Reprinted with permission from the April 18th, 2018 issue of The Legal Intelligencer. (c) 2018 ALM Media Properties. Further duplication without permission is prohibited.
The Supreme Court’s decision in Encino Motorcars, LLC v. Navarro interprets a very specific exemption to the overtime rules imposed by the Fair Labor Standards Act, 29 U.S.C. 201, et seq. (“FLSA”), but the Court’s language and reasoning have game-changing ramifications. The Court’s rejection of the principle that courts should narrowly construe exemptions to the FLSA turns decades of FLSA caselaw on its head.
The facts of Encino Motorcars are deceptively narrow. Employees classified as service advisors for a car dealership challenged the car dealership’s classification of the service advisors as exempt from the FLSA. The FLSA requires that employers must pay overtime to employees who work more than 40 hours in a week. 29 U.S.C. § 207(a). The dealership claimed the exemption under a statutory exemption that applies to car dealerships. 29 U.S.C. § 213. Specifically, the section in question exempts from overtime pay requirements:
Any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers.
Finally, Spring is here! It has certainly been a long, cold, snowy, and relentless winter. I want to take this opportunity to wish all of you a snow-free, warm and sunny Spring. As an employment lawyer, I'd like to do my part to help all of you employers maintain a care-free Spring mood by offering the following Spring cleaning checklist, which can protect your business from litigation and compliance risks.
Reprinted with permission from the February 26th, 2018 issue of The Legal Intelligencer. (c) 2018 ALM Media Properties. Further duplication without permission is prohibited.
At the end of 2017, legislators in Pennsylvania proposed legislation to ban noncompete agreements. The proposal is consistent with a legislative trend in other states. In New Jersey, the Senate proposed a bill (Senate Bill 3518) that would place limits on the ability to impose noncompetes (there is a similar Assembly Bill, A5261). Both of these bills reflect already existing challenges in drafting and enforcing restrictive covenants.
Pennsylvania’s House Bill 1938 was referred to the Labor and Industry Committee on November 27, 2017. The Bill recites a declaration of policy that reads like a defendant’s brief in a preliminary injunction case. It states, summarizing, that the Commonwealth has an interest in the following: allowing businesses to hire the employees of their choosing; lowering the unemployment rate; allowing employees to make a living wage; allowing employees to “maximize their talents” to provide for their families; promoting increased wages and benefits; promoting innovation and entrepreneurship; promoting unrestricted trade and mobility of employees; allowing highly skilled employees to increase their income; attracting high-tech companies; disfavoring staying in jobs that are not suited to qualifications; and disfavoring the practice of leaving the Commonwealth to seek better opportunities.
The Bill defines a “covenant not to compete” broadly as an agreement between an employer and employee that is designed to impede the ability of the employee to seek employment with another employer. Interestingly, the Bill does not seem to distinguish between a non-solicitation restriction and non-competition restriction. The Bill prohibits all “covenants not to compete,” and does not allow a court to rewrite the covenant not to compete to make it enforceable.
There are exceptions: “reasonable” covenants not to compete that relate to an owner of a business; covenants not to compete involving a dissolution or disassociation of a partnership or a limited liability company; and “reasonable” covenants not to compete that were in place prior to the effective date of the statute. One presumes that previous case law regarding what constitutes a “reasonable” restriction on competition will apply. The Bill would allow an employee to recover attorneys’ fees and damages upon prevailing in a suit brought by the employer related to the enforcement of a covenant not to compete.
The historical reluctance of courts to enforce restrictive covenants as written has certainly impacted how and when employers use such documents. Employers (with their attorneys) have attempted to draft documents that a court will enforce, and given careful thought to filing suit in the event of a breach. This Bill, however, would change that calculus dramatically; not just because of the outright ban on arguably both noncompete and nonsolicitation agreements, but also because of the attorneys’ fees provision. Employers who get it wrong will pay attorneys’ fees and damages, including punitive damages, to the employee. It may no longer be wise to file preliminary injunctions as a deterrent or a means to a resolution. If passed, this Bill would require employers to focus on two important concepts going forward, one legal, and one not legal: retention of key employees and protection of trade secrets.
The Bill remains with the House Labor and Industry Committee and does not, at this time, appear on that committee’s schedule.
The New Jersey Bill would also impact the legal and economic strategy of using and enforcing restrictive covenants. Introduced on November 7, 2017, the Bill recites public policy goals with regard to covenants not to compete similar to those recited in the Pennsylvania Bill. The Bill defines a restrictive covenant more narrowly than the Pennsylvania Bill: agreements under which the employee agrees not to engage in certain specified activities competitive with the employer after the employment relationship has ended. The New Jersey Bill does not ban covenants not to compete, but instead imposes a series of restrictions that would seriously impact how noncompetes were enforced and drafted, and would have required employers to pay employees for the period of the restriction. The New Jersey Bill died in committee.
Both Bills reflect the historical judicial reluctance to enforce noncompetes, and change the economics and legal issues related to those agreements dramatically. They are in line with restrictions in other states like California, North Dakota and Oklahoma. Most importantly for practitioners, they reflect that reliance on a well-drafted choice of law provision may not save the day. Case and statutory laws on this particular topic are not really predictable in the usual way. Just by way of example, Massachusetts has eight outstanding bills related to the topic, all of which were the subject of hearing on October 31, 2017, and both Vermont and New Hampshire proposed outright bans earlier this year. Even the results of upcoming elections could change the statutes in any particular state.
These bills proposed late in 2017 reflect current challenges in drafting and enforcing agreements that are enforceable and highlight the importance of considering each decision carefully. Drafters must consider carefully the specific interest an employer is attempting to protect, but even the most careful drafting may not survive new legislation. It will be interesting to see whether, and in what form, legislatures may codify some of these challenges in the future.
Patricia Collins is a Partner with Antheil Maslow & MacMinn, LLP, based in Doylestown, PA. Her practice focuses primarily on employment, commercial litigation, and health care law. To learn more about the firm or Patricia Collins, visit www.ammlaw.com
Reprinted with permission from the January 18, 2018 issue of The Legal Intelligencer. (c) 2018 ALM Media Properties. Further duplication without permission is prohibited.
In a recent decision, the Pennsylvania Superior Court complicated the already tricky business of paying nonexempt employees on an hourly basis for Pennsylvania employers. In Chevalier v. Hiller, the Court found that a “fluctuating workweek” overtime calculation method, approved by federal regulation, violates Pennsylvania’s Minimum Wage Act, 43 P.S. §333.101 et seq. (“PMWA”). The Superior Court reversed the trial court’s grant of summary judgment in favor of the employees, in a comprehensive opinion that requires Pennsylvania employers to review carefully their overtime calculation methods.
The employees in this case were managers at various levels for GNC. GNC calculated their overtime pay using the “fluctuating work week method.” Under this method, in an example provided by the Superior Court, overtime was calculated as follows: employees were paid $1000 a week regardless of the number of hours worked in a week. In one week, the example goes, the employee worked 50 hours. GNC thus calculated the employees “regular rate” at $20 an hour. GNC then paid the employee an additional $10 an hour for the ten hours over 40, resulting in $1100 in wages for the 50 hour week.
The employees argued that this method was improper under the PMWA, and the trial court agreed. The trial court opined that the rate instead should have been calculated using the “forty hour” method. Under this method, the regular rate is determined by dividing the weekly salary of $1000 by forty hours, to produce a rate of $25 an hour. Then, the additional ten hours over forty worked should have been paid at time and a half for an additional $375, resulting in $1375 in wages for the 50 hour week. Notably, had the Superior Court agreed with the trial court, the cost of paying nonexempt employees on a salary basis would have increased exponentially.
Instead, the Superior Court disagreed with the trial court and found that the regular rate was properly calculated using the “fluctuating workweek method,” that is, that the employer’s calculation of the regular rate by dividing the employee’s salary in a given week by the number of hours the employee actually worked did not violate the PMWA.
However, the Superior Court found that GNC’s method of paying for the overtime hours violated the PMWA. The Superior Court found that PMWA required the payment of an overtime premium of 1 and ½ times the employee’s regular rate for all hours in excess of forty in a work week. Accordingly, using the fifty hour example set forth above, that employee should have received $200 in overtime.
The Superior Court began its analysis by noting the purpose of the PMWA, which mirrors the language of the FLSA, “to protect employees who do not have real bargaining power.” The Court noted that no Pennsylvania appellate court had evaluated the propriety of the fluctuating workweek method under the PMWA, but that some federal courts had addressed the PMWA’s overtime requirements. In those cases, the federal courts agreed with the conclusion of the Superior Court regarding the premium due, but did not address the appropriate method for calculating the regular rate.
The Superior Court’s holding imposes a different requirement than the federal Fair Labor Standards Act. Under the FLSA, and cases interpreting it, an employer is free to use the fluctuating work week method, and to pay a premium of one-half the hourly rate for hours over forty in a workweek, on the theory that the regular rate for those hours is captured in the salary. While the Superior Court found that the PMWA permitted a calculation of the regular rate, consistent with the FLSA, using the fluctuating workweek method, the Superior Court found that Pennsylvania law would not permit a premium of only ½ that regular rate.
Instead, the Superior Court found that the applicable regulations required the payment of one and one-half times the regular rate for hours over forty in a workweek. The applicable regulations require that “each employee shall be paid for overtime not less than 1-1/2 times the employee’s regular rate of pay for all hours in excess of 40 hours in a work week.” 24 Pa. Code § 231.41. The regulations do permit the payment of half the regular rate only for employees who are paid a flat sum for a day’s work. 34 Pa. Code § 231.43(b). Finally, another regulation permits employer and employee to come to an agreement as to the “basis rate” for payment of work in excess of the maximum workweek, but only if the employer uses a multiplier of one and one-half. In other words, the Superior Court found, in all instances where the regulations address the appropriate multiplier, the regulations required the payment of one and one-half times the regular rate. The Court pointed out that the Department of Labor did not adopt the federal regulation that expressly permits the payment of half the regular rate as the overtime premium, although it could have done so. The Court found the decision not to adopt that federal regulation was a deliberate reflection of the purpose to protect employees.
The Superior Court’s decision creates a dilemma for Pennsylvania employers using the fluctuating workweek method. Pennsylvania employers currently paying an overtime premium of half the hourly rate for hours over forty in a workweek to nonexempt, salaried employees, are complying with federal, but not Pennsylvania law. Employers will need to evaluate their overtime calculation policies and review whether paying nonexempt employees on a salary basis continues to make economic sense.
Patricia Collins is a Partner with Antheil Maslow & MacMinn, LLP, based in Doylestown, PA. Her practice focuses primarily on employment, commercial litigation, and health care law. To learn more about the firm or Patricia Collins, visit www.ammlaw.com
Under the federal Fair Labor Standards Act (FLSA), employers in “for-profit” enterprises are required to pay compensation to their employees, including a designated minimum wage and overtime pay.
An issue often faced by employers is whether an intern or student is actually an employee entitled to compensation, or whether the intern or student may work without receiving pay.
On January 5, 2018, the United States Department of Labor (“DOL”), which enforces the FLSA, announced in Field Assistance Bulletin No. 2018-2, that it was now going to follow the decision of several appellate courts in promulgating a new test for determining if an intern is actually an employee entitled to compensation.
Specifically, the DOL, announced that it would use the “primary beneficiary test” to determine the status of the would-be intern. The test is intended to be flexible and allows courts or the DOL to review the “economic reality” of the relationship to determine which party, would-be intern or employer, is the primary beneficiary of the relationship.
As part of the “primary beneficiary test”, the DOL adopted seven factors used by the courts:
1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
The DOL stated that no one factor is determinative of the issue and that the ultimate classification of intern or employee “under the FLSA necessarily depends on the unique circumstances of each case”.
With respect to volunteers for governmental services and non-profits, the Wage and Hour Division of the Department of Labor set forth the following in Fact Sheet No. 71:
“The FLSA exempts certain people who volunteer to perform services for a state or local government agency or who volunteer for humanitarian purposes for non-profit food banks. WHD also recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation, for religious, charitable, civic, or humanitarian purposes to non-profit organizations. Unpaid internships for public sector and non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.”
Employers who use interns should carefully review whether they are complying with the law. AMM’s Employment Law attorneys can assist you with this and all compliance issues. To learn more about Michael Klimpl, visit ammlaw.com.
The Employment Law Department here at Antheil Maslow & MacMinn wishes a Happy New Year to all of our clients. In the interest of making this year the best it can be, we offer the following New Year’s resolutions for employers:
1. Resolve to document:
Document everything: employee successes, employee’s failures to meet expectations, attendance, complaints, suggestions, and anything that may be of significance to the employee or the workplace. This is good risk management for employers. For employees, it is a fundamental aspect of workplace fairness, and prevents the situation where an employee may be caught off guard by a particular decision of the employer.
A corollary to this resolution is to make documentation easy. For example, managers can use email, which will include a date and time stamp, be maintained on company servers, and creates an electronic paper trail. Managers are more likely to comply with a simple system.
2. Resolve to retain key employees:
We spend much of our day talking about restrictive covenants – agreements not to compete or solicit customers and employees after the termination of employment. We draft them, read them, counsel employees and employers about them. While these agreements are important to protect the employer, they will not help employers keep their stars. Instead, employers should ensure a positive workplace, where key employees know that they are appreciated. Some ways to accomplish this: fair compensation and benefit programs; attainable equity or bonus programs; realistic work-life balance policies; and recognition of employee successes. It is also worthwhile to recognize that “stars” exist at every level in an organization: the top salesperson and the reliable receptionist both contribute to the success of the business.
3. Resolve to cultivate the culture:
This resolution will help with resolution 2, but is important in its own right. How are managers communicating with employees? Are they fair, professional and clear? Are you looking the other way on unprofessional or inappropriate conduct? Do you ever say “That’s just (insert name here)” about a particular manager?
What we learned in 2017 is that it is folly to look the other way on a toxic workplace culture: it wastes time, pulls focus from work, results in bad press and litigation, and chases away good employees.
A focus on these three resolutions will help lower risk and ensure a compliance workplace. Feel free to contact us to help accomplish these resolutions.
A recent article from NPR entitled “Trainers, Lawyers Say Sexual Harrassment Training Fails” got me thinking about employee training programs. Specifically, every employment lawyer will advise employers to provide training for employees regarding harassment and discrimination. I would like to say that employers follow this advice in order to ensure a professional and safe workplace, but the truth is that employers provide training mostly because their lawyers advise them that training will bolster a defense in the event of a harassment claim. This cynical approach to employee training is, I think, the reason why the experts cited in the article concluded that training is not working.
Training is a “check the box” activity: the employer gets to say that it provided training, in the event of a claim. The employees are required to attend in order to keep their jobs, and so they attend and zone out. The article accuses employees of going through the motions, but employers probably are too. The lawyers told them to train, so the employer is training.
Here’s what I’ve learned: the serious offenders, those who engage in serial harassment, inappropriate relationships or even assault, are going to engage in that behavior no matter what training you provide. An employee who lacks the insight to know that certain behaviors are unacceptable (everywhere, really) will not have an epiphany during mandatory employee training. One-on-one training often helps in these situations, but not always, and not fundamentally (that is, the employee will know what to do to stay employed, but will not really care that the behavior was inappropriate).
Having said that, I want to be clear, employers should provide training – it is good risk management for certain employers. But, perhaps it should be a more sincere activity on both sides: employers should consider more interactive training, smaller groups and individualized training for departments. They should also engage in a healthy evaluation of their workplace culture prior to planning the training.
Further, if the goal is prevention of harassment, hostile work environment claims or other unacceptable workplace behaviors, training is not always the answer. Instead, employers should remember that culture comes from the top. If officers, supervisors and managers maintain professionalism, it sets the tone. It might be valuable to warn and provide one-on-one training to managers who do not demonstrate professional behavior, but in the end, appropriate workplace behavior should be a qualification for any leadership role.
No lawyer will ever advise an employer not to provide training, but perhaps it is time to be more thoughtful about what training looks like for specific employers. Avoiding litigation cannot be the only goal, or the training will never work. We can work with employers to come up with a training plan that complies with the law, and is appropriate for their business.
Harvey Weinstein’s conduct is irresponsible, atrocious and potentially criminal, but that’s not the point of this blog. Instead, I would like to take the opportunity presented by Weinstein’s case (and the many others in the news this year) to talk about reporting and remediating workplace harassment.
Weinstein is the next in a line of prominent men accused of decades of harassment. It appears that at places like Fox and Miramax, and now Amazon, harassment by the boss was a feature of workplace culture. How did responsible employers allow this to continue? Did the women not complain? Did the employer bury the accusation? Didn’t anyone know? There is some evidence that the answer to all of these questions is yes: the women felt that they could not complain, the employer buried the accusations with financial settlements, and many knew and did not raise any red flags out of fear or intimidation.
The other common theme in these cases is the kind of harassment that took place: abuse of position, arrogance about complaints, “quid pro quo” promises, and intimidation.
Employers should consider their policies and practices to ensure a workplace free from this conduct. Serial harassers poison the culture of the workplace and hurt the bottom line. A recent article in the Wall Street Journalnoted the impact on the workplace of “rude” employees. Imagine the impact of intimidating, harassing executives who abuse their power? If employers have a serial harasser in a leadership position, it is time to face the music and address the behavior.
Employees should have an easy means of complaining. Policies should allow employees to “go around” the harassing superior in order to make the complaint, and the harasser should not be included in decision making regarding the complaint. Employers should avoid overly formal complaint procedures or reliance on form over substance. Employers should conduct professional, confidential investigations, and farm the investigation out to a third party if necessary.
It is important to note that settlements are not a license to keep a harasser employed. The employer still has knowledge of the harasser’s bad behavior, and steps should be taken to avoid repeated incidents. Those steps might include termination of important employees.
A common theme in these high-profile cases is that the conduct started (and thus the culture was created) in a “different time” when these workplace protections were not in place. That’s absurd. Title VII became law in 1964, and employers should pride themselves on operating a modern workplace, compliant with laws that have been on the books for decades.
So, how modern is your workplace? Do you have a serial harasser? Are you burying complaints to protect an executive? Do your employees have a safe, easy way to make complaints to an independent person? AMM can help employer develop a common sense policy that protects your business and your employees.
…At least until there is another overtime update.
Let’s review the history of these regulations. Prior to leaving office, President Obama’s Department of Labor significantly revised the salary requirements in order for certain classifications of employees to qualify for exemptions from overtime pay under the Fair Labor and Standards Act (“FLSA”). The DOL increased the salary minimum to qualify for an exemption from approximately $23,000 to approximately $47,000. Small employers and nonprofits scrambled to find a way to comply with the new regulations by the compliance deadline of December 1, 2016.
On November 22, 2016, the United States District Court for the Eastern District of Texas issued an injunction against the implementation of those rules. Small employers and nonprofits breathed a sigh of relief and tabled their new policies and employee classification changes.
Between November 22, 2016 and August 31, 2017, much happened in the Eastern District of Texas and the Fifth Circuit. Appeals were filed, extensions of time to file briefs were granted, and the Department of Labor, now led by President Donald Trump, revised its position on these rules. President Obama’s DOL had argued that the new regulations were a proper exercise of DOL’s rule making, and the President’s executive, powers. President Trump’s DOL argued that while the DOL and the President were within their rights to establish and revise a salary requirement, they would not defend this particular salary requirement.
On August 31, 2017, the Eastern District of Texas agreed, essentially, with the Trump DOL. The Court found that while the DOL is free to set and revise a salary requirement, this particular salary requirement was not enforceable.
The good news is that the salary requirement set by the Obama DOL was so high as to present a significant financial and operational burden for small employers and nonprofits, and this ruling eliminates that concern. However, the ruling leaves this DOL, or any DOL, free to revisit the salary requirement. In other words, we will all take this ride again sometime in the future.
Employers should continue to ensure compliance with the existing rules, and check back in with AMM for any future changes to the salary requirement.
Clarifying its earlier rulings, the Court of Appeals for the Third Circuit (which includes Pennsylvania) has ruled that a single utterance of a racial slur at the workplace could support a claim for harassment.
In this case, two African-American males (plaintiffs) brought suit challenging their firing on the basis that their termination was discriminatory and racially motivated.
The employees specifically alleged that when they arrived at work on various occasions, an anonymous note was written on the sign-in sheets: “don’t be black on the right of way.” They also asserted that while they had more experience working on pipelines than the non-African-American workers, they were only permitted to clean the pipelines rather than work on them. Significantly, a supervisor of these two African-American employees used a severe racial slur to threaten firing if a specific project was not completed to his satisfaction.
The two employees reported this offensive language to a superior and two weeks later they were fired without explanation. After being rehired they were again terminated for “lack of work”.
The suit filed in federal District Court specifically alleged unlawful harassment, discrimination and retaliation. The District Court dismissed the harassment claim, holding that the facts in the complaint did not support a finding that the alleged harassment was “pervasive and regular”. The Court also dismissed the related claims of discrimination and retaliation.