By Peter Moser, Tavish Brown January 18, 2023
On January 5, 2023, the Federal Trade Commission (“FTC”) proposed a sweeping new regulation (available here) that, if it were to go into effect, would essentially ban all worker non-compete agreements. It would also ban other restrictive covenants that could be interpreted as “de facto” worker non-compete agreements, including for example certain non-disclosure and non-solicitation agreements.
The FTC bases its authority to implement the proposed regulation on Section 5 of the Federal Trade Commission Act (the “FTC Act”), 15 U.S.C. § 45, which makes it unlawful for businesses to engage in unfair methods of competition. The FTC’s new proposed regulation follows recent FTC enforcement actions, state and federal legislative activities, and court decisions that reflect increasing hostility toward non-compete agreements.
Public comments on the proposed regulation are due to the FTC by March 10, 2023. This is likely the only comment period available before the agency issues a final rule.
The FTC’s proposed regulation provides that it would be an “unfair method of competition” for an employer to (i) enter into or attempt to enter into a non-compete clause with a worker, (ii) maintain with a worker a non-compete clause, or (iii) represent to a worker that the worker is subject to a non-compete clause where the employer has no good faith basis to believe the worker is subject to an enforceable non-compete clause.
The proposed regulation defines a “non-compete clause” as “a contractual term between an employer and worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.” The definition could encompass other restrictive covenants, such as non-disclosure, non-solicitation, and no-hire/recruit agreements, among others, if such agreements meet the regulation’s “functional test” by serving as a “de facto” non-compete clause. Any agreement that has the practical effect of being a non-competition agreement will be invalidated.
The proposed regulation will also require employers to rescind all non-compete agreements entered into before the effective date of the regulation, and to provide written notice to all workers subject to a non-compete (current and former) that their non-compete is no longer in effect and may not be enforced.
The proposed regulation would only apply to companies within the FTC’s jurisdiction, thereby excluding regulated banks, savings and loan institutions, federal credit unions, common carriers, air carriers, and non-profits, among others.
There is also a limited exception applicable in the sale-of-business context. The proposed regulation provides that it will not apply to non-compete clauses entered into by a person selling or disposing of a business interest when the person is a “substantial” owner, member, or partner in the business entity at the time they entered into the non-compete. “Substantial” is defined as having at least a 25 percent ownership interest, rendering this exception narrow and potentially problematic in application. For example, under the proposed definition there is no sale-of-business scenario in which a non-compete could bind more than four people, rendering the exception potentially meaningless if the selling business was comprised of more than four owners, members, or partners.
Yes. The new rule would supersede any state statute, regulation, order, or interpretation thereof to the extent the statute, regulation, order, or interpretation is inconsistent with the proposed regulation.
The FTC is accepting comments on the proposed rule through March 10, 2023. Once the comment period ends, the FTC will consider whether to amend the proposed regulation prior to publication. The final rule will then be published in the federal register and will go into effect 180 days after publication.
It is likely that a final rule banning all non-compete agreements will be met with strong resistance, and may be held up in the courts for some time before going into effect (if at all).
Even if the proposed regulation does not go into effect, non-compete agreements are coming under increasing scrutiny by courts, administrative agencies, and legislatures. Notably, the day before the FTC announced its new regulation it ordered three employers to halt the use of non-compete agreements with workers after finding their practices were unlawful under Section 5 of the FTC Act. Each of the employers were using non-compete agreements to limit the ability of low-wage/non-exempt workers from working for competitors.¹ As recently as 2021, a bill was introduced in the U.S. Senate that would have banned non-compete agreements with non-exempt employees. Taken together, the use of non-competes to limit low-wage/non-exempt workers in particular is clearly undergoing increasing scrutiny. The FTC’s recent enforcement actions suggest that it may continue to view low-wage/non-exempt worker non-compete agreements with hostility even if changes are made to the proposed regulation, it is not implemented, or it is successfully challenged in court.
If the proposed FTC regulation does go into effect, employers will be required to rescind all previously entered into non-compete agreements in writing, including with past workers. Employers may therefore wish to make preparations now to identify all previously entered into non-compete agreements and update and maintain contact information.
In addition, employers should review their existing non-disclosure agreements, non-solicitation agreements, no-hire/recruit agreements, and no-service agreements, and other restrictive covenants, to ensure their enforceability if the proposed regulation goes into effect.
And of course employers should keep an eye on further developments, as the public comment period expiration date approaches, and with the proposed regulation set to go into effect within 180 days of the publication of the final rule.
Even if the proposed rule does not go into effect, employers should take stock now of their current practices to ensure compliance with existing law, and to reassess how to most effectively and sustainably protect legitimate business interests.
The Massachusetts legislature passed the Massachusetts Noncompetition Agreement Act in 2018, imposing certain requirements on employers wishing to enter into valid non-compete agreements, including prior notice, providing the opportunity to seek legal counsel, and a requirement of independent consideration. This law is currently in effect.
If you have any questions about the FTC’s proposed non-compete ban and its potential impact on your business, please contact:
DOWNLOAD THE PDF HERE.
By Peter Moser, Catherine Reuben, David Wilson December 7, 2022
On January 1, 2023, the Massachusetts minimum wage will increase from $14.25 per hour to $15.00 per hour. The service rate, for waitstaff and others who earn tips, will increase from $6.15 per hour to $6.75 per hour. This increase is the final increase in the state’s multi-year program to raise the minimum wage to $15 per hour. As part of the move to $15 per hour, Premium Pay for working on Sundays and certain holidays under the Massachusetts “Blue Laws” expires on January 1, 2023. Note, however, that if Sunday or holiday work brings a non-exempt employee’s total hours beyond 40 in a week, overtime pay is still required, as usual.
If you have any questions, please contact:
DOWNLOAD THE PDF HERE.
By Alicia Ward, Peter Moser, Kathleen Berney, Catherine Reuben November 21, 2022
Beginning in January 2023, the maximum weekly benefit that employees are eligible to receive through the PFML will be $1,129.82, an increase of $45.51 from the current maximum weekly benefit of $1,084.31. The benefit amount changes each year, effective January 1, to remain at 64% of the state average weekly wage, which will increase from $1,694.24 to $1,765.34 in 2023.
In addition, effective January 1, 2023, the total contribution rate for employers with 25 or more covered individuals will decrease from 0.68% to 0.63%; for employers with fewer than 25 covered individuals, the total contribution rate will decrease from 0.344% to 0.318%.
For additional details about updates to the contribution rates for 2023, please visit the Massachusetts Department of Family and Medical Leave (DFML) website.
On November 15, 2022, the DFML published 2023 workforce notifications, posters, and rate sheets, reflecting among other things, the new rates and benefit amounts. Employers are required to provide written notice of PFML benefits, contribution rates, and other provisions as outlined in M.G.L. c. 175M § 4 to employees.
For current employees who have previously signed an acknowledgment form, employers must provide information about the new contribution rate 30 days in advance of the rate change (i.e., December 2, 2022). The notice may be provided electronically and does not require an updated signature.
For new hires, employers must provide notification within 30 days of hire. The notice must include the opportunity for an employee to accept or decline receipt of the information. Each employee should return a signed acknowledgment form, whether in paper or electronically, or the employer must be able to verify its effort to furnish the information to the employee.
The 2023 mandatory workplace poster updates the earnings requirement for a worker to qualify as a covered individual eligible for PFML benefits. Namely, the worker must have earned 30 times the expected benefit and more than $6,000 (adjusted annually) in the last four completed quarters preceding the application for benefits (an increase from $5,700 in 2022).
The 2023 mandatory workplace poster reflects the changes in weekly benefit amounts, contribution rates, and covered individual eligibility. All Massachusetts employers must display this poster in a location where it can be easily read. Employers may also consider making this poster digitally available to reach remote Massachusetts workers, if any.
Employers providing benefits through the Commonwealth’s plan remain responsible for remitting family and medical leave contributions to the DFML on behalf of their covered individuals. With the new rates for 2023, employers should prepare to make the appropriate payroll adjustments, adopt revised workforce notifications, and replace the 2022 mandatory workplace poster with the 2023 mandatory workplace poster at the start of the New Year. Further, employers who have leave policies that include reference to contribution rates and other details that are subject to the 2023 updates should revise the same accordingly.
Employers have a continuing obligation to provide written notice to their current workforce of PFML benefits, contribution rates, and other provisions as outlined in the PFML statute. With the new rate contributions going into effect on January 1, 2023, employers will be required to give notice to their employees by December 2, 2022. Failure to provide the required notifications may result in fines, including $50 per employee for the first violation and $300 per employee for subsequent violations.
If you have any questions about Massachusetts Paid Family and Medical Leave and its potential impact on your business, please contact:
DOWNLOAD THE PDF HERE.
By Alicia Ward, Peter Moser, Kathleen Berney, Catherine Reuben October 26, 2022
The U.S. Equal Employment Opportunity Commission (EEOC) just announced its release of a new version of the “Know Your Rights: Workplace Discrimination is Illegal” workplace poster, which updates the “EEO is the Law” poster.
The updated version of the “Know Your Rights: Workplace Discrimination is Illegal” workplace poster is available here.
Covered employers must prominently display the poster which summarizes employment discrimination laws and explains how to file a complaint. Most employers with at least 15 employees are covered by the federal anti-discrimination laws enforced by the EEOC (20 employees in age discrimination cases). Most labor unions and employment agencies are also covered. Workplace posters should be placed in a conspicuous location in the workplace where notices to applicants and employees are customarily posted. In addition to physically posting, covered employers are encouraged to post a notice digitally on their websites in a conspicuous location.
The new “Know Your Rights” poster includes the following changes:
Employers should not only update the “Know Your Rights” poster, but also take the opportunity to confirm that their state and local workplace posters are likewise up to date.
If you have any questions, please consult your HRW attorney, including:
By Julia Russo, Catherine Reuben, Peter Moser August 5, 2022
On July 26, 2022, Governor Charlie Baker signed into law the Creating a Respectful and Open World for Natural Hair (“CROWN”) Act, which prohibits discrimination based on natural and protective hairstyles in workplaces, school districts, and certain school-related organizations. The Massachusetts CROWN Act makes it illegal to discriminate against a person for donning natural hair texture, hair type, and hairstyles, which include, but are not limited to, braids, locks, twists, Bantu knots, and other formations. It also blocks Massachusetts employees, students, and other individuals from being denied employment or educational opportunities due to their hairstyles and hair textures.
By enacting the CROWN Act, Massachusetts follows 17 other states that have passed similar legislation banning discrimination on the basis of a person’s natural or protective hairstyle. Although a federal CROWN Act was introduced to Congress and passed by the House of Representatives in March of 2022, it has not yet passed the Senate to date.
Under the new law, employers and school districts in the Commonwealth of Massachusetts may not adopt or implement a policy or code that impairs or prohibits natural hairstyles. In response to the passage of the CROWN Act, Massachusetts employers should refrain from banning certain natural hairstyles outright. Employers should consider updating their equal employment opportunity and nondiscrimination policies and review their employee handbook and any grooming or appearance policies to ensure that they are not in violation of the anti-discrimination provisions of the law. Employers may also consider providing training opportunities to managers, supervisors, and hiring personnel so they are informed of these new protections.
The CROWN Act will take effect on October 24, 2022, and the Massachusetts Commission Against Discrimination will be responsible for enforcing these protections. The Massachusetts law may entitle an employee who proves their employer discriminated against them on the basis of their natural hairstyle to recover economic and compensatory damages, punitive damages, and reasonable attorneys’ fees.
For questions, please consult your HRW attorney, including:
