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Non-Competes Must Be Supported By Consideration in Pennsylvania: No Exception Based On Employee’s Agreement To Be Legally Bound

November 20, 2015

By Anne E. Kane

The Pennsylvania Supreme Court has ruled that a non-compete entered after the onset of employment without additional consideration is not enforceable even if the employee expressly agreed “to be legally bound.” See Socko v Mid-Atlantic Systems of CPA, Inc. This decision, although not entirely unexpected, reinforces Pennsylvania’s long-standing jurisprudence disfavoring restrictive covenants.

Writing for the majority, Justice Todd held that a non-compete agreement could not be enforced against an at-will salesman who signed a new employment agreement after several years of employment. The new employment agreement included a non-compete clause barring the salesman from working for competing firms for two years following his departure from Mid-Atlantic. After his resignation, the salesman accepted a job from a competing firm in the restricted area. Mid-Atlantic promptly sent a letter to the salesman’s new employer, enclosing the non-compete provision and threatening to sue. The competitor fired the salesman a few days later.

The salesman then filed a declaratory judgment action against Mid-Atlantic, requesting an order declaring the non-compete unenforceable for lack of consideration. Citing Pennsylvania’s Uniform Written Obligations Act (“UWOA”), Mid-Atlantic pointed to a provision in the employment agreement in which the salesman agreed “to be legally bound.” The UWOA, a law which is unique to Pennsylvania, permits the parties to a contract to use this “magic language” to make the contract binding without consideration.

Both the trial court and the Superior Court rejected Mid-Atlantic’s arguments under the UWOA, and the Supreme Court agreed to take up the issue as a question of first impression. Prior to the Superior Court’s ruling in Socko, Pennsylvania courts had been split on this issue.

In affirming the Superior Court’s decision, Justice Todd reiterated that restrictive covenants are disfavored in Pennsylvania because they both restrain trade and impose hardships on the employees they cover, and held that these policy considerations trump the “magic language” of the UWOA. In a lone dissent, Justice Eakin disagreed, opining that the salesman had forfeited his right to challenge the non-compete. He further urged the Court to reconsider Pennsylvania’s longstanding rule that an at-will employee’s continued employment is not sufficient consideration for a restrictive covenant.

From a practical perspective, the Court’s ruling has not changed the legal landscape and it is unlikely that many Pennsylvania employers will need to revise their non-compete agreements. Most employers who adopted the “intending to be legally bound” language did so as a fallback in the event the intended consideration failed. The Socko decision makes it clear, however, that Pennsylvania will continue to be in the minority of jurisdictions that require additional consideration for restrictive covenants entered into after the onset of employment.

For more information regarding this or other labor and employment issues, please contact Anne Kane, Co-Chair of Schnader’s Labor and Employment Practices Group. 

 The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

 

Pittsburgh Sick Leave Delayed Until At Least March 10, 2016 To Allow Court Challenge

October 29, 2015

By Karen Baillie

On October 22, 2015, Court of Common Pleas Judge Joseph James signed an order staying “implementation, application and enforcement” of the new Pittsburgh sick leave ordinance for 60 days. The ordinance is facing a court challenge by the Pennsylvania Restaurant & Lodging Association and several Pittsburgh restaurants, who argue that the city lacked authority to enact the ordinance, which they claim can be enacted only on a statewide basis.  As noted in an earlier blog posting, the ordinance was set to take effect on January 11, 2016. The ordinance’s new effective date will be March 10, 2016, unless further delayed by court action. Presumably, the stay will give the court time to rule on the merits of the lawsuit challenging the sick leave.

For more information regarding this or other labor and employment issues, please contact Karen Baillie, a member of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

New Paid Sick Days Act Applies to Pittsburgh Employers

October 13, 2015

By Karen Baillie

The effective date of Pittsburgh’s new sick leave ordinance has been posted — January 11, 2016. This summer, Pittsburgh City Council enacted a new ordinance which requires employers to pay employees up to 40 hours of paid sick leave each year. Council invoked its authority under the Disease Prevention and Control Law (35 P.S. §521.16(a)(c)), and stated that “employees who have access to sick time are more productive and less likely to come to work ill and unfit to perform their job[s].” Further, according to City Council, “many of the workforce members who lack access to paid sick days frequently have contact with the general public, posing a high public health risk and increasing the likelihood of transmission of communicable illnesses.” The legislation was introduced July 7, and passed less than a month later on August 3, 2015. Mayor Bill Peduto signed the legislation (2015-1825) on August 13, 2015. Pittsburgh joins a growing list of municipalities in enacting sick day legislation, including New York City, Philadelphia, San Francisco and several New Jersey municipalities (Jersey City, Newark, Passaic, East Orange, Paterson, Irvington, Trenton, Montclair and Bloomfield, NJ). See prior articles here.

The specifics of the Pittsburgh Ordinance:

  • Covered Employers. Any entity that employs one or more persons “situated or doing business in the City” is an employer.
  • Excluded Employees. Four groups of employees are excluded:  (1) independent contractors; (2) state and federal employees; (3) any member of a construction union covered by a collective bargaining agreement; and (4) seasonal workers. Seasonal workers are those who are hired for, and notified in writing at the time of hire that they are hired for, a temporary period of not more than sixteen weeks during a calendar year.
  • Effective Date. The new law is effective 90 days after required notices and regulation are posted. The Controller’s office posted notice October 12, 2015 and fixed the effective date as January 11, 2016.
  • Accrual Rate. Employees accrue one hour of leave for every 35 hours worked.
  • Maximum amount of leave. Unless an employer’s policy allows additional leave, the maximum amount of accrued leave is 40 hours of paid sick time per calendar year per employee for employers of 15 or more employees. For smaller employers, the maximum accrual is 24 hours, and these are unpaid for the first year only and paid in all years after 2016.
  • Waiting Period. Employees can use accrued sick time after 90 days of employment.
  • Carry Over Rights. Employees can carry over unused accrued sick time from one calendar year to the next, unless the employer’s policy provides the full complement at the beginning of each calendar year (without requiring accrual).
  • No Payout Upon Termination. Unused sick days need not be paid out upon termination, unless the employer’s policy says otherwise. Note, however, that if a terminated employee is rehired within six months, all previously accrued, unused time must be reinstated, and the employee must be permitted to use the accrued time immediately and begin to accrue time immediately.
  • Permitted Purposes. (1) Employees’ own mental or physical illness, injury or health condition, their need for diagnosis, care, treatment, or for preventive medical care. (2) Care of a family member with a mental or physical illness, injury or health condition or who needs diagnosis, care, or treatment or preventive medical care. (3) Public health emergencies, including (a) the closure of the employee’s place of business by order of a public official due to a public health emergency; (b) care of a child whose school or place of care has been closed by order of a public official due to a public health emergency; and (c) care of a family member when it has been determined by health agencies or a health care provider that the family member’s presence in the community would jeopardize the health of others because of the family member’s exposure to a communicable disease, whether or not the family member has actually contracted the communicable disease.
  • Who is considered a family member of the employee? The list is expansive: (1) A biological, adopted or foster child, stepchild or legal ward, a child of a domestic partner, or a child to whom the employee stands in loco parentis; (2) a biological, foster, adoptive, or step-parent or legal guardian of an employee or an employee’s spouse or domestic partner or a person who stood in loco parentis when the employee was a minor child; (3) a person to whom the employee is legally married under the laws of any state; (4) a grandparent or spouse or domestic partner of a grandparent; (5) a grandchild; (6) a biological, foster or adopted sibling; (7) a domestic partner; and (8) any individual for whom the employee has received oral permission from the employer to care for at the time of the employee’s request to make use of sick time.
  • Procedures.
    • Notice. The employer may adopt a reasonable notification policy, but must permit employers to provide oral notice of their intention to use their accrued sick time.
    • Documentation. Employers may require documentation for the use of sick time that lasts three (3) or more full consecutive days.  “Documentation signed by a health care professional indicating that sick time is necessary shall be considered reasonable documentation. An employer may not require that the documentation explain the precise nature of the illness.” This last part may create conflicts when an employee may also be eligible for FLMA leave or reasonable accommodation pursuant to the laws that protect individuals with disabilities.
    • Minimum Time Periods. An employee may use sick time in hourly increments or the smallest increment that the employer’s payroll system uses to account for absences or use of other time.
  • No Retaliation. Employers cannot retaliate against employees for using their sick time or otherwise exercising their rights to file a complaint, to inform any person of an employer’s alleged violation or to inform another person of their rights under the ordinance.  Employers cannot require employees to find their own substitutes.
  • Notice. Employers must provide written notice that employees are entitled to sick time, the amount of sick time, and the terms of its use guaranteed under this Ordinance, that retaliation against employees who request or use sick time is prohibited and that each employee has the right to file a complaint with the Agency if sick time as required by this Section is denied by the employer or the employee is retaliated against for requesting or taking sick time.” The City Controller’s Office has approved sample postings on its website.
  • Enforcement. The City Controller’s Office has the authority to enforce this ordinance and to determine the enforcement mechanisms. Willful violations shall be subject to a fine in an amount not to exceed $100 per separate offense.
  •  Record Keeping. Employers must retain records showing hours worked by employees and sick time taken for a period of two years and must allow the designated enforcement Agency access to such records.

We recommend that Pittsburgh employers review their existing policies along with the upcoming regulations to determine whether they need to make amendments to bring their leave policies into compliance. Potential conflicts may include, for example, employer policies on carry over rights, notification procedures, documentation requirements, minimal time increments to use sick time, rehire rights and finding replacement workers.

For more information regarding this or other labor and employment issues, please contact Karen Baillie, a member of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

New NLRB Test for Joint-Employer Status in Labor Contracts May Leave You On the Hook

August 27, 2015

By Michael J. Wietrzychowski

Today, in a split decision, the National Labor Relations Board promulgated a new test that will make it easier for employees to establish joint-employer status in labor contracting arrangements.   Under the “restated” legal standard for joint-employer status, the Board “may find that two or more entities are joint em­ployers of a single work force if they are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms and conditions of employment.”  The Board went on to say that “in evaluating the allocation and exercise of control in the workplace, we will consider the various ways in which joint employers may “share” control over terms and conditions of em­ployment or “codetermine” them, as the Board and the courts have done in the past.”

Under the Board’s more liberal test, joint employer status will be found where the employers share or codetermine “those matters governing the essential terms and conditions of employment.”  Such essential terms and conditions include hiring, firing, discipline, supervision, direction of work and hours, and the determination of wages.

The likely impact of this decision will be that companies believing they were insulated from union organizing campaigns and/or unfair labor practice charges aimed at their labor contractors could now be jointly on the hook.

The Decision Browning-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery, and FPR-II, LLC, d/b/a Leadpoint Business Services, and Sanitary Truck Drivers and Helpers Local 350, Interna­tional Brotherhood of Teamsters, Petitioner. Case 32–RC 109684 can be found at http://apps.nlrb.gov/link/document.aspx/09031d4581d99106

For more information regarding this or other labor and employment issues, please contact Michael J. Wietrzychowski, Co-Chair of Schnader’s Labor and Employment Practices Group.   

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

Pennsylvania Court Allows Class Action Against Employer Who Used Only Payroll Cards; Holds Payroll Cards Are NOT “lawful money of the United States”

August 17, 2015

By Karen Baillie

In September 2013, SchnaderWorks published “Employers should Proceed With Caution in Using Payroll Cards.” At that time, author Scott Wenner advised that employers should follow the conditions prescribed in the federal Electronic Funds Transfer Act, Regulation E and should be aware that the United States Consumer Financial Protection Bureau (CFPB) takes the position that, “Regulation E prohibits employers from mandating that employees receive wages only on a payroll card of the employer’s choosing.”  In addition, Scott cautioned employers of the need to comply with state payroll laws.

Recently, a Luzerne County, Pennsylvania judge weighed in on the issue.  This decision reiterates Scott’s earlier advice.  In the case of Siciliano v. Mueller, C.A.  No. 2013-07010 (Luzerne County Court of Common Pleas May 29, 2015) employees of a McDonald’s franchise claimed that their employer violated the Pennsylvania Wage Payment and Collection Law  (WPCL) (23 P.S. § 260.3) by mandating that employees receive wages only via a JP Morgan Chase Payroll Card.

The employee-plaintiffs object to the payroll cards because there may be fees incurred in activating and using the cards and because managerial employees are permitted to be paid via direct deposit.  In denying the defendant’s Motion for Summary Judgment, the court noted that the WPCL requires that, “wages shall be paid in lawful money of the United States or check.” The court reasoned that the Pennsylvania legislature did not contemplate payroll cards when the language was adopted in 1961. Further, the legislature did not just use the word “money” but instead used the words, “lawful money of the United States,” which the court found to mean the “bills and coins” approved as legal tender. The court further found that paycards do not meet the legal definition of “check” because they are not “unconditional written orders.”

Although at least half of the states across the country now allow wages to be paid on payroll cards (either by statutory amendment or regulations promulgated pursuant to statutory authority), such laws typically permit the use of payroll cards only if employees are offered other wage payment options and give advance written consent to payment by payroll card. In its decision, the Luzerne County court pointed out that the (currently dormant) proposed legislation in Pennsylvania (Pa. H.B. 2274, 198th General Assembly, 2014 Session (Pa. 2014) (referred to Committee on Labor and Industry May 28, 2014) likewise would allow for payment of wages via payroll cards, only with employee advance authorization.  Interestingly, the court did not mention the CFPB’s guidance on the use of payroll cards and the requirements of Regulation E.  Instead, the court urged the state to provide guidance, “Pennsylvania employers and wage-earners could benefit from the Department of Labor and Industry expressing a formal position on the matter.”

In sum, Pennsylvania employers (especially those in Luzerne County) considering a payroll card system should continue to seek employee advance written authorization to be paid via payroll card (or direct deposit) and should continue to be cognizant of the requirements of EFTA, Regulation E, and of the CFPB’s guidance on the use of payroll cards.

For more information regarding this or other labor and employment issues, please contact Karen Baillie, a member of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

U.S. Department of Labor Announces Proposed Revision to Rule on Overtime Exemptions; Exempt Salary Threshold to More than Double; No Immediate Action Needed

July 1, 2015

By Scott J. Wenner

The U.S. Department of Labor posted an announcement on its website this morning that its much anticipated proposed rule to curtail existing overtime exemptions had been approved for publication in the Federal Register as a Notice of Proposed Rulemaking (NPRM), and would be published soon. In the interim, the DOL website posted a link to the approved version of the rule, available here.

According to the DOL’s announcement, the centerpiece of the proposed rule, which is intended to increase the number of employees who are eligible for overtime compensation, will be an increase of the minimum salary required to qualify as exempt to around $50,440 per year. If the rule becomes final, the increase will more than double the present threshold of $23,660. Computed on a weekly basis, the minimum weekly salary for exemption will increase from $455 per week to about $970 per week.

The DOL maintains that this dramatic increase is necessary if the exempt classifications under the FLSA are to be defined as originally intended: to exempt “highly compensated executive, administrative, and professional employees” from eligibility for overtime compensation. According to the NPRM, the weekly salary threshold it proposes is at the 90th percentile of average weekly wages of full-time salaried employees according to the Bureau of Labor Statistics. Further, to keep the minimum salary from lagging behind in the future, the NPRM proposes to update the minimum annually, either by indexing it to the CPI-U or by maintaining it at the 90th percentile of average weekly wages of full time salaried employees.

The NPRM also announced that the DOL would like to receive comments during the comment period on whether nondiscretionary bonuses should count toward the minimum salary requirement – an issue that inevitably arises in view of the steep increase in the salary threshold.

To be exempt as an executive, administrative or professional employee, of course, the employee must satisfy both the “salary basis test” (which includes receipt of the specified minimum amount) and the “primary duty test” (which examines the character of the primary duties of the employee’s position).   After President Obama directed the Secretary of Labor in early 2014 to update the existing regulations governing the so-called “white collar exemptions,” a substantial increase to the minimum salary was widely expected, but many also anticipated a tightening of the duties test to further restrict qualification for exempt status.

The unofficial version of the NPRM posted today makes no change to the duties test. However, it announces that “the Department is considering whether revisions to the duties tests are necessary in order to ensure that these tests fully reflect the purpose of the exemption.” The DOL may envision proposing a separate rule to limit the availability of exempt status to a smaller group of higher paid employees and a revision to the primary duty test might be proposed after the doubling of the minimum salary threshold becomes final. The effective date of this increase remains uncertain. The NPRM to be published in the Federal Register will announce a comment period that must precede publication of a final rule by the agency. Further, the DOL must consider the comments it receives before publishing a final rule. The NPRM’s wording suggests that it is aiming to publish a final rule in 2016.

For more information regarding this or other labor and employment issues, please contact Scott J. Wenner, past chair of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

Obamacare Survives Second Supreme Court Challenge

June 25, 2015

By Scott J. Wenner

The Affordable Care Act has survived another serious challenge – again through an opinion authored by Chief Justice Roberts. Today’s 6 to 3 Supreme Court decision in King v. Burwell held that the Administration’s interpretation, via an IRS rule, of an ambiguous, “ancillary” provision of the law was a permissible one, especially as “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them.”

Specifically at issue was whether the Administration could continue to subsidize health insurance purchased by those with low incomes in states that had refused or failed to establish their own exchanges. The challengers had argued that the literal language of law made insurance subsidies available only where the coverage was purchased on an insurance exchange “established by the state.” In a nutshell, the majority disposed of this argument by (i) declaring the language of the quoted section ambiguous; (ii) observing that insurance subsidies were crucial and necessary nationwide, regardless of whether a state exchange is available in a particular state, in order for the law to work; and (iii) concluding that an interpretation that would prompt the destruction of healthcare markets would hardly fulfill the purpose of Congress in passing the Affordable Care Act.

Justice Scalia authored a scathing dissenting opinion. In it he accused the Chief Justice of failing to apply traditional rules of statutory construction in order to preserve the healthcare law.  In the peroration of his dissent, Justice Scalia, mindful that this was Justice Roberts’s second rescue of Obamacare, and having accused the Chief Justice of tortured reasoning in both instances, observed: “We should start calling this law SCOTUScare.”  Indeed.

For more information regarding this or other labor and employment issues, please contact Scott J. Wenner, past chair of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

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