FTC Extends Comment Period for Rule Banning Non-compete Agreements for Employees and Independent Contractors

The Federal Trade Commission (FTC) announced that it will extend the comment period through April 19, 2023 for its proposed rule banning non-compete agreements for employees and independent contractors. (See FTC Announcement).

On January 5, 2023 the FTC issues a proposed rule that prohibits employers from using non-compete clauses with employees and independent contractors. If adopted, the FTC rule would require employers to rescind any such clauses contained in agreements with their employees and independent contractors, and provide notice that such clauses are no longer in effect. It would also prohibit such clauses moving forward.

The proposed rule can be accessed here (See FTC Proposed Rule). The rule is expressly limited to restrictive covenants that prohibit employee mobility - accepting jobs with competitors. But the proposed rule would also reach non-solicitation and non-disclosure provisions to the extent such provisions are functionally equivalent to a non-compete clause. Importantly, the proposed rule would supersede any inconsistent state law, which would include Utah common and statutory law on non-compete agreements.

It is likely that the rule will have substantial changes, if enacted. And it is a certainty that the rule would be subject to numerous legal challenges, if it becomes effective. However, as noted above, the rule is still in comment period and will not take effect until 180 days after the final rule is published.

We will continue to monitor this issue for our clients. For now, however, it is important to contact your lawyer to have a plan in place should the rule pass, and to develop a strategy for the use of restrictive covenants. Employees and employers will need to see what, if any, provisions can still be enforced and how to adopt strategy in light of any new restriction. Stavros Law can guide you through this process.

For more information, please feel free to call Stavros Law at (801) 758-7604 or email us at admin@stavroslaw.com.

Federal Court Holds Job Applicants Cannot Assert Disparate Impact Claims under the Age Discrimination in Employment Act of 1986 (ADEA)

An en banc panel of the Seventh Circuit Court of Appeals held that that Age Discrimination in Employment Act (ADEA) does not cover disparate impact claims asserted by job applicants. You can read the opinion here: Kleber v. CareFusion Corp.

The facts in Kleber are straightforward. Kleber, an attorney, applied for a senior in house position with CareFusion in response to a job posting that required applicants to have "3 to 7 years" of relevant legal experience (but no more).  He was 58 when he applied and the job was ultimately given to a 29 year old applicant. Kleber filed a lawsuit under the ADEA asserting both disparate treatment claims and disparate impact claims under Sections 4(a)(1) and 4(a)(2) of the ADEA. The disparate impact claim was based upon the premise that the impact of the job limitation on experience was to exclude applications who were older, even if that decision was not the result of discriminatory bias or intent.
 
Section 4(a)(2) of the ADEA makes it unlawful "for an employer to limit, segregate, or classify his employees . . . or otherwise adversely affect his stats as an employee, because of such individual's age." 29 U.S.C. § 623(a)(2).  The Court reasoned that the plain language of this section limited its application to employees and actions that arise out of employment, not applicants of employment who are currently not employed and not an employee of an employee. Further, the ADEA's disparate treatment provisions, unlike Section 4(a)(2), specifically includes the failure or refusal to hire an individual as a basis for statutory coverage, the Court reasoned, as do other similar provisions in the ADEA's statutory text.

While the decision impacts the scope of the ADEA, its impact is marginal at best. Potential ADEA plaintiff have often faced an insurmountable burden in bringing ADEA disparate impact claims for job applicants based upon affirmative defenses available to employers, including occupational qualification or business need.

For more information about the ADEA or related federal or state discrimination and wrongful termination laws, you can speak to one of our Utah employment lawyers by calling us at (801) 758-7604 or contacting us online at utahtriallawyers.net.

Utah Supreme Court Holds That Worker's Compensation Attorney Fee Schedule Is Unconstitutional

In a decision that will certainly provide injured workers with a boost and allow more attorneys to represent injured workers, the Utah Supreme Court held that the Labor Commission's regulation of the amount of fees that can be paid to attorneys representing injured workers is unconstitutional under  the Utah Constitution's separation of powers clause.  You can access the decision here.

In a decision written by Justice Durham, the Utah Supreme Court held that Utah Code section 34A-1-309 and the Labor Commission's interpretive regulations violation Article VIII, Section 4 and Article V, Section 1, of the Utah Constitution because the Utah Supreme Court has the exclusive power to regulate the practice of law. The Court found that regulating the amount of attorneys' fees paid to an attorney goes to the very heart of the practice of law and regulating the practice of law in the State of Utah rests with the judicial branch, not the legislative branch

For employees who have suffered an injury at work, this decision will level the playing field and allow injured workers to find legal counsel who can represent employees in even the most difficult and time consuming cases. Attorneys will no longer be limited be limited by statute with regard to the amount of fees charged, but instead, will be regulated by rules of professional conduct, as in all other cases.

If you have been injured at work, or have questions about Utah's workers' compensation system, please contact one of our Utah workers' compensation attorneys, or contact us online at utahtriallawyers.net for more information.

At Stavros Law, we provide direction and deliver results for clients in Utah, the Mountain West and across the United States.

New Utah Non-Compete Bill Effective as of May 10, 2016

In a move that was surprising to many, the Utah legislature passed, and the Governor signed, H.B. 251, the "Post-Employment Restrictions Act" in March of 2016. You can review the new law here, which sets a one year-limit on employment non-compete agreements starting May 10, 2016.

While the Act that ended up being passed was altered significantly from the original bill that was introduced, the Act prohibits employee non-compete agreements from being longer than one year following termination, and, significantly, requires a non-prevailing employer who seeks to enforce an agreement in violation of the Act to pay attorneys' fees and costs to an employee who successfully challenges the enforceability of the post-employment non-compete agreement.

What Non-Compete Agreements are Subject to the Act?

Utah Code Section 34-51-201 provides that "in addition to the requirements under the common law, for a post-employment restrictive covenant entered into on or after May 10, 2016, an employer and employee may not enter into a post-employment restrictive covenant for a period of more than one year from the day on which the employee is no longer employed by the employer.  A post-employment restrictive covenant that violates this section is void." 


The Act defines a "post-employment restrictive covenant" as a "covenant not to compete or non-compete agreement between an employee and employer where the employee agrees that the employee, either alone or as an employee of another person, will not compete with the employer in providing products, processes or services that are similar to the employer's products, processes, or services." U.C.A. 34-51-101(1)(a).  Importantly, non-solicitation agreements and nondisclosure and confidentiality agreements are not "post-employment restrictive covenants under the Act." In addition, the Act expressly does not apply to severance agreements signed upon or after termination, and the Act does not apply to restrictive covenants included with the sale of a business so long as the individual(s) subject to the restrictive covenant receives value from the sale (e.g., an employee of the business being sold receives compensation as part of the transaction in order to be precluded from competing).

The Act does not apply to independent contractors, only employer/employee relationships. Hence, independent contractors (or those who are improperly classified as independent contractors) must still show that a non-compete is unenforceable under the common law of Utah, and in many situations a non-compete agreement may extend beyond one year if an employer can establish that the agreement is narrowly tailored to protect its legitimate business interests. Employers are also free to use non-compete, non-circumvention and non-disclosure agreements to restrict certain actions by departing employees, without regard to the one year limitation in the Act. In many ways, these types of agreement are much more efficient and effective in preventing employees from damaging an employer's business post-termination than non-compete agreements.

Employers who ask employees to sign non-compete agreements starting on May 10, 2016 and moving forward should still tailor a non-compete agreement to comply with Utah's common law requirements, but should limit the duration of the non-compete agreement to one year. Under Utah common law, for a non-compete agreement or other restrictive covenant to be enforceable it must be supported by consideration, negotiated in good faith, necessary to protect the employer's legitimate business interests (i.e., goodwill, trade secrets) and reasonable in duration and scope (although the duration now must be no longer than a year for non-compete provisions).


What Happens if an Employer Violates the Act?

An employer can no longer force an employee to sign an overly broad non-compete agreement and avoid economic harm for doing so.  Under the Act, if an employer seeks to enforce a post-employment restrictive covenant, either by filing a civil action or commencing an arbitration, and the court (or arbitrator) determines that the covenant is unenforceable, the employer is liable and must pay the employee's costs, attorneys' fees and actual damages.  U.C.A. 34-51-301. This means that employers should take significant care to craft agreements that are tailored to the specific duties of an employee, and not bind employees engaged in a common calling to non-compete agreements that are overly broad. Employees are much more likely to contest overly broad agreements given the new provisions in the Act, and employers who ask an employee to sign a non-compete longer than one year in duration do so at their own peril.

What Should Employees Do?

The Act is a major victory for employees, but employees always must be vigilant about protecting their interests before signing a non-compete or other restrictive covenant.  In most circumstances, employees who are presented with an agreement that includes a non-compete or other restrictive covenant when they start working should have an experienced Utah non-compete lawyer review the agreement before signing.  While the Act limits the duration of non-competes to one year, and provides for the award of attorneys' fees and costs if an employee prevails, non-compete agreements are still enforceable and can significantly limit employees ability to earn a living following termination. Moreover, employers may still have employees sign restrictive non-solicitation provisions that fall outside of the Act's protections.

Many issues that should have been addressed in the Act were not addressed but may come up in future legislation. For example, Utah law still provides that an employee's continued employment is significant consideration to support a non-compete. Also, whether or not you are terminated, quit, or resign for good cause, Utah law still allows a post-employment restrictive covenant to be enforced. It's not enough that your employer thought you were a terrible employee or incompetent or simply didn't need your services anymore, or that you had a justification for leaving. In each of those situations, under settled Utah law an employer may still enforce the restrictive covenant that you signed with limited exceptions.  Even worse, although the Supreme Court has not addressed this issue, Court's often "blue pencil" overly broad agreements, which means that a Court may still be able to modify an overly broad non-compete so that it is enforceable, even though the agreement your employer asked you to sign was unenforceable.

There are numerous other issues that both employers and employees need to consider under the Act and Utah common law. If you have questions about the Act, non-compete agreements or other forms of restrictive covenants, including non-disclosure, non-solicitation and non-circumvention agreements, please call our office at (801) 758-7604 and speak to one of our Utah attorneys experienced with non-compete issues and restrictive covenants, or contact us online at www.utahtriallawyers.net to get additional information.

At Stavros Law, our employment lawyers represent individuals and businesses on all aspects of Utah employment law, including non-compete agreements, non-solicitation agreements and other restrictive covenants.

Supreme Court Holds Employer's Mistaken Belief Concerning Protected Speech Enough to Support First Amendment Retaliation Claim

The U.S. Supreme Court issued a decision earlier this week confirming that an employee can bring a First Amendment Retaliation claim where he suffers an adverse action based upon the employer's mistaken belief that he engaged in protected speech. You can read the decision, Heffernan v. City of Patterson, here.

Heffernan involved a police officer who was demoted because of his employer's mistaken belief that he supported the mayor's rival in an election.  In a 6-2 decision, the U.S. Supreme Court reversed the lower court's decision holding that Heffernan's claim that his managers' mistaken belief he was supporting the mayor's rival and his demotion are sufficient basis to raise a First Amendment retaliation claim under Section 1983.

The decision was authored by Justice Breyer, with only Justice Alito and Justice Thomas dissenting. The opinion is unquestionably a huge victory for public employees because it focuses on the employer's motivation for taking the adverse action, not on whether or not the employee actually engaged in protected speech.

The First Amendment generally prohibits government actors from terminating or taking other adverse action against a public employee because the employee engaged in constitutionally protected political activity. Focusing on the Court's prior decision in Waters v. Churchill, 511 U.S. 661 (1994) where the Court held that as long as the employer reasonably believes the employer's speech had involved personal matters and not matters of public concern and dismissed an employee because of the employer's mistaken belief, the First Amendment was not implicated.  In other words, the appropriate focus was on the employer's belief and motivation for taking the action. Relying on the reasoning in Waters, the Court held:

"We conclude that, as in Waters, the government’s reason for demoting Heffernan is what counts here. When an employer demotes an employee out of a desire to prevent the employee from engaging in political activity that the First Amendment protects, the employee is entitled to challenge that unlawful action under the First Amendment and 42 U. S. C. §1983—even if, as here, the employer makes a factual mistake about the employee’s behavior."

In dissent, Justice Thomas said that the police officer could not assert a First Amendment claim because the threshold inquiry was always whether the employee has engaged in protected speech.  "A city’s policy, even if unconstitutional, cannot be the basis of a §1983 suit when that policy does not result in the infringement of the plaintiff ’s constitutional rights."  Thomas also argued that Heffernan's claim failed because he must establish that this policy infringed his constitutional rights to speak freely and peaceably assemble. "Even if the majority is correct that demoting Heffernan for a politically motivated reason was beyond the scope of the City’s power, the City never invaded Heffernan’s right to speak or assemble."

If you have questions about First Amendment rights as a public employee or other Constitutional rights that cannot be infringed by government actors that are enforceable under 42 U.S.C. §1983, please call our office at (801) 758-7604 or contact us online at www.utahtriallawyers.net for more information.

Utah Court of Appeals Affirms Jury Verdict on Trade Secret Misappropriation Claim

In CDC Restoration & Construction, LC v. Tradesman Contractors, LLC the Utah Court of Appeals affirmed a jury verdict of trade secret misappropriation and confirmed established Utah law that a trade secret misappropriation claim can be supported entirely by circumstantial evidence, even where there is no direct evidence that a party actually used the information.

The Court had considered CDC's claims in a prior decision, finding that its claims of breach of fiduciary duty were preempted by the Utah Uniform Trade Secret Act, and reversing the trial court's grant of summary judgment to Tradesman, in part, by allowing its claim under the UTSA to go to trial. The case went to trial, and CDC prevailed.

The CDC case is an example of the perils associated with trying to be secretive about starting a competing entity while working for an employer. While CDC's breach of fiduciary duty claims never went to trial, it appears that the jury relied heavily on the actions of CDC's former employee (Carsey) while he remained employed with CDC to ultimately infer that he had taken CDC's bid information and used it to underbid CDC on behalf of Tradesman after he left his employment with CDC. Indeed, the jury apparently found in favor of CDC largely on the perception of wrongdoing, as there was little, if any, actual evidence provided by CDC that Tradesman and its former employee actually took or utilized CDC's information.

The facts, as recited by the Court of Appeals, were as follows:

CDC, a concrete repair and coatings company, had a contract to perform concrete repair and restoration work for Kennecott. As part of that arrangement, CDC entered into an agreement to be Kennecott's preferred provider. The agreement was confidential, and included rates CDC charges for work, pricing information for hourly employees and charges for equipment. Paul Carsey worked for CDC as an employee, as part of his duties he regularly delivered sealed envelopes that contained confidential information. Carsey, however, never signed a confidentiality agreement with CDC.  He gave two weeks notice to Ralph Midgley, CDC’s co-owner, explaining that he was, "burned out" and "tired of" working at Kennecott. Carsey told Midgely of his plan to earn a living by buying, refurbishing, and selling houses instead. Carsey, however,  had already become a co-owner and director of a new competing company, Tradesmen, with Kenneth Allen.  

Mr. Allen was a subcontractor for Kennecott who acted as the project supervisor overseeing CDC’s work there. In this role, Allen received CDC’s invoices for its projects and verified that its rates conformed to those specified in CDC’s PPA. Consequently, Allen received and had access to CDC’s pricing information. 

In 2005, Kennecott opened a competitive bid process on a project. CDC and Tradesman bid on the the project.  Casey, still employed by CDC, developed CDC’s bid with Midgley and assessed the equipment needs and the amount of time and labor that would be required to complete the project.  Midgley believed both CDC’s PPA and its final bid were confidential, and he shared CDC’s labor and equipment estimates with only Carsey and Kennecott. Midgley kept the details of CDC’s bid in his locked office.  At the same time, Carsey and Allen were in frequent telephone contact when the two companies were formulating their bids. According to a partner at Tradesmen, Carsey gave Allen input on the numbers for Tradesmen’s bid the night before bids were due.

CDC, Tradesmen, and another company submitted bids for the Project. CDC’s bid was the highest at $179,729.32, Tradesmen’s was the second highest at $141,575.00, and a third company’s was the lowest. On January 23, 2006, Kennecott awarded the Project to Tradesmen. Dan Larsen, who had replaced Allen as the supervisor at Kennecott, informed Midgley that Tradesmen won the contract because it was the lowest competent bidder‛ owing to the fact that Carsey worked there. Until this point, Midgley did not know Carsey was involved with Tradesmen. 

At trial, CDC argued that Tradesmen inappropriately used Carsey’s knowledge of CDC’s estimates and Allen’s familiarity with CDC’s pricing information to formulate Tradesmen’s lower bid for the project. In contrast, Tradesmen argued it did not misappropriate the bid information because it had no access to CDC’s actual bid and because Carsey’s general knowledge about estimating labor and equipment needs for projects is not a trade secret.  The jury agreed with CDC and awarded it $161,974 from Allen, $171,974 from Carsey, and $982,455 from Tradesmen. 

The Court of appeals found that the bid information compiled by Carsey and Midgley was a trade secret under the UTSA. First, it found that such information was not generally known to the public and derived independent economic value. Second, it found that the information was subject to efforts to keep it secret.

The CDC case is a great reminder that employees and others who are planning to start a competing business need to do so with the advice of counsel. It is not enough that an employee has not signed a noncompete agreement.  Employees who utlize confidential or proprietary information, work on their own business while being paid by their employer or take other steps to violate the duty of loyalty owed to their employer are at significant risk of being sued when they leave and form or work for a competing entity.

For more information about Utah misappropriation claims, breach of fiduciary claims or non-compte claims, contact one of our Utah trial lawyers at (801) 758-7604, or contact us online at utahtrialawyers.net.

NY Times Details the Proliferation of Compelled Arbitration Agreements in Consumer Transactions, Health Care Claims and Employment Relationships

The New York Times completed a three-part series on the increasing use of arbitration provisions in consumer transactions and employment relationships yesterday.  The series slams the use and proliferation of mandatory arbitration provisions contained in agreements where there is unequal bargaining power and leverage between the contracting parties.  It outlines the use of arbitration agreements to defeat class action lawsuits, the use of arbitration agreements in health care and the proliferation of such agreements in employment arrangements. For example, data cited by the NY Times found that the number of lawsuits forced into arbitration has been on a steady rise over the past decade, and highlights the fact that citizens are being denied their right to a jury trial under the U.S. Constitution.  While the issue is much more complicated then the series would have you believe, there is no question that the growth of arbitration has been a very effective tool in defending against litigation.  This is an excellent series that should be read by businesses, consumers, lawyers and consumers.

You can access the first installment of the series here.  The first article in the series focuses on the rise of arbitration agreements in all types of transactions, and U.S. court's overwhelming acceptance of such agreements following the U.S. Supreme Court's holdings in key cases involving the Federal Arbitration Act, including American Express Co. v. Italian Colors Restaurant and Oxford Health Plans v. Sutter. 

You can access the second installment here.  The second article focuses on how arbitration privatizes the judicial process and strips citizens of their right to a jury trial. It highlights potential problems that arise with arbitration, including conflicts of interest and procedural unfairness.

You can access the third installment here. The third article discusses the use of religious arbitration and other non-traditional methods of resolving disputes  and the challenges of requiring persons to submit claims in such proceedings.

If you have questions about the use of mandatory arbitration, challenges to arbitration provisions, or questions about the Federal Arbitration Act or Utah's Arbitration Act, please call our office at (801) 758-7604 and speak to one of our litigation attorneys, or you can visit us online at www.utahtriallawyers.net.

Utah Supreme Court Addresses Wrongful Termination Claims Yet Again

In September, 2015 the Utah Supreme Court issued another opinion further clarifying the scope of Utah's judicially created wrongful termination in violation of a clear and substantial public policy claim. We last addressed this claim in August when the Court decided Pang v. International Document Services, 2015 UT 63, where the Court held that a former in-house counsel's complaint did not sufficiently plead a claim for relief for wrongful termination based upon Rule 1.13(b) of the Utah Rules of Professional Conduct - which requires in-house counsel to report suspected unlawful activity to its client - because the Rule did not constitute a clear and substantial public policy (but instead regulates the relationship between a lawyer and his client which the Court somehow found was not a sufficiently clear public interest).

In Ray v. Wal-Mart Stores, Inc., 2015 UT 83, the Utah Supreme Court answered a certified question from the United States District Court of Utah regarding the scope of Utah's judicially created wrongful termination claim.  Ray addressed whether the right of self-defense is a substantial public policy exception to the at-will employment doctrine that provides the basis for a wrongful discharge action. In Ray the Court concluded that the policy favoring the right of self-defense is a public policy of sufficient clarity and weight to qualify as an exception to the at-will employment doctrine, but limited the exception to situations where an employee reasonably believes that force is necessary to defend against an imminent threat of serious bodily harm and the employee has no opportunity to withdraw.

Ray involved two incidents at two Wal-Mart stores where a number of employees were fired after using force against armed shoplifters. The employees purportedly violated Wal-Mart's policy that required the employees to disengage and withdraw from apprehending shoplifters who have a weapon. In one situation, the shoplifter had a knife. In the other, the shoplifter had a gun.

Although the Court acknowledged that Wal-Mart's interest in regulating its workforce is important, it  concluded that there is a clear and substantial public policy in Utah favoring the right of self-defense for three reasons. First, the right of self-defense is enshrined in Utah statutes, the Utah Constitution, and our common law decisions. Second, a policy favoring the right protects human life and deters crime, conferring substantial benefits on the public. And third, the public policy supporting the right of self-defense outweighs an employer‘s countervailing interests in circumstances where an employee reasonably believes that force is necessary to defend against an imminent threat of serious bodily injury and the employee has no opportunity to withdraw.

If you have questions about Ray or Pang, or the scope and application of Utah's judicially created wrongful termination in violation of a clear and substantial public policy claim, please call Stavros Law at (801) 758-7604 and speak to one of our experienced Utah employment law attorneys.  You can also contact us online at www.utahtriallawyers.net.

Utah Supreme Court Upholds Dismissal of In-House Counsel's Wrongful Termination Claim

The Utah Supreme Court issued a decision on August 5, 2015, Pang v. International Document Services, 2015 UT 63, upholding the dismissal of a in-house counsel's complaint alleging that he was terminated for refusing to violate usury laws and the Utah Rules of Professional Conduct. Pang, an at-will employee, asserted that his employer had asked him to violate Rule 1.13(b) of the Utah Rules of Professional Conduct in order to keep his job.  The Court held that his firing did not constitute wrongful termination because it did not violate a clear and substantial public policy of the State of Utah, and even if it did, other rules within the Utah Rules of Professional Conduct evince  strong policy choices that favor of allowing clients to terminate the attorney-client relationship at any time.

The Court began its analysis by noting that in Utah the presumption is that all employees are employed at-will and may be terminated for any reason or no reason, with or without notice. One exception to the at-will presumption, however, is an employer's wrongful termination of an employee in violation of a clear and substantial public policy. In order to state such a claim, an employee must prove (i) that his employer terminated him; (ii) that a clear and substantial public policy existed; (iii) that the employee's conduct brought the policy into play; and (iv) that the discharge and the conduct bringing the policy into play are causally connected.  

In Pang, the Supreme Court emphasized that the notions of "public policy" in this wrongful termination claim are much more narrow and limited than generalized notions of public policy.  Accordingly, to support a wrongful discharge claim under the public policy exception, the Court stated that "Mr. Pang‘s complaint must identify a public policy ―so clear and weighty, and as to which ―the public interest is so strong that the policy should be ―place[d] . . . beyond the reach of contract."  In order to make that determination, the Court, citing to its prior decisions, said it looks at the following factors:

(1) whether the policy at issue is reflected in authoritative sources of state public policy;

(2) whether the policy affects the public generally as opposed to the private interests of the employee and employer; and

(3) whether countervailing policies outweigh the policy at issue. 

Pang argued that prior Supreme Court decisions had established that an employer may not terminate someone for (1) refusing to commit an illegal act, (2) performing a public obligation, (3) exercising a legal right or privilege, or (4) reporting illegal activities to a public authority. The Court dismissed Pang's first argument, however, saying that his complaint failed to include allegation that his employer made him perform an illegal act and his refusal to perform such an act. With respect to the three remaining arguments, the Court held that because Rule 1.13 does not establish a clear and substantial public policy, his claim ultimately failed.

Importantly, the Court did not restrict an in-house lawyer's ability to bring such a claim, and did not decide whether the Utah Rules of Professional Conduct constitute "judicial decisions" that could independently establish an exception to at-will employment, but instead found that Rule 1.13 governs relations between attorneys and their clients "not broad matters of public importance" and that those same rules articulate other countervailing policies. As the Court stated:

                "We emphasize, however, the narrow scope of our decision today—

                 we do not hold that in-house attorneys may never raise a wrongful 

                 termination claim, nor do we foreclose the possibility that an attorney 

                 fired for complying with an ethical rule, such as reporting criminal 

                 activity to public authorities under rule 1.6, could ever make out such 

                 a claim. We hold only that an attorney‘s duty to ―report up illegal 

                 activity to an organizational client‘s highest authority is not founded 

                 in the type of clear and substantial public policy that qualifies as an 

                 exception to the at-will employment doctrine. We leave these broader 

                 issues to a future case that squarely presents them."

For more information about the Court's decision, contact one of the employment law attorneys at Stavros Law at (801) 758-7604, or visit our website on-line at utahtriallawyers.net.

U.S. Department of Labor's Wage & Hour Division Issues Guidance on Worker Classification under the Fair Labor Standards Act

Today, the United States Department of Labor's Wage & Hour Division issued guidance on the Fair Labor Standard Act's (FLSA) "suffer or permit to work" standard regarding the classification of workers as employees or independent contractors under FLSA.  You can read the guidance here.

Recognizing an increasing number of complaints from workers about being treated as independent contractors by employers, the DOL determined it may be helpful to provide additional guidance on the issue of what workers qualify as employees or independent contractors.

In its guidance, the DOL stresses that most workers should be classified as employees and emphasizes that the economic realities test should be applied broadly to take into account the remedial purposes of FLSA. The DOL's guidance reiterates that the FLSA "defines 'employee' as 'any individual employed by an employer,' 29 U.S.C. 203(e)(1), and 'employer' as including 'any person acting directly or indirectly in the interest of an employer in relation to an employee,' 29 U.S.C. 203(d). The FLSA’s definition of 'employ' includes to suffer or permit to work. 29 U.S.C. 203(g). This 'suffer or permit' concept has broad applicability and is critical to determining whether a worker is an employee and thus entitled to the Act’s protections."

Under the economic realities test, Court's typically look at 1) the extent to which the work performed is integral to the employer's business; 2) whether the worker has an opportunity for profit or loss; 3) the extent of each party's investment in the relationship; 4) whether the work performed requires special skills and initiative; 5) the permanency of the relationship; and 6) the degree of control exercised or retained by the employer.  Generally, workers who are in business for themselves, have a true risk of loss and operate a business independent on the relationship with the employer are independent contractors. In contrast, workers who are economically dependent on the employer are employees.  See Baker v. Flint Eng’g & Constr. Co., 137 F.3d 1436, 1440 (10th Cir. 1998) (the economic realities of the relationship govern, and the focal point is whether the individual is economically dependent on the business to which he renders service or is, as a matter of economic fact, in business for himself).

While the DOL's Administrative Guidance 2015-1 outlines the factors to consider when determining whether a worker is an employee or independent contractor, it is most significant in regard to the emphasis placed by the DOL on enforcing compliance and stomping out employee misclassification. As such, employers who have a question about appropriate classifications - or employees who believe they have been misclassified - should contact a competent wage and hour attorney to discuss their legal issues.

For more information about this guidance, or independent contractor/employee classification issues, please contact one of our Utah employment lawyers at (801) 758-7604, or visit us online at www.utahtriallawyers.net.  Our Utah lawyers can assist you with any issues you may have, including audits, lawsuits, investigations and compliance issues.