We previously reported that the National Labor Relations Board (NLRB or the Board) General Counsel Jennifer Abruzzo issued a memorandum in May 2023 advancing the position that non-compete agreements between employers and employees that limit employees from accepting certain jobs at the end of their employment, interfere with employees’ rights under Section 7 of the National Labor Relations Act (the Act). On October 7, 2024, the General Counsel issued another memorandum that expands her position on non-compete agreements by stating her opposition to certain repayment arrangements often included in sign-on bonus and retention bonus programs and policies to reimburse for relocation costs, training and education courses, that are commonly referred to as “stay-or-pay” provisions.

The General Counsel’s memorandum does not represent a statement of the current law nor does it establish new law. Rather, it is the latest effort by the General Counsel, in her advocacy role, to try to reinterpret the NLRA, which, in this case, may serve to restrict employers’ actions to protect their legitimate interests.

New Potential Penalties for Unlawful Non-Compete Agreements

The General Counsel’s May 2023 memorandum stated her position that most non-compete agreements violate employees’ Section 7 rights. General Counsel Abruzzo’s rationale for this position is that non-compete agreements may deter employees from resigning or threatening to resign in protest of working conditions. In the October 2024 memorandum, the General Counsel states her intent to pursue expansive remedies against employers found to have maintained unlawful non-compete agreements.

Specifically, according to the General Counsel, where an employer has been found to have maintained a non-compete agreement or provision that is unlawful under the Act, the employer should be ordered to post a notice of its violation and, during the notice-posting period (usually 60 days), current employees should be permitted to come forward to show their entitlement to damages. The memo states that an employee need prove only the following: (1) There was a vacancy available for a job with a better compensation package; (2) they were qualified for the job; and (3) they were discouraged from applying for or accepting the job because of the non-compete provision. The employer would then be required to compensate the employee for the difference (in terms of pay or benefits) between what the employee would have earned and what they did earn during the same period. Additionally, former employees would be able to come forward to claim any damages, such as reductions in earnings or increased time between jobs, that they experienced due to the non-compete agreement or provision.

To be clear, these remedies are not current Board law. While they only represent the General Counsel’s newly formulated enforcement strategy, such remedies become a relevant factor in an employer’s risk assessment over the use and enforcement of non-compete agreements.

The Burden to Justify Stay-Or-Pay Provisions Will Fall on the Employer

The GC memorandum defines a stay-or-pay provision as “any contract under which an employee must pay their employer if they separate from employment, whether voluntarily or involuntarily, within a certain time frame.” Stay-or-pay provisions are generally tied to employee benefits such as sign-on bonuses, retention bonuses, payments for relocation costs and reimbursement for tuition and other costs associated with educational programs and training courses. The memo also describes so-called “quit fees” and damages clauses as arrangements that impose a financial penalty on the employee for their separation from employment untethered to a pre-payment or benefit previously provided to the employee.

The General Counsel’s view is that all stay-or-pay provisions similarly have a tendency to interfere with, restrain or coerce employees in the exercise of their Section 7 rights by limiting employee mobility and by “increas …[ing] employee fear of termination for engaging in activity protected by the Act.”  In her opinion, all stay-or-pay provisions are presumptively unlawful. They will be found to violate the Act unless an employer rebuts this presumption by providing that the provision advances a legitimate business interest and is narrowly tailored to minimize infringement on Section 7 rights. An employer can meet this standard by proving that the stay-or-pay provision: (1) is voluntarily entered into in exchange for a benefit; (2) has a reasonable and specific repayment amount; (3) has a reasonable “stay” period; and (4) does not require repayment if the employee is terminated without cause.

General Counsel Abruzzo explains that where a stay-or-pay provision was voluntarily entered into with informed consent but is not narrowly tailored in one or more ways discussed above, the employer should be ordered to rescind the unlawful provision and replace it with a lawful one. However, where the arrangement was not entered into with informed consent, the General Counsel will seek an order that includes the cancelation of the debt to the employer. 

The outsized reach of the General Counsel is illustrated by her proposed mandatory rewrite of sign-on bonus arrangements:

With respect to cash payments, such as a relocation stipend or sign-on bonus, in my view a stay-or-pay provision can only be considered fully voluntary if employees are given the option between taking an up-front payment subject to a stay-or-pay or deferring receipt of the same bonus until the end of the same time period. Only in this way can employees who anticipate possibly engaging in protected concerted activity avoid becoming indebted to their employer without a significant financial downside. If the only alternative was to decline the cash payment outright, that “choice” would be illusory. . . .

In addition, the memo urges that the remedies for an unlawful “stay-or-pay” provision should be the same as an unlawful non-compete, as they both restrict employment mobility.  Therefore, the General Counsel’s position is that the posting requirement for a violation should include notice that individuals will be entitled to damages if they show that: (1) There was a vacancy available for a job with a better compensation package; (2) they were qualified for the job; and (3) they were discouraged from applying for or accepting the job because of the stay-or-pay provision. If the employer attempted to enforce an unlawful “stay-or-pay” provision, there will be additional remedies, such as the employee’s legal fees or compensation for damage to their credit.

The GC memorandum offers employers a 60-day window to “cure” pre-existing stay-or-pay provisions that advance a legitimate business interest by altering the provisions’ terms to conform with the requirements set forth above. Stay-or-pay provisions that do not adhere to the General Counsel’s requirements will be subject to prosecution after December 6, 2024.

What Employers Should Do

While the memorandum is not binding on the Board, it does provide direction to the NLRB regional offices to investigate and prosecute unfair labor charges. Additionally, it is reasonable to expect the current Board to give careful consideration to the General Counsel’s arguments and recommendations as cases involving these provisions and agreements come before the Board in the future. How receptive to these sweeping changes the federal courts and, ultimately, the U.S. Supreme Court will be, remains to be seen.

Employers should carefully consider the arguments and opinions laid out in the memo when evaluating the need for non-compete agreements with different categories of employees, the terms of those agreements and the specific business interests that the agreements are designed to protect in light of the prospect of expansive remedies for current and former employees bound to non-compete agreements.

Similarly, as to “stay-or-pay” arrangements, employers would be well served to consult with legal counsel to evaluate their existing agreements in light of the General Counsel’s new, far-reaching perspective on these common benefit terms, including consideration of the 60-day window (until December 6, 2024) to modify existing “stay-or-pay” provisions, to assess the risks of future unfair labor practice claims.

On Sept. 4, 2024, Gov. Kathy Hochul signed legislation requiring public employers to notify employees if their disciplinary records are requested as part of a Freedom of Information Law (FOIL) request. This legislation applies to all entities covered by FOIL and went into effect as of Sept. 4, 2024.

This legislation amends Section 87 of the Public Officers Law by adding language which states: 

All agencies subject to the requirements of [the Public Officers Law] shall develop a policy regarding providing a notification to public employees in the event that the agency is responding to a request for such employee’s disciplinary records. 

Employers previously had no obligation to notify a public employee that their disciplinary records were the subject of a FOIL request. This legislation aims to promote recruitment and retention of individuals by providing them with knowledge that an individual or outside entity requested to review their disciplinary records.

Some aspects of the policy required by this legislation may be subject to bargaining if you have employees represented by a union. If you require assistance with drafting or negotiating a policy, please contact Emily Fallon, Alyson Mathews, any member of Bond’s labor and employment practice or the attorney at the firm with whom you are regularly in contact.

On September 5, 2024, Governor Kathy Hochul signed the Retail Worker Safety Act (A 8947 / S 8358) into law.  It requires certain New York retailers to adopt safety measures to address and prevent workplace violence.

Read More >> New York Enacts Retail Worker Safety Act Addressing Workplace Violence in Retail Settings

On Nov. 22, 2023, Gov. Kathy Hochul signed into law the “Freelance Isn’t Free Act” (the Act or FIFA), which was amended on March 1, 2024. The Act is codified in Article 44-A of the New York General Business Law. Article 44-A of the General Business Law creates several protections for freelance workers retained as independent contractors. The Act is intended to ensure that freelance workers receive timely compensation for all services performed. The law goes into effect on Aug. 28, 2024.

The Act Applies to “Freelance Workers” and “Hiring Parties”

Subject to specified exceptions, the Act defines freelance workers as “any natural person or organization composed of no more than one natural person, whether or not incorporated or employing a trade name, that is hired or retained as an independent contractor by a hiring party to provide services in exchange for an amount equal to or greater than eight hundred dollars, either by itself or when aggregated with all contracts for services between the same hiring party and freelance worker during the immediately preceding one hundred twenty days.” In short, a freelance worker is any individual hired to provide services of $800 or more as part of a one-time transaction or over the course of several transactions with the same hiring party in the preceding 120 days.

Individuals engaged in the practice of law, licensed medical professionals, construction contractors, and sales representatives as defined by Section 191-a of the Labor Law, are excluded from the definition of freelance worker.

The Act broadly defines “hiring party” as “any person who retains a freelance worker to provide any service,” except local, state, and federal governments. Given the breadth of this definition most individuals and organizations that hire independent contractors to provide services will need to comply with the Act’s requirements.

The Act’s Primary Requirements

The Act imposes several requirements for hiring parties engaging freelance workers. As discussed in greater detail below, the main requirements pertain to written contracts, timely payment and anti-retaliation. The Act also creates an administrative complaint procedure for freelance workers whose rights have been violated as well as a private right of action.

Written Contract

Most significantly, the Act requires a hiring party that retains the services of a freelance worker to reduce the contract to writing. Written agreements must include:

• the name and mailing address of both parties;
• an itemization of all services to be provided by the freelance worker, the value of services to be provided, and the rate and method of compensation;
• the date on which payment by the hiring party is due or the mechanism by which the due date for payment will be determined; and
• the date by which the freelance worker must provide a list of services rendered under the contract in order to ensure timely payment.

The Act explicitly states that freelance workers and hiring parties may not waive the rights provided under the Act, and any contract provision attempting to do so shall be void and unenforceable.

A copy of the written contract must be furnished to the freelance worker (either physically or electronically) and must be retained by both parties. The hiring party must retain a copy of the contract for a minimum of six years. Though not explicitly stated, the Act suggests that the burden of preparing the written contract falls on the hiring party.

Upon request, hiring parties must also make their contracts with freelance workers available to the attorney general. The failure to produce a contract upon request carries significant consequences, including a presumption that the terms presented by the freelance worker are the agreed upon terms.

Model contracts will be made available on the Department of Labor’s website.

Timely Payment

The Act requires that freelance workers be paid for their services in a timely manner. For purposes of the Act, this means that freelance workers must be paid on or before the date compensation is due under the terms of the contract; or if the contract does not state when payment is due, payment must be made within 30 days of completion of the freelance workers’ services.

Once a freelance worker has begun performing services under the contract, the hiring party may not require that the freelance worker accept less pay than agreed upon, as a condition of timely payment.

Discrimination and Retaliation Prohibited

The Act prohibits discrimination and retaliation against freelance workers who exercise or attempt to exercise their rights under the Act.

Avenues for Redress

The New York State Attorney General is authorized to investigate alleged violations of the Act and to provide appropriate remedies. The Attorney General may bring an action on behalf of the State to enjoin a hiring party from engaging in acts that violate FIFA and to obtain restitution for affected freelance workers.

The Act separately creates a private right of action for aggrieved freelance workers. Such claims may be brought in a court of competent jurisdiction for up to two or six years, depending on the nature of the alleged violation. Claims alleging violations of the written contract requirement may be brought for up to two years. Claims alleging violations of the timely payment requirement or the anti-discrimination and anti-retaliation provisions may be brought for up to six years.

Penalties

In the event that the Attorney General pursues such a civil action, civil penalties may be assessed against the hiring party in the amount of $1,000 for a first violation, $2,000 for a second violation and $3,000 for a third or subsequent violation. Where there is evidence of a pattern or practice of violations under the Act, civil penalties may be imposed of not more than $25,000.

The damages and penalties available to a plaintiff for violations of the Act depend on the nature of the violation. For example:

• a hiring party’s failure to provide timely payment per the terms of a contract may result in double damages, injunctive relief, attorneys’ fees and costs and other remedies as appropriate;
• a civil penalty of $250 may be imposed as a result of a hiring party’s failure to provide a freelance worker with a written contract; and
• a freelance worker who prevails on a retaliation claim under the Act, may be entitled to statutory damages equal to the value of the underlying contract for each violation, in addition to other damages.

New York City’s Act

For those residing and doing business in New York City, the FIFA requirements noted above may not be entirely unfamiliar. The passage of FIFA follows New York City’s enactment of similar legislation in 2017. In fact, FIFA is largely modeled after the New York City Freelance Isn’t Free Act (the City Act), which also requires written contracts and timely payment.

The terms “freelance worker” and “hiring party” are defined similarly under FIFA and the City Act, except that the construction contractor exception is not recognized under the City Act’s definition of freelance worker.

Similar to FIFA, the City Act requires a written contract whenever a hiring party retains the services of a freelance worker and the contract has a value of $800 or more either by itself or when aggregated with all contracts for services between the same parties in the preceding 120 days. The terms that must be included in such a written contract are similar to the requirements under FIFA, except that the City Act does not require freelance workers to provide a list of services rendered under the contract in order to ensure timely payment.

Both FIFA and the City Act also contain identical provisions regarding: (i) the timeliness of payments to be made to freelance workers; and (ii) the prohibition of discrimination or retaliation against freelance workers who exercise their rights under applicable law. Like FIFA, the City Act creates a private right of action and uses the same two and six year limitation periods described above.

The key differences between FIFA and the City Act include FIFA’s record retention requirement and its requirement that the hiring party furnish a copy of the written contract to the freelance worker. The City Act is silent on these matters. The City Act also establishes its own administrative complaint process, through which freelance workers may file complaints with the City’s Office of Labor Policy & Standards.

Though FIFA and the City Act are largely coextensive, FIFA specifically states that it shall not be construed or interpreted to override or supplant any of the provisions of the City Act.

Conclusion

Individuals and organizations that engage the services of freelance workers should prepare to comply with the Freelance Isn’t Free Act requirements by reviewing internal processes for engaging the services of freelance workers and independent contractors before the effective date of Aug. 28, 2024. Among other things, this includes preparing written contracts that comply with the requirements set forth above when contracting with covered freelance workers.

If you have any questions about the Freelance Isn’t Free Act, or any of the information contained in this memo, please contact Rebecca Kimura, Hannah Redmond or the Bond attorney with whom you are in regular contact.

The FTC’s noncompete ban (16 C.F.R. § 910-1.6) is no more, at least for the time being. On Aug. 20, 2024, the United States District Court for the Northern District of Texas (Hon. Ada Brown, U.S.D.J.), in Ryan, LLC v. Federal Trade Commission, 24-cv-986, struck down the FTC’s noncompete ban, which was set to take effect on Sept. 4, 2024. The District Court’s Memorandum and Opinion precludes the FTC’s noncompete ban from going into effect nationwide.

In its Memorandum and Opinion, the District Court determined that the FTC lacked the statutory authority to promulgate substantive rules relating to the prevention of unfair methods of competition and that the FTC’s noncompete ban was arbitrary and capricious. Specifically, the District Court concluded that the text and structure of the FTC Act compel the determination that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition. As a result, the FTC exceeded its statutory authority in promulgating the noncompete ban.

The District Court further found that the FTC failed to present sufficient evidence supporting the noncompete ban. Specifically, because no state has enacted a ban as wide-sweeping as the FTC’s noncompete ban, the studies referenced by the FTC which analyzed state noncompete bans did not support the FTC’s universal noncompete ban. Moreover, the FTC’s evidence in support of the noncompete ban was based on factual situations specific to each state and did not, in turn, support a universal, nationwide ban. Finally, the District Court determined the FTC failed to sufficiently address alternatives to issuing the noncompete ban, such as, for example, restrictions on the use of non-competes for low wage workers. Thus, the District Court held that the FTC’s noncompete ban was arbitrary and capricious.

The FTC will likely appeal the District Court’s decision to the United States Court of Appeals for the Fifth Circuit – the appellate court encompassing Texas. Based on its history, it is likely the Fifth Circuit will affirm the District Court’s decision striking down the FTC’s noncompete ban. However, the FTC still has a sliver of hope for its noncompete ban in a case pending before the United States District Court for the Eastern District of Pennsylvania, which recently denied the plaintiff’s request for a preliminary injunction, finding the FTC did have the authority to make substantive rules relating to the prevention of unfair methods of competition and demonstrated a sufficient evidentiary basis for the rule, analyzed here. Given this, the FTC’s noncompete ban may very well end up before the United States Supreme Court. The question remains, however, when will it get there and how the Supreme Court will rule on this issue.

As it stands, the FTC’s noncompete rule is no more and will not go into effect on Sept. 4, 2024. This means that the enforceability of non-competes will continue to be analyzed under applicable state law, which, in New York, requires a non-compete to be reasonable in geographic and temporal scope and no broader than necessary to achieve a legitimate business interest. We will continue to closely monitor the situation and provide updates as they become available.

For any questions about this issue, please contact Bradley A. Hoppe, Kevin G. Cope or any attorney in Bond’s litigation or labor and employment practices or the attorney at the firm with whom you are regularly in contact.

On July 26, 2024, the National Labor Relations Board (NLRB) issued a new final rule concerning blocking charges, the voluntary recognition bar and union recognition in the construction industry that, in Orwellian fashion, it has misnamed, the “Fair Choice -- Employee Voice” rule. This new rule rescinds the 2020 rule known as the “Election Protection Rule,” and is yet another initiative of this Board to enable unions to become or remain exclusive bargaining representatives of employees without affording employees the opportunity to exercise their choice by voting in a Board-run secret ballot election. The new rule takes effect on September 30, 2024.

Read More >> The NLRB Issues New Regulations - A New Assault On Employee Free Choice

On July 3, 2024, the United States District Court for the Northern District of Texas (Hon. Ada Brown, U.S.D.J.) issued a Memorandum Opinion and Order (the “Order”) enjoining the enforcement of the FTC’s Non-Compete rule.

Read More >> District Court Enjoins FTC Non-Compete Ban, But With a Catch

Effective June 19, 2024, New York State Labor Law Section 206-c requires all private and public employers to provide 30 minutes of paid break time for employees to express breast milk when the employee has a reasonable need to express breast milk. Prior to enactment of this law, New York State employers were only required to provide reasonable unpaid break time for breast milk expression.

The New York State Department of Labor (NYSDOL) has issued guidance FAQs on the amended law. NYSDOL’s guidance provides that paid break time must be permitted as often as an employee reasonably needs to express breast milk. NYSDOL has issued a template Policy on the Rights of Employees to Express Breast Milk in the Workplace which provides:

HOW OFTEN DURING THE WORKDAY CAN I TAKE BREAKS TO PUMP BREAST MILK? The number of paid breaks an employee will need is unique to each employee. Your employer must accommodate you whenever you reasonably need to take a break to express milk.

Employees must also be permitted to use existing paid break or meal time if they need additional time for breast milk expression beyond the paid 30 minutes, and employers may not require employees to make up this missed work time. Employees are entitled to paid breaks for breastmilk expression for up to three years following childbirth.

Employers are required to provide written notice of breast milk expression rights to all employees at the time of hire and then annually thereafter. Additionally, notice must be provided when an employee returns from childbirth leave.

Employees must provide reasonable advance notice of their need for lactation breaks. As a reminder, employers must continue to provide a room or other location to express breast milk once an employee submits a written request to their direct supervisor or an individual designated by the employer to process lactation room requests. Employers must respond to lactation room requests in writing within five days.

Lactation rooms must have the following:

• Be close to an employee’s work area
• Provide good natural or artificial light
• Be private – both shielded from view and free from intrusion 
• Have accessible, clean running water nearby
• Have an electrical outlet (if the workplace is supplied with electricity)
• Include a chair
• Provide a desk, small table, counter or other flat surface
• Ability to store pumped breast milk in a refrigerator if one is available

Employers are prohibited from discriminating in any way against an employee who chooses to express breast milk in the workplace.  

If you have any questions about the information presented in this news alert, please contact Laura Harshbarger, Lance Willoughby-Hudson, any attorney in Bond’s labor and employment practice or the Bond attorney with whom you are regularly in contact.

On May 20, 2024, the Occupational Safety and Health Administration’s (OSHA) announced a final rule updating the Hazard Communication Standard (HCS). The amended rule (29 CFR 1910) better aligns with the United Nations’ Globally Harmonized System of Classification and Labelling of Chemicals (GHS).

Read More >> OSHA Issues Final Rule on HazCom Standard

On April 29, 2024, the Equal Employment Opportunity Commission (“EEOC”) published Enforcement Guidance on Harassment in the Workplace (the “Guidance”). The Guidance took effect immediately and supersedes the EEOC’s previously published guidance from the 1980s and 1990s

Read More >> EEOC Publishes New Guidance on Workplace Harassment for the First Time in Twenty Years

On April 23, 2024, the U.S. Department of Labor announced its final rule to increase the minimum weekly salary to qualify for the Fair Labor Standards Act white collar exemptions.  The final rule is scheduled to be published in the Federal Register on April 26, 2024, and will become effective on July 1, 2024.

Read More >> U.S. Department of Labor Announces its Final Rule to Increase the Salary Level to Qualify for the White Collar Exemptions

In a 3-2 vote on April 23, 2024, the Federal Trade Commission (“FTC”) issued its final rule on non-compete clauses, declaring all non-compete clauses to be unfair methods of competition, resulting in a national ban on non-compete clauses.

Read More >> Non-Compete Clauses May Be A Thing Of The Past: Analyzing the FTC’s Final Rule Banning Non-Compete Clauses