By Alex Meier and Cary Reid Burke 

Seyfarth Synopsis: The National Labor Relations Board moved from theory to practice in this administration’s battle against restrictive covenants. Recently, the Regional Director of Region 9 of the National Labor Relations Board filed a consolidated complaint alleging that certain restrictive covenants contained in offer letters and policies in an employee handbook violated the National Labor Relations Act.

This complaint is a logical outgrowth of GC Memo 23-08, in which NLRB General Counsel Jennifer Abruzzo set out her view that “the proffer, maintenance, and enforcement” of restrictive covenants violates Section 8(a)(1) of the NLRA. Undoubtedly, this matter will serve only as the first test case, but not the last. For that reason, and because the broader non-compete landscape has shifted, employers might consider revisiting their restrictive covenants practices to mitigate risk. The complaint also serves as a reminder that employers should review their employment policies and handbooks regarding employee communications—particularly if those policies restrict communications about compensation or other terms and conditions of employment.

This complaint involves charges brought by three individuals at an aesthetics clinic that offered non-surgical cosmetic procedures. According to the complaint, the clinic maintained a number of policies that run afoul of the NLRA, including:

  • A confidentiality provision that expressly listed “salaries, bonuses, and compensation package information” in its scope;
  • An insubordination policy that prohibited disparaging statements about management or other employees;
  • A company communication policy that prohibited employees from making communications that could harm the “goodwill, brand, or business reputation” of the clinic;
  • A non-compete provision that imposed a two-year limitation on the employee’s ability to provide similar services within a 20-mile radius of the clinic, as well as a two-year limitation on customer and employee solicitation; and
  • An “Exit Agreement” that included an acknowledgment that damages for any violation of the non-compete, client non-solicit, and employee non-solicit amounted to, respectively tens of thousands of dollars in costs spent training the breaching employee (prorated under certain circumstances), $25,000 per solicited client, and $150,000 per solicited employee.

According to the complaint, several employees became dissatisfied with their work and left the company. Upon their resignations, the employer demanded that the departing employees all repay certain training costs, and the employees filed a slew of unfair labor practice charges, alleging, among other things, the maintenance of unlawful work rules. The allegations in the complaint regarding the restrictive covenants are limited to identifying the covenants and alleging that the clinic terminated one employee for refusing to sign the Exit Agreement “and to discourage employees” from engaging in concerted activity.

The Region investigated the charges, and has now issued a consolidated complaint, alleging that these restrictive covenants violate Section 8(a)(1) of the NLRA under the theory that such covenants tend to chill employees in the exercise of their Section 7 rights. The complaint also included references to several internal messages where supervisors allegedly demanded that employees refrain from discussing their compensation or their communications with management.

The Region appears to be building their argument that post-employment restrictive covenants somehow implicate Section 7 rights. To do so, Region 9 has set out an interesting first test case: as alleged in the complaint, certain of the employer’s policies seem to restrict discussions among employees relating to pay or employment conditions, which is unlawful. It’s possible that the General Counsel might leverage these allegedly unlawful policies (or other favorable facts) to extract concessions related to the clinic’s restrictive covenant program, or to argue that these policies collectively represent an unlawful limitation on employees’ Section 7 rights.

But it is unclear at this point whether the Act can be stretched to cover restrictive covenants for statutory “employees” under the National Labor Relations Act.[1] Indeed, the General Counsel only recently began to target the enforceability of restrictive covenants by way of a memorandum to the Regions. That memorandum, in turn, provides little detail regarding what legal theories (if any) grant the Board the authority to interfere with covenants that become effective only when the employment relationship between an employer and employee end. Even if the NLRB does have such authority, it bears recalling that the states have developed 50 separate bodies of law regarding their enforceability of restrictive covenants. To the extent the Board follows the General Counsel’s lead and finds the covenants at issue unlawful, the NLRB would wipe a large portion of that case law off the map (at least with respect to statutory employees).

Moreover, it’s also unclear whether the NLRB has the bandwidth and resources to litigate restrictive covenant cases. Setting aside whether the creation of two distinct bodies of law – one for supervisors excluded from the Act and one for statutory employees – makes sense, the Board has limited resources. As GC Abruzzo explained in her report to Congress last year, the Regions are already stretched thin with their current case load. Adding a whole new tranche of cases to their dockets, particularly ones that move very fast and are heavily litigated, would seem to be a bridge too far.

While we do not recommend that employers modify their restrictive covenant programs based on theoretical risk from the NLRB, this complaint is a good reminder that employers should examine whether they have legitimate business interests sufficient to support restrictive covenants under state law, especially for employees not working in a management or supervisor role. Risks are increasing for companies that universally impose broad restrictive covenants on employees, both under the NLRA and under state law.

And the decision also serves as a reminder that overbroad employee handbooks and policies regarding the confidentiality of compensation or employment conditions present significant risk where the NLRB is on much stronger statutory grounds. 

We will continue to monitor NLRB activity involving restrictive covenants, and employers with questions should reach out to their Seyfarth attorney.

[1] Most relevant to this post, the NLRA exempts supervisors from the definition of “employee.”

By Christopher Kelleher, Rachel See, Christopher DeGroff, and Andrew Scroggins

Seyfarth Synopsis: An essential read for any employer, the EEOC’s final Strategic Enforcement Plan (SEP), was released on September 21, 2023. The SEP identifies the agency’s enforcement priorities for the next five years, Fiscal Years 2024-2028. The SEP indicates that the agency intends to aggressively pursue its enforcement agenda through Commissioner Charges, directed investigations, and litigation involving systemic harassment and discrimination. The new plan also suggests a new direction for the agency on a number of key subject matter priorities.

The EEOC has released its new Strategic Enforcement Plan (“SEP”) for Fiscal Years 2024-2028. The SEP lays out the EEOC’s enforcement priorities to focus and coordinate the agency’s work over multiple years “to have a sustained impact in advancing equal employment opportunity.”

As we previously covered, in January 2023 the EEOC posted a draft of the SEP for public comment. Throughout the comment period, the five-member Commission was evenly divided politically, with two Democrats and two Republicans. However, last month, in August 2023, Democrat Commissioner Kalpana Kotagal was sworn in, giving the Democrats a 3-2 majority on the Commission for the first time during the Biden Administration.

While many aspects of the Commission’s operations are advanced on a bipartisan basis, the timing of the release of the final SEP, combined with the lengthy interval since public comments were accepted, suggests that EEOC Chair Charlotte Burrows may have needed a third Democrat vote to get her SEP across the finish line. The launch of the SEP, coupled with last month’s adoption of the EEOC Strategic Plan, suggests that Commissioner Kotagal is rapidly getting up-to-speed, and that Chair Burrows is beginning to use her Democrat majority. The eventual release of the Commission vote on the SEP may tell us more.[1]

But political wrangling aside, the true headline is what the EEOC will now be targeting. In today’s SEP, the EEOC has again identified six subject matter priorities. Employers can expect that the EEOC will conduct a more aggressive enforcement agenda with respect to each of these priorities:

  • Eliminating Barriers in Recruitment and Hiring. The EEOC will focus on discriminatory recruitment and hiring practices, with a special emphasis on the use of technology, AI, and machine learning used in job advertisements, recruiting, and hiring decisions. The new SEP emphasizes an employer’s use of all technology (not just “automated systems”) in hiring and recruitment as an area strategic focus. The EEOC has, historically, focused on recruiting and hiring in part because private plaintiffs’ counsel have been unwilling to champion large scale hiring cases due to cost and challenges identifying potential “victims.”
  • Protecting Vulnerable Workers from Underserved Communities. The EEOC will expand its focus on protecting vulnerable workers, and the agency has expanded the categories of workers categorized as “vulnerable and underserved.” Vulnerable workers include, among other groups: immigrant and migrant workers; workers with developmental, intellectual, and mental health related disabilities; LGBTQI+ individuals; individuals employed in low wage jobs, including teenage workers; and survivors of gender-based violence. The EEOC has identified these groups, among others, as deserving special protection because they may be unaware of their rights under EEO laws, and/or may be reluctant or unable to exercise their rights.
  • Addressing Selected Emerging and Development Issues. The EEOC states that it will continue to prioritize emerging or developing issues, and it has updated the emerging and developing issues priority to include protecting workers affected by pregnancy, childbirth, or related medical conditions, including under the Pregnant Workers Fairness Act. This priority will also focus on addressing discrimination “influenced by or arising as backlash in response to local, national, or global events.” Notably, the new SEP dials back the scope of the EEOC’s prior focus on Covid-19. Under the SEP, only “Long Covid” is considered an area of strategic emphasis. This is important in part because, while the EEOC and its local counterparts have fielded thousands of charges of discrimination relating employees’ religious and/or medical exemption requests from employers’ Covid-19 vaccination mandates, vaccination-related enforcement is not referenced in the SEP.
  • Advancing Equal Pay for All Workers. The EEOC will continue to use directed investigations and Commissioner Charges to advance enforcement of pay discrimination laws, including the Equal Pay Act and Title VII. The EEOC further promises that it will focus on employer practices that may impede equal pay, or contribute to pay disparities, such as secrecy policies, discouraging or prohibiting workers from sharing pay information, and “reliance on past salary history or applicants’ salary expectations to set pay.” The recently announced partnership between the EEOC and the Department of Labor provides the agency an additional source for information that could fuel investigations in this area.
  • Preserving Access to the Legal System. The EEOC will also focus enforcement on workplace policies or practices that limit employees from exercising their rights, including any policies that deter or prohibit filing charges with the EEOC or cooperating freely in EEOC investigations. Particularly important for employers: the EEOC warns it will focus on overly broad waivers, releases, non-disclosure agreements, and non-disparagement agreements; unlawful or improper mandatory arbitration provisions; employers’ failure to keep required applicant and employee data and records; and retaliatory practices that could dissuade employees from exercising their rights.
  • Preventing and Remedying Systemic Harassment. Finally, the EEOC will focus on remedying harassment, both in-person and online. As part of this priority, the EEOC will focus on promoting comprehensive anti-harassment programs and practices.

The SEP notes that the EEOC also plans to “support employer efforts to implement lawful and appropriate diversity, equity, inclusion, and accessibility (“DEIA”) practices that proactively identify and address barriers to equal employment opportunity, help employers cultivate a diverse pool of qualified workers, and foster inclusive workplaces.” This language suggests that the EEOC may anticipate a battle over affirmative action in the workplace in the wake of the Supreme Court’s Fair Admissions decision.

Implications for Employers

The importance of the new SEP is, without hyperbole, profound.  The EEOC’s SEP identifies the types of claims the EEOC’s front-line personnel are searching for when they are investigating charges, and what types of litigation the EEOC will aggressively pursue. While the EEOC will continue its routine charge-investigation processes for all charges, claims identified as “strategic” – i.e. falling into one of the categories set forth in the SEP – will receive increased attention from the EEOC’s investigators and litigators. Additionally, the EEOC is likely to conduct outreach to employees informing them about their rights, and encouraging them to file charges in these areas designated for strategic emphasis. The new SEP, propelled by demonstrable steps to move resources to these goals, promises to have a significant impact on how the Commission interacts with – and litigates against – employers. 

[1] Votes taken by the Commission are now publicly posted on the EEOC’s website, but there is a delay between the individual Commission votes and the posting on the EEOC website. So, absent further comment from the EEOC or media leaks, we will likely have to wait until the end of October, when September votes are expected to be posted, to learn what the vote on the SEP actually was.

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Paxton Moore and Robert S. Whitman

Seyfarth Synopsis: New York Governor Kathy Hochul has signed legislation that, effective immediately, adds wage theft to the definition of “larceny” under the state’s penal code, creating potentially harsh penalties for the state’s employers.

Under a recently enacted New York statute, wage theft is considered a form of “larceny” under the state’s penal law. The statute adds to existing criminal penalties for wage theft and allows prosecutors to seek even stronger penalties against violators.

Expanding the Definition of Larceny

Governor Hochul signed the Wage Theft Accountability Act (S2832-A/A154-A) on September 6, 2023. Effectively immediately, the Act amends the Penal Law to include “wage theft” in the definition of “larceny.”

Under the Penal Law, “[a] person steals property and commits larceny when, with intent to deprive another of property or to appropriate the same to himself or to a third person, he wrongfully takes, obtains or withholds such property from an owner thereof.” Penal Law § 155.05(1). The recent amendment revises the definition of “property” to include “compensation for labor or services.” Id. § 155.00(1). It further adds a definition for “workforce,” which “means a group of one or more persons who work in exchange for wages.” Id. § 155.00(10).

Most significantly, the Act adds a subsection that defines larceny by wage theft to mean the following:

A person obtains property by wage theft when he or she hires a person to perform services and the person performs such services and the person does not pay wages, at the minimum wage rate and overtime, or promised wage, if greater than the minimum wage rate and overtime, to said person for work performed. In a prosecution for wage theft, for the purposes of venue, it is permissible to aggregate all nonpayments or underpayments to one person from one person, into one larceny count, even if the nonpayments or underpayments occurred in multiple counties. It is also permissible to aggregate nonpayments or underpayments from a workforce into one larceny count even if such nonpayments or underpayments occurred in multiple counties.

Id. § 155.05(2)(f).

Although the bill’s sponsors fixated on the vulnerability of low-income earners—including non-union construction workers and undocumented immigrants—the new law potentially impacts all employers in the state. It does not include any carve-out provisions or exemptions for particular positions or industries.

An open question is whether the law applies to compensation paid to independent contractors in addition to employees. The Act is not part of the Labor Law, which generally governs the employer-employee relationship, and refers generically to “hir[ing] a person to perform services,” rather than hiring “employees.” But it refers to “wages” and “wage theft”—concepts that derive from the Labor Law and assume an employer-employee relationship—and not to “fees” or the like, which suggests that it is limited to employment and not independent contractor arrangements.

The new law allows for the aggregation of nonpayments or underpayments to one victim employee and for the aggregation of victims, which has two distinct effects. Prosecutors may now (1) seek stronger penalties against employers who steal wages from workers, and (2) try incidents of wage theft committed by the same employer in multiple counties in a single venue. The ability to aggregate claims could result in harsh penalties for both corporate and individual employers. Under the Penal Code, petit larceny includes theft of up to $1,000 and is a Class A misdemeanor. See NY PenalLaw § 155.25. A corporation can be fined up to $5,000 for conviction of a Class A misdemeanor. Id. § 80.10(1)(b). Theft of $1,000 or more constitutes grand larceny of varying degrees—the lowest of which, Grand Larceny in the Fourth Degree, constitutes a Class E felony. Id. §§ 155.30-155.42. An individual could face a maximum prison sentence ranging from four to twenty-five years depending on the amount stolen. Id. § 70.00(2)(b-e). For corporations, conviction of a felony carries a fine of up to $10,000. Id. § 80.10(1)(a).

The Labor Law already provides for criminal penalties for wage theft. See Labor Law § 198-a (listing certain offenses as misdemeanors or felonies). The addition of wage theft to the definition of larceny does not appear to alter, replace, or repeal these existing criminal penalties.

The Act, which passed with near unanimous majorities in both chambers of the Legislature, is the latest in an ongoing effort to combat wage theft in New York. According to the bill’s sponsors, beginning in December 2017, the Wage Theft Initiative—a collaboration among seven District Attorney’s Offices, including the five in New York City as well as Westchester and Nassau Counties; the Department of Investigation; the New York City Comptroller’s Office; the New York State Department of Labor; and the New York State Attorney General’s Office—has led the prosecution of ten criminal cases accounting for more than $2.5 million in stolen wages affecting over 400 construction workers. On February 16, 2023, the Manhattan District Attorney announced the creation of the Worker Protection unit to investigate and prosecute wage theft, among other offenses.

According to a co-sponsor, Assemblymember Catalina Cruz, wage theft accounts for almost $3.2 billion in lost wages each year—affecting over 2 million New Yorkers. Cornell University’s Worker Institute sets forth a more conservative estimate, asserting wage theft in New York to account for nearly $1 billion in lost wages affecting tens of thousands of workers.

Outlook for Employers New York is taking an expansive approach to protect employees and their wages. Failure to properly navigate the State’s complex wage and hour laws now carries potentially harsher outcomes than the already existing criminal and civil penalties. While criminal prosecutions for these offenses will likely be rare and limited to the most egregious violators, all employers are well advised to pay close and careful attention to compliance with their wage payment obligations, and to consult with wage-and-hour counsel if they have any concerns about the administration of their payroll.

CalPecs

By Kristina M. Launey, Scott P. Mallery, David Kim and Galen Sallomi 

Seyfarth Synopsis: Now that the Legislature’s September 14, 2023 deadline to pass bills to the Governor has come and gone, we are providing an overview of  which employment bills are before the Governor for consideration, including bills that impact non-compete agreements, FEHA protected categories, paid sick leave, Cal-WARN, industry-specific requirements, and more.

It’s unnatural – 2023 saw a historic number of bills introduced, many of which we previously detailed but failed to proceed past the June House of Origin deadline. And many of the more onerous bills saw significant amendments before moving from the Assembly to the Senate and vice-versa. Now that the Legislature’s September 14, 2023, deadline to pass bills to the Governor has come and gone, we look at what which bills before the Governor for consideration are top of employers’ minds, such as new limitations on non-compete agreements, new family caregiver and caste FEHA protected categories, increased paid sick leave allotment, expanded Cal-WARN application, and changes to industry-specific requirements. Read on for our summary of key employment bills that may soon become law.

Still I Can’t Let Go – Bills That Made The Cut

Non-Compete Agreements

SB 699: Unenforceable Non-Compete Agreements

As we previously reported, SB 699 will make any contract that is void under California law unenforceable regardless of where and when the employee signed the contract. Governor Newsom signed SB 699 on September 1, 2023, to be effective January 1, 2024.

This bill would add Section 16600.5 to the Business and Professions Code.

AB 1076: Void Employment Non-Compete Agreement

AB 1076 seeks to codify Edwards v. Arthur Andersen LLP (2008) 44 Cal. 4th 937, to void any non-compete clause or agreement in an employment context, no matter how narrowly tailored, with limited exception.  It would also add additional “protections” including a notification requirement for California employers, and make a violation of these provisions a violation of BPC 17200 et seq.

This bill would amend Section 16600 of Business and Professions Code and add Section 16600.1 to the Business and Professions Code.

New Proposed FEHA Protected Classes: 

AB 524: The Family Caregiver Anti-Discrimination Act

AB 524, would add “family caregiver” status as a protected class under the Fair Employment and Housing Act (“FEHA”). This term is defined as “a person who provides direct care to” certain family members or any “individual previously identified as a ‘designated person’ under Section 12945.2.” The bill expressly does not create any obligation upon employers to provide special accommodations.

The bill would amend Sections 12920, 12921, 12926, and 12940 of the Government Code.

SB 403: “Caste” Protected Class

SB 403 would add “caste” as a protected class under the FEHA and Unruh Act. The bill attempts to clarify existing law prohibiting caste discrimination as a type of ancestry, which is already a listed protected class, but also now defines “ancestry” as including additional markers, such as “lineal descent, heritage, parentage, caste, or any inherited social status.”  

The bill would amend Section 51 of the Civil Code and Section 12926 of the Government Code.

Both AB 524 and SB 403 incorporate the same amendments to Section 12926 of the Government Code, in case one is enacted after the other, so that the amendments to that Section by both bills can become law.

Leaves and Accommodations:

SB 616: Paid Sick Days Accrual and Use

As we previously reported, SB 616 would significantly expand the State’s existing paid sick leave mandate by increasing the annual amount of paid sick leave from three days or 24 hours to five days or 40 hours for eligible employees, and raising the accrual cap from 48 hours to 80 hours. The bill would also extend the anti-retaliation and procedural provisions in California’s sick pay law to include those covered by a valid CBA, and expressly exclude railroad carrier employers and their employees. Of note, any local ordinance provisions that contradict this bill would be preempted, which should reduce employers’ burden of juggling various differing sick pay laws.

This bill would amend Sections 245.5, 246, and 246.5 of the Labor Code.

SB 848: Leave for Reproductive Loss

Following on 2022’s mandatory (unpaid) bereavement leave, SB 848 would require employers to provide eligible employees up to 5 days of (unpaid, unless the employer has an existing policy stating otherwise) reproductive loss leave upon suffering a failed adoption or surrogacy, miscarriage, stillbirth, or an unsuccessful assisted reproduction. The bill would also prohibit retaliation against an individual who uses this leave or shares information about it.  

This bill would add Section 12945.6 to the Government Code.

SB 731: Notice of Remote Work as a Reasonable Accommodation

SB 731 would require an employer to provide 30 days’ written notice to an employee working remotely that the employee has the right to ask the employer to allow continued remoted work as a reasonable accommodation before requiring that employee to return to work in person. The bill provides specific language that such notice must include.

This bill would add Section 12940.2 to the Government Code.

Wage/Hour & Other Labor Code Bills:

SB 41: Airline Cabin Crew Employees Meal and Rest Breaks 

SB 41 was approved by the Governor on March 23, 2023, and went into effect the same day. As of that date, airline cabin crew employees covered by CBAs with valid meal and rest break provisions are expressly exempt by virtue of new Labor Code section 512.2 from California’s meal and rest period requirements.

This bill would add Section 512.2 to the Labor Code.

AB 1356: Mass Layoff Notifications 

AB 1356 would amend California’s Worker Adjustment and Retraining Act (Cal-WARN) to expand its application beyond industrial or commercial facilities to all places of employment that have employed 75 or more persons in the preceding 12 months, and include non-temporary employees of labor contractors. The bill would also increase the notice period for employees from 60 to 75 prior to initiating a mass layoff, and revise the definition of “mass layoff” to include employees “reporting to” to those at a covered establishment. The bill would also prohibit employers from conditioning severance payments in a mass layoff situation  on the employee assenting to a general release, waiver of claims, or non-disparagement or nondisclosure agreement, unless additional consideration for those terms is provided and clearly stated.

This bill would amend Sections 1400.5, 1401, 1402, and 1403 of the Labor Code.

SB 497: Retaliation Rebuttable Presumption 

SB 497 would create a rebuttable presumption of retaliation under Labor Code sections 98.6 and 1197.5 if an employer subjects an employee to an adverse action within 90 days of an employee engaging in the conduct described by those sections. The bill would also increase the civil penalty imposed on an employer under section 1102.5 from $10,000 generally to $10,000 per employee per violation.

This bill would amend Sections 98.6, 1102.5, and 1197.5 of the Labor Code.

AB 594: Local Enforcement: Wage Theft

AB 594 would authorize public prosecutors, including the Attorney General, a district attorney, a city attorney, a county counsel, or any other city or county prosecutor, to independently prosecute specified violations of the Labor Code that occur within their geographic jurisdictions. The bill would also provide that any individual agreement (i.e., not CBAs) that require arbitration of a dispute or limit representative actions would not effect the prosecutor or Labor Commissioner’s ability to enforce the Labor Code.

This bill would amend Sections 218 and 226.8 of, and adds Chapter 8 and repeals Section 181 of, the Labor Code.

Other Bills

AB 933: Defamation Privilege: Sexual Harassment 

AB 933 would extend the defamation privilege to expressly include an individual’s communications made without malice, regarding factual information related to incidents of sexual assault, harassment, or discrimination, experienced by that person, provided the individual had a reasonable basis to file a complaint regardless of whether filed or not. The bill would also authorize a prevailing defendant in any action for making such a privileged communication to recover their reasonable attorney’s fees and costs, treble damages, and punitive damages.

This bill would add section 47.1 to the Civil Code.

SB 428: Workplace Violence Restraining Orders: Harassment

Starting January 1, 2025, SB 428 would allow employers to  to seek restraining orders on behalf of their employees who have been harassed, or suffered unlawful violence or a credible threat of violence in the workplace or reasonably construed to be carried out in the workplace. The bill would prohibit a court from issuing such an order that would prohibit speech or activities protected by the National Labor Relations Act or provisions governing the communications of exclusive representatives of public employees.

This bill would amend, repeal, and add Section 527.8 of the Code of Civil Procedure.

SB 553: Workplace Restraining Orders and Violence Prevention Plan

SB 553 would permit a collective bargaining representative to seek workplace violence restraining orders on behalf of the union’s members, and revise Cal/OSHA to establish, implement, and maintain a workplace violence prevention plan as part of their injury and illness prevention program. A coalition of employers, including the California Chamber of Commerce oppose the measure, on the basis that this measure inappropriately applies across all industries a standard that originally intended to apply only to hospitals.

This bill would amend, repeal, and add Section 527.8 of the Code of Civil of Procedure and amend Section 6401.7 and adds 6401.9 to the Labor Code.

Industry-Specific Bills

SB 525: Health Care Employee Pay

SB 525 would establish a patchwork of three separate minimum wage schedules (setting minimum wages at a rising scale over time from $18-$25) for covered health care employees, depending on the nature of the employer.

This bill adds Sections 1182.14 and 1182.15 to the Labor Code.

SB 627: Chain Businesses Notice Requirements to Displaced Workers

SB 627 would require chain businesses consisting of 100 or more nation-wide establishments to provide a 60-day displacement notice prior to closing a location to employees who have worked for the employer for at least six months. For one year after the closure of a covered establishment, employers must offer workers the opportunity to remain employed by the employer and to transfer to a location of the chain within 25 miles of the establishment subject to closure as positions become available. Employers must “maintain a preferential transfer list of covered workers . . . and shall make offers of transfer to covered workers in order of greatest length of service based on the worker’s date of hire at the chain.” These requirements may be waived by a clear and unambiguous CBA waiver.

This bill would add Part 9.7 (commencing with section 2550) to Division 2 of the Labor Code.

SB 723: Right to Recall in Hospitality 

SB 723 amends Labor Code 2810.8, established via SB 93 of 2021 (which we discussed at the time of its passage), to expand certain hospitality employees’ right to recall after being laid off for a reason related to the COVID-19 pandemic. The bill extends the December 31, 2024, sunset date to December 31, 2025.

This bill would amend and repeal Section 2810.8 of the Labor Code.

AB 647 and SB 725: Successor Grocery Employers 

AB 647 and SB 725 would both place new requirements on successor grocery employers’ hiring and reinstatements when there is a “change in control,” reminiscent of legislative efforts in 2014-2015.

These bills would amend Sections 2502, 2504, and 2512 of the Labor Code and add Sections 2507, 2509, 2510, and 2517 to the Labor Code.

AB 1228 and SB 476: Fast Food-Industry Changes 

In some political jockeying, AB 1228 would repeal existing law, presently suspended due to a referendum petition, which established the Fast Food Council within the Department of Industrial Relations, only if the referendum is withdrawn by January 1, 2024. If withdrawn by that date, the bill would, until January 1, 2029, re-establish the Fast Food Council, deem the council to be a governmental agency, and re-establish its duties to include, among other things, to establish a minimum wage and requirements and review procedures for health, safety, and employment standards.

This bill would add Part 4.5.5 (commencing with section 1474) to Division 2 of the Labor Code and repeal Part 4.5.5 (commencing with section 1470) of Division 2 of the Labor Code.

SB 476 would require an employer to pay costs associated with an employee obtaining a food handler card, including the time it takes for the employee to complete the training (which would be considered “hours worked”), the cost of the food handler certification program, and the time it takes to complete the certification program. The bill would also prohibit an employer from conditioning employment on an applicant or employee having an existing food handler card.

This bill would amend Section 113948 of the Health and Safety Code.

Workplace Solutions

Why does the legislature keep playing with our mind? We will continue to keep you apprised of developments as they come out of the Governor’s office through the October 14, 2023, bill signing deadline. Expect a deep dive on our blog of bills that ultimately pass and will affect you and your California workforce. Please check back in with us here at Cal Peculiarities, and you can also check out our Policy Matters podcast and newsletter for regular check-ins on California (and national) policy and legislative updates.

Edited by Cathy Feldman and Coby Turner

By Rachel V. See, Christopher J. DeGroff, and Andrew L. Scroggins

Seyfarth Synopsis: The EEOC and the Department of Labor Wage Hour Division (WHD) have taken an important step toward inter-agency coordination, committing to information sharing, joint investigations, training, and public outreach. The Memorandum of Understanding between the EEOC and DOL contemplates referring complaints between the two agencies, a move that should catch the attention of all employers.  What is more, the agencies have agreed to share swaths of information, including EEO-1 reports and FLSA records.  This coordination will not just occur at the agency leadership level – the MOU enables front-line personnel from both agencies to receive shared information quickly and expeditiously. This enhanced and elevated level of agency cooperation should be top of mind for all employers.

On September 14, 2023, the EEOC and WHD announced that they had entered into a Memorandum of Understanding enabling information sharing, joint investigations, training, and outreach. The MOU now empowers the agencies’ field staff to coordinate efforts on both individual matters and larger investigations.

The EEOC’s press release, and some initial media coverage, have focused on the agencies’ coordinated efforts relating to the recently enacted PUMP Act (extending to more nursing employees the rights to receive break time to pump and a private place to pump at work) and the Pregnant Workers Fairness Act (requiring reasonable accommodations for limitations related to pregnancy, childbirth, or related medical conditions). But the MOU’s information-sharing and other contemplated coordinated activity provisions go far beyond those statutes, covering a broad range of activities, touching on all aspects of EEOC and WHD jurisdiction.

For example, the MOU explicitly describes that each agency will make complaint referrals to the other, and that the two will share complaint or investigative files, EEO-1 reports and FLSA records, and “statistical analyses or summaries,” and that the agencies “will explore ways to efficiently facilitate” the data sharing.

Information sharing under the MOU is not limited to just top-level agency officials in Washington, DC; leadership from each agency’s District (or Regional) offices may request information without the need to first obtain approval from HQ in Washington, DC. Importantly, the EEOC District Directors and Regional Attorneys also may designate other EEOC employees to make the request. This means that front-line EEOC staff involved in enforcement and litigation can quickly access a wide range of information held by WHD. It is also noteworthy that the MOU allows any EEOC Commissioner to directly request information from WHD, without first channeling the request through EEOC career staff. This is significant because it enables EEOC Commissioners from different political parties than the Chair to obtain information directly from WHD.

But the elephant lurking in the corner of the room may be the potential for broad-based data-sharing between the two agencies. The MOU specifically contemplates that the EEOC may share employer EEO-1 reports with WHD. Notably, Title VII prohibits the EEOC from disclosing EEO report data to the public, but the MOU does not bind the WHD in the same way. Instead, the WHD agrees to “observe” Title VII’s confidentiality requirements.

Whether these provisions of the MOU might be sufficient to ward off a FOIA request directed to WHD may, at some point, be tested in the courts. WHD’s sibling agency at the Department of Labor, OFCCP, has been involved in contested FOIA litigation seeking large volumes of EEO-1 reports in OFCCP’s possession. For more information about this litigation, see our most-recent client update on OFCCP’s release of EEO-1 reports.

Implications for Employers

Employers can expect the MOU to lead to more information sharing between the EEOC and WHD when it comes to individual charges and investigations. (The MOU contains a high-level framework for coordinated investigations involving the same employer.)  More concerning is the potential for data sharing to fuel broader systemic investigations. Indeed, as we recently wrote, the EEOC’s five-year Strategic Plan announced just last month that it is committing to developing these “big cases,” in the hope that this will enable the EEOC “to increase its impact on dismantling discriminatory patterns, practices, or policies.” The ability to gather additional data through this partnership with the WHD adds another powerful tool to the EEOC’s investigative powers. 

For more information on the EEOC and WHD, and how both may affect your business, contact the authors or a member of Seyfarth Shaw’s Complex Discrimination Litigation Group or Wage Hour Litigation Practice Group.

By Molly Gabel and Rachael Reed

Seyfarth Synopsis: On August 31, 2023, the National Labor Relations Board’s Democratic majority issued a decision in American Federation for Children, Inc. The ruling expands the scope of activities protected by Section 7 of the National Labor Relations Act (NLRA) to include statutory employees’ efforts to advocate for nonemployees. To reach this outcome, the Board overruled Amnesty International, which held that employee advocacy on behalf of individuals who do not qualify as “employees” under the NLRA is excluded from Section 7 protections. 

The Board’s 2019 Amnesty International decision was one of several Trump-era rulings involving “protected concerted activity” targeted for review by the Board’s current General Counsel Jennifer Abruzzo in Memorandum 21-04 (“Mandatory Submissions to Advice”). The diverging results in American Federation for Children and Amnesty International each turned on answering when, if ever, a statutory employee seeking to support a nonemployee is acting for the purpose of “mutual aid and protection” within the meaning of the NLRA. 

“Mutual Aid and Protection” Under Amnesty International

Section 7 of the NLRA gives employees the right “to engage in . . . concerted activities for the purpose of . . . mutual aid and protection.” 29 U.S.C. § 157 (emphasis added). Employee conduct protected by this statutory provision requires the employee’s activity be both “concerted” and for “mutual aid and protection.”

In Amnesty International, the Board considered whether employees who joined a petition seeking pay for their employer’s unpaid interns engaged in protected Section 7 activity. The then Republican majority determined they had not. According to the Amnesty International Board: “Activity advocating only for nonemployees is not for ‘other mutual aid or protection’ within the meaning of Section 7.” Because Amnesty’s unpaid interns did not qualify as statutory employees under Section 2(3) of the NLRA, their coworkers’ efforts to help them gain paid wages were not undertaken for “mutual aid and protection,” and thus were not protected under Section 7.

American Federation for Children Takes a Much Broader View of “Mutual Aid and Protection” Based on Principles of Solidarity

The Board’s 3-1 American Federation for Children decision purports to overrule Amnesty International and broadens the interpretation of “mutual aid and protection” to encompass advocacy on behalf of nonemployees in circumstances that might also benefit statutory employees. American Federation for Children involved an employee whom the Board majority claimed solicited support from her coworkers to ensure the rehiring and work permit sponsorship of a former colleague. Applying Amnesty International, an administrative law judge determined the employee had not acted for the purpose of mutual aid and protection because her former colleague was not a statutory employee under the NLRA. On exceptions filed by the General Counsel, the Board reversed.

First, the Board, including the dissent, concluded that the employee’s colleague was most appropriately viewed as an applicant for employment and, therefore, met the definition of an “employee” under the NLRA. With this issue resolved, the Board majority concluded that the employee’s efforts to rally support for her former colleague’s rehiring were “clearly for the mutual aid and protection of employees” within the meaning of Section 7.

As the dissent pointed out, the Board majority should have ended its analysis there. Instead, it went a step further and alternatively held that the employee acted for mutual aid and protection even if her colleague was not a statutory employee. In doing so, the Board majority stated it was expressly overruling Amnesty International and returning to what it characterized as the “traditional” approach to nonemployee advocacy expressed by the Second Circuit in NLRB v. Peter Cailler Kohler Swiss Chocolates Co. and the Board in General Electric Co. According to the Board majority, these cases firmly establish a “solidarity principle” – wherein an employee who comes to the aid of another can reasonably expect help in return – is integral to the concept of mutual aid and protection under the NLRA.

Board Member Marvin Kaplan dissented from the decision and critiqued the Board majority for overruling Amnesty International when the facts of the case rendered that unnecessary. He explained in his dissent that the Board’s “alternative holding” is nonbinding, nonprecedential dicta, foreshadowing how this case may be challenged before courts.

The Board’s Stated New Standard for Nonemployee Advocacy

With this background in mind, the Board majority announced its new standard for assessing whether advocacy for nonemployees is for mutual aid and protection. “The question is simply whether in helping those persons, employees potentially aid and protect themselves, whether by directly improving their own terms and conditions of employment or by creating the possibility of future reciprocal support from others in their efforts to better working conditions.”

The Board identified two key ways in which the employee at issue could potentially benefit from advocating for her colleague’s rehiring. First, by advocating for her colleague’s rehiring, the employee could reasonably expect to receive her support in return when, if ever, a future need arises. Second, in seeking to ensure the hiring of a desired coworker, the employee was working to improve her own and other coworkers’ working conditions.

The Board further ruled that the legal standard announced in American Federation for Children applies retroactively.

Takeaways for Employers

The impact of the Board’s American Federation for Children decision is potentially far-reaching. In comments addressing the ruling, Board Chair Lauren McFerran stated: “Standing in solidarity can be a protected act regardless of the employment status of those you stand with—the question is simply whether, in helping others, employees might help themselves and get help in return.”

Employers are left asking in response: “At what point does the prospect of future help become so remote or attenuated from the employment environment that employees can no longer be said to be acting for mutual aid and protection?” The American Federation for Children decision leaves that question unanswered. However, in an environment where social justice and other political and social movements have increasing reach and visibility, it is unlikely that the bounds of “mutual aid and protection” under the American Federation for Children standard will remain untested for long. Until then, employers faced with employees who seek to advocate for nonemployee groups and various causes should understand there is newfound legal risk and uncertainty in light of the Board’s decision.

If you have questions about the impacts of this decision or how to navigate the changing labor landscape, do not hesitate to contact our team of experienced labor attorneys to help guide you through these issues.

By Robert B. Milligan

On September 1, 2023, California Governor Gavin Newsom signed legislation that furthers the state’s protections for employee mobility and seeks to void out of state employee non-compete agreements. Specifically, the new law provides that any contract that is void under California law is unenforceable regardless of where and when the employee signed the contract.

Under existing California law, non-compete agreements with California employees are typically void. California Business and Professions Code Section 16600 provides “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

The new law goes a step further and provides in Section 16600.5 to the Business and Professions Code:

(a) Any contract that is void under this chapter is unenforceable regardless of where and when the contract was signed.

(b) An employer or former employer shall not attempt to enforce a contract that is void under this chapter regardless of whether the contract was signed and the employment was maintained outside of California.

(c) An employer shall not enter into a contract with an employee or prospective employee that includes a provision that is void under this chapter.

(d) An employer that enters into a contract that is void under this chapter or attempts to enforce a contract that is void under this chapter commits a civil violation.

(e)

(1) An employee, former employee, or prospective employee may bring a private action to enforce this chapter for injunctive relief or the recovery of actual damages, or both.

(2) In addition to the remedies described in paragraph (1), a prevailing employee, former employee, or prospective employee in an action based on a violation of this chapter shall be entitled to recover reasonable attorney’s fees and costs.

The law is effective January 1, 2024.

The findings in support of the new legislation are:

(a) Noncompete clauses in employment contracts are extremely common in the United States. Research shows that one in five workers are currently subject to a noncompete clause out of approximately 30 million workers nationwide. The research further shows that California employers continue to have their employees sign noncompete clauses that are clearly void and unenforceable under California law. Employers who pursue frivolous noncompete litigation has a chilling effect on employee mobility.

(b) California’s public policy provides that every contract that restrains anyone from engaging in a lawful profession, trade, or business of any kind is, to that extent, void, except under limited statutory exceptions. California has benefited significantly from this law, fueling competition, entrepreneurship, innovation, job and wage growth, equality, and economic development.

(c) Over the past two decades, research on the harm of noncompete clauses and other contract clauses involving restraint of trade to pursue one’s profession has been accelerating. Empirical research shows that noncompete clauses stifle economic development, limit firms’ ability to hire and depress innovation and growth. Noncompete clauses are associated with suppressed wages and exacerbated racial and gender pay gaps, as well as reduced entrepreneurship, job growth, firm entry, and innovation.

(d) Recent years have shown that employers utilizing broad noncompete agreements attempt to subvert this longstanding policy by requiring employees to enter void contracts that impact employment opportunities once an employee has been terminated from the existing employer. Moreover, as the market for talent has become national and remote work has grown, California employers increasingly face the challenge of employers outside of California attempting to prevent the hiring of former employees.

(e) The California courts have been clear that California’s public policy against restraint of trade law trumps other state laws when an employee seeks employment in California, even if the employee had signed the contractual restraint while living outside of California and working for a non-California employer.

(f) California has a strong interest in protecting the freedom of movement of persons whom California-based employers wish to employ to provide services in California, regardless of the person’s state of residence. This freedom of employment is paramount to competitive business interests.

Legal commentators have previously challenged the alleged factual underpinnings of some of these “findings.” The legislation was author sponsored and supported by Miravai LifeSciences, the California Employment Lawyers Association, and 46 law school professors.

Maravai LifeSciences, a supporter of this bill, explained that their “industry is heavily reliant on attracting top talent from across the country and around the world to continue driving innovation and economic growth. However, the use of noncompete clauses in employment contracts can hinder this process, preventing companies from recruiting the best candidates and limiting employee mobility. This is especially problematic in the biopharmaceutical industry, where the need for highly skilled workers with specialized knowledge is particularly acute.” Maravai further explained, the “use of noncompete clauses in employment contracts, can have a chilling effect on employee mobility and stifle economic development. Research has shown that noncompete clauses limit firms’ ability to hire and depress innovation, growth, and are associated with suppressed wages and exacerbated racial and gender pay gaps.”

While California has long separated itself from the majority of the country in its treatment of employee non-compete agreements as codified in Business and Professions Section 16600, the wrinkle in this new law is that attempts to interfere with employee non-compete agreements that may be valid under another state’s law. For example, an employee based in Florida bound by a non-compete agreement enforceable under Florida law may seek employment in California and the agreement would be considered void and enforceable under this California law. Further, an employee, former employee, or prospective employee may bring a private action to enforce the law for injunctive relief or the recovery of actual damages, or both. A prevailing employee, former employee, or prospective employee is entitled to recover attorney’s fees and costs.

The likely impact of this law is that companies may use the new California law to attempt to cleanse an out of state employee from an otherwise valid non-compete agreement under another state’s law by having the employee move to California to work. Further, the shear breadth and ambiguity of the language in the new legislation puts in question whether California based employers should ask their non-California based employees to enter non-competition agreements even if they are enforceable under the laws in which the employee works or resides. In other words, while the new law seeks to protect California employers and allow them to hire out of state employees bound by non-compete agreements in California, why should those same California based employers be permitted to use non-compete agreements with out of state employees and enforce those agreements out of state. Partisan state legislators and Governors outside of California may look to punish California for this new legislation. This is yet another example of the peculiarities of California and its activist legislature and Governor which causes some out of state employers and their counsel to lose their mind.

We expect that there will be legal challenges to the legislation, including Constitutional challenges, under the commerce clause, full faith and credit clause, and potentially the contract clause.

This new law is part of the recent push to attempt to ban or reform non-compete laws, which the FTC has shown an interest in banning on a nationwide basis.

To add to the labyrinth, there is also additional proposed California legislation AB1076 that would add additional “protections” including a notification requirement for California employers.

The bill states that it would codify “existing case law by specifying that the statutory provision voiding noncompete contracts is to be broadly construed to void the application of any noncompete agreement in an employment context, or any noncompete clause in an employment contract, no matter how narrowly tailored, that does not satisfy specified exceptions. The bill would state that this provision is declaratory of existing law. The bill would make these provisions applicable to contracts where the person being restrained is not a party to the contract.”

This bill would also make it unlawful to include a noncompete clause in an employment contract, or to require an employee to enter a noncompete agreement, that does not satisfy specified exceptions. The bill would require employers to notify current and former employees in writing by February 14, 2024, that the noncompete clause or agreement is void, as specified. This bill would make a violation of these provisions an act of unfair competition pursuant to the UCL.

In light of these developments, California employers should review their employment agreements, offer letters, employee handbooks, and policies and remove any non-compete provisions that may continue to exist with their California employees, consult with legal counsel concerning the implication of this law on their out of state workers, ensure that their recruiting and hiring practices take into account the new legislation, and closely follow the new and proposed legislation coming out of California and any legal challenges that undoubtedly will occur.

By Robert S. Whitman and Kyle D. Winnick

In Perry et al. v. City of New York, the Second Circuit upheld a large jury verdict in favor of a collective of workers regarding off-the-clock work.  In doing so, the Court reaffirmed the principle that employers will ordinarily not be liable under the FLSA when employees fail to follow a reasonable process to report time worked.

Many wage-and-hour lawsuits involve “off-the-clock” claims—allegations that employees performed work outside of their recorded working hours for which they were not compensated.   One issue that often arises in such cases is whether the employer is liable for work not recorded by employees in the timekeeping system. 

In Perry v. City of New York, a certified collective of 2,519 EMTs and paramedics for the New York City Fire Department sued under the FLSA, contending that they were not compensated for all overtime worked because their various pre- and post-shift activities was not counted as time worked.  After a rare collective action trial, the jury found these activities were compensable and awarded the plaintiffs $17,780,063 for unpaid overtime, liquidated damages, and attorneys’ fees. 

The City appealed, arguing that it was not liable because the plaintiffs did not record the time spent on these activities in the City’s timekeeping system, such that it could not have known that the plaintiffs performed such work or failed to receive compensation for it.

The Second Circuit upheld the jury award, but reaffirmed principles favorable to employers.  It explained that compensable work under the FLSA is work that employers require, know about, or should have known about.  Thus, employees’ failure to report overtime work, for example by failing to include it on their time sheets, “will in many circumstances allow the employer to disclaim the knowledge that triggers FLSA obligations.” 

One caveat to this principle is if the employer otherwise had notice of the work.  The court held that there was sufficient evidence for this caveat to apply in this case.  Specifically, there was evidence showing that the collective members could not have performed their jobs without completing these pre- and post-shift activities, and that they had complained to supervisors about being uncompensated for performing them.  Thus, according to the court, the City should have been aware that compensable work was being performed. 

The City made another argument: even if it had notice of the pre- and post-shift activities, it was unaware that collective members were not paid for such work.  The court rejected this argument, holding that “knowledge of non-payment is irrelevant to FLSA liability.”  In other words, if an employer is on notice that work is performed, the employer must ensure that such time is compensated. 

Perry is a good reminder that employers can protect themselves from FLSA liability through sound wage-and-hour practices.  One way discussed by the court is by establishing “a reasonable process for an employee to report work time,” because “an employer with such a system will not ordinarily be chargeable with constructive knowledge of unreported work.”  But the Second Circuit explained that such a process must be administered so as not to impede “employees’ ability to report their work, such as by surreptitiously deleting overtime requests, punishing workers who ask for overtime pay, or otherwise discouraging employees from reporting.”  It is therefore critical for employers to train supervisors and non-exempt employees on what work activities are compensable and how to report work time outside their normal work shifts, and to ensure that employees are not impeded from reporting work time.  By establishing robust reporting procedures, employers can protect themselves from liability for off-the-clock work.

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By Erin Hawthorne, Ana Cid, Tessa Cranfield, Pamela Devata, Mandana Massoumi, Helen McFarland, and Kathryn Weaver

Seyfarth Synopsis: The use of contracting arrangements is widespread; however, around the world, we are seeing trends suggesting this type of work arrangement may become more restricted, higher cost or higher risk to companies in the future. We asked several partners to share their insights on what’s changing for companies that use contractors and what the key impacts of this may be in the future.

What changes are we seeing in the use of contractors?

Pam Devata, employment law partner in Seyfarth’s Chicago office, says that many US states have already enacted laws that apply to contractors. Pam says these laws have impacted various employment conditions, including wages and hours, background screening and ban-the-box laws relating to what and how companies can use criminal history or other screens to make decisions.

Erin Hawthorne, employment law partner in Seyfarth’s Melbourne office, says that in Australia, the government is proposing new laws that will make it easier for contractors to argue they are employees and harder for businesses to defend allegations of sham contracting. There will also be a new capacity for the national labor tribunal to vary or void all or part of independent contractor contracts that include ‘unfair’ terms. This will affect the risk profile of all independent contractor arrangements. In addition, for road transport businesses and businesses that operate online platforms deal with ‘employee-like’ contractors, the proposed laws will introduce ‘employment-like’ conditions for contractor arrangements, including minimum rates and conditions, termination protections and union-led collective bargaining.

Helen McFarland, employment law partner in Seyfarth’s Seattle office, says that more and more states (particularly on the West Coast) are enforcing laws that make it extremely difficult to be classified as an independent contractor. State agencies are aggressively pursuing these issues, even seeking to classify gig workers as employees. Further, legislators are drafting new laws (on the city and state level) chipping away at the differences by requiring companies to provide leaves and various other benefits to contractors that were previously reserved only for employees.  

Mandana Massoumi, employment law partner in Seyfarth’s Los Angeles office, says that California has been the perfect test case in how issues related to classification of independent contractors has been legislated and then litigated. In 2019, California passed laws requiring the application of the “ABC test” to determine if employees are independent contractors for purposes under certain circumstances. Under the ABC test, a worker is considered an employee and not an independent contractor unless the hiring entity satisfies all three of the following conditions:

  • The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  • The worker performs work that is outside the usual course of the hiring entity’s business; and
  • The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

However, while the ABC test is the applicable test for most workers, some occupations or industries are an exception to it, meaning a case-by-case review is always required.

Ana Cid, employment law partner in Seyfarth’s New York office specializing in European and Latin American employment law, says that while some years ago, we saw an initial trend in some countries, like Spain, which regulated an ‘economically dependent’ contractor providing some sort of ‘employment’ rights to those contractors that had a strong dependence into one client, this trend has not continued or developed much. Yet, what is a trend in Europe and also Latin American countries is to have a much stricter bar when classifying independent contractors as such, instead of employees, interpreting signs of supervision and control as factors to reclassify the contractors as employees and also regulating specific test to presume the relationship as employment relationship, particularly in the context of individuals rendering services through digital platforms, where a draft EU Directive is being discussed and is expected to be concluded soon.

Tessa Cranfield, employment law partner in Seyfarth’s London office, sees no sudden changes in the UK, despite various government consultations around adjusting the balance in favor of gig and other ‘insecure’ workers and simplifying the UK’s legal and tax tests for employment. However, a spate of ‘gig economy’ cases has made clear that status depends more on the reality of an arrangement than the written terms. And one change that is here to stay (despite a plan to reverse it by the short-lived Liz Truss government last year) is to make end users ultimately responsible for employment taxes, where a contractor works via an intermediary and works akin to an employee.

Kathryn Weaver, employment law partner in Seyfarth’s Hong Kong office, says that while contracting arrangements remain outside the purview of employment protection laws in Hong Kong, there has been increased scrutiny by the Hong Kong tribunals on the classification of independent contractors. Recently, the Labor Tribunal ruled in favor of six gig workers for a food and delivery parcel platform being employees and not independent contractors, which meant that they were then accorded the statutory employee protections and benefits. This is the first time the Hong Kong Labor Tribunal has found in favor of gig workers and is likely to be of considerable concern to other gig economy companies in Hong Kong.

What does this mean for businesses?

Pam says that employers in the US need to be aware of different types of laws when determining whether to engage with contractors or employees. This is because multiple state and local jurisdictions in the US are broadening their scope of protection for contractors. Pam warns that employers can no longer engage contractors without triggering specific labor requirements in certain states. For example, Pam notes that independent contractors in New York City and Los Angeles as well as other states are subject to Fair Chance and ban-the-box laws traditionally reserved for employees.

Australian businesses that use contractors will need to prepare for a period of uncertainty in the short term as the law reforms take shape. In the longer term, Erin predicts greater legal risk, higher costs, and less flexibility for businesses using contractors (as well as other forms of labor outside of permanent employment). Depending on the reasons for using contractors, these changes may necessitate review of alternative options.

Helen encourages employers to be extremely cautious when choosing to use contractors to perform duties that can also be completed by your employees. When considering the added risk of litigation and government penalties, and joint employment risks as contractors are bringing more lawsuits directly against the companies, it may not be worth it to hire contractors.

Mandana notes that for businesses in the United States, it is important to review any state specific laws (such as the ABC test implemented in California) to ensure proper compliance with the classification requirements, given that this area has been a hotbed of litigation.

Ana suggests that international businesses set up mechanisms to ensure that the relationships with contractors meet the applicable test in each country, particularly when such contractors are providing most of their services for one company. Particular attention should be given to employee presumption tests in each country, even more so if the services are set up under digital platform structures.

Amid the fast-growing gig economy market in Hong Kong, Kathryn reminds companies to exercise caution when engaging gig workers or contractors. If the overall impression of the relationship between the contractor and the company is that of employment, taking into account factors such as the degree of control over the contractor, who provides the equipment to perform the services, whether there is a right to appoint a substitute, who bears the financial risks, and whether the contractor is integrated into the company, then no matter how carefully drafted the independent contractor agreement is, there will be a high risk that the contractor will be deemed to be an employee by the Hong Kong tribunals.

Please contact any of our partners if would like to explore or review your contracting arrangements.