BE PROACTIVE IN 2016 OR REACT AT YOUR CLIENTS’ PERIL*
Lawyers typically don’t act until faced with a problem. All too often we react as the result of our clients not contacting us until an issue arises. Having served as both acting and quasi general counsel for two public companies and having worked with many others, it is clear that in-house attorneys who are good at what they do think differently. They are constantly assessing the legal landscape to make educated, proactive decisions to protect their companies from liability.
What should in-house counsel be concerned with in terms of labor and employment law in the new year? Here is our short list of what general counsel should have major concern with and take steps to avoid as we begin 2016.
1. Class and Collective Actions. The number of employee class and collective actions (such as those under the Fair Labor Standards Act, 29 U.S.C. 621 et seq.) has increased dramatically over the past five years. According to federal court records, new FLSA cases have increased each and every year from 6335 in 2011 to 8731 in 2015. Whether it is wage and hour litigation where plaintiffs challenge their designation as employees exempt from overtime under state and federal laws, or misclassification cases where companies treat certain workers as independent contractors, the financial exposure often is substantial. We expect this upward trend to continue considering the proliferation of cases brought on behalf of unpaid interns, the USDOL’s proposed changes in June, 2015 to the minimum salary requirement for satisfying the white collar exemption and its October 2015 narrowing of the companionship services exemption under the FLSA for home healthcare workers. The New Jersey Supreme Court’s 2015 decision in Hargrove v. Sleepy’s also should have caused a red flag to go up in the minds of in-house counsel to take proactive steps to head off worker misclassification litigation. Hargrove v. Sleepy’s, LLC, 220 N.J. 449 (2015).
2. Regulatory Investigations. A related concern involves governmental regulatory investigations. This could include investigations by the federal and state departments of labor for wage and hour issues or by taxing authorities for not properly withholding employment taxes in connection with improperly treating workers as independent contractors rather than employees. See Hargrove, supra. The beginning of the new year is also a good time to review whether a company is doing what it must in terms of new hires, such as complying with its I-9 obligations. Just this past year an Administrative Law Judge awarded over $600,000 in penalties against a mid-size company for I-9 violations. See U.S. v. Hartmann Studios, Inc., 11 OCAHO no. 1255 (2015).
3. Confidentiality/Non-Compete Agreements and Arbitration Clauses. Similarly, with all new hires companies should consider whether to have them sign confidentiality, work-for-hire, non-solicitation and/or non-compete agreements. Now is a good time for General Counsel to review these types of agreements to make sure they comply with recent case law. For example, during the past year, courts have continued to exhibit reluctance to enforce non-competes and these agreements need to be reviewed and modified where appropriate to stand a better chance of being found to protect legitimate interests of employers. Courts have also been somewhat more reluctant than in the past to enforce arbitration clauses in these various agreements. The law in New Jersey has evolved quite a bit in terms of what language is necessary to have an enforceable arbitration clause or a valid clause precluding class arbitration. See Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, ___F.3d ___ (3d Cir. 2016). Employment cases especially are often won or lost when companies learn whether a court will compel arbitration or retain the dispute for a jury trial. The number of harassment lawsuits continues to rise. Would a senior executive charged with sexual harassment by his secretary or other staff member rather fight this battle in a public or private forum? We all know the answer.
4. Training Managers. A company is only as safe as can be from employment claims if its managers are well trained. In this regard, the start of the year is a good time to review turnover rates and when current supervisors were last trained, whether in connection with how to handle harassment issues or with regard to employee performance reviews. Notwithstanding that New Jersey employees are generally employed at-will, general counsel do not like being first informed by a supervisor that he or she wants to terminate an employee only to discover that the performance issues haven’t been properly documented.
5. Employee Morale and Talent Retention. Having weathered poor economic times, employees are again seeing opportunities open up at other companies. This has resulted, in part, by Baby Boomers retiring, leading to more opportunities for Millennials who are more willing to switch jobs to advance their careers. Companies must, therefore, be cognizant of employee morale and understand the cost of losing talented people. Employee retention needs to be a priority for companies in 2016. Factors to consider are whether the company should offer better, more flexible, benefits. Some of the larger, tech companies, such as Google, Facebook and Netflix, are now offering better family leave policies for both parents that enable more time off for birth or adoption. Companies should also attempt to provide more meaningful work, recognition for a job well done, and additional career advancement opportunities. Once companies understand that turnover costs per employee are significant, they will realize that employee retention should be a top Human Resources priority in 2016.
2016 should be another busy year for employment lawyers and general counsel. Our advice is to act now to avoid problems for your clients later.
*Steven Adler is the Co-Chair of the Labor and Employment Group at Mandelbaum Barrett PC. He has served as Acting General Counsel to Rolls-Royce and Bentley Motorcars Inc. and has represented management on many types of labor and employment law matters during his almost thirty-five (35) years of practice. To view Steven’s profile CLICK HERE