Businesses are constantly challenged by the ever-evolving landscape of labor and employment law, with new legislation and judicial developments occurring almost daily fueling a seemingly never-ending stream of litigation. For companies operating in multiple states, complying with this patchwork of federal, state, and local laws and developments can be daunting. Knowing these issues are a top concern for management and in-house counsel, Morrison Foerster keeps pace with this rapidly evolving landscape. MoFo ELC equips our clients with the most up-to-date and relevant information on employment and labor law issues covering key judicial, litigation and legislative developments, their implications for employers, and strategies to ensure compliance and avoid lawsuits.<h2>ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

Social

Search

Editors

turnbull_andrew_blog_150x150.png

turnbull_andrew_common_640x280.jpg

turnbull_andrew_heroretina_2700x1160.jpg

turnbull_andrew_mobileretina_750x1040.jpg

turnbull_andrew_social_600x600.jpg

Co-Chair, Global Employment and Labor Practice

Partner

Andrew Turnbull represents companies on a broad range of labor and employment litigation and counseling matters. He has successfully defended clients in complex employment litigation before federal and state courts and administrative agencies. A primary focus of his practice involves helping companies navigate the unique employment issues that arise when doing business with the federal government, including advising on all aspects of OFCCP compliance, creating and implementing affirmative action plans, defending OFCCP audits and onsite investigations, conducting mock pay equity audits, drafting and developing business ethics policies and programs, and complying with the Service Contract Act, E-Verify, and the Drug Free Workplace Act.

Andrew Turnbull

favicon.ico

favicon-16x16.png

favicon-32x32.png

apple-touch-icon.png

MoFo Favicons

MoFo ELC equips our clients with the most up-to-date and relevant information on employment and labor law issues, covering key judicial, litigation, and legislative developments, their implications for employers, and strategies to ensure compliance and avoid lawsuits. To learn more about our capabilities, please visit the <a href="https://www.mofo.com/capabilities/employment-labor" target="_blank">Employment + Labor</a> practice page and read about our <a href="https://www.mofo.com/people?practices=Employment%20%2B%20Labor" target="_blank">Team</a>.

Welcome to the MoFo ELC Blog

elcblog-header-image.jpg

Welcome to the MoFo ELC Blog

elcblog-header-image

MoFo ELC equips our clients with the most up-to-date and relevant information on employment and labor law issues covering key judicial, litigation and legislati

Announcements

Blog - Terms of Use

Blog - Cookies

Blog - Privacy Policy

Blog - Blog Disclaimer

Blog - Attorney Advertising

morrison-foerster-blog-logo.png

Provides insights and reports on the most current class actions lawsuits and product liability issues that affect consumer-facing companies.

Class Dismissed Blog

Class Dismissed

In-depth analysis of developments and trends impacting government contracting.

Government Contract Insights Blog

Government Contract Insights

Looks behind the headlines to explore the trends, identify the opportunities, analyze the issues, and provide guidance for science and technology-based companies.

MoFo Tech Blog

News and thought leadership from lawyers whoa re adding value to the legal profession and the communities we call home.

 MoFo+ Blog

MoFo+

Read our Employment Law Commentary blog for the latest insights in employment and labor law, covering issues from ADA compliance to trade secrets protection.

Employment Law Commentary

MoFo ELC | Latest Employment Law Developments and Commentary

  Linkedin

MoFo LinkedIN

ELC Blog - RSS

Stay Connected

By submitting your data to subscribe to this blog, you approved Morrison & Foerster LLP to email you future information about MoFo news and events. You may opt-out at any time by sending a request to <a href="mailto:mofonews@mofo.com" target="_self">mofonews@mofo.com</a>. To learn more about how Morrison & Foerster LLP uses and protects your personal data, please view our <a href="https://www.mofo.com/about/privacy-policy.html" target="_self">Privacy Policy</a> at <a href="https://www.mofo.com/">www.mofo.com</a>.

Never miss a post from MoFo ELC. Enter your email below to stay up-to-date.

Subscribe

Practical Answers to Employment Law Issues

Morrison Foerster - Footer

Blogs -  Home Button

Home

Blog - Topics

Americans with Disabilities Act (ADA)

Artificial Intelligence

Coronavirus (COVID-19)

Department of Labor (DOL)

Discrimination

EEOC

European Union

Family Medical Leave Act (FMLA)

Immigration

Intellectual Property

Leaves of Absence

Legislation

NLRB

Non-Compete

OFCCP

PAGA

Paid Sick Leave

Pay Equity

Privacy & Data Security

Reductions in force (RIFs)

Trade Secrets

Wage and Hour

Workplace Misconduct

Topics

Blog - Editors

Blog - About

About

Blog - Subscribe

Andrew R. Turnbull

More

Fourth Circuit Stays Injunction of Trump DEI Executive Orders

President Trump Rescinds Affirmative Action for Federal Contractors and Requires Enforcement Plan to End Unlawful DEI at Private Companies

FAR Council Withdraws “Pay Equity and Transparency” Proposed Rule

The “Preventative Duty”: New Law Places Active Duty on Employers in the UK to Prevent Sexual Harassment in the Workplace

Good News for Employers: Texas Court Blocks FTC’s Non-Compete Ban

LinkedIN

While the FTC was relatively quiet in 2023 on the non-compete front, California forged ahead with two amendments to its non-compete statute (Business and Professions Code section 16600) that, depending on how courts interpret them, could be one of the most significant developments in the California employee-mobility space in the last 10 years. One of the amendments (SB 699) extends California’s non-compete ban to those signed by out-of-state employees under out-of-state law and creates a private right of action. The other (AB 1076) makes it “unlawful” to enter into a non-compete with an employee and required employers to notify their current and former employees by February 14, 2024, that any such non-competes are void. Each raises at least as many questions as they answer, including the effect, if any, on the Private Attorneys General Act (PAGA), employee non-solicits, and extraterritoriality. New York state, meanwhile, made news for what it did not enact—a total ban on non-competes. But although New York’s governor vetoed the total-ban bill, the New York City Council introduced a non-compete bill of its own in February 2024 that would ban all non-competes in the city without exception. Below we survey the latest on the FTC’s proposed rule, California’s new non-compete amendments, the New York state ban that was vetoed, and the proposed ban that was recently introduced in the New York City Council.FTC UPDATERecent reporting indicates that while the FTC may vote on the final version of its rule as early as April 2024, for various reasons such a vote may not happen until later in the year.Commissioner Lina Khan touched on the proposed rule on a panel at the American College of Emergency Physicians last October 2023, stating that the FTC had received far more feedback from individuals who work in healthcare than any other individual sector and an “overwhelming” number of comments supported total ban: “We’re looking at all those comments very closely and figuring out where to land,” she said. “But I’ll be honest, the overwhelming number of comments are firmly in support of the FTC proposal to ban non-competes across the board. And so, we take that very seriously.”[1]The FTC and DOL also entered into a Memorandum of Understanding (MOU) in September 2023 in furtherance of the President’s Executive Order on Competition. According to the press release, “[t]he new agreement enables the FTC and DOL to closely collaborate by sharing information, conducting cross-training for staff at each agency, and partnering on investigative efforts within each agency’s authority.”[2] Among the areas of mutual interest for the two agencies, the MOU identifies “the imposition of one-sided and restrictive contract provisions, such as non-compete and training repayment agreement provisions.” Id.And of course, it is unclear how the election year will affect these plans.CALIFORNIAKey Legislative DevelopmentsSB 699 and AB 1076 both took effect on January 1, 2024.SB 699SB 699 added section 16600.5 to the California Business and Professions Code, rendering unenforceable any contract that is void under the California framework. In relevant part, the law takes California’s expansive non-compete framework and further extends it to contracts that are signed and executed under laws outside California: “An employer or former employer shall not attempt to enforce a contract that is void under this chapter regardless of whether the contract was signed and the employment was maintained outside of California.” Cal. Bus. & Prof. Code § 16600.5(b). The amendment also creates a civil cause of action for any employee against an employer that enters into or attempts to enforce a contract that is void under this law, entitling such employee to injunctive relief, actual damages, or both, as well as reasonable attorneys’ fees and costs.AB 1076Making direct reference to Edwards v. Arthur Andersen LLP (2008) 44 Cal. 4th 937, AB 1076 amended section 16600 of the Business and Professions Code to void the application of any non-compete agreement in any employment context regardless of how narrowly tailored it may be, unless it meets an existing exception under California state law. It also added section 16600.1 to the California Business and Professions Code, providing that:<ul><li>It is “unlawful” to include a “noncompete clause in an employment contract, or to require an employee to enter a noncompete agreement, that does not satisfy an exception in this chapter.”</li><li>Employers who have non-compete clauses in contracts with current employees or former employees employed after January 1, 2022, were required to notify those employees by February 14, 2024, that the non-compete clause is void.</li><li>A violation of this section is an act of unfair competition under California law (section 17200), allowing for the relief and penalty provided therein.</li></ul>Section 16600.1 otherwise is silent on relief. Unlike SB 699, AB 1076 does not expressly authorize attorneys’ fees or actual damages.Rejected BillThe California legislature was considering but ultimately did not advance <a href="https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240AB747" target="_blank">A.B. 747</a>, which would have imposed, in addition to actual damages, a $5,000 penalty per employee for entering into or attempting to enforce a non-compete.Open Questions and ConsiderationsExtraterritorialityCalifornia has a general presumption against extraterritorial application of its laws that has been recognized by its Supreme Court. Sullivan v. Oracle Corp., 51 Cal. 4th 1191, 1207 (2011). SB 699 did not purport to overturn, and did not even reference, Sullivan.SB 699 provides that “An employer or former employer shall not attempt to enforce a contract that is void under this chapter regardless of whether the contract was signed and the employment was maintained outside of California.” Cal. Bus. & Prof. Code § 16600.5(b).But language found in the preamble to SB 699 (enacting section 16600.5) suggests that the amendment was intended to protect employees who are performing work in California and thus should not be applied to employees outside California:<ul><li>“(e) The California courts have been clear that California’s public policy against restraint of trade law trumps other state laws when an employee seeks employment in California, even if the employee had signed the contractual restraint while living outside of California and working for a non-California employer.”</li><li>“(f) California has a strong interest in protecting the freedom of movement of persons whom California-based employers wish to employ to provide services in California, regardless of the person’s state of residence. This freedom of employment is paramount to competitive business interests.”[3]</li></ul>Thus, one question that arises is to what extent does California’s ban apply to employees who remain and work outside California and remain there?PAGAPAGA applies only to violations of the Labor Code. The statutes that prohibit non-competes, including the newly enacted statutes in sections 16600.1 and 16600.5, are in the Business and Professions Code, not the Labor Code.But cases have been filed by California employees under PAGA challenging non-competition agreements purporting to rely on a catchall in the Labor Code—Labor Code section 432.5—which prohibits any employer or manager from requiring an employee or applicant for employment to agree in writing to a term or condition that know by such employer or manager to be “prohibited by law.” Cal. Labor Code § 432.5.[4]Whether a violation of Business and Professions Code section 16600 can be pursued under PAGA and warrant penalties under Labor Code section 432.5 are additional questions that may need to be resolved.Relief under Business and Professions Code section 17200Business and Professions Code section 16600.2 (AB 1076) on its face limits relief to what is available under section 17200, i.e., restitution, including restoring money to any person from whom the money has been obtained through unfair competition, for any unjust enrichment of an employer, injunctive relief, and possibly attorneys’ fees (by way of California Code of Civil Procedure section 1021.5).  Courts have generally held that damages are not available under section 17200. Section 17206 does provide for a civil penalty of $2,500 per violation, but only in an action brought by a public prosecutor, such as the state attorney general, any district attorney, or certain city attorneys. Assuming a public prosecutor brought a case and was awarded civil penalties, the statute is silent on how the penalty would be assessed other than the penalty is for “each violation.”Employee Non-Solicits and Fixed-Term AgreementsEach amendment is silent on employee non-solicits and fixed-term employment agreements.The new statutory subdivision, as amended by AB 1076, also requires section 16600 to be “read broadly” and states that this “does not constitute a change in, but is declaratory of, existing law.” Whether courts interpret the amendments to apply to these agreements remains to be seen.Labor Code Section 925(e)Before enactment of SB 699, some courts had, as we <a href="/topics/recent-non-compete-trends-courts-continue-to-enforce-non-competes-while-politicians-seek-to-narrow-them" target="_self">reported</a> in 2023,[5] construed California Labor Code section 925(e) as an exception of sorts to section 16600 if the employee is represented by the individual counsel of their choice. While AB 1076 expressly referred to Edwards, neither amendment mentioned Labor Code section 925 or 925(e) at all.What, if any, effect section 16600.5’s prohibition—that “an employer or former employer shall not attempt to enforce a contract that is void under this chapter regardless of whether the contract was signed and the employment was maintained outside of California”—will have on this issue remains an open question.NEW YORKOn December 22, 2023, New York Governor Kathy Hochul vetoed a bill that would have had a wide-ranging impact on employment contracts in the state.The New York state legislature passed State Senate Bill 2023-S3100A in June 2023, broadly limiting post-employment non-compete clauses. The bill defined “covered individuals” as “any other person who, whether or not employed under a contract of employment, performs work or services for another person on such terms and conditions that they are, in relation to that other person, in a position of economic dependence on, and under an obligation to perform duties for, that other person,” expanding to all employees or contractors regardless of position or income.The bill would have prohibited the use of non-compete agreements for all employers of any type. A non-compete was defined in S3100A as “any agreement, or clause contained in any agreement, between an employer and a covered individual that prohibits or restricts such covered individual from obtaining employment, after the conclusion of employment with the employer included as a party to the agreement.” The bill went on to render void “[e]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” S3100A had no express exceptions to the prohibition of post-employment non-compete agreements, but the ban would not have prohibited an employer from entering into a fixed-term employment agreement, prohibiting a “covered individual” from disclosing trade secrets and confidential or proprietary client information, or prohibiting solicitation of the employer’s clients that the former employee learned about during their employment.S3100A would have allowed “covered individuals” to bring a civil action to seek lost compensation, other damages, and reasonable attorneys’ fees and costs. Additionally, courts would have been directed to award liquidated damages of up to $10,000 per covered individual. In her veto memo, Governor Hochul expressed support for a restriction on non-compete agreements for middle-class and low-wage workers, likely signaling that she would sign a revised bill with a narrower scope into law.NEW YORK CITYThe New York City Council introduced a trio of bills on or around February 28, 2024, ranging from a total ban to a ban only for low-wage or freelance workers. The total-ban bill (Int. No. 140) includes a non-compete definition comparable to the New York state bill.[6] The same bill would prohibit New York City employers from entering into or maintaining a non-compete with a worker or representing to the worker that the worker is subject to a non-compete clause where the employer has no good-faith belief in its enforceability. It also would require covered employers to rescind any existing non-compete agreements. Unlike the New York state bill, New York City’s total-ban bill does not contain any exceptions (e.g., fixed-term employment agreements) on its face. Violators would be subject to a civil penalty of $500 per violation, enforced by the Office of Labor Policy & Standards. In its current form, it would not create a private right of action.[1] <a href="https://www.fiercehealthcare.com/regulatory/ftc-full-steam-ahead-sweeping-noncompete-ban-reinforcing-antitrust-chair-tells-docs" target="_blank">https://www.fiercehealthcare.com/regulatory/ftc-full-steam-ahead-sweeping-noncompete-ban-reinforcing-antitrust-chair-tells-docs</a>.[2] <a href="https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-department-labor-partner-protect-workers-anticompetitive-unfair-deceptive-practices?utm_source=govdelivery" target="_blank">https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-department-labor-partner-protect-workers-anticompetitive-unfair-deceptive-practices?</a>[3] Emphasis added. <a href="https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB699" target="_blank">https://leginfo.legislature.ca.gov/faces/bill</a>.[4] “No employer, or agent, manager, superintendent, or officer thereof, shall require any employee or applicant for employment to agree, in writing, to any term or condition which is known by such employer, or agent, manager, superintendent, or officer thereof to be prohibited by law.” Cal. Labor Code § 432.5.[5] <a href="https://elc.mofo.com/topics/recent-non-compete-trends-courts-continue-to-enforce-non-competes-while-politicians-seek-to-narrow-them?" target="_blank">https://elc.mofo.com/topics/recent-non-compete-trends-courts-continue-to-enforce-non-competes-while-politicians-seek-to-narrow-them?</a>[6] <a href="https://legistar.council.nyc.gov/LegislationDetail.aspx?ID=6557380&GUID=86B0DBB1-329A-46B9-9763-44062F71366C&Options=&Search=" target="_blank">The New York City Council - File #: Int 0140-2024 (nyc.gov)</a> (“The term “non-compete agreement” means an agreement between an employer and a worker that prevents, or effectively prevents, the worker from seeking or accepting work for a different employer, or from operating a business, after the worker no longer works for the employer.”).

tate_eric_blog_150x150.png

tate_eric_common_640x280.jpg

tate_eric_heroretina_2700x1160.jpg

tate_eric_mobileretina_750x1040.jpg

tate_eric_social_600x600.jpg

Eric Akira Tate co-chairs the firm’s Global Employment and Labor Group. He represents technology and other companies in bet-the-company trade secrets and employee mobility cases.

Eric Akira Tate

Eric Tate chairs the firm’s Global Employment and Labor Group. He has represented technology and other companies in the biggest and most highly-publicized trade secrets and employee mobility cases across multiple industries. Eric also represents companies in whistleblower, wage and hour, and other employment litigation.

Eric Tate

spinelli_cooper_blog_150x150.png

spinelli_cooper_common_640x280.jpg

spinelli_cooper_heroretina_2700x1160.jpg

spinelli_cooper_mobileretina_750x1040.jpg

spinelli_cooper_social_600x600.jpg

Cooper Spinelli is a member of the Litigation Department and part of the firm’s Employment & Labor Group. His practice focuses on trade secrets and restrictive covenants, employee mobility and executive disputes, whistleblower claims, and general business litigation.

Cooper J. Spinelli

Cooper Spinelli

elcblog-employment-trends.jpg

elcblog-employment-trends

While the FTC was relatively quiet in 2023 on the non-compete front, California forged ahead with two amendments to its non-compete statute (Business and Professions Code section 16600) that, depending on how courts interpret them, could be one of the most significant developments in the California employee-mobility space in the last 10 years.

Non-Compete Q1 2024 Round Up - FTC, California, and New York

Earlier this month, the Supreme Court unanimously reversed the Second Circuit’s decision in Murray v. UBS and resolved a circuit split in favor of employees, holding that although intent is an element of a Sarbanes-Oxley (“SOX”) whistleblower case, a SOX plaintiff does not have to prove retaliatory intent or animus to prevail. The decision, which addressed the meaning of the contributing-factor standard, leaves SOX as one of the, if not the, most protective whistleblower statutes in the country and may extend well beyond the statute itself. As we have discussed previously, the same standard is used for not only a dozen or so other federal whistleblower statutes, but also California’s general whistleblower law, California Labor Code Sec. 1102.5. The article below provides a brief background on SOX’s contributing-factor standard, the facts of the case, an overview of the decision, and some practical takeaways.Read the <a href="https://www.mofo.com/resources/insights/240226-supreme-court-reverses-second-circuit" target="_self">full client alert</a>.

Supreme Court Reverses Second Circuit in Favor of Whistleblower Plaintiff, Holding That SOX Plaintiffs Need Not Prove Retaliatory Intent

210120-federal-building-election-briefing-tile-promo.jpg

Supreme Court Reverses Second Circuit in Favor of Whistleblower Plaintiff, Holding That SOX Plaintiffs Need Not Prove Retaliatory Intent

New Guidance on COVID-19 Protocols for Contractor Employees at Federal Facilities

210120-federal-building-election-briefing-tile-promo

Earlier this month, the Supreme Court unanimously reversed the Second Circuit’s decision in Murray v. UBS and resolved a circuit split in favor of employees, holding that although intent is an element of a Sarbanes-Oxley (“SOX”) whistleblower case, a SOX plaintiff does not have to prove retaliatory intent or animus to prevail. 

The California Supreme Court has issued its opinion in Estrada v. Royalty Carpet Mills, Inc. (S274340, Jan. 18, 2024), resolving a split of authority regarding whether claims brought under the Private Attorneys General Act (PAGA) may be stricken where there is no manageable way to try them.  Unfortunately for California employers, the answer is no.  This outcome is disappointing to those hoping that the Supreme Court might have done something more in Estrada to curb the abuse of PAGA, which too often becomes a vehicle through which overreaching, unmanageable claims are alleged in shakedown lawsuits in an attempt to extract windfall settlements.  The present state of affairs is a sober reminder that, now more than ever, PAGA is broken and needs to be fixed.Despite its holding, Estrada recognizes that PAGA manageability is a concern.  In particular, Estrada distinguishes a trial court’s inability to dismiss PAGA claims outright on manageability grounds from the various tools that remain available to courts to efficiently manage such claims.  Indeed, the opinion acknowledges the “challenges” presented by the complexities of PAGA actions, and it leaves “undisturbed” the various case management tools courts can and should use to ensure that such claims are “efficiently, fairly, and effectively tried.”  So, while motions to strike PAGA claims for unmanageability alone are no longer viable, the focus on PAGA manageability is far from over.  To the contrary, Estrada reminds plaintiffs of the need to be practical in bringing appropriately tailored claims capable of being effectively tried.  Nothing in Estrada prevents trial courts from insisting that plaintiffs provide a trial plan showing how their claims would be tried, and Estrada reminds courts that they may limit PAGA claims and/or testimony or other evidence offered at PAGA trials to ensure manageability.  Estrada even preserves the possibility of striking a PAGA action altogether where the claims are so unmanageable as to deprive a defendant of due process.  Going forward, we can expect trial courts to emphasize workable trial plans and the use of other case management tools to effectively and efficiently manage their PAGA dockets.

220225-ketanji-brown-jackson-supreme-court.jpg

220225-ketanji-brown-jackson-supreme-court

The California Supreme Court has issued its opinion in Estrada v. Royalty Carpet Mills, Inc. (S274340, Jan. 18, 2024), resolving a split of authority regarding whether claims brought under the Private Attorneys General Act (PAGA) may be stricken where there is no manageable way to try them.  

Per the California Supreme Court: PAGA Claims May Not Be Stricken on Manageability Grounds

Each year seems to bring significant developments in whistleblower law, and 2023 has been no exception. As whistleblower activity increases, so, too, has the scope of its protections. From state to federal government, from the SEC to the U.S. Supreme Court, courts and regulators in the last 12 months or so largely have made it easier for employees to raise whistleblower claims while making it harder for employers to defend them. Below are some of the highlights, including two important decisions effectively expanding the scope of protections under California’s general whistleblower law (Section 1102.5), a U.S. Supreme Court that seems to be leaning toward a ruling that may favor SOX plaintiffs, and an SEC enforcement action against a private company to enforce its whistleblower protection rule.California Supreme Court Adopts Expansive Interpretation of Protected Activity Under California’s General Whistleblower LawSection 1102.5 of the California Labor Code prohibits employers from retaliating against an employee “for disclosing information” reasonably believed to be a violation of state or federal law to a government agency or “to a person with authority over the employee, or to another employee who has authority to investigate, discover, or correct the violation or noncompliance.” For the last few years, there has been something of a circuit split in California on what it means to “disclose” in this context. Does Section 1102.5 protect employees who report suspected unlawful activity even if the recipient of the report already knows about it? Or does the law protect disclosure of only previously unknown information?The California Supreme Court resolved this question on May 22, 2023 in favor of employees, holding in People ex rel. Garcia-Brower v. Kolla’s, Inc. that Section 1102.5 does not require that a reported violation be unknown to the recipient. People ex rel. Garcia-Brower v. Kolla’s, Inc., 14 Cal. 5th 719 (2023). Although it recognized that “disclose” often refers to sharing previously unknown information, the court noted the California legislature has used “disclose” to mean “bringing into view” information “to which the discloser tends to have special access,” regardless of whether it is already known to some or all of the recipients, such as when a judge discloses campaign contributions. For the court, these usages illustrated that “disclose” “need not mean only the revelation of information previously unknown to the recipient.” And applying this narrower reading of “disclose” to the whistleblower statute would, in the court’s view, be contrary to its remedial purpose. The court also held that disclosure is protected even if the recipient of the disclosure is engaged in the wrongdoing being disclosed.The upshot is that, under Section 1102.5, employee Y may be deemed to “blow the whistle” even if employee X has already blown it first, even if employee Y knows this before coming forward,[1] and even if the employer of X and Y is already aware of and involved in the alleged wrongdoing or trying to correct it.Ninth Circuit Endorses Expansive Interpretation of California’s General Whistleblower LawIn Killgore v. SpecPro Pro. Servs., LLC, 51 F.4th 973 (9th Cir. 2022), an employee sued under California Labor Code Section 1102.5(b) on the basis that he was fired for reporting suspected illegality about an environmental assessment report to the U.S. Army Reserve Command (his employer’s customer) and his supervisor. The employer moved for summary judgment on multiple grounds, several of which are relevant here: that Section 1102.5 does not protect (1) disclosures to people who do not have authority over the discloser; (2) reporting made in the course of an employee’s normal duties; and (3) disclosures made before the allegedly illegal act was complete. On appeal, the Ninth Circuit rejected each ground and ruled for the employee:<ol dir="ltr"><li dir="ltr">Under Section 1102.5, an employee can engage in protected activity by disclosing suspected illegality to someone who has authority over the employee, even if that person lacks the power to correct it. Section 1102.5 complaints often arise when an employee discloses suspected unlawful activity internally to their employer. But in the context of internal complaints, Section 1102.5 can apply only if the employee discloses the information “to a person with authority over the employee, or to another employee who has authority to investigate, discover, or correct a violation or noncompliance[.]” In Killgore, the employer argued that the plaintiff’s disclosure to his supervisor could not have been protected because his supervisor is a private citizen in the employ of a private firm and lacked the power to correct the Army Reserve’s alleged non-compliance. The court rejected this argument, however, reading the key clause in (b)—“to a person with authority over the employee or another employee who has the authority to investigate, discover, or correct the violation or noncompliance” (emphasis added)—as disjunctive, and that “who has authority to investigate . . .” modified only the last antecedent, i.e., “another employee” rather than also “a person with authority over the employee.”</li><li>Under Section 1102.5(b), an employee can engage in protected activity even if disclosure is part of the employee’s “normal duties.” In so holding, the court pointed to Section 1102.5(b)’s 2014 amendment, which added that a whistleblower’s disclosures are protected “regardless of whether disclosing the information is part of the employee’s job duties.” Cal. Lab. Code § 1102.5(b). Based on this amendment, “[e]ven if the district court were correct that [the plaintiff’s] reports to [the government customer] were a normal function of his employment, his disclosures were clearly protected under state law at the time they were made.”</li><li>That the employee disclosed suspected illegality before the alleged illegality was complete is not necessarily fatal to whether they had a reasonable belief of illegality. The employer argued that the plaintiff could not have reasonably believed there was a violation of the environment assessment report because the plaintiff was fired before the report had even been completed and therefore before any illegality could have occurred. The court disagreed. Under Section 1102.5(b), “[a]n employer may not retaliate against an employee for disclosing wrongful conduct “or because the employer believes that the employee disclosed or may disclose information” about a violation of law.” (Emphasis in case.) Relying on the “may disclose” language, the court found that Section 1102.5(b) also protects “anticipated whistleblower” activity and an employer cannot “fire the potential whistleblower before completing the illegal act and thereby escape liability.”</li></ol>U.S. Supreme Court May Issue Decision Making It Harder for Employers to Defeat SOX Whistleblower ClaimsThe U.S. Supreme Court heard oral argument in the SOX case Murray v. UBS on October 10, 2023. We covered the <a href="https://www.mofo.com/resources/insights/230731-scotus-poised-to-resolve-circuit" target="_blank">Second Circuit’s decision and issues</a> presented earlier this year. The question before the Court is whether SOX’s contributing-factor standard requires that a whistleblower plaintiff make a showing of retaliatory intent, or whether it is enough for a plaintiff to show that the protected activity in some way contributed to the adverse employment action, regardless of whether the employer intended to retaliate against the employee. Put somewhat differently, is there a meaningful distinction between causation and intent under the contributing-factor standard and does it require a SOX whistleblower plaintiff to prove retaliatory intent? Although a technical question, it is one that could have far-reaching implications.[2]Oral argument certainly does not always reveal which way Justices will vote. The Justices’ questioning here, however, suggests that the Court may reverse the Second Circuit in favor of the employee and establish a SOX standard that does not require retaliatory intent. Justices Jackson, Sotomayor, Kagan, Gorsuch, and, to a lesser extent, Barrett and Kavanaugh, all at various points appeared less than convinced by the causation-intent distinction underlying the company’s position in the SOX context. Justice Gorsuch, in particular, pushed back against the idea that the statute requires a SOX whistleblower plaintiff to prove retaliatory intent:SCALIA: We can talk about the other flaws in the instructions that were given here that we think are independent reasons to affirm the Second Circuit. But, again, if you’re instructing a jury about retaliatory intent in a case that’s involving Sarbanes-Oxley whistleblower retaliation –JUSTICE GORSUCH: I just don’t see those words in this statute.SCALIA: – I think it becomes a little bit confusing for a jury.JUSTICE GORSUCH: I see discrimination in this statute, and I see whistleblowing activity, and I know there’s a causation requirement, but I don’t see the retaliation in this statute.SCALIA: Yeah.JUSTICE GORSUCH: So help me out. You’re asking me to read things into a statute that aren’t there, aren’t you, counsel?MR. SCALIA: Yeah.JUSTICE GORSUCH: So help me out. You’re asking me to read things into a statute that aren’t there, aren’t you, counsel?Justice Kavanaugh also seemed to suggest that, at the end of the day, the standard might not make much practical difference because, supposedly, employers often have all the facts and can still prove that the protected activity was not a contributing factor.JUSTICE KAVANAUGH: But they’ll have – to pick up on Justice Kagan’s point, I’m sorry to interrupt, but the – the employer will have the information that shows, okay, we fired 10 other employees as well who hadn’t engaged in the protected activity for the same reason. Or here’s our list of performance ratings and, see, we fired these other people who had the same performance rating. That’s how the employer wins these cases, but they – the employer has the information. Once you put that in, then the jury, as was went on in the closing arguments here, has to figure out is that enough to show that the protected activity wasn’t the – you know, whatever the – the reason.[3]A decision is expected by the end of this term before summer 2024.SEC Takes Unprecedented Action Against Private Company’s Employment AgreementSEC Rule 21F-17(a) prohibits taking “any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.” Among other contexts, this can apply to employment or separation agreements that contain certain confidentiality or non-disparagement provisions, if such provisions are, in the SEC’s view, overly broad and operate to impede a whistleblower from coming forward. Since the rule’s promulgation in 2010, the SEC has limited its enforcement of this Rule to publicly held companies. The SEC’s recent enforcement action may signal a change.In September 2023, the SEC charged a privately owned energy and technology company with violating Rule 21F. The SEC took aim at the private company’s confidentiality requirements in their severance agreements. The agreements included standard protection-of-rights language: “nothing in this agreement is intended to limit in anyway your right or ability to file a charge or claim with any federal, state or local agency.”[4] But the agreement also waived the employee’s right to receive any recovery of a monetary award for filing their claim or participating in the governmental agency investigation or action, without providing a carveout for whistleblowing activity to the SEC. Even though the SEC found no evidence that this waiver in fact discouraged any employee from reporting to the SEC, it still entered a cease-and-desist order and issued a $225,000 fine. In doing so, it made clear that private companies, as well as public, must comply with Rule 21F:Both private and public companies must understand that they cannot take actions or use separation agreements that in any way disincentivize employees from communicating with SEC staff about potential violations of the federal securities laws . . . .Any attempt to stifle or discourage this type of communication undermines our regulatory oversight and will be dealt with appropriately.[5]All employers, both public and private, should review their employment and separation agreements to ensure compliance with Rule 21F in light of the SEC’s latest enforcement actions.We can only expect further developments in 2024 and beyond, and the MoFo team will report on them as they arise.[1] People ex rel. Garcia-Brower v. Kolla’s, Inc., 14 Cal. 5th 719, 731 (2023) (“there is no indication that an employee must also have reasonable cause to believe that he or she is the first to report the alleged violation, and we see no basis for reading such a requirement into the statute.”).[2] See <a href="https://www.mofo.com/resources/insights/230731-scotus-poised-to-resolve-circuit" target="_self">client alert</a>.[3] As counsel for respondents noted, however, employers often do not have this type of comparative evidence, especially in reduction-in-force cases (which Murray v. UBS was) and may not have it in a way that is clear and convincing.[4] https://www.sec.gov/files/litigation/admin/2023/34-98322.pdf.[5] https://www.sec.gov/news/press-release/2023-172.

Each year seems to bring significant developments in whistleblower law, and 2023 has been no exception. As whistleblower activity increases, so, too, has the scope of its protections. 

Whistleblower Roundup - Cal. Labor Code Section 1102.5, SOX, and More

As anticipated, the U.S. Supreme Court’s <a href="https://www.supremecourt.gov/opinions/22pdf/20-1199_hgdj.pdf" target="_blank">decision</a> in the two companion cases brought by the Students for Fair Admissions, Inc. (SFFA) against Harvard University (Harvard) and the University of North Carolina (UNC) ended affirmative action for college admissions by effectively overruling the Court’s longstanding precedent in Grutter v. Bollinger and other cases allowing for race-conscious admission policies for higher education.Read the <a href="https://www.mofo.com/resources/insights/230630-scotus-effectively-ends-affirmative-action" target="_blank">full blog post</a>.

Andrew co-chairs the firm’s Global Employment and Labor Group. He represents companies on a broad range of labor and employment litigation and counseling matters, successfully defending clients in number complex matters before federal and state courts and administrative agencies.

cohen_carrie_blog_150x150.png

cohen_carrie_common_640x280.jpg

cohen_carrie_heroretina_2700x1160.jpg

cohen_carrie_mobileretina_750x1040.jpg

cohen_carrie_social_600x600.jpg

Carrie H. Cohen, partner, has deep experience in white collar defense, FCPA compliance, federal prosecutions, workplace misconduct  and securities enforcement.

Carrie H. Cohen

Carrie H. Cohen | White Collar Crime + FCPA Lawyer

Carrie H. Cohen has a distinguished record of success in the courtroom handling high‑stakes litigation, with a particular focus on white-collar and securities cases. She is the co-chair of the Women’s Strategy Committee.

Carrie Cohen

schulman_michael_blog_150x150.png

schulman_michael_common_640x280.jpg

schulman_michael_heroretina_2700x1160.jpg

schulman_michael_mobileretina_750x1040.jpg

schulman_michael_social_600x600.jpg

Michael Schulman is a partner in the firm’s Global Employment and Labor Group and co-head of the firm’s Washington, D.C. Litigation Department.

Michael Schulman

As anticipated, the U.S. Supreme Court’s decision in the two companion cases brought by the Students for Fair Admissions, Inc. (SFFA) against Harvard University (Harvard) and the University of North Carolina (UNC) ended affirmative action for college admissions

SCOTUS Effectively Ends Affirmative Action for College Admissions: What This Decision Might Mean for Workplace Diversity Programs

New York State is expected to join the <a href="https://elc.mofo.com/topics/minnesota-passes-near-total-ban-of-non-compete-agreements" target="_blank">growing number of states</a> that significantly limit or prohibit non-compete agreements. On June 20, 2023, the New York State legislature passed S3100A, a bill broadly prohibiting post-employment non-compete restrictions. S3100A is expected to be signed by Governor Kathy Hochul and would take effect 30 days after her signature. Read the <a href="https://www.mofo.com/resources/insights/230622-new-york-state-non-compete-ban-bandwagon" target="_blank">full client alert</a>.

New York State is expected to join the growing number of states that significantly limit or prohibit non-compete agreements.

New York State Slated to Join Post-Employment Non-Compete Ban Bandwagon

On May 16, 2023, the Minnesota legislature passed <a href="https://www.revisor.mn.gov/bills/text.php?number=SF3035&version=latest&session=ls93&session_year=2023&session_number=0" target="_blank">SF 3035</a> (the “Bill”), banning nearly all post-termination non-compete agreements with employees and independent contractors. Although the Bill marks another state in the trend of jurisdictions passing laws limiting the use of employee non-competes, the Bill goes even further than most of the recent laws to join the ranks of California, Oklahoma, and North Dakota to ban practically all employee non-compete agreements. Some of the more notable provisions include:<ul><li>Banning non-compete agreements with all levels of employees and independent contractors, regardless of compensation or role, with only limited exceptions for non-competes entered into in connection with the sale of business or dissolution of a business;</li></ul><ul><li>Requiring employers to use Minnesota law and forum;</li></ul><ul><li>Allowing courts to award attorneys’ fees to plaintiffs who prove violations of the Bill; and</li></ul><ul><li>Excluding nondisclosure and non-solicitation agreements from the Bill’s requirements.</li></ul>Minnesota Governor Tim Waltz is expected to sign the Bill. Once signed, the Bill will apply to all non-compete agreements entered into on or after July 1, 2023, but it would not apply retroactively to non-competes entered into before then. Employers with employees and independent contractors in Minnesota should start preparing for compliance with the Bill, including reviewing their template employment agreements with non-competes and considering updating their existing policies and practices for preventing unfair competition. Not RetroactiveThe Bill expressly states that the limitations on non-competes are not retroactive. So, the Bill will not apply to non-compete agreements entered into prior to July 1, 2023, and those agreements will continue to be interpreted consistent with existing Minnesota precedent.Covered Employers and IndividualsThe Bill will cover nearly all non-competes between employers and their employees and independent contractors. The Bill broadly defines “employer” to include “any individual, partnership, association, corporation, business, [or] trust” and includes any person “acting directly or indirectly in the interest[s] of an employer in relation to an employee.”“Employee” is also defined broadly to include “any individual who performs services for an employer, including independent contractors.” The Bill defines independent contractors as anyone whose engagement “is governed by a contract” and is not reported to the IRS on a W-2, including any corporate entity if the employer requires an individual to form such entity “for purposes of entering into a contract for services as a condition of receiving compensation under an independent contractor agreement.”Unlike some of the other recent state non-compete laws that limit non-competes to employees under a certain compensation threshold, such as non-compete laws in <a href="https://elc.mofo.com/topics/tightening-restrictions-on-noncompetes" target="_blank">Washington</a> and the <a href="https://elc.mofo.com/topics/dc-council-waters-down-non-compete-ban-while-keeping-some-significant-limitations" target="_blank">District of Columbia</a>, the Bill does not distinguish between types of employees in its ban on non-competes. Rather, the Bill joins jurisdictions like California, banning non-competes with employees at all levels regardless of compensation, including highly paid C‑Suite executives. It also expressly covers non-competes with independent contractors, which have been absent from some of the non-compete legislation other jurisdictions have recently issued.Covered AgreementsThe Bill prohibits nearly all post-termination non-competes with employees and independent contractors. The Bill defines a “covenant not to compete” as an “agreement between an employee and employer that restricts the employee, after termination of the employment, from performing: (1) work for another employer for a specified period of time; (2) work in a specified geographical area; or (3) work for another employer in a capacity that is similar to the employee’s work for the employer that is party to the agreement.” Non-Covered AgreementsThe Bill contains the following two limited exceptions where non-competes are permitted:<ul><li>Non-competes entered into in connection with the sale of a business, where the agreement prohibits the seller from carrying on a similar business within a reasonable geographic area and for a reasonable length of time; and</li></ul><ul><li>Non-competes in anticipation of the dissolution of a business, where the applicable parties agree that all or any number of the parties will not carry on a similar business within a reasonable geographic area where the business has been transacted.</li></ul>The Bill also explicitly does not apply to the following types of restrictive covenants:<ul><li>Nondisclosure agreements or agreements designed to protect trade secrets or confidential information; and</li></ul><ul><li>Non-solicitation agreements or agreements restricting the ability to use client or contact lists or solicit customers of the employer.</li></ul>The Bill also only applies to non-compete restrictions that cover periods “after termination of employment.”  So, employers can still have non-competes with employees or independent contractors during their employment or engagement.Mandatory Minnesota Law and Venue RequiredThe Bill prohibits employers from trying to avoid these requirements by using another state’s law or forum.  Specifically, the Bill requires employers to use Minnesota law and forum for any agreements entered into as “a condition of employment” with employees who primarily reside and work in Minnesota. It will be an open question whether employers can use other states’ laws or forums that are not entered into as a condition of employment (e.g., for equity awards or bonus agreements). If employers try to use another choice of law or forum in covered agreements, the choice of law and forum will be voidable and the matter would be adjudicated in a Minnesota court under Minnesota law.Remedies for ViolationsThe inclusion of an unenforceable non-compete would not automatically render the entire agreement with the offending provision unenforceable. Rather, the Bill states that it would not be “construed to render void or unenforceable any other provisions in a contract or agreement containing a void or unenforceable covenant.” The Bill also allows courts discretion to award an employee reasonable attorneys’ fees for trying to enforce his or her rights under the Bill. So, it will be important for employers to ensure they comply with the Bill since they could find themselves having to pay attorneys’ fees for agreements found to violate the Bill.Practical Steps for EmployersBusinesses with operations, employees, or independent contractors in Minnesota should review their non-compete practices and policies in light of the Bill. As an initial step, employers should review and, if needed, revise template employment agreements with non-competes to comply with the Bill, including by removing post-employment non-competes and updating choice of law and forum selection provisions for covered employees and independent contractors.Because the Bill will ban post-employment non-competes with all levels of employees and independent contractors (regardless of role and compensation), employers should determine what agreements or policies they can adopt to protect themselves from unfair competition either before the Bill takes effect or without the use of non-competes. Some possible actions to consider include:<ul><li>Trying to get non-compete agreements in place with covered employees and independent contractors before the Bill takes effect.</li></ul><ul><li>Updating confidential information policies and agreements, including reevaluating how employees are provided with access to the employer’s highly sensitive and confidential information. Because employers will lose their ability to have one of the most effective tools for preventing against unfair competition, employers should consider whether limiting the distribution of sensitive information to reduce possible exposure is advisable. Employers might also consider implementing systems that limit, control, and track access to company confidential information and trade secrets to mitigate the risk of misuse when covered employees and independent contractors go to work for competitors.   </li></ul><ul><li>Consider whether to revise customer and employee non-solicitation agreements and confidentiality provisions to ensure they provide meaningful protection of the employer’s trade secrets, intellectual property, goodwill, and customer and employee relationships.</li></ul>The Bill also marks the latest state in a trend of jurisdictions across the United States cracking down on non-compete provisions. As we <a href="https://elc.mofo.com/topics/recent-non-compete-trends-courts-continue-to-enforce-non-competes-while-politicians-seek-to-narrow-them" target="_blank">previously reported</a>, we have seen a trend of legislatures and regulators seeking to ban or narrow the scope of non-compete agreements, and some courts are even signaling closer scrutiny of non-competes under existing precedent. The following are some of the more notable trends and developments:<ul><li>Several states, including <a href="https://www.mofo.com/resources/insights/220517-colorados-new-limits-on-employee-non-competes" target="_blank">Colorado</a> and <a href="https://elc.mofo.com/topics/illinois-new-restrictions-non-competes-and-non-solicits" target="_blank">Illinois</a>, have issued more comprehensive non-compete legislation, significantly limiting the use of non-competes with employees, and even more states have banned non-competes for low wage workers.</li></ul><ul><li>The Federal Trade Commission (FTC) <a href="https://www.mofo.com/resources/insights/230106-ftc-proposes-sweeping-ban-employee-non-competes" target="_blank">recently proposed a rule</a> seeking to ban non-compete agreements with employees, even non-competes entered into before the rule becomes final, except in very limited circumstances. Whether the FTC will narrow the rule before it becomes final remains to be seen, but the FTC’s rule will almost certainly be subject to legal challenges once it becomes final. Regardless of the outcome of the FTC’s proposed rule, the FTC has pursued <a href="https://www.mofo.com/resources/insights/230117-ftc-takes-unprecedented-enforcement-actions" target="_blank">enforcement actions</a> and entered into consent decrees with several companies requiring them to rescind non-compete agreements with their employees.</li></ul><ul><li>Some state courts have also appeared to subject non-compete agreements to closer scrutiny, including <a href="https://elc.mofo.com/topics/trio-of-delaware-cases-signal-stricter-review-of-sale-of-business-non-competes" target="_blank">Delaware Chancery Courts</a> that have recently refused to enforce or blue pencil sale-of-business non-competes.</li></ul>In light of these and other developments, businesses should continue to monitor changes in this area that may impact their non-compete strategies and practices with employees and independent contractors.

On May 16, 2023, the Minnesota legislature passed SF 3035 (the “Bill”), banning nearly all post-termination non-compete agreements with employees and independent contractors. Although the Bill marks another state in the trend of jurisdictions passing laws limiting the use of employee non-competes, the Bill goes even further than most of the recent laws to join the ranks of California, Oklahoma, and North Dakota to ban practically all employee non-compete agreements.

Minnesota Passes Near Total Ban of Non-Compete Agreements

With the U.S. Supreme Court seemingly poised to end affirmative action for college admission programs, many U.S. employers are wondering whether or to what extent they can continue their diversity, equity, and inclusion (DEI) and affirmative action programs. Although a Court decision ending or limiting the use of affirmative action for university admissions will not likely have direct application to workplace DEI and affirmative action programs, companies may be indirectly impacted by the decision, including through potential legal challenges to their programs. Employers are also increasingly having to navigate the growing trend of state legislation and measures seeking to limit workplace DEI efforts. In light of these trends and the anticipated Court decision, employers should:<ul><li>anticipate increased challenges to their DEI and affirmative action programs;</li></ul><ul><li>monitor state legislation and regulation aimed at restricting workplace DEI training, policies, and practices; and</li><li>review their existing DEI and affirmative action programs to determine if they might be vulnerable to attack.</li></ul>Read our <a href="https://www.mofo.com/resources/insights/230329-are-workplace-diversity-programs-in-jeopardy?utm_source=publication&utm_medium=email" target="_blank">client alert</a>.

wilks_melissa_blog_150x150.png

wilks_melissa_common_640x280.jpg

wilks_melissa_heroretina_2700x1160.jpg

wilks_melissa_mobileretina_750x1040.jpg

wilks_melissa_social_600x600.jpg

Associate

Melissa Harclerode is an associate in Morrison Foerster’s Employment + Labor Group in the Washington, D.C. office.

Melissa M. Harclerode

Melissa Harclerode

Are Workplace Diversity Programs in Jeopardy if the Supreme Court Ends Affirmative Action in College Admissions?

With the U.S. Supreme Court seemingly poised to end affirmative action for college admission programs, many U.S. employers are wondering whether or to what extent they can continue their diversity, equity, and inclusion (DEI) and affirmative action programs

Are Workplace Diversity Programs in Jeopardy if the Supreme Court Ends Affirmative Action in College Admissions?

In a reversal of its prior ruling, the Ninth Circuit recently held that the Federal Arbitration Act (FAA) preempts California Assembly Bill 51 (AB 51), a 2019 measure that aimed to bar employers from entering into new agreements—or extending previous ones—requiring job applicants or workers to arbitrate claims under the California Labor Code or California Fair Employment and Housing Act (FEHA).Read our <a href="https://www.mofo.com/resources/insights/230216-ninth-circuit-reverses-itself" target="_blank">client alert</a>.

Ninth Circuit Reverses Itself and Strikes Down California Law Targeting Mandatory Employment Arbitration Agreements

In a reversal of its prior ruling, the Ninth Circuit recently held that the Federal Arbitration Act (FAA) preempts California Assembly Bill 51 (AB 51), a 2019 measure that aimed to bar employers from entering into new agreements—or extending previous ones—requiring job applicants or workers to arbitrate claims under the California Labor Code or California Fair Employment and Housing Act (FEHA).

Ninth Circuit Reverses Itself and Strikes Down California Law Targeting Mandatory Employment Arbitration Agreements

Following the enactment of the Directive on Transparent and Predictable Working Conditions (the “Directive”), EU Member States have had to implement into their national laws additional information obligations on employers. The deadline for the transposition of the Directive into national law was August 1, 2022. The Directive extends existing provisions based on a former EU directive and broadly follows the UK regime, which has itself broadened in scope in recent years. To avoid falling foul of these new and expanded requirements—which could result in substantial fines—companies with employees across the EU and the UK should review their existing employment contract templates for new hires and take steps to provide all required information to existing employees, whilst also taking into account any “special rules” that might apply in a particular country.I. How does the Directive impact employers with EU-based employees?Extended content requirementsEmployers are required to provide their employees based in the EU with information on the essential terms and conditions of their employment relationship. Whilst this is not a new concept—similar requirements have been in place under a former EU directive since 1991—and it was always common practice throughout the EU to provide employees with an employment agreement containing the key terms of their employment (such as remuneration, working hours, position, etc.), the Directive transforms this practice into a mandatory and publishable obligation, by obliging EU Member States to prescribe penalities for breaches of the information obligations. In addition, the catalogue of terms to be provided (set out in full at the end of this article) includes information that has not traditionally formed part of contract templates in the EU.These changes affect not only new employment relationships, but also existing employees. Employers are now required to fulfill the information obligations and provide all new employees with a document containing the necessary information, and existing employees are entitled to receive a summary of their essential working conditions upon their request.New mandatory deadlinesThe Directive stipulates different deadlines within which employers need to provide the relevant information to their employees. The most essential terms, such as the identity of the contractual parties, remuneration, and working hours, must be provided within the first seven days of employment. The remaining terms (described below) should be communicated within the first month. In Germany, some information, such as the employer’s (legal) name and address, the remuneration, and the agreed-upon working hours, even must be provided by the first day of employment at the latest. Employers should adhere to the shortest deadline, as set out in the applicable law of the relevant Member State. In Germany, each infringement of the information obligations, including a delayed handover, is considered an administrative offense that can be punished with a fine up to EUR 2,000 per case (i.e., per employee).Form of informationThe Directive requires the information to be provided in writing, either on paper or in electronic form. If an employer chooses electronic form, the employee must be able to store and print the document, and the employer should receive a proof of transmission. This information is usually provided in the form of an employment agreement. Typically, most of the information prescribed by the Directive is already included within employment contracts and employers will need only update their template documents to include all necessary information. No separate notice is required.Special aspects in GermanyIn Germany, the information obligations prescribed by the Directive are laid down in the Act on Notification of Employment Conditions (Nachweisgesetz). In contrast to the Directive, the German legislation does not allow for electronic signatures to be used within employment contracts. Thus, strict formal requirements apply: employment contracts must be signed by an authorized person and physically handed out to the employee. Signatures must be in wet-ink; the signing of the employment contract via DocuSign, or provision of a scanned copy of the signed agreement to an employee, will not meet Germany’s legal requirements.Any non-compliance with these requirements can be punished with a fine of up to EUR 2,000 per contract. Consequently, companies with larger workforces could be fined huge amounts if they systematically fail to comply with these requirements.II. What about in the UK?Under UK employment law, employers of UK-based employees have been subject to a longstanding requirement to provide written statements of key employment terms to their employees. It has been mandatory to do so for all employees starting work on or after 30 November 1993. Certain terms, those considered most important, must be provided to employees in a single document; these are detailed in section 1 of the UK Employment Rights Act 1996 (the “ERA 1996”) and usually provided to employees in the form of an employment contract. The ERA 1996 provides that other mandatory terms must also be provided in writing, but the details can be set out in supplementary documents, e.g., in a handbook or standalone policies. Written statements can be provided in electronic or paper form and wet-ink or electronic signature is acceptable.Following a review of employment practices in the UK, the government proposed a package of workplace reforms as part of its “Good Work Plan” to increase the transparency between workers and employers and improve the enforcement of employment rights. A key element of the Good Work Plan reforms was ensuring that companies be transparent with contingent and gig-economy workers who do not enjoy the full protection of UK employment laws.<a href="#_ftn1" target="_self" id="_ftnref1">[1]</a> New legislation, which came into force on April 6, 2020, was enacted to implement the reforms proposed by the Good Work Plan, which expanded the scope of the requirement to provide a section 1 statement of terms to give all workers the right to receive a written statement setting out the basic terms of employment, a right previously only available to employees.The new legislation also further amended the requirements under the ERA 1996 so that written statements must now be provided on or before the individual’s first date of employment, rather than within two months of their start date, as previously required, and the scope of the written statement has also been expanded. For example, employers are now required to list, within the primary written statement, all paid leave to which the employee is entitled and all benefits; previously, these items would appear in supplementary documents.Where an employer does not comply with any of the provisions, the employee or worker can bring a claim to the employment tribunal at any time during the period of their employment or engagement, or within three months of termination. If a claim on the above provisions is brought in conjunction with another successful substantive claim, the tribunal is obliged to award the employee or worker a minimum of two weeks’ pay, unless it would be unjust or inequitable to do so (and the award can be up to four weeks’ pay if the tribunal sees fit). It is worth noting, however, that the risks attaching to failure to fully comply with the requirements on written statements of employment terms are low in practice as, absent another substantive claim (e.g., for discrimination or unfair dismissal), the most a tribunal would do would be to ask that the relevant particulars be clarified.III. What practical steps should employers of EU-based employees be taking in light of the Directive?<ul><li>Review and—if necessary—update existing employment contract templates for new hires to include all mandatory terms and conditions;</li><li>Prepare a notice for existing employees to be able to provide them with a summary of the employment conditions without delay;</li><li>Ensure that processes are in place to respond to any statutory requests from employees; and</li><li>Check who needs to be authorized to sign employment agreements and other notices to limit any delay.</li></ul>IV. What are the “mandatory” details that companies must provide to their workforce (in a single or ‘primary’ written statement)?These terms are mandatory for both the UK and the EU:<ul><li>identities of the contractual parties;</li><li>place of work;</li><li>title or a brief description of the work;</li><li>commencement date of the employment or engagement;</li><li>for fixed-term employment relationships: the end date or the expected duration;</li><li>duration and conditions of the probationary period;</li><li>if applicable, the training entitlement provided by the employer;</li><li>amount and nature of paid leave, including holiday leave;</li><li>termination procedure, including the formal requirements, notice periods, and (in some countries) time limits for bringing a lawsuit before the labor court;</li><li>remuneration (base salary and any other compensation);</li><li>length of the worker’s standard working day or week and arrangements for overtime and its remuneration;</li><li>any collective agreements governing the conditions of work;</li><li>except for in the UK, where it is the responsibility of the employer, the identity of the social security institutions receiving the social contributions;</li><li>where the employee or worker will be required to work outside the country of work for a period of one month or more: the period for which they will work outside their country of work, the currency of pay, and any additional remuneration or benefits; and</li><li>additional details in the event that there is a contracting out certificate in force in respect of the employment or any labor leading arrangements apply.</li></ul>For the UK, the following additional terms are also mandatory:<ul><li>terms and conditions relating to holiday entitlement (including public holidays) and holiday pay (sufficiently detailed so that entitlement on termination can be calculated); and</li><li>days of the week required to be worked, whether working hours are variable, and how any variation will be determined.</li></ul>Further, the following terms are mandatory in the UK, but may be provided for in a separate, reasonably accessible policy document so long as they are referenced in the single statement:<ul><li>terms and conditions relating to pension and pension schemes;</li><li>terms and conditions relating to sickness, incapacity, and sick pay;</li><li>disciplinary rules applicable and the disciplinary procedure;</li><li>person to whom the employee or worker should appeal against disciplinary and grievance decisions and the procedure to be followed; and</li><li>any non-compulsory training entitlement</li></ul>Please note that national laws of EU member states may vary with regards to other required terms, so this list must be compared and, if necessary, adjusted to be compliant with the relevant national law.<a href="#_ftnref1" target="_self" id="_ftn1">[1]</a> There are broadly three categories of employment status under UK employment law: employee, worker, and independent contractor. Workers are defined as those with a contract (express or implied) who undertake to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual. In short, personal service is a key element of being a worker; the services cannot be performed by a substitute, unlike with independent contractors. Employees have full statutory employment protection, workers are entitled to some statutory employment protections but not all, and, at the end of the spectrum, independent contractors are treated as commercial parties with no statutory employment rights.


For more than two decades, Hanno has advised and represented leading domestic and international corporations in a wide variety of industries, including technology, consumer products, automotive, and 

Hanno Timner

Hanno Timner is a partner in the Berlin office and head of the Employment and Labor practice group in Germany. He advises and represents national and international employers in all labor law issues and disputes.

Senior Associate

Christin is a senior associate at Morrison & Foerster’s German office in Berlin and is a member of the Employment & Labor practice group. She advises national and international companies on all issues

Christin Dunkel

Christin is a senior associate at Morrison & Foerster’s German office in Berlin and is a member of the Employment & Labor practice group. She advises national and international companies on all issues and disputes arising under labor law.

spratt_olly_blog_150x150.png

spratt_oliver_common_640x280.jpg

spratt_oliver_heroretina_2700x1160.jpg

spratt_oliver_mobileretina_750x1040.jpg

spratt_oliver_social_600x600.jpg

Of Counsel

Oliver Spratt is Of Counsel based in the London office of Morrison Foerster. 

Oliver Spratt

Lara Sirimanne is an associate in the London employment practice of Morrison & Foerster. She advises domestic and international clients on the full spectrum of both contentious and non-contentious emp

Lara M. King

Lara King

221006-europe_map.jpg

New Requirements for Employment Agreements in Europe

221006-europe_map

Following the enactment of the Directive on Transparent and Predictable Working Conditions (the “Directive”), EU Member States have had to implement into their national laws additional information obligations on employers. The deadline for the transposition of the Directive into national law was August 1, 2022. 