Delaware Employment Law Blog

Employees who sign noncompete agreements promise not to compete with their then employer for a certain period of time after termination.  This means that the employee cannot compete directly, by soliciting customers of the employer or unfairly, by using information, knowledge, or contacts obtained by the employee during this employment in a way that would harm the employer after the relationship ends.

Litigation of noncompete agreements can be very costly.  At the same time, though, such litigation is often necessary to protect the vital interests of the business.  Another problem with litigating a noncompete agreement is the difficulty in proving the breach.  The former employer may suspect that the employee has taken vital information in violation of his agreement, but this may be very difficult to actually prove. 

Developments in the world of computer forensics is making this difficulty less and less of an issue.  Thanks to this branch of science, employers are able to determine whether certain information has been improperly accessed, copied, or even deleted. 

The courts in Delaware have a long relationship with noncompete agreements.  Delaware, considered by many as a "pro-business" state, has a history of enforcing reasonable noncompetition and nonsolicitation agreements.  The standards for determining enforceability are largely the same as those used by other states' courts with one exception.

In most states, the law requires some form of consideration for the agreement other than continued employment.  In short, in most states, an employer who approaches a current employee and says, "Sign this noncompete agreement or you're fired" will not have any luck enforcing that agreement.  Instead, those states require the employer to offer some additional form of consideration.  This can be satisfied by presenting the noncompete agreement at the time of hire--i.e., we'll give you a job if you give us your promise not to compete when you leave--or by a promotion, raise, or just plain cash.  The logic is sound--an employee who will be offered a promotion to a higher level position with higher level access to sensitive information can be required to promise not to abuse that access.  If an employer doesn't offer "something for something," as the saying goes, the agreement, like any other contract, will not be enforceable by the courts.

Except, that is, in Delaware.  In Delaware, and especially in the Delaware Court of Chancery, one of the few equitable courts in the entire country, there is no need for any "additional" consideration.  In Delaware, the simple promise of continued employment is sufficient.  And by "continued employment," we do not mean an employment contract or a promise to employee the individual for any given period of time.

Instead, because Delaware is an "at-will" state, where an employer can fire an employee at any time for any (lawful) reason, or for no reason at all, the mere fact that the employer promises not to terminate the employee at that minute is enough consideration.  So, if you are an employee in the First State of Delaware, and your Delaware employer comes up to you and says, "Sign here or you're fired," don't assume that the employer is totally off-base.  Although this might be the case in most states, in Delaware, it's just not so. 

Delaware's General Assembly put to rest several bills that would have had substantial negative impact on the State's employers.  The 144th General Assembly concluded on June 30th without having passed several controversial pieces of legislation.  Here are the highlights:

Independent Contractors 

Perhaps the most controversial bill that died on June 30 was House Bill 468. This bill, called the Construction Industry Independent Contractor Act would have imposed substantial penalties on contractors who improperly classify their employees, including fines, terms of imprisonment, and loss of business licenses. A previous blog post discusses this bill in greater detail, see Construction-Industry Employers Should Be Aware of Proposed Legislation

 

Sexual-Orientation Discrimination

A bill prohibiting discrimination based on sexual orientation in employment as well as housing, public works contracting, public accommodations, and insurance and grants was shot down again. Senate Bill 144 was the just latest attempt to expand the anti-discrimination laws to include sexual orientation.   Although this bill was defeated, it is sure to be resurrected in the next General Assembly, just as it has for the last nine years.

 

Elimination of Employment At-Will

Another perennial loser, a bill eliminating the employment at-will doctrine, was again sent to its grave. House Bill 327 never got out of committee.

 

Minimum Wage Bills

Finally, two bills that would have increased the minimum wage expired on June 30. Senate Bill 204 would have increased the minimum wage from $7.15 per hour to $7.75 per hour effective March 1, 2009, and from $7.75 per hour to $8.25 per hour effective March 1, 2010. If passed, Delaware's minimum wage would have been the highest in the nation.

And, Senate Bill 280  would have increased the minimum wage for "tipped" employees on January 1 of each year through 2012.  The rate would have increased from the current $2.23 per hour to $2.51 per hour on January 1, 2009; to $2.86 per hour on January 1, 2010; to $3.32 per hour on January 1, 2011; and to$3.57 per hour on January 1, 2012.  The minimum wage for “tipped” employees has been $2.23 per hour since 1987.

Delaware Governor Ruth Ann Minner's recent judicial nomination triggered an avalanche of employment-law issues.  The man she'd nominated as a Delaware Family Court Commissioner was convicted of selling cocaine to an undercover officer when he was 17 years old. Since then, he'd led an honorable life, going to college, then law school, and, most recently, holding the position of deputy counsel to the Governor. But the state legislators raised questions about whether his criminal record prevented him from sitting on the bench.

The Governor asked the Delaware Supreme Court to issue an opinion answering this question.  The current law states that persons cannot hold state office if convicted of an "infamous crime."  The term has never been defined. 

The state Supreme Court held that the offense, which was committed as a juvenile, should be treated as a "civil delinquency, not [a] crime at all," and certainly not as an "infamous crime."

The juvenile conviction was pardoned in 1999 shortly before he was admitted to practice law in Delaware and New Jersey.  Since then, he has worked as a deputy attorney general and a defender prior to working as legal counsel for the Governor.   His community contributions include being a member of the Metropolitan Wilmington Urban League, and serving in positions on the Delaware Law Related Education Center and the Delaware State Bar Association's Committee on Professional Ethics.

This story serves as an excellent example of the seriousness with which employers should consider an applicant's criminal history.  Employers who do conduct background checks that include criminal records should not presume that a conviction is an automatic bar to employment.  In accordance with EEOC Guidelines, the candidate should be given a full and fair opportunity to explain the conditions of the crime and conviction, as well as how he or she has contributed to the community and society at large as factors for employment. 

See full coverage of this story by Esteban Parra at the Wilmington News Journal's website.

Another important source of information is the EEOC's Fact Sheet on Employment Tests and Screening, which addresses Criminal Background Checks.

Employers should be aware of several employment and labor law initiatives in the state and federal legislatures.  Congress currently is considering the Employee Free Choice Act (EFCA), and the RESPECT Act, for starters. And the Construction Industry Independent Contractor Act, which was quietly passed by the Delaware and Pennsylvania Houses poses serious risks to employers in the construction trade.

Employee Free Choice Act

The EFCA could be a silent killer.  It has managed to keep a very low profile during its months-long visit to Capital Hill.  In short, it would eliminate the secret-ballot vote and would require employers to recognize a labor union without an election.  The long-unchanged law currently requires employers to choose between recognizing the union and a secret-ballot election if more than 50% of employees in a bargaining unit sign a union authorization card. 

If passed, the EFCA would change this procedure entirely.  Employers would have to recognize the labor union immediately if more than half of the workforce signs union cards.  And, to make it worse, there's not much an employer can do about it.  Union campaigns can be fully underway before the employer even learns about it.  And interference in card-gathering activities would subject the employer to civil penalties.

RESPECT Act

The unfortunately named RESPECT Act poses another labor-related threat to employers in the construction industry.  The "Re-Empowerment of Skilled and Professional Employees and Construction Tradeworkers Act" would amend the National Labor Relations Act (NLRA) by redefining the definition of "supervisor."  If passed, the RESPECT Act would eliminate the current requirement to obtain supervisor-classification that the employee must posses the authority to assign work to others and to responsibly direct employees.  Instead, the definition of supervisor would be much more difficult to satisfy.  The proposed definition would require the employee to exercise authority over employees for a majority of his or her working time.

There is a giant leap from possessing authority and exercising that authority for a majority of working time. 

We've posted about the state-level initiatives that would criminalize misclassification of employees as independent contractors that have passed the House both in Delaware and in Pennsylvania.  It may be that the definition of "independent contractor" becomes key in avoiding a criminal conviction.  The EEOC provides a non-exclusive list of 17 factors, as well as examples of the factors in use, for use in making that determination.

Helpful Resources

Kris Dunn at The HR Capitalist has a persuasive post about the Employee Free Choice Act and the potential catastrophe it could cause if passed.

The American Nurses Association, which is very pro-RESPECT Act, has a current list of the legislators who support the bill--check to see if your state's legislator is one of the them.  If he or she is on the list, put pen to paper and tell your elected officials what you and the entire industry stand to lose if the RESPECT Act is passed.

Delaware employers who've not heard of "The Construction Industry Independent Contractor Act" should pay close attention to this post.  Every business with employees working in Delaware should be aware of this bill, HB 468, introduced yesterday in the Delaware General Assembly, and the many repercussions it could cause. 

Proposed Bill Would Target Delaware Employers in the Construction Industry

 

"The Construction Industry Independent Contractors Act,” apparently is on the fast track for approval at the state legislative level.  Although its name indicates that it reaches construction-industry employers, the proposed bill has potential implications for all employers.

In short, the bill purports to penalize employers who improperly classify construction employees as independent contractors.

In essence, it provides that all construction industry workers are “deemed to be” employees unless:

1. the workers are “free from control or direction;”
2. the work is “outside” the employer’s usual business; and
3. the person is “customarily engaged in an independently established trade, occupation, profession, or business."

 

Employers Could Face Jail Time for Misclassification

 

An employer who fails to “properly classify” a person as an employee, even unwittingly, is subject to fines and imprisonment for up to 90 days. If done knowingly, the fine can be as much as $10,000 and the prison term as much as 6 months. In addition, the Secretary of Labor can impose administrative penalties, debar the employer from state projects, and even require the employer to cease operations.  And as if those measures aren't enough, an individual who claims to be the victim of misclassification, or his or her union, can bring a civil action for damages, including a class action.

This draconian legislation, if enacted, would expose construction industry employers to financial ruin. Class action lawsuits are invited, and the language is constructed in such a way that virtually every person who works on a construction project would be viewed as an employee.

 

The Potential Consequences of the Independent Contractors Act

 

But why stop with construction employers? The same rationale would seem to be applicable generally to employers, so the next step would seem to be to expand the scope of the legislation to cover all employers. Interested businesses and business associations beware – this bill must be stopped!

The full text of the bill can be seen at the Delaware General Assembly website.

Wilmington City Council has passed legislation clarifying and updating Wilmington’s Earned Income Tax code, commonly referred to as the City’s "wage tax." This is the first major amendment to the Earned Income Tax code in almost 40 years.

The new amendments include:

• taxpayer protest procedures;
• jeopardy assessments (the right of the City to demand immediate payment if collection of a tax would be jeopardized by a delay);
• accuracy related penalties (authorizing the City to assess a 25% penalty for substantial underpayment or underreporting of tax); and
• safe harbor provisions for armed forces personnel actively serving in military combat zones.

Wilmington, the cultural and financial hub of Delaware's New Castle County, has made collection of the wage tax a priority in recent years. Since January of 2006, the City has performed over 3,000 wage tax audits and collected more than $5.5 million in unpaid wage tax. According to City Finance Director Ron Morris, Wilmington expects to conduct approximately 12,000 tax audits over the next few years and add $2.1 million in new revenue in Fiscal Year 09 alone.

The wage tax is currently set at 1.25%.

Any person who works in the City of Wilmington or conducts business in the City from which he derives wages or business income, is subject to the City’s Earned Income Tax, regardless of whether he lives inside the City.

In addition, all residents of the City of Wilmington are subject to the wage tax. City residents must pay the tax on all earned income (whether derived from wages or business income) regardless of where residents work.

More information about the wage tax is available online at www.WilmingtonDE.gov. or by calling the City of Wilmington Finance Department, Earned Income Division, (302) 576-2418.

Delaware Employment Law Letter editors, William Bowser, Scott Holt, and Adria Martinelli are in beautiful Charleston, SC representing Young Conaway at the annual meeting of the Employers Counsel Network. The ECN is comprised of top employment law firms for all 50 states and Canada.

ECN membership ensures that Young Conaway is able to provide the highest level of service in jurisdictions beyond Delaware. A list of ECN firms is available here.

One particularly interesting presentation at the meeting was made by Lillian Romano of VisuaLex, LLC, who spoke about the use of technology in the courtroom. Proper use of technology to communicate to jurors is essential to trial success. Lillian's tips and tricks were very helpful.

Employers, do you know what to do if your employees' confidential data is stolen or lost? There are ways employers can prepare to act quickly and effectively in the event of a data security breach. Delaware employers in particular have a wealth of resources made available by the State. But don't wait until it's too late to learn about the necessary steps to take to help your employees in a time of crisis as well as to protect against liability. 

 

Notify Your Employees Immediately

Once you learn that there has been a potential data breach, you should notify every potentially affected employee.  Do so immediately.  Every minute counts when this confidential information has been obtained by someone with the wrong intentions.

Exactly how you give notice may differ based on the state where your business is located.  Delaware employers are guided by a state law, the Delaware Credit and Identity Theft Protection Act.  The Act instructs employers to provide written notice to employees that the security of their data may have been breached.  The Act also contains sample language for the notice.  In essence, the Act explains that employees should consider placing a "security freeze" on their credit report.

A security freeze is a permanent hold on your credit information. It costs nothing to have the security freeze put in place and it takes no more than three days from the time of the request. 

If someone wants to use your credit to get a loan, extend a line of credit, or finance a big purchase, the lender will need to contact a credit reporting agency to determine your credit rating.  If a freeze is in place, no information will be provided.  But you will be alerted and can, in turn, alert the authorities. 

And unlike a fraud alert, a security freeze will stay in place until you ask to have it removed permanently or lifted temporarily.

Monitor Your Credit Report

Another important step to take is to request a copy of your credit report and continue to do so periodically and cautiously monitor it for any inaccuracies.  By law, Delaware residents are entitled to one free credit per year from each of the three credit agencies.  The website that has been created for this purpose is www.annualcreditreport.com.  Or you can download the free credit request form (pdf) and mail the completed copy to:  Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA   30348-5281.

There is no penalty for Delaware residents who request their credit report or who put a security freeze on their credit.

Delaware Employers Should Utilize the Resources Offered by the State

Employers should know that the State of Delaware also offers several helpful resources.  It's a great idea to order some of these now to have on hand in the event that a theft does occur.  The new brochure, "Identity Theft Hurts"  has answers to many of the questions residents have about credit reports including what is in your credit report and what to do if you find an error in your credit report. The brochure also covers the issue of identity theft and steps you must take if you are a victim of identity theft.

The Office of the State Bank Commissioner also distributes a new brochure from the Federal Trade Commission entitled Stop Think and Click (also available as Stop Think and Click in Spanish), which highlights seven practices for safe computing.  The brochure also focuses on a new web site called onguardonline.gov, which provides practical tips from the federal government and the technology industry to help you be on guard against internet fraud.  The Office of the State Bank Commissioner recently released links to the top five web sites consumers can use to fight identity theft. 

The Office is partnering with the Delaware Money School and has scheduled over a dozen meetings in the spring of 2006 across the state on identity theft and free credit reports. Residents can register on line or call the money school for information about how to set up a presentation in your neighborhood or school.

Congratulations to the State of Delaware for winning the 2008 National Association of State Personnel Executives (NASPE) Eugene H. Rooney Jr. Award for its DelaWELL program.

DelaWELL is the State government's comprehensive health-management program for all full-time state, school district, charter school, and higher-education employees and pre-65 retirees. Spouses and dependents over the age of 18 who are covered under the state group health plan are eligible also.

DelaWELL encourages participants to live a healthy lifestyle as a way of controlling health-care costs. The program offerings are quite impressive:

• Confidential, online or paper-based Health Risk Assessment
• Onsite Biometric Health Screenings to include blood pressure, cholesterol, and glucose testing with review of personal results with a Health Coach
• Weight Watchers® offerings to assist employees in their weight management efforts
• Cardio Health Assessments available to employees only, first-come basis, 600 slots available
• Personalized Lifestyle & Disease Management Coaching Programs- delivery options include phone based, mail and online programs.
• Online Health Resources (Health and Safety Education Centers, Self-Care Resources, Wellness Library, Drug Database, Health Quizzes and Calculators, Recipes, Daily Health News, Quarterly Newsletter and Much More)
• Onsite Health Seminars, Events & Activities
• Health Education Campaigns/Communications/Incentives
• Unlimited Access to a HelpLine

Delaware will receive the award during the awards banquet on Tuesday evening, July 15, during NASPE's 2008 annual meeting. in Oklahoma City.

Information on the DelaWELL is available here.

[H/T to the Capital Comment Blog]

For previous posts on Wellness at Work, use this link.

Yesterday four members of the Supreme Court had to recuse themselves from a case, and as a result, no decision could be made. Apparently the Justices have not heard of the “rule of necessity.” That rule of thumb says, in essence, that if a court is unable to decide a case because the justices have conflicts, it is more equitable to have a judge with a conflict rule on the case, rather than leaving it undecided. A Supreme Court Justice should be able to render an objective decision even though he or she has some stock in one of the litigants. While not the optimum situation, that is far preferable to saying to the adversaries that the lower court decision is unreviewable.

Racial discrimination comes in many forms and, following a recent opinion from the Second Circuit, discrimination due to an employee's interracial relationship is one of them.

 

Employment discrimination laws prohibit employers from making decisions based on race, gender, religion, disability, and certain other characteristics.  Since the passage of the Civil Rights Act of 1964, these laws have addressed discrimination based on the characteristic of the employee.  But lately there has been an increase in cases of "associational discrimination." 

Associational Discrimination 101

In this new genre of discrimination law, the focus is not on the characteristic of the employee, but on a person or persons with whom the employee associates.  In other words, let's say that your parents were Jewish and all of their friends were Jewish but you had converted to were Christianity in college. 

And let's say that your employer fired you--not because he thought you were Jewish, but because of your association with your Jewish friends and family.  That is an example of associational discrimination.  The discrimination stemmed not from your religion but from the religion of the people with whom you associate. 

A recent case from the Second Circuit--the first of its kind--held that associational violation occurs when an employee is fired for his interracial marriage.

Holcomb v. Iona College (2nd Cir.)

Facts of the Case

The case is Holcomb v. Iona College, decided on April 1.  Holcomb was a basketball coach at Iona College in New York. He claimed that a college official, Brennan, tried to prevent Holcom's wife, who was Black, from attending public alumni functions , and that Brennan had made racially derogatory comments about some of the Black players. 

Another college official, Petriccone, also made offensive racial comments about Black players in the basketball program.  As the Second Circuit put it, "Colleagues at Iona testified to Petriccione’s record of what might, charitably, be called racial insensitivity. Egregiously in this respect, Petriccione is said to have referred to a Nigerian employee at the Alumni Giving Office as a 'jungle bunny' and an 'African princess.'  When that member of staff applied to his office for the position of Assistant Director of Annual Giving, he remarked:  '[W]hat does she think she is coming from a hut in Africa and thinking she could apply for this job?'”

In addition, when Petriccione found out that Holcomb was marrying an African-American woman, he allegedly made a comment so offensive comments that it won't be posted here. 

Iona College eventually fired Holcomb, explaining that his termination had to do with his poor job performance. After the district court granted summary judgment to the college,the Second Circuit remanded on appeal.

The Court's Decision

The court's discussion set forth the associational-discrimination analysis. Here is the play-by-play:

1. Protected Class. The Court held that Holcomb was a member of a "protected class" under Title VII.  Although Holcomb was not Black, his wife was, and there was evidence that his interracial marriage was the reason for his termination. 
2. Interracial Association.  The Court reasoned that, "where an employee is subjected to an adverse action because an employer disapproves of interracial association, the employee suffers discrimination because of the employee’s own race." All the district judges in this circuit to consider the question, including the district court in this case, have reached that conclusion."
3.  Pretext Evidence.  As noted above, there was plenty of evidence from which the Court could conclude that the reasons given for Holcomb's termination were a mere pretext for race-based discrimination.  Another piece of evidence to support Holcomb's claim was that O'Driscoll, the white staff member who replaced Holcomb, was the only white member of the staff without a Black girlfriend or wife. 

Recap

This decision from the Second Circuit does not necessarily address a novel issue of law.  Associational discrimination had previously been addressed by district courts within the Circuit.  But the clarity of the Court's opinion in Holcomb very clearly sets the groundwork for similar future claims.

Some recent reports about law firms trying to persuade associates to dress better, and even hiring coaches for them, are a reminder that the pendulum seems to have swung back from the days when even old timers were “dressing down” to try and “connect” with the wealthy young techie entrepreneurs.

I, for one, am pleased to see a move toward more moderate dress.

There has been silliness on both sides of the continuum. Some years ago, the Delaware Supreme Court, in its infinite wisdom, issued an edict that lawyers appearing before it had to wear white shirts. So much for sartorial creativity.

But if I were seeing a lawyer, I’d feel more confident if he or she were wearing a white shirt than jeans or running pants. While I don’t think we need to force associates to pore over “Dress For Success,” I think that dressing up a bit is a step in the right direction, both for the lawyer’s self-image and the clients’ confidence in the attorney. Maybe ties can be optional, especially in the summer, but there’s nothing like a suit or at least a sport jacket to establish a tone of authority (deserved or not).