Monthly Archives: June 2014

Overtime, Independent Contractor Status on Regulatory Agenda for Department of Labor

A couple of weeks ago, the federal Department of Labor announced its regulatory agenda for the immediate future. The DOL does this twice a year, and the announcement indicates what its rulemaking and enforcement priorities will be.

The Wage and Hour Division will be busy in the coming months. According to the agenda, the DOL is looking at amending the Family and Medical Leave Act regulations to explicitly include same-sex spouses (following the Supreme Court’s decision in U.S. v. Windsor), and possible changes to child labor rules to clarify how old an employee must be to operate patient lifting equipment.

Two entries on the list follow directly from President Obama’s efforts to work outside of Congress to move his agenda forward: The DOL plans to propose rules raising the minimum wage for certain federal contractors to $10.10 an hour, and to consider revising the overtime exemptions for professional, administrative, and executive employees (the so-called “white collar” exemptions).

Finally, the DOL is continuing to look at problems of employee misclassification as independent contractors. in 2011, the DOL launched its “misclassification initiative,” intended to reduce misclassification and step up enforcement against employers whose “independent contractors” really should be classified as employees. As the DOL points out, this problem leads directly to reduced tax revenue to the state and federal governments. It also denies a range of benefits and protections (from minimum wage and overtime to family and medical leave and protections from discrimination) to the employees who are misclassified.

The DOL has already stepped up enforcement; check out the long list of press releases announcing these actions at its Employee Misclassification as Independent Contractors page. The DOL has also surveyed employees, to find out what they know about their rights and their status. In the regulatory agenda, the DOL proposes regulatory action to its record keeping rules, requiring employers to tell employees what their job status is (employee or independent contractor) and how their pay is calculated. There’s no timeframe or proposed “next steps” for this action, however. (In fact, the regulatory agenda says “next action undetermined.”) But it’s clearly a continuing enforcement priority for the DOL.

Noncompete Madness

contractHere in California, we don’t have to give much thought to noncompete agreements: contracts by which, typically, an employee agrees not to go work for a competitor or start a competing business for a certain period of time after leaving a job with the employer. The reason? These contracts are illegal in California. California law plainly states that a noncompete is an impermissible effort to limit the employee’s ability to earn a living in his or her chosen field. California employers have tried to get around this prohibition in different ways over the years, without success.

An article in the New York Times illustrates how far employer overreach can go in states that don’t protect employees in this way. The article (“Noncompete Clauses Increasingly Pop Up In Array of Jobs“) describes noncompete arrangements mostly in Massachusetts; the employees asked to sign them include a hairdresser, a pesticide sprayer, an intern at an electronics firm, and a camp counselor. And, the article explains that some employees are driven out of the workforce altogether for the length of the noncompete, because they fear being sued if they take a job in their field near their home. (Believe it or not, the hairdresser actually was sued for going to work for a nearby salon. And he lost.)

Employers use noncompetes for a variety of reasons. Many have a legitimate concern with protecting their trade secrets. However, some employers cited in the article took a broader view of their rights. Because they had invested in employee training, for example, or had a particular business model that was successful, these employers felt entitled to avoid giving these assets to competitors. The problem is that, in these cases, the “assets” are people, with careers they have invested in, bills to pay, and homes they don’t want to leave. Forcing them to change fields, move, or spend a stint unemployed in order to get a job is problematic at best.

A spokesperson for a group that opposes proposed protections for Massachusetts employees in this area said that noncompetes are working just fine, “to the seemingly mutual satisfaction of employers and individuals.” That seemingly says a mouthful: What interest would an employee possibly have in signing a noncompete, significantly limiting his or her rights in the future? Typically, employees sign them only because they are required to do so in order to get or keep a job. These agreements offer no benefit to employees, only to employers. This doesn’t make them illegal (in most states), but it should at least change the terms of the dialogue a bit.

If you’re faced with a noncompete agreement — or your company plans to require employees to sign one — check out our article Understanding Noncompete Agreements.