On July 26, 2022, the Third Circuit Court of Appeals issued an opinion in Christa Fischer, et al. v Federal Express Corp., et al., affirming a decision from the Eastern District of Pennsylvania barring two opt-in plaintiffs from joining a putative collective action under the Fair Labor Standards Act (FLSA).

The district court had rejected the two plaintiffs’ membership in the putative class because their claims had no connection to Pennsylvania. In affirming the district court’s ruling, the Third Circuit held that, in FLSA collective actions, “every plaintiff . . . who seeks to opt-in to the suit must demonstrate his or her claim arises out of or relates to the defendant’s minimum contacts with the forum state.”

As a result of its ruling, the Third Circuit joins the Sixth Circuit[1] and Eighth Circuit[2] in concluding that the Supreme Court’s holding in Bristol-Myers Squibb Co. v Superior Court of California, 137 S. Ct. 1773 (2017) (BMS) applies in the context of FLSA collective actions where the proposed collectives include plaintiffs who reside outside the state in which the action is pending and the venue is not one where the corporate defendant is subject to general jurisdiction.

Canaday and Vallone – and now Fischer – stand for the proposition that nationwide FLSA collective actions can proceed only in states where the employer “resides” (ie, where it is incorporated or has its principal place of business), and that the scope of FLSA collectives filed outside of such states will be limited to employees who actually performed work in the state where the lawsuit is filed.

Notably, the First Circuit reached the opposite conclusion earlier this year and declined to extend BMS to FLSA collective actions,[3] but currently remains the only Circuit Court of Appeals to have adopted this position.  Additionally, earlier this summer, the Supreme Court declined to hear petitions seeking review of the rulings by the First and Sixth Circuits, ensuring that – for the time being – the Circuit split will continue.

For employers with presences in multiple states, the Third Circuit’s opinion in Fischer, along with the previous similar holdings from the Sixth and Eighth Circuits, provide a potential means to limit the size and scope of FLSA collective actions – at least outside the First Circuit.  However, these opinions do not eliminate the prospect of nationwide FLSA collective actions; they merely limit the viability of such actions to states where the employer is subject to general jurisdiction (and may simply increase the likelihood that employers will face such suits in those courts).

At the very least, employers can be more confident that, if they are forced to defend against a nationwide FLSA collective action, it will likely be on their “home turf.”

[1] See Canaday v The Anthem Companies, Inc., 9 F.4th 392 (6th Cir. 2021).

[2] See Vallone v CJS Solutions Group, LLC, 9 F.4th 861 (8th Cir. 2021).

[3] See Waters v Day & Zimmerman NPS, Inc., 23 F.4th 84 (1st Cir. 2022).

With reports indicating somewhere between ¼ and ½ of private-sector workers are bound by non-compete agreements,[1] post-employment restrictive covenants and their enforceability are key considerations of employers, particularly during the COVID-19 pandemic.  Indeed, some employers have elected to waive the protections of their non-competes. The pandemic has created heightened scrutiny regarding the ability to restrict an individual’s right to work and ushered in uncertainty regarding the judicial process – as well as a general reluctance to incur litigation costs – resulting in a dramatic decline in non-compete litigation. At the same time, the Biden administration has reintroduced a push for federal reform of non-compete law, leaving the question: What can employers to do to protect their trade secrets and confidential information in a post-pandemic world?

A.            Non-Competes 101

Post-employment restrictions, including non-compete agreements, are popular tools for protecting business investments, confidential information, client, customer and employee relationships, and goodwill. While they come in many different flavors, a traditional non-compete prohibits an employee from working for a competitor of his or her current employer for a certain duration following termination.

Currently, the enforceability and permissible scope of non-compete restrictions is not governed by federal law, leaving each state to try to balance employers’ interests in protecting their business with employees’ interests in earning a living—and each employer to try to navigate a web of regulations based on their geographic footprint. In 2016, the federal government pushed for state policymakers to rein in the use of non-competes after concluding that restrictions reduced the welfare of workers and hampered the efficiency of the economy as a whole by depressing wages, limiting mobility, and inhibiting motivation.[2] At least 16 jurisdictions have enacted new legislation restricting employers’ ability to impose post-employment restrictions since that time.[3]

More legislation is expected. For example, earlier this year, lawmakers introduced legislation which would expand the Illinois Freedom to Work Act to provide that covenants not to compete are neither valid nor enforceable if the employee subject to the covenant was terminated or furloughed due to (i) the COVID-19 pandemic or (ii) circumstances that are similar to the COVID-19 pandemic.

While statutory schemes vary, and some jurisdictions like California and, more recently, Washington, D.C., essentially have banned non-compete agreements in the employment context, recent legislation generally includes one or more the following benchmarks:

  • Ban use of non-compete restrictions for categories of workers who traditionally are not deemed to pose a competitive threat, including employees age 18 or younger, employees who are not exempt under the FLSA, and low-wage employees (which, in some instances, means anyone making under $100,000 per year);
  • Prohibit enforcement if the termination of employment is involuntary;
  • Require employers to continue paying some or all of the employee’s salary during the post-employment restricted period (i.e., a statutory garden leave requirement);
  • Limit the maximum duration of non-competes, for example to 12 or 18 months;
  • Mandate that the non-compete agreement be governed by the laws of, and enforced in, the state in which the employee resides—and deeming any agreement that attempts to include another jurisdiction for either choice-of-law or choice-of-venue void;
  • Apply limitations in new legislation retroactively to previously existing non-competition agreements; and
  • Exclude from the limitations non-compete agreements executed in connection with the sale of business or dissolution of a partnership.[4]

On February 25, 2021, federal legislators reintroduced the Workforce Mobility Act, a proposed bipartisan law aimed at limiting the use of non-compete agreements.[5] As proposed, the bill would, among other things, narrow the use of non-compete agreements (even in instances of a dissolution of a partnership or the sale of a business), place the enforcement responsibility on the Federal Trade Commission and the Department of Labor, permit a private right of action, and require employers to ensure their employees are aware of the limitation on non-competes.  Similar bills have been proposed in Congress for several years, but none of them passed.

B.            COVID-19 pandemic impact on non-compete agreements

The current pandemic has added to an already-tangled web of legislative and judicial uncertainty for employers to navigate in seeking to enforce non-competition agreements across the country.  The pandemic impacted courts’ willingness to enforce non-competition agreements, particularly whether to issue injunctive relief limiting an employee’s ability to earn a living.  The economic uncertainty, coupled with the courts’ inability to hold in person hearings in most jurisdictions and docket backlogs, led to a decrease in employment-related non-compete litigation in 2020.

However, early statistics show that non-compete litigation is picking up in 2021, likely due to the stabilizing economy and increased mobility of upper-level employees.  With new laws, lingering effects of the pandemic, and increased scrutiny of non-competes, employers may feel like they are “walking into spiderwebs” as they navigate restrictive covenants.  However, with protection of their most valuable assets at stake, employers are nonetheless strongly encouraged to act swiftly and deliberately to ensure protection of their trade secrets and goodwill.

1.            Balance of harms analysis has shifted as a result of the pandemic

In determining whether to issue injunctive relief to enforce a non-compete agreement, courts generally seek to balance an employer’s legitimate interest in protecting its trade secrets and competitive advantage against an employee’s genuine interest in earning a living.  In the midst of the pandemic, in certain circumstances, this balance has shifted in employees’ favor, particularly in situations where the termination was not the employee’s fault, such as through a layoff or furlough.  In some states, courts will not enforce a non-compete restriction when an employee is laid off or furloughed; in other states, this factor may impact a court’s balance of harms analysis and sway its willingness to issue injunctive relief to enforce such agreements.

In mid-2020, a federal judge in Pennsylvania rejected an employer’s argument that employees on an open-ended furlough during the pandemic are still employees, even if the employer is paying for their health care. The judge also denied the employer’s request for a preliminary injunction to enforce the non-compete agreement, holding that the employees would suffer greater harm if the preliminary injunction was granted than the company would suffer if it was not.  Although the Bureau of Labor Statistics announced on April 2, 2021 that the unemployment rate had fallen to 6.0% nationally, there are still 9.7 million people out of work, which is more than double the number of unemployed workers pre-pandemic in February 2020. In the current unstable economic environment, courts may continue to closely scrutinize non-compete agreements that are perceived to keep employees out of work.

In addition, courts across the country have seen an increase in departing employees acting preemptively by filing declaratory judgment actions to prevent their former employers from enforcing non-competition agreements against them. And, courts have been more likely than ever to rule in favor of the departing employees.  For example, in February 2021, a departed employee sued his former employer in Harris County, Texas seeking declaratory and injunctive relief after the company’s “reminder of continuing obligations” letter caused the employee’s new employer to terminate his employment. The Texas court granted the employee’s request for a temporary restraining order, specifically finding that the noncompetition provision lacked the requisite exchange of consideration necessary to be enforceable and was unreasonable and greater than necessary to protect its legitimate goodwill expectations. The court also held that unless the former employer was restrained from contacting the employee’s future employers, the employee would likely be unable to find work in his area of expertise.

2.            Protection of proprietary information is even more important with a remote workforce

The pandemic has not shifted all balancing factors in favor of departing employees.  The nature of an increased remote workforce has put a spotlight on employers’ measures to safeguard their proprietary information and trade secrets.  According to the Bureau of Labor Statistics, 21 percent of employed persons nationwide continued to telework in March 2021 as a result of the pandemic. Businesses may have a greater need to control proprietary information and prevent its misuse during the pandemic when employees are working from home with less oversight. It is critical for employers to monitor employees’ use of company equipment and proprietary information while working remotely and to take prompt action to ensure that departing employees do not continue to have access to sensitive company property or data after their termination. If employers can show that departing employees had access to truly sensitive and proprietary company information and that the non-compete it is seeking to enforce is narrowly tailored to protect such information, courts are more likely to weigh this factor in favor of employers, even in the midst of the pandemic.

3.            Geographic restrictions may need to be analyzed and conceptualized differently in light of pandemic and increase in remote work

Many state laws allow employers to use restrictive covenants if they have a legitimate business interest that needs to be protected—such as trade secrets or customer lists—and such provisions are narrowly tailored to protect those interests.  Indeed, most states require non-compete agreements to contain reasonable limitations in temporal and geographic scope.  However, the pandemic has caused many employees to shift their worksites in ways that had not been contemplated.  Consequently, remote work situations involving geographic-based non-compete agreements is likely to be an area of fertile ground for legal challenges to restrictive covenants in 2021. The ongoing COVID-19 pandemic and the reality that employees will continue to work remotely or in locations outside of their employer’s headquarters or corporate offices for the near future have created “blurred lines” between the “office at home” and the “office at work”.  As such, employers are urged to re-visit their existing non-compete agreements to ensure that the geographic scope of the restrictive covenants make sense based on their current situation.

What Lies Ahead

As the impact of the pandemic begins to wane, non-compete litigation appears to be picking up in 2021, with an estimated 28 percent increase in state court cases relating to non-competition agreements.[6]  But how long this rise will last is unknown as the fate of non-competes remains in flux.  Uniform federal legislation, if enacted, would ease the struggles associated with navigating the current multi-jurisdictional legislative landmine.  However, based on preliminary information about the content of that legislation, it could also severely limit not only employers, but business acquirors, from relying on this age-old protection mechanism.  Employers are encouraged to stay abreast of the legal landscape in these rapidly changing times.

[1] See, e.g., https://www.epi.org/publication/noncompete-agreements/; https://www.murphy.senate.gov/newsroom/press-releases/murphy-young-reintroduce-bill-to-protect-american-workers-limit-non-compete-agreements.

[2] Exec. Order No. 13725, 81 Fed. Reg. 23417 (April 15, 2016); The White House, Office of the Press Secretary, FACT SHEET: The Obama Administration Announces New Steps to Spur Competition in the Labor Market and Accelerate Wage Growth (Oct. 25, 2016), available at: https://obamawhitehouse.archives.gov/the-press-office/2016/10/25/fact-sheet-obama-administration-announces-new-steps-spur-competition.

[3] This includes California, Colorado, Florida, Idaho, Indiana, Maine, Maryland, Massachusetts, New Hampshire, New Mexico, Oregon, Rhode Island, Utah, Virginia, Washington, and Washington, D.C.

[4] See Cal. Bus. & Prof. Code § 16601.

[5] See Workforce Mobility Act of 2021, S.483, 117th Congress (2021-2022).

[6] Compare Westlaw Litigation Analytics Report for Labor and Employment Experience – State (Jan. 1, 2021 – April 20, 2021) (last accessed April 20, 2021) to Westlaw Litigation Analytics Report for Labor and Employment Experience – State (Jan. 1, 2020 – Dec. 31, 2020) (last accessed April 20, 2021)..

By Kevin Harlow and Maria Garrett

The holiday season marks a time each year when many of us travel to visit family and friends. As with everything else in 2020, the holidays will likely look a little different this year due to COVID-19. With a third wave of infections sweeping the country, several cities and states have issued new shelter-in-place orders and travel restrictions, hoping that most people hunker in at home and forego their usual holiday travel plans. But, as we saw during Thanksgiving, many have been unable to resist holiday travel. According to the Transportation Security Administration (TSA), the days around Thanksgiving were the busiest travel days this year since the middle of March, surpassing 900,000 travelers for seven consecutive days. Although travel has steadily declined since Thanksgiving, some employees will again plan on traveling as the December holidays approach.

This raises questions for companies regarding whether they can—or should—restrict employees’ personal travel and what other steps companies may take to ensure a safe workplace during the pandemic. Like with everything else COVID-related, these issues are constantly evolving and may hinge on specific local regulations. Below, we address key issues for employers to consider.

Can employers restrict employees’ personal travel?

The answer is not clear cut. OSHA’s general duty clause and other applicable laws require employers to ensure a safe workplace. Further, employers generally have discretion to institute policies to protect the health and safety of their employees.  Accordingly, some employers have established policies that restrict employees from traveling to “hot spots.”  Such policies, however, may be difficult to monitor and enforce, raise objections from employees, or raise legal concerns.

For example, some states, such as California, Colorado, and New York, prohibit employers from taking adverse action against employees based on certain lawful, off-duty conduct. For example, the New York statute prohibits employers from firing an employee because of the “individual’s legal recreational activities outside of work hours, off of the employer’s premises and without the use of the employer’s equipment or other property.” N.Y. Labor Law § 201-D(2)(c).  On the other hand, the New York statute also expressly provides that an employer will not be in violation where the employer takes action “based on the belief … that [] the employer’s actions were required by statute, regulation, ordinance or other governmental mandate.”  N.Y. Labor Law § 201-D(4).  Similarly, depending on the jurisdiction, the employee’s travel may be in violation of state or local regulations, and thus would not be “lawful” off-duty conduct.  Still, employers operating in states with such statutes should be cognizant of the issue and seek jurisdiction-specific legal guidance.  Employers should also ensure that any travel restrictions are consistently applied and enforced.

To balance the employer’s interest in providing a safe workplace and employees’ rights to engage in legal recreational activities, employers may want to consider some of the less onerous options discussed below.

Can employers inquire into an employee’s recent travel or upcoming travel plans?

Yes. The EEOC has issued guidance confirming that questions about where an employee travelled are not disability-related inquiries. According to the EEOC, “If the CDC or state or local public health officials recommend that people who visit specified locations remain at home for a certain period of time, an employer may ask whether employees are returning from these locations, even if the travel was personal.”

As with any other employment policies, employers who choose to inquire about employees’ travel plans are strongly encouraged to apply their policies uniformly and require all similarly situated employees to disclose the same travel information.  In addition, given the potential for other legal concerns to arise, we encourage employers to confirm that there is a legitimate business purpose for the inquiry.  For example, inquiring into a fully remote employee’s travel plans may not be necessary to preserve a safe workplace when there is no likelihood that the employee would interact with other employees or customers.

Can employers require traveling employees to self-quarantine prior to returning to the workplace?

Yes. In addition to employers’ general duty to maintain a safe working environment, many states and municipalities have implemented requirements for individuals traveling into the state or municipality, which generally include residents returning home from out-of-state travel. These regulations often recommend or require incoming travelers to quarantine if returning from certain locations deemed high-risk by the issuing governmental entity. For example, as we discussed here, a directive from Santa Clara County in California requires anyone who travels into Santa Clara from a point of origin greater than 150 miles from the county’s borders to quarantine for 14 days upon arrival.  Some of these local regulations, such as the District of Columbia’s, expressly permit employers to enforce measures “such as mandatory quarantine for travelers, as deemed necessary.”  Nevertheless, in light of the constantly evolving landscape, employers should seek jurisdiction-specific guidance prior to implementing such a measure and to ensure compliance with any applicable wage & hour requirements for quarantined employees.

Can employers require traveling employees to submit to COVID-19 testing prior to returning to the workplace?

Yes. According to OSHA guidance, neither the OSH Act nor OSHA standards prohibit employer testing for COVID-19. The EEOC has likewise stated that COVID-19 viral tests are permissible under the ADA, as long as testing meets the ADA’s “business necessity” standard. Medical testing is consistent with “business necessity” when an employer has a reasonable belief, based on objective evidence, that a medical condition (here, COVID-19) will pose a threat due to other persons due to the medical condition.  The testing must be conducted in a non-retaliatory and non‑discriminatory manner. Antibody testing, however, is not permitted.

We note, however, that as discussed here, the California Division of Occupational Safety and Health has issued emergency temporary standards to protect the workplace from COVID-19 hazards.  Under these standards, employees who test positive or are exposed to COVID-19 are required to meet specific return-to-work criteria (namely quarantine time), but their return to work cannot be conditioned on obtaining a negative test (because a test may return a positive result after the employee is no longer infectious).  Presumably the same rationale would apply to returning travelers – the employer may test and take appropriate actions to protect the workplace (such as a quarantine period), but may not condition the traveler’s return to work on a obtaining a negative test result.

Similarly, both OSHA and the EEOC have cautioned employers against relying on negative test results and advise that employers should not presume individuals who test negative present no hazards to the workplace.  Thus, even where a returning traveler tests negative, employers should consider implementing infection control practices.

*          *          *

While there is no one-size-fits all approach to employee holiday travel restrictions and rules, employers can, and should, consider implementing health and safety measure to lower the risk of COVID-19 entering the workplace.  Employers are encouraged to consult with knowledgeable counsel to obtain jurisdiction-specific advice given the constantly evolving legal landscape and complex interplay of federal, state, and local regulations.  In addition, employers can expect that many of these issues will need to be revisited as the COVID-19 vaccine is deployed and policies implemented during the height of the pandemic are reevaluated.  The DLA Piper Employment group has assisted many employers across the country in navigating these issues and implementing effective and practical solutions.

For advice on these and other employment issues raised by the COVID-19 pandemic, please contact a member of the DLA Piper Employment group or your DLA Piper relationship attorney.

Please visit our Coronavirus Resource Center and subscribe to our mailing list to receive alerts, webinar invitations and other publications to help you navigate this challenging time.

This information does not, and is not intended to, constitute legal advice. All information, content, and materials are for general informational purposes only. No reader should act, or refrain from acting, with respect to any particular legal matter on the basis of this information without first seeking legal advice from counsel in the relevant jurisdiction.

Not so long ago, telecommuting or “working from home” was just a growing employment practice – often a desirable employee perk used to attract top-talent (especially when unemployment rates were at historic lows).  As a result of the coronavirus disease 2019 (COVID-19) pandemic, however, many companies, including those that may have opposed remote working in the past, have been forced to embrace such arrangements and come to terms with the legal complexities—as well as opportunities—surrounding telecommuting.  According to Gallup Panel data, the percentage of employed adults who said that they have worked from home due to COVID-19 topped 62 percent in mid-April.  This includes a large number of non-exempt employees who traditionally may not have been included in work-from-home opportunities.

Even as stay-at-home orders lift and physical workplaces gradually reopen, many companies may continue to offer remote working opportunities to help with social distancing and other infection control and prevention strategies, address employee needs (eg, school closures or vulnerable employees), and promote business continuity. To help ensure the success of work-from-home arrangements, employers are encouraged to proactively address various risks, from wage-and-hour issues to health and safety concerns and cyber threats.

Below we address key considerations for employers utilizing telecommuting in the age of COVID-19.

Wage-and-hour issues

Many of the wage-and-hour issues we addressed in our earlier post, Out of sight, but not out of mind, are still applicable; however, given that more workers are telecommuting than ever before, including groups of employees who may previously not have been permitted to work remotely, employers may wish to consider reiterating and disseminating timekeeping policies to all employees.  Employers are also urged to remind supervisors to be alert to any indication that non-exempt employees are working off the clock − such as by receiving an after-hours email or phone call − and address the issue promptly.

In addition, if, only exempt employees were permitted to work remotely previously, employers are encouraged to update their timekeeping protocols to account for the tracking of non-exempt hours worked. For example, employers may consider requiring employees to notify their supervisors by email of their start and end times and lunch break each day and to certify the accuracy of time records on a regular basis.

Relatedly, wage-and-hour issues arise when considering not only who is now working from home, but also from where such individuals are telecommuting.  In other words, employers are urged to consider whether employees are working in states different than their regular office location due to telecommuting arrangements. Depending on the circumstances, such as how long the employee intends to work from home, employers may want to consider adjusting compensation to meet the telecommuting employee’s state’s minimum wage or exempt-status thresholds.  Likewise, employers and employees are encouraged to review whether there could be tax implications from employees working from a different state while telecommuting.  To get ahead of such issues, employers are urged to determine where employees plan to telework and require them to notify the employer of any changes.

Health and safety

Health and safety issues are top of mind for everyone in the current pandemic and will dictate when and how employers reopen their workplaces as stay-at-home orders are lifted.  While much of the focus has been on creating a safe and healthy workplace to which employees may return (when government orders permit), employers are encouraged to consider how their obligation to promote a safe working environment may extend to employees working remotely.  Employees may be eligible for workers’ compensation benefits for injuries or illnesses that occur while working away from the office, such as in their own homes.  To address risks and potential liability, employers are urged to consider policies and agreements for remote workers. See our earlier post, Helping Employers Weather the Storm, for more information.

Employers are also encouraged to be mindful of reporting requirements. Under the Occupational Safety and Health Act (“OSHA”) and its corresponding safety and health regulations, employers with more than 10 employees must record certain work-related injuries and illnesses.  The regulations provide that this requirement extends to employees who work from home, “if the injury or illness occurs while the employee is performing work for pay or compensation in the home, and the injury or illness is directly related to the performance of work rather than to the general home environment or setting.”  29. C.F.R. § 1904.5(b)(7).

Discrimination

Remote and flexible working arrangements are likely to play a key role in reopening plans. Some employers are dividing employees into one or more teams and having them alternate workweeks or bringing employees back on a voluntary basis, with those unable or unwilling to return able to continue working remotely. Regardless of the specific strategy, policies are to be implemented in a nondiscriminatory fashion.

Activity tracking 

The concept of employers wishing to keep a proverbial digital eye on their employees is not unique to the COVID-19 pandemic. Keystroke and other tracking software has been around for years, and a survey conducted by research and advisory company Gartner found that in 2018, 50 percent of 239 large corporations were using some type of monitoring techniques to watch over their workforce. While employers may be tempted to keep tabs on employee productivity to gain confidence that employees are not just working from home but working productively from home, in certain jurisdictions such practices may implicate employee privacy rights, depending on the circumstances.

Employers are encouraged to be transparent with employees about the measures they are taking and why. Employers may also want to consider other ways of addressing productivity issues, such as by having supervisors set daily or weekly goals for their direct reports.

Written policies

Employers with written telecommuting policies in place may want to review them to determine whether any temporary changes are necessary to address COVID-19-related circumstances. Many employees are working from home with children underfoot or may have caregiving responsibilities. This is especially important in jurisdictions where caregiver status and parental status are protected classes.  Again, any telecommuting or remote work policy needs to be administered and implemented in a non-discriminatory manner.

As with other written policies, employers are urged to consider whether to obtain employee acknowledgement and consent. While people are working from home and not physically able to sign and return a document, this may prove particularly challenging.  For electronic signatures to be valid for these purposes (and others), it may be feasible to use electronic signature technology that mitigates attribution and authentication issues (and helps control document integrity).

Expenses

The influx of telecommuting due to COVID-19 means that more employees who may not have previously been permitted to work remotely are telecommuting using their own computers, Internet, phones, and other equipment.  Employers are encouraged to be mindful that some state laws mandate the reimbursement for certain business expenses while working from home. Additionally, based on US Department of Labor guidance, if a non-exempt employee works from home and pays for business expenses when doing so, employers are urged to avoid situations in which the non-exempt employee’s earnings could inadvertently fall below the applicable minimum wage or overtime rate.

Cybersecurity

Employers are encouraged to work with their IT departments to determine how they will protect sensitive and corporate information outside of the cybersecurity protections typically afforded by the four walls of the office.  This could include requiring employees to work on a virtual private network (VPN) if possible, promoting wireless safety practices by employees such as not working from public Wi-Fi, and requiring all computers and devices have up-to-date firewalls installed.

***

The above list is not exhaustive by any means.  Telecommuting is, and always has been, a complicated employment practice that requires a greater focus on how work is being done, which may not be required when employees are physically clocking in at the office.  However, if COVID-19 has shown us anything, it is that telecommuting on a widespread scale is possible, and in fact, is effective in many ways employers may not have considered prior to the pandemic.  Only time will tell whether this experience will have lasting effects on not only how we work, but also where we work.

For advice on these and other employee benefit questions or implications in light of the COVID-19 pandemic, please contact a member of the DLA Piper Employment group or your DLA Piper relationship attorney.

Please visit our Coronavirus Resource Center and subscribe to our mailing list to receive alerts, webinar invitations and other publications to help you navigate this challenging time.

This information does not, and is not intended to, constitute legal advice.  All information, content, and materials are for general informational purposes only.  No reader should act, or refrain from acting, with respect to any particular legal matter on the basis of this information without first seeking legal advice from counsel in the relevant jurisdiction.

Introduction:

Dear clients and friends,   

We just finished another year, which means it’s time once again for our yearly global employment law quiz.  Have you kept up to date with the latest and zaniest in global employment laws?  Take our quiz to find out.  And even if you don’t know the answers, you can dazzle your friends and family with your newly acquired knowledge.  Good luck!

And if you missed previous years’ quizzes (or if you just want to take them again), you can find them here, here and here.  But if you prefer the drier but more comprehensive summary of this year’s employment law trends, please read 2019 in Review, 2020 Preview.

Question 1

In Russia, you may not want to run for the shredder when an employee is terminated.  Employment contracts must be stored for:

  1. 15 years
  2. 30 years
  3. 75 years
  4. 100 years

Answer c: 75 years.  Believe it or not, in Russia, critical employment documents such as employment agreements and internal HR orders must be retained for 75 years from the date of creation.  And what’s more, the documents must be kept in hard copy form.  (Now that’s a large file cabinet!)  Keep in mind that the trend elsewhere is toward smaller file cabinets – data privacy laws elsewhere across the globe increasingly require companies to follow rules of data minimization, so once retention periods are over, documents cannot be retained any longer, whether in hard copy or electronic form.

Question 2

In Luxembourg, a post-termination non-compete restriction can be imposed on an employee if it restricts the employee from:

  1. Employment with a competitor
  2. Becoming a service provider or contractor of any competing business
  3. Becoming a director, officer or advisor to a competing business
  4. All of the above.

Answer b:  Post-termination non-competes in Luxembourg only restrict former employees from working as independent contractors.  Therefore, the former employee is free to work for, advise or hold shares in a competing company, even if the employee entered into a valid post-termination non-compete.  This is another reminder how important it is to carefully think through your strategy on global restrictive covenants.

Question 3

Egg freezing is an increasingly popular benefit offered to employees around the globe.  However, some countries place restrictions on the circumstances in which women can freeze their eggs.  In China, egg freezing is available to:

  1. All women
  2. Women under the age of 30
  3. Women who have had at least one miscarriage
  4. Women in a relationship
  5. None of the above.

Answer e: None of the above.  This question requires you to be eggs-act.  Egg freezing is permitted, but Assisted Reproductive Technology (ART) can only be used for medical treatment subject to compliance with the family planning law.  Single women cannot utilize ART.  A woman must be married to a man to be eligible (same-sex marriage is not permitted in China).

The laws are silent on whether egg freezing is ART.  In practice, egg freezing is deemed to be ART by government officials and hospitals, so, generally, freezing eggs is not permitted in the PRC unless it is for medical treatment due to serious illness or infertility.

However, news outlets have reported on PRC hospitals that take the position that egg freezing on its own is not ART and can be done for single women, but those women must be legally married when they later use their frozen eggs, because implanting eggs would qualify as ART.

Question 4

In which country can employers be sued for discrimination if their job advertisements only address binary male and female applicants?

  1. Germany
  2. Thailand
  3. Denmark

Answer a: Germany. In December 2018, the Civil Status Act (Personenstandsgesetz) was amended. The law now recognizes a third sex, which is referred to as “diverse.” The background was that in October 2017, the Federal Constitutional Court of Germany (Bundesverfassungsgericht) ruled that where individuals cannot be permanently identified as either male or female, this violates their constitutional right to be free from gender-based discrimination. The ruling arose because the civil status law requires gender to be registered but at the time did not allow any entry other than “male” or “female.”

For employers, this is important under the General Equal Treatment Act, which prohibits unequal treatment and discrimination due to gender. This means that job advertisements must explicitly address males, females and diverse people.

Question 5

Which country requires employees to carry a social security certificate (so-called Form A1) in case of cross-border business trips?

  1. China
  2. Peru
  3. All EEA countries

Answer c: All EEA countries. EEA employees generally need to carry a Form A1 whenever they are normally working in, or posted to, other EEA countries in order to avoid liability for social security contributions and potential fines against their employer. Although there is no express rule regarding short-term business travel, the current consensus is that the Form A1 requirement applies even to quick business trips.

By presenting a Form A1 to the relevant authorities, employees can show that they have paid social security contributions in another country and thus cannot be required to pay social security contributions in the country where they are working for the period of time set forth in the Form. Without a Form A1, there is a risk that social security contributions will have to be paid in both the home country and the host country, and there could be significant fines.

Question 6

Under recent legislation in South Korea, the penalty for retaliating against an employee for reporting workplace bullying and harassment is a fine of up to KRW30 million (US$28,500) or imprisonment for up to one year.

  1. True
  2. False

Answer b: False. Under recent South Korean legislation, retaliation against an employee for reporting workplace bullying and harassment can result in imprisonment for up to not one but three years. The legislation took effect on May 29, 2019 and marks the first time that employers in the country have been legally required to address workplace harassment. The law defines sexual harassment to include, among other things, verbal abuse.  It also requires employers to implement policies on workplace bullying and harassment and to investigate allegations of workplace harassment.

Question 7

In 2019, all of the following countries except one increased the monetary threshold for exclusion from securities prospectus requirements to €8 million.  Which country did not increase this threshold?

  1. France
  2. Belgium
  3. Germany
  4. UK

Answer b: Belgium. Effective July 21, 2018, the exclusion from the prospectus requirements for the offering of securities is available where the consideration paid for the securities is less than EUR 5 million in the EU or EEA during any 12-month period. However, each EU/EEA country has the discretion to raise the threshold for the exclusion up to €8 million. To date, France, Germany, and United Kingdom have all increased the threshold for the exclusion up to €8 million. On the other hand, Belgium only increased the threshold for exclusion up to €5 million.  So employers who plan to offer high-dollar securities to Belgian employees − take heed!

Question 8

In 2019, which of the following countries introduced new securities rules that provide a possible exemption from securities filing requirements for equity awards granted to employees?

  1. Vietnam
  2. China
  3. Saudi Arabia
  4. France

Answer c: Saudi Arabia. The Kingdom of Saudi Arabia’s Capital Market Authority (CMA) recently introduced the Rules on the Offer of Securities and Continuing Obligations (OSCOs), which provides an exemption from security filing requirements for issuers providing security offerings to employees, including employees of subsidiaries. Under OCSCs, the offer of securities to employees is considered an “Exempt Offer,” which leads to significant changes of securities requirements, including (1) securities offerings to employees may be made through either an authorized person or the offeror of the shares themselves; (2) the requirement to notify the CMA before making a securities offering to employees has been eliminated; and (3) the requirement to notify the CMA on a quarterly basis of the total number and value of the exempt offers made has also been eliminated.

Question 9

In Germany, any employment relationship can effectively be terminated by a termination document signed with e-signature.

  1. True
  2. False

Answer b: False. There is a legal requirement that German termination notices must be in writing (ie, a “wet” signature is mandatory). Consequently, an e-signed termination notice in Germany would have no legal effect.

E-signature increasingly is seen as the model companies want to follow globally, but it is important to check that it works locally on all types of employment documents (or the company could be in for an unwelcome surprise). Using Germany as an example again, it is also a strict requirement for any fixed-term employment contract to be in writing. An e-signed fixed-term contract would be deemed to be an unlimited term contract in Germany. So you may end up with that employee for a lot longer than intended.

Question 10

All of the countries which are member states of the European Union (EU) introduced new local laws this year requiring employers to track employees’ working time.

  1. True
  2. False

Answer b.: False. Although the European Court of Justice (ECJ) held this year that all EU member states must require employers to set up a system for recording workers’ time each day to comply with EU law, not all member states have introduced such laws this year. So far, only Spain has enacted such a law.

The ECJ judgment does not impose an immediate obligation to record working time. Rather, it requires member states to provide for recordkeeping in their own laws, which many (in fact most!) member states already do. To comply with the judgment, some member states may have to make changes to existing legislation, or introduce new provisions. However, no other member states have followed Spain’s lead in introducing new local laws. As further developments are now anticipated, many employers are using the ECJ’s decision as a catalyst to review their working time recording practices.

Question 11

Which of the following countries requires payment for non-competition restrictions both during and after the employment relationship for the restriction to be enforceable?

  1. Brazil
  2. Germany
  3. Lithuania
  4. South Korea

Answer c: Lithuania. According to the new Lithuanian Labor Code (effective as of 2017), in order for a noncompete obligation to be enforceable either during employment or after its termination, the employer has to pay the employee compensation of at least 40 percent of his/her average monthly salary. The requirement to pay compensation for non-competes during employment is unusual and one to watch out for.

If compensation for the noncompete is not paid, then the noncompete will not be unenforceable. In addition, although not yet tested by the Lithuanian courts, theoretically the employee can ask the company to pay him/her compensation for not competing retrospectively for up to three years (with a long stop date of 2017 when the new Lithuanian Labor Code was introduced). That could end up being a lot of Lithuanian litas.

Question 12

Where are US-style unlimited paid time off (PTO) policies enforceable outside the US?

  1. Germany
  2. Israel
  3. UK
  4. All of the above

Answer d: All of the above, but there is lots of devil in the details. In all listed countries, an unlimited PTO policy would be enforceable, but only as long as the local minimum statutory vacation entitlements are observed. Rolling out US-style unlimited vacation internationally comes with high risks, however, because most non-US countries already require mandatory paid vacation and sick days. Offering unlimited PTO would be interpreted as being on top of those statutory entitlements, so there is much room for abuse. Think back to when Ferris Bueller taught us how important a day off is; if Ferris lived outside the US, he would definitely take advantage.

In the US, unlimited PTO works because most states do not have a requirement to grant paid time off to their employees. US employers often implement an unlimited PTO policy, with the advantage that there is no tracking of used PTO days needed, no carryover takes place and no payout obligation arises. However, these advantages do not translate outside of the US.

If a company feels strongly about having unlimited PTO outside the US, the best option is to implement a mixed policy, offering local statutory vacation for employees to take officially and then allowing them to also use unlimited vacation (after they exhausted the statutory time off). This at least mitigates some of the risk of violating local rules requiring tracking and payout. But global implementation generally still undermines the US drivers to have a policy that is less expensive, less burdensome and less bureaucratic.

Question 13

Which country recently implemented so-called “Green and Yellow” employment agreements that can be used for employees who are entering into their first employment contract?

  1. Guyana
  2. Myanmar
  3. Togo
  4. Brazil

Answer d: Brazil, obviamente. This new kind of employment agreement, ostensibly named for the colors of the Brazilian flag, has been rolled out to encourage employers to hire young people aged 18 to 29. It can only be used by employees in their first employment contract. The Green and Yellow employment agreement has to be signed between January 1, 2020 and December 21, 2022 and it can have a maximum duration of 24 months only.

To encourage the creation of job vacancies, for these contracts the Brazilian government cancelled some corporate obligations, such as the obligation to pay the social security contributions. There is also no obligation to cover the 2.5 percent education salary. The intention was to make these employment agreements cheaper for the employer. Violations of the Green and Yellow Employment Agreements rules automatically transform the employment contract into an agreement for an indefinite period.

Question 14

Which of the following can be prohibited in the workplace by employers in Canada?

  1. Workplace violence
  2. Gummy bears
  3. Sexual harassment
  4. Horseplay
  5. All of the above

Answer e: All of the above!  Prohibiting workplace violence, sexual harassment and horseplay?  Makes sense (and a policy prohibiting such conduct may even be legally required in some provinces).  But banning gummy bears?  Effective October 17, 2019, new regulations under Canada’s Cannabis Act paved the way for the legal production and sale of marijuana edibles, extracts and topical products.  Demand is expected to be high, and robust policies will be required to manage the use and risks associated with the use of these difficult to identify products in the workplace.  Canadian employers are within their rights to implement a drug and alcohol policy that prohibits use of substances such as non-medical use marijuana (whether in gummy bear form or otherwise) during working hours.  An innocent gummy bear snack may not be as innocent as you once thought.

Question 15

Which country has a law requiring employers to provide crèche facilities in their establishments, going so far as to prescribe the exact height of the crèche walls, the construction material to be used, the minimum play area to be given to each child, and even the amount of milk to be made available to every child each day?

  1. Switzerland
  2. India
  3. Thailand
  4. Czech Republic

Answer b: India. The Maternity Benefit Act, 1961 (“MB Act”) was amended in 2017 to require employers to provide crèche facilities in establishments with 50+ employees. State governments are required to implement local rules on the details.

In August this year, Karnataka became the first state in India to introduce local rules on crèche facilities. These rules contain some interesting provisions, among them requirements to (1) provide and maintain one crèche for every 30 children; (2) ensure that the crèche is situated within 500 meters of the entrance of the establishment; (3) have the children medically examined before their admission into the crèche (and also, conduct periodical medical check-ups after admission); (4) provide at least 5 square feet of floor area for each child; and (5) ensure wholesome refreshments. Employers in Karnataka are assessing the feasible ways to implement the crèche requirements and are making gradual arrangements to ensure compliance.

The state government of Haryana also has introduced draft rules on crèche facilities. Similar rules are awaiting introduction in other Indian states, so stay tuned for more updates.

Question 16

Under the UK Equality Act, it is unlawful for employers to discriminate against employees based on their “philosophical beliefs.”  A philosophical belief must relate to a “substantial aspect of human life and behaviour” and be “worthy of respect” in a democratic society.  Which of the following beliefs has been found by UK Employment Tribunals to be a protected philosophical belief following a trial?

  1. Vegetarianism
  2. The sanctity of copyright
  3. Climate change

Answer c: Climate change.  The UK Employment Tribunals have determined that holding a belief in climate change, including a belief that that carbon emissions must be cut in order to avoid catastrophic climate change, is capable of meeting the definition of a “philosophical belief” that would fall within the scope of the UK Equality Act.  In at least one case, the employee alleging that he was terminated as a result of his belief stated that his views on climate change were not just an opinion or a lifestyle choice but a belief that impacted all aspects of his life, including where and how he travelled, his choice of home, what food he bought and even his hopes and fears.

Conclusion: Thanks for participating in the 2019 global employment law quiz!  We hope that your 2020 is filled with joy and all the quizzes you desire.

 

DLA Piper Global Employment Team

The subject of many songs, skits, and social movements, hair discrimination has become a burning issue across the country. From Sesame Street to India Arie, there have been calls to eradicate the social stigma surrounding natural hair for decades. But now, with recent legislation, politicians are starting to follow these trends. They are going from quietly ignoring anti-natural hair practices to staunchly standing against them.

Especially for Black/African American and Latinx communities, this conversation is long overdue. A 2017 NPR story as part of the Code Switch project confirmed that black women experience more anxiety around hair issues and spend more on hair care than their white peers, and are twice as likely to experience social pressure to straighten their hair compared to white women.

In 2016, an 11th Circuit court held in EEOC v. Catastrophe Management Solutions that Title VII did not protect against hair-based discrimination. There, Chastity Jones was offered a job with Catastrophe Management Solutions on the condition that she cut off her locs. When she refused to change her hair, her job offer was rescinded. The 11th Circuit upheld the lower court’s decision that the conditional job offer based on Jones’s hairstyle was not a form of racial discrimination protected by Title VII.

Now, just three years later, states nationwide are passing laws that ban this very practice. Largely referred to as the CROWN Act (Creating a Respectful and Open World for Natural Hair), these bills recognize the detrimental effects of workplace dress codes and grooming policies prohibiting natural hair. Particularly, the CROWN Act affirms that “hair remains a rampant source of racial discrimination with serious economic and health consequences, especially for Black individuals.” And it notes that natural hair can be presented in more ways than just an afro – braids, twists, and dreadlocks are explicitly included.

So far, a handful of states and cities have stepped up to the plate by passing the CROWN Act (or something similar) to prohibit workplace practices based on hair. In February, the New York City Commission on Human Rights issued guidelines for the country’s first-ever ban on hair discrimination. Those guidelines make clear that “Black hairstyles are protected racial characteristics under the [New York City Human Rights Law] because they are an inherent part of Black identity” and that “[c]overed employers are engaging in unlawful race discrimination when they target natural hair or hairstyles associated with Black people, and/or harass Black employees based on their hair.”

And over the summer, California and New York became the first states to enact laws that banned this type of discrimination. Since then, Illinois, Kentucky, Michigan, and New Jersey have followed suit in proposing similar legislation. On a smaller scale, Cincinnati passed a law outlawing natural hair discrimination and Montgomery County, Maryland has put forth its own proposal, which is expected to pass.  Moreover, the Boston City Council recently enacted a resolution supporting a statewide ban on discrimination against natural hairstyles.

So, what about the rest of America?

Local pushes against hair discrimination in Cincinnati, Boston and Montgomery County might be indicative, despite a lack of action on a higher, statewide or federal level. Socially, more celebrities, businesses, and organizations are adding their voices in support of these laws nationwide.

And keep in mind, these efforts have cropped up within the past few months with California starting things off in July, followed closely by New York. Given the timeline so far, it isn’t a stretch to predict that more states and cities will suggest similar laws, and soon.

Change is on the horizon.

Regardless of whether (or rather—when) other states join the fight, employers should expect changes to the legal landscape. With big bellwether states like California and New York taking a stance against these practices, and the U.S. Army authorizing forms of natural hair for women in uniform, the ripple effect is inevitable whether it be in the form of social pressure or proposed legislation.

At the very least, employers should expect an uptick in litigation on this issue no matter where they are located. With laws attributing hair style and texture to racial discrimination, courts will have to reinterpret what type of conduct and policies are tolerated under anti-discrimination laws. To stay ahead of the curve, employers should look at their dress code and hiring policies and see if they pass muster.  This includes such things as:

  • Not outlawing or “frowning upon” certain hair styles (such as dreadlocks), or expecting individuals to conform to gender norms in how they style their hair;
  • Consider how other policies can adversely impact individuals with certain hair styles (i.e., such as how hair follicle hair testing could disproportionately affect the Sikh community);
  • Watch out for implicit bias in hiring and promotion, where people of color with natural hair have often been considered less “professional” by organizations; and
  • Train line managers to think before they act when it comes to employee hair, and go to HR sooner rather than later when they have a question.

When in doubt, just remember the simple rule that everyone should love their hair, and really, who wants to stand in the way of love?

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When Fantasy Football Impacts the Reality of the Workplace

Many players are deep into fantasy football season, so the question is – are you having fun yet?  Obviously not if you relied upon Antonio Brown or Ben Rothlisberger to carry you to glory, but many supervisors are beginning to feel the effects fantasy football can have on the workplace.  Let’s talk about some of those here:

Goodbye Monday Morning!

Needless to say, productivity is not as high for employees on most Monday mornings, but this is only further exacerbated as team “owners” spend the morning recounting the weekend results with other league members.  Or people are just spending the first hour of their day looking at the week’s results, praying for some result on Monday night, and setting their team up for the next week.

While most employment policies don’t reference fantasy sports, policies on the use of Company resources for personal matters apply, and you can continue to hold people accountable for their deliverables regardless of how their team is performing.  Just make sure you’re not the one creating the problem yourself.

The Problem Boss

Because sometimes, it is the boss that creates the issues.  When supervisors pressure people to play (especially when a buy-in is involved), talk trash constantly about team performance, and let fantasy invade reality, it can be a concern.  Issues may also be exacerbated when a former peer is now a supervisor due to a recent promotion.

This can be a good time to remind supervisors that they are in that role at all times – they don’t get a pass when they put their fantasy team hat on.  A lack of judgment in this setting can have ramifications for the Company, so keep that in mind.  Training, mentoring, and coaching for newly appointed supervisors can be critical to ensuring professional conduct and positive performance.  And if you are the boss who wins, just remember to use those winnings for an end of the season party for everyone.

The Boys Club

Most fantasy football office leagues get set up by dudes asking other dudes to participate.  This can be an issue where certain team members are left out, so remember that office leagues should be open to everyone in the office.  If the league is gathering for a watching party, consider inviting everyone even if they will spend the evening rolling their eyes over the latest debate about which team got an unfair outcome that week.  This is especially true when any supervisors are involved, as there is some potential for Company ratification of the league.  When in doubt, just think about my old colleague Michelle – she’s not only a mother, but also a vegan – and despite the obvious disability of being a UCLA and New York Giants fan, she was able to have a dominant run in quite a few leagues.

Personnel Fouls

Needless to say, some people take fantasy football much too seriously.  They never let up on talking trash; they threaten bodily harm when the commissioner voids a trade; they have that inappropriate team name that they have way too much fun with all year.   Any of these things can cause problematic issues in the workplace, and you once again need to look to your other policies and make sure to enforce them.  Anti-violence, anti-harassment, and anti-discrimination policies can all be implicated during the fantasy football season, and employers should not consider misconduct in this forum to be out of sight, and out of mind.

Dollars and Cents

What happens when the loser doesn’t pay up?  Everyone has good intentions, but by the end of the season Johnny’s team falls flat; he’s stopped paying attention; and he may not want to pay the $20 so Jill can celebrate her victory.  In a work league, the commissioner will often reach out to the Company for help in collecting – which always creates a slippery slope of employer involvement.  Companies should steer clear of these disputes, and should not provide contact information for departed employees regardless of whether they win or lose.

The bottom line is that fantasy football can be a great employee bonding event, but employers should tread carefully.  Just keep a few things in mind for a successful fantasy season:

  • Follow your policies;
  • Consider prohibiting employees from using Company equipment and property, such as computers, email, televisions, copiers and printers, for fantasy football leagues if the workplace disruption appears to be getting out of hand;
  • Supervisors should always act like supervisors; and
  • Don’t draft any Dolphins.

Dozens of employment class actions have been filed against employers with operations in Illinois for alleged violations of the Illinois Biometric Information Privacy Act (BIPA).  Those suits relate primarily to the failure to provide required notice to employees and obtain their consent in connection with the collection and use of employee fingerprints for timekeeping systems.  Other states, such as New York, also prohibit the fingerprinting of individuals as a condition of securing employment or continuing employment, but the Illinois BIPA is far broader in regulating employers’ collection and storage of biometric information.

In Rosenbach v. Six Flags Entertainment Corp., a widely anticipated decision addressing the circumstances under which an employee has standing to bring a BIPA claim, the Illinois Supreme Court held that an individual does not need to allege actual injury, beyond a violation of his or her rights under BIPA, to be entitled to seek statutory damages. Simply failing to comply with BIPA’s requirements could result in litigation by affected employees and customers.  Thus, a “no harm” defense is now a non-starter for violations under the BIPA.

In an opinion staunchly portraying individuals’ right to privacy in and control over their biometric data under BIPA, the Illinois Supreme Court decided that this “no harm needed” result is intended by the law to give companies the strongest possible incentive to conform to their biometric privacy obligations and prevent problems before they occur.

While BIPA isn’t new law, given the increasing use of biometric data, BIPA’s private right of action, and the Rosenbach finding that plaintiffs don’t have to demonstrate actual harm, employers’ exposure to lawsuits and damages under the law will increase. Moreover, as local and global legislators continue to focus on individual privacy rights, including biometric privacy rights, employers will have to pay attention to developments in the law that  regulate their handling of biometric data.

Workplace Privacy Landscape

In the United States, no one law provides an overall framework for the privacy of personal information in the workplace. There is a patchwork of federal laws that protects certain employee information, such as health-related information and credit histories. For example, the Health Insurance Portability and Accountability Act (HIPAA) and the Genetic Information Nondiscrimination Act (GINA) impose confidentiality obligations on most employers when it comes to employees’ health-related information. Employers using consumer reporting agencies to gather the credit history of an employee must follow the notice, disclosure, and consent requirements established by the Fair Credit Reporting Act (FCRA).

Otherwise, in the US an employee’s right to privacy in the employment context is largely based on state law. For example, states have enacted laws regulating drug and other pre-employment testing, e-mail and phone call monitoring, personnel files access, the use and disclosure of social security numbers, and security breach notifications.

California recently passed a comprehensive consumer privacy law (the California Consumer Privacy Act (CCPA), effective January 1, 2020), granting consumers rights over their personal information (including biometric information) and imposing data protection duties on companies conducting business in California. While the CCPA does not directly address employee or job applicant personal information, its broad definition of consumers suggests that it could have an impact in the workplace.

The privacy landscape is a bit different outside of the US, but also is transforming. For example, last year, European Union data protection legislation faced huge change. Effective May 28, 2018, the General Data Protection Regulation (GDPR) provides a harmonized framework for the protection of personal data in the EU. The GDPR can apply to businesses located outside the EU also. The GDPR strengthened individuals’ rights to control their personal data, and requires those processing personal data to, among other things, have a lawful basis for processing personal data, notify and inform data subjects about their processing activities, and comply with obligations around accuracy, retention, disclosure and disposal of personal data. Personal data protected by the law encompasses a wide range of information including, personal details, family details, education and training, employment details and medical details. Biometric data is among the GDPR’s “special categories” of personal data which may be processed only if a separate, specified lawful justification is established.

You can read more about the CCPA and the GDPR on our Privacy Matters blog.

Illinois Biometric Information Privacy Act (BIPA)

BIPA was passed in 2008, but as the use of biometric information increases, it has received more attention. BIPA regulates the “collection, use, safeguarding, handling, storage, retention, and destruction of biometric identifiers and information.” Biometric identifiers include things such as retina or iris scans, fingerprints, voiceprints, or scans of hand or face geometry. Biometric information is information based on an individual’s biometric identifier used to identify an individual.

In addition to complying with rules on disseminating, safeguarding, retaining and destroying biometric data, under BIPA, Illinois companies have to take the following steps before collecting anyone’s biometric data or information:

(1)    provide written information that biometric information is being collected or stored;

(2)    provide written information of specific purpose and length of term for which biometric information is being collected, stored, and used; and

(3)    receive a written release.

In recent years, the plaintiff’s class action bar has focused increasingly on bringing class actions under statutes such as BIPA, i.e., statutes that allow for an award of statutory damages. BIPA allows a person “aggrieved” by a violation of the law to recover, for each violation, liquidated damages or actual damages, reasonable attorneys’ fees and costs, and obtain other relief, including an injunction.

Rosenbach v. Six Flags Entertainment Corp.

In Rosenbach, the Illinois Supreme Court answered what it means to be “aggrieved” under BIPA, stating that a failure to comply with one of the requirements of BIPA “constitutes an invasion, impairment, or denial of the statutory rights of any person or customer whose biometric identifier or biometric information is subject to the breach. . . . The violation, in itself, is sufficient to support the individual’s or customer’s statutory cause of action.”

The defendant in Rosenbach sold season passes to its amusement park using a fingerprinting process. To complete the sign-up process for a season pass, when the plaintiff visited the park, he was asked to scan his thumb into the defendant’s biometric data capture system. However, when collecting the thumbprint, the defendant did not provide the requisite information or obtain a release. The court found that alleging this non-compliance was enough for the plaintiff to seek relief under BIPA.

The court weighed the cost of compliance for a business against the harm to individuals, and found strongly in favor of protecting individuals’ privacy rights, stating:

“Compliance should not be difficult; whatever expenses a business might incur to meet the law’s requirements are likely to be insignificant compared to the substantial and irreversible harm that could result if biometric identifiers and information are not properly safeguarded; and the public welfare, security, and safety will be advanced. That is the point of the law. To require individuals to wait until they have sustained some compensable injury beyond violation of their statutory rights before they may seek recourse, as defendants urge, would be completely antithetical to [BIPA’s] preventative and deterrent purposes.”

Biometric Information is Special

Companies are using biometric data, such as retina scans, fingerprints, and face or voice recognition, more often due to technological advances.  For example, this data is being used to track employee time and for building and device security (e.g., biometric authentication to enter a building or access work tablets, laptops, and smart phones). At the same time, laws regulating the handling of biometric information are gaining steam among US state legislators.

In 2008, with BIPA, Illinois was the first state to enact a biometric privacy statute. BIPA explains that “[b]iometrics are unlike other unique identifiers that are used to access finances or other sensitive information”, that “[b]iometrics are biologically unique to the individual; therefore, once compromised, the individual has no recourse [and] is at heightened risk for identity theft,” and the “full ramifications of biometric technology are not fully known.”

After BIPA, two other states (Texas and Washington) passed laws specifically governing the handling of biometric information.

The Texas law, the Capture or Use of Biometric Identifier Act (CUBI), went into effect in 2009. CUBI restricts companies from capturing biometric information for a commercial purpose unless the individual was informed and consented to the information’s capture. Uncooperatively, CUBI does not define “commercial purpose,” but, for example, capturing biometric data to pay employees may be a commercial purpose. CUBI specifically recognizes, however, that biometric identifiers may be collected “for security purposes by an employer.” The law also requires a companies use reasonable care to “store, transmit, and protect from disclosure” biometric information, and it restricts the sale or disclosure of biometric information.

The Washington law went into effect in 2017. Like CUBI, it only applies to biometric information used for a commercial purpose. The Washington law, however, does define “commercial purpose” to mean the sale or disclosure to a third party for the purpose of marketing goods or services, and excludes a security or law enforcement purpose. In Washington, a person cannot enroll a biometric identifier in a database for a commercial purpose, without first providing notice, obtaining consent, and providing ways to prevent the successive use for a commercial purpose.

Unique aspects of the Illinois law, compared to the Texas and Washington laws, include that it is not limited to commercial activities, and it allows a private right of action, which give an individual the right to sue in a civil litigation. There is no private right of action under the Texas or Washington biometric privacy laws.

Other states have also considered biometric data laws, which require notice and information on collection and use, require consent, restrict disclosure, and regulate confidentiality, retention, and disposal standards. Laws like this have been considered in Alaska, Connecticut, Massachusetts, Montana, and New Hampshire. Further, in the last several months, legislators in Florida and New York City have also proposed laws on the collection and use of biometric data similar to BIPA, including its feature of a private right of action.

Going Forward

Laws like BIPA will become more relevant to businesses and employers that increasingly use biometric data, for example, when using fingerprint scans for timekeeping. While employers may be familiar with their obligations under HIPAA and the FCRA, and new laws like GDPR and the CCPA have garnered much attention and discussion, employers must watch out for other laws regulating employee privacy in the jurisdictions in which they operate, and monitor developments in this area. More regulation of biometric data is likely due to an increasing use of biometrics and the potential harm if this data is compromised.

In particular, companies operating in Illinois and using biometric data will have to ensure they understand and comply with their obligations under BIPA, since simply failing to comply with any of the law’s requirements could result in litigation. Following the Rosenbach decision, there should be an increase in litigation under BIPA because plaintiffs will not have to demonstrate actual harm to survive a motion to dismiss. Failing to explain how biometric data will be stored and collected, to notify in advance of collecting biometric data, or to obtain consent in writing to the collection, use or storage of biometric data exposes companies to these lawsuits.

#TimesUp For Your Representations and Warranties

In late 2017 and throughout 2018, the world watched the careers of several top executives topple.  Once considered titans of their industry, these individuals were ensnared by allegations of sexual harassment.  In their wake, the #MeToo movement arose and has permanently shifted public sentiment and empowered alleged victims to come forward in droves.  For fiscal year 2018, the EEOC reported a 13.6 percent increase in sexual harassment charges and a 50% increase in lawsuits that the EEOC filed for sexual harassment as compared to 2017.[1]  We expect the number of claims being filed to continue to rise.

Victims are not the only ones speaking out.  There has been a recent rise in shareholder derivative actions alleging breach of fiduciary duties by companies by condoning the actions of executives in perpetrating sexual harassment (and sometimes paying these executives generous

exit packages on their way out).  In their latest campaign for improved corporate governance, shareholders argue that these actions are costly to companies and expose them to future litigation.  While the outcome of these cases is far from clear given the relatively high standard of deference given to the businesses under the business judgement rule, what is clear is that these suits bring unwanted attention and reputational damage to companies by shining a light on how they handle allegations of sexual harassment.

Meanwhile, our lawmakers also have been busy at work and have enacted a flurry of #MeToo legislation aimed at protecting victims of sexual harassment.  These laws have popped up across the country and include: mandatory sexual harassment training for employees, restrictions or prohibitions on the enforceability of confidentiality provisions, and banning the use of mandatory arbitration agreements for claims of sexual harassment.

With the changing landscape, employers must also adapt the way that they think about and deal with allegations of sexual harassment. Savvy employers are not being complacent.  We recently have seen employers:

  • review their internal policies and practices when dealing with allegations of sexual harassment – including their non-disclosure agreements, employment agreements and settlement agreements;
  • institute sexual harassment training for employees – even where there is no legal requirement to do so; and
  • update the language of their executive employment agreements – in particular, provisions relating to terminations for cause to explicitly include sexual harassment and sexual misconduct as a basis for such termination and thereby rendering the executive ineligible for severance and other benefits.

Going beyond this, there are two additional tools for companies to add to their arsenal – this time within the context of corporate transactions:

  1. increased focus on social due diligence; and
  2. adding #MeToo representation to deal agreements.

Social Due Diligence

Employment related diligence traditionally has focused on “big-ticket” items such as potential wage and hour violations (whether it be classifying contractors correctly, getting employee overtime exemptions right or failing to provide meal or rest periods), issues related to unions and collective bargaining, and benefits compliance (in particular when it comes to things like pensions).

In conducting diligence, companies typically ask for the target’s policies and pay practices, offer letter and other employment-related agreements, information relating to employee complaints, terminations and litigation, and so on.

In addition to the above, buyers are advised to take a closer look at potential social and reputational risks associated with sexual harassment claims.  In particular, companies should ask the target for:

  • details on specific HR processes that are undertaken when an employee raises a complaint;
  • any complaints of sexual harassment, specifically in relation to executives;
  • steps the target has taken to combat sexual harassment;
  • internal investigation reports and outcomes;
  • feedback from employees who have exited the company;
  • data on employee attrition – if the target has a high attrition rate as compared to the industry or among certain types of employees this could signal a potential problem.

#MeToo Reps

The representation and warranties section of a deal agreement contains statements from one party to the other asserted to be factually correct and intended to induce the other party to enter into the agreement.  Warranties are a promise of an indemnity if the representations are not true.

Within the context of employment, share-sale and merger agreements typically represent that a company has been in material compliance with the law, that employment related claims have not been instituted against the company, and so forth.  Now it is becoming more common for buyers to seek representations from the seller about sexual harassment claims.

Here are a few variations of what we have seen these look like in practice:

(1) The addition of “sexual harassment” to the laundry list of employment laws that the seller represents that they are in compliance with as of a certain date.

(a) Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, the Company and its Subsidiaries are, and since January 1, 2017 have been, in compliance with all Applicable Laws relating to labor and employment, including those relating to labor management relations, wages, hours, overtime, employee classification, discrimination, sexual harassment, civil rights, affirmative action, work authorization, immigration, safety and health, information privacy and security, workers compensation, continuation coverage under group health plans, wage payment and the payment and withholding of taxes.

– Bristol-Myers Squibb Company and Celgene Corporation merger; January 02, 2019.

(2) Requiring the seller to represent that a specific set of individuals (in the example below, officers and members of the board and employees at the Vice-President level or above) have not been subject to allegations of sexual harassment or sexual misconduct or the seller has not entered into a settlement agreement relating to such allegations by those individuals.

(e) From January 1, 2015 through the date hereof, except as would not individually or in the aggregate be expected to have a Material Adverse Effect, (i) no officer of the Company, member of the Company Board, or employee of the Company or any of its Subsidiaries at a level of Vice President or above (each, a “Covered Person”), has been the subject of any sexual harassment or other sexual misconduct allegations during and related to his or her tenure at the Company, and (ii) the Company has not entered into any settlement agreement related to allegations of sexual harassment or sexual misconduct by any Covered Person.

– GlaxoSmithKline plc tender offer for TESARO, Inc.; December 3, 2018

(3) Requiring the seller to represent that it has investigated all allegations of sexual harassment that it was made aware and taken appropriate action.

(f) The Company and each of its Subsidiaries has promptly, thoroughly and impartially investigated all sexual harassment allegations of which it is or was made aware. With respect to each such allegation with potential merit, the Company or its Subsidiary has taken prompt corrective action that is reasonably calculated to prevent further harassment. The Company does not reasonably expect any material liability with respect to any such allegations.

– Virtu Financial, Inc. and Investment Technology Group, Inc. merger; November 6, 2018

Thinking about Next Steps for Buyers

Before deploying these tactics, buyers are wise to think about potential implications and next steps.

If diligence reveals that the target has an issue with sexual harassment and the deal goes through, the buyer must be prepared to take steps to remediate since it now is aware that it has acquired a potential problem.

Careful consideration should be given to what remedy to seek and how damages will be calculated in the event that the seller made a misrepresentation.  This is especially tricky as it is difficult to quantify potential legal liability within the context of sexual harassment claims, which in this day and age come with potential reputational damages.

Sellers Should take Action, Too

Sellers should not wait idly until confronted with this issue.  The proactive seller can and should  take steps to protect their interests as well.  One thing sellers can do as a matter of good housekeeping is conduct pre-diligence before a sale negotiation even starts.  This  not only will allow sellers to take mitigating steps if they uncover any potential issues related to sexual harassment but also put sellers in the best position to respond to prospective buyers if and when asked about these issues.

[1] https://www.eeoc.gov/eeoc/newsroom/wysk/preventing-workplace-harassment.cfm

            The title may be what every little kid learns (and an underappreciated classic by the Jackson 5), but per usual California is different.  Many California workers may find their employment status shift as a result of a recent decision by the California Supreme Court which significantly expanded the universe of workers likely classified as employees instead of independent contractors.  This change may leave some workers toe-tapping and singing “do, re, mi;” however, others may not share a similar glee over the potential change.  True, the shift in status would mean that these workers would be entitled to additional protections and benefits, such as paid vacation, sick leave, health insurance and unemployment benefits, but like most things in life, it comes with a price… their freedom.  The autonomy and freedom that independent contractors enjoy is highly valued and is one of the reasons these types of jobs (particularly in the gig economy) have become quite popular.  This freedom could vanish soon due to the new “ABC test” in California which makes it harder for employers to show that workers qualify as independent contractors for purposes of California wage orders.

            The landmark decision, Dynamex Operations West, Inc. v. Superior Court of Los Angeles, came down on April 30.  Much like Max Richter’s Sleep, the decision is not brief.  In 82 pages, the Court reinterpreted and bid adieu to the multifactor Borello test it had been using for nearly three decades to determine employee status.

D is for Dynamex

            Instead of throwing their hands up in the air, saying “Ayo! Gotta let go,” two individual Dynamex delivery drivers sued on their own behalf and on behalf of a class of alleged similarly situated drivers.  The drivers claimed that Dynamex allegedly misclassified drivers as independent contractors, and as a result, that Dynamex had allegedly engaged in unfair and unlawful business practices under Business and Professions Code section 17200.

S is for Supremes

            Rather than “keep [us] hanging on,” the California Supreme Court granted review to clarify the standard for determining employee or contractor status in the wage order context.  The Court began the opinion with a broad characterization of the misclassification of independent contractors as harmful and unfair to workers, to honest competitors, and to the public as a whole.  The Court provided a long and detailed analysis of the relevant case lineage – carefully analyzing previous case law, and then applied the “ABC test.”

California’s ABC’s

            Using the ABC test for worker classification is not new.  Approximately half of all states use variations of this test to evaluate employment relationships.  Under the ABC test, a worker will be deemed to have been “suffered or permitted to work,” and therefore, an employee for wage order purposes, unless the putative employer proves:

(A)       that the worker is free from the control or 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;

(B)       that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C)       that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

            Each of these requirements must be met in order for the presumption that a worker is an employee to be rebutted.

I is for Impact

            Worker classification is of considerable significance to workers, businesses, and the public generally.  Employers bear the responsibility of paying Social Security and payroll taxes, unemployment insurance taxes and state employment taxes, providing workers’ compensation insurance, and complying with the seemingly endless state and federal statutes governing the wages, hours, and working conditions of employees.  Many businesses, particularly those operating in the gig economy, are premised on the use of independent contractors due to the benefits associated with using such workers, such as lower labor costs and increased staffing flexibility, including the ability to more quickly react to changing business needs.

W is for Wipeout

            The Dynamex decision could seriously disrupt the gig economy and has the potential of “wipin’ out” many benefits companies rely upon in utilizing independent contractors.  It could also impact the benefits workers enjoy as a result of their independent contractor status.  As previously noted, gig workers have a tremendous amount of flexibility in hours and pay.  Earning capacity is directly tied to the amount of work an individual decides to take on and can vary from day to day.  Time truly is money in the gig economy.  Additionally, gig work is constantly varied – both in the type of work one can do and in the type of people one will meet.  Gig workers are free to take vacations whenever they want because there is no expectation of their availability.   This freedom and flexibility allows gig workers to focus on their families and friends as well as hobbies and pastimes – something that the traditional workplace may not afford.  Gig workers are also able to see what it is like to run their own business but have somewhat of a safety net.  This fosters entrepreneurship and creativity.  Whether Dynamex will wipe this all out remains to be seen.

E is for Epic

            There is not just doom and gloom here for employers though.  On May 21, 2018 in Epic Systems v. Lewis, the Supreme Court of the United States ruled that courts must enforce individual arbitration clauses in employment contracts and upheld the enforceability of arbitration agreements containing class and collective action waivers of wage and hour disputes.  While not a complete solution to the problems the “ABC test” may cause California employers, it does provide companies with a significant tool to prevent class or collective litigation over classification disputes.  In fact, Epic was recently relied upon in a consolidated misclassification case before the Ninth Circuit (arguing that the drivers should honor the arbitration clauses and submit their individual disputes to arbitration), and in upholding the arbitration clauses, the Ninth Circuit appears to be marching to that same Epic drum.