U.S. Department of Labor Issues New FMLA Leave Forms and Requests Public Comments

In June, the Wage and Hour Division of the Department of Labor, the division tasked with enforcing the Family Medical Leave Act (FMLA), revised its model forms for employers to give to employees to support certain FMLA-qualifying reasons for leave. The new forms are intended to clarify compliance requirements and streamline administration of FMLA leave.

For the full alert, visit the Faegre Drinker website.

The Philadelphia Area Transitions from Red Phase to Yellow, Allowing More Business Activity

On April 22, Governor Tom Wolf outlined a three-phase plan for reopening Pennsylvania businesses, following a color-coded system: Red, Yellow and Green. As the COVID-19 threat continues to slow, each county has been moving gradually through the phases. According to the Commonwealth, the phases are designed to decrease the continued spread of COVID-19 while relaxing restrictions and promoting the resumption of business activity.

Following is a brief description of each phase:

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What Retailers Need to Know About the California Transparency in Supply Chains Act

Retail sellers and manufacturers across the country that conduct a threshold amount of business in California must comply with the California Transparency in Supply Chains Act (“Supply Chains Act” or “Act”). CAL. CIV. CODE § 1714.43. The Act, which became effective in January 2012, requires those retailers and manufacturers to disclose their efforts to eradicate slavery and human trafficking from their direct supply chains. Id. § 1743.43 (a)(1). Specifically, those companies must disclose on their website to what extent they: (1) engage in verification of product supply chains to evaluate and address risks of human trafficking and slavery; (2) conduct audits of suppliers; (3) require direct supplies to certify that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the countries in which they are doing business; (4) maintain accountability standards and procedures for employees or contractors that fail to meet company standards regarding slavery and human trafficking; and (5) provide employees and management training on slavery and human trafficking. Id. § 1743.43 (c).

By its terms, the Act does not require manufacturers and retailers to take affirmative action to detect or prevent slavery or human trafficking in their supply chains. It requires only that the company make the mandated disclosures. Nevertheless, manufacturers and retailers should be aware of the potential for attorney general enforcement actions, as well as enterprising litigation by consumers, based on violations of the statute.

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Paid Sick Leave Law in Morristown, New Jersey Became Effective on January 11, 2017

This Ordinance, which was passed in September 2016, requires employers in Morristown, New Jersey to provide a certain amount of paid sick time per year depending on the size of the employer. Generally, employees who work more than 80 hours a year in Morristown will be covered under this Ordinance. The Morristown Ordinance is the 13th local paid sick leave ordinance enacted within New Jersey, following similar ordinances in the towns and cities of Bloomfield, East Orange, Elizabeth, Irvington, Jersey City, Montclair, Newark, New Brunswick, Passaic, Paterson, Plainfield, and Trenton.

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U.S. Supreme Court Continues To Reaffirm Concepcion, But Dodges Iskanian Again

On December 14, 2015, the U.S. Supreme Court reaffirmed its previous ruling that any state law that treats arbitration agreements less favorably than other types of agreements is preempted by the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 et seq.  Specifically, in a decision handed down in DIRECTV, Inc. v. Imburgia, No. 14-462, reaffirmed its decision in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), that the Federal FAA, which embodies the federal policy favoring arbitration, preempts all special state law rules that uniquely burden arbitration agreements.  Although the Imburgia decision was a consumer class action, the Court’s approach indirectly confirms its continued support for the enforceability of employment arbitration agreements, including those with class action waivers.  While Imburgia suggests that class action waivers are here to stay, the Court’s simultaneous decision to deny review to a case challenging the California Supreme Court’s ruling in Iskanian v. CLS Transportation Los Angeles LLC, 59 Cal.4th 348 (2014), suggests that the Court may exercise some restraint when it comes to state-specific workarounds, at least for the time being.

Imburgia

DIRECTV and its customers entered into service contracts that included binding arbitration agreements with class action waivers.  The agreements specified, however, that the entire arbitration provision would be unenforceable if the “law of your state” made class arbitration waivers unenforceable.  At the same time, the agreements declared that they were governed by the FAA.

Plaintiffs Amy Imburgia and Kathy Griener (“Plaintiffs”) sued DIRECTV in California state court seeking damages, but DIRECTV moved to compel arbitration.  The state trial court denied DIRECTV’s request and it appealed.  The California Court of Appeal decided that the enforceability of the arbitration provision turned on the meaning and import of the language the “law of your state” in the agreements.  It reasoned that even though Concepcion held that the FAA preempted the California Supreme Court’s decision in Discover Bank v. Superior Court, 36 Cal.4th 148 (2005), which invalidated class arbitration waivers, the parties had expressly incorporated the law of the State of California – not federal law.  Relying on two provisions of the California Consumers Legal Remedies Act (“CLRA”), which invalidated any waiver of the right to bring class actions, the Court of Appeal found that the more specific language concerning the “law of your state” controlled over the more general language indicating that the agreements were governed by the FAA, and held that the arbitration provision was, thus, unenforceable.  The California Supreme Court denied discretionary review and DIRECTV appealed.

The U.S. Supreme Court reversed the Court of Appeals’ decision and reaffirmed Concepcion’s central holding that arbitration-specific state law defenses to enforcement are preempted by the FAA.  The majority noted that the contract language was not ambiguous and presumably only meant to incorporate valid state law.  Thus, because Discover Bank was no longer valid, that case’s holding was not incorporated.  The majority also noted that the Court of Appeals’ approach was different than in any other context – i.e., it would not have incorporated invalid state law in deciding the enforceability of any other type of contract.  The majority further explained that the Court of Appeals’ decision was rooted in the (erroneous) notion that an invalid state law remained in effect even after it had been authoritatively invalidated by the U.S. Supreme Court, as was the case here.

Wahid

In 2014, in Iskanian, the California Supreme Court held a state law that prohibits waiver of the right to bring non-class representative actions pursuant to California’s Private Attorneys General Act (“PAGA”), California Labor Code §§ 2698 et seq., was not preempted by the FAA.  The U.S. Supreme Court denied review of Iskanian and, in January 2015, the Ninth Circuit Court of Appeals applied Iskanian’s holding in federal court.

Earlier this year, CarMax Auto Superstores California LLC (“CarMax”) petitioned for certiorari in CarMax Auto Superstores California LLC v. Wahid, effectively asking the U.S. Supreme Court to review Iskanian’s holding, arguing that it was at-odds with Concepcion and its progeny.  However, despite its favorable ruling in Imburgia the same day, the U.S. Supreme Court denied CarMax’s petition for certiorari.

Takeaways

Although Imburgia’s holding reconfirms that employers can rely on arbitration agreements with class action waivers so long as the current Roberts court majority exists, the Court’s refusal to hear a challenge to Iskanian suggests that some level of interference with arbitration agreements will be permitted.  California employers will have to wait until the Ninth Circuit or California Supreme Court again tee up the issue to determine how cases like Iskanian can be reconciled with Imburgia and Concepcion, if at all.  Meanwhile, this uncertainty will permit California plaintiffs’ lawyers continued opportunities to engage in costly, large-scale representative actions.

Pennsylvania Supreme Court Finally Kills Hope That Magic Words Can Substitute for Valuable Consideration in Exchange for Post-Offer Restrictive Covenants

To most practitioners, Pennsylvania law governing the consideration required for an employment agreement containing a restrictive covenant (e.g., a non-competition clause or non-solicitation clause) has been simple: (1) if the restrictive covenant is entered at the inception of the employment, the consideration to support the covenant is the award of the position itself; (2) if the restrictive covenant is entered during employment (i.e., post-offer), it is enforceable only if the employee receives new and valuable consideration—that is, some corresponding benefit or a favorable change in employment status. To avoid the need to provide a current employee additional consideration, some employers added magic language to their restrictive covenants, based on a statute from 1927, which arguably made a restrictive covenant enforceable without new consideration.

Specifically, the Uniform Written Obligations Act (“UWOA”) states that a written promise “shall not be invalid or unenforceable for lack of consideration, if the writing also contains an additional express statement, in any form of language, that the signer intends to be legally bound.” Thus, according to the terms of the statute, using the magic language, “the parties intend to be legally bound” erased any deficiencies in the consideration actually exchanged. Therefore, despite a significant line of authority requiring valuable consideration for post-offer restrictive covenants, an employer looking to enforce a post-offer covenant that lacked additional consideration could hold out hope of nevertheless enforcing the covenant.

Earlier this week, the Pennsylvania Supreme Court extinguished any flicker of hope with its decision in Socko v. Mid-Atlantic Sys. of CPA, Inc., No. 142 MAP 2014 (Pa. Nov. 18, 2015). There, the employer, Mid-Atlantic, was seeking to enforce a restrictive covenant against a former salesperson, David Socko. When Mr. Socko began his second stint of employment with Mid-Atlantic (he had resigned but was rehired four months later), Mr. Socko signed a new employment agreement containing a two-year noncompetition covenant. While still employed, Mr. Socko signed another, more restrictive, covenant not to compete. That agreement also expressly stated that the parties intended to be “legally bound,” but Mr. Socko apparently did not receive anything of value in return for his signature.

When Mid-Atlantic sought to enforce the agreement signed by Mr. Socko during his employment, Mr. Socko argued that the non-competition clause was unenforceable, as it was not supported by consideration. Mid-Atlantic, citing the parties’ pledge in the agreement to be “legally bound,” contended that the UWOA did not allow Mr. Socko to challenge the validity of the terms of the agreement on the basis of a lack of consideration. Ultimately, the Pennsylvania Supreme Court disagreed. The Court concluded that the UWOA does not save a post-offer restrictive covenant that otherwise lacks consideration. In reaching this conclusion, the Court cited Pennsylvania’s historical disfavor of covenants in restraint of trade and the fact that Pennsylvania courts have, for years, mandated strict compliance with the basic contractual requirement of consideration in the context of post-offer restrictive covenants.

For employers, this case serves as a reminder that they must provide new consideration in exchange for a post-offer restrictive covenant. To avoid this situation altogether, employers should consider whether they should insist, at the time of hiring, on having employees (especially those employees who will be in contact with customers or will have access to sensitive information) enter post-employment restrictive covenants. Agreements entered at the time of hiring are rarely subject to challenge for lack of consideration. Otherwise, employers will need to give up something of value in order to create a binding restrictive covenant. Continued at-will employment—which is sufficient consideration under most states’ laws—is not sufficient under Pennsylvania law. Rather, employers will need to offer more, and Pennsylvania courts have found that the following suffice as new consideration in exchange for a post-offer restrictive covenant: a promotion, a change from part-time to full-time employment, or a beneficial change to a compensation package of bonuses, insurance benefits, and severance benefits. Other valuable promises may also suffice depending on the circumstances.