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FTC ISSUES FINAL RULE BANNING EMPLOYMENT-RELATED NON-COMPETE AGREEMENTS. WHAT’S NEXT?

By:       Sally A. Piefer

Non-compete and non-solicitation agreements are relatively commonplace in the employment context. However, these agreements have been under increasing attack by state legislatures across the country. Shortly after President Biden took office, he issued an Executive Order on Promoting Competition in the American Economy and encouraged the Federal Trade Commission (FTC) to ban or limit non-compete agreements.

The FTC stated in a virtual workshop on competition later that year that it believed non-competes constitute an unfair method of competition. Last January, the FTC announced that it took legal action against three companies, suing them to prevent the use of unlawful noncompete restrictions. See https://www.ftc.gov/news-events/news/press-releases/2023/01/ftc-cracks-down-companies-impose-harmful-noncompete-restrictions-thousands-workers. Shortly thereafter, the FTC released a proposed rule which would prohibit all non-compete agreements—except for those between buyers and sellers of a business. https://www.ftc.gov/legal-library/browse/federal-register-notices/non-compete-clause-rulemaking.

More than 26,000 comments were submitted in favor of and against the proposed rule. Last week, the FTC issued its final rule governing non-compete agreements. Absent a stay in connection with a legal challenge, this final rule is slated to take effect 120 days after the final rule is published in the Federal Register.

The final rule provides that it is an unfair method of competition to (i) enter into or attempt to enter into a non-compete clause; (ii) enforce or attempt to enforce a non-compete clause or (iii) represent that a worker is subject to a non-compete clause.

The final rule defines a “non-compete” as a “term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from:

  • Seeking or accepting work in the United States with a different person where the work would begin after the conclusion of the employment that includes the term or condition; or
  • Operating a business in the United States after the conclusion of the employment that includes the term or condition.”

The final rule does not prohibit a non-compete during the course of employment and it does not impact the use of non-competes used in connection with the sale of a business setting, or existing lawsuits related to a non-compete clause.

This means that all existing non-competes would be void – with the exception of non-competes for “senior executives” – who are defined as a worker who is in a “policy-making position” and received total compensation from the employment of at least $151,164 in the preceding year. “Policy-making position” means a business entity’s president, CEO or the equivalent, or any other officer of a business who has policy-making authority. Notably, an officer of a subsidiary or affiliate of a business entity that is part of a common enterprise who has policy-making authority for the common enterprise is considered to have policy-making authority, but a person who does not have policy-making authority over a common enterprise may not be deemed to have a policy-making position – even if the person has policy-making authority over a subsidiary or affiliate of a business entity that is part of the common enterprise.

In addition to banning non-compete agreements, the final rule also imposes an obligation on employers to provide affected workers with clear and conspicuous notice to the worker by the effective date that the non-compete clause will not be, and cannot legally be enforced against the individual. The notice must either be hand-delivered or sent by email, regular mail or text message.

The final rule is silent with respect to non-solicitation and confidentiality clauses, so presumably those types of clauses, to the extent they are reasonable, will continue to be enforced under applicable state law.

Within a day of the release of the final rule, at least two lawsuits have been filed in the federal courts in Texas challenging the rule. We anticipate that one (or both) of the courts may likely stay the implementation of the final rule, pending resolution of the litigation. A stay cannot be requested until the final rule is actually published in the Federal Register.

Next Steps? We will continue to follow the pending litigation and provide relevant updates which affect non-competes. However, in the interim, it would be prudent to take an inventory of the agreements you currently have in place with current and former employees and independent contractors and determine whether those agreements contain any non-compete clauses. We recommend that legal counsel determine whether those agreements contain severability language to preserve any non-solicitation, confidentiality or other contractual obligations. You should also review your Employee Handbooks and determine whether they contain any language which could reasonably be considered a non-compete.

If you have questions about the final rule, or any questions about non-compete, non-solicitation and/or confidentiality agreements, please contact Sally Piefer at 414-226-4818 or spiefer@lindner-marsack.com, or another member of the employment team at Lindner & Marsack.

Important Legal Developments for Clients WITH OPERATIONS OR EMPLOYEES IN MINNESOTA

By Oyvind Wistrom

Minnesota Set to Invalidate All Future Non-Compete Agreements

 On May 24, 2023, Minnesota Governor Tim Walz signed into law a provision banning all future non-compete agreements in Minnesota.  The term “non-compete” is defined to include provisions restricting an employee (or independent contractor) from performing work for another employer for a specified period of time, in a specified geographical area, or in a capacity that is similar to the employee’s work for the employer.  The ban will be effective for all non-compete agreements (also known as a “covenant not to compete”) entered on or after July 1, 2023.

By enacting the Omnibus Jobs, Economic Development, Labor and Industry appropriations bill, Minnesota will become just the fourth state (joining California, Oklahoma and North Dakota) to ban non-compete agreements.  Although the new law bans the enforcement of all non-compete agreements entered into with employees or independent contractors, the law does allow covenants not to compete in connection with the sale or dissolution of a business.

It is also important to note that the law only renders void and unenforceable covenants not to compete; the balance of an otherwise enforceable contract or agreement is not affected.  This means that other types of restrictive covenants can still be enforced under Minnesota law, including non-disclosure agreements, agreements designed to protect trade secrets, agreements to protect confidential information, agreements restricting the ability to use client or contact lists, and non-solicitation agreements.

The newly passed legislation also prevents employers from seeking to circumvent the new law by prohibiting employers from requiring employees to agree to clauses designating choice of law and venue in any state other than Minnesota.  Employees seeking to enforce the non-compete ban will be allowed to recover reasonable attorneys’ fees.

The ban on non-compete agreements does not apply retroactively, meaning all existing non-compete agreements signed before the effective date will remain enforceable, as permitted under Minnesota law.  However, employers with employees or independent contractors in Minnesota should take action to ensure that their agreements are in compliance with the new law starting July 1.

Minnesota Paid Family and Medical Leave Law (starting in 2026) 

Paid Family and Medical Leave is a new program being launched in Minnesota in 2026.  It will provide for both paid family leave for an employee to care for a family member with a serious health condition, or for an employee to bond with a new baby or child in their family.  It will also provide for paid medical leave for an employee’s own serious health condition if it prevents the employee from working.  Additionally, Minnesota employees will be able to take leave to support a family member in the military deploying overseas, or if an employee or a family member is facing a significant personal safety issue.  The legislation breaks benefits into two categories: 1) medical leave, including for pregnancy or recovery from childbirth, and 2) all other kinds of leave, that is parental leave, safety leave, caregiving leave, and deployment-related leave. Workers can receive up to 12 weeks of leave in each of the two categories per benefit year; however, benefits will be capped at 20 weeks a year for employees who take advantage of both.

The law will cover nearly all employees in Minnesota, including both private sector and state and local government employees.  It will cover employees regardless of employer size and include both full-time and part-time workers, with a limited exception for certain seasonal workers.

The implementation of this new law is still some time away, but starting in mid-2024, most Minnesota employers will be required to submit a wage detail report, which will detail the quarterly wages received and hours worked for each employee.

Earned Sick and Safe Ordinance for City of Bloomington 

The City of Bloomington has adopted an Earned Sick and Safe Leave (ESSL) Ordinance for workers in the City that will go into effect on July 1, 2023.  The ordinance is similar to the City of Minneapolis ordinance that has been in effect since 2017.

The Bloomington ordinance will generally require employers to provide certain employees working in the City of Bloomington with up to 48 hours of paid ESSL per year.  The ordinance covers all employees (including part-time and temporary employees) performing work in Bloomington for at least 80 hours in a year for their employer.  A covered employee can use accrued ESSL beginning 90 calendar days following commencement of their employment.

Like the Minneapolis ordinance, the Bloomington ordinance requires employers with an employee handbook to include in their employee handbook a notice of employee rights and remedies under the law.  The rules clarify that this requirement also applies if the employer provides any type of “orientation material” to a new employee in lieu of a handbook.

OFCCP HAS UPDATED MANDATORY DISABILITY SELF-IDENTIFICATION FORM

By Laurie A. Petersen

Federal government contractors and subcontractors, as part of their obligation under Section 503 of the Rehabilitation Act and 41 CFR Part 60-741.42, are required to invite applicants (pre and post offer) and employees (including every five years) to self-identify as an individual with a disability on a form approved by the Office of Federal Contract Compliance Programs (OFCCP).

On April 25, 2023, the OFCCP published a revised form.  While that form does not substantively change the contractor’s obligations, it updates the following:

  • The preferred language used for disabilities;
  • Additional examples of disabilities; and
  • More description on some of the previous examples of disabilities.

Contractors must implement the new form by July 25, 2023, and continue to use the previous form until implementing the new form.  The only portion of the form that contractors may modify or delete is the “For Employer Use Only” section.

LINDNER & MARSACK, S.C., WELCOMES ATTORNEY SAMUEL DRAVER TO WORKER’S COMPENSATION DEFENSE TEAM

Lindner & Marsack, S.C., announced today that Attorney Samuel Draver has joined the firm as an Associate on their Worker’s Compensation Defense team. Draver will split his time between the Milwaukee and Madison offices of Lindner & Marsack.

Prior to joining Lindner & Marsack, Draver worked for other Milwaukee law firms in the areas of worker’s compensation defense, labor law and personal injury.

“Sam will be a great asset to our widely recognized worker’s compensation defense practice,” says Firm President Oyvind Wistrom. “We continue build depth and experience on our team that translates to reliable results and consistent, trusted counsel for our clients.”

Draver received his law degree from Marquette University Law School in 2017 and his Bachelor of Arts in 2014, also from Marquette University. During law school, he served on the Student Bar Association Executive Board and interned with the Wisconsin Supreme Court. Draver is a member of the State Bar of Wisconsin and the Wisconsin Association of Worker’s Compensation Attorneys (WAWCA).

NEW NON-COMPETE LAW COMING TO ILLINOIS

By:       Sally A. Piefer

June 21, 2021

Non-compete and non-solicitation agreements are relatively commonplace. However, these agreements have been under increasing attack by legislatures across the country. President Biden has also expressed that one of the items on his regulatory agenda is to eliminate all non-compete agreements except for those necessary to protect trade secrets.

The Illinois legislature recently unanimously passed legislation changing the non-compete and non-solicitation agreement landscape. The Illinois Governor is expected to sign this legislation which will go into effect on January 1, 2022, and will impact agreements entered into after that date.

The Illinois legislation implements the following changes to non-compete and non-solicitation agreements:

Compensation Thresholds

The legislation voids all non-compete provisions with an employee if the employee has expected earnings below $75,000. The legislation also voids all non-solicitation provisions with an employee if the employee has expected earnings below $45,000.

The expected earnings levels include not only compensation reported on an employee’s W-2, but also elective deferrals such as employee contributions to a 401(k), FSA or HSA. The current earnings thresholds for non-competes will increase by $5,000 every 3 years through 2037 (e.g., on January 1, 2027, the earnings levels increase to $80,000). For non-solicitation provisions, the earnings levels increase by $2,500 every 3 years (e.g., $47,500 on January 1, 2027).

Adequate Consideration

The legislation requires an employer to provide adequate consideration in exchange for signing the agreement and specifically states that 2 years of employment is adequate consideration, but so is a period of employment plus additional professional or financial benefits, or merely professional or financial benefits, such as a signing bonus. Employers should ensure that the consideration being offered is specifically identified in the agreement.

Notice to Employee

Employers must give the agreement to a new employee at least 14 days before the employee starts employment. If an employer misses that window of opportunity, the employee must then be provided 14 days from receipt to sign and return. The employee can sign earlier, but cannot be forced or coerced to do so. The agreement must also advise the employee that he/she may consult with an attorney before signing. An agreement which fails to incorporate these provisions is considered illegal and invalid.

Restrictions on Enforcement

The Illinois legislature has placed several restrictions on enforcing a non-compete or non-solicit provision. For example, an employer cannot enforce a non-compete or non-solicitation clause where the employee is terminated, furloughed or laid off as a result of “business circumstances” or governmental orders relating to COVID 19 or similar circumstances—unless the agreement contains a compensation equivalent to the employee’s base salary at time of termination for the length of enforcement – minus compensation earned by the employee in replacement employment.

In addition, the legislation specifically provides that if an employee prevails in an attempt to enforce a non-compete or non-solicitation clause, the employer has to pay the employee’s reasonable attorney’s fees and costs. While the legislation does not provide a similar statutory provision for the employer, there is no restriction on incorporating such a provision into the agreement.

Attorney General Enforcement

Finally, the new legislation permits the Attorney General to conduct investigations and sue employers if there is a belief that the employer is engaging in a practice in violation of the legislation. In the event of litigation, the Attorney General can seek a temporary restraining order or preliminary injunction preventing the employer from further violations of the law, and it can recover damages, which can include a $5000 civil penalty for each violation (or $10,000 for repeat violations within a 5-year period). Each employee subject to an illegal agreement is considered a separate and distinct violation of the law.

Next Steps

Illinois is not alone. Several other states, including Arizona, Oregon, Nevada and Washington DC have also implemented new legislation in 2021 which may impact the enforceability of non-compete and non-solicitation agreements in those states. Employers with operations in multi-state locations should have their non-compete and non-solicitation agreements analyzed to determine whether these new laws will impact the enforceability of the agreements.

If you have questions about the new law, or any questions about non-compete and/or non-solicitation agreements, please contact Sally Piefer at 414-226-4818 or spiefer@lindner-marsack.com, or contact your regular Lindner & Marsack attorney.

Current Trends & Treatment in Worker’s Compensation

Lindner & Marsack’s worker’s compensation defense practice is well recognized as an industry leader in providing work injury defense services to many of Wisconsin’s largest employers and insurance carriers.

Chelsie Springstead, a Shareholder and member of the Firm’s highly regarded work injury defense team, is a presenter in the first episode of an educational video podcast series entitled “A Medical and Legal Analysis of COVID-19: Addressing Issues Surrounding Causation, Care and Courses of Action” on Thursday, April 29, 2021, at 12:00 p.m. CST.

If you are interested in attending this event, please send an email to info@crawfordevaluationgroup.com. This is a complimentary event!

Click here for more information. You will receive a link to view the broadcast closer to the date.

TWO NEW ATTORNEYS JOIN LINDNER & MARSACK’S WORKER’S COMPENSATION DEFENSE TEAM IN MADISON

Lindner & Marsack, S.C., today announced that Thomas Ryan Boyd and Vanja Pemac have joined the firm’s worker’s compensation defense team. The two attorneys join Andrew J. Quartaro, who joined Lindner & Marsack earlier this year to lead the firm’s new office in Madison.

Boyd comes to Lindner & Marsack after having practiced labor, employment and worker’s compensation law in the Chicago area for the past seven years. He focuses his practice on defending insurance companies and self-insured companies throughout Illinois and Wisconsin in worker’s compensation matters. He brings extensive trial experience – including proceedings before the Illinois Workers’ Compensation Commission, in Illinois Circuit Court, the Criminal Division of the Circuit Court of Cook County and in Illinois Appellate Court. He also volunteered his legal counsel to the Legal Assistance Foundation in Chicago. Boyd received his J.D., as well as a certificate in Alternative Dispute Resolution, from Pepperdine Law School in California in 2013. He received his Bachelor of Arts in Communication Science and Theory from the University of Wisconsin-Madison in 2010. Now, having returned to the Madison area, he lives on the city’s west side with his wife and daughter.

Having served as a law clerk with Lindner & Marsack since January of this year, Pemac received her J.D. from the University of Wisconsin-Madison Law School in May of 2020. As a student, she was a member of the Student Bar Association and competed in numerous Mock Trial competitions. She is the recipient of the Susan B. Steingass Outstanding Advocacy Award; the Mike Eidson Scholarship from the American Association of Justice; and the Sasich/Kordich Memorial Scholarship from the Serbian Bar Association of America. Previously, she graduated summa cum laude from the University of Wisconsin-Milwaukee with a Bachelor of Arts in Political Science. Outside of work, she enjoys hiking the trails of the Kettle Moraine area and is an avid amateur baker.

“With our growing presence in the Madison area and across the region, we continue to reinforce and deliver on our promise to serve as management’s most trusted partner and legal advisor,” says Firm President Oyvind Wistrom. “We’re thrilled to have Ryan and Vanja join our team in Madison in our work to help employers mitigate risk and successfully navigate the complex landscape of worker’s compensation defense.”

Updated EEO-1 Reporting Requirements

On March 5, 2019, a Federal Judge reinstated the EEO-1 pay data reporting requirement for all covered employers. Covered employers include employers with over 100 employees or federal contractors with 50 or more employees and a government contract worth $50,000 or more.

The EEO-1, otherwise known as The Employer Information Report, is a compliance survey which is to be submitted to the U.S. Equal Employment Opportunity Commission (the “EEOC”) and the Department of Labor’s Office of Federal Contract Compliance Programs annually.

For employers already required to submit an EEO-1 report, the March 5th reinstatement now requires EEO-1 Component 2 (the pay data reporting requirement) to also be submitted. On April 3, 2019, the EEOC filed a proposal extending the deadline to complete EEO-1 Component 2 to September 30, 2019. The Federal Judge will now assess the EEOC’s proposal and issue an order regarding the proposal and extended deadline. It is recommended employers start taking the necessary steps to gather relevant pay data and prepare for the obligation to file EEO-1 Component 2 in 2019.

Importantly, the Federal Judge’s reinstatement of EEO-1 Component 2 reporting does not in any way alter the deadline to file an employer’s annual EEO-1 report. This deadline is still May 31, 2019.

If you have any questions regarding the updated EEOC reporting requirements and how they may impact your business, please contact me by email at csaugstad@lindner-marsack.com or another attorney with whom you have been working at Lindner & Marsack, S.C.

Wisconsin’s Right to Work Law Upheld

By: Thomas W. Mackenzie and Kristofor L. Hanson

In a decision issued September 19, 2017, the Wisconsin Court of Appeals upheld as constitutional Wisconsin’s so-called “Right to Work” law (Act 1), which outlawed mandatory union membership as a condition of employment.

Prior to the law becoming effective on March 11, 2015, the International Association of Machinists District 10, the United Steelworkers District 2, and the Wisconsin AFL-CIO filed an action in Dane County challenging the constitutionality of Act 1.  The Unions’ theory was that because unions are required to fairly represent all employees covered by a collective bargaining agreement, a law prohibiting unions from receiving just compensation for those services constitutes an unlawful “taking” under the Wisconsin constitution.  Dane County Circuit Court Judge C. William Foust agreed with the Unions, concluding that requiring Unions to represent non-members without compensation constituted a “taking” and threatened the Unions’ “very economic viability.”

The State Attorney General’s Office appealed Judge Foust’s decision to the Wisconsin Court of Appeals. The Court of Appeals reversed Judge Foust’s decision, concluding that Unions have no constitutional entitlement to the fees of non-members.  The Court found that Act 1 did not preclude Unions from receiving just compensation for the services provided to non-members; it merely precluded the Union from collecting those fees from the non-members themselves.  In other words, Unions will have to look to other sources (e.g. union members) to fund the duty of fair representation owed to members and non-members alike.

The Court’s decision is not surprising.  Wisconsin became the 25th state with a “Right to Work” statute.  That number has climbed to 28 states since Wisconsin’s enactment of the law.  These provisions have withstood similar constitutional challenges in other forums.  The Unions have the right to appeal to the Wisconsin Supreme Court but, given the current composition of that Court, success will be hard to find.

To view the Court of Appeals decision clicks here.

 

DOL WITHDRAWS JOINT EMPLOYER AND INDEPENDENT CONTRACTOR GUIDANCE

By:  Samantha J. Wood

On Wednesday, June 7, 2017 the U.S. Department of Labor (“DOL”) withdrew its 2015 and 2016 informal guidance letters regarding independent contractors and joint employment, which had been issued by the prior administration.

The DOL’s first guidance letter, which was issued in July 2015 and reiterated the DOL’s focus on misclassification of employees as independent contractors, was borne out of a concern that too many employers were misclassifying workers to avoid certain labor costs. In this guidance, the DOL narrowly interpreted the definition of independent contractor, focusing on the economic dependence of the worker, and downplaying the traditionally-used control test. The DOL stated that employers should consider and weigh the following factors: (1) the extent to which the work performed is an integral part of the employer’s business; (2) the worker’s opportunity for profit or loss depending on his/her managerial skill; (3) the extent of the relative investments of the employer and the worker; (4) whether the work performed requires special skills and initiative; (5) the permanency of the relationship; and (6) the degree of control exercised or retained by the employer. Minimizing the control factor, the DOL stated that all of the factors should be considered and weighed together in each case, and that no one factor, such as the control factor, should be given undue weight. The DOL advised employers that under this analysis most workers should be classified as employees rather than independent contractors.

The DOL’s second guidance letter, issued in January 2016, took an expansive view in determining joint employment under the Fair Labor Standards Act (FLSA). The DOL differentiated between “horizontal” and “vertical” joint employment, and provided guidance on analyzing each type. The DOL stated that in determining whether horizontal joint employment exists (which analyzes whether two employers are sufficiently related and benefit from an employee’s work), employers should consider factors such as: (1) ownership of the employers; (2) overlapping officers, directors and managers; (3) shared control over operations; and (4) shared supervisory authority of employees. In determining whether vertical joint employment exists (which analyzes the employee’s relationship with the indirect employer and the intermediary employer), employers should consider the “economic dependence” between the employee and the two employers.

The DOL’s withdrawal of its July 2015 and January 2016 guidance letters signifies that, under the new administration, the DOL intends to take a more business-friendly approach in analyzing employer-employee relationships. However, the DOL has stated that the withdrawal of the two guidance letters “does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act.” While the DOL may return to the traditional control tests under both the independent contractor and joint employment analyses, the full implication of the DOL’s withdrawals is unclear. Accordingly, until the DOL issues further guidance, employers should continue to consider all relevant factors in determining whether a worker is an employee or an independent contractor and in determining whether a joint employment relationship exists.

If you have questions about this material, please contact Samantha J. Wood by email at swood@lindner-marsack.com, or any other attorney you have been working with here at Lindner & Marsack, S.C.