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Federal District Court Upholds Clickwrap Employment Agreements

Decision: A federal district court in New Jersey denied two employees’ motion for reconsideration of its prior order enforcing a “clickwrap” agreement containing restrictive covenants and a forum selection clause. (ADP, LLC v. Lynch, No. 2:2016-cv-01053 (D.N.J. 2016).) The employees’ prior employer, ADP, sued the employees after they accepted positions with a competitor, The Ultimate Software Group, Inc. (USG). ADP alleged that the employees had agreed to several restrictive covenants, including non-solicitation, non-compete and non-disclosure agreements, as well as a forum selection clause, as a condition of their participation in ADP’s stock award program. Specifically, the employees accepted their stock awards using an electronic program that required the employees to first check a box acknowledging that they had read several accompanying electronic documents that contained the restrictive covenants and forum selection clause. Like many consumer clickwrap agreements, the employees were not actually forced to read the documents. Moreover, the employees did not affirmatively “agree” to the terms of the documents; they just “acknowledged” that they had read the documents. The court found that the clickwrap agreement was enforceable on these facts. The court thus denied the employees’ motion to dismiss, finding that the court had personal jurisdiction on the basis of the forum selection clauses, and granted in part ADP’s motion for a preliminary injunction restricting the employees’ work with USG on the basis of the restrictive covenants.

Impact: The case demonstrates that courts may uphold the use of clickwrap agreements, which are relatively common in the consumer landscape, in the context of employment agreements. It remains to be seen whether courts would reach the same conclusion with a clickwrap agreement that does not provide the clicking employee with significant employee benefits, such as the stock awards in this case. At the same time, while pen-and-ink agreements (including electronic signature options) will likely remain the better choice for full employment agreements, employers may consider the use of electronic agreements for regular policies that require acknowledgement from a broad swath of employees and that might require frequent revision, such as the employee handbook.

New California Law Bans Non-California Forum Selection and Choice-of-Law Clauses in California Employment Agreements

Update: California Governor Jerry Brown recently signed into law Senate Bill 1241, which adds Section 925 to the California Labor Code. Under Section 925, starting on January 1, 2017, employers will be prohibited from requiring an employee who primarily resides and works in California to agree, as a prerequisite to employment, to adjudicate disputes outside the state and/or under the laws of a state other than California. Any provisions in contracts entered into, modified or extended on or after January 1, 2017, that violate this new law are voidable at the request of the employee, and any dispute regarding a voided provision must be adjudicated in California. Moreover, an employee who successfully sues to void offending provisions can recover reasonable attorneys’ fees.

Notably, the law does not apply to contracts entered into with an employee who is individually represented by legal counsel in negotiating the terms of an agreement containing forum selection and choice-of-law provisions. Thus, the statute will likely be inapplicable to many employment agreements with executive-level employees, who often retain legal counsel in negotiations over their employment agreements.

Impact: This statute codifies into law what has already been the frequent result when California courts consider whether to apply non-California forum selection and choice-of-law provisions to disputes involving employment agreements. While the law is fairly straightforward, there are a number of ambiguities that will be subject to interpretation by practitioners and courts. For example, the statute does not define the circumstances under which an employee will be deemed to “primarily” reside and work in California. The prohibition is also focused on prohibiting the use of non-California clauses as “a condition of employment,” leaving open the possibility that such clauses may be valid if employees are permitted to revoke or opt out of them. We may see other states follow suit and enact similar laws, and employers that find it important to apply a different state’s law to certain employment agreements may encourage the employee to retain counsel. In general, it is advisable for employers that have contracts with employees who live and work in California to audit their employment agreements and consider how to address any provisions that may run counter to the new law.

EEOC Issues New Guidance on National Origin Discrimination

Guidance: On November 18, 2016, the US Equal Employment Opportunity Commission (EEOC) issued new enforcement guidance addressing national origin discrimination. The new guidance, like the EEOC’s recent guidance on retaliation claims, seeks to address evolving cultural norms and recent legal developments. In the guidance, the EEOC emphasizes that origin discrimination claims under Title VII do include discrimination based on the perception that a person is of a particular origin or his or her association with individuals of a particular origin. In addition, the EEOC offers further clarification on its stance regarding English-language-only policies. The EEOC explains that although employers may have valid reasons to impose language restrictions, there must be a legitimate business justification, and the EEOC takes the position that restrictions may not prohibit employees from using another language during meal periods and breaks.

Impact: Although the EEOC’s guidance generally reiterates established legal principles about national origin discrimination, the guidance clarifies that it views claims of “perceived as” or “association” national origin discrimination as prohibited by Title VII despite the absence of explicit language in Title VII prohibiting such discrimination, language that exists in the Americans with Disabilities Act. Because some courts have also accepted these types of claims, employers should review their workplace policies and HR investigation and internal claim review practices to ensure that they adequately address all forms of discrimination, including these types of national origin discrimination. Employers should also review English-only policies and clarify that they do not apply during meal times and breaks and that they have a business purpose that can be clearly demonstrated. Finally, employers should ensure that they are not explicitly or implicitly considering national origin (or the customs, characteristics or traits associated with a particular national origin) when making employment decisions.

FTC and DOJ Issue Guidance on Application of Antitrust Law to Employee Hiring and Compensation

Guidance: The Federal Trade Commission (FTC) and the Department of Justice Antitrust Division (DOJ) recently released joint guidance titled “Antitrust Guidance for Human Resource Professionals” to explain the application of antitrust law to hiring and compensation practices. The guidance indicates that the DOJ intends to criminally investigate companies that agree with competitors to fix wages or other terms of employment or to enter into agreements to not recruit each other’s employees (so-called “no-poaching” agreements). To be subject to enforcement, these agreements need not be written, formal or even spoken. Rather, the existence of such an agreement can be inferred from circumstantial evidence, including evidence of discussions and parallel behavior. Additionally, the guidance warns that exchange of sensitive information regarding terms and conditions of employment among competitors may amount to an antitrust violation even without an explicit agreement.

Impact: Human resources professionals and in-house counsel should familiarize themselves with the guidance. In addition to providing a clear declaration that wage-fixing and no-poaching agreements will be criminally prosecuted, the guidance offers suggestions for conduct that may help companies achieve their hiring goals without violating the antitrust laws, such as participating in information exchanges through neutral third parties that provide aggregated, relatively old information. The guidance also includes a question-and-answer section on common scenarios faced by human resources professionals. As a result of this guidance, employment lawyers will likely strengthen their already close interactions with antitrust counsel, including when considering new or unusual transactional relationships that may involve hiring restrictions.  

New York City Enacts Law Protecting Independent Contractors and Freelance Workers

Update: On November 16, 2016, New York City Mayor Bill de Blasio signed into law the “Freelance Isn’t Free Act” (No. 1017-2015), a local ordinance establishing additional protections for freelance workers in New York City. The new ordinance strengthens existing protections for freelance workers and includes the right to a written contract if the work is worth more than $800.00, the right to be paid timely and in full and the right to be free from retaliation. The ordinance also provides that a freelance worker may file an administrative complaint or a civil action for violations of rights protected under the new law and may be awarded statutory damages, double damages, injunctive relief and attorney's fees. The law specifically excludes commissioned salespersons, lawyers and medical professionals but otherwise covers all independent contractors who perform work valued above the threshold level.

Impact: The new ordinance takes effect on May 15, 2017, giving employers six months to review their workforce to determine whether any independent contractors fall within the definition of a freelance worker. For any such individual, the employer should determine whether a written contract is required under the ordinance and should also make sure that it is complying with the Act’s other new protections. Given that freelance workers will have multiple avenues to pursue violations and multiple forms of recovery, employers should proactively address their retention practices to limit the likelihood that they will have to defend themselves in a future legal action under the new ordinance.

Federal Court Enjoins DOL’s New Overtime Rules

Decision: On November 22, 2016, a federal district court in Texas entered a preliminary injunction that temporarily stays implementation of the Department of Labor’s (DOL) updated overtime rules that were set to take effect on December 1, 2016. The court held that the plaintiffs are likely to succeed on the merits of their argument that the DOL exceeded its statutory authority by setting a new minimum salary level for the white-collar exemptions to the Fair Labor Standard Act’s (FLSA) overtime rules. The court reasoned that the DOL had increased the minimum salary level so far beyond the existing level that the salary requirement effectively supplanted the job duties requirement for the exemption, thereby creating a de factosalary-only test in violation of the FLSA. Importantly, the court’s ruling did not address the increase in the salary threshold from $100,000 to $134,000 for the FLSA’s highly compensated exemption, leaving that portion of the new rule intact. The DOL has requested expedited consideration of its appeal to the US Court of Appeals for the Fifth Circuit.

Impact: Although the new overtime rules will not take effect on December 1, it is important to note that the district court granted a preliminary injunction, not a permanent injunction, so it is possible that as the case proceeds, the court will ultimately determine that the new rules are enforceable. If the DOL’s appeal is successful, especially if the appeal is heard on an expedited basis, employers will have to be ready to comply relatively soon. However, if the DOL loses its appeal and thereafter chooses not to further pursue defending the rules—a distinct possibility with the upcoming change in presidential administration—the current version of the overtime rules would remain in effect unless and until the DOL or Congress takes further action.

What employers should do in the meantime is largely dependent on the steps that they have already taken in anticipation of the new rules going into effect and what communications, if any, have been made to employees concerning changes in their salary or exempt status. Employers should work with legal counsel to determine how to adapt to the uncertainty that lies ahead.