On January 5, 2023, the Federal Trade Commission (“FTC”) issued a Notice of Proposed Rulemaking (“NPRM”) to prohibit employers from entering into post-employment non-compete agreements with workers. The proposed rule, if adopted, would essentially ban non-compete agreements nationwide, with very limited exceptions.  The FTC will soon publish the NPRM in the Federal Register, triggering a 60-day public comment period.‎  Here are answers to some of the key questions employers may have about the proposed rule.

1. What is the proposed rule?

The proposed rule would provide that it is an “unfair method of competition,” and therefore a violation of the FTC Act, “for an employer to enter into or attempt to enter into a non-compete clause with a worker; maintain with a worker a non-compete clause; or, under certain circumstances, represent to a worker that the worker is subject to a non-compete clause.”

In sum, pursuant to the proposed rule, employers would be: (i) prevented from entering into non-compete agreements with workers; (ii) required to issue a rescission of existing non-compete agreements with current and former employees; and (iii) required to provide current and former workers with notice that any worker’s non-compete clause is no longer in effect and may not be enforced against the worker.

2. How does the Proposed Rule Define a “Non-Compete” Clause?

The proposed rule defines a “non-compete clause” as “a contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.”  Under the proposed rule, a “non-compete” clause includes not only traditional clauses that prohibit post-employment competition, but also clauses that effectively “function” like non-compete clauses.  The FTC provides two specific examples of “de-facto” non-compete agreements.  First, a nondisclosure agreement might “function” like a non-compete agreement if it “is written so broadly that it effectively precludes the worker from working in the same field after the conclusion of the worker’s employment with the employer.”  Second, a contractual term between an employer and a worker might “function” as a non-compete agreement if it requires the worker to pay the employer or a third-party entity for training costs upon the worker’s termination from employment within a specified time period, and the required payment is not reasonably related to the costs the employer incurred for training the worker.

3. What Employers are Covered?

The proposed rule defines “employer” as “any natural person, partnership, corporation, association, or other legal entity that hires or contracts with a worker to work for the person.”  In effect, this broad definition effectively applies to all employers, unless the employer is subject to an exception from FTC jurisdiction (e.g., certain banks, federal credit unions, common carriers, etc.).

4. What Employees/Workers are Covered?

If enacted, the proposed rule would impact almost all workers, including employees, independent contractors, externs, interns, volunteers, apprentices, and sole proprietors.  Notably, the proposed rule contains no exception for senior executives, highly paid workers or highly skilled workers, although the proposed rule seeks comments on whether non-compete clauses between employers and those categories of employees should be subject to a different standard than non-compete agreements between employers and other categories of workers.

5. How does this Proposed Federal Rule Interact with State Laws on Non-competes?

As drafted, the proposed rule would supersede and preempt any inconsistent state statute, regulation, order or interpretation, except that, if any state law provides greater protection to workers than afforded under the proposed rule, then the state law would continue to apply.

(The proposed rule offers a detailed overview of the current status of state law on non-compete agreements at pages 49–56).

6. Are there any Exceptions to the Proposed Rule?

The proposed rule would include a limited exception for non-compete clauses between the seller and buyer of a business so long as the party restricted is an owner, member or partner holding at least 25% ownership interest in the business.

7. Would the Proposed Rule Apply to Non-Compete Clauses Executed Before the Rule Becomes Effective?

Yes.  While the proposed rule prohibits future use of non-compete clauses, it also prohibits employers from maintaining existing non-compete clauses.  It further requires employers to rescind all current non-compete agreements that fall within the scope of the proposed rule.

8. When will the Proposed Rule Become Effective and How Likely is it that the Proposed Rule will be Challenged in Court?

The proposed rule is subject to a 60-day public comment period once it is published in the Federal Register (which, as of the date of this article, has not yet occurred).  Following that, the FTC will consider the comments and decide whether to amend the proposed rule in light of the comments.  There is likely to be a tremendous number of comments.  The US Chamber of Commerce has already voiced its opposition to the proposed rule.  Thereafter, and assuming the FTC eventually publishes a final rule, it will be effective 60 days later, and employers would be required to come into compliance with the rule within 180 days after the publication of the final rule.  No doubt, the final rule would be subject to legal challenges in court.

9. Where Does the FTC Claim Its Authority to Issue this Rule?

 The FTC cites to Section 5 of the FTC Act which declares “unfair methods of competition” to be unlawful and further directs the FTC to “prevent persons, partnerships, or corporations . . . from using unfair methods of competition in or affecting commerce.”  Within the FTC Act, it also directs the FTC to make rules and regulations to fulfill the purposes of the Act.

10. What should Employers do Now?

For now, employers and businesses with employees, contractors, and others who are subject to non-compete agreements or clauses need to be mindful that the legal landscape may be changing soon with respect to these legal documents.  As the FTC noted in its proposed rule, many states have enacted substantial restrictions on businesses with respect to non-compete agreements in the past 10 years alone, and courts continue to look with disfavor on these agreements as an impermissible restraint of trade on competition.  Now is a good time to take a close look both at existing non-compete clauses and other contractual provisions that may be deemed to be a non-compete provision under a final FTC rule, including non-disclosure, non-solicitation, and provisions requiring employees to reimburse employers for certain training expenses, and assess if modifications are in order, and/or how the business will implement the rule.  At the very least, employers may wish to review the restrictive covenants they have in place with employees, and mark sure they are narrowly tailored as to:  (i) duration and geography, (ii) the activities the business seeks to prohibit post-employment; and (iv) the employees it requests to sign the covenants.

 

The employee interview process is a critical component of building and shaping school culture.  Not only is it a chance to learn more about candidates to your school and to determine their fit for a particular role, but it is also an opportunity to introduce your school, including its mission and vision, to the candidate.  The goal of the process is to find the right match between a candidate and a school; hiring the right employee will help fill a critical position while also helping to ensure a long-term, collaborative relationship between that employee and the school.  Similarly, schools should endeavor to avoid legal claims that could result from inappropriate, or even illegal, questions asked during an interview.

To best establish a lawful, engaging, and effective hiring process, schools should consider incorporating a number of straightforward tips and should be cautious of asking interview questions that could create legal exposure to the school.  This article addresses both areas in turn below.

To read the rest of this article click here.

To kick off the New Year, employers with 11 or more employees working in Maine will need to review their policy related to the handling of accrued yet unused paid vacation at the end of employment.

Maine passed an amendment to Labor Law §626 requiring unused vacation time accrued on and after January 1, 2023, to be paid to employee at the end of employment. Final wages, now including unused, accrued vacation, must be paid to terminated employees no later than the next established payday.

Exceptions in the vacation payout apply to employers with 10 or fewer employees, public employers, and employers with a collective bargaining agreement (CBA) already addressing the payment of vacation pay at termination.

Employers must continue to comply with the requirements around allowable deductions at the end of employment, such as loans or advances against future earnings or wages.

Employers found in violation of this law are liable for the amount of unpaid wages and vacation pay as well as a reasonable rate of interest, liquidated damages equal to twice the amount of those unpaid wages and vacation pay, and the costs of suit, including a reasonable attorney’s fee.

The New Year is a good time to contact your employment attorney for a review of your policies and compliance, particularly in light of recent developments.

Amy Cann is a licensed attorney in Maine and New Hampshire and a member of McLane Middleton’s Employment Law practice group. She can be reached at amy.cann@mclane.com, or by calling (603) 334-6913.

 

On October 20, 2022, the Equal Employment Opportunity Commission (EEOC) published a new poster entitled “Know Your Rights.”  This new poster replaces the previous “Equal Employment Opportunity Is the Law” poster.  All employers subject to federal EEO laws must display the “Know Your Rights” poster on their premises in a conspicuous place.  The EEOC encourages employers to post it online as well.  An exclusively digital posting of “Know Your Rights” is permissible, but only if the employer does not have a physical location or its employees work remotely and do not come into the office regularly.

The primary update on the new poster is the use of more straightforward language and formatting, designed to easily inform employees of their rights and of the avenues available to them to redress grievances.  “Know Your Rights” replaces long paragraphs of text with a series of questions and bullet point answers to simplify the law for employees.  It also provides a QR code that employees can scan for more information and to submit a charge of discrimination.

Additionally, the EEOC incorporated the information from its 2015 supplement of the “EEO Is the Law” poster into “Know Your Rights” to advise employees that sexual orientation and gender identity are protected categories, and that applicants and employees are protected when inquiring about, disclosing, or discussing their compensation or the compensation of other employees and applicants.  Unlike the previous poster, “Know Your Rights” clarifies that union members and union applicants are protected equally with non-union employees.  While the general substantive rights protected under Title VII, the Americans with Disabilities Act, the Equal Pay Act, the Age Discrimination in Employment Act, and the Genetic Information and Nondiscrimination Act have not changed, the EEOC has packaged them in a more employee-friendly way with “Know Your Rights.”

Employers should review the new poster and hang it as soon as possible.  Although the EEOC has not provided a specific deadline for displaying the new poster, it has advised that, “Employers should remove the old poster and display the new one within a reasonable amount of time.”  Failure to comply may result in a fine of $569 for each separate offense.

To compare here are links to the old and new EEOC posters:

Old poster: https://www.dol.gov/sites/dolgov/files/ofccp/regs/compliance/posters/pdf/eeopost.pdf

New poster: https://www.eeoc.gov/sites/default/files/2022-10/22-088_EEOC_KnowYourRights_10_20.pdf

Published in the New Hampshire Business Review (10/20/22)

In January 2021, during the final days of the Trump Administration, the Department of Labor issued a new rule regarding the classification of employees and independent contractors for purposes of the federal Fair Labor Standards Act.  This rule, viewed by many as being more “employer friendly” than previous DOL policies, applies an “economic reality” test that asks whether “the individual is, as a matter of economic reality, in business for him or herself.”  The test considers five factors, but emphasizes two in particular: the nature and degree of the worker’s control over the work, and the opportunity for profit or loss.  The remaining factors are subsidiary, and are only to be considered if classification is not clear after applying the first two.

Almost immediately, the Biden Administration took steps to delay, and then rescind the Trump era rule.  Earlier this year, a federal court blocked these efforts, and, for now, the 2021 Independent Contractor Rule remains in effect.  All of this back and forth has called into question the standards for determining employee classification questions under the FLSA and has caused significant confusion for employers.

To read the rest of this article, click here.

On July 26, 2022, Massachusetts Governor Charlie Baker signed into law the Creating a Respectful and Open World for Natural Hair (CROWN) Act, which prohibits discrimination based on natural and protective hairstyles in the workplace, public schools, and places of public accommodation (such as hotels and restaurants). The Act amends Massachusetts’ existing anti-discrimination laws, adding “hair texture” and “hair type” to the list of already protected categories (e.g., race, color, religious creed, national origin, sex, gender identity, and sexual orientation).

Hairstyles protected under the Act include, but are not limited to, “braids, locks, twists, Bantu knots and other formations.” The Act authorizes the Massachusetts Commission Against Discrimination and Department of Elementary and Secondary Education to promulgate rules and regulations to enforce the new protections. The Act will take effect on October 24, 2022.

The law is modeled on the National CROWN Act, a nation-wide effort organized by Dove, National Urban League, Color Of Change, and Western Center on Law & Poverty to advocate for hair discrimination protections at both the state and federal level. In addition to Massachusetts, seventeen other states have passed similar laws prohibiting race-based hair discrimination within the past three years, including Maine, New York, and Connecticut.

Violations of the CROWN Act could lead to compensatory and punitive damages and attorneys’ fees.

To ensure compliance with the new law, Massachusetts employers, schools (both public and independent), and other businesses holding themselves open to the public should review their handbooks and existing equal employment opportunity and anti-discrimination policies, in addition to policies related to dress codes and grooming standards, and determine whether updates are necessary. Furthermore, such entities should consider examining hiring and admissions practices as well as additional training for their employees regarding the requirements of the new law.

Should your business need any assistance with complying with the CROWN Act, please reach out to one of our experienced employment and education attorneys.

Published in the New Hampshire Business Review (9/15/22)

Many business leaders and human resources professionals believe that cyber security is the responsibility of their information technology staff and managed services provider. However, ensuring that employees and their families have appropriate cyber security protection is an employee benefit that benefits employers as well.

Mistakes, lack of awareness, and general vulnerability of employees remains the most significant cyber security risk for most employers. Simply training employees about cyber threats typically fails to reduce that risk sufficiently. To have a truly cyber mature workforce, employers need to engage employees in cyber security. Teaching employees about the threats to themselves and their families, and making personal protection services available to them, is a much better method to engage employees in cyber security.

Training. Cyber security training is not most people’s idea of a good time. However, employees sit up and take notice when trainers talk to them about the prevalence and severity of the cyber threats to themselves personally, including their identities, credit files, financial accounts, personal devices, and home networks. Additionally, explaining that their aging parents and children face these same threats never fails to get employees meaningfully engaged. Employers can then translate that personal engagement into an increased awareness and commitment to the cyber security policies and practices that protect the business.

The following are a few training opportunities that typically motivate employees: (a) taking control of your credit bureau accounts, extinguishing fraudulent or unnecessary credit, and freezing or locking your credit; (b) obtaining identity, credit, and financial crime protection for yourself and your family; (c) ensuring that your personal financial accounts are secure from theft; (d) hardening your home network and online accounts; and (e) ensuring the online safety of yourself and your family members.

To read more click here.

Published in the New Hampshire Business Review (8/11/22)

New guidance narrows employers’ ability to screen employees.

On July 12, 2022, the Equal Employment Opportunity Commission (EEOC) updated its COVID-19 workplace guidance and this article summarizes the key topics that employers should understand.

Return to Work Testing and Documentation

Under the Americans with Disabilities Act (ADA), any medical exam that an employer requires of an employee must be “job-related and consistent with business necessity.” Required COVID testing for employees is considered a “medical exam” and at the onset of the pandemic, the EEOC advised that COVID testing was a business necessity for all employees as an approved method for curbing transmission.

The July 12 guidance narrows what was a broad screening approach and now requires employers to assess whether screening a particular employee is consistent with the prior medical exam standard. The EEOC cautions employers to check with the public health authorities on screening guidelines, which will change depending on the level of virus detected in a particular region. Other factors that implicate “job-related” and “business necessity” include an employee’s vaccine status, the transmissibility of the current variant, contact between others in the workplace, and the impact of a COVID-positive employee on overall operations. In addition, the EEOC has updated its guidance to permit employees to provide an email from a medical provider or time-stamped documentation from a clinic indicating that the employee is at no risk for transmission, given that obtaining a doctor’s note can take a few days.

To read more, click here

 

With the end of the 2022 second quarter and inflation at a record high in more than four decades, some employers may be forced to take measures to reduce overall operational expenses. Reducing payroll costs is one of the cost-savings measures available to employers in these circumstances.  Unfortunately, however, this often results in the loss of employment for employees by way of a reduction in force, or a “RIF.”  If a company must move forward with such a process, it must be carefully planned and executed in order to minimize the risk of employment law claims.  Below is an overview of factors business owners and human resources professionals should consider when implementing reductions in staff, schedules or compensation.

Continue Reading Employee Reductions in Force, Furloughs and Other Cost-Savings Measures