The Ban on Non-Compete Agreements Amendment Act of 2020 (the “Act”) passed by the D.C. Council over the summer will take effect on October 1, 2022, imposing new substantive and procedural restrictions on D.C. employers’ use of noncompetes, new compensation thresholds below which such noncompetes are now banned, and creating new administrative and civil enforcement measures, including administrative penalties for noncompliance.
The New Law in a Nutshell
The Act defines “noncompete provision” as “a provision in a written agreement or a workplace policy that prohibits an employee from performing work for another for pay or from operating the employee’s own business.” Consequently, the law covers both agreements containing noncompetes and workplace policies restricting employee’s competitive or outside activities, subject to several exceptions summarized below.
Most notably, the Act imposes two new income thresholds for “noncompete provisions” with “highly compensated employees”—those who earn at least $150,000—and “medical specialists”—licensed physicians earning at least $250,000. Both thresholds are subject to adjustments in accordance with increases in the Consumer Price Index beginning in 2024, and any “noncompete provisions” with employees below those levels are effectively banned by the Act.
The Act clarifies that wages, salary, bonuses or other cash incentives, commissions, overtime premiums, vested stock and restricted stock units, and other payments provided on a regular or irregular basis may all be included in determining who qualifies as a “highly compensated employee.” The Act excludes the value of noncash fringe benefits, but because it does not define “fringe benefits,” there is uncertainty as to what noncash benefits may constitute “other payments provided on a regular or irregular basis.”
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As our team has previously reported, California currently requires private employers with 100 or more employees, and who are required to file an annual EEO-1 report, to submit certain employee pay data to the state’s Civil Rights Department, formerly known as the Department of Fair Employment and Housing (“DFEH”), including pay data on the number of employees by race, ethnicity, and sex, in each of the 10 EEO-1 specified job categories.
As pay transparency rules continue to sweep the nation, the California legislature—never to be outdone—has passed its own amendments which will significantly expand employers’ current pay data reporting requirements and wage range disclosure obligations. The newly passed bill, “SB 1162,” is currently sitting on Governor Newsom’s desk for signature (or veto). With a potential compliance date of May 10, 2023 (and reporting due each year thereafter on or before the “second Wednesday of May”), Golden State employers are advised to take inventory now of additional steps they need to take in order to adequately prepare for and timely comply with SB 1162, including:
Gathering median and mean hourly rate data for specific job categories, further categorized by their race, ethnicity, and sex;
For employers with multiple establishments, preparing a separate pay data report for each establishment, doing away with the current requirement of a consolidated report;
Gathering pay scale information by position, which would need to be provided to applicants and current employees upon request;
For employers with 15 or more employees, preparing pay scale information to be added to current job postings and shared in any new job postings, including postings by third parties (not just upon request); and
For employers with 100 or more employees hired through labor contractors, submitting a separate pay data report for those employees, so long as one employee is in California.
If enacted, SB 1162 also allows courts to impose civil penalties “not to exceed one hundred dollars ($100) per employee upon any employer who fails to file the required report and not to exceed two hundred dollars ($200) per employee upon any employer for a subsequent failure to file the required report.”
Governor Newsom has until September 30, 2022, to sign the bill, which would trigger a January 1, 2023, effective date and have massive impacts across the state. As we learned earlier this year, an ounce of prevention is worth a pound of cure. Blank Rome’s employment team stands by ready to assist.
Florida’s Individual Freedom Act (“IFA”), also referred to as the “Stop W.O.K.E. Act,” went into effect July 1, 2022, and, among other things, amended the state’s Civil Right Act of 1992 to make it unlawful for an employer to require its employees to attend mandatory trainings or instruction that “espouses or promotes” any of the following eight prohibited concepts:
That members of one race, color, sex, or national origin are morally superior to members of another race, color, sex, or national origin.
An individual, by virtue of his or her race, color, sex, or national origin, is inherently racist, sexist, or oppressive, whether consciously or unconsciously
An individual’s moral character or status as either privileged or oppressed is necessarily determined by his or her race, color, sex, or national origin
Members of one race, color, sex, or national origin cannot and should not attempt to treat others without respect to race, color, sex, or national origin
An individual, by virtue of his or her race, color, sex, or national origin, bears responsibility for, or should be discriminated against or receive adverse treatment because of, actions committed in the past by other members of the same race, color, sex, or national origin
An individual, by virtue of his or her race, color, sex, or national origin, should be discriminated against or receive adverse treatment to achieve diversity, equity, or inclusion
An individual, by virtue of his or her race, color, sex, or national origin, bears personal responsibility for and must feel guilt, anguish, or other forms of psychological distress because of actions, in which the individual played no part, committed in the past by other members of the same race, color, sex, or national origin
Such virtues as merit, excellence, hard work, fairness, neutrality, objectivity, and racial colorblindness are racist or sexist, or were created by members of a particular race, color, sex, or national origin to oppress members of another race, color, sex, or national origin.
Last week, the United States Supreme Court issued its long-awaited decision in Viking River Cruises, Inc. v. Moriana (US 20–1573 6/15/22) (“Moriana”). The singular question presented to the Court was whether the Federal Arbitration Act (“FAA”) requires enforcement of arbitration agreements waiving an employee’s right to assert “representative” claims under California’s Private Attorneys General Act (“PAGA”). In response, the Court provided two answers: (1) wholesale waivers of an employee’s right to bring any PAGA claims in any forum will not be enforced; yet (2) arbitration agreements can require an employee to arbitrate their own individual PAGA claims, leaving the absent employees’ claims subject to dismissal.
For context, PAGA is a decades-old law that allows private citizens to step into the shoes of the Labor Commissioner, essentially turning “aggrieved” employees into bounty-hunters for the State’s Labor and Workforce Development Agency (“LWDA”). Specifically, PAGA litigants are authorized to recover civil penalties on behalf of the State for certain Labor Code violations, which would otherwise be recoverable only by the Labor Commissioner. If successful, employees receive a 25 percent share of civil penalties recovered, with the remaining 75 percent going to the LWDA. And another thing, PAGA allows for the recovery of attorneys’ fees and costs, which are often exponentially larger than the underlying civil penalties and statutory damages recovered—leaving no surprise as to why PAGA has become such a popular vehicle for plaintiffs’ attorneys.
The Internal Revenue Service (“IRS”) has announced a pilot program that begins this month in which they will send letters to employers letting them know that their retirement plan has been selected for examination.
Under this new program, employers who receive the pre-examination notice will have a 90-day window to review their retirement plan’s documents and operations to see if they meet tax law requirements and notify the IRS. Employers who don’t respond within 90 days will be contacted by the IRS to schedule an examination.
California is infamous for its hostility towards employers. On May 23, the California Supreme Court continued on its unwavering mission to solidify that well-earned reputation by issuing a 45-page decision in Naranjo et al. v. Spectrum Security Services, Inc., a case we have been closely monitoring at Blank Rome.
For context, the failure to pay wages in California triggers not only an award of those unpaid wages, but potentially steep and costly statutory and civil penalties as well, including so-called: (1) “waiting time penalties”—up to 30 days’ wages for former employees; and (2) “wage statement penalties” when the unpaid wages render the employee’s pay stub inaccurate. Wage statement penalties start at $50 for the first violation and rise to $100 for subsequent violations. When claims are brought on a classwide basis, these penalties can become astronomical, as they are all assessed on a per-employee, per-pay-period basis.
On May 10, 2022, Governor John Carney signed into law the Healthy Delaware Families Act, which will make Delaware the 11th state in the country to offer paid family leave when the law goes into effect. Starting in 2026, the new law will guarantee 12 weeks of paid parental leave and six weeks of paid medical, caregiving, and military leave to qualified employees through a new state-run paid family and medical leave social insurance program.
Under the law, eligible workers will continue to receive up to 80 percent of their average weekly wage, up to a maximum of $900 a week in 2026 and 2027, while out on a qualified leave. Like the federal Family and Medical Leave Act, the Delaware paid leave law only applies to employees who have worked at least 1,250 hours in the prior 12 months and were employed by the company for a full 12 months prior to taking paid leave.
Employees who work at companies with more than 25 employees will be eligible for the paid parental, medical, military, and caregiver leave. Employees at smaller companies, those who employ between 10 and 24 employees, will be eligible for the 12 weeks of paid parental leave only. Companies who employ fewer than 10 employees are not required to participate in the paid leave program but can voluntarily join the program. Additionally, the law permits businesses to opt out of the social insurance program, if they have an established paid leave program that offers comparable benefits.
The paid leave benefits will be funded by a new 0.8 percent payroll tax on employers beginning in 2025. This 0.8 percent payroll tax is broken down as follows: 0.4 percent for personal medical leave, 0.32 percent for parental leave, and 0.08 percent for caregiver and military leave. Employers can pay the full payroll tax themselves or can deduct up to half of the tax contribution from each covered employee’s paycheck. For example, the full payroll tax for $1,000,000 of annual payroll would be $8,000. If an employer chooses to split the paid leave payroll tax with its employees, an employee earning $50,000 a year will pay $200 per year into the social insurance program.
As previewed in our April 5, 2022, client alert (New York Employers, Take Note! Two New Laws Effective in May | Blank Rome LLP), New York City has rolled back to November 1, 2022, the effective date of its amendment to the New York City Human Rights Law (“NYCHRL”) that will require the City’s private employers to provide a minimum and maximum salary range for jobs when advertising employment opportunities.
The City delayed the effective date in order to give employers a six-month extension of time to come into compliance. The amendment will require employers that are advertising job openings for positions performed in New York City to include the salary range (both a minimum and maximum amount) being offered for the position in the advertisement.
New York businesses face not one, but two new laws which significantly impact employers and take effect next month. The first requires employers in New York City to provide salary ranges when advertising employment opportunities (effective May 15, 2022). The second mandates that New York employers provide prior notice and posting if they intend to monitor employee telephone, e-mail, or Internet usage (effective May 7, 2022). Read below for important summaries of the new laws and their impact on your business.