obama Administration’s proposed changes to overtime regulations.  Those regulations would have required employers to reclassify many employees considered exempt from overtime rules to non-exempt status, requiring the employer to now pay overtime to those employees. The rule was widely considered a boon to employees, but a burden for small businesses and nonprofits. 

Those rules would have required that in addition to meeting certain requirements with regard to an employee’s duties, the employee must also earn a minimum salary of $47,476 to qualify for “exempt” status.  The current rule requires that the employee earn a minimum salary of $23,660.  The dramatic increase in the salary requirement caused employers to reevaluate classifications and to generate new policies regarding overtime and work hours in advance of a December 1, 2016 deadline.

As previously discussed on this blog, on November 22, 2016, the Eastern District of Texas entered an injunction prohibiting enforcement of the new rules.  Many clients have asked me, dreading the answer, whether that injunction remains in place.  On December 1, 2016, the United States Department of Labor appealed the injunction order, and sought a stay of the Court’s order prohibiting enforcement.  The Court denied the stay, and the matter is now on appeal.  During the appeal, the Department of Labor cannot enforce the new rules.  The appeals court granted a request submitted by the Department of Justice to extend time to file appellate briefs while “incoming leadership personnel” considered the issues.  That brief is now due on June 30. 

The Trump Administration has three choices: defend the rule, withdraw the rule, or rewrite the rule.  Labor Secretary Alexander Acosta has telegraphed that a review of the rule was necessary, but that the salary increase was too dramatic.  However, the Department of Labor’s repeated requests for extensions to file a brief indicate that it is not necessarily an easy call.  For example, because the Eastern District’s order granting the injunction called into question the rulemaking authority of the Department of Labor, there may be good reason for the administration to challenge the court’s injunction order, even though it does not necessarily agree with the rule. 

The overtime rules will remain in limbo until at least June 30, 2017.  We will continue to monitor the situation.  In the meantime, employers are not required to change their overtime policies or the classifications of their employees. 
 

By Patricia Collins, Esquire
 

On May 2, 2017, the House passed the Working Families Flexibility Act.  The purpose of the Act is to give employees flexibility in how they choose to be paid for overtime: in wages or in compensatory time off.  The Act crystallizes a tension I see often in my representation of employers. 

 Presently, the Fair Labor Standards Act (“FLSA”) requires employers to pay nonexempt employees overtime compensation for work hours in excess of 40 in a workweek.  Employers cannot compensate employees for those overtime hours in compensatory time off (“comp time”).  Such a policy violates the FLSA, exposing the employer to liability for the unpaid overtime hours as well as penalties and attorney’s fees.

 The FLSA prohibition against payment in comp time is intended to protect employees from abusive overtime demands by employers.  The statutory obligation to pay additional wages for hours over forty in a workweek, so the argument goes, forces the employer to base the decision to require overtime hours on business and financial considerations.  The FLSA’s ban on comp time legislates a policy determination that offering comp time will not protect employees from abusive demands by employers.

 Republicans this week argued otherwise.  They argue that permitting employees to take comp time rather than payment for overtime work gives employees flexibility.    Democrats who opposed the bill countered that the Act’s provision allowing employers the final say does not adequately protect employees. 

 Practically, the Act sits at the tipping point of many competing considerations:  employers want to establish policies that comply with the law, protect the business, and benefit employees.  Employees want flexibility, but they also need to be paid for their work.  The reality is that banked comp time can be a liability for employers because there are jobs for which attendance is extremely important, and unscheduled or unpredictable time is off is sometimes expensive or interferes with the progress of work.  Further, employees might not be free to use that comp time in the manner they would like if it interferes with the employer’s business.  Most employers offer paid time off in a set amount, in order to create predictability as to an employee’s attendance.  While this proposed rule might create flexibility and reduce overtime costs, I do wonder whether it is really a savings in the long run. 

 It will be interesting to see how the Senate balances these concerns, and whether employers will create policies that allow comp time.  The bill now goes to the Senate – no word yet on whether they will vote on it. Stay tuned!

By Patricia Collins

Reprinted with permission from the February 28th edition of the The Legal Intelligencer © 2017 ALM Media Properties, LLC. All rights reserved.Further duplication without permission is prohibited

The Pennsylvania Superior Court, in Metalico Pittsburgh v. Newman, et al (No. 354 WDA 2016, April 19, 2017), dealt a blow to employees attempting to avoid the application of a non-solicitation covenant. 

In Metalico, two employees, Newman and Medred, executed employment agreements containing a covenant not to solicit customers, suppliers and employees during the “Post-Employment Period.”  The Post-Employment Period varied depending upon the manner of the termination of employment, and commenced upon the last day of employment with Metalico.  At the end of the three-year period, Metalico terminated the employment agreements, but continued to retain Newman and Medred as “at-will” employees, and recited new compensation and other terms of employment.  These terms differed from those contained in the employment agreement.  Newman and Medred were terminated one year later.  Metalico filed suit against Newman and Medred, alleging that they were violating the non-solicitation covenant in their subsequent employment. 

On the eve of a preliminary injunction hearing, Newman and Medred filed a Motion for Partial Summary Judgment, arguing that the employment agreements containing the non-solicitation covenants had terminated, and therefore the non-solicitation provisions no longer applied.  They argued that the agreement to continue as “at-will” employees acted as a novation of the employment agreement.

The trial court agreed with Newman and Medred, and granted their motion for partial summary judgment.  But the Superior Court did not agree.  Instead, the Superior Court found that the covenant remained in place pursuant to a survival provision in the employment agreement.  That provision stated that if employment under the agreement “expires,” the agreement continues in effect “as is necessary or appropriate to enforce” the non-solicitation covenant. 

The trial court found that upon converting Newman’s and Medred’s status to “at will” employees, the parties had stated new terms for the employment relationship going forward.  In so doing, the parties did not recite that the non-solicitation provision would stay in place.  The failure to continue the compensation and benefits provided in the employment agreement, in the trial court’s view, invalidated the non-solicitation covenant.  The trial court justly noted: “Metalico cannot claim the benefits of its bargain while denying its employees the same.” 

The Superior Court disagreed, noting that because the survival language was included in the employment agreement, it constituted the bargained-for benefit for the employees.  The Superior Court rejected any argument that there was a failure of consideration, because failure of consideration only applies if the consideration was never received – the employees here did receive three years of the promised compensation and benefits under the agreement.  The Superior Court refused to find that the parties to the employment agreement intended to terminate and extinguish the previous agreement, thus extinguishing the non-solicitation covenant as well.  In so doing, the Superior Court relied upon Boyce v. Smith-Edwards-Dunlap Co., 580 A.2d 1382 (Pa. Super. 1990).  However, the Boyce case dealt with the use of the restrictive covenant as a defense to a claim raised by the employee.

It is well-settled that restrictive covenants in employment agreements are disfavored under Pennsylvania law.  Courts, including the Superior Court, have refused to enforce such agreements on technicalities.  For example, in Socko v. Mid-Atlantic Systems of CPA, Inc., 99 A.3d 928 (Pa. Super. 2014), the Superior Court refused to enforce a covenant not to compete in an employment agreement entered into after the commencement of employment and not accompanied by any beneficial change in the employee’s status, but which recited that it was signed “under seal” under the Uniform Written Obligations Act.  The Court found that a seal does not provide adequate consideration to enforce a restrictive covenant.  Instead, the Superior Court noted, there must be “actual valuable consideration.”  The holding in Socko left employment law practitioners and litigators with the belief that there are no “gotchas” when it comes to restrictive covenants. 

Metalico appears to change that.  Metalico voluntarily agreed to let the employment agreement terminate and to continue employment on an “at-will” basis.  This change of status benefits Metalico, leaving it free to terminate the employees or change their compensation and benefits at will (thus the name) and without concern about the terms of a written agreement.  The employees lost these protections.  The practical result of the Superior Court’s holding is that the employees lost the protections of the agreement, but retained their post-employment obligations.  This is inconsistent with Pennsylvania’s historical animosity towards these restrictive covenants, and appears to truly represent a “gotcha” for these employees. 

Metalico expands the universe of enforceable restrictive covenants.  This is not an uncommon fact pattern, and one which might have given an employer’s attorney pause prior to filing for a preliminary injunction in the past.  The holding could have the impact of reducing the care required in drafting, terminating and enforcing disfavored restrictive covenants, and eliminating some of the defenses available to employees seeking to avoid the covenant.  Interestingly, nowhere in the opinion does the Superior Court recite the oft-cited language that such covenants are disfavored in the law.  It will be interesting to see if the Supreme Court takes the opportunity to do so on appeal. 

Patricia Collins is a Partner with Antheil Maslow & MacMinn, LLP, based in Doylestown, PA. Her practice focuses primarily on commercial litigation, employment and health care law. To learn more about the firm or Patricia Collins, visit www.ammlaw.com.

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Avoiding Bad Press, Brand Impairment and Costly Litigation

Reprinted with permission from the February 28th edition of the The Legal Intelligencer © 2017 ALM Media Properties, LLC. All rights reserved.Further duplication without permission is prohibited

A significant amount of press surrounded the US Department of Justice (DOJ) one year trial pilot program on April 5, 2016 and  the earlier September 29, 2015 “Yates Memo”, instructing companies to self-disclose possible violations of the Foreign Corrupt Practices Act (FCPA) and fully cooperate with the DOJ.  What has not been as broadly made known is that, a few days later, the U.S. Customs and Border Protection (CBP) establish a Trade Enforcement Task Force within its Office of Trade to focus on issues related to enforcement of antidumping and countervailing duty laws and interdiction of imported products using forced labor. 

Antidumping and countervailing duties are historic tariffs imposed on foreign imports priced below fair market value to ensure a level playing field for domestic producers.  The interdiction of products using forced labor stems from The Trade Facilitation and Trade Enforcement Act of 2015(TFTEA), enacted in February 2016.  TFTEA eliminates an earlier “consumptive demand” exemption, meaning that goods made with indentured, child, or other forced labor are no longer allowed in the US just to meet US demand.  With this change, CBP will no longer be legally required to weigh demand considerations when processing information concerning forced labor.  CBP will be updating its regulations to clarify the TFTEA amendment but, since March 10, 2016, CBP started training personnel and has executed several withhold/release orders related to goods made by convict or forced labor using a Department of Labor (DOL) list of foreign-made products for which the DOL “has a reasonable basis to believe might have been mined, produced or manufactured” by forced or indentured labor. The CBP has also established within its Office of Trade a Trade Remedy Law Enforcement Division and seems intent on taking action.

By Gabriel Montemuro

Reprinted with permission from the February 28th edition of the The Legal Intelligencer © 2017 ALM Media Properties, LLC. All rights reserved.

Further duplication without permission is prohibited

The attorney-client privilege is the well-known and long-established court recognized protection of the substantive communications between an individual and his or her appointed counsel. The privilege protects litigants and their counsel from testifying or otherwise disclosing confidential communications between them despite the communications’ potential relevance or probative value. 42 Pa.C.S.A. § 5928; See also In re Grand Jury, 705 F.3d 133, 151 (3d. Cir. 2012). 

The attorney-client privilege is designed to foster a public policy that encourages clients to make full disclosure of facts to their attorneys and to allow counsel to properly, competently, and ethically carry out representation.  Idenix Pharm. V. Gilead Sci., Inc., 2016 WL 4060098 at 1 (D. Del. 2016).  The privilege further fosters full and frank communications between counsel and their clients, thereby promoting public interests in law and the administration of justice.  See J.N. S. W. School Dist., 55 F.Supp.3d 589, 598 (M.D. Pa. 2014); See also Magnetar Tech. Corp. v. Six Flags Theme Park Inc., 886 F.Supp.2d 466, 477 (D. Del. 2012).

The attorney-client privilege is widely recognized as a nearly insurmountable bar to discovery, however confidential communications between an attorney and his or her client may still be discoverable in limited circumstances.  The privilege may be waived, either expressly by consent or implicitly by disclosing communications at issue to a third party, or by failing to timely assert the privilege.  See Serrano v. Chesapeake Appalachia, LLC, 298 F.R.D. 271, 284 (W.D. Pa. 2014); see also Law Office of Phila. Waterfront Partners, 957 A.2d 1223, 1233 (Pa. Super. 2008); Nationwide Mut. Ins. Co. v. Fleming, 924 A.2d 1259, 1265 (Pa. Super. 2007).

Prior to Pennsylvania legally recognizing same-sex marriages, other states did offer same-sex marriages or civil unions. A problem for couples who entered into an out-of-state marriage or civil union was that if they later decided to divorce, they could not do so in the Pennsylvania family courts.  This was because Pennsylvania did not recognize those marriages or civil unions as legal.  In June 2013, in United States v. Windsor, the United States Supreme Court ruled that the Defense of Marriage Act’s (DOMA) defining marriage as between one man and one woman was unconstitutional, but the Court limited the impact of their decision.  In May 2014, the United States District Court for the Middle District of Pennsylvania ruled in Whitewood v. Wolf that Pennsylvania’s definition of marriage and refusal to recognize out-of-state same-sex marriages were unconstitutional.  Then, in June 2015, the United Stated Supreme Court in Obergefell v. Hodges ruled that same-sex couples must have the right to marry.  This decision applies to every state.

While these decisions expanded rights to same-sex couples, a lot of questions were left unanswered.  One of the big questions was whether civil unions entered into in other states prior to the legalization of same-sex marriage would be recognized by Pennsylvania.  If the civil unions were not recognized as legal marriages, then Pennsylvania courts did not have to grant divorces, divide the assets and liabilities through equitable distribution or address support issues There were potential child custody ramifications as well.  This left Pennsylvania same-sex couples who legally entered into out-of-state civil unions without the ability to divorce or deal with the economics related to their marriage through the family courts in their home state. 

On December 28, 2016, the Superior Court of Pennsylvania addressed this question in Neyman v. Buckley.  The Superior Court of Pennsylvania ruled “that a Vermont civil union creates the functional equivalent of marriage for the purposes of dissolution.”  In this case, the parties, Pennsylvania residents, entered into a Vermont civil union in 2002 and separated later that year.  From 2014 through 2015 the parties unsuccessfully sought a divorce in Pennsylvania and appealed their case to the Pennsylvania Superior Court arguing that the Pennsylvania family court should have jurisdiction to dissolve their Vermont civil union and that the Vermont civil union should be treated as a legal marriage in Pennsylvania.  It is important to note that Vermont intended same-sex couples that entered into civil unions to have the same rights and access to the family court system as those who were married.  The Superior Court of Pennsylvania used this reasoning to “conclude that the legal properties of a Vermont civil union weigh in favor of recognizing such unions as the legal equivalent of marriage for purposes of dissolution under the Divorce Code.”  This decision allows same-sex couples who entered into out-of-state civil unions the same rights as if the civil union were a marriage.  It also allows these couples access to Pennsylvania family courts to address those issues permitted under the Pennsylvania Divorce Code.