(Out of date) Noncompete Agreements Banned as of September 4

Forms and Policies, Hiring, Noncompete, Termination, Trade Secrets, , ,

Update: Almost immediately after this post went live on August 20, 2024, a federal judge in Texas issued a nationwide injunction striking down the FTC’s noncompete ban. So much for my effots to try to help employers get into compliance before the deadline! So the FTC’s ban on noncompetes is blocked for the foreseeable future. As an employer, you don’t have to send the notices mentioned below. For now, you can still enforce a current noncompetition agreement against a former employee who takes a job with a competitor or sets up a business that competes with yours. However, it would be wise to consider other ways to protect your business’s trade secrets and work product because noncompetes will continue to remain controversial and the subject of a lot of expensive litigation in the future.

As I warned you in June, earlier this year, the Federal Trade Commission issued a rule banning employee noncompete agreements. The noncompete ban goes into effect on Wednesday, September 4, 2024. Despite many pending lawsuits, no nationwide injunction has been entered yet that protects employers from this ban. So now is the time to get into compliance.

What Agreements are Banned?

The noncompete ban prohibits employers from offering or requiring employees to sign any new employment agreement on or after September 4 that restricts the employee from competing with the employer when employment ends. In addition, the FTC rule prohibits employers from enforcing noncompete agreements that are already in effect.

The FTC final rule defines a non-compete clause as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from” seeking or accepting employment or operating a business after the conclusion of the worker’s employment.

You are allowed to require your current employees to be loyal to their employer and not compete while still working for your company. But that duty of loyalty can be explained in a policy in the handbook, rather than in an agreement that requires additional legal consideration (usually monetary) and agreement of both parties.

There is one notable exception to the FTC noncompete ban. As an employer, you cannot enter into a new noncompete with a “senior executive” beginning on September 4, 2024. But existing noncompetes with senior executives can be enforced after the deadline. The FTC’s final rule defines “senior executive” as a worker who (1) earns more than $151,164 per year, and (2) is in a “policy-making position.”

Send Required Notice to Former Employees by September 4

Perhaps the most urgent part of the FTC rule is the required notice regarding the noncompete ban that you as an employer must send out. Before September 4, employers are required to send out a notice to anyone who has previously signed a noncompete that is now unenforceable (former employees) to let them know that the agreement is unenforceable.

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Deadlines Quickly Approaching for Major Employment Law Changes

Compensation, Discrimination, Employee Rights, Trade Secrets, , , , , ,

Employers should be preparing for several significant payroll and policy deadlines this summer that are required by new federal employment rules and regulations:

  1. Salaried employees must make a minimum salary of $43,888 annually beginning Monday, July 1, 2024. On January 1, 2025, that annual salary minimum threshold increases to $58,656. Only 10% of that annual salary can be paid in nondiscretionary bonuses or commissions.
  2. Noncompete clauses in almost all employment and severance contracts are scheduled to be banned on the deadline of September 4, 2024.
  3. Pregnant workers and women giving or returning from childbirth have to be reasonably accommodated, including being given individualized maternity leaves, under the broad final regulations as of a deadline last week (June 18, 2024).

Salary Minimum Increases

Employers cannot legally just pay employees on salary because it is convenient for the employer or the employee. Under the Fair Labor Standards Act, which applies to virtually all businesses, employees must receive hourly pay and overtime pay unless (1) the duties performed by that employee fit into one of the narrow white-collar exemptions; and (2) that employee also makes at least the amount required by the FLSA salary minimum threshold.

Since 2019, that salary minimum threshold has been $35,568 annually. But the regulations have been amended so that salaried employees must make at least $43,888 beginning next week. While court cases have been filed to try to stop this change from taking effect, no court has entered an injunction yet. That means that companies are out of time to resist this change. Therefore, as an employer, you need to double-check that your salaried employees are earning enough ($844 per week) to meet this salary minimum as of next Monday.

While you are at it, double-check whether your salaried employees are also actually performing the duties that allow you to pay them as an executive, a professional, an administrator, a computer specialist or outside salesperson (outside salespeople don’t have to meet the salary minimum but do have a duties test). If the employee doesn’t meet the duties test for their position to be exempt, you cannot pay that person on salary even if the employee is paid the salary minimum threshold amount.

Noncompete Contracts Ban

In April 2024, the Federal Trade Commission finalized a rule banning almost all employers (banks, credit unions, nonprofits and airlines excepted) from entering into, enforcing or attempting to enforce noncompetition clauses with employees. The rule goes into effect on September 4, 2024.

The FTC says that noncompete agreements suppress wages and block workers from pursuing better jobs. Employers like noncompetes because they prevent competitors from poaching talent and protects trade secrets and client relationships. But the FTC is siding with the free market and employees who want the opportunity to take their talents anywhere they please.

In addition to banning employers from entering into new noncompete agreements with employees, from enforcing noncompete agreements signed in the past, and from threatening to enforce existing noncompetes against departing employees, the new rule also requires employers to send out notices (FTC provided a model notice) by the deadline to current and former employees telling them that their noncompetition agreements are no longer in effect and won’t be enforced.

Continue reading Deadlines Quickly Approaching for Major Employment Law Changes →

Underpayment of Wages at Local Charity

Compensation, Personnel Policies, , ,

Advo Companies, Inc., a worthy local charity that trains and helps people with developmental disabilities find work, was recently investigated by the United States Department of Labor for underpayment of wages to 134 workers. The company had to repay $52,497 in back wages because, among other mistakes, it miscalculated the special wage rate allowed to be paid to their employees.

I don’t know the facts of this particular DOL investigation, but I know Advo Companies has been providing outstanding vocational services to disabled adults and operating group homes in Amarillo for more than 30 years. I seriously doubt that any of the wage problems discovered by the DOL were intentional underpayments. But Advo’s difficulties provide an example of how a very well-meaning employer can easily run afoul of the notoriously difficult Fair Labor Standards Act (“FLSA”) requirements.

For most employers, the Fair Labor Standards Act “simply” requires payment of minimum wage and overtime if an employee works more than 40 hours in any one workweek. But there are many ways for an employer to unintentionally break this law:

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New FLSA Minimum Salary Requirements

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If you pay any employees on salary instead of hourly, as an employer you need to review new regulations released today by the United States Department of Labor, requiring that the salary you pay to any exempt employee is at least $43,888.00 beginning on July 1, 2024. That minimum increases to $58,656.00 on January 1, 2025. Those are substantial increases from $35,568.00, the salary minimum currently required by the Fair Labor Standards Act (“FLSA”), which governs minimum wage and overtime.

If you aren’t paying an employee by the hour, plus overtime pay for each hour over 40 worked in a 7-day workweek, then you must prove the following about that salaried employee:

  1. The employee is paid a recurring salary regardless of the hours worked; and
  2. The amount that the employee is paid must amount to at least $844 per week beginning on July 1, 2024 and $1128 per week beginning on January 1, 2025; and
  3. The salaried employee must primarily perform executive, administrative or professional duties (commonly referred to as the white-collar duties).

These exemptions for salaried, white-collar workers are the exception to the overtime rules required by the FLSA, and the burden is on the employer to show that the salaried employee meets all of these requirements or the business will owe the employee unpaid overtime (plus punitive damages and possible penalties) for not paying overtime.

FLSA has been the law since the 1940’s, but the salary minimum amount to meet the exemptions has increased over time. The Trump Administration increased the salary amount in 2019, and it has stayed there for five years. The Department of Labor’s new rule will make those increases automatic every three years, meaning that on July 1, 2027, you can expect another increase in the salary minimum amount if you still want to claim that the employee is exempt from the overtime requirements.

In addition to meeting the FLSA salary minimum requirement, your employee must also perform white-collar duties to qualify for the overtime exemption. The duties tests are harder to meet than you might expect. For example, you may believe that an assistant manager is an “executive”, but the FLSA duties test says that employee must have the power to hire and fire and must personally supervise at least two full-time employees, as well as being in charge of a recognizable store, division or branch of your business to be considered exempt. Most assistant managers don’t meet those requirements. Only the general manager does in many circumstances.

In addition, the new regulations increase the FLSA salary minimum for “highly compensated employees”. The 2019 threshold for highly-compensated employees currently says that any employee making a salary of at least $107,432.00 per year is exempt as long as the employee is performing non-manual work and that employee performs at least one other exempt duty customarily and regularly (such as managing two employees or performing duties of a professional such as a CPA). The salary minimum for highly compensated employees increases to $132,964.00 on July 1, 2024. On January 1, 2025, it will increase again to $151,164.00.

So what do businesses need to do to get in compliance?

Continue reading New FLSA Minimum Salary Requirements →
Policy revision

Your Employee Policy Handbook Needs Revision (Again)

Documentation, Employee Rights, Personnel Policies, , , , ,

Because of a recent decision by the National Labor Relations Board (NLRB), your employee policies probably need a major rewrite to avoid an unfair labor practices charge. This decision applies to big and small companies, those that are unionized and those that are not.

In August 2023 in Stericycle, Inc., the Board adopted a strict new legal standard for reviewing workplace rules. In order to protect the employees’ right to organize and “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection”, as Section 7 of the National Labor Relations Act requires, employers cannot promulgate, maintain or enforce work rules that tend to inhibit employees from exercising their rights under the Act.

What are those concerted activities that employees may engage in together? Just a few examples:

  • Employees discussing or complaining about their salaries, benefits, and other working conditions;
  • Employees refusing to work in unsafe conditions;
  • Employees complaining about unfair treatment by a supervisor;
  • Employees openly talking to each other, on social media, to the press or otherwise about their complaints about their employer;
  • Employees joining with co-workers to grieve any mistreatment, file claims with a governmental agency or otherwise protest any aspect of their jobs.

You as an employer cannot prohibit any of these activities or discipline an employee for engaging in them. Moreover, you cannot have policies that discourage these protected concerted activities.

Policy handbooks have come under scrutiny by the NRLB frequently in the last 10 years, but the Stericycle decision takes this scrutiny to a new level. If the NRLB finds that an employer’s policies have a reasonable tendency to chill employees exercising of their Section 7 rights, then it is presumptively an unfair labor practice.

The NRLB looks at the rules from the viewpoint of an employee who is economically dependent on the employer, rather than just applying a reasonable person standard. The employer can only rebut the presumption that the rule is unlawful by showing the policy serves a legitimate and substantial business purpose and it is as narrowly tailored as possible.

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Employer Religious Accommodation Obligations Increase

Discrimination, Employee Rights, Religion, , , , , ,

In light of a recent United States Supreme Court opinion, your burdens as an employer to accommodate your employee’s religious beliefs and practices have increased. It is now much harder for a business with at least 15 employees to deny a religious employee whatever changes to their job duties, schedule or conditions that the employee wants.

The Groff case

In Groff v. DeJoy, decided on June 29, 2023, the Court adopted a higher bar for businesses to meet before they can deny a requested religious accommodation. Gerald Groff, a postal worker, wanted Sundays off to observe his religious beliefs. But postal workers deliver Amazon packages on Sundays on a rotating basis. He refused to ever work on Sundays, and other employees had to deliver his packages on his designated Sundays. He received progressive discipline over a long period of time for his continuing refusal to perform that job duty and eventually resigned.

Groff claimed in his lawsuit that the postal service could have accommodated his religious request to not work Sundays “without undue hardship to the business.” For 50 years, that term “without undue hardship” has meant that the employer didn’t have to change its practices to accommodate a religious request if the request required more than a de minimis or trifling inconvenience for the business.

The 2023 Supreme Court overruled 50 years of precedent and now defines “undue hardship” as a financial determination. According to the Supreme Court, you as an employer may only deny a religious accommodation request if you can show that the request would result in substantial additional costs to the company, taking into account to the size and operating costs of your business. So hardship on other employees, inconvenience, disruption to the smooth running of your business and other challenges are not important. And the Court also said that if one accommodation costs too much, the employer still has to look for other, less expensive accommodations that would satisfy the religious employee.

The Equal Employment Opportunity Commission (“EEOC”) has always made it clear that infrequent payment of overtime to employees who cover shifts not worked by the religious employee is not considered an undue hardship. It appears that now even frequent overtime payments may not be enough to rise to the level of undue hardship for certain successful businesses.

The Court also said that co-worker hostility to the requested accommodation is insufficient to deny the change that the religious employee wants. So those coworkers of Mr. Groff’s who resented him not taking his turn in the Sunday delivery rotation were not an excuse for the employer to deny Groff’s demand that he never work on a Sunday.  

If this sounds like you as an employer are required to give preferential treatment to religious employees, you have correctly interpreted the current Supreme Court, the same court that vehemently decreed that even considering race in college admissions, much less preferential admission on the basis of race, is illegal.

What Religious Claims are Protected?

And despite the Supreme Court’s favoritism towards Christianity, U.S. businesses have to accommodate all religions this way—Islam, Buddhism, Judaism, Native American tribal religions, Voodoo, Druidism, Scientology, the Jedi religion, Rastafarianism . . . . The law protects all religious beliefs, including those that are new, uncommon, not part of a formal church or sect, or only held by a small number of people. An employee’s belief or practice can be “religious” even if the employee is affiliated with a religious group that does not espouse or recognize that employee’s particular belief or practice. And it is up to you as an employer to now maneuver around all of the obstacles that this heightened religious accommodation requirement demands.

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New Laws Regarding Pregnant and Nursing Employees

Compensation, Discrimination, Employee Rights, Personnel Policies, , , ,

Every employer with 15 or more names on the payroll needs to understand its obligations under two new federal laws relating to pregnant and nursing employees. With bipartisan support in Congress, the Pregnant Workers Fairness Act (PWFA) and the Providing Urgent Maternal Protections for Nursing Mothers Act (PUMP Act) were passed last month and take effect almost immediately.

PUMP Act

Nursing mothers received some protections under the Affordable Care Act in 2010 to take breaks at work to nurse their infants or to express milk to be refrigerated and saved for later. Those protections have been expanded and recodified with this new law.

What’s new under the PUMP Act?

  • Employees who are breastfeeding an infant can take advantage of the nursing protections at work for 2 years instead of 1 year allowed under the ACA. The wording in the PUMP Act is ambiguous as to when that two-year protection starts. It says, “for the 2-year period beginning on the date on which the circumstances related to such need arise”. What does that even mean?  My best legal guess is that if an employee nursing a child returns to work three months after the baby is born, then her two-year time period will start running on the date of her return.  But don’t let this ambiguity make you anxious. Employers should be patient and remember that only 35% of US babies are still breastfed at all after they are 12 months old. So many employees will not request this accommodation for two years. If an employee is still taking these breaks when the child is older than two years, call your employment lawyer for advice.
  • Although few employers made this distinction in the past, exempt salaried workers were not covered by the ACA nursing mothers provisions. They now have the same rights to nursing breaks under the PUMP Act as hourly workers had with the ACA. Of course, the challenging matter for employers of trying to figure out how to pay an hourly employee who takes nursing breaks is not an issue for salaried employees, because they are paid the same amount every day regardless of the number of breaks they take.
  • Before an employee complains to the EEOC or otherwise sues the employer over violating the PUMP Act, the employee has to tell the employer about its violation of the PUMP Act and give the employer 10 calendar days to start providing an adequate space and time for the employee to breastfeed or pump. In other words, there is a 10-day grace period for you to get your act together if you have somehow failed to comply with the PUMP Act with a particular employee.

The other provisions of the PUMP Act will be administered identically to the ACA provisions that have been in effect for 12 years, so most employers will have to make few significant changes to comply:

What do you as an employer need to do right now to comply with the PUMP Act?

Continue reading New Laws Regarding Pregnant and Nursing Employees →

Are Texas Businesses Liable for Employee Off-Duty Conduct?

Litigation, Management, Personnel Policies, Uncategorized, , , ,

It’s holiday time and that means that the good cheer at office parties may cause business owners and supervisors to worry if they can be liable for their employees’ off-duty conduct. For example, employers want to know if they have any responsibility when a intoxicated employee leaves the Christmas party and then goes home and assaults his wife.

The Texas Supreme Court first tackled liability for off-duty employee conduct in 2006 in the case of Loram Maintenance of Way, Inc. v. Ianni. The Court was asked to decide whether an employer owes a duty to protect the public from an employee’s wrongful off-duty conduct because the employer knew its employee was drug-impaired and had threatened violence to others.

The Texas Supreme Court found that the employer owed no such duty and therefore wasn’t liable for injuries to the El Paso police officer who was shot by Tingle, the impaired employee, when the officer tried to intervene in the employee’s after-hours domestic dispute.

TEXAS SUPREME COURT OPINION IN LORAM MAINTENANCE

In the Loram Maintenance case, the Texas Supreme Court reviewed involved an employer who put its employees on the road, working 12-hour shifts and traveling with their families, staying at motels paid for by the employer. There was evidence that the supervisor and co-workers used methamphetamine along with Tingle and that the supervisor had actually given Tingle time off to purchase more.

The employer had received reports prior to the incident that Tingle was seen using the drug at work and had threatened one of his wife’s friends with a knife. The day of the incident, while at work, Tingle spoke of attacking his wife. After his shift ended and Tingle had returned to the motel, Tingle began to argue with his wife and threatened her with a gun in a parking lot.

That is when the El Paso police officer intervened and was shot.  He was seriously injured and looked for compensation from the company that employed his assailant.

But the court pointed out in its opinion that the shooting incident didn’t occur until at least one hour after Tingle was already off duty and that there was no evidence that the employer was exercising any control over Tingle at that time. So even the employee was out of town on company business, and the incident happened at lodging provided by the company, and the employee was high (with the acquiescence and possible encouragement of his supervisor), and Tingle had been threatening violence that very day, the employer wasn’t liable. Tingle wasn’t on duty or otherwise under the employer’s control at the time of the shooting, so the company won. 

Therefore, current Texas law is that employers owe the public no duty to act to control the conduct of an off-duty employee. That is good news for employers in Texas who don’t want to be saddled with babysitting their employees’ behavior after work. There are attempts to chip away at this legal standard in Texas (i.e., the large verdict that a jury in Dallas awarded this summer against an employer for an off-duty crime), but no cases have overturned this Texas Supreme Court precedent to date.

EXCEPTION WHEN TAKING CONTROL OF IMPAIRED EMPLOYEES

But there is an exception created by the Texas Supreme Court that is important for employers to understand, particularly when company holiday parties are involved. “We have recognized a limited exception to this rule when an employer exercises control over the injury-causing conduct of its employee, imposing a duty, for example, when an employer sent an obviously intoxicated employee to drive home.” Nabors Drilling, U.S.A, Inc. v. Escoto (Tex. 2009).

That is the key to whether you as an employer will have any liability: whether you are taking any control at the time of the incident and whether it involves an incapacitated employee.

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Employer’s Background Checking Obligations

Hiring, , ,

As most local employers know, hiring is hard right now. There are very few applicants and some of those who apply disappear during the hiring process by missing an interview or ghosting your emails and calls.

But don’t let the difficulty of filling an open position tempt you to skip important steps in the hiring process, particularly criminal background checks.

Knowing if your potential employee has a criminal background can prevent many problems down the road. And for some employers in Texas, it is actually required by law. For example, childcare workers must be checked for criminal pasts.

In-Home Service and Residential Delivery Employee Background Checking

But the requirement that gets ignored too often is a Texas employer’s obligation to screen any employee who will be going into residences or into residential garages, outbuildings, etc. So if you operate a furniture store that delivers to customers’ homes, if your employees access houses to repair air conditioners, electrical, appliances or plumbing, if you provide home health services, if you remodel homes, or if your company performs any other jobs in customers’ residences, your business is required to obtain a background check on every employee who will perform those residential services.

Here is the Texas Workforce Commission’s explanation and recommendation:

In-home service and residential delivery companies must perform a complete criminal history background check through DPS or a private vendor on any employees or associates sent by the companies into customers’ homes (including attached garages or construction areas next to homes), or else confirm that the persons sent into customers’ homes are licensed by an occupational licensing agency that conducted such a criminal history check before issuing the license. The records must show that during the past 20 years for a felony, and the past 10 years for a class A or B misdemeanor, the person has not been convicted of, or sentenced to deferred adjudication for, an offense against a person or a family, an offense against property, or public indecency. A check done in compliance with these requirements entitles the person’s employer to a rebuttable presumption that the employer did not act negligently in hiring the person. See the Texas Civil Practice and Remedies Code, Sections 145.002-145.004. Recommended: do such checks on anyone who will be going into a person’s home, garage, yards, driveways, or any other areas where the employee could come into contact with people at their homes.

Note that this law requires that you look at crimes committed in the last 10-20 years, while both federal and Texas law prohibit commercial background screening services reporting a criminal past if the date of disposition, release, or parole predates the consumer report by more than seven years. Tex. Bus. & Comm. Code §20.05(a)(4). So you could technically check a background using a commercial service and still not discover that your applicant assaulted someone 15 years ago, even if your business is required to check 20 years of felony records for residential repairpersons.

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Commission Pay Arrangements in Texas

Compensation, Documentation, , ,

If you as an employer pay any of your employees on commission, a recent Texas Supreme Court case makes it clear that your commission arrangement needs to be in writing.

The Court decided Perthuis v. Baylor Miraca Genetics Laboratories LLC in May 2022. In that opinion, the Court addressed the question of when a former employee has to be paid commissions collected by the company after the employee has left the job. In this case, the Texas Supreme Court determined that Brandon Perthuis, the former vice-president of sales at the company, would be entitled to a commission on the largest sale in the company’s history, even though he was terminated the day before the client signed the sales contract (but four days after Perthuis finalized the negotiations for the sale).

The Court reviewed the commission pay agreement and found that it was silent on whether the employee would get paid commissions after his employment was terminated. In the absence of a clear agreement, the Court followed the “procuring-cause doctrine,” meaning that if the employee was the reason the sale was procured, then he was entitled to the commission.

Perhaps the most important part of the Court’s opinion for any company that pays commissions is this: The procuring-cause doctrine provides nothing more than a default, which applies only when a valid agreement to pay a commission does not address questions like whether the  right  to  a  commission  extends  to  sales  closed  after  the  employment relationship ends.  

The procuring-cause doctrine is not a judicially created “term” for commission  contracts. It  does  not  add  anything  to  a  contract  or  take anything away. It does not restrict parties’ ability to modify their contractual  relationships  and  it  does  not  change  the  law  governing whether parties have entered into such a relationship in the first place. Parties certainly may condition the obligation to pay a commission on something  other  than  procuring  the  sale—they  need  only  say  so.

So the Court is saying that the company and the employee can negotiate any kind of commission pay agreement that they want. Or the company can just offer a commission arrangement and the employee can accept it. The courts will only intervene if your commission agreement is not in writing or if your written commission arrangement is silent as to an important term.

So what should a written commission pay arrangement include if any employee is paid fully or partly on commission?

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