By George S. Crisci*
In a decision released last week, the National Labor Relations Board (“NLRB) jettisoned nearly eight decades of its own precedent, ruling that an employer violates the National Labor Relations Act when it requires its employees — under threat of discipline or discharge — to attend meetings in which the employer expresses its views on unionization. In holding that these so-called “Captive Audience” meetings are unlawful, the Board unceremoniously discarded a 76-year precedent established by Babcock & Wilcox Co., 77 NLRB 577 (1948).
The Board’s hotly anticipated decision in Amazon.com Services LLC, represents a forceful crack-down on one of the most effective and commonly used tactics by private sector employers who face a union organizing drive. For decades, these “captive audience” meetings have been a fixture of union elections – an opportunity and forum in which employers can express their view of the potential negative effects that unionizing may have on the general workforce. The Board’s decision comes on the heels of a significant ruling earlier this month in Siren Retail Corp., NLRB Case No. 19-CA-290905, in which the Board overturned a nearly 40-year precedent and held that employers are no longer permitted to categorically tell workers that unionization will negatively impact their relationship with management.
The Board majority explained that captive audience meetings violate Section 8(a)(1) of the NLRA because they have a reasonable tendency to interfere with and coerce employees in the exercise of their collective bargaining rights. However, the Board majority explained that employers can still lawfully hold meetings with workers to express the employer’s views on unionization if certain guardrails are in place: (1) the workers must have advance notice of the subject of the meeting, (2) attendance must be voluntary with no adverse consequences for failure to attend, and (3) no attendance records of the meeting may be kept. The Board majority also made clear that its decision applies only prospectively, clearly a recognition that employers have reasonably relied on the Babock & Wilcox standard and the numerous NLRB decisions upholding “captive audience” meetings as permissible for nearly eight decades.
NLRB General Counsel Jennifer Abruzzo first identified “captive audience” meetings as a violation of NLRA rights in a memo issued in April 2022, signaling her intention to challenge this practice in proceedings before the Board and to ask the Board to overrule Babcock & Wilcox. Last week’s decision marks the culmination of GC Abruzzo’s efforts.
However, with the impending inauguration of President-elect Donald J. Trump on January 20,2025, GC Abruzzo’s service as the NLRB General Counsel – and her triumph today over “captive audience” meetings – are likely to be short-lived. President Biden unceremoniously terminated GC Abruzzo’s predecessor, Peter Robb, on the very afternoon of his presidential inauguration, January 20, 2021. Absent GC Abruzzo’s resignation, history is likely to repeat itself and bring a swift end to GC Abruzzo’s tenure.
Although GC Abruzzo’s successor will undoubtedly identify today’s decision on his or her agenda and ask that it be reconsidered and reversed by the Board, employers should not expect an immediate return to the Babcock & Wilcox standard in January 2025 and possibly not until after August 2026. The expirations of the five-year terms of current Board members are staggered on an annual basis, and a reversal of today’s decision will depend on new appointments by the President altering the composition of the current Board. One Board seat (held by Chair McFerran) expires next month, and President Biden has nominated her for reappointment during the current lame-duck Congress. If the Senate approves her reappointment, then the earliest that the Board composition could change from a Democratic to a Republican majority would be August 2026 because the seat that expires in 2025 is held by the only Republican Board member. If the Senate fails to reappoint Chair McFerran, then majority control could switch during the first few months of next year, when President Trump would nominate (and the Republican-majority Senate likely would confirm) replacements for the seat currently held by Chair McFerran and another vacant seat formerly held by John Ring. After that, it will take a period of time that cannot be accurately quantified for the new Republican-majority Board to identify a suitable pending case to issue a decision that reverses the Board’s decisions.
Until the Board (hopefully) restores its Babcock & Wilcox standard, employers are well-advised to refrain from holding “captive audience” meetings. Employers are still free to communicate with employees about the downsides of unionization and to express their views about organizing drives; however, employees must have advance notice of the topic of such meetings, attendance must be voluntary, and no attendance records may be kept.
*If you have questions relating to these recent NLRB decisions and the changed prohibited employer actions, please contact Zashin & Rich’s experienced Labor attorneys: George Crisci (gsc@zrlaw.com) at (216) 696-4441, and Jonathan Downes (jjd@zrlaw.com) or Scott DeHart (shd@zrlaw.com) at(614) 224-4411.
Tuesday, November 19, 2024
Monday, November 18, 2024
Texas Court Vacates DOL 2024 Salary Threshold Rule Nationwide
By Michele L. Jakubs*
The United States District Court for the Eastern District of Texas vacated the Department of Labor’s (“DOL”) 2024 Rule that would have rendered millions of executive, administrative and professional employees nonexempt on January 1, 2025. The DOL 2024 Rule would have increased the salary threshold required for the most commonly used exemptions under the FLSA. Employees are exempt from overtime if they are paid on a salary basis and meet the duties requirements for one of these exemptions: executive, administrative, or professional.
The Court, in Texas v. DOL, previously issued a preliminary injunction preventing the DOL from enforcing the July 1, 2024 salary increase ($844 per week) for Texas as an employer only. On Friday, the Court ruled that the DOL did not have the authority to enact a rule that essentially replaced the duties tests for exempt status with a salary test and vacated the DOL rule nationwide. The Court stated that the exemptions require “that an employee’s status turn on duties—not salary—and because the 2024 Rule’s changes make salary predominate over duties for millions of employees, the changes exceed the Department’s authority to define and delimit the relevant terms.” The Court went on to state: “When a third of otherwise exempt employees who the Department acknowledges meet the duties test are nonetheless rendered nonexempt because of an atextual proxy characteristic—the increased salary level—something has gone seriously awry.”
Ultimately, the Court vacated the DOL’s 2024 Rule in its entirety. The DOL may appeal the decision or issue a revised rule. For now, however, the salary threshold for the executive, administrative and professional exemptions remains at the pre-2024 level of $684 per week or $35,568 per year and at $107,432 per year for highly compensated employees.
*If you have questions relating to the DOL’s new rule, or any other labor and employment law issues, please contact Zashin & Rich’s Wage and Hour Practice Leader, Michele Jakubs (mlj@zrlaw.com) at (216) 696-4441.
The United States District Court for the Eastern District of Texas vacated the Department of Labor’s (“DOL”) 2024 Rule that would have rendered millions of executive, administrative and professional employees nonexempt on January 1, 2025. The DOL 2024 Rule would have increased the salary threshold required for the most commonly used exemptions under the FLSA. Employees are exempt from overtime if they are paid on a salary basis and meet the duties requirements for one of these exemptions: executive, administrative, or professional.
The Court, in Texas v. DOL, previously issued a preliminary injunction preventing the DOL from enforcing the July 1, 2024 salary increase ($844 per week) for Texas as an employer only. On Friday, the Court ruled that the DOL did not have the authority to enact a rule that essentially replaced the duties tests for exempt status with a salary test and vacated the DOL rule nationwide. The Court stated that the exemptions require “that an employee’s status turn on duties—not salary—and because the 2024 Rule’s changes make salary predominate over duties for millions of employees, the changes exceed the Department’s authority to define and delimit the relevant terms.” The Court went on to state: “When a third of otherwise exempt employees who the Department acknowledges meet the duties test are nonetheless rendered nonexempt because of an atextual proxy characteristic—the increased salary level—something has gone seriously awry.”
Ultimately, the Court vacated the DOL’s 2024 Rule in its entirety. The DOL may appeal the decision or issue a revised rule. For now, however, the salary threshold for the executive, administrative and professional exemptions remains at the pre-2024 level of $684 per week or $35,568 per year and at $107,432 per year for highly compensated employees.
*If you have questions relating to the DOL’s new rule, or any other labor and employment law issues, please contact Zashin & Rich’s Wage and Hour Practice Leader, Michele Jakubs (mlj@zrlaw.com) at (216) 696-4441.
Monday, August 26, 2024
DOL SERVED A LOSS: U.S. Court of Appeals Vacates DOL 80/20/30 Tip Rule
By Michele L. Jakubs*
The Fifth Circuit Court of Appeals, in a 3-0 decision, vacated the Department of Labor’s (“DOL”) 2021 Final Rule that restricted when an employer could apply a tip credit, finding it arbitrary and capricious. Under the Fair Labor Standards Act (“FLSA”), an employer may take a tip credit, paying tipped employees at a rate below the applicable minimum wage in anticipation of tips making up the difference. In 2021, the DOL issued a Final Rule limiting when an employer could utilize the tip credit to time for work that directly produced tips (i.e., work that directly supported tips provided that work did not exceed 20% of the work time and did not exceed thirty consecutive minutes). The Fifth Circuit found that the “Final Rule is attempting to answer a question that DOL itself, not the FLSA has posed. … The FLSA does not ask whether duties composing that given occupation are themselves each individually tip-producing.”
The Fifth Circuit stated that the “Final Rule replaces the Congressionally chosen touchstone of the tip-credit analysis – the occupation – with one of DOL’s making – the timesheet,” seemingly recognizing the insurmountable burden placed on employers of parsing each minute of time worked by a tipped employee to determine its applicable category. The issue is “only whether the employee is engaged in an occupation in which he receives tips.”
The Fifth Circuit’s decision vacating the Final Rule allows employers to apply the tip credit as intended by Congress – to employees engaged in an occupation in which the employee receives tips. If the employee is performing duties unrelated to that occupation, such as a server fixing the plumbing in a restaurant, however, the employee must receive at least the full minimum wage.
*If you have questions relating to the DOL’s new rule, or any other labor and employment law issues, please contact Zashin & Rich’s Wage and Hour Practice Leader, Michele L. Jakubs (mlj@zrlaw.com) at (216) 696-4441.
The Fifth Circuit Court of Appeals, in a 3-0 decision, vacated the Department of Labor’s (“DOL”) 2021 Final Rule that restricted when an employer could apply a tip credit, finding it arbitrary and capricious. Under the Fair Labor Standards Act (“FLSA”), an employer may take a tip credit, paying tipped employees at a rate below the applicable minimum wage in anticipation of tips making up the difference. In 2021, the DOL issued a Final Rule limiting when an employer could utilize the tip credit to time for work that directly produced tips (i.e., work that directly supported tips provided that work did not exceed 20% of the work time and did not exceed thirty consecutive minutes). The Fifth Circuit found that the “Final Rule is attempting to answer a question that DOL itself, not the FLSA has posed. … The FLSA does not ask whether duties composing that given occupation are themselves each individually tip-producing.”
The Fifth Circuit stated that the “Final Rule replaces the Congressionally chosen touchstone of the tip-credit analysis – the occupation – with one of DOL’s making – the timesheet,” seemingly recognizing the insurmountable burden placed on employers of parsing each minute of time worked by a tipped employee to determine its applicable category. The issue is “only whether the employee is engaged in an occupation in which he receives tips.”
The Fifth Circuit’s decision vacating the Final Rule allows employers to apply the tip credit as intended by Congress – to employees engaged in an occupation in which the employee receives tips. If the employee is performing duties unrelated to that occupation, such as a server fixing the plumbing in a restaurant, however, the employee must receive at least the full minimum wage.
*If you have questions relating to the DOL’s new rule, or any other labor and employment law issues, please contact Zashin & Rich’s Wage and Hour Practice Leader, Michele L. Jakubs (mlj@zrlaw.com) at (216) 696-4441.
Wednesday, August 21, 2024
UPDATE: Texas Court Prohibits Enforcement of FTC’s Non-Compete Ban Rule Nationwide
By Ami J. Patel and Kimana A. Bowen*
As you know based on our prior Alerts, the Federal Trade Commission issued a purported Rule banning employers from enforcing non-competes against “workers” with some limited exceptions. The FTC Rule was set to go into effect on September 4, 2024. However, there have been several court challenges to the FTC’s authority and the validity of the Rule.
Because the Texas Court concluded that the FTC exceeded its statutory authority and that the FTC Rule is arbitrary and capricious, under APA § 706(2)(A)–(C), the Texas Court must “hold unlawful” and “set aside” the FTC’s Rule. According to the Texas Court, the APA has nationwide effect because it is “not party-restricted,” and “affects persons in all judicial districts equally.” As such, the Texas Court’s decision applies nationwide and is not limited to just the Plaintiffs in the Texas case.
While the September 4, 2024 effective date for the FTC Rule is set aside, we anticipate that the FTC will challenge this decision.
The major questions doctrine asserts that when an agency claims authority to issue rules of extraordinary economic and political significance, it must point to “clear congressional authorization” for such power. The court concluded that, given the Rule’s extensive application, including its purported application to existing contracts, it is “substantially likely that the rule presents a major question as defined by the Supreme Court.”
*Please contact Z&R’s Practice Leader of its Non-Compete/Trade Secret practice, Ami J. Patel (ajp@zrlaw.com) at 216-696-4441 or Kimana A. Bowen (kab@zrlaw.com), if you have any questions about the effect of these decisions on the FTC’s purported Non-Compete Rule or need assistance with review of your existing documents or how to draft new agreements.
As you know based on our prior Alerts, the Federal Trade Commission issued a purported Rule banning employers from enforcing non-competes against “workers” with some limited exceptions. The FTC Rule was set to go into effect on September 4, 2024. However, there have been several court challenges to the FTC’s authority and the validity of the Rule.
The Texas Court Prohibits Enforcement of the Rule
On August 20, 2024, the United States District Court for the Northern District of Texas issued a decision against the FTC, prohibiting the enforcement of the FTC’s Rule—nationwide. The court agreed with the Plaintiffs in Ryan LLC, et al v. Federal Trade Commission, finding that Plaintiffs are entitled judgment on their claims under the Administrative Procedure Act (“APA”) and the Declaratory Judgment Act because: (1) the FTC lacks authority to create substantive rules; and (2) the FTC’s rule is arbitrary and capricious since it is overbroad, a one-size-fits-all, with no end date and fails to consider alternatives and the benefits of non-competes.Because the Texas Court concluded that the FTC exceeded its statutory authority and that the FTC Rule is arbitrary and capricious, under APA § 706(2)(A)–(C), the Texas Court must “hold unlawful” and “set aside” the FTC’s Rule. According to the Texas Court, the APA has nationwide effect because it is “not party-restricted,” and “affects persons in all judicial districts equally.” As such, the Texas Court’s decision applies nationwide and is not limited to just the Plaintiffs in the Texas case.
While the September 4, 2024 effective date for the FTC Rule is set aside, we anticipate that the FTC will challenge this decision.
Florida’s Recent Ruling on the FTC Non-Compete Ban Rule
The Texas court ruling comes just days after a Florida Federal District Court also preliminarily enjoined the FTC from enforcing its Rule on non-competes against a real estate broker. The Florida Court found that the FTC will not face substantial harm if the status quo is maintained until a final decision on the Rule’s validity is made and that there was a substantial likelihood of success based on the “major questions doctrine.”The major questions doctrine asserts that when an agency claims authority to issue rules of extraordinary economic and political significance, it must point to “clear congressional authorization” for such power. The court concluded that, given the Rule’s extensive application, including its purported application to existing contracts, it is “substantially likely that the rule presents a major question as defined by the Supreme Court.”
What Now for Employers
Sit Tight. For now, employers have a good-faith basis that the Rule will not go into effect on September 4, 2024. However, employers should use this issue as an opportunity to assess whether their current agreements protect their business, information, and interests as desired. Employers should work with experienced trade secret and non-compete lawyers to evaluate whether their workers have well-drafted agreements in place and to revise stale ones.*Please contact Z&R’s Practice Leader of its Non-Compete/Trade Secret practice, Ami J. Patel (ajp@zrlaw.com) at 216-696-4441 or Kimana A. Bowen (kab@zrlaw.com), if you have any questions about the effect of these decisions on the FTC’s purported Non-Compete Rule or need assistance with review of your existing documents or how to draft new agreements.
Friday, August 9, 2024
A Checklist Guide for Employers on How to Prepare for the Potential Non-Compete Ban Rule by the FTC
By Ami J. Patel and Kimana Bowen*
Understand the Texas and Pennsylvania Courts’ Rulings and Their Potential Impact
- The Texas Court
On July 3, 2024, the U.S. District Court for the Northern District of Texas granted a stay and preliminary injunction against the Federal Trade Commission’s (“FTC”) Rule banning non-competes. The court found that Ryan LLC (“Ryan”) and the Chamber of Commerce of the United States of America, Business Roundtable, Texas Association of Business, and Longview Chamber of Commerce (collectively the “Chamber”)are likely to succeed on the merits, face irreparable harm without the injunction, and that the balance of harms and public interest favor the injunction.
While the FTC’s Rule is stayed for Ryan and the Chamber, the court has not blocked the Rule nationwide. A final decision on the merits is expected by August 30,2024, which may affect the scope of the injunction.
Be on the lookout for our Alert on the Texas Court’s August 30thruling as it may modify this checklist.
- The Pennsylvania Court
On July 23, 2024, the United States District Court for the Eastern District of Pennsylvania declined to issue a preliminary injunction enjoining the Federal Trade Commission (“FTC”) from enforcing its Rule banning non-competes. The court found that ATS Tree Services, LLC failed to prove irreparable harm or likelihood of success on the merits.
Know What the Final Rule Requires
The final Rule will invalidate all non-compete clauses for workers who are not senior executives. Existing non-competes for senior executives will remain in effect, but employers cannot require new non-competes for senior executives after the Rule’s effective date. The Rule prohibits:- Entering into or attempting to require an employee to enter into a non-compete clause.
- Enforcing or attempting to enforce a non-compete clause.
- Representing that a worker is subject to a non-compete clause.
- Non-Compete Clause
The Rule defines a “non-compete clause” as “a term or condition of employment that prohibits worker from, penalizes a worker for, or functions to prevent a worker from:
- seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or
- operating a business in the United States after the conclusion of the employment that includes the term or condition.”
The final Rule defines “worker” as “a natural person who works or who previously worked, whether paid or unpaid, without regard to the worker’s title or the worker’s status” under any other state or federal law.
Accordingly, “worker” includes employees, independent contractors, externs, interns, volunteers, apprentices, or sole proprietors who provide services to a person.
Know the Exceptions to the Rule
The FTC Rule has the following exceptions:Bona fide sales of business. The Rule (ban) does not apply to a noncompete clause that is “entered into by a person pursuant to a bona fide sale of a business entity, of the person’s ownership interest in a business entity, or of all or substantially all of a business entity’s operating assets.”
Existing causes of action. The Rule (ban) does not apply “where a cause of action related to a non-compete clause accrued prior to the effective date.”
Good faith. The Rule (ban) does not apply “where a person has a good-faith basis to believe that the Rule is inapplicable.”
Review your contracts with non-competes and the existing status of the cases to determine if any of these exceptions apply.
Continue to Enforce Existing Non-Competes with Senior Executives
Even if enforced, the FTC Rule permits enforcement of current non-competes with senior executives. The final Rule defines “senior executive” as “a worker who:- Was in a policy-making position; and
- Received for employment:
- a total annual compensation of at least $151,164 in the preceding year; or
- a total compensation of at least $151,154 when annualized if the worker was employed during only part of the preceding year; or
- a total compensation of at least $151,164 when annualized in the preceding year prior to the worker’s departure if the worker departed from employment prior to the preceding year and the worker is subject to a non-compete clause.”
Consider Non-Solicitation and Non-Disclosure/Confidentiality Agreements
As the FTC’s Rule is litigated and set to take effect on September 4, 2024, employers should review their employee contracts and consider the benefits of using or revising non-solicitation and confidentiality provisions to protect their legitimate business interests and their confidential, proprietary and trade secret business information.- Non-Solicitation Agreements
An effectively drafted non-solicitation agreement can successfully prevent former employees from soliciting current employees and customers after leaving the company. Such agreements must be reasonable and narrowly tailored to protect legitimate business interests. Review your current agreements to determine if they remain valid under the new Rule and to ensure that they effectively protect your business. - Non-Disclosure/Confidentiality Agreements
Non-Disclosure/Confidentiality Agreements are contracts or provisions where a current or former employees agree not to disclose certain types of valuable business information. Review your current agreements to determine if they remain valid under the new Rule and to ensure that they effectively protect your confidential and valuable business information.
Consider Drafting Notices (but hold off on sending them out)
The Rule requires employers to notify non-senior executive workers with existing non-competes that their non-competes are no longer enforceable.The final Rule includes a model for employers to use to draft compliant notices. The model notice from the FTC advises employers to inform employees of the following: (1) they may seek or accept a job with any company or any person - even if they compete with the employer; (2) they may run their own business - even if it competes with the employer; and, (3) they may compete with the employer following their employment.
The final Rule also requires that the notice provide the following: (1) the name the person who agreed to the non-compete clause with the worker, and (2) a notice on paper by hand to the worker, or sent by mail to the worker’s last known personal street address, or emailed to an address belonging to the worker, including the worker’s current work email address or last known personal email address, or texted to a mobile number belonging to the worker.
While employers should assess and identify which employees should receive these notices, employers should wait on sending those notices due to the ongoing litigation, which could significantly impact the Rule’s enforceability.
First, as previously stated, one of the exceptions to the final Rule is having a good-faith basis to believe that the Rule is inapplicable. There is a split in the Federal Circuit Courts between Pennsylvania, Texas, and potentially others. Accordingly, if the employer is similarly situated to the Texas Plaintiffs and has a good-faith belief that the Texas Court ruling is the correct interpretation of the law, then the exception could apply. In that scenario, the employer could have a defense to enforcement of the FTC Rule and its notice requirements.
Second, with the Circuit split and the upcoming election, there is a real possibility that the final Rule may be rendered unconstitutional or eliminated.
Continue to Monitor the Alerts from Z&R
As the situation continues to evolve, employers should familiarize themselves with the moving parts, this Checklist, and begin identifying the employees and agreements subject to the potential Rule (ban of non-competes). Once identified, employers should evaluate what types of protections are in the employer’s best interest. While the FTC’s new Rule has been enjoined from enforcement (in one Court) and its validity continues to be litigated, employers should prepare but continue to wait for further guidance as this matter develops. Continue to stay tuned and Z&R will update you.*Please contact ZR’s Practice Leader of its Non-Compete/Trade Secret practice, Ami J. Patel (ajp@zrlaw.com) at 216-696-4441 or Kimana Bowen (kab@zrlaw.com) if you have any questions about any of the items on the check list regarding the FTC’s new Non-Compete Rule or need assistance with review of your existing and new agreements.
Wednesday, July 10, 2024
UPDATE: The Court Enjoins the FTC From Enforcing The Non-Compete Ban. We Told You Not To Panic!
By Ami J. Patel* and Kimana Bowen
On July 3, 2024, the United States District Court for the Northern District of Texas, Dallas Division, partially granted a stay and preliminary injunction against the Federal Trade Commission’s (“FTC’s”) rule banning non-competes. The court found that Ryan LLC(“Ryan”) and Chamber of Commerce of the United States of America, Business Roundtable, Texas Association of Business, and Longview Chamber of Commerce (collectively the “Chamber”) are likely to succeed on the merits, will suffer irreparable harm without the injunction, and that the balance of harms and public interest favors granting the injunction.
Likelihood of Success on the Merits
While the court’s injunction is not a final decision, the court gave us a preview of the grounds under which it asserts that Ryan and the Chamber will succeed on the merits. First, the court found that the FTC lacks statutory authority to enforce the rule. Although the FTC can create rules concerning unfair methods of competition, the court concluded that the FTC, under Section 6(g) of Federal Trade Commission Act, can only create "housekeeping," procedural rules, not substantive ones as it tried to do here.
Additionally, the court found that the FTC's actions likely violated the Administrative Procedure Act (APA), which requires courts to set aside agency actions deemed arbitrary, capricious, an abuse of discretion or otherwise not in accordance with the law. Ultimately, the court found that Ryan and the Chamber will likely be able to demonstrate that the FTC's rule is overly broad, lacks a reasonable explanation, and imposes a “one-size-fits-all” approach without addressing alternatives, making it arbitrary and capricious.
Irreparable Harm and Public Interest
The court also determined that Ryan and the Chamber were able to articulate irreparable harm if an injunction was not granted. In particular, the court found that the nonrecoverable costs of complying with the FTC rule, which it determined will likely be invalidated, are irreparable.
The court asserts that granting the preliminary injunction serves the public interest by maintaining the status quo and preventing substantial economic impact, while inflicting no harm on the FTC. The FTC rule, if enforced, would make long-standing contractual agreements, recognized as beneficial to the public interest, unenforceable.
What’s Next for Employers?
The September 4,2024 effective date of the FTC’s non-compete rule is stayed, and the FTC is enjoined from implementing or enforcing its non-compete rule against Ryan and the Chamber. The court intends to issue a merits disposition on this action on or before August 30, 2024, and it is unclear if that ruling will block the FTC rule nationwide or continue to be limited to Ryan and the Chamber. There are other challenges to the FTC rule that will be decided soon.
As the situation continues to evolve, do not panic. While the FTC’s new rule has been enjoined from enforcement and its legitimacy is being litigated, employers should wait for further guidance as this matter develops. Continue to stay tuned and Z&R will continue to update you.
*Please contact ZR’s Practice Leader of its Non-Compete/Trade Secret practice, Ami J. Patel (ajp@zrlaw.com) at 216-696-4441 if you have questions relating to the FTC’s new Non-Compete Rule and need assistance with review of your existing agreements.
Monday, June 24, 2024
Supreme Court Rules Traditional Preliminary Injunction Test Applies to NLRA Section10(j) Injunctions
By George S. Crisci and Rebecca Singer-Miller*
Section 10(j) of the National Labor Relations Act (the “Act”) authorizes the National Labor Relations Board (the “NLRB”) to seek injunctive relief in federal district court against Charged Parties to stop alleged unfair labor practices while the case is being litigated at the administrative level. Under Section 10(j), a federal district court“ shall have jurisdiction to grant to the Board such temporary relief or restraining order as it deems just and proper.” A well-known instance when the NLRB seeks a Section 10(j) injunction involves reinstating a former employee allegedly unlawfully discharged during the pendency of unfair labor practice proceedings before an administrative law judge or the NLRB.
For many years, the NLRB has asserted that to obtain a Section 10(j) injunction it need only establish that: (1) there was reasonable cause to believe that unfair labor practices have occurred; and (2) injunctive relief was just and proper. Some federal appellate courts – including the Sixth Circuit Court of Appeals (whose jurisdiction includes Ohio) – have adopted this deferential standard. Other federal appellate courts, however, have required the NLRB to satisfy the stricter, traditional elements for obtaining a preliminary injunction.
On June 13,2024, the U.S. Supreme Court confirmed that the traditional four-factor preliminary injunction test applies to Section 10(j) injunctions. The Court’s decision in Starbucks Corp. v. McKinney, No. 23-367, 602 U.S. ____ (2024) resolves a circuit split as to the standard controlling the NLRB’s Section 10(j) injunction petitions. The Supreme Court’s majority opinion confirmed that, when seeking a Section 10(j) injunction, the NLRB must show by clear and convincing evidence that: (1) it is likely to succeed on the merits;(2) it is likely to suffer irreparable harm in the absences of preliminary relief; (3) the balance of equities tips in its favor; and (4) that an injunction is in the public interest.
The underlying dispute arose when several Starbucks employees invited local media to visit their Memphis, Tennessee store after hours to promote the employees’ union organization efforts. Starbucks then terminated their employment for violating company policy. The Union coordinating the Memphis store’s organization efforts filed an unfair labor practice charge with the NLRB. After the NLRB’s investigation, it issued a complaint against Starbucks and filed a Section 10(j) petition. The district court granted the injunction, and the Sixth Circuit affirmed. The injunction, among other things, required Starbucks to reinstate the terminated employees while the unfair labor practice charge against Starbucks remained pending.
The Supreme Court noted that the standard asserted by the NLRB and adopted by the Sixth Circuit is quite deferential the to the NLRB—it could establish" reasonable cause” simply by showing that its legal theory is substantial and not frivolous, and it could show relief is “just and proper” if it is necessary to return the parties to the status quo pending the Board’s proceedings so as to protect the Board’s remedial powers under the NLRA. The Supreme Court added that the Sixth Circuit’s standard “substantially lowers” the NLRB’s legal burden when it seeks a Section 10(j) injunction. Indeed, “it is hard to imagine how the Board could lose under the reasonable-cause test if courts deferentially ask only whether the Board offered a minimally plausible legal theory” while an evaluating District Court ignores conflicting laws or facts and fails to examine whether the NLRB’s theory is likely meritorious.
The Supreme Court recognized that there are circumstances where the four-factor test is not the applicable standard, but only when Congress declares so by statute. Section 10(j) lacks any specific instruction suggesting that Congress “altered the traditional equitable rules.”
This is the sticking point of the majority’s decision—Section 10(j) contains no language that could be interpreted as modifying the traditional injunction standard. Accordingly, the Court held that the traditional four factors apply when considering the NLRB’s request for a Section 10(j) injunction.
1. Agency Deference May Be Dwindling
McKinney suggests that administrative agencies, such as the NLRB, may be afforded less deference as to their interpretations of statutes. As discussed, perhaps the most important consideration when assessing the applicable injunction standard under Section10(j) was what Congress did not say. Section 10(j) itself contains no language that adopts a different standard than the traditional four-factor test.
This reasoning is reminiscent of Encino Motorcars, LLC v. Navarro, 584 U.S. 79 (2018), wherein the Court rejected the Department of Labor’s narrow construction of the FLSA in applying the overtime exemptions to service advisors within the vehicle repair industry. The Court explained: “Because the FLSA gives no ‘textual indication’ that its exemptions should be construed narrowly, ‘there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.”
The Court’s similar reasoning in McKinney may be indicative of its forthcoming decision in Relentless Inc. v. Department of Commerce, which could step away from the Chevron doctrine and further limit agency deference. In sum, these decisions remind the NLRB that it must rely on statutory text itself, rather than an overarching purpose of the statutory scheme, to support its interpretation.
2. Employers Have Multiple Grounds to Challenge Employee Reinstatement
McKinney is significant in the employee reinstatement context. The NLRB’s injunction in McKinney required, among other things, reinstatement of the terminated employees while the NLRB’s administrative complaint against Starbucks remained pending. Because the Sixth Circuit’s “reasonable cause” test was so deferential to the NLRB’s assessment of the facts and circumstances, injunctions requiring employee reinstatement were harder for employers to oppose. And, even if the NLRB or the courts later deemed the employer’s terminations to be lawful, the employer would still incur damage by reinstating and compensating a lawfully-terminated employee until the NLRB or the courts rendered that decision.
These circumstances are less likely to occur under the traditional four-factor test. Employers can challenge reinstatement on three of the four grounds. First, District Courts must examine the likelihood of the NLRB’s success on the merits. This means that employers can challenge the NLRB’s position and potentially avoid reinstating employees where the NLRB has not met its burden as to its legal theory underlying the Section 10(j) injunction.
Second, employers can challenge reinstatement on the basis of irreparable harm. Courts have declined to adopt prior NLRB arguments that irreparable harm will occur if an employee is not reinstated because other make-whole remedies exist, such as monetary remedies (including, but not limited to, back pay), which undermine the NLRB’s position when it seeks reinstatement. The NLRB has increasingly fashioned additional monetary remedies for employees where it finds employers committed violations. As such, employers can argue that irreparable harm will not occur if the employee is not, in fact, reinstated.
Third, employers may present evidence that reinstatement fails the “balance of equities” or the“ public interest” factors. Employers could present evidence that reinstatement of a particular employee would be harmful to the workplace overall, thus rendering the NLRB’s argument for reinstatement inequitable overall. For example, say an employee was fired for creating a hostile work environment in violation of company policy and another employment statute, but the NLRB challenged the termination on the basis that the behavior was protected activity under Section 7. Even though the behavior was arguably protected activity, reinstating the employee would still have a damaging effect on the work environment as a whole. Employers could argue that the NLRB’s remedy of reinstatement would be grossly inequitable for the employer, and therefore, the “balance of equities” would not be in the NLRB’s favor.
Although the NLRB now operates under a more exacting standard to obtain a Section 10(j)injunction, in no way does this invite employers to violate the NLRA and other applicable laws. Employers (including non-union employers) must continue to abide by the NLRA and be mindful of employee rights under Section 7. The NLRB may still obtain a Section 10(j) injunction if it meets the four criteria. But the impact of the injunction on employers may change based on the application of the four-factor test. Employers are strongly encouraged to maintain relationships with qualified labor and employment counsel to navigate active and potential complaints and injunction petitions by the NLRB.
*Please contact ZR Team Members George S. Crisci (gsc@zrlaw.com) and Rebecca Singer-Miller (rsm@zrlaw.com) for questions relating to Section 10(j) injunctions and other labor-related matters.
Section 10(j) of the National Labor Relations Act (the “Act”) authorizes the National Labor Relations Board (the “NLRB”) to seek injunctive relief in federal district court against Charged Parties to stop alleged unfair labor practices while the case is being litigated at the administrative level. Under Section 10(j), a federal district court“ shall have jurisdiction to grant to the Board such temporary relief or restraining order as it deems just and proper.” A well-known instance when the NLRB seeks a Section 10(j) injunction involves reinstating a former employee allegedly unlawfully discharged during the pendency of unfair labor practice proceedings before an administrative law judge or the NLRB.
For many years, the NLRB has asserted that to obtain a Section 10(j) injunction it need only establish that: (1) there was reasonable cause to believe that unfair labor practices have occurred; and (2) injunctive relief was just and proper. Some federal appellate courts – including the Sixth Circuit Court of Appeals (whose jurisdiction includes Ohio) – have adopted this deferential standard. Other federal appellate courts, however, have required the NLRB to satisfy the stricter, traditional elements for obtaining a preliminary injunction.
On June 13,2024, the U.S. Supreme Court confirmed that the traditional four-factor preliminary injunction test applies to Section 10(j) injunctions. The Court’s decision in Starbucks Corp. v. McKinney, No. 23-367, 602 U.S. ____ (2024) resolves a circuit split as to the standard controlling the NLRB’s Section 10(j) injunction petitions. The Supreme Court’s majority opinion confirmed that, when seeking a Section 10(j) injunction, the NLRB must show by clear and convincing evidence that: (1) it is likely to succeed on the merits;(2) it is likely to suffer irreparable harm in the absences of preliminary relief; (3) the balance of equities tips in its favor; and (4) that an injunction is in the public interest.
The underlying dispute arose when several Starbucks employees invited local media to visit their Memphis, Tennessee store after hours to promote the employees’ union organization efforts. Starbucks then terminated their employment for violating company policy. The Union coordinating the Memphis store’s organization efforts filed an unfair labor practice charge with the NLRB. After the NLRB’s investigation, it issued a complaint against Starbucks and filed a Section 10(j) petition. The district court granted the injunction, and the Sixth Circuit affirmed. The injunction, among other things, required Starbucks to reinstate the terminated employees while the unfair labor practice charge against Starbucks remained pending.
The Supreme Court noted that the standard asserted by the NLRB and adopted by the Sixth Circuit is quite deferential the to the NLRB—it could establish" reasonable cause” simply by showing that its legal theory is substantial and not frivolous, and it could show relief is “just and proper” if it is necessary to return the parties to the status quo pending the Board’s proceedings so as to protect the Board’s remedial powers under the NLRA. The Supreme Court added that the Sixth Circuit’s standard “substantially lowers” the NLRB’s legal burden when it seeks a Section 10(j) injunction. Indeed, “it is hard to imagine how the Board could lose under the reasonable-cause test if courts deferentially ask only whether the Board offered a minimally plausible legal theory” while an evaluating District Court ignores conflicting laws or facts and fails to examine whether the NLRB’s theory is likely meritorious.
The Supreme Court recognized that there are circumstances where the four-factor test is not the applicable standard, but only when Congress declares so by statute. Section 10(j) lacks any specific instruction suggesting that Congress “altered the traditional equitable rules.”
This is the sticking point of the majority’s decision—Section 10(j) contains no language that could be interpreted as modifying the traditional injunction standard. Accordingly, the Court held that the traditional four factors apply when considering the NLRB’s request for a Section 10(j) injunction.
McKinney’s Practical Implications
1. Agency Deference May Be Dwindling
McKinney suggests that administrative agencies, such as the NLRB, may be afforded less deference as to their interpretations of statutes. As discussed, perhaps the most important consideration when assessing the applicable injunction standard under Section10(j) was what Congress did not say. Section 10(j) itself contains no language that adopts a different standard than the traditional four-factor test.
This reasoning is reminiscent of Encino Motorcars, LLC v. Navarro, 584 U.S. 79 (2018), wherein the Court rejected the Department of Labor’s narrow construction of the FLSA in applying the overtime exemptions to service advisors within the vehicle repair industry. The Court explained: “Because the FLSA gives no ‘textual indication’ that its exemptions should be construed narrowly, ‘there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.”
The Court’s similar reasoning in McKinney may be indicative of its forthcoming decision in Relentless Inc. v. Department of Commerce, which could step away from the Chevron doctrine and further limit agency deference. In sum, these decisions remind the NLRB that it must rely on statutory text itself, rather than an overarching purpose of the statutory scheme, to support its interpretation.
2. Employers Have Multiple Grounds to Challenge Employee Reinstatement
McKinney is significant in the employee reinstatement context. The NLRB’s injunction in McKinney required, among other things, reinstatement of the terminated employees while the NLRB’s administrative complaint against Starbucks remained pending. Because the Sixth Circuit’s “reasonable cause” test was so deferential to the NLRB’s assessment of the facts and circumstances, injunctions requiring employee reinstatement were harder for employers to oppose. And, even if the NLRB or the courts later deemed the employer’s terminations to be lawful, the employer would still incur damage by reinstating and compensating a lawfully-terminated employee until the NLRB or the courts rendered that decision.
These circumstances are less likely to occur under the traditional four-factor test. Employers can challenge reinstatement on three of the four grounds. First, District Courts must examine the likelihood of the NLRB’s success on the merits. This means that employers can challenge the NLRB’s position and potentially avoid reinstating employees where the NLRB has not met its burden as to its legal theory underlying the Section 10(j) injunction.
Second, employers can challenge reinstatement on the basis of irreparable harm. Courts have declined to adopt prior NLRB arguments that irreparable harm will occur if an employee is not reinstated because other make-whole remedies exist, such as monetary remedies (including, but not limited to, back pay), which undermine the NLRB’s position when it seeks reinstatement. The NLRB has increasingly fashioned additional monetary remedies for employees where it finds employers committed violations. As such, employers can argue that irreparable harm will not occur if the employee is not, in fact, reinstated.
Third, employers may present evidence that reinstatement fails the “balance of equities” or the“ public interest” factors. Employers could present evidence that reinstatement of a particular employee would be harmful to the workplace overall, thus rendering the NLRB’s argument for reinstatement inequitable overall. For example, say an employee was fired for creating a hostile work environment in violation of company policy and another employment statute, but the NLRB challenged the termination on the basis that the behavior was protected activity under Section 7. Even though the behavior was arguably protected activity, reinstating the employee would still have a damaging effect on the work environment as a whole. Employers could argue that the NLRB’s remedy of reinstatement would be grossly inequitable for the employer, and therefore, the “balance of equities” would not be in the NLRB’s favor.
Closing Thoughts
Although the NLRB now operates under a more exacting standard to obtain a Section 10(j)injunction, in no way does this invite employers to violate the NLRA and other applicable laws. Employers (including non-union employers) must continue to abide by the NLRA and be mindful of employee rights under Section 7. The NLRB may still obtain a Section 10(j) injunction if it meets the four criteria. But the impact of the injunction on employers may change based on the application of the four-factor test. Employers are strongly encouraged to maintain relationships with qualified labor and employment counsel to navigate active and potential complaints and injunction petitions by the NLRB.
*Please contact ZR Team Members George S. Crisci (gsc@zrlaw.com) and Rebecca Singer-Miller (rsm@zrlaw.com) for questions relating to Section 10(j) injunctions and other labor-related matters.
Wednesday, May 15, 2024
UPDATE: The FTC’s Non-Compete Rule Faces Another Lawsuit and Added Pressure. Remember, DO NOT panic!
By Ami J. Patel*
In our previous Alert, we discussed two pending lawsuits against the Federal Trade Commission(“FTC”) regarding its new non-compete ban rule. The Final Rule was published in the Federal Register on May 7, 2024, and is set to go into effect on September 4, 2024. However, as of May 9, 2024, the U.S. District Court for The Northern District of Texas Dallas Division granted the United States Chamber of Commerce, Texas Association of Business, and Longview Chamber of Commerce the right to intervene as Plaintiffs in Ryan LLC’s case against the FTC. The Court found it necessary to allow intervention because the Chamber’s interest may be inadequately represented by Ryan alone and the two separately-filed lawsuits share a common question of law or fact.
As a result, the Court in Texas expects to issue a decision on whether it will preliminarily stop enforcement of the FTC’s Non-Compete Rule, by July 3, 2024.
In addition to the case in Texas, there is another case pending in the U.S. Court for the Eastern District of Pennsylvania. In that case, ATS Tree Services, LLC (“ATS”), a tree service company, seeks both a preliminary and permanent injunction to prohibit the enforcement of the FTC’s Final Rule and to set it aside completely. ATS asserts similar arguments made by the U.S. Chamber and Ryan, LLC about the importance of non-competes. Accordingly, there is the potential for a split between the Circuits now that litigation exists in two different Circuits which could potentially create an issue for the United States Supreme Court to review.
As stated before, do not panic. While the legitimacy of the FTC’s new rule is being litigated and still not in effect, employers do NOT need to make any changes and should wait for further guidance as this matter develops. Continue to stay tuned and Z&R will continue to update you.
*Please contact ZR’s Practice Leader of its Non-Compete/Trade Secret practice, Ami J. Patel (ajp@zrlaw.com) at 216-696-4441 if you have questions relating to the FTC’s new Non-Compete Rule and need assistance with review of your existing agreements.
In our previous Alert, we discussed two pending lawsuits against the Federal Trade Commission(“FTC”) regarding its new non-compete ban rule. The Final Rule was published in the Federal Register on May 7, 2024, and is set to go into effect on September 4, 2024. However, as of May 9, 2024, the U.S. District Court for The Northern District of Texas Dallas Division granted the United States Chamber of Commerce, Texas Association of Business, and Longview Chamber of Commerce the right to intervene as Plaintiffs in Ryan LLC’s case against the FTC. The Court found it necessary to allow intervention because the Chamber’s interest may be inadequately represented by Ryan alone and the two separately-filed lawsuits share a common question of law or fact.
As a result, the Court in Texas expects to issue a decision on whether it will preliminarily stop enforcement of the FTC’s Non-Compete Rule, by July 3, 2024.
In addition to the case in Texas, there is another case pending in the U.S. Court for the Eastern District of Pennsylvania. In that case, ATS Tree Services, LLC (“ATS”), a tree service company, seeks both a preliminary and permanent injunction to prohibit the enforcement of the FTC’s Final Rule and to set it aside completely. ATS asserts similar arguments made by the U.S. Chamber and Ryan, LLC about the importance of non-competes. Accordingly, there is the potential for a split between the Circuits now that litigation exists in two different Circuits which could potentially create an issue for the United States Supreme Court to review.
So What Now for Employers?
As stated before, do not panic. While the legitimacy of the FTC’s new rule is being litigated and still not in effect, employers do NOT need to make any changes and should wait for further guidance as this matter develops. Continue to stay tuned and Z&R will continue to update you.
*Please contact ZR’s Practice Leader of its Non-Compete/Trade Secret practice, Ami J. Patel (ajp@zrlaw.com) at 216-696-4441 if you have questions relating to the FTC’s new Non-Compete Rule and need assistance with review of your existing agreements.
Monday, April 29, 2024
The FTC Faces Lawsuit From The Chamber of Commerce and Others Following The Passage of Its Purported New Non-Compete Ban Rule
By Ami J. Patel*
On April 23, 2024, the Federal Trade Commission (“FTC”) voted 3-2 to pass a new rule that virtually bans all non-compete clauses as were ported in a prior Alert. The two dissenting Commissioners asserted that the FTC does not have the power to pass this new rule and anticipated litigation has followed based on that very assertion.
On April 24, 2024, the United States Chamber of Commerce filed a lawsuit which challenged the FTC’s authority. The Chamber filed a Complaint in the United States District Court Eastern Division of Texas against the FTC and Lina Khan in her official capacity as Chair of the FTC. The Chamber was joined by three other business groups: the Longview Chamber of Commerce, the Business Roundtable, and the Texas Association of Business.
The Chamber’s complaint is based on several assertions:
- the Commission does not have the substantive rulemaking authority under Sections 5 and 6 of the Federal Trade Commission Act to enact this rule;
- this enactment is based on an unlawful interpretation of “unfair methods of competition”;
- the regulation constitutes unconstitutional delegation of Congressional rulemaking authority;
- this regulation creates a form of unlawful retroactivity;
- the FTC failed to engage in “Reasoned Decision Making” as required by the Administrative Procedure Act (“APA”), and;
- the FTC failed to consider alternative proposals.
The Chamber has also filed a Motion of Stay and Preliminary Injunction to stop enforcement of the FTC’s new rule while the Court considers the merits of the Chamber’s claims. The FTC has until May 15, 2024 (21 days) to respond to the Chamber’s Complaint and Motion to Stay. After the Chamber’s opportunity to respond, the Court should determine whether to enjoin the FTC’s rule while the Court decides the merits of the Chamber’s case.
Another lawsuit has been filed by Ryan, a tax services and software firm, asserting that the new rule places a tremendous burden on companies looking to maintain top people in the professional services sectors and safeguard their intellectual property (IP). Ryan aims to stop what it believes are unjustified restrictions that the FTC's regulation would have on service-oriented businesses across the country, regardless of size. We anticipate many more lawsuits to come challenging the FTC’s new rule.
What Now For Employers?
As we stated in a prior alert, Employers should not panic! Employers should continue to assess their current use of non-competes, non-solicitation provisions, and non-disclosure agreements to identify changes, adjustments, and notices. However, employers do NOT need to make any changes as of now. Stay tuned and we will update you on any future developments on this matter.*Please contact ZR’s Practice Leader of its Non-Compete/Trade Secret practice, Ami J. Patel (ajp@zrlaw.com) at 216-696-4441 if you have questions relating to the FTC’s new Non-Compete Rule and need assistance with review of your existing agreements.
Wednesday, April 24, 2024
The Final Rule: The Department of Labor Increases the Salary Threshold for Exempt Employees
By Michele L. Jakubs*
On April 23, 2024, the U.S. Department of Labor announced its final rule amending the regulations interpreting the Fair Labor Standards Act (FLSA)at 29 CFR part 541, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees, which will take effect on July 1, 2024. The rule increases the salary threshold required for the most commonly used exemptions under the FLSA. Employees are exempt from overtime if they are paid on a salary basis and meet the duties requirements for one of these exemptions: executive, administrative, or professional. The new rule increases the salary level for these exemptions from $684 per week ($35,568 per year) to $844 per week ($43,888 per year). The FLSA also provides an exemption for highly compensated employees who meet a less onerous duties test. The new rule increases the required annual compensation for highly compensated employees from $107,432 to $132,964. The new rule provides for incremental increases as follows:
On July 1, 2024
It remains to be seen whether there will be legal challenges to the new rule and whether such challenges may delay or prevent the new rule from taking effect. In the meantime, employers should evaluate the salary levels of their exempt employees to determine whether these increases impact their eligibility for exempt status. For those employees falling below the new thresholds, employers need to consider the financial impact of increasing their salaries versus converting them to nonexempt status and paying them overtime.
*If you have questions relating to the DOL’s new rule, or any other labor and employment law issues, please contact Zashin & Rich’s Wage and Hour Practice Leader, Michele Jakubs (mlj@zrlaw.com) at (216) 696-4441 or Matthew Smallwood (mcs@zrlaw.com) at (614) 224-4411.
On April 23, 2024, the U.S. Department of Labor announced its final rule amending the regulations interpreting the Fair Labor Standards Act (FLSA)at 29 CFR part 541, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees, which will take effect on July 1, 2024. The rule increases the salary threshold required for the most commonly used exemptions under the FLSA. Employees are exempt from overtime if they are paid on a salary basis and meet the duties requirements for one of these exemptions: executive, administrative, or professional. The new rule increases the salary level for these exemptions from $684 per week ($35,568 per year) to $844 per week ($43,888 per year). The FLSA also provides an exemption for highly compensated employees who meet a less onerous duties test. The new rule increases the required annual compensation for highly compensated employees from $107,432 to $132,964. The new rule provides for incremental increases as follows:
On July 1, 2024
- The salary threshold for the executive, administrative, and professional exemptions increases to $844 per week ($43,888 per year);
- The highly compensated employees’ total annual compensation level increases to $132,964, including at least $844 per week paid on a salary or fee basis.
- The salary threshold for the executive, administrative, and professional exemptions increases to $1,128 per week ($58,656 per year);
- The highly compensated employees’ total annual compensation level increases to $151,164, including at least $1,128 per week paid on a salary or fee basis.
It remains to be seen whether there will be legal challenges to the new rule and whether such challenges may delay or prevent the new rule from taking effect. In the meantime, employers should evaluate the salary levels of their exempt employees to determine whether these increases impact their eligibility for exempt status. For those employees falling below the new thresholds, employers need to consider the financial impact of increasing their salaries versus converting them to nonexempt status and paying them overtime.
*If you have questions relating to the DOL’s new rule, or any other labor and employment law issues, please contact Zashin & Rich’s Wage and Hour Practice Leader, Michele Jakubs (mlj@zrlaw.com) at (216) 696-4441 or Matthew Smallwood (mcs@zrlaw.com) at (614) 224-4411.
Federal Trade Commission Votes 3-2 to Ban Virtually All Non-Competes – DON’T PANIC
By Ami Patel*
During a live Commission Hearing on April 23, 2024, the FTC voted 3-2 to pass a new rule that virtually bans all non-compete clauses. This new rule comes after the FTC received over 26,000 comments to its original proposed rule. The new rule is set to go into effect 120 days after its publication in the federal register. But not so fast….
The final new rule purports to ban all new non-competes with workers including independent contractors and senior executives. The final rule states that for “a worker other than a senior executive, it is an unfair method of competition for a person: (i) to enter into or attempt to enter into a non-compete clause; (ii) to enforce or attempt to enforce a non-compete clause; or (iii) to represent that the worker is subject to a non-compete clause.” The final rule provides includes a notice requirement to workers for existing non-compete agreements.
However, there are limited exceptions to the non-compete ban for senior executives with existing non-competes and for non-competes entered by a person pursuant to a “bona fide sale of a business entity, of the person’s ownership interest in a business entity, or of all or substantially all of a business entity’s operating assets.” The final rule likewise does not apply to breaches and existing claims related to a non-compete clause that accrued prior to the effective date of the rule.
The 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 (i) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (ii)operating a business in the United States after the conclusion of the employment that includes the term or condition.” The final rule further provides that a “term or condition of employment” includes, but is not limited to, a contractual term or workplace policy, whether written or oral.
The final rule defines “worker” as “a natural person who works or who previously worked, whether paid or unpaid, without regard to the worker’s title or the worker’s status” under any other state or federal law. Accordingly, “worker” includes employees, independent contractors, externs, interns, volunteers, apprentices, or sole proprietors who provide services to a person.
The final rule defines “senior executive” as “a worker who: (1) was in a policy-making position; and (2) received from a person for employment: (i) total annual compensation of at least $151,164 in the preceding year; or (ii) total compensation of at least $151,154 when annualized if the worker was employed during only part of the preceding year; or (iii) total compensation of at least $151,164 when annualized in the preceding year prior to the worker’s departure if the worker departed from employment prior to the preceding year and the worker is subject to a non-compete clause.”
The FTC’s reasoning for passing the rule is that, based on its empirical research, the rule will reduce health care costs, will aid in new business formation, lead to higher worker earnings, and an increase in innovation. After implementation, any employer that enters a non-compete with a worker (or attempts to enforce a non-compete) will violate the new rule.
The rule will render null and void all current non-competes with workers who are not considered senior executives or fit within the bona fide sale of business exception. Any current non-competes with senior executives will remain in effect by the terms set forth in the contractual language. However, under the rule, employers cannot require senior executives to enter a non-compete after the effective date of the rule.
The final rule will take effect 120 days after it is published in the federal register and challenges to the rule are expected. To stay compliant with the new rule, employers must (1) stop enforcing existing non-competes with workers other than senior executives, (2) provide notice to such workers of the new rule, and (3) cease from entering any new non-competes with any worker. As a result, employers should immediately begin to assess their current use of non-competes, non-solicitation provisions and non-disclosure agreements to determine where changes, adjustments, and notices maybe be required. It is highly likely that this law will be challenged and will not go into effect as scheduled. Stay tuned and don’t panic – you have time to (and should) assess your current and future contracts.
*Please contact ZR’s Practice Leader of its Non-Compete/Trade Secret practice, Ami J. Patel (ajp@zrlaw.com) if you have questions relating to the FTC’s new Non-Compete Rule and need assistance with review of your existing agreements.
During a live Commission Hearing on April 23, 2024, the FTC voted 3-2 to pass a new rule that virtually bans all non-compete clauses. This new rule comes after the FTC received over 26,000 comments to its original proposed rule. The new rule is set to go into effect 120 days after its publication in the federal register. But not so fast….
The Final Rule on Future Non-Competes
The final new rule purports to ban all new non-competes with workers including independent contractors and senior executives. The final rule states that for “a worker other than a senior executive, it is an unfair method of competition for a person: (i) to enter into or attempt to enter into a non-compete clause; (ii) to enforce or attempt to enforce a non-compete clause; or (iii) to represent that the worker is subject to a non-compete clause.” The final rule provides includes a notice requirement to workers for existing non-compete agreements.
However, there are limited exceptions to the non-compete ban for senior executives with existing non-competes and for non-competes entered by a person pursuant to a “bona fide sale of a business entity, of the person’s ownership interest in a business entity, or of all or substantially all of a business entity’s operating assets.” The final rule likewise does not apply to breaches and existing claims related to a non-compete clause that accrued prior to the effective date of the rule.
The 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 (i) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (ii)operating a business in the United States after the conclusion of the employment that includes the term or condition.” The final rule further provides that a “term or condition of employment” includes, but is not limited to, a contractual term or workplace policy, whether written or oral.
The final rule defines “worker” as “a natural person who works or who previously worked, whether paid or unpaid, without regard to the worker’s title or the worker’s status” under any other state or federal law. Accordingly, “worker” includes employees, independent contractors, externs, interns, volunteers, apprentices, or sole proprietors who provide services to a person.
The final rule defines “senior executive” as “a worker who: (1) was in a policy-making position; and (2) received from a person for employment: (i) total annual compensation of at least $151,164 in the preceding year; or (ii) total compensation of at least $151,154 when annualized if the worker was employed during only part of the preceding year; or (iii) total compensation of at least $151,164 when annualized in the preceding year prior to the worker’s departure if the worker departed from employment prior to the preceding year and the worker is subject to a non-compete clause.”
FTC’s Rationale for the Final Rule
The FTC’s reasoning for passing the rule is that, based on its empirical research, the rule will reduce health care costs, will aid in new business formation, lead to higher worker earnings, and an increase in innovation. After implementation, any employer that enters a non-compete with a worker (or attempts to enforce a non-compete) will violate the new rule.
The New Rule’s Effect on Current Non-Competes
The rule will render null and void all current non-competes with workers who are not considered senior executives or fit within the bona fide sale of business exception. Any current non-competes with senior executives will remain in effect by the terms set forth in the contractual language. However, under the rule, employers cannot require senior executives to enter a non-compete after the effective date of the rule.
What Now For Employers?
The final rule will take effect 120 days after it is published in the federal register and challenges to the rule are expected. To stay compliant with the new rule, employers must (1) stop enforcing existing non-competes with workers other than senior executives, (2) provide notice to such workers of the new rule, and (3) cease from entering any new non-competes with any worker. As a result, employers should immediately begin to assess their current use of non-competes, non-solicitation provisions and non-disclosure agreements to determine where changes, adjustments, and notices maybe be required. It is highly likely that this law will be challenged and will not go into effect as scheduled. Stay tuned and don’t panic – you have time to (and should) assess your current and future contracts.
*Please contact ZR’s Practice Leader of its Non-Compete/Trade Secret practice, Ami J. Patel (ajp@zrlaw.com) if you have questions relating to the FTC’s new Non-Compete Rule and need assistance with review of your existing agreements.
Friday, April 19, 2024
Title VII Suits Involving Job Transfers – No Harm vs. Some Harm vs. Significant Harm – What is the Standard?
By Natalie M. Stevens and Kimana A. Bowen*
On April 17, 2024, in a unanimous decision, the U.S. Supreme Court ruled in Muldrow v. St. Louis that Title VII of the Civil Rights Act requires “some harm” in the job transfer context.
The Eastern District of Missouri granted the defendant employer’s motion for summary judgment, and the Eighth Circuit affirmed the District Court’s decision holding that the plaintiff must, but could not in this case, prove that the transfer caused her a “materially significant disadvantage”; rather, the transfer only caused “minor” changes in her working conditions.
Muldrow v. City of St. Louis, 30 F.4th680, 688 (8th Cir. 2022).
Several courts have interpreted the statute to require that a transfer subject an individual to “worse treatment” or “harm,” and that the harm be “significant.”
In Muldrow v. St. Louis, the Supreme Court held that the requirement that the harm be “significant” would be adding words to the statute that Congress enacted, holding:
*Please contact ZR Team member Natalie M. Stevens (nms@zrlaw.com) or Kimana A. Bowen (kab@zrlaw.com) [1] if you have questions relating to the interplay of job transfers and Title VII.
[1] Presently barred in D.C. only.
On April 17, 2024, in a unanimous decision, the U.S. Supreme Court ruled in Muldrow v. St. Louis that Title VII of the Civil Rights Act requires “some harm” in the job transfer context.
The Opinion
Background
The plaintiff alleged that the defendant employer “discriminate[d] against” her based on sex “with respect to” the “terms [or] conditions” of her employment in violation of Title VII. Specifically, the plaintiff, a female Sergeant in the St. Louis Police Department, alleged she was transferred to another unit, and replaced by a male, and that while her rank and pay remained the same, her responsibilities, perks, and schedule did not.The Eastern District of Missouri granted the defendant employer’s motion for summary judgment, and the Eighth Circuit affirmed the District Court’s decision holding that the plaintiff must, but could not in this case, prove that the transfer caused her a “materially significant disadvantage”; rather, the transfer only caused “minor” changes in her working conditions.
Muldrow v. City of St. Louis, 30 F.4th680, 688 (8th Cir. 2022).
Title VII Standard
Title VII provides that it is unlawful for a private employer or a state or local government “to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin.” 42 U.S.C. 2000e-2(a)(1).Several courts have interpreted the statute to require that a transfer subject an individual to “worse treatment” or “harm,” and that the harm be “significant.”
In Muldrow v. St. Louis, the Supreme Court held that the requirement that the harm be “significant” would be adding words to the statute that Congress enacted, holding:
To make out a Title VII discrimination claim, a transferee must show some harm respecting an identifiable term or condition of employment. The transfer must have left the transferee worse off but not significantly so. The transferee does not need to establish an elevated threshold of harm. This would impose a new requirement on a Title VII claimant, so that the law as applied demands something more of them than the law as written.
No. 22-193, slip opinion, at p. 6.
What Now for Employers?
Employers should ensure that they have Equal Employment Opportunity and Anti-Discrimination policies and that any transfers are for legitimate, non-discriminatory and non-retaliatory reasons.*Please contact ZR Team member Natalie M. Stevens (nms@zrlaw.com) or Kimana A. Bowen (kab@zrlaw.com) [1] if you have questions relating to the interplay of job transfers and Title VII.
[1] Presently barred in D.C. only.
Tuesday, April 16, 2024
EEOC’s Final Rule Implementing the Pregnant Workers Fairness Act
By Natalie M. Stevens*
The Pregnant Workers Fairness Act (“PWFA”) went into effect June 27, 2023. On Monday, April 15, 2024, the Equal Employment Opportunity Commission (“EEOC”) released its final rule implementing the PWFA, which is set to be published in the Federal Register on April 19, 2024. The final regulation will go into effect sixty (60) days from April 19, 2024.
Additionally, “limitation” is defined as “a physical or mental condition related to, affected by, or arising out of pregnancy, childbirth, or related medical conditions.”
Further, “pregnancy, childbirth, or related medical conditions” include, but are not necessarily limited to, current pregnancy; past pregnancy; potential or intended pregnancy (which can include infertility, fertility treatment, and the use of contraception); labor; and childbirth (including vaginal and cesarean delivery); termination of pregnancy, including via miscarriage, stillbirth, or abortion; ectopic pregnancy; preterm labor; pelvic prolapse; nerve injuries; cesarean or perineal wound infection; maternal cardiometabolic disease; gestational diabetes; preeclampsia; HELLP (hemolysis, elevated liver enzymes and low platelets) syndrome; hyperemesis gravidarum; anemia; endometriosis; sciatica; lumbar lordosis; carpal tunnel syndrome; chronic migraines; dehydration; hemorrhoids; nausea or vomiting; edema of the legs, ankles, feet, or fingers; high blood pressure; infection; antenatal(during pregnancy) anxiety, depression, or psychosis; postpartum depression, anxiety, or psychosis; frequent urination; incontinence; loss of balance; vision changes; varicose veins; changes in hormone levels; vaginal bleeding; menstruation; and lactation and conditions related to lactation, such as low milk supply, engorgement, plugged ducts, mastitis, or fungal infections.
*Please contact ZR Team Member Natalie M. Stevens (nms@zrlaw.com) if you have questions relating to the Pregnant Workers Fairness Act and final rule.
The Pregnant Workers Fairness Act (“PWFA”) went into effect June 27, 2023. On Monday, April 15, 2024, the Equal Employment Opportunity Commission (“EEOC”) released its final rule implementing the PWFA, which is set to be published in the Federal Register on April 19, 2024. The final regulation will go into effect sixty (60) days from April 19, 2024.
The PWFA
The PWFA requires covered entities (most employers with 15 or more employees) to provide “reasonable accommodations” for a qualified employee’s or applicant’s known limitations related to, affected by, or arising out of pregnancy, childbirth, or related medical conditions, unless doing so will cause an undue hardship on the covered entity.The Final Rule
According to the EEOC, the final rule is intended to “provid[e]important clarity that will allow pregnant workers the ability to work and maintain a healthy pregnancy and help employers understand their duties under the law.”Known Limitations
The final rule explains what constitutes a “known limitation.” Specifically, “known” refers to the employee or applicant or their representative having informed the employer of the limitation.Additionally, “limitation” is defined as “a physical or mental condition related to, affected by, or arising out of pregnancy, childbirth, or related medical conditions.”
Further, “pregnancy, childbirth, or related medical conditions” include, but are not necessarily limited to, current pregnancy; past pregnancy; potential or intended pregnancy (which can include infertility, fertility treatment, and the use of contraception); labor; and childbirth (including vaginal and cesarean delivery); termination of pregnancy, including via miscarriage, stillbirth, or abortion; ectopic pregnancy; preterm labor; pelvic prolapse; nerve injuries; cesarean or perineal wound infection; maternal cardiometabolic disease; gestational diabetes; preeclampsia; HELLP (hemolysis, elevated liver enzymes and low platelets) syndrome; hyperemesis gravidarum; anemia; endometriosis; sciatica; lumbar lordosis; carpal tunnel syndrome; chronic migraines; dehydration; hemorrhoids; nausea or vomiting; edema of the legs, ankles, feet, or fingers; high blood pressure; infection; antenatal(during pregnancy) anxiety, depression, or psychosis; postpartum depression, anxiety, or psychosis; frequent urination; incontinence; loss of balance; vision changes; varicose veins; changes in hormone levels; vaginal bleeding; menstruation; and lactation and conditions related to lactation, such as low milk supply, engorgement, plugged ducts, mastitis, or fungal infections.
Reasonable Accommodations
The final rule contains examples of possible reasonable accommodations, including:- Additional, longer, or more flexible breaks to drink water, eat, rest, or use the restroom;
- Changing food or drink policies to allow for a water bottle or food;
- Changing equipment, devices, or workstations, such as providing a stool to sit on, or a way to work while standing;
- Changing a uniform or dress code or providing safety equipment that fits;
- Changing a work schedule, such as having shorter hours, part-time work, or a later start time;
- Telework;
- Temporary reassignment;
- Temporary suspension of one or more essential functions of a job;
- Leave for health care appointments;
- Light duty or help with lifting or other manual labor; and
- Leave to recover from childbirth or other medical conditions related to pregnancy or childbirth.
Supporting Documentation
The final rule also addresses when it is appropriate to request supporting documentation; specifically, when it is needed to confirm the physical or mental condition, the relation to pregnancy, childbirth, or related medical conditions, and if it is reasonable to do so to determine whether to grant the accommodation. It is not considered reasonable to request documentation when the limitation and accommodation need are obvious, the employer has sufficient information to substantiate the limitation and accommodation need, or when the accommodation request is: (i) to carry or keep water near and drink, as needed; (ii) to take additional restroom breaks, as needed; (iii) to allow an employee whose work requires standing to sit and whose work requires sitting to stand, as needed; and (iv) to allow an employee to take breaks to eat and drink, as needed..What Now?
Employers should evaluate whether their reasonable accommodation policies address the requirements of the PWFA and, if not, revise them, and ensure supervisors, managers, and those responsible for reviewing accommodation requests are informed of the requirements of the PWFA.*Please contact ZR Team Member Natalie M. Stevens (nms@zrlaw.com) if you have questions relating to the Pregnant Workers Fairness Act and final rule.
Tuesday, January 9, 2024
New York’s Governor Vetoes New York Non-Compete Ban
By Ami Patel*
On June 20, 2023,the New York State Assembly voted in favor of Bill No. S03100, which would“[prohibit] non-compete agreements and certain restrictive covenants;[authorize] covered individuals to bring a civil action in a court of competent jurisdiction against any employer or persons alleged to have violated such a prohibition.” The bill then moved to Governor Kathy Hochul, who on December 22, 2023, declined to sign the legislation.
Bill No. S03100defined a non-compete agreement as, “any agreement, or clause contained in any agreement, between an employer and a covered individual that prohibits or restricts such covered individual from obtaining employment, after the conclusion of employment with the employer included as a party to the agreement.”
Further, Bill No.S03100 defined those covered individuals as, “any other person who, whether or not employed under a contract of employment, performs work or services for another person on such terms and conditions that they are, in relation to that other person, in a position of economic dependence on, and under an obligation to perform duties for, that other person.” This broad prohibition, if signed into law, would have voided any contract, to the extent a provision restrained a party from engaging in any kind of lawful profession, trade or business.
New York Governor Hochul could not agree with the legislature’s “one-size-fits-all” approach. Had New York signed this bill into law, it would become the fifth state to provide a complete prohibition on non-compete agreements, joining California, North Dakota, Oklahoma, and Minnesota.
While New York decided to protect employers' business interests in protecting confidential and proprietary information for the time being, the Federal Trade Commission continues to contemplate a nationwide ban on restrictive covenants with a decision expected in early 2024.
Employers should continue to monitor proposed and existing legislation in the states within which they operate, as well as any federal legislation, to forecast any potential issues with their current non-compete and non-solicitation practices. Additionally, employers should assess their current non-compete agreements against any legislation already in place.
*If you have questions relating to the proposed bans of non-compete agreements, restrictive covenants, or any other labor and employment law issues, please contact Zashin & Rich’s Non-Compete/Trade Secret Practice Leader, Ami Patel (ajp@zrlaw.com) at (216) 696-4441.
On June 20, 2023,the New York State Assembly voted in favor of Bill No. S03100, which would“[prohibit] non-compete agreements and certain restrictive covenants;[authorize] covered individuals to bring a civil action in a court of competent jurisdiction against any employer or persons alleged to have violated such a prohibition.” The bill then moved to Governor Kathy Hochul, who on December 22, 2023, declined to sign the legislation.
Bill No. S03100defined a non-compete agreement as, “any agreement, or clause contained in any agreement, between an employer and a covered individual that prohibits or restricts such covered individual from obtaining employment, after the conclusion of employment with the employer included as a party to the agreement.”
Further, Bill No.S03100 defined those covered individuals as, “any other person who, whether or not employed under a contract of employment, performs work or services for another person on such terms and conditions that they are, in relation to that other person, in a position of economic dependence on, and under an obligation to perform duties for, that other person.” This broad prohibition, if signed into law, would have voided any contract, to the extent a provision restrained a party from engaging in any kind of lawful profession, trade or business.
New York Governor Hochul could not agree with the legislature’s “one-size-fits-all” approach. Had New York signed this bill into law, it would become the fifth state to provide a complete prohibition on non-compete agreements, joining California, North Dakota, Oklahoma, and Minnesota.
While New York decided to protect employers' business interests in protecting confidential and proprietary information for the time being, the Federal Trade Commission continues to contemplate a nationwide ban on restrictive covenants with a decision expected in early 2024.
Recommendations Continuing Forward
Employers should continue to monitor proposed and existing legislation in the states within which they operate, as well as any federal legislation, to forecast any potential issues with their current non-compete and non-solicitation practices. Additionally, employers should assess their current non-compete agreements against any legislation already in place.
*If you have questions relating to the proposed bans of non-compete agreements, restrictive covenants, or any other labor and employment law issues, please contact Zashin & Rich’s Non-Compete/Trade Secret Practice Leader, Ami Patel (ajp@zrlaw.com) at (216) 696-4441.
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