Thomas D. Rees to Speak on Employment Anti-Poaching Agreements

High Swartz Employment Law attorney Thomas D. Rees will be speaking in an upcoming Strafford live video webinar, "Employment Anti-Poaching Agreements: DOJ and FTC Guidelines, Antitrust Violations, Horizontal vs. Ancillary Restraints" scheduled for Wednesday, April 27, 1:00pm-2:30pm EDT.

Employees are the most valuable assets of any company. They create and protect trade secrets and cultivate customer/client relationships. A no-poaching agreement is an agreement between employers and businesses not to recruit certain employees or not to compete on compensation terms.

The Department of Justice's (DOJ) Antitrust Division opened its first major no-poach case in 2010, when it filed civil complaints against several Silicon Valley companies--including Lucasfilm, Pixar, Google, Apple, Adobe, and Intel--for instructing recruiting managers to enter into "no cold-call" agreements, in which the companies agreed not to initiate contact with one another's employees and to notify each other when making an offer to one of their employees. The settlements cost the defendant companies more than $400 million. In 2016, the DOJ and the Federal Trade Commission (FTC) issued guidance that warned that the DOJ could bring criminal charges against managers, recruiters, and C-suite employees who initiate no-poach agreements.

On July 9, 2021, President Biden issued an executive order to prevent anti-competitive conduct, calling on the FTC to engage in rulemaking to prevent the unfair use of noncompete agreements. Thereafter, the DOJ has filed criminal charges for the first time against a company for using an employee no-poaching agreement. A federal grand jury returned a two-count indictment charging Surgical Care Affiliates LLC (SCA) for agreeing with competitors not to solicit senior-level employees from each other. SCA owns and operates outpatient medical care centers across the country. The charges demonstrate the DOJ's commitment to criminally prosecute collusion in the U.S. labor market.

The means of restricting future employment is important. Horizontal restraints are often unreasonable per se under federal antitrust principles, meaning they are deemed illegal without any inquiry into their anti- or pro-competitive effects. If a horizontal restraint qualifies as an "ancillary" restraint, it is analyzed under the rule of reason to determine if it is legal. To qualify as an ancillary restraint, the restraint must be subordinate and collateral to a separate, legitimate transaction.

Our panel will advise employment counsel on current enforcement by the DOJ and FTC of anti-poaching provisions in agreements that prohibit one company from hiring another company's employees. The panel will discuss recent cases that determine whether no-poach provisions violate applicable antitrust laws and what restrictive covenants may be enforceable. The panel will guide employers on best practices for achieving business protection through less anticompetitive means.

We will discuss these and other relevant topics:

  • What is the current FTC and DOJ guidance on anti-poaching?
  • When do anti-poaching provisions violate antitrust laws?
  • What are some current cases the DOJ has brought against companies for anti-poaching violations?
  • How can a restraint be seen as ancillary rather than horizontal?

After our presentations, we will engage in a live question and answer session with participants so we can answer your questions about these important issues directly.

For more information or to register, call 1-800-926-7926, or visit the Strafford website.

Ask for Employment Anti-Poaching Agreements: DOJ and FTC Guidelines on 4/27/2022 and mention code: ZDFCA.

US Supreme Court Limits Scope of Computer Fraud Law

On June 3, 2021, the United States Supreme Court issued a long-awaited decision on the scope of the Computer Fraud and Abuse Act (“CFAA”). Van Buren v. United States, _ U.S. __, 141 S. Ct. 1648, 2021 WL 2229206, 2021 U.S. Lexis 2843. The Court held that the CFAA prohibited only the gathering of information from sources to which access was not permitted. The Court held that the CFAA did not cover the gathering of information from databases to which access was authorized, even if the information gathering had an improper purpose.

Congress enacted the CFAA in 1986. The original law provided criminal sanctions for computer hacking. The law created criminal liability for (1) obtaining information from intentional access to a computer without authorization and (2) exceeding authorized access and thereby obtaining information. The law defined “exceeds authorized access” as access to a computer with authorization and using such access to obtain or alter information in the computer. Civil remedies for CFAA violations were enacted in 1994, allowing victims of CFAA violations to recover money damages and obtain equitable relief in federal court.

The CFAA’s civil remedies led to increased use of the federal courts for litigation that had previously been confined to state courts. One such example was employee mobility litigation where the ex-employer and ex-employee resided in the same state (precluding diversity jurisdiction). If an employee accessed client information and then used the information to solicit business for a new employer, the CFAA before Van Buren enabled the ex-employer to claim in federal court that the employee exceeded authorized access to a business computer. The CFAA’s low damage thresholds did very little to limit federal suits. The expansive view of “exceeds authorized access” even allowed state court staples such as family law cases to find their way into federal court. The fact that the CFAA had criminal as well as civil sanctions attached an additional stigma to any parties accused of CFAA violations.

Conflicts arose between various federal circuit courts on what actions exceeded authorized access. Some circuits adopted a more restrictive view of the CFAA, holding that an individual with permitted access to data did not violate the CFAA by using the data for an improper purpose, such as misappropriation of confidential information for a new employer. Other circuits took a less restrictive view that an employee who accessed a computer for the purpose of misusing information violated CFAA by exceeding authorized access.

It was in this context that Van Buren, a criminal CFAA case, reached the Supreme Court. Van Buren, a Georgia police officer, had authority to access vehicle registration data through his patrol car computer. But Van Buren accepted payment from a citizen for turning over registration data about a stripper whom the citizen suspected of being an undercover police officer. After Van Buren and the citizen completed the transaction, the FBI arrested Van Buren in a sting operation. The United States charged Van Buren with violating the CFAA for “exceeding authorized access” to a computer by using the computer for personal use. A District Court jury convicted Van Buren, and the Eleventh Circuit upheld the conviction. The Supreme Court accepted review of the case, given the conflict between four federal circuits that upheld the more restrictive view of the law and four circuits that adopted the broader view of the law. (The Third Circuit had not taken a stand either way but District Court decisions within the circuit were conflicting.)

The Supreme Court, in a 6-3 decision that split the Court’s conservative justices, supported the less expansive view of the CFAA. New Justice Barrett wrote the majority opinion in a tightly reasoned analysis of the statute’s wording. Barrett noted that the parties agreed that Van Buren accessed the computer with authorization when he logged into the law enforcement automobile license database. The parties also agreed that Van Buren obtained information from the computer. The narrow question was whether Van Buren was entitled to obtain the information. Van Buren argued that the CFAA allowed him to obtain the information if he was allowed access to the computer. The prosecution argued that since the officer intended to use the information for personal purposes, authorized access was exceeded and the law was violated. Justice Barrett rejected the broader view. She stated that the broader CFAA interpretation would criminalize a “breathtaking amount of commonplace computer activity”, such as sending a personal email or reading the news on an office computer. Therefore, the term “exceeds authorized access” meant to enter a database that was off limits to the user.

The Supreme Court’s narrow interpretation of the law will have effects in the workplace and the court system. Employers may decide cut back on authorized access to computer data. If fewer employees have authorized access, the CFAA may gain back some teeth. The Van Buren decision will leave parties to state disputes with one less access point to federal court. This effect may be mitigated in the employee mobility area where trade secrets are at issue, given the Federal Defend Trade Secrets Act. And for Supreme Court watchers, the decision provides insight into a possible split between Justices who will rely on the plain meaning of a statute and those who will look beyond the meaning to the purpose of the acts covered by the law. Time will tell.

17 High Swartz Attorneys Named Main Line Today Top Lawyers for 2021

We are pleased to announce that 17 attorneys have been included in the 2021 Main Line Today Top Lawyers Around the Main Line and Western Suburbs List.

Main Line Today is a Southeastern Pennsylvania regional magazine focusing on the communities of the western suburbs of Philadelphia and surrounding Counties. The Best Lawyers of Chester County, Delaware County and Montgomery County are nominated through peer balloting then vetted through Main Line Today's editorial process.

2021 sees the addition of 3 High Swartz attorneys to the Top Lawyers list. New attorneys include family lawyers Chelsey A. Christiansen and Michael B. Prasad for Divorce and Family Law and Stephen M. Zaffuto for Real Estate Law. Congratulations to all winners!

Below is the full list of High Swartz Top Lawyers from Main Line Today in 2021.

  • Joel D. Rosen - Business Law
  • Kevin Cornish - Civil Litigation
  • Mark Fischer - Civil Litigation
  • Melissa Boyd - Divorce & Family
  • Mary Doherty - Divorce & Family
  • Elizabeth Early - Divorce & Family
  • Chelsey Christiansen - Divorce & Family
  • Michael Prasad - Divorce & Family
  • Thomas Rees - Employment Law
  • James B. Shrimp - Employment Law
  • David Brooman - Municipal Law
  • Gilbert High - Municipal Law
  • William Kerr - Municipal Law
  • Richard Sokorai - Personal Injury
  • Arn Heller - Real Estate Law
  • Stephen Zaffuto - Real Estate Law
  • Thomas Panzer - Workers’ Compensation

If you're looking for lawyers near you in Norristown, Doylestown, and the Greater Philadelphia area, get in touch with our law office. Our attorneys and lawyers are some of the best you'll find to handle all your legal concerns.

Pennsylvania Supreme Court Invalidates No-Hire Contracts

In 2018, I blogged about the Pennsylvania Superior Court decision in Pittsburgh Logistics Services v. Beemac Trucking, LLC, invalidating a no-hire contract between two transportation firms. Earlier this year, the Pennsylvania Supreme Court affirmed the Superior Court. See Pittsburgh Logistics Systems, Inc. v. Beemac Trucking, LLC, _ A.3d , 2021 WL __, 2021 Pa. Lexis 1853 (April 29, 2021). The Court held that the no-hire contracts were an unreasonable restraint of trade in violation of public policy.

The Supreme Court’s decision continues the Pennsylvania appellate courts’ movement to limit employers’ restrictions on ex-employees’ ability to work. As the Pennsylvania Supreme Court held in Hess v. Gebhard & Co., 808 A.2d 912 (Pa. 2002), a restrictive employment covenant may not be used to prevent competition or to keep employees from earning a living. In 1995, the Superior Court refused to enforce a noncompete against an employee who was fired through no fault of his own (Insulation Corp. of America v. Brobston, 667 A.2d 729, 733 (Pa. Super. 1995)). Hess v. Gebhard followed in 2002, refusing to allow a purchaser of a business’ assets to enforce a noncompete where the asset seller did not assign the noncompete to the buyer. Socko v. Mid-Atlantic Systems of CPA, Inc., 126 A.3d 1266 (Pa. 2015), refused to enforce a noncompete when the employer offered the employee no consideration for the noncompete other than continued at-will employment.

In the Pittsburgh Logistics case, Pittsburgh Logistics engaged in the business of arranging for the shipping of goods. Beemac was a transporter of goods. The companies entered into a motor carriage contract in which Beemac would transport goods of shippers arranged by Pittsburgh Logistics. The contract provided that Beemac would not solicit or hire Pittsburgh Logistics’ employees during the contract term and for 2 years after the contract ended. Beemac hired four of Pittsburgh’s employees while the motor carriage contract was still in effect. Pittsburgh sued both Beemac and the departing Beemac employees. The trial court found that the non-hire contracts were void as against public policy. The Superior Court upheld the trial court, first in a panel decision and then in a decision of the court en banc.

The state Supreme Court accepted review to address the question of whether contractual no-hire provisions in a service contract between sophisticated business entities were enforceable under Pennsylvania law. The Court analyzed the law of other states since Pennsylvania had not addressed this issue. The Court found a division between the various states, but held that the trend in other states and at the federal level ran against enforcement of the agreement. The Court noted the Department of Justice’s interest in a case challenging no-poach agreements in the railway industry in the Western District of Pennsylvania (In re Railway Industry Employee No-Poach Antitrust Litigation, 395 F.Supp.3d 464 (W.D. Pa. 2019)). Farther afield, the Court referred to the class action challenge to no-poach agreements between the Duke University and University of North Carolina Medical Schools. See Seaman v. Duke University, 2019 WL 4674758, 2019 U.S. Dist. Lexis 163811 (M.D. N.C. Sept. 25, 2019) (approving class action settlement). Also important, but not noted by the Court, are the recent federal criminal indictments of businesses for wage fixing and no-poach agreements.

In rejecting the no-hire agreement, the Supreme Court employed the traditional reasonableness analysis for restrictive covenants. The Court found that the agreement was ancillary to a shipping contract and Pittsburgh Logistics had a legitimate interest in preventing poaching of employees. But the Court concluded that the no-hire clause was more than what PLS needed to protect this interest. The no-hire provision prevented Beemac from hiring any PLS employee, even those who had not worked with Beemac. The no-hire clause also created a harm to the public. The clause created potential harm to third parties by cutting off possible employment to PLS employees who were not parties to the contract. The restrictions deprived employees of the ability to earn their livelihoods and undermined free competition in the labor market. Finally, restrictive contracts of this sort contributed to slow wage growth and rising wage inequality. The Court noted that wages are 4-5% higher in states that do not enforce worker non-compete agreements.

Pittsburgh Logistics was a narrow ruling on a harsh restriction. The future will tell whether the state’s highest court’s public policy concerns will open the door to further erosion of post-employment restrictions in Pennsylvania.

Sexual Harassment in the Workplace

For business owners, minimizing the risk of civil liability is one of the most effective ways to avoid impacting your profitability by unnecessary lawsuits. A sexual harassment lawsuit by an employee can result in a substantial award paid by the employer.

In 2019, Employers paid out a record $68.2 million through the Equal Employment Opportunity Commission (EEOC) to employees.[1] Even in cases that settle before trial, the average cost to an organization for a harassment claim can be between $75,000 - $125,000.[2]

As an employer, reducing the likelihood of such lawsuits requires taking proactive steps to ensure that you do not run afoul of state and local law. It can also make sense to speak with an employment attorney conversant in those laws.
But what exactly are the duties of an employer with regards to preventing sexual harassment claims from arising? Below are three of the most common ways to reduce this potential liability and add an extra layer of protection to your business's bottom line.

Reducing Your Exposure to Sexual Harassment Litigation

It is essential first to understand the various laws subject to a business owner.

At the federal level, under Title VII of the Civil Rights Act of 1964 (commonly referred to as "Title VII," employers have a responsibility to maintain a workplace free of sexual harassment and to "take all necessary steps to prevent sexual harassment from occurring." [3] To help accomplish this, the EEOC has issued regulations and guidance on the definition of sexual harassment and the employer's responsibilities. Courts use these guidelines to decide whether to hold an employer liable in a sexual harassment case (29 C.F.R. § 1604.11(e).

According to state law, each state has a similar commission or guidance; in Pennsylvania, for example, the Pennsylvania Human Relations Commission, according to state law, issues guidance and provides another way for employees to bring claims against an employer (43 P.S. § 955.)

1. Address sexual harassment before or at the start of employment.

Sexual harassment claims by employees often revolve around the conduct of a co-worker rather than the actions of a manager or a third party. At the same time, this varies by industry.

Educating your employees at their pre-employment orientation or the first day of work is key to protecting against later liability.[4] However, liability for sexual harassment turns on whether an employer permits an intimidating, hostile, or offensive work environment to exist. Employers, therefore, have a duty to proactively prevent sexual harassment, including expressing strong disapproval to employees, developing a procedure for handling complaints (and informing new employees of the existence of these procedures), and educating employees about their rights under state and federal law.

Under U.S. Supreme Court precedent, employers who take reasonable steps to prevent and correct sexual harassment have a strong defense should a claim ever arise.[5] Equally important is ensuring that these preventative measures and the availability of corrective actions are open and available to employees at all times.

While there is no definitive list of pre-employment practices to follow, at a minimum, having a stated anti-harassment policy would establish that the employer attempted to prevent harassment before it began. The more thorough your orientation training and educational practices are, the less likely you will face liability down the road.

2. Develop a system or procedure for handling complaints and follow it.

As mentioned above, informing employees of how you will handle sexual harassment complaints is an essential component of preventing such harassment before it can occur.

Nonetheless, employers who fail to follow a set practice for addressing complaints or who do not take such complaints seriously when made open the door wide open for a later lawsuit. Time and again, failure by business management to take swift action when an employee complains of sexual harassment invites more of the same conduct.

From a legal standpoint, when an employer fails to take corrective action, it opens the door to a sexual harassment suit. That failure can lead to substantial fines and costly settlements. When a procedure is put in place to address instances of sexual harassment, following through on those policies is an excellent way to reduce liability. An employment lawyer can help draft those policies to make sure you avoid potential issues.

3. Avoid retaliatory actions.

While it may seem common sense, employers unknowingly expose themselves to lawsuits and administrative sanctions when they take disciplinary action against the employee complaining of the harassing behavior. A surprisingly high number of complainants, perhaps as high as 75%, face some form of retaliation from their employers after reporting the harassment.[6]

While it may be tempting to transfer, demote, or otherwise discipline an employee who is causing disruptions at your business, employers need to think carefully before taking such action if they have voiced complaints about sexual harassment. While the discipline might seem unrelated to you, an arbitrator, judge, or jury may think differently.
To avoid litigation (which may be costly even if you win), be sure to work with your Human Resources department or employment lawyer before taking any action against an employee in this situation.

Implementing solid policies and a workplace culture that disapproves of sexual harassment is the best way to prevent unwanted conduct from becoming a costly problem.

Talk with an Employment Lawyer Near You

Implementing solid policies and a workplace culture that disapproves of sexual harassment is the best way to prevent unwanted conduct from becoming a costly problem. In addition, consulting with an employment lawyer near you experienced in employment discrimination can give you the best course of action for keeping your business running smoothly. Our law firm has offices in Montgomery and Bucks County. We can help create effective policies and deliver appropriate guidance for sexual harassment in the workplace claims.

[3] Phila. Hous. Auth. v. Am. Fed'n. of State, Cty. & Mun. Emples., Dist. Council 33, Local 934, 956 A.2d 477, 483 (Pa. Cmwlth. 2008).
[4] The sources of sexual harassment vary based on the work environment; for example, roughly 90% of women in the restaurant/foodservice industry reported some form of sexual harassment in a 2018 study by Harvard Business Review.
[5] Faragher v. City of Boca Raton, 524 U.S. 775, 806 (1998); Burlington Indus. v. Ellerth, 524 U.S. 742, 766 (1998)
[6] See

Offensive Social Media Posts by Pennsylvania Employees Justify Termination

“If you can’t say anything nice, don’t say anything at all,” our parents told us. Two recent Pennsylvania employment termination cases give this same advice to adult social media users. In both cases, courts upheld terminations for employees’ mean-spirited off-duty social media comments.

In Carr v. Commonwealth, 230 A.3d 1075 (Pa. 2020), a PennDOT employee (Carr) encountered a poorly driven school bus while driving to work. She posted to a Facebook group, “School bus drivers don’t give a flying s**t about those babies” and said she would “gladly crash into a school bus”. She added, “You’re (sic) kids are your problem. Not mine.” Carr disclosed that she worked for PennDOT. Facebook users sent Carr’s post to PennDOT, which terminated her for misconduct.

Carr filed a civil service appeal , claiming First Amendment free speech rights. PennDOT argued that Carr’s off-duty conduct undermined PennDOT’s traffic safety goals and harmed PennDOT’s reputation. The Civil Service Commission upheld PennDOT’s action.

Surprisingly, the Pennsylvania Commonwealth Court overturned Carr’s dismissal. Commonwealth Court viewed Carr’s comments as protected speech about a matter of public concern, despite the reprehensible tone.

The Pennsylvania Supreme Court reversed Commonwealth Court and upheld Carr’s dismissal. The Court held that Carr’s Facebook rant interfered with PennDOT’s highway safety mission. PennDOT therefore had reasonable concerns about adverse effects on PennDOT’s ability to carry out its duties. Commonwealth Court therefore was wrong to hold that Carr’s interest in commenting on bus safety outweighed PennDOT’s broader public safety interest. In short, Carr’s personal rant had limited public importance but caused significant detriment to PennDOT.

Justice Wecht concurred, stating that Carr’s comments raised no public concern at all. He also discussed social media platforms’ potential to disrupt agency operations, suggesting that public employees consider possible employment consequences before making off-hours social media comments.

Ellis v. Bank of NY Mellon Corp., 2020 WL 2557902 (W.D. Pa. May 20, 2020), affirmed, 2021 WL 829620 (3rd Cir. March 4, 2021) (not precedential) also mentioned vehicular violence in a Facebook post. Ellis was a white at-will employee in BNY Mellon’s Pittsburgh wealth management department. During an East Pittsburgh street protest after police killed an African-American teenager, a local councilman drove a car through the crowd. Ellis commented on her public Facebook page, “He should have taken a bus to plow thru.” Her Facebook account disclosed that she was a Mellon employee.

Public reaction was immediate. The public “inundated her employer with complaints” on Facebook and the Bank’s ethics hotline, and to the CEO and Human Resource Chief. They demanded to know if the post reflected Mellon’s values.

After an emergency investigation, Mellon terminated Ellis immediately. Mellon decided that Ellis had violated Mellon’s Social Media Policy prohibiting employees from conduct harming the Bank’s reputation. This Policy warned that violations could lead to termination. The Bank told Ellis that her post was offensive, showed poor judgment and disrespect for others, and encouraged violence.

As an at-will private sector employee, Ellis lacked First Amendment protection for off-duty comments. However, Ellis filed a race discrimination claim. She complained of harsher treatment than African-American employees who posted Facebook comments on the same incident or police brutality. BNY Mellon moved for summary judgment, contending that Ellis failed to make out a prima facie case because the African-American comparators were not similarly situated to Ellis. The comparators worked in different positions with different responsibilities and supervisors. The court granted summary judgment to Mellon. The court contrasted Ellis’ posting from the comparators’ postings, holding that Ellis addressed current news and supported driving through a crowd. The Court held that the Bank had legitimate, non-discriminatory grounds to fire Ellis for a posting that “was offensive in nature, advocated violence, demonstrated extremely poor judgment, and created a reputational risk” to the Bank. In a very brief opinion, the Third Circuit recently affirmed the District Court.

Our parents’ warning was right. And before posting on social media, employees should also remember the warning given law enforcement, albeit in a different context: “You have the right to remain silent; anything you say may be used against you.”

Do I Need to Pay Philadelphia City Wage Tax During the Pandemic?

The Covid-19 Pandemic has brought many changes to our lives, requiring masks when leaving the house, frequent hand washing, and (for many people) work from home. For suburbanites who work in the City of Philadelphia, there is an unexpected twist from Governor Wolf’s stay at home order – in the form of a tax refund.

The City of Philadelphia reached a settlement of litigation brought by professional athletes for Philadelphia teams who were required to pay Philadelphia city wage tax on all of their wages even while traveling to other cities. The settlement provided that any employee who worked outside Philadelphia at the demand of an employer for an extended period was not required to pay wage tax on wages attributable to work outside the City.

We've compiled some important questions regarding the wage tax below. If you've reviewed them and are interested in learning more, contact an employment lawyer near you at 610.275.0700.

I've been working from home during the pandemic and my office is located in Philadelphia. Does my situation fall under this settlement language?

Yes. If you commuted into the city before Governor Wolf’s stay-at-home order and paid Philadelphia city wage tax, you are not liable to pay it while working from home at this time.

How do I change my city wage tax status in Philadelphia?

Workers can change their tax status and be exempt from the City of Philadelphia’s City Wage Tax of 3.4481% until June 30, 2020 and 3.5019% beginning July 1, 2020. The responsibility for proper tax reporting falls on the individual employee. You must speak to your employer about changing your tax status. If you did not or cannot change your tax status, you can file for a refund beginning January 2, 2021. The refund forms are available online from the City of Philadelphia Department of Revenue and are usually made available on the first business day of the year.

I paid Philadelphia wage tax while working from home. What should I do?

If you have paid by mistake while working from home, the City will not refund your taxes until the tax year ends.

It is critical that you check you paystub to see if your employer has changed your tax status, because if you live in a municipality or school district that collects earned income tax, you will owe Philadelphia city wage tax to that municipality and/or school district for the time worked outside of the city.

In a normal year where you don’t work from home, you should be filing annual Earned Income Tax returns with your County Tax Collector each April showing that you work in Philadelphia. In 2021 you will file two returns, one for the City showing the time you worked in Philadelphia and one with your County showing the time you were required to work from home.

How long will I be exempt from Philadelphia wage tax?

You will continue to be exempt from Philadelphia city Wage Tax and responsible for it for as long as your employer decides to have you work from home even if the Governor no longer mandates telework. The work from home decision must be made by your employer as a condition of employment.

Due to the significant savings, it is important that you contact your employer to check your tax status if possible and begin saving now. You also want to check at tax time in 2021 to make sure you only pay the City of Philadelphia for those days attributable to the time you were working in Philadelphia and calculate the number of days you were teleworking and file the returns accordingly.

If you are looking for an employment lawyer near you in Montgomery County, call us today at 610.275.0700. We can give you the important insight you need regarding Philadelphia wage taxes.

IRS Issues Payroll Tax Deferral Guidance – What You Need to Know

Given the sparse guidance, there is currently a lot of leeway in how employers can implement the tax deferral holiday.

On August 8, 2020, President Trump declared an optional payroll tax deferral holiday for the employee portion of social security taxes. The IRS issued guidance for employers to implement the deferral program on August 28, 2020. While the policy could result in a temporary net pay boost for employees, the policy is fraught with peril for both employees and employers. Here is what you need to know:

Who is eligible for payroll tax deferral?

Any employee who makes less than $4,000.00 in a bi-weekly pay period is eligible for deferral of the 6.2% social security payroll tax. This can up to a $248.00 increase in net pay in a bi-weekly pay period.

What is the deferral time period?

The deferral period is for all payroll paid between September 1, 2020 and December 31, 2020.

Will the payroll tax deferral be forgiven?

It is important that employees and employers understand that this amount is deferred, not forgiven. All taxes deferred must be repaid through payroll deduction between January 1, 2021 and April 30, 2021.

Do all employers need to participate?

The program is optional. Employers do not have to participate. The IRS guidance is clearly aimed at employers, not employees.

Who is responsible for repayment?

The burden of paying deferred taxes in 2021 ultimately falls on the employer. While the IRS clearly states that the employer can make arrangements to withhold the deferred taxes from the employee upon separation, at the end of the day, if the employee does not pay the deferred taxes, the employer will be liable for them, and any associated penalties and interest if the deferred taxes are not repaid by April 30, 2021.

Employers and their human resources departments may want to take some of the following steps:

  1. Clearly communicate your policy regarding the tax holiday to your employees, even the ones who don’t qualify for the deferral.
  2. If your company participates, make sure the employees understand the following:
    a. The deferral may be helpful in the short term, but will result in additional withholding, absent action by Congress, in 2021. The employee may see withholding at double the current rate in 2021, which may result in future hardship.
    b. Should the employee separate from service before all deferred taxes are repaid, the employer will withhold all remaining deferred taxes from the final paycheck.
    c. Theses concepts should definitely be acknowledged by the employee in a written or electronic manner.

Employers need to be aware that they could be exposed to up to approximately $2,150 per eligible employee for unpaid payroll tax deferrals.

The big question is whether, if Congress acts and forgives the deferred payroll tax, whether it will direct the US Treasury to issue refunds to all employees whose payroll taxes were remitted, direct employers to issue the refund, and credit the amounts against 2021 payroll taxes due, or undertake some other method to put the money back in the employees’ pockets. These are issues to be aware of, but there are no specific ways to plan for these speculative policy outcomes, except to keep abreast of all changes.

Non-Solicitation Agreements- The Third Rail of Employee Mobility Law

When an ex-employee works for a competitor, the violation of a non-compete covenant is clear-cut. But few employment contracts define what it means to “solicit”.

What is a non-solicitation agreement?

Non-solicitation agreements prevent a departing employee from soliciting the old employer’s customers or workforce to do business or work with a new employer. These clauses are less burdensome than non-competes that prohibit any work for a competitor or bar any service to a former employer’s customers. Like its stricter cousins, a non-solicitation agreement is a restraint on competition and must not tie the ex-employee’s hands too tightly. Non-solicitation clauses must include consideration- namely, some benefit to the employee to compensate for the post-employment restriction. And the agreement must be reasonably necessary for the employer’s protection, and reasonable in time, geographic scope, and scope of the prohibited activities. These are the minimum requirements for an ex-employer who seeks a court injunction against violation of a non-solicitation agreement.

These agreements can be confusing. If you are looking for an employment lawyer near you to review these documents, contact us at 610.275.0700.

What does it mean to “solicit” in violation of a non-solicitation clause?

When an ex-employee works for a competitor, the violation of a non-compete covenant is clear-cut. But few employment contracts define what it means to “solicit”. As a result, courts have developed workable definitions of “solicit” on a case-by-case basis. In Meyer Chatfield v. Century Business Servicing, Inc., 732 F.Supp.2d 514, 520 (E.D. Pa. 2010), Judge Slomsky used Black’s Law Dictionary’s definition of “solicit”:

To appeal for something; to apply to for obtaining something; to ask earnestly; to ask for the purpose of receiving; to endeavor to obtain by asking or pleading; to entreat, implore, or importune; to make petition to; to plead for; to try to obtain; and though the word implies a serious request, it requires no particular degree of importunity, entreaty, imploration, or supplication. To awake or incite to action by acts or conduct intended to and calculated to incite the act of giving. The term implies personal petition and importunity addressed to a particular individual to do some particular thing.

Under this definition, an ex-employee violates a non-solicitation clause by contacting or inducing former contacts to bring business to the ex-employee. To run afoul of the agreement, an ex-employee must be proactive. Responding to a former customer who initiates contact with the ex-employee is not “solicitation”. In Harry Blackwood Associates v. Caputo, 434 A.2d 169 (Pa. Super. 1981), the Pennsylvania Superior Court held that a non-solicit clause did not prevent an ex-employee from doing business with a customer who had sought out the ex-employee.

What about other ways to inform the business community of new employment?

For example, is it solicitation to post employment announcements or send out business cards, where some of the recipients are former contacts? A standard announcement or the mention of a new employee’s name in marketing materials does not constitute solicitation; however, an announcement targeted only to customers and inviting customers to move business may be solicitation. See PharMerica Corp. v. Sturgeon, 2018 WL 1367339, *8 (W.D. Pa. March 16, 2018)

Does a LinkedIn profile post about new employment violate a non-solicitation clause?

No again; courts have held that a simple posting or invitation to connect on LinkedIn is not solicitation. Bankers Life and Casualty Co. v. American Senior Benefits LLC, 83 N.E.3d 1085 (Ill. App. 2017). But a posting that morphs into a sales pitch will constitute solicitation. Mobile Mini, Inc. v. Vevea, 2017 WL 3172712 (D. Minn. 2017). In an unpublished 2017 decision, the Pennsylvania Superior Court enjoined as wrongful solicitation a veterinarian’s creation of a Facebook page for a new practice, containing postings from former clients and other links about animal and pet care. Joseph v. O’Laughlin, 2017 Pa. Unpub. Lexis 3191, 175 A. 3d 1105 (Pa. Super. Aug. 22, 2017) The moral of these cases is that actions beyond a plain vanilla new employment announcement can cross the line into solicitation.

Courts are less likely to crack down on violations of employee non-solicitation contracts than customer non-solicits. In order to stop an ex-employee from soliciting former co-workers, an ex-employer should be ready to show a court that the purpose of the solicitation is to “cripple and destroy” competition. A court will not usually prohibit solicitation or recruitment of skilled or gifted employees. Nor will courts punish less aggressive contacts with former co-workers, such as telling former colleagues to look out for a job posting.

Like all employee mobility cases, non-solicitation disputes involve three key participants- the former employer, the ex-employee, and the new employer. Real-time factual documentation is essential for each of these players in a non-solicitation case. The ex-employee should keep a record of all contacts with former customers and co-workers. The record should include information on who initiated the contact, the steps taken to respond to the contact, when these steps were taken, and whether and how the contact generated new business. A spreadsheet is an excellent way to preserve this information. The new employer should monitor the employee’s actions. The ex-employer can try to document the loss of business or employees. Customers who don’t want to do business with the ex-employee may be willing to provide information on improper conduct. But other customers may just want a better deal and will freely give business to breakaway employees.

Employers also need to resist the temptation to be heavy-handed in dealing with both customers and employees. Ex-employers and the departing employees must avoid misleading customers or disparaging each other, or litigation for business disparagement or contractual interference may result. And overly adversarial behavior may lead customers to stop doing business with both the ex-employer and the ex-employee. In that case, everybody loses.

If you are in need of an employment attorney near you, contact Thomas D. Rees of High Swartz in Norristown, PA at 610-275-0700.

U.S. Supreme Court Further Defines Title VII Protection to Include LGBT

Yesterday, the Supreme Court, in a 6 to 3 decision, ruled that Title VII of the Civil Rights Act of 1964 prohibits discrimination in employment against LGBT individuals. In a single day, millions of Americans were provided with protection under Title VII and employers must modify their conduct.

Before June 15, 2020, the rights of LGBT (lesbian, gay, bisexual, transgender) employees were governed by a patchwork of local ordinances, a handful of state laws and Federal Circuit Court decisions. Now, for all employers that employ fifteen (15) or more employees there is certainty.

Justice Neil Gorsuch, a Trump appointee, began the majority’s opinion as follows:

“Sometimes small gestures can have unexpected consequences. Major initiatives practically guarantee them. In our time, few pieces of federal legislation rank in significance with the Civil Rights Act of 1964. There, in Title VII, Congress outlawed discrimination in the workplace on the basis of race, color, religion, sex, or national origin. Today, we must decide whether an employer can fire someone simply for being homosexual or transgender. The answer is clear. An employer who fires an individual for being homosexual or transgender fires that person for traits or actions it would not have questioned in members of a different sex. Sex plays a necessary and undisguisable role in the decision, exactly what Title VII forbids.”

The basis of the majority’s opinion will be subject to debate in scholarly articles and in law schools for years to come. As for employers, however, there is nothing to debate, only action to be taken, because unless Congress passes a law, which a President signs, that explicitly excludes LGBT individuals from protection under Title VII, yesterday’s decision is the law.

What must employers with 15 or more employees do immediately:

  • Stop discriminating against LGBT individuals/employees – this includes all aspects of the employment relationship, including hiring, promotion, discipline and termination. LGBT individuals are entitled to the same protection as any other protected class under Title VII.
  • Train HR staff and front-line supervisors to identify discrimination in the workplace based on LGBT and to investigate any such complaints based on investigatory procedures already in place.
  • Audit the workplace environment to ensure that there are no latent illustrations of LGBT discrimination, such as posters, stickers, pictures, etc…

What must employers do over the next several weeks:

  • Update employee manuals and policies and procedures to include protection for LGBT employees.
  • Hold a training session with employees and front-line supervisors to advise them of the LGBT protection and what is expected from the employees.

For employers with less than 15 employees, who were not already subject to a local/state law prohibiting LGBT discrimination, you should anticipate that the ruling will apply to you. Most state-based anti-discrimination statutes apply to smaller employers, e.g., the Pennsylvania Human Relations Act (“PHRA”) applies to employers with 4 or more employees. And, most courts that apply state-based anti-discrimination statutes look to the federal courts (and the U.S. Supreme Court) on how to apply the state statutes.

In PA, for instance, Pennsylvania courts apply the PHRA in accordance with Title VII. As such, any Pennsylvania business with between 4 and 14 employees should presume LGBT protections apply to their business.