Workplace 2010: Updates from SGR’S Annual Employment Law Seminars

SGR's annual Workplace Seminars in Atlanta and Jacksonville again proved to be highly popular with new and existing clients. For those who couldn't attend, we have summarized some key updates.

SGR’s annual Workplace Seminars in Atlanta and Jacksonville again proved to be highly popular with new and existing clients. For those who couldn’t attend, we have summarized some key updates.

Restrictive Covenants in the Employment Context

by Erin Payne

Restrictive covenants are agreements with employees that restrict their ability to compete (noncompetition provision), share confidential information (nondisclosure provision), or solicit customers or employees (nonsolicitation provision) after leaving employment with your company. They are an important tool to protect your customers and your confidential information from
being taken by a former employee. You should also consider whether employees you hire are subject to restrictive covenants with their previous employers.

Georgia is one of the most difficult states in which to enforce restrictive covenants. Although restraints on trade are prohibited by the Georgia Constitution, courts will enforce restrictive covenants
if they are: (1) reasonable in duration, geography and scope of activity restricted; (2) founded on valuable consideration; (3) reasonably necessary to protect the interest of the employer; and (4) not unduly prejudicial to the public interest. Georgia courts will not “blue pencil,” or modify, an unreasonable restriction.

In April 2009, the Georgia Legislature passed and the governor signed a statute that provides a set of guidelines for the enforcement of restrictive covenants. The statute will not go into effect unless Georgia voters ratify a constitutional amendment in the November 2010 general election, and would only apply to agreements entered into on or after the effective date of the statute. In addition to outlining the basic requirements for restrictive covenants, the new statute also defines some of the terms frequently used in restrictive covenant agreements, contains specific language for enforceability, and specifies the types of employees that can be subjected to noncompetition restrictions. Significantly, the new statute would allow courts to “blue pencil” overly broad restrictions
to make them enforceable and allows confidential information to be protected for as long as the information remains confidential.

Restrictive covenants are difficult, though not impossible, to enforce and should be addressed on an employee-by-employee basis. Be sure to get legal counsel involved in the drafting of any restrictive covenant agreement.

Wage and Hour Update

by Pat Hill

Based on figures from last year, employers continue to experience an increase in wage and hour claims, currently the largest and fastest growing area of employment litigation. Such claims not only are plentiful, they can also result in significant awards. The top 10 private wage and hour settlements under the Fair Labor Standards Act (FLSA) last year totaled $363.8 million, a 44-percent increase from 2008.

The ever-increasing rate of wage and hour litigation is not necessarily attributable to any new
developments in the law; rather, it reflects the reality that the FLSA is a complicated law that trips up even the most vigilant employers. This is not to say, however, that there have been no changes to the law. The FLSA was amended by the new health insurance reform bill. Under the Patient Protection and
Affordable Care Act, employers are generally required to provide reasonable, unpaid break time to
employees who are nursing mothers to express breast milk for their infants. The government is also
taking an aggressive approach on enforcing the FLSA against noncomplying employers and focusing less on educating employers about the law. As evidence of this shift, the Department of Labor has ceased issuing opinion letters to answer wage and hour questions, while simultaneously announcing that it would increase wage and hour audits and focus more intently on identifying employers who are
misclassifying their employees as independent contractors.

In the coming months, the United States Supreme Court is expected to settle a split among the courts on whether an employee who makes only verbal complaints of unpaid wages can subsequently sue for
retaliation under the FLSA . Pursuant to Section 215(a)(3) of the FLSA, “it shall be unlawful for any person … to … discriminate against any employee because such employee has filed any complaint or
instituted or caused to be instituted any proceeding under or related to this chapter.” The Supreme
Court will determine whether the term “filed” should be interpreted to include verbal complaints made directly to the employer or whether all complaints must be in writing.

In addition to staying updated on new developments, employers should pay close attention to certain
issues that make up the bulk of wage and hour claims, including the classification of employees as
exempt, the proper observance of meal and rest breaks, the prevention of off-the-clock work, and the proper handling of tip pools and expense reimbursements.

The Audits are Coming for 409A

by Andy Fawbush

Section 409A of the Internal Revenue Code covers much more than what is traditionally considered
to be “deferred compensation.” Just a few examples of what else is included are employment agreements, equity compensation, severance agreements, and reimbursement arrangements. The penalties for failure to comply are substantial and punitive. The IRS has announced a 409A audit program that has already begun. Fortunately, there are correction programs that, if used prior to
an audit, either reduce or eliminate all penalties. Existing plans and arrangements should be reviewed
to determine 409A applicability and, if subject to 409A, corrected under a correction program if needed. In preparing new plans and arrangements, 409A implications should be considered.

Recent Developments in Employment Law

by Pat Hill

Employers saw many developments in employment law over the past year and there are more to come. One major development is the rise in compliance audits.

The Department of Labor’s Wage and Hour Division intends to hire an additional 200 investigators to pursue claims of minimum wage and overtime violations. Similarly, the Office of Federal Contract Compliance Programs intends to hire additional compliance officers to expand the focus of its compliance reviews to include a detailed review of contractors’ compliance with Section 503 of the Rehabilitation Act and audits of construction contractors receiving grants under the American Recovery and Reinvestment Act of 2009.

The IRS will also randomly audit 6,000 employers between 2010 and 2012. The audits will focus on employees misclassified as independent contractors, failure to file employment taxes, fringe benefit issues (including stock options), and executive compensation. Employers should conduct internal audits of particular areas where they may be vulnerable.

Another development was the passage of the Hiring Incentives to Restore Employment Act (HIRE Act). The Act provides tax credits to employers that hire persons who have been unemployed for at least 60 days. Employers who hire workers between February 4, 2010 and December 31, 2010 may qualify for a tax credit of 6.2 percent of the wages paid to those workers. Employers may also claim a supplemental tax credit worth up to $1,000 at the end of a year of employment for each previously unemployed individual they hire. Employers generally may not take both tax credits for the same employee for the same tax year.

Finally, many employers have adopted the use of payroll cards to electronically disperse money to employees, affiliates and distributors. The types of payment most commonly placed on payroll cards are wages, commissions, reimbursements, per diems, advances and termination pay. While many states do not permit mandatory direct deposit for employees, at least 16 states have recently amended their statutes to expressly permit the use of payroll cards.

Reductions in Force, Employee Terminations and Related Consequences

by Matt Clarke

An unfortunate reality of the current economy is that many employers still face the prospect of having to lay off or terminate employees. Whenever an employer considers letting multiple employees go, there are numerous employment law implications, so employers need to plan ahead to minimize the chances for legal exposure.

Mass layoffs or terminations can raise issues with labor unions and individual employment agreements and create the risk of possible discrimination and liability claims under certain “mass layoff” laws. For example, the federal Worker Adjustment and Retraining Notification (WARN) Act requires that employers with 100 or more employees provide at least 60 days advance notice in two circumstances: 1) when a plant is closing and at least 50 employees lose their employment; or 2) if there is a mass layoff where at least 50 workers lose employment and this number constitutes at least one-third of the work force at that worksite.

Employers facing a mass layoff or plant closing need to carefully assess issues with employee benefits and insurance coverage. Likewise, they need to consider whether they wish to offer severance benefits and, if so, whether they will require affected employees to sign separation and release agreements as a precondition to receiving separation pay. When separation agreements are used, in order for the releases of age discrimination claims to be valid (for affected employees 40 years old or older), the agreements must contain certain mandatory language and waiting periods required under federal law. When it comes to reductions in force, it is imperative that employers carefully assess all of these issues in advance so as to minimize the chances for unanticipated consequences and possible legal exposure later.


by Anton Mertens

Immigration is in the news again with passage of a tough anti-immigration bill in Arizona, numerous rallies around the nation and a subsequent challenge filed by the Justice Department. Meanwhile, there is no real movement or desire in Washington, D.C. to tackle comprehensive immigration reform as we head to the midterm elections.

The U.S. Citizenship and Immigration Services (US CIS ) reports that 200,000 employers have registered with E-Verify, which is still less than three percent of all employers in the U.S.

E-Verify is an Internet-based system operated by the Department of Homeland Security in partnership with the Social Security Administration that allows participating employers to electronically verify the employment eligibility of their newly hired employees. It works in conjunction with the I-9 employment eligibility verification process, but does not replace it and does not provide a safe harbor for employers who use E-Verify. So far, 13 states have enacted legislation mandating the use of E-Verify.

The H-1B filing season is in full swing and the use of the H-1B specialty occupation visa is substantially down from previous years, which could be an indication of the lack of an economic recovery.

Employers should watch out for unfair immigration employment practices and be ready for more Immigration and Customs Enforcement (ICE) workplace raids. Employers should also perform regular I-9 audits and decide whether to sign up for E-Verify if not already mandated by law. Finally, we should all look for more states to introduce and pass immigration-related legislation and remain informed about and closely follow the current immigration debate.

Health Care Reform

by Laura Miller Andrew

The combination of the newly passed health care reform legislation, the Patient Protection and Affordable Care Act and the Health Care and Education Tax Credits Reconciliation Act of 2010, will have a major impact on both individuals and employers for years to come. Specifically, all individuals who are not covered by Medicare or Medicaid will be required to obtain health care coverage, or be subject to government penalties. Individuals with lower incomes will be eligible to receive credits or vouchers to help pay for their health care coverage.

Most employers, while not required to offer health care coverage to employees, will be penalized and subject to additional taxation for not providing such coverage. Provisions of health care reform will begin to impact many employer group health plans in 2011.

Workplace Implications of Social Networking and Electronic Communications

by Matt Clarke

Employers are facing an increase in issues that arise from the use of social networking websites by job applicants and current and former employees. Most of the information and pictures that people post to websites such as Facebook, Twitter and LinkedIn have no implications whatsoever on the posting person’s job prospects or employment. However, on certain occasions, people may post matters that create embarrassment, cause harassment or discrimination, or that improperly reveal an employer’s confidential information.

Because of the increasing impact that these postings have on employment issues, employers are encouraged to implement social networking policies. Social media policies should be maintained in the company’s employee handbook and supplement the employer’s existing electronic communications and internet usage policies.

Well-drafted social media policies can provide an employer with an effective tool to protect itself against possible legal liability and harm to its reputation and goodwill. Employees should be sensitive to activities that could negatively impact an employer’s reputation or standing, while employers must be careful not to violate laws that may prohibit them from taking action against employees who engage in lawful off-duty conduct. Such policies can help remind employees that public or workplace social media activity is not private, and that the employer has the right to correct unproductive, harassing or harmful social media use as necessary. The Employment Law Practice at SGR can provide sample social media policies and assist with their implementation and employee training.

FMLA and ADA Update

by Tracie Johnson Maurer

In 2008 and 2009, Congress made significant changes to both the Family and Medical Leave Act (FMLA) and the Americans with Disabilities Act (ADA). In essence, the amended FMLA was supposed to make it easier for employers to maneuver its difficult regulations.

In the vein of Congress giveth and Congress taketh away, the amendments to the ADA substantially broadened the definition of “disability,” thus obligating employers to provide reasonable accommodations for more workers. The FMLA and ADA cases under the new regulations have been stories of good news and not-so-good news. The good news is that the law on ADA and FMLA has not been quite as bad as anticipated. There have not been groundbreaking cases for either the FMLA or the ADA in the last year. The not-so-good news, however, it that it may just be a matter of time. Most federal employment cases take more than a year to develop and get through the litigation process; consequently, we have yet to see the thrust of reported decisions under the new faces of FMLA and ADA.

Nevertheless, from issues involving vacation time obligations under the FMLA to frequent bathroom breaks under the ADA, the few cases decided so far under the amendments highlight the continuing difficulty with administering both the FMLA and the ADA and provide good lessons for us all.

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