Employment Law Blog

In a recent unpublished opinion (MJM Investigations, Inc. v. Sjostedt Slip Opinion# COA09-596), the NC Court of Appeals held that a non-solicitation provision in a covenant not to compete unenforceable, based upon the absence in the provision of any definition of the “current or prospect clients” whom the former consultant was prohibited from contacting.  The trial court in Wake County reviewed a consulting agreement that included non-compete and non-solicitation clauses that the plaintiff was seeking to enforce against the defendant.  The trial court struck the non-compete clause as overly broad as lacking a territorial restriction, but ruled that the remaining non-solicitation clause in the agreement was enforceable.  The Court of Appeals reversed the trial court’s enforcement of the non-solicitation clause, which prohibited the defendant from soliciting any “current or prospect client” for providing specified insurance claim investigation services. 

The appellate court found unclear whether a “current client” would be a client at the time the agreement was executed , or at the time the defendants left the plaintiff’s employ.  The court found the meaning of “prospect client” to be even more nebulous as it could mean a client prospect at the time the agreement was executed, at the time the defendants left the plaintiff’s employ, or a client unknown until later.  Further, the Court of Appeals faulted the non-solicitation clause as potentially covering “clients” and in particular “prospect clients” with which the defendants never made contact.  While the plaintiff provided a client list of over 800 businesses, the Court of Appeals ruled that the trial court’s wholesale adoption of the list constituted improper modification of the non-solicitation clause.

For future guidance, the Court of Appeals cited with approval from a prior case a non-solicitation clause that restricted the employee “for two years, from soliciting any customers having an active account with [employer] at the time of [employee's] termination or prospective customer whom [employee] himself had solicited within the six months immediately preceding his termination.”  Such a clause, which made the referenced “customer” and “prospective customer” identifiable and contained a reasonable time restriction, may be used as a model for drafting a non-solicitation clause that should be enforceable.  Interestingly, Judge Steelman wrote a concurring opinion noting that today’s economy is global in nature and encouraging the NC Supreme Court to re-evaluate the law of restrictive covenants to allow restrictions upon competing business activity for a specific period of time, limited to a specific, narrow type of business, but with fewer geographic limitations.  While the opinion of the Court of Appeals was unpublished and thus does not constitute controlling legal authority, the case is very instructive as to what non-solicitation provisions are likely to be struck down as vague and unenforceable.

Client service and outreach are a key offering of the firm’s Employment & Labor Law Team, which is dedicated to the employment and labor law needs of North Carolina employers. McGuire, Wood & Bissette, PA attorneys Grant Osborne and Hayley Roper provided a customized  “crash course” in contracts, “Fundamentals of Contract Law” to their client, Kearfott Corporation-Motion Systems Division, in Black Mountain, North Carolina.

Kearfott designs, develops, and manufactures products for land, air, sea, and space navigation and guidance for military and commercial customers worldwide. Extensive contract negotiations are at the core of its business operations. As lead attorney for the team, Grant Osborne taught numerous company employees critical contract-law basics in five concentrated half-day sessions.

The contract training sessions that were provided to Kearfott support a guiding philosophy of the legal team in assisting its clients: an ounce of prevention is worth a pound of cure. The Employment & Labor Law Team works with clients on the front end, from development of employment policies and practices to providing guidance in navigating complex contract negotiations, to avoid time-consuming and costly legal matters down the road.

For a legal consultation or custom training session from the firm’s Emplyment and Labor Law Team for your business, contact us at employmentlawteam@mwbavl.com.

Your employee posts a comment on a blog, Twitter, Facebook or LinkedIn touting your business’s excellent products and services. As an employer, you think to yourself, what could be better, that’s wonderful. However, your employee may unwittingly have violated the Federal Trade Commission Act relative to endorsements and testimonials and the employee as well as you, the employer could be liable for the violation.

The “Guides Concerning the Use of Endorsements and Testimonials in Advertising” recently issued by the Federal Trade Commission (the “Guide”) is intended to aid advertisers and endorsers in maintaining compliance with the FTC Act, including the disclosure of material connections between advertisers and endorsers. The Guide defines an endorsement as “any advertising message … that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser.” Thus, an employee’s statements on various social media about his employer’s products or services could be considered an advertising message. The FTC requires that endorsers fully disclose any connection between the endorser and the “seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience) (emphasis added). Therefore, an employee must disclose his employment relationship each time he endorses the company’s products or services.

Employers would be wise to establish a policy regarding use of social media generally and specifically employees’ endorsements of the company and the required disclosures in conjunction with any such endorsements. For more information about the FTC Guide, see http://www.ftc.gov/opa/2009/10/endortest.shtm. Our employment attorneys may assist you with creating appropriate personnel policies.

On March 23, 2010, President Barack Obama signed into law The Patient Protection and Affordable Care Act of 2010. Section 4207 of the Act amends the Fair Labor Standards Act of 1938 (FLSA) by adding a new provision related to nursing mothers to 29 U.S.C. §207.

The amendment provides that “an employer shall provide—

(A) a reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child’s birth each time such employee has a need to express the milk;

and

(B) a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk.”

All employers with 50 or more employees are subject to the amendment. Employers with less than 50 employees may be exempt from the requirements of the amendment, if the break requirement would impose an undue hardship by causing the employer significant difficulty or expense when considered in relation to the size, financial resources, nature, or structure of the employer’s business.

The breaks required by the amendment need not be compensated by the employer. The FLSA generally requires employers to pay employees for breaks that are shorter than 20 minutes that occur during the work day, however, the amendment expressly provides that the employer may choose to not compensate women for taking breaks to express milk. Curiously the amendment could result in employers that are required to pay employees for multiple smoke breaks taken throughout the day but that are not required to pay lactating mothers to express milk. There is no prohibition against compensating lactating mothers for breaks taken to express milk so employers may compensate lactating mothers if they elect to. The Department of Labor, Wage and Hour Division will issue regulation on the new amendment in the future. The Act does not state when the amendment becomes effective, however, employers should consider it effective immediately.

States laws covering lactating mothers are not preempted by the amendment and if the state law is more expansive than the amendment, the state law applies.

Immediate steps to be taken by covered employers:

1. Update employment handbooks and policies to include breastfeeding provisions.
   
2. Inform managers and employees of the new policy.
   
3. Provide a private area (other than a bathroom) shielded from view and free from intrusion from coworkers and the public to be used by lactating mothers.
   

Relief available to employees against employers that violate the amendment are not yet known, but would include at a minimum injunctive relief. Further, the FLSA allows for potential individual liability so it is important that employers comply immediately.

On March 18, 2010, President Barack Obama signed into law the HIRE Act, which provides tax incentives in the form of tax credits to businesses that hire unemployed workers after February 2, 2010 and before January 1, 2011.

Tax Credit

An employer that hires unemployed workers during the relevant period will receive an income tax credit of 6.2% of the wages paid after March 18, 2010, to each qualifying worker. The HIRE Act effectively exempts an employer from paying its share of the eligible employees’ Social Security taxes. The reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers still must withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employee’s shares of Medicare taxes also still apply to these wages.

Additionally, an employer may claim a tax credit of $1,000 on its 2011 income tax return for each eligible worker retained for at least one (1) year. The 6.2% tax credit may be claimed by an employer on its quarterly federal employment tax returns filed with the IRS. Businesses, agricultural employers, tax-exempt organizations and public colleges and universities all qualify to claim the payroll tax benefit for eligible newly-hired employees. Household employers, however, cannot claim this new tax benefit.

Eligible New Hires

Eligible new hires must have been previously unemployed. Additionally, eligible new hires cannot have worked more than 40 hours in the 60 days prior to hire by the employer claiming the credit. The new hire may not replace an existing employee, with the exception of a vacancy created when an employee leaves voluntarily or is terminated for cause. The eligible new hire cannot be related to a fiduciary of the business. For nonprofit organizations, the work performed by the new hire must be in furtherance of the organization’s tax exempt purpose.

An eligible new hire must complete an affidavit affirming that he or she has not been employed for more than 40 hours during the 60 days immediately preceding his or her date of hire. Please visit www.irs.gov to obtain the Form W-11 Affidavit.

Late on April 15, Congress passed H.R.4851, the Continuing Extension Act of 2010, and sent it to the President for his signature.

The Continuing Extension Act of 2010 extends the eligibility period for the COBRA continuation premium subsidy for two months. Under prior law, the eligibility period had ended on March 31, 2010. Under the new law, the eligibility period for the subsidy is retroactively extended for two months and will end on May 31, 2010.

The Continuing Extension Act of 2010 also carries extended election procedures for those who were involuntarily terminated after March 31, 2010, and before the date of enactment of the new law, and new notice requirements for plan administrators.

The Continuing Extension Act of 2010 also extends a number of other programs, such as unemployment insurance.

Business Insurance:  Poll Shows Most Employers Won’t Drop Health Care Benefits

A nationwide survey of business executives conducted by Crain Communications Inc. publications Workforce Management and Business Insurance, found that 52.5% strongly disagreed with the statement that it would be better for their organizations to stop offering health care benefits and pay the fine under the new law.  The survey received 3,698 responses from employer organizations of all sizes and a variety of industries. Findings include:

• 15.3% somewhat disagreed with the notion of dropping coverage and paying the fine.
  
  
• 18% somewhat agreed and only 14.1% strongly believe their organization would be better off with dropping benefits and paying the fine.
  
  
• Among large employers, those with 25,000 or more workers, 64.9% strongly disagreed with the statement, 12.4% somewhat disagreed, 14.2% somewhat agreed, and 8.4% strongly agreed.
  
  
• When asked if they understand the impact the law will have on their benefit programs, only 17.7% of respondents strongly agreed, 43.9% somewhat agreed, and 38% either somewhat or strongly disagreed.
  
  
• When asked if they would continue offering health benefits because they are critical to employee recruiting and retaining employees, 65.7% strongly agreed, 25.6% somewhat agreed, 5.2% somewhat disagreed, and only 3.5% strongly disagreed.
  
  

More information can be found at http://www.businessinsurance.com/article/20100411/ISSUE01/304119948.

Our Employment Law attorneys counsel businesses of all sizes on a wide range of legal issues, including those related to recent legislation. For information regarding our services, contact us at employmentlawteam@mwbavl.com.