Delaware Court Rules that Covenants Not to Compete May Be Assigned

Posted by Lauren Moak RussellOn February 10, 2010In: Cases of Note

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Restrictive covenants include agreements by an employee not to compete, not to disclose confidential information, and not to solicit an employer’s clients. Based on a recent decision from Delaware’s Court of Chancery, these agreements are more valuable than ever. Deciding a novel issue in Delaware, the Court held that, absent a provision to the contrary, restrictive are assignable from one employer to another, so long as both employers are engaged in the same business. This means that when businesses merge, employees who are already subject to restrictive covenants with the acquired business do not have to execute new agreements with the acquiring business. In addition, the Court reminds us that contracts defining the employer-employee relationship, are the only way to prevent a competitor from poaching employees in an at-will employment state, like Delaware.


Facts


The background in Great American Opportunities, Inc. v. Cherrydale Fundraising, LLC, is one that will be familiar to many employers. Three businesses were competing in the surprisingly cut-throat world of third-party fundraising (selling fundraising materials to non-profit organizations such as schools and churches, who then sell the materials to their communities to raise money). Two of the businesses, Great American Opportunities, Inc. (GAO) and Kathryn Beich, Inc. (KB) merged, leaving GAO as the surviving business. At the same time, the third business, Cherrydale Fundraising, saw an opportunity to expand its market presence by hiring away several of KB’s sales representatives. GAO discovered what was going on shortly after the merger.


To KB’s credit, it had been a careful employer and almost all of its employees were subject to the trifecta of restrictive covenants: non-competition, non-disclosure, and non-solicitation contracts. However, GAO was not a party to any of these contracts. Faced with a complicated situation, GAO filed a lawsuit alleging that Cherrydale tortiously interfered with the contractual relationship between GAO and its employees, leaving the Court to sort out the details.

Discussion


Before it could address Cherrydale’s activities in poaching KB’s employees, the Court had to decide if there was any formal relationship between GAO and KB’s employees as a result of their merger. Cherrydale argued that Delaware’s doctrine of at-will employment prohibits a claim of tortious interference with a contractual relationship. But KB’s employees were subject to a contract, as they had signed non-competition, non-disclosure, and non-solicitation contracts. Thus, Cherrydale’s first argument was unsuccessful.

The Court next had to determine whether KB could lawfully assign its rights under the employees’ restrictive covenants to GAO, in conjunction with the sale of a business. Surprisingly, this was an issue that had not been thoroughly analyzed under Delaware law. Adapting the general rule that contract rights may be assigned absent a provision prohibiting assignment, the Court held that an employer’s rights under a restrictive covenant may be assigned, in conjunction with the sale of a business, so long as the former employer and the current employer engage in the same type business.

Bottom Line

For employers who have workers with specialized skills, restrictive covenants, including non-competition, non-disclosure, and non-solicitation contracts, are as important as ever. In Delaware and other at-will states, such contracts are the only thing preventing your competitors from poaching your employees and their valuable know-how. But restrictive covenants are now more valuable because they can be assigned from one employer to another in a merger or asset sale. So if your employees are not subject to restrictive covenants, now is a better time than ever to consider whether they may be right for your business’s circumstances.

Great American Opportunities, Inc. v. Cherrydale Fundraising, LLC, C.A. No. 3718-VCP (Del. Ch. Ct. Jan. 29, 2010)

Social Media & HR Primer: 3 Key Tools

Posted by Molly DiBiancaOn February 10, 2010In: Social Media in the Workplace

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I talk a lot about how Human Resource professionals can use social media for a variety of workplace initiatives, ranging from recruiting, to engagement, to internal communications. For the uninitiated, though, the topic "social media" may have little real resonance. If you're an HR pro new to social media, there are three key types of social media that you need to understand at a bare minimum. Here's a primer on each.

Blogs


The word blog is short for “web log.” The author writes about topics he is passionate about, topics he wants others to learn about, or just his daily thoughts. The frequency of blog entries, called posts, depends on the topic and the blogger, and can range from multiple times daily, to weekly, to far less often.


In the hiring context, organizations can use blogs for several purposes, including: (1) improving the organization’s web presence (also known as search engine optimization or SEO); (2) humanizing the organization by projecting a public but personal voice; and (3) advertising particular job openings.


Microsoft Job’s Blog is an outstanding example of a recruiting blog done right.


Social-Networking Sites


Social-networking sites allow people to share information about themselves and to search for others with whom they can share information and form beneficial relationships. These sites are the modern version of the Kiwanis Club, the Rotary Club, Junior League, and local country clubs.


Facebook and LinkedIn are currently the most popular sites for recruiting efforts. LinkedIn targets professionals, particularly in knowledge industries, such as the information-technology, management, financial, and legal sectors. LinkedIn also targets an older demographic, though the average age of Facebook users continues to rise.


In the hiring context, organizations can utilize social-networking sites as a way to: (1) attract individuals who are not necessarily looking for employment (i.e., “passive candidates”); (2) provide current candidates with an inside look at working life inside the organization; (3) locate potential candidates for particular job openings; and (4) actively recruit high-potential candidates who may or may not be looking for employment. Another, increasingly common but less known use of social-networking sites by employers is keeping ties with former employees, known as alumni.


Some excellent examples of Facebook pages for recruiting include Hyatt Hotels and Resorts, the U.S. Army, and the CIA.


The HP Alumni group on LinkedIn, is an example of how organizations can leverage their alumni employees. There are also groups devoted specifically to HP alumni in certain geographic regions, as well as groups just for certain job types, such as sales.


Audio and Video


Posting videos online, either on your website or on sites like YouTube gives candidates a real-world preview of the work environment. Videos also can humanize your organization by putting a real employee as the public face for potential candidates.


KPMG’s branded YouTube channel, is one example of how to use video effectively. Google, not surprisingly, also puts YouTube to great use with its “Life at Google” channel, one of 27 channels it maintains on YouTube.


Learn more about social media in the workplace.

Do Exempt Employees Have to Be Paid for Snow Days?

Posted by Scott A. HoltOn February 9, 2010In: Policies

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With the weather forecast predicting record-setting snowfall in the Northeast, many employers are preparing to close operations again tomorrow. But how to handle snow days when it comes to calculating payroll? Here's the run-down.

The Fair Labor Standards Act (FLSA) prohibits employers from reducing the pay of any exempt employee based on the quantity or quality of his work or when he is ready, willing, and able to work but no work is available. Applying that basic principle, the U.S. DOL has taken the position that employers that decide to close because of weather conditions must pay exempt employees their regular salaries for any shutdown that lasts less than one full week.

On the other hand, nothing prohibits an employer from requiring employees, including exempt ones, to use accrued vacation time or other time off to cover the missed work. The FLSA doesn't require you to provide vacation or leave time at all, so there's nothing to prevent you from giving your employees vacation or paid time off (PTO) but then requiring them to take it on certain days. A private employer may therefore deduct the period of absence due to bad weather from an employee's remaining vacation or leave time, whether the absence is a full day or a partial day, so long as you pay exempt employees their regular salaries for that time.

The practical problem, of course, is that when bad weather hits, some exempt employees may not have any vacation or leave time left. Or they may have already scheduled to take off — and received approval to use — whatever vacation or leave time they have remaining. Even if an exempt employee has no time off remaining, she still must be paid her regular salary when the organization is closed because of bad weather for less than a week. The DOL has made it clear that you must pay employees in those circumstances, even if you offer no vacation or PTO benefits at all and even if you provide those benefits but the employee has no remaining accrued leave available.

There's no legal prohibition against applying PTO to days missed because of a facility closure and canceling part or all of approved vacation time for exempt employees who have time remaining but have approved plans to use their PTO on other days. You should first consider the inevitable negative effect of that practice on employee morale, however.

GINA's Impact on Employers: Pink Ribbons and Yellow Bracelets

Posted by Adria B. MartinelliOn February 9, 2010In: Genetic Information (GINA)

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In today’s culture of pink ribbons, yellow bracelets, and fundraising walks, it is not hard to imagine the multitude of ways an employer might learn about the genetic test or manifestation of a disease by a family member. Loved ones often become involved with organizations specific to the disease of their family member, and even sometimpink ribbones starting their own. The employee’s membership in or leadership role in such organizations might well be reflected on their resume or application. Such relationship is likely to be disclosed on an employee’s Facebook, Twitter, or MySpace page. A quick Google search on an application, now typically performed in the most rudimentary background check, would reveal this information.

As noted in Parts 1 and 2 of this series, GINA’s inclusion of a “manifested disease” of a family member does not limit diseases to those with a genetic component. Therefore, an adult employee caring for a parent with lung cancer (which is generally accepted to be caused by environmental, not genetic influences), would be covered by GINA if he could show that his employer knew about the manifested disease of his parent, and treated him differently as a result. So would a parent with a child recently diagnosed with leukemia.

Health care coverage for a dependent in the face of a crippling diagnosis for a child is understandably, among the top concerns for any employee faced with this situation. There is a tremendous amount of fear in losing that coverage and an employer’s response to the knowledge that the employee may cause the employer to incur hundreds of thousands of dollars in healthcare costs. For an employee who is terminated in close proximity to a child’s diagnosis, one can easily appreciate the conclusion such employee may draw about the cause of the termination.

Bottom Line

GINA is likely to be a valuable add-on to existing statutes applicable in caregiving situations. These scenarios present highly sympathetic plaintiffs, and juries ready to find employers culpable of economic incentives. GINA may just be the hook many caregivers need to grab onto a claim, and its reach in this regard should not be underestimated.

 

Parts 1 and 2 in the series:

The GINA's Out of the Bottle--And It's a New Weapon in the Work-Family Arsenal

GINA's Application to Caregiver Scenarios

The Risk of Automatically Terminating Employees After Leave Expires

Posted by Teresa A. CheekOn February 8, 2010In: Disabilities (ADA)

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The EEOC published a press release a few days ago about the distribution of a $6.2 million settlement it had reached with Sears, Roebuck & Co. The lawsuit had been filed in November 2004 in federal court in Chicago. The consent decree was entered and publicized on September 29, 2009 as the largest ADA settlement in a single case in EEOC history. The EEOC Regional Attorney handling the case stated:

The era of employers being able to inflexibly and universally apply a leave limits policy without seriously considering the reasonable accommodation requirements of the ADA are over. Just as it is a truism that never having to come to work is manifestly not a reasonable accommodation, it is also true that inflexible leave policies which ignore reasonable accommodations making it possible to get employees back on the job cannot survive under federal law. Today's consent decree is a bright line marker of that reality.

The EEOC had complained that “Sears maintained an inflexible workers’ compensation leave exhaustion policy and terminated employees instead of providing them with reasonable accommodations for their disabilities, in violation of the ADA.” The settlement resulted in payments averaging $26,300 to 235 former Sears employees.

This is not the only such case pursued by the EEOC. The EEOC filed a class action lawsuit suit against UPS in Chicago on August 27, 2009. According to the EEOC press release, the case was initially prompted by an investigation into a complaint that UPS had fired an employee with multiple sclerosis after she exhausted the twelve months off to which she was entitled under the UPS leave of absence policy. She had asked for 2 more weeks of leave so that her medications could be adjusted, but UPS allegedly refused to provide it.

In November 2009, the EEOC reached a settlement with JPMorgan Chase & Co. in a class action based on similar allegations. The EEOC alleged that Bank One, which later merged with Chase, had terminated some employees after they exhausted six-month medical leaves without first investigating on a case-by-case basis whether it was possible to accommodate their limitations so that they could return to work. As a result of the settlement, $2.2 million was to be distributed among 222 individuals who had taken long-term-disability leave and were then terminated.

Big companies that have leave policies, no matter how generous, that call for automatic termination of employees who exhaust the specified period of available time off, are prime targets for EEOC class action suits. Many courts have upheld claims by employees that their former employers violated their rights under the Americans with Disabilities Act by refusing to even consider extending their leaves of absence or providing other forms of reasonable accommodation. Employers should examine their long-term and short-term disability and medical leave policies to ensure that they comply with the ADA’s mandate that employers attempt, on an individualized basis, to accommodate employees’ disabilities before terminating their employment.

GINA’s Application to Caregiver Scenarios

Posted by Adria B. MartinelliOn February 8, 2010In: Genetic Information (GINA)

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In Part I of this series, I discussed the Genetic Information Nondiscrimination Act in the employment-law context. In this post, I'll cover how GINA applies in the caregiver context. In Part III, I'll address how GINA may mean trouble for employers who search out information about employees and applicants online.


With the exception of a handful of municipalities, caregivers are not protected as a class. Under current law, caregivers may be able to assert claims under three different statutes, each limited in their reach:


1) Title VII sex discrimination: female caregivers of young children may be able to assert sex discrimination claims where they are treated differently then male employees based on a bias or assumption about the woman’s caregiving responsibilities;


2) FMLA Interference/Retaliation: if the employer has more than 50 employees and the employee meets other criteria for coverage under FMLA, the employee may have an interference or retaliation claim under FMLA;


3) Association Provision of ADA: the employee cannot be discriminated against because of the disability of an individual with whom the worker has a relationship or association.


Claims under these statutes are limited. First, to present a sex discrimination claim, the plaintiff (usually a woman) has to present a very specific set of facts reflecting that she was treated differently based on assumption about her role as a caregiver/parent. FMLA has limited application, including employers with 50 or more employees, and a plaintiff who has been employed for more than 12 months, among other restrictions.


ADA associational claims have never really caught hold and there have been very few cases brought under this theory, even fewer brought successfully. Moreover, in order to bring an ADA associational claim, the plaintiff must first show that the loved one has an impairment, or is perceived as having an impairment, and that it meets the definition of “disability.”


Given the limitations of existing causes of action, GINA provides an important additional layer of protection for caregivers and gives employers another reason to be aware of the laws that expose them to potential liability.

The GINA’s Out of the Bottle--And It's a New Weapon in the Work-Family Arsenal

Posted by Adria B. MartinelliOn February 4, 2010In: Genetic Information (GINA)

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The Genetic Information Nondiscrimination Act (GINA), went into effect in November 2009. Title II of the Act, which applies to employers, amends Title VII to prohibit employment discrimination on the basis of genetic information. GINA was intended to address a very specific concern--specifically, that the advancement of genetic science would lead to employment (and insurance) discrimination based on an individual’s potential to contract a certain disease as reflected in genetic markers. But GINA's language has a far broader reach, which may well become the newest and most useful weapon in the work-family arsenal.


GINA’s Bite May Be Bigger than Its Bark
GINA has been ballyhooed by many as a “solution in search of a problem” in light of the fact that similar state laws have existed for years without generating a single case. Adding to the downplaying of the new law is the absence of evidence that employers in large numbers are seeking genetic information from their employees. The process is, after all, an expensive one and one that generates incremental predictive value.


Few would dispute the presumption that employers are not, as a whole, investing the time and money to root out genetic information on their employees or applicants—information that may or may not have real value to predict the individual’s health in the future. The more realistic concern, however, is what employers do with such information when they have it. Under the statute, even “inadvertently acquired” information cannot be used in any employment decision.


Despite the general consensus among employment-law practitioners that GINA presents little in the way of new potential exposure, this may be a gross underestimate of the real risk that GINA presents.


The key to GINA’s applicability to work-family and caregiver scenarios is its definition of “genetic information,” which includes “the genetic tests of family members [of the employee]” and “the manifestation of a disease or disorder in family members [of the employee].” “Family member,” in turn, is defined as “a dependent as used for purposes of ERISA,” and up to a fourth-degree relative (i.e., great-great grandparents and all cousins, aunts, and uncles inbetween). Notably, the scope includes adoptive children and parents, whose genes are entirely unrelated to the employees’. It is also notable that the “manifestation of a disease or disorder in family members” is not limited to those diseases with genetic markers.

Hazard #1: Genetic Tests of Family Members
First, let’s talk about genetic tests of family members. There are currently more than 500 diseases with known genetic markers, including Huntington’s, Alzheimer’s, and Parkinson’s—and the number is growing all the time. In some cases, a genetic test revealing the marker for the disease means the individual is certain to contract the disease, and in others, it indicates only some statistical probability of contracting the disease.

While this potential is frightening enough, for employees with family members already manifesting a disease, the consequences and implications are present and real. Many fear, and perhaps rightfully so, that an employer would have several concerns related to such an employee, including (1) the cost to the employer if family member is covered on health plan; (2) the employee will be less productive because of caring for a loved one with a disease; or lastly, (3) that the employee will develop the disease. While it appears that it is only the third issue that Congress was attempting to address with GINA, the Act’s reach expands to the other areas as well.

In Part II of this post, I'll discuss how GINA applies in the caregiver context and, in Part III, I'll explain how GINA's prohibitions may cause problems for employers who search online for employee data. Stay tuned. . .

5 Non-Negotiable Provisions for Your Social-Media Policy

Posted by Molly DiBiancaOn February 4, 2010In: Social Media in the Workplace

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Less than one-third of U.S. employers have a social-media policy, according to Manpower in its recent study, Social Networks vs. Management? Harness the Power of Social Media. Not that this is a surprise.  Frankly, I’m more surprised when an employer actually does have a social-media policy in place. The recently published regulations of the FTC regarding employee endorsements and social-media sites may prompt some employers to get working on that policy. And, if that’s the case or if you’re considering a social-media policy for any other reason, here are some tips to help you on your way.

Before You Draft

There are three steps that must be completed before you can get to the heart of it and start to collaborate on the actual content of your policy. I’ve written about these steps before, so I’ll just touch on them here.

First, you have to educate the decision makers about what social media is all about. Likely, this means you’ll need to get at least some of the C-Suite to participate in social media to some degree. A lot of hand-holding is both appropriate and effective. Don’t expect executives to squeeze time into their already crammed schedules to learn about social media just for the heck of it. Work with them by doing the legwork for them. Collect relevant blog posts and send them to the decision maker once a week. Or monitor Twitter for mentions of the company’s name and provide those as part of your regular update. Anything to show them that social media is relevant.

Before putting pen to paper, employers should start with the 3 most important questions: Who, What, and Why. I’ve discussed these in more detail in an earlier post (See Social Media Is Here to Stay: Time to start that social-media policy). Generally, these questions address the following:

First, who will be regulated by the policy—i.e., will certain job titles or departments be excluded altogether or subject to less restrictions?

Second, what will be regulated—will all online activity be subject to the policy or only when the employee somehow associates himself with your organization (for example, by using his company e-mail account in his Twitter profile).

Third, why are you writing a policy in the first place? Is it to encourage employees to get out there and embrace social media, hopefully with some resulting benefits returning to the employer? Or are you trying to regulate online use of social-networking sites because productivity has become an issue? There are infinite variations of those two choices and your organization needs to settle on one before you start hashing out actual policy provisions.

Non-Negotiables

Regardless of what types of activity you decide to regulate with the policy and regardless of who will be subject to the policy’s provisions, there are certain standards that can be applied universally. I call these the “non-negotiables” of social-media use. Truthfully, many are likely to already exist within other company policies, such as an anti-harassment, confidentiality, or privacy policy. But not all of them. And not in one single policy. Here are some of what I consider to be “must-have” prohibitions or restrictions when it comes to employees’ use of social media, a set of “social-media principles,” if you will.

Keep Confidential Information Confidential. Company information should not be shared outside the company. Similarly, any activities that occur at the Company’s facilities should not be shared outside the company. Do not post pictures of Company events or of the interior of the Company’s facilities without express authorization. Do not share any information about clients or customers and do not identify any clients or customers by name or otherwise.

Be Nice. Do not post derogatory, defamatory, or inflammatory content about others for any reason. Disagreeing with another person’s opinions or actions is a legitimate form of expression. But express your disagreement in an intellectual and rational way supported by facts and references and free of any overt or underlying nastiness or hostility. Stay calm even if others post information about you or the Company that is untrue.

Do Not Break the Law. Do not engage in illegal or unlawful activities—at work or at any time. Do not publish pictures or other information about your participation in illegal activities. Similarly, do not publish anything that infers or implies that you are engaging in illegal conduct.

Protect Privacy Rights (of Yourself and of Others). Be very cautious about the ways in which you share personal or private information about yourself with others online. Assume that your coworkers and clients wish to maintain their privacy, as well. Do not post pictures of coworkers without their express permission. Do not share details of others’ personal lives online unless they’ve expressly authorized you to do so. Assume that anything and everything you post online will stay online forever, for anyone to see. If that makes you think twice about posting the information, then don’t.

Standards of Conduct Still Apply. Any conduct that would be grounds for dismissal if performed at work will be grounds for dismissal if performed online. Just as the Company does not tolerate use of race-, religion-, or gender-based slurs in the workplace, an employee’s use of such slurs in cyberspace will be grounds for immediate termination. Similarly, just as workplace harassment will not be tolerated, harassing behavior that is conducted online will not be tolerated. Threats of violence towards others, like hate-based language and harassment, is grounds for termination.

See these earlier posts for more help with your social-media policy:

3 Reasons Why Employers Don't Have a Social-Networking Policy

The 3 Principles for Social Media:  How to Be a Good Online Citizen

Sample Social-Media Guidelines

Social Media Is Here to Stay: Time to Start that Workplace Policy

Sample Social-Media Policy Ideas

Social Media Policies: What about my “friends”?

Friends Without Borders: State Off-Duty Conduct Laws and Facebook-Friending Policies

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Inappropriate Comments In the Workplace Cause Problems in the White House

Posted by Lauren Moak RussellOn February 3, 2010In: Newsworthy

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President Obama’s Chief of Staff has caused quite a stir. Reportedly, in a fit of frustration, Rahm Emanuel called participants in a White House meeting “ f---ing retarded.” Sarah Palin, who has a son with Down’s Syndrome, quickly spoke out about the inappropriate nature of the comment  on Facebook. The statement drew additional attention because this is the second time that a member of the Obama Administration has had to apologize for making an insensitive comment regarding the mentally disabled.

Emanuel apologized for the comment to Tim Shriver, who heads the Special Olympics.  The organization has launched a campaign urging people to stop using the term "retarded" as an insult, "Spread the word to end the word."

There is a valuable lesson to be learned from Rahm Emanuel’s comments. Political correctness for its own sake can make personal interactions unnecessarily burdensome. Instead of trying to be politically correct, try to be kind.  A little sensitivity and forethought can help to avoid embarrassing foot-in-mouth moments.

This post was written by Lauren Moak, an associate in Young Conaway Stargatt & Taylor’s Employment Law Department.

U.S. DOL to Ramp Up Enforcement Against Misclassified Workers

Posted by Scott A. HoltOn February 2, 2010In: Independent Contractors

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President Obama’s administration will seek more funding for the U.S. Department of Labor (DOL), including more funds to enforce wage and hour laws and pursue employers who misclassify employees as independent contractors. In a press release yesterday, Secretary of Labor Hilda L. Solis outlined the president's fiscal year (FY) 2011 budget request for the DOL, which is built around the vision of "good jobs for everyone."

The FY 2011 budget requests $117 billion, with the majority to be used for unemployment insurance benefits for displaced workers and federal workers' compensation. The DOL's discretionary request of $14.0 billion overall includes $1.7 billion for worker protection programs, a four percent increase over the prior year's budget.

According to Secretary Solis, “[t]he FY 2011 budget will help to make the vision of good jobs for everyone a reality for America's workers. This budget invests in innovation and reform that will play a critically important role in building long-term economic security for workers. At the same time, the budget reflects our commitment to fiscal responsibility, investing in what works and carefully evaluating our programs to make sure that we obtain results that produce good jobs."

The DOL seeks to hire more than 350 new employees, including 177 investigators and other enforcement staff, many of whom will be bilingual to better communicate with employees. The 2011 budget builds on the 2010 budget policy of returning worker protection programs to FY 2001 staffing levels, after years of decline. The Wage and Hour Division of the DOL will receive $244 million, an increase of almost $20 million from the prior year, including funding to hire 90 new investigators.

One particular area that will be the target of enforcement is the use of independent contractors by employers. When workers are misclassified as "independent contractors," they are deprived of benefits and protections to which they are legally entitled,” said the DOL. For example, independent contractors do not receive overtime and are ineligible to receive unemployment benefits. The FY 2011 budget includes an additional $25 million for a Misclassification Initiative to target misclassification with 100 additional enforcement personnel and competitive grants to boost states' incentives and capacity to address this problem. (This $25 million includes the nearly $20 million increase for the Wage and Hour Division discussed above.)

Independent contractors, by definition, are self-employed and because they are not “employees” are not covered by employment, labor, and various tax withholding laws. In some instances employers reclassify employees as independent contractors in order to avoid taxes, payment of overtime and benefits, and workers’ compensation liability. However, whether or not a worker is covered by a particular employment, labor, or tax law hinges on the definition of an “employee.”

The IRS uses a 20-factor, right-to-control test to assess an employers’ tax liability. The DOL often relies on the so-called “economic realities test” or a hybrid of the right-to-control and economic realities test to determine independent contractor status. Some believe the economic realities test makes it harder to classify an employee as an independent contractor, since, in addition to considering the degree of control the employer exercises, it takes into account the degree to which the workers are economically dependent on the business.

The DOL’s efforts to crack down on the use of independent contractors is just the latest in a series of federal initiatives and state laws that have made this issue come under increasing scrutiny. For instance, in December 2009 legislation was introduced in the U.S. Senate that would make it more difficult for employers to classify workers as independent contractors for employment tax purposes. In October of last year, Maryland passed the Workplace Fraud Act, which made it a violation of law to fail to properly classify workers as employees and imposed penalties on those employers who knowingly misclassify their workers.

In July 2009, Delaware passed its own law imposing stiff penalties on construction industry employers who improperly classify employees as independent contractors to save on business costs and avoid paying appropriate taxes.

Nov. 11-12: Advanced Employment Issues (Las Vegas, NV)

Posted by Molly DiBiancaOn February 1, 2010In: Seminars, Past

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This year, Adria B. Martinelli and I will be speaking at the Advanced Employment Issues Symposium in Las Vegas, Nevada, on November 11-12.  (If you can't join us in Vegas in November, maybe you can swing a trip to Nashville, Tennessee, where the Advanced Employment Issues Symposium will be presented on September 30-October 1.) 

The Advanced Employment Issues Symposium is in it's 15th year and is recognized as one of the leading employment-law conferences for forward-thinking human resource professionals, executives, and in-house counsel. This year, there are three featured tracks: Employment Law Enforcement; FMLA & ADA; and Talent Management. 

Registration for the Employment Issues Symposium is open now, with early-registration discounts until March 31.  If you aren't able to attend either of this year's programs, you can order the materials from the registration website, as well.

Hope to see you then!

Another Reason Employers Need a Social-Media Policy: New FTC Regulations

Posted by Molly DiBiancaOn January 29, 2010In: Social Media in the Workplace

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What are the legal reasons that an employer needs a social-media policy? That's a question that I get a lot when discussing social media with clients and others. And, maybe more often, "Are there any reasons that I need a social-media policy?"  This is a complicated question, really. And there are lots of possible answers. But there's at least one new legal reason for employers to stop procrastinating, get the idea out of committee, and get to work on such a policy.

Recently, the Federal Trade Commission (FTC), issued regulations that affect nearly every business--at least every business with a workforce that has access to a computer (either on or off working time). The FTC is the government agency charged with the responsibility of protecting consumers against false and deceptive advertisements, among other things.  The FTC's newest regulations, called the Guides Concerning the Use of Endorsements and Testimonials in Advertising (PDF), sets fairly strict restrictions on employees' use of social media to talk about a product or service offered by their employers.

Section 255.1(d) of the Guides provides that:

Advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers. Endorsers also may be liable for statements made in the course of their endorsements.

The key language in this section is that an "endorser" must disclose any "material connection" between himself and the company that sells the product or service being endorsed. In other words, if I am married to a local restaurateur, I must disclose that connection any time I endorse the restaurant. An "endorsement" is any advertising message, including verbal statements, that consumers are likely to believe reflects the opinions, beliefs, or experiences of a party other than the sponsoring advertiser. See Section 255.0(b). So, if I say that my spouse's restaurant, hands down, serves the best braised short ribs a girl could ever have, then I need to add a disclaimer such as, "Of course, I may be a bit biased, since I happen to be married to the chef."

What is the impact on employers?

Under the new regulations, any time an employee endorses your product or service, he is required to disclose his employment relationship. This means that employees must disclose their material connection any time they promote or defend the organization, its products, or its services.

The world of social media provides for an unlimited number of circumstances for this situation to occur. A comment left on a blog, or a tweet on Twitter, or even a few words of praise posted on an employee's Facebook profile could be construed as an endorsement if it "reflects [the employee's] opinions, beliefs, or experiences" about a product or service offered by the employer.

What if the employee fails to disclose the employment relationship?

If an employee tweets about his employer's pizza being the best around, he must do so in compliance with the regulations. Failure to do so and both the employee and the employer are on the hook. Both can be held liable if the comment or statement is false or unsubstantiated. So, if the pizza really is the best in town and you've got the studies to show it, then there's no real risk of liability. But, if an employee leaves a comment on a blog about a particular brand of laundry detergent that works wonders on grass stains, and another person reads the comment, buys the detergent, and isn't satisfied with its stain-fighting powers, there may be problems.

There is no private right of action under the FTC Act but the organization is exposed to investigation or suit by the FTC.

How to prevent potential liability

The critical take-away from the new FTC Guides is this: Employers must have a social-media policy that addresses the ways employees talk about their employers. The social-media policy should make very clear that employees are not permitted to talk about the company or its products or services unless they provide a clear disclaimer stating their affiliation with the organization.

One thing that the Guides fail to address is what constitutes a sufficient disclosure in the social-media context. The examples that are provided in the Guides are scenarios that occur in the context of television ads, when the speaker (endorser) has an opportunity to state his affiliation. This is not possible in 140 characters or less. Is it enough that the employee includes a disclaimer that states his connection to the company in his Twitter profile? Maybe. The Guides do not address this situation and don't give any guidance about how the regulations would be applied in this context.

What if the employee's profile lists a company e-mail address (i.e., Joe@BestPizza.com)? Is that enough to put the average consumer on notice of a "material connection"? Probably not. The Guides do make clear that the disclaimer has to be reasonably apparent to the average person. Asking the reader to imply from an e-mail address that a "material connection" exists is probably hoping for too much.

Until the specifics are known, employers are best advised to take a very proactive approach in order to avoid potential liability. They should include in their social-media policies a provision that specifically addresses expectations for conduct when an employee discusses the company when online. Employers should then train employees on the policy and should not turn a blind eye to a report that the policy has been violated.

The potential exposure to employers for employees' online conduct can seem overwhelming. But the reality is that Web 2.0 is here to stay. It's best to get a policy in place now, rather than wait with eyes closed and hope that the issue simply disappears.

 

Other posts on social media and its impact on employers:

Social-Media Policy Ideas

Sample Social-Media Guidelines

Social Media Is Here to Stay: Time to Start that Workplace Policy

3 Reasons Why Employers Don't Have a Social-Networking Policy

Social Media Policies: What about my "friends"?

Friends Without Borders: State Off-Duty Conduct Laws and Facebook-Friending Policies

The 3 Principles for Social Media:  How to Be a Good Online Citizen

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Follow me on Twitter at @MollyDiBi.

More Proof that Happy Employees Give Their Employers Lots of Reasons to Smile

Posted by Molly DiBiancaOn January 22, 2010In: Employee Engagement

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Fortune's Best Companies to Work For list is back. And the results are as fascinating as ever.

Software giant SAS landed top honors this year, jumping into first place from 13th in 2009. Although the top slot may be a new position for SAS, it's very familiar with the list--it's been named a "Best Company" for each of the 13 years the honor has been awarded. image

As the largest privately held software business, SAS employs more than 4,000 people in its headquarters outside Raleigh, North Carolina. The company hired 246 new employees in 2009. This statistic is notable not just because of the dismal economy and job market as a whole but also because of the company's incredibly low turn-over rate (2% compared to the industry average of 22%). For every available position, the company received 100 resumes.

The unusually high retention rate can be explained, at least in part, by the perks the company offers its employees. 100%-paid health-care, two on-site day care centers for up to 600 children, as well as summer camp, subsidized cafeterias are just some of the benefits. Google modeled its renowned program after SAS, if name dropping is of any interest. The incredible perks may help explain why the average employee takes only 2 sick days each year.

But SAS says there is another reason for the enduring dedication of its workforce--trust. Most employees set their own schedules and no one keeps tabs on who arrives first in the morning or is first to leave at the end of the day. The company explains that this feeling of trust is a result of an engrained mentality not to treat employees "like criminals."

In short, SAS's strategy of keeping workers happy has generated a fiercely strong and long-lasting sense of loyalty, which, in turn, has meant global success for the entire enterprise. More proof that a happy and engaged workforce means a fiscally healthy organization. So, what are you doing to keep your employees happy and engaged today?

What Can Employer’s Learn From Conan O’Brien’s Severance Agreement?

Posted by William W. BowserOn January 21, 2010In: Employment Contracts, Newsworthy

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It now appears the Conan and NBC saga is coming to the end. It is being reported that Conan will leave NBC with a boat load of cash and will be free to have a new show on another network in the Fall. The specific terms of the deal have not yet been released, but they will definitely be detailed in a contract between Conan and NBC. Such a contract, often called a severance agreement, is used in high risk terminations as a means of avoiding costly and distracting litigation.

The key elements of a severance agreement include:contractguy

  • A provision detailing the nature of the separation. Employees usually want it characterized as a resignation. This allows the employee to search for new work without the stigma of a termination on his or her record. This provision should, of course, describe the last day of work.
  • A discussion of how much money is going to be paid to the employee and how it is going to be paid. This is obviously a key provision for both the employee and employer. While it is unlikely that an employee will be receiving $33 million like Conan, it is likely that some payment will be made. Such a payment may be in a lump sum or paid on some schedule agreed to by the parties.
  • A release of all claims the employees may have against the employer. This release must be broad enough to ensure that the settlement is truly the end of the matter. As a result, it should be drafted in a way that covers all entities and people who may be the target of a lawsuit. It should also cover any particular state or federal statute or claim that can be brought by an employee against a former employer. Special care must be given when drafting a release involving a claim under the Age Discrimination in Employment Act (ADEA). A federal law, the Older Workers Benefits Protection Act (OWBPA), requires that the employee: be provided notice that ADEA claims are being released ; allowed at least 21 days to consider the release; be given 7 days to rescind the release; and be advised that they should consult an attorney.
  • A provision detailing payments for any accrued but unused sick or vacation pay.
  • Provisions detailing the treatment of confidential and proprietary information. It is crucial that the obligations of the employee be spelled in a way that both parties know what is expected of them. For example, it is reported that Conan will be required to leave behind the various characters he and his team developed through their years at NBC. All employees should be required to return any company papers, computers, and the like.
  • Terms describing when and how the departing employee can compete with his old employer. Key employees, like Conan, often have an employment agreement containing a restrictive covenant limiting their ability to work in the future. The scope of such a covenant is often modified during the negotiations involving the employee’s departure. In Conan’s case it appears that he will be able to launch a new show sometime in September. You can bet, however, that there was a lot of discussion over what Conan could do in the interim.
  • A term discussing whether the employer will oppose the employee’s unemployment compensation claim
  • A discussion as to whether the employer will continue the employee’s health care coverage and for how long. Such continuation may be for a number of months or until the employee obtains new coverage from an new employer.
  • A discussion of how the employer will respond to requests for references from potential new employers. Consideration should be given requiring the employee to direct all such inquiries to a specific person who will respond in an agreed upon way.
  • The agreement should require that the terms of the agreement remain confidential or, at a minimum, provide what will be provided to the press or public. Such a provision is especially important in high profile terminations in which each party will need to “save face.”

To catch up on the Conan/NBC saga, see my previous posts, Why NBC Should Have Used Delaware Law In Conan O’Brien’s Employment Contract, and What Can Employers Learn From Conan O’Brien and NBC?

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Blogging Towards a More Productive Workday

Posted by Molly DiBiancaOn January 15, 2010In: YCST

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Just a short announcement that I’ve started a second blog, which is now live, called Going Paperless.  There, I’ll be posting about the ways we can put technology to use for improved productivity and efficiency at work.  There are so many times that I come across helpful tips or tutorials but, until now, haven’t had a forum through which I could share them.  Some of the content will be legal-centric, with an eye to productivity for lawyers and legal professionals, but most of the tips will be equally applicable for anyone who wants to make work easier. 

I hope you’ll join me in the exciting conversation at my new blog.  And, of course, you can keep up to speed on what’s happening at Going Paperless and at DELB via my Twitter feed by following me at @MollyDiBi.