Labor and Employment Update - Winter 2016

EXITING EMPLOYEES WITH NON-COMPETE AGREEMENTS: BEST PRACTICES

The new calendar year brings a new fiscal year for many companies. Year-end bonuses have been paid, and talent waiting for that comp before resigning are now starting to give notice and pursue new opportunities. Inevitably, many resigning employees are heading for competitors, potentially in positions that run afoul of restrictive covenant agreements (“RCAs;” i.e, agreements with non-compete and/or non-solicit provisions) and/or put trade secrets/client relationships directly at risk. While each situation is different, below are some best practices for exiting employees that have RCAs:

1. Have the Business Notify HR/Legal Promptly.   This may sound obvious, but it often does not happen and, when it does not, departing employees can have unfettered access to key business information for days or weeks post-notice without any evaluation of the risk to the company. Companies should have processes in place where HR and/or Legal are promptly notified of a resignation. This allows the company to: (a) treat resigning employees consistently; (b) quickly determine whether there is an agreement restricting post-employment activity; and (c) assess the potential harm and take steps to limit that harm. Whatever the company chooses to do with respect to that employee for the remainder of her employment, it should be an informed decision and communication with HR/Legal allows for that to happen.
2. Restrict Access to Sensitive Company Information.  This should be considered for two principal reasons. First, companies should be sensitive for competitive reasons about exposing an employee heading to a competitor to real time strategic and confidential information in the weeks before departure. Even with the best intentions, that employee cannot unlearn what she was exposed to immediately before resignation, and giving her sensitive information increases the likelihood that information is used by a competitor. Second, if the company files a lawsuit to enjoin subsequent employment, judges will want to see that the company took reasonable steps to protect its information after it was put on notice of the potential harm. There are circumstances where restrictions are impractical or business necessity trumps the potential harm (such as customer account or project transitions), but – even there – companies should consider limiting exposure to only necessary information. The goal is to protect the confidential information and put the company in the strongest position to enforce its agreements as needed.
3. Learn What You Can About the Employee’s Next Job and Duties.  Not every employee departure exposes company trade secrets or customer relationships, nor does every departure necessitate litigation. Some employees will move onto new industries or markets, others into roles with competitors that do not put the company at significant risk, and others may be underperforming employees whom the company is happy to have leave. But companies should try to get as much information as possible so they can make an informed choice as to approach. While the employee is likely not obligated to disclose her next employer, a refusal to do so may set off a red flag, especially where there is an RCA in place. Companies can also gain valuable information via office chatter or social media sites like LinkedIn.
4. Examine the Employee’s Electronic Activity.   Employees’ electronic activities in the workplace can say a lot about their plans and intentions. Assuming the company policy allows for electronic review, the company can review: (a) company email to see if the employee is disclosing or transferring company business information by forwarding information to third-parties or personal email accounts; (b) file access history and portable device usage to determine if the employee is suddenly accessing files for no legitimate work purpose and/or placing files on portable electronic devices; and (c) Internet history to see what sites the employee has recently visited and if those sites are consistent with what the employee told the company about the next job opportunity. The electronic story that can be told through forensic analysis can be crucial in informing the company whether the employee is taking business information out the door or being dishonest as to the next job. This knowledge can radically change how the company assesses the risk of a departure and whether RCA enforcement is desirable or necessary. Companies need to take care not to overstep their bounds (don’t access personal email!), preserve the chain of custody, and be careful not to alter the electronic evidence. Companies also need to soberly assess whether they have the internal resources to conduct the forensic analysis properly or whether they need to rely on third-parties that specialize in this work.
5. Take Appropriate Steps to Protect Confidential Information and Preserve Options. After gathering information to assess the level of risk, the company is ready to determine what level of enforcement of the RCA is necessary to protect its interests. Options include: 1) commencing litigation with the former employee (and new employer) to enforce the RCA and preclude subsequent employment with a competitor; 2) negotiating restrictions on subsequent employment that lets the employee work for the competitor but with duty- or customer-based restrictions, without resorting to litigation; 3) reminding the employee of the RCA’s obligations via letter but taking no legal action or effort to prevent employment. These options are not mutually exclusive; for example, failed negotiations may result in litigation and a company may move beyond a warning letter to more aggressive action if it subsequently determines an employee improperly took information prior to leaving. Which option to pursue will be shaped by the individualized facts, most significantly the likely harm to the company based of what the employee will be doing for the competitor or whether the employee took information out the door.

There is no “one size fits all” for dealing with key talent departures, whether or not that employee has an RCA. However, companies benefit from having in place processes where the key stakeholders can promptly be notified of these departures and gain access to the information needed to assess how best to protect and preserve the company’s rights. Thinking through departure issues ahead of time will allow companies to protect their trade secrets.

By Jonathan S. Krause
jkrause@klehr.com

POLITICAL BELIEFS – CAN THEY GET YOU FIRED?

As the next presidential election draws near, talking politics in the workplace seems inevitable. But can it get you fired? The answer to that question most likely depends on what state you work in.

Generally speaking, employees working for private employers do not have unrestricted rights to “free speech” in the workplace. Rather, the protections under the First Amendment typically apply only to government action/censorship. Private sector employers are free to regulate political speech in the workplace for legitimate business reasons (such as regulations to prevent disruption to business operations). Furthermore, there is no protection under federal discrimination laws from termination or discipline based on political affiliation or activity.

However, there are still some political activities in the workplace that may be protected. For example, under the National Labor Relations Act (“NLRA”), non-disruptive political advocacy for or against a specific issue related to workplace conditions (for example, minimum wage rate, employee benefits, etc.) is generally protected, in both union and non-union workplaces, as long as such activity is conducted during non-work hours and in non-work areas. In addition, many states have laws regulating employee political speech and activity:

• Pennsylvania, Ohio, West Virginia, and Kentucky prohibit employers from posting or handing out notices threatening to fire or lay off workers if a particular candidate is elected.
• While employers in New Jersey and Oregon are permitted to sponsor political events at the workplace, they are prohibited from taking any adverse action against employees who decline to attend such events.
• Washington prohibits retaliation against employees for failing to support a particular candidate or political party.
• In Florida, it is unlawful to fire or threaten to fire an employee for voting (or not voting) in any election, or for voting (or not voting) for any particular candidate.
• California, Colorado, Louisiana, Minnesota, Missouri, Nebraska, Nevada, South Carolina, and West Virginia all prohibit employers from retaliating against employees for engaging in political activities.
• California, New York, and Washington D.C. prohibit employers from discriminating against employees due to political activity or affiliation. California, Colorado, New York and North Dakota further prohibit discrimination for an employee’s off-duty political activity.
• Illinois and Michigan prohibit employers from maintaining records of employees’ off-duty political activities. Illinois, Montana, Nevada, North Carolina, and Wisconsin also prohibit employers from restricting employees’ off-duty use of “lawful products” such as social media and political signs.
• Many states including Delaware, Kentucky, Kansas, Louisiana, Nebraska, Tennessee, Oregon and Ohio have laws prohibiting employers from coercing or dictating how employees should vote.

Private sector employers should exercise care before disciplining or terminating employees based on political activity or speech in the workplace, and should consult with their labor and employment counsel on the state and local laws that cover their workers.

CAUTION – UNPAID BREAKS CAN LEAD TO SIGNIFICANT LIABILITY

Whether breaks for non-exempt employees are considered compensable time under the Fair Labor Standards Act (“FLSA”) can be confusing and a source of liability for employers. However, a couple of recent federal court decisions offer employers some guidance in this area.

According to one U.S. Department of Labor (“DOL”) regulation, meal breaks where the employee is “completely relieved of duty for the purpose of eating” do not count as compensable time. But what if the employer places certain restrictions on non-exempt employees during an unpaid meal break? In Babcock v. Butler County, the Third Circuit recently clarified that whether restrictions convert an otherwise unpaid meal break into compensable time under the FLSA is determined by the predominant benefits test.

In Babcock, a corrections officer, on behalf of herself and others similarly situated, alleged a failure to pay overtime when they were not compensated for all time spent on their meal breaks. The corrections officers were scheduled to work in eight and one-half hour shifts, with a one hour meal break. Forty-five minutes of the meal break were paid while fifteen minutes were unpaid. During the entire meal period, the officers were not allowed to leave the prison without permission and were required to remain in uniform, in close proximity to emergency response equipment, and on call to respond to an emergency. Plaintiffs claimed that, because of these restrictions, they did not have complete freedom to do as they wished during the breaks – like run errands or sleep. Thus, they contended that the entire meal period should be compensated.

Two tests have been applied by other circuit courts to determine if a meal period is compensable: one test looks at whether the employee has been relieved of all duties during meal time, and the other test looks at which party received the “predominant benefit” of the meal time. The Babcock court adopted the latter test, joining all other circuits (except the Ninth Circuit) that have decided this issue. In so holding, the Third Circuit explained that, while the pertinent DOL regulation provides that a “bona fide meal period” is one in which an employee must be completely relieved from duty, that regulation does not have the force of law and generally has been eschewed by courts. Courts instead have looked to the totality of the circumstances to determine who benefits from the meal period. Thus, the inquiry is necessarily a fact intensive one.

Meal breaks, though, are not the only source of potential liability for employers. A December decision by one Eastern District of Pennsylvania court reiterated the risk employers face by not paying their non-exempt employees for short rest breaks. In Perez v. American Future Systems, Inc., the court determined that an employer’s policy of requiring non-exempt employees to log off and not be paid for any break during the day – even a break to use the restroom – was a violation of the FLSA. In making its decision, the court relied on another DOL regulation, which states that rest periods up to 20 minutes must be treated as compensable time.

So what should employers take away from these decisions? First, whether a meal break is considered compensable time based on the predominate benefits test is a fact-intensive inquiry. Second, if a non-exempt employee is required to perform any work during their meal break that results in an actual interruption of the break, then that employee should be compensated for their entire meal break. Third, employers should treat any breaks under 20 minutes as compensable time for non-exempt employees.

Whether breaks for non-exempt employees should be treated as compensable time can present significant liability concerns for employers. These issues can easily become an expensive class action lawsuit, involving many employees and hundreds or even thousands of hours in unpaid compensable time. Additionally, employers may not only be liable for unpaid wages, but they may also be liable for liquidated damages.

By: Lee D. Moylan 
lmoylan@klehr.com