D.C. Moves Back Applicability Date of New Non-Compete Law

Daniel L. Morgan and Kevin M. Passerini

Earlier this year, Washington, D.C.’s mayor signed legislation, the “Ban on Non-Compete Agreements Amendment Act of 2020” (the “Act”), which imposes sweeping limitations on during-employment and post-employment non-compete agreements for employees in the District of Columbia. We previously reported on this legislation.           

Although the Act stated that it was to take effect following its publication in the District of Columbia Register, it also included the following provision: “This act shall apply upon the date of inclusion of its fiscal effect in an approved budget and financial plan.”

In other words, notwithstanding the Act’s definition of an earlier effective date, the Act was not slated to go into effect until the date it was included in D.C.’s 2022 budget—referred to as the “applicability date”—which most expected to occur by October 1, 2021. Shortly after passage, there were rumblings that Council members were considering amendments to the law—ranging from, among other things, a delay in the applicability date to exemptions for bona fide conflict of interest policies to income thresholds for the ban on non-competes, as opposed to an outright ban.

On August 10, 2021, the D.C. Council approved a budget—signed by D.C.’s mayor on August 23, 2021—that delays the applicability date of the Act until April 1, 2022. This postponement is significant because the Act’s limitations on non-competes is not retroactive, which provides employers with more time to continue to enter into non-compete agreements that satisfy the existing standards for determining the enforceability of non-compete restrictions rather than the far more limiting standards included in the Act.

Time will tell whether any substantive amendments materialize and modify the Act’s limitations prior to April 1, 2022.

Delaware Court Preserves McDonald’s Right to Seek Clawback of Ex-CEO’s Severance Benefits

Daniel L. Morgan

A recent decision by the Delaware Chancery Court in the clawback litigation between McDonald’s Corporation and its former CEO highlights the meaning and impact of a common contractual provision: the “integration clause.” Such provisions (sometimes also called “entire agreement” clauses) state that the contract at issue embodies the entire agreement of the parties and supersedes all prior agreements and understandings between them. The Delaware court rebuffed an effort by the former CEO to argue that the integration clause in his separation agreement precludes McDonald’s from asserting that the CEO’s false statements made while negotiating that agreement provide a basis for seeking repayment of severance benefits he received. The court’s opinion lays out the requirements that a contract must satisfy in order to prevent a party from using the other party’s deceptive or fraudulent statements made prior to entering the contract to seek repayment of the consideration provided. The case is McDonald’s Corporation v. Stephen J. Easterbrook.

Background of the McDonald’s Litigation

In 2019, McDonald’s Corporation parted company with its then-CEO, Stephen Easterbrook, finding that he had engaged in an inappropriate relationship with an employee. McDonald’s and Mr. Easterbrook negotiated and entered into an agreement that treated his separation as “without cause” and paid him significant severance benefits. Several months after Mr. Easterbrook’s departure, additional improprieties were brought to the attention of McDonald’s Board, resulting in McDonald’s filing a lawsuit to claw back the severance benefits previously paid. McDonald’s argues that it would not have agreed to the terms of the separation agreement if Mr. Easterbrook had not covered up the extent of his indiscretions.

Continue reading “Delaware Court Preserves McDonald’s Right to Seek Clawback of Ex-CEO’s Severance Benefits”

D.C. Mayor Signs Non-Compete Ban, Dramatically Alters Competitive Landscape

Kevin M. Passerini and Daniel L. Morgan

Late in December 2020, the District of Columbia Council passed legislation titled, “Ban on Non-Compete Agreements Amendment Act of 2020” (the “Act”), barring the use of non-compete agreements and workplace policies that restrict D.C. employees from competing with their employers after, and even during, employment. This week, the Mayor signed the law. Barring an unlikely intervention by Congress (which has authority to review legislation passed by the D.C. Council), the law will take effect after the 30-day Congressional review period.

This Act follows a recent, growing trend to limit the use of non-competes, but it goes further than other recent legislative efforts: it applies to employees at all income levels and even bars the use of “during-employment” non-competes and workplace policies such as those aimed at preventing disloyalty and abuse of company resources. Several key areas warrant emphasis.

Ban Applies to Employees Performing Work in D.C. for Employers that Operate in D.C.

The Act applies to “employees,” defined as any “individual who performs work in the [District of Columbia] on behalf of an employer and any prospective employee who an employer reasonably anticipates will perform work on behalf of the employer in the [District of Columbia].” The term “employer” is defined as “an individual, partnership, general contractor, subcontractor, association, corporation, or business trust operating in the District, or any person or group of persons acting directly or indirectly in the interest of an employer operating in the District in relation to an employee, including a prospective employer.”

Continue reading “D.C. Mayor Signs Non-Compete Ban, Dramatically Alters Competitive Landscape”

Some Highlights from the Recently Enacted SECURE Act, Part 4

Daniel L. Morgan

The final installment of this blog series discussing changes made by the Setting Every Community Up for Retirement Enhancement Act of 2020 (“the SECURE Act”) focuses on modifications to the required minimum distributions rules (“RMDs”).

Two of the most widely reported changes made by the SECURE Act relate to the requirements in the Tax Code that require individuals to receive annual RMDs.

72 Is the New 70½

The tax law generally requires people to begin receiving distributions from employer retirement plans and individual retirement accounts (“IRAs”) by the April 1st following the year in which they reach age 70½.[1] Under the SECURE Act, effective for people who attain age 70½ after December 31, 2019, age 70½ is replaced with age 72. Continue reading “Some Highlights from the Recently Enacted SECURE Act, Part 4”

Some Highlights from the Recently Enacted SECURE Act, Part 3

Daniel L. Morgan

This third installment of summaries of some of the key provisions of the Setting Every Community Up for Retirement Enhancement Act of 2020 (“the SECURE Act”) discusses an extension of the date for adopting a new employer retirement plan.

Under prior law, an employer that wanted to deduct a contribution to a tax-qualified retirement plan for a tax year had to adopt the plan by the last day of the year, but had up until the due date of the tax return for the year, including extensions, to make the contribution.

Effective for tax years beginning after December 31, 2019, the SECURE Act allows an employer to adopt a tax-qualified retirement plan for a tax year up until the due date, including extensions, of the tax return for the year. Continue reading “Some Highlights from the Recently Enacted SECURE Act, Part 3”

Some Highlights from the Recently Enacted SECURE Act, Part 2

Daniel L. Morgan

In this second of a four-part series providing an overview of some key provisions of the Setting Every Community Up for Retirement Enhancement (“SECURE”) Act of 2019, I summarize the Act’s liberalization of the 401(k) plan nondiscrimination testing safe harbors and the Act’s effort to make it easier for employers to offer annuity payments as a distribution option under 401(k) plans. I also discuss why the changes made by the Act do not go nearly far enough to remove the legal and regulatory barriers that discourage 401(k) plans from offering annuity payments.

Easing of 401(k) Safe Harbor Requirements

An employer can avoid the Internal Revenue Service (“IRS”) nondiscrimination test applicable to elective contributions to a 401(k) plan by satisfying safe harbor requirements that include making a matching contribution or a matching contribution to the plan.

The SECURE Act increases employer flexibility in using these safe harbors, in several respects. Continue reading “Some Highlights from the Recently Enacted SECURE Act, Part 2”

Some Highlights from the Recently Enacted SECURE Act

Daniel L. Morgan

One of the spending bills signed by President Trump to avert a government shutdown late last year had attached to it the Setting Every Community Up for Retirement Enhancement Act of 2019, or as it’s known by its acronym, the SECURE Act.

The SECURE Act, which passed the House on May 23, 2019, but languished in the Senate, has important implications for retirement savings.

In a series of four posts, I will provide an overview of a few of the more noteworthy features of the legislation. In this first post, I examine the creation of a new rule requiring 401(k) plans to cover long-term part-time workers. A subsequent post will discuss other changes impacting 401(k) plans, including liberalizations of the safe harbors that allow a 401(k) plan to bypass contribution nondiscrimination testing, and a provision that seeks to encourage the inclusion of annuity payments as a form of 401(k) plan distribution. Another will describe an extension of the time limit on adopting a new retirement plan, to make it effective for a tax year, and the fourth post will discuss the changes made by the Act to the required minimum distribution rules applicable to retirement plans and IRAs. Continue reading “Some Highlights from the Recently Enacted SECURE Act”

No New York Employee Wage Liens—Yet!

Stephen E. Tisman

In July, we reported that the New York State Legislature had passed a bill that could substantially alter the legal landscape of wage disputes by allowing employees with wage claims to file liens against their employers’ assets in the amount of the claim. The lien could be filed without any court order or determination of probable liability. The bill further permitted attachments of the employer’s property and would have expanded the personal liability of the 10 largest shareholders of non-public companies by making them liable not only for wages, but also for interest, penalties, liquidated damages, attorneys’ fees, and costs.

On January 1, 2020, anxious employers got a reprieve—albeit a temporary one—when Governor Cuomo vetoed the legislation. Continue reading “No New York Employee Wage Liens—Yet!”

Salary History Ban Spreads—New Jersey and New York Jump on Board!

Alix L. Udelson

New Jersey and New York are the latest states to prohibit employers from asking job applicants about their pay history and considering pay information in making employment decisions.

New Jersey

In New Jersey, effective January 1, 2020, private employers cannot screen applicants based on their pay history. Employers also cannot require an applicant’s salary history satisfy a certain minimum or maximum criteria. Employers may not consider an applicant’s refusal to provide compensation information in making an employment decision.

There are several noteworthy exceptions and limitations to this law. Continue reading “Salary History Ban Spreads—New Jersey and New York Jump on Board!”

Hiring in New Jersey? Salary History Ban Sprouts in Garden State

Thomas J. Szymanski

Effective January 1, 2020, private employers in New Jersey are prohibited from asking job applicants about their salary, wage, and benefit history and are not permitted to make hiring decisions based on that information. Employers will also be prohibited from requiring that an applicant’s salary history satisfy certain minimum or maximum requirements.

There are notable exceptions to this prohibition, which include the following:

      1. If an applicant “voluntarily, without employer prompting or coercion,” discloses salary or wage information, the employer may verify whether the information was accurate and use the information to determine compensation to be paid to the applicant;
      2. An employee is applying for internal transfer or promotion with a current employer;
      3. Actions taken by an employer pursuant to a federal law or regulation that expressly requires the disclosure or verification of salary history for employment purposes; and
      4. After an offer of employment has been made that includes an explanation of the overall compensation package, an employer may confirm an applicant’s salary history upon the applicant’s written authorization.

Employers who violate the law can be fined up to $1,000 for a first offense, $5,000 for a second offense, and $10,000 for violations thereafter.

Please contact a member of Blank Rome’s Labor & Employment practice group if you have any questions about compliance with New Jersey’s salary and wage ban or any other employment issues.