Employment Contracts

October 4, 2018

FTC Settles Case Alleging Collusion Among Employers to Keep Pay Rates Low

Federal law prohibits employers from engaging in practices that have an adverse effect on competition. This includes practices that harm consumers and those that harm employees. For example, employers engaged in the same business, who would ordinarily compete among each other for employees, may not enter into agreements with one another that diminish employment opportunities or set artificial limits on wages. Agreements not to solicit or hire one another’s employees, for example, can prevent those employees from advancing in their chosen careers. Agreements on wage limits impact employees’ ability to negotiate higher wages. The Federal Trade Commission (FTC), which enforces various federal consumer laws, may also investigate anticompetitive practices. It recently announced a settlement with a group of staffing companies, which it alleged violated federal law by colluding to limit pay rates. In the Matter of Your Therapy Source, LLC, et al, No. C-1710134, complaint (FTC, Jul. 31, 2018). Although the case did not involve events in New Jersey, federal antitrust and anticompetition laws have nationwide application. A New Jersey employment law attorney can help guide you in the right direction based on the unique facts of your situation.

The FTC was created by the Federal Trade Commission Act (FTCA) of 1914, 15 U.S.C. § 41 et seq. The statute prohibits “unfair methods of competition in or affecting commerce,” and authorizes the FTC “to prevent persons, partnerships, or corporations…from using unfair methods of competition in or affecting commerce.” Id. at §§ 45(a)(1), (2). It also specifically states that a finding of liability under the FTC Act does not preclude additional findings of liability under other antitrust statutes, such as the Sherman Antitrust Act of 1890. Id. at §§ 44, 45(e).

The respondents in the Your Therapy Source case operated staffing services that, according to the FTC’s complaint, provided therapists to “treat[] home health agency patients in the Dallas/Fort Worth, Texas area.” Your Therapy Source, complaint at 1. Although the companies competed with one another in the same market, the FTC alleged that they “agree[d], and invit[ed] other therapist staffing companies to agree, on rates paid to therapists.” Id. Ordinarily, therapists could “contract with multiple therapist staffing companies and choose among them based on pay rate” and other factors. Id. at 3. The agreement alleged by the FTC, however, prevented therapists from obtaining competitive pay rates.
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September 4, 2018

New Jersey Continues to Reject “Right to Work” Laws

by Resnick Law Group, P.C.

Organized labor, usually in the form of labor unions, is responsible for countless improvements in working conditions in New Jersey and throughout the country. The first half of the twentieth century saw the most improvements, as unions and their members fought—often literally—for reasonable hours, workplace safety, and better pay and benefits. Union membership has declined significantly in the past fifty years, however. One reason is a well-organized campaign that advocates for laws limiting the influence of unions in the workplace. These laws often go by the rather Orwellian name “right-to-work.” Voters in Missouri recently rejected a right-to-work law enacted by the state legislature and signed by the governor. Still, at least twenty-seven states have enacted right-to-work laws. New Jersey remains very favorable towards unions, with both laws and court decisions that affirm unions’ importance to the modern workplace.

Unions are able to negotiate on behalf of workers through collective bargaining agreements (CBAs) between a union and an employer. In order to understand how right-to-work laws affect unions’ ability to negotiate effectively, it is important to understand how unions have sought to ensure that they are able to speak for as many workers as possible. Some CBAs have, in the past, created “closed shops,” which means that employers could only hire union members. A “union shop” refers to an employer that, under the terms of a CBA, must require employees to join the union as a condition of employment.

One of the main objections to these types of arrangements involves the obligation of workers to join a union and pay dues, even if they do not agree with the union’s positions on various issues. The counter-argument to this is that all employees of a particular employer are likely to benefit from a union’s work, including those who are not members of the union. This is known as the “free rider problem.” Some union-shop CBAs, rather than requiring all employees to join the union, require workers who do not want to join to pay an “agency fee.”
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August 1, 2018

New Jersey, Other States Investigate “No-Poach” Agreements Among Fast Food Franchisees

by Resnick Law Group, P.C.

Antitrust laws protect both consumers and employees from anti-competitive practices. These laws are an essential part of any free market system. Monopolies and other accumulations of wealth or influence almost invariably lead to restraints on trade that harm both businesses and individuals. A single company that holds a monopoly over a particular product or geographic area has little to no incentive to set prices based on the conditions of the market. Companies that agree to fix prices do similar harm to competitors and consumers. Employees rely on a competitive job market, which enables them to seek out better opportunities with other employers. Some employers may attempt to restrain the mobility of their employees by entering into agreements with other companies to refrain from recruiting or hiring one another’s employees. These are commonly known as “no-poach” agreements, and they can have a major impact on employees. New Jersey’s Attorney General recently announced that, along with several other states, it is investigating alleged no-poach agreements among fast-food franchisees.

When employers enter into no-poach agreements, employees may find themselves unable to advance in their chosen careers. Workers cannot seek to move to a higher position, often with higher pay, at another company if that company has agreed ahead of time not to hire them. They are therefore at the mercy of their current employers. A press release from the New Jersey Attorney General quotes the state’s Labor Commissioner, who stated that no-poach agreements can keep workers from looking for jobs with better pay, better opportunities, or a better location. These agreements therefore “exploit low-wage workers who are most in need of job protections.”

The Antitrust Division of the U.S. Department of Justice (DOJ) has conducted its own series of investigations into alleged no-poach agreements over the past few years. In an April 2018 update, it noted that competitive markets for employees and jobs are subject to “the same rules” as consumer-oriented markets for goods and services. This applies both to no-poach agreements and wage-fixing agreements, in which employers agree to set a range or upper limit for employee compensation. The DOJ announced a plan in late 2016 to pursue criminal antitrust charges against companies that use “naked” no-poach and wage-fixing agreements, i.e. agreements that “are not reasonably necessary to any separate, legitimate business collaboration.”
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July 10, 2018

Supreme Court Ruling Affects Collective and Class Employment Actions in New Jersey

by Resnick Law Group, P.C.

Class actions and collective actions allow numerous individuals with similar claims to bring a single lawsuit against a common defendant, rather than hundreds or thousands of individual lawsuits. A New Jersey employee, for example, could file a collective action on behalf of themselves “or other employees similarly situated” for violations of state minimum wage law. See N.J. Rev. Stat. § 34:11-56a25. This offers many benefits for plaintiffs, particularly in situations where the cost of filing suit individually, when compared to the potential recovery, would make it too expensive to assert one’s legal rights. One could also argue that class actions help defendants by consolidating all claims against them into a single lawsuit, rather than hundreds or thousands of lawsuits. That is not how employers and other defendants usually see class actions, however, and they frequently argue against allowing employees to pool their claims in a single lawsuit. The U.S. Supreme Court recently sided with employers regarding collective arbitration, similar to collective or class actions. Epic Systems Corp. v. Lewis, 584 U.S. ___ (2018).

The ruling in Epic Systems arose from a conflict between two federal statutes: the Federal Arbitration Act (FAA) of 1925, 9 U.S.C. § 1 et seq.; and the National Labor Relations Act (NLRA) of 1935, 29 U.S.C. § 151 et seq. The FAA generally states that arbitration clauses in written contracts “involving commerce” are “valid, irrevocable, and enforceable.” 9 U.S.C. § 2. Courts have authority to order parties to such a contract to participate in arbitration, and to enforce the recommendations of the arbitrators. A court may only vacate or modify an arbitration award on grounds specified by the statute. See id. at §§ 10, 11. The Supreme Court held that the FAA applies to contracts executed under both state and federal law in Southland Corp. v. Keating, 465 U.S. 1 (1984).

The NLRA protects the rights of workers to organize for the purpose of collective bargaining—i.e. to form or join labor unions—and “to engage in other concerted activities for” those purposes. 29 U.S.C. § 157. It is an “unfair labor practice” for employers to “interfere with” or “restrain” employers engaged in these protected activities. Id. at § 158(a)(1). Courts have given rather broad interpretation to the meaning of “concerted activities.” The question in Epic Systems concerned whether collective arbitration was a “concerted activity” protected by the NLRA, or whether the FAA required enforcement of arbitration clauses in individual employment contracts.
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July 6, 2018

New Jersey Court Denies Two Motions to Compel Arbitration by Employer in Wrongful Termination Lawsuit

by Resnick Law Group, P.C.

The court system in the U.S. is often described as “overburdened.” Courts therefore encourage litigants to pursue a variety of alternative dispute resolution (ADR) methods. Many employers in New Jersey and around the country often include clauses in employment contracts requiring a form of ADR known as arbitration in disputes with their employees. Both federal and New Jersey employment laws establish a preference in favor of enforcing arbitration clauses but require that an employee receive adequate notice. A federal district court in New Jersey ruled on two separate motions to compel arbitration by an employer in a wrongful termination case. First, the court ruled that a genuine issue of fact existed as to whether the plaintiff received adequate notice of an arbitration agreement. Schmell v. Morgan Stanley & Co., Inc. (“Schmell I”), No. 3:17-cv-13080, op. (D.N.J., Mar. 1, 2018). It later denied a motion “to compel arbitration…to resolve disputed issues of fact related to arbitration.” Schmell v. Morgan Stanley & Co., Inc. (“Schmell II”), No. 3:17-cv-13080, op. at 2 (D.N.J., May 30, 2018).

The arbitration process involves presenting a dispute to one or more trained ADR professionals, often former judges, who conduct a proceeding similar to a trial and render a decision. If the parties have agreed in advance, this decision is binding. Arbitration offers some advantages over litigation, but it is often perceived as favoring employers, who typically have more resources to pay arbitration fees. New Jersey law holds that an employee is not bound by an arbitration clause if the employee “does not sign or otherwise explicitly indicate his or her agreement to it.” Schmell I, op. at 4, quoting Leodori v. CIGNA Corp., 814 A.2d 1098, 1106 (N.J. 2003).

The plaintiff in Schmell began working for the defendant in 2006. During his employment, he wrote “a self-help book that referenced his history with drug and alcohol abuse and ultimate recovery.” Schmell I at 1. In June 2017, according to the plaintiff, he presented the defendant with a draft of the book. The defendant allegedly threatened termination if he did not make certain edits. The plaintiff claims that he made the requested edits, but the defendant still terminated him on October 31, 2017. The book was published on November 14. The plaintiff filed suit one month later, alleging discrimination on the basis of disability because of his history of addiction.

June 26, 2018

New Jersey Bill Would Limit Enforceability of Noncompete Clauses and Other Restrictive Covenants in Employment Contracts

by Resnick Law Group, P.C.

Businesses have an obligation to protect their assets and interests, but not in ways that damage their employees. New Jersey employers can protect their interests with covenants not to compete, also known as noncompete clauses, which limit employees’ ability to work for, or become, a competitor after their employment ends. A bill pending in the New Jersey Legislature would significantly restrict the enforceability of noncompete clauses. An Assembly committee reported favorably on A1769 in May 2018, while the Senate counterpart, S635, is still awaiting a committee hearing.

In order for a noncompete clause to be enforceable under current New Jersey employment law, it must be reasonably limited in both time and geographic scope. A noncompete clause that purported to prohibit a former employee from ever working for a competing company anywhere in New Jersey would be unenforceable on its face because it is not even close to being reasonably limited to the protection of the employer’s interests at the moment the employee ceases to be employed. If the noncompete clause only restricted employment with a competitor within, for example, five miles of the employer’s location for six months, it would probably be enforceable. Even then, however, noncompete clauses often require workers to relocate or change fields solely to avoid liability to their former employer.

A1769 and S635 state that noncompete clauses “driv[e] skilled workers to other jurisdictions” and “requir[e] businesses to solicit skilled workers from out-of-State.” The Assembly Labor Committee made some changes to the bill, but most provisions remain the same as in S635. The bill establishes a 10-part test that a noncompete clause would have to meet in order to be enforceable:
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June 15, 2018

New York Court Declines to Enforce Non-Compete Clause Against Former Employees

by Resnick Law Group, P.C.

Businesses entrust a considerable amount of information, along with the value represented by that information, to their employees. Employers have an interest in protecting their intellectual property, trade secrets, and other proprietary information. Employment laws in New Jersey and New York allow restrictive covenants in employment contracts that reasonably limit certain activities by former employees. From an employee’s point of view, the overzealous enforcement of restrictive covenants imposes an undue burden on their ability to make a living in their chosen field. Courts often give close scrutiny to employers’ efforts to enforce restrictive covenants. Last summer, a Manhattan federal court refused to enforce several non-compete clauses against a group of former employees in a New York employment dispute. In re Document Technologies Litigation (“DTL”), No. 17-cv-2405, op. (S.D.N.Y., Jul. 6, 2017).One common type of restrictive covenant used in employment agreements is the “covenant not to compete,” also known as a non-compete clause. An employer may worry that, when an employee leaves their job, they will take the knowledge and contacts they have gained and either go to work for a competitor or start their own competing business. In order to be enforceable, a non-compete clause must have a reasonable duration and a limited geographic scope. A non-compete clause stating that a former employee cannot work for any competing business anywhere in the state of New Jersey for a period of 10 years is unlikely to be enforceable, but one that restricts competition within 10 miles of the employer’s location for six months might be considered reasonable. Other common restrictive covenants include agreements not to solicit the employer’s clients or customers (non-solicitation), and agreements not to disclose certain information learned during an individual’s period of employment (non-disclosure).

The plaintiff in DTL “is a global provider of electronic discovery (‘e-discovery’) services for law firms and corporate legal departments,” with about 7,000 employees. DTL, op. at 2. The defendants include four former employees and the competing company that hired them after they quit their jobs with the plaintiff. The individual defendants signed employment agreements with the plaintiff that included one-year non-compete and non-solicitation clauses and a non-disclosure clause. According to the court’s opinion, the individual defendants had become “dissatisfied with their employment” with the plaintiff as early as 2014. Id. at 3. They resigned from the plaintiff and signed employment agreements with the competing company in January 2017, with the understanding that they would not begin work until the following year, after the non-compete had expired.

In February 2017, the individual defendants began work on a spreadsheet containing names and contact information of their clients at the plaintiff. They planned to meet to discuss sales strategies at the new employer, but a cease and desist letter from the plaintiff prevented this meeting from taking place. The plaintiff filed suit in April 2017 and sought a preliminary injunction enforcing the restrictive covenants.

April 26, 2018

New Jersey Judge Rules for Former Employee in Dispute Over Noncompete Clause

by Resnick Law Group, P.C.

When an employee ceases to work for an employer, many employers will want to protect their investment in that employee in any way they can. Nondisclosure agreements and trade secret laws cover confidential and proprietary information that employees might obtain during their employment. Employees who bring a particular set of skills or knowledge, and who might obtain additional valuable skills through their work for the employer, could potentially have a negative impact on the employer’s business if they took that knowledge to a competitor. Some employers therefore try to protect themselves with noncompete agreements, which state that the employee may not accept employment with a competitor after they leave the employer. New Jersey employment laws only allow enforcement of noncompete agreements when they have strict limitations, such as a limited geographic area and a limited duration. A New Jersey Superior Court judge in Bergen County recently ruled in favor of a former employee who was seeking to invalidate a noncompete clause. Abuaysha v. Shapiro Spa, No. L-000988-18, complaint (N.J. Super. Ct., Bergen Cty., Feb. 1, 2018)

Injunctive relief is one of the main methods of enforcing a noncompete agreement. Employers often file suit against a former employee and seek a preliminary injunction, but it is also possible for a former employee to file suit first. In order to obtain a temporary injunction in New Jersey, a movant must establish four elements: (1) “irreparable harm” without the injunction, (2) a settled legal right underlying the movant’s claim, (3), “a reasonable probability of ultimate success on the merits,” and (4) a balance of hardships faced by the parties that favors granting the injunction. Crowe v. De Gioia, 90 N.J. 126, 132-34 (1982). In the case of noncompete agreements, courts must look closely at the second and third parts of this test.

New Jersey courts use the “Solari/Whitmyer test,” named for two New Jersey Supreme Court decisions, to determine whether a noncompete agreement is enforceable. Solari Industries, Inc. v. Malady, 55 N.J. 571 (1970); Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25 (1971). This test has three parts: (1) protection of legitimate employer interests, (2) no undue hardship on the employee, and (3) no injury to the public. When determining whether a noncompete agreement protects the employer’s interests, the court has noted that an “employer has no legitimate interest in preventing competition as such.” Whitmyer, 58 N.J. at 33. Examples of legitimate interests include protection of confidential information, trade secrets, and customer relationships. Id. The geographic limits, duration, and other restrictions in a noncompete agreement must be “no broader than necessary to protect the employer’s interests.” Cmty. Hosp. Grp., Inc. v. More, 183 N.J. 36, 58-59 (2005).

February 9, 2018

Federal Law Restricts Employers’ Ability to Enact Mass Layoffs in New Jersey and Nationwide

by Resnick Law Group, P.C.

The National Labor Relations Act (NLRA) enables workers to organize themselves for the purpose of collective bargaining with their employers. A current dispute between a major telecommunications company and its employees’ union alleges that the company is planning mass layoffs, in violation of the collective bargaining agreement (CBA) between the parties, and with the alleged intent of “diminish[ing] the Union’s bargaining strength.” Commc’ns Workers of Am. (CWA) v. AT&T Southwest, No. 1:17-cv-01221, complaint at 6 (W.D. Tex., Dec. 30, 2017). The union also filed a charge with the National Labor Relations Board (NLRB). AT&T Southwest, No. 16-CA-212398, charge (NLRB, Dec. 29, 2017). The case grew out of assertions made by prominent telecommunications companies regarding recent political issues, including recent tax cuts and changes to federal “net neutrality” rules. While the defendant employer claims the layoffs are due to a lack of work, the plaintiff asserts that the telecommunications business is booming. The issues raised by the lawsuit are likely to affect New Jersey labor rights as well.

Under the NLRA, employers may not interfere with workers’ efforts to organize, nor may they discriminate or retaliate against employees who engage in protected activity. The law also requires employers to collectively bargain with representatives chosen by the employees in accordance with its provisions. Once an employer and the employees’ representatives have entered into a CBA, it is binding on both parties. The NLRA allows claims to enforce CBA provisions and to collect damages for breaches. It also allows recovery of damages for various unfair labor practices described in § 8 of the statute, 29 U.S.C. § 158.

The plaintiff in CWA describes itself in its complaint as a labor union authorized to bring suit on behalf of the defendant’s employees under § 301 of the Labor-Management Relations Act of 1947. 29 U.S.C. § 185. The parties entered into the current CBA in April 2017. According to the complaint, a representative of the defendant’s labor relations department informed the plaintiff in December 2017 of the defendant’s intention to lay off 152 individuals employed as “Premises Technicians” (PTs) in at least four states. CWA, complaint at 4. The defendant’s representative cited “a reduction in workload” as the reason. Id.

December 15, 2017

Pro Football Player’s Grievance Accuses Teams of Improper Collusion

by Resnick Law Group, P.C.

New Jersey employment statutes and other laws around the country prohibit employers from taking certain adverse actions against employees. Antitrust laws can provide relief for workers when a direct employer-employee relationship might not exist. Laws like the Sherman Act prohibit companies that ostensibly compete with one another from making agreements that impede competition. This is often known as “collusion.” Agreements among companies not to hire one another’s workers, for example, hurt workers by limiting their job opportunities. Colin Kaepernick, a professional football player who has been a controversial public figure in the past year or so, is making similar allegations in a grievance filed against the National Football League (NFL). He is a free agent, but no team has signed him since the controversy gained prominence. Rather than a lawsuit under a law like the Sherman Act, the player is alleging violations of the collective bargaining agreement (CBA) between the players’ union and the NFL. The case could have a national impact, since NFL teams are located all over the country, including two that play in New Jersey.

The Sherman Act prohibits businesses from making “contract[s]…or conspirac[ies] in restraint of trade or commerce among the several States.” 15 U.S.C. § 1. Agreements among market competitors that deliberately restrict or restrain trade, such as price-fixing, clearly violate the Sherman Act. In situations in which the alleged restraint is less obvious, courts use the “Rule of Reason” to determine whether the restriction is anti-competitive or not. Addyston Pipe & Steel Co. v. United States, 175 U.S. 211 (1899).

Agreements among NFL teams could constitute unlawful collusion under a recent U.S. Supreme Court decision. The court held that the creation of a single business entity to handle product licensing for all 32 NFL teams “constitute[d] concerted action that is not categorically beyond the coverage of §1.” American Needle, Inc. v. National Football League, 560 U.S. 183 (2010). It held that courts should apply the Rule of Reason to determine whether such agreements violate antitrust law. While that case dealt with intellectual property, it established that NFL teams are distinct entities that might have distinct economic interests.