Join us on The Legal Way as we sit down with Harold Goldner, an employment law attorney from Friedman Schuman, to take a deep dive into the intricacies of the recent FTC ban on non-compete agreements, which was officially announced on April 23rd, 2024. Throughout our discussion, we will explore the potential implications of this regulation for both employers and employees. Our conversation not only highlights the exemptions to this regulation but also differentiates between non-compete agreements, non-solicitation agreements, and non-disclosure agreements, providing clarity on how employers can navigate this ever-evolving landscape. Harold also provides invaluable insights into the new overtime rule by the U.S. Department of Labor, offering a comprehensive analysis of how this regulation will impact the workplace, sharing proactive strategies for employers to prepare for upcoming changes and ensure compliance during new regulatory roll-outs. Tune in to gain a deeper understanding of these crucial regulatory changes and their implications for the workplace.
EPISODE TRANSCRIPT:
Alyson: Hi everyone and welcome back to The Legal Way by Friedman Schuman. My name is Alyson Layser and I’m your host and I’m also the Director of Marketing here at Friedman Schuman. Today I’m going to be joined by a guest, Harold Goldner. He has been on the podcast before. He is one of our employment law attorneys here at Friedman Schuman. And today we’re going to be chatting a little bit about some current events that have happened in the employment world. And I’m very excited for Harold to dive in a little bit deeper on these topics. We are going to be chatting about the recent FTC ban on non-compete agreements, as well as the U.S. Department of Labor’s change with the overtime eligibility threshold rule. So, I am very excited to chat with Harold about these things. So, Harold, I am going to let you introduce yourself a little bit and then we can dive right on into it.
Harold: Hello, thanks. Good to be back here. I’m Harold Goldner. I’m an employment lawyer, which means I spend most of my day working with people who are dealing with what they deal with day in and day out, which is their jobs. We spend 60 % of our lifetimes on the job. And my space is the workplace. That’s basically what I do, both for employers and for employees.
Alyson: That’s awesome. And I have heard a lot of your stories with some of your cases and they are always so fascinating. And I just always appreciate you sharing your expertise and your experiences. So today, like I said, we’re going to be chatting about the recent FTC ban. And I know this was something that you were really excited to chat about as well. So, first question for you, can you just explain the significance of this ban on non-compete agreements? And also, why it’s really important for both employers and employees to really understand the full implications of it?
Harold: So sure. So last Tuesday was lots of fun for me because this FTC rule was announced the same day the Department of Labor announced the regulation that we’ll be talking about later. And one of the things I love about employment law is it is just like the workplace, it’s constantly changing. What was true when I started doing this years ago, the laws are different, the statutes are different, the case law is different, and the workplace is different. And I guess it needs to be that way. It can’t be static. And we just don’t usually get slammed with two big deal changes on the same day. So, the first one was this FTC rule. The Federal Trade Commission generally is concerned with businesses and trade in the United States based upon the constitutions giving grant to the federal government to deal with interstate commerce and so forth. The Federal Trade Commission had signaled some months ago that it was quote, opposed close quote to non-compete covenants. And I’ll talk about what those are in a moment. And last Tuesday, the other shoe dropped, which is they issued a final rule under administrative procedures. You have to announce that you want to make a rule and allow for comment. And then when the comment period expires, you release a final rule and that’s what the FTC announced. Now, it actually doesn’t become effective until after it’s published in something called the Federal Register. That’s certainly not something you read every day like the Inquirer or the Washington Post or the New York Times. It comes out now electronically on a website. And my understanding, and I just checked this this morning, is that this rule will be published May 7th in the Federal Register. And it’s supposed to take effect 120 days later, which means it’ll take effect September 4th of 2024 if it’s not stopped or stayed by a court. So, let’s talk about non-compete agreements generally. A lot of employers are concerned that they hire employees, they teach them how to make their special brand of soup or how to make their special type of glue. I say that because I’ve had non-compete cases involving both adhesives, manufacturing, and cooking. And they don’t want their employees to walk off to a competing baker or adhesive manufacturer with all their formulas and compete with them. And so, they’ll have provisions put in an employment agreement that say you cannot within one year of leaving or two years of leaving, you can’t work for another adhesives manufacturer within five miles of our factory, within 10 miles within any state in which we do business and so forth. These non-compete agreements are generally not, favored by the courts. It’s funny, there’s a lot, a lot of law on this, court law on this, and all the court cases say, “we do not favor non-competes, but…” and then they come up with an explanation for what a non-compete has to do to be accepted. So, it has to be reasonable in scope to protect the employer. So, if you are a bakery, you can’t have a non-compete that says to your employees, you can’t work for anyone else doing anything within five miles of this bakery if you leave. Because what the heck do you care if they go to work for a gas station or if they get a job with a factory after working for you in your kitchen? So, that’s not reasonable as to scope. And if you are, let’s say, a bakery and all of your customers are located within 5 or 10 miles of the bakery, then it’s not reasonable for you to say to your employees, well, you can’t work for any bakery within 150 miles of our bakery. That’s beyond protecting your scope. And lastly, it has to be reasonable, it’s the time as to geographical limitations and as to, you know, definitional limitations. So, you can’t tell somebody they can’t work for another bakery for the next 10 years of their lives. That’s just not reasonable. So, typically what a lot of courts will do is what we call “blue pencil” these agreements and edit them in a way that is not quite so oppressive or offensive. But these non-competes have existed. You see them a lot for salespeople. You see them in highly competitive business such as recruiting businesses. You see them in technology. And non-competes have been around for a long, long time. They are distinguished from, and we’ll come back to this, from non-solicitation agreements, which say, you can go to work for another bakery, you just can’t bake anything for any of our customers. You can’t call our customers and say, “hey, I’m working at this bakery now, come, let me make cakes for you here.” That’s a non-solicitation clause. And the last one is a non-disclosure agreement. You can’t disclose confidential information. And those are the FTC rule doesn’t have anything to do with non-solicitation agreements as long as they don’t effectively become non-compete agreements and non-disclosure agreements.
Alyson: That’s very interesting and very good to know because I think right off the bat just seeing, you know, FTC bans non-compete agreements, some people who maybe aren’t very well versed in that area might think that that also ties into non-disclosure or non-solicitation. So, that’s definitely great to know. I do have a question for you about non-competes in general. Have they started to get more popular in recent years? You mentioned that they’ve been around for a long time, but have they started to, or have companies started to make a lot of their employees start to sign these types of agreements?
Harold: I would say no. I would say that at least my clients have been contacting me and going, how do we get away from a non-compete to something that’s more enforceable? And so, I have moved them in the direction of non-solicitation agreements. I have moved them in the direction of non-disclosure agreements. A pure non-compete is becoming more and more offensive. I mean, not just the FTC said it doesn’t like non-competes. The National Labor Relations Board said something about it. And this is way outside their lane because they normally are only dealing with labor unions. It’s conceivably outside the FTC’s lane to be issuing rules in this, and I’m sure we’ll discuss that. But the general feel is that there are enough protections for employers from employees taking advantage of confidential information learned while they’re on the job that you don’t necessarily need a non-compete agreement to do that job. It’s sort of a heavy-handed way of doing something that can be done more adroitly, more likely to be enforced by the employer that still protects what the employer’s interests are without using such a heavy tool.
Alyson: Okay, very interesting. So, next question for you. How might this nationwide ban on non-competes impact some businesses right now that are engaging in things like a merger or an acquisition or other types of transactions? Is there anything that they should know about prior to this ban going into effect?
Harold: Well, the ban does not apply to the sale of businesses. So, if you own a widget factory and a big company comes to you and says, we want to buy your widget factory, Procter & Gamble owns a whole lot of different companies or Berkshire Hathaway owns a lot of different companies. And Warren Buffett brings you up one day and says, I want to buy your widget company. First thing you’re gonna do is, “I know the check is good, let’s just find a good price here.” And if you wanna sell your widget company, you’re likely going to, in the closing documents, have a provision that says, you can’t, for X number of years after you sell this company, go out and start another widget company and repeat with your own company you just sold. That’s fundamentally unfair. And the FTC rule specifically doesn’t apply to sales of businesses. So that’s not going to change. There are a lot of medical practices that are sold. Although interestingly in some states, physicians can’t sign non-competes. For example, Delaware does not allow any healthcare provider to sign a non-compete. So, some, and in California, there are no non-competes, period. State law says no non-competes in California. That doesn’t mean they don’t have non-solicitation agreements and non-disclosure agreements. A lot of technology out in California, they have a lot of ways to protect their employees, employers, but it isn’t a non-compete. You just don’t do it that way. So yeah, I think in the cases of mergers and acquisitions, it’s not gonna have any effect at all.
Alyson: Very interesting. And I’m very surprised about California because when you had mentioned, oh, tech companies use this, the first thing I thought of was Silicon Valley. So that’s very, very surprising.
Harold: Well, they have…employers have at their disposal two statutory schemes. One is called the Defend Trade Secrets Act. This is that’s a federal law. And there’s something else called the Uniform Trade Secrets Act that’s a state law enacted by many states. Pennsylvania has a Pennsylvania Uniform Trade Secrets Act and those trade secrets act basically provide that you can’t, if you have confidential information that is defined as a trade secret, you can’t just leave an employer and take all those trade secrets to a new employer and say, “Hey, I got all the formulas from my old employer, you wanna use them here?” You can’t do that. That would violate the trade secrets act. And why those laws are particularly effective is they provide for prevailing party fees. So, if a company sues, they, if a company were merely suing to enforce a non-compete covenant, unless the non-compete agreement itself provided for prevailing party fees, they would be suing just for the damages they sustained, and they’d have to bear their own legal fees and costs. But in, with the Defend Trade Secrets Act and the Uniform Trade Secrets Act, there are prevailing party fees. And what frequently happens in those cases is that the fees start to mount, whereas the damages are a little harder to prove. And eventually at some point, that the party that’s defending the claim is facing legal fees that dwarf the actual claim. So, the tail ends up wagging the dog, but you do have statutory schemes. And there’s one other common law doctrine that I love to talk about. It’s called the Doctrine of Inevitable Disclosure. And it was in this state, it’s because of a case called Bimbo Bakeries versus Botticella. Mr. Botticella worked for Bimbo Bakeries. You know them, Bimbo Bakeries. They’re in Conshohocken on Ridge Pike –
Alyson: Yeah, I was gonna say, isn’t that just around here?
Harold: And they’re the Philadelphia Union Soccer Team’s jersey sponsor for years. Bimbo’s is huge. Well, Bimbo, believe it or not, owns Thomas’s. And the guy who knew, among other things, how to make the nooks and crannies in Thomas’s English Muffins was hired by Hostess. And Bimbo sued. Now he had no non-compete. And it wasn’t so much trade secrets. They had no proof that he had taken trade secrets. But they claimed that because of his position at Bimbo, he would necessarily and inevitably disclose what he had learned working for Bimbo to Hostess and therefore compromise Bimbo Bakeries. And so, under what they call the Doctrine of Inevitable Disclosure, they were able to get a court to preclude his being hired by Hostess. So, we have the Doctrine of Inevitable Disclosure there. If somebody, if like the Coke recipe is I think in a safe somewhere, but if there’s two people who know exactly what that recipe is and one of them was hired by Pepsi, I would imagine Coke, and Coke is extremely good about enforcing this stuff, would be all over them claiming inevitably they will disclose our formula and we can’t have that. So, all of that has nothing to do with non-competes, does not need non-competes. Trade secret acts, both federal and state don’t need non-competes at all. So, there’s plenty of ways for an employer to protect themselves without using a non-compete agreement.
Alyson: Okay, well that’s very great to know as well. Going back to sale of businesses, is there anything else that this ban doesn’t apply to, similarly to the sale of businesses?
Harold: The only other, the rule is sort of, there’s sort of a two-part aspect to the rule. One is for what we call senior executives who are making more than I think $151,000. I never remember those numbers because I can always look them up. It’s like Einstein used to say, “I never remember phone numbers. I can always look them up.” But senior executives, and senior executives are defined as those who make policy decisions. For them, if they are already subject to a non-compete agreement, that non, and it was made before the effective date of the rule, which as we know will be September 4th, 2024, they will be held to that non-compete agreement. But no more non-compete agreements for all workers, whether they’re senior executives or not, on or after September 4 of 2024.
Alyson: Okay. Very good to know. Next question. I want to get in, and we touched on this a little bit, but I’d like to get in a little bit deeper into non-solicitation and non-disclosure and talk a little bit more about the differences between all three of these things and maybe how non-solicitation, non-disclosure can be better utilized now that non-competes are banned for all the employers that are.
Harold: Sure. So non-compete says you can’t work. You can’t do a job. And it’s distinguishable from something, by the way, called a Garden Leave Provision. And what a Garden Leave Provision says is for the next six months, you can’t work for any of our competitors, but you’re still on our payroll. We’re going to pay you. That’s called a Garden Leave Provision. That is widely used in many circumstances. The FTC rule has nothing to do with those –
Alyson: I’ve never heard of that before.
Harold: Your executives, I expect some larger companies will now say, “well, we know we can’t. If the rule takes effect, we know we can’t do a non-compete. So, we’re putting you on Garden Leave for the next year. Today is your last official day of work, but you’re still gonna get a paycheck for the next year, stay off the market.” And I mean, that person could conceivably get a job mowing lawns, you know, if they’re working for a pharma company, they could, you know, there’s a lot of other stuff they could do, a lot of other jobs they could do, other than working for a pharma company, but the Garden Leave Provision basically says, we’ll cover you. And the courts usually look at those and go, okay, that’s fair, you got paid, you weren’t working, that’s too bad, but you were paid. So, there’s no economic restraint of trade. So, Garden Leave is one option. Non-solicitations are really the best way to go in my opinion, because the business’s life’s blood is its customers. Law firms, they’re virtually worthless, but our clients, they’re invaluable. We would be nothing without our clients. So, a non-solicitation clause basically prevents somebody from leaving an employer and then going after that former employer’s customers. And those are completely enforceable. Those are, I think, the weapon of choice, I would say, because that preserves the life’s blood. The non-disclosure is more directed towards intellectual property, trade secrets, information other than customers. And just one minor detail about customers is, if you’re a company that publishes your customer list, and in your marketing for some reason you decide, hey, we want everybody to know who all our customers are. It’s not a trade secret anymore. You’ve published it. You’ve told everybody who your customers are. It’s going to be really hard to enforce any of this stuff. And there are companies that have done that. There are companies that have published their price lists. And you know, they go up to trade shows and they have these rate cards and say, here’s our price lists. Here’s how we formulate what we charge people. It’s not a trade secret anymore. You’ve let people know what it is. And a lot of companies have come to me and said, “we need to protect our trade secrets.” And I’ve gone, “but you gave them away already. What is there to protect?” Or more uncommonly, I’ve been representing the employee, and the employee says, well, they told everybody who their customers were. They told everybody. In fact, in one of my favorite cases, the company manufactured a product and my client worked in the laboratory. And the company suing my client, former employer, was adamant that my client, they were trying to sort of put him in the…Bimbo Bakeries. He knew all the secret recipes and so forth. Well, what had turned out was all of these companies that sold the same widget had laboratories. And all of the customers were shared among all these manufacturers. They would use more than one because you don’t want to be reliant on one supplier if you’re selling ice cream sandwiches. You don’t want to be reliant on one box maker in case something happens at a factory. You can’t box your product anymore. So, what it turned out was the customers would take their product from company A to company B, and they would say to company B, “hey, can you work on this in your lab and make it for less money?” And company B would make it for less money. And it was just commonplace in that industry that everybody was basically stealing each other’s stuff to make it cheaper for the customers. So, there were no trade secrets. There was no secret four-wheelers. Everybody knew what they were making. And when we found that out, the case went away. And my client is still happily working for the new company he’s working for. And everybody lived happily ever after.
Alyson: Well, that’s good to know. But yeah, definitely no trade secrets there. It’s just very much out in the open in that situation.
Harold: Exactly. Exactly.
Alyson: Is there any other piece of insight that you would give to employers that are now going to have to navigate this?
Harold: Yeah, I would say talk to your employment council about how to avoid using a non-compete where you don’t need to use one. But consider the following. Again, the FTC is way out, I think, way outside its lane in trying to regulate in this department. And so there could be court challenges. There’s already a court challenge that has been filed in Texas and Texas federal courts just love to overturn democratic administration rules. So, I would say it’s vulnerable there. It’s also vulnerable for a constitutional reason, which is if you have an existing non-compete agreement, this rule has the effect of invalidating it. And the Constitution says that the Congress can’t pass a rule that impairs contracts. So, it could be vulnerable to that constitutional challenge. And so, it’s not really clear whether by September 4th, a court decision will not have been handed down staying the effect of this rule. I know I talked to some people who are familiar with the major piece of litigation going on to try and stop the rule. And my understanding is that we’ll know better by the end of June, early July, whether the court is gonna enter a temporary restraining order or what the timetable will be for that litigation. So, it’s not a sure thing that this rule ever takes effect.
Alyson: Okay. All right. So, on the flip side then, any insight for employees that maybe have signed a non-compete and they’re, I guess you could say in a little bit of a limbo phase, as they wait to see what happens over the summer or in September?
Harold: I have already been asked this, my phone’s been ringing off the hook, and I’ve told my clients, you still have a non-compete. And don’t violate the non-compete. Figure out a way not to violate the non-compete. And if push comes to shove, and you feel you’re just going to take a shot, that’s fine, but it’s very expensive litigation. And if you get that cease-and-desist letter, or you get served with a motion for a temporary restraining order, your boss may not be very happy about that. So typically, people are still required to reveal if they’re subject to non-competes when they’re talking to new employers. So, I’m telling people, you know, it’s out there, it might happen. But I think the headlines were that the rule came out. The major headline will be if it actually takes effect.
Alyson: Okay. Gotcha. Is there any publication or anything that you recommend that people start to subscribe to or follow to stay up to date as everything gets through?
Harold: Well, I mean, we put something on our website a couple days after this happened. I think Tuesday, the rules came out and I think we had something posted in less than a week. Watch our website. Watch this space.
Alyson: We will definitely keep everybody updated, for sure.
Harold: Mass media picks up on this stuff. They don’t get the subtleties as much. It was a big deal that the FTC said non-competes were unlawful. But they only gonna give it 15, 20 seconds on a headline. And there’s no analysis, there’s no depth to that. So, when it takes effect, it’ll be big news.
Alyson: Yeah, and I’m sure that we’ll have another podcast episode. So, stay tuned everyone. Anything else that you want to discuss or take a deeper dive into in regard to the FTC ban?
Harold: I think I covered the waterfront there.
Alyson: Perfect. So, let’s move on to the other big regulation that happened on April 23rd, which was the U.S. Department of Labor’s new overtime rule, essentially. So, could you just explain a little bit about what exactly that is and how it could impact employees and employers?
Harold: Yeah, so the Fair Labor Standards Act, which was enacted many years ago in an effort to make sure that people got the minimum wage and were paid, if they worked more than 40 hours a week, they were paid overtime, time and a half. And the numbers, that the Fair Labor Standards Act were set to are really low. So, you had people with full-time jobs by the early aughts, people who had full-time jobs who were making 40 hours a week sometimes with overtime and were still below the poverty level. And there was a fundamental sense that, hey, we need to fix this. These numbers are wrong, the minimum wages where somebody is either exempt from minimum wage, not exempt from minimum wage, but exempt from overtime rules or non-exempt from overtime rules. And there are exceptions to the overtime rules, which we call the white-collar exemptions. And there’s a lot of fuzziness in those white-collar exemptions. And people have been waiting for the Department of Labor to help us explain those. And instead, what the Department of Labor did in 2016 was aggressively increase those numbers. And it increased those numbers to anybody making less than $47,476 a year. And these are numbers I have to write down. I just, I cannot keep them in my head. Look at them. Anyone making more than what was considered the 40th percentile of employees of full-time weekly earnings in the southern U.S. Census region, which is considered the lowest paid region in the country. And they looked at the 40th percentile, the Obama administration did, and kicked everybody up to $47,476. There was a huge hue and cry. That was a giant jump because the numbers were down around $20,000 before that. And suit was filed, and a Texas court stayed that. So, that never came into effect. In 2020, under the Trump administration, the number went up to $35,568 per year. And they looked at the, went from the 40th percentile, they looked at the 20th percentile. So, they were looking at a higher paid group and that’s what they set it to and that is where the numbers have been $35,568 a year. If you make less than that you’re presumed to be subject to the overtime. If you make more than that maybe you are, maybe you are. The new rule wants to kick that up to $43,888 effective July 1 of 2024. And even higher, $58,656 on January 1, 2025. That’s a huge jump.
Alyson: Yes, that is a very big jump.
Harold: You’ve got people making $50,000 – $55 ,000 and suddenly the presumption is they’re eligible for overtime. That could have huge consequences on payroll. It should affect three million employees or more.
Alyson: That is a big number.
Harold: That’s a big deal. There are core challenges to that too.
Alyson: I was just going to ask that.
Harold: The most interesting piece of that is what we had sort of hoped for was a clarification of the white-collar exemptions and we didn’t get that. We just got a numbers change. The numbers change means that we’re still going to have the fuzziness in the exemptions.
Alyson: Do you think that there’s any type of reason for that? Like why they should eliminate the fuzziness?
Harold: It’s appropriate to scale it up. It makes no sense that people who are below the poverty level are not eligible for overtime. Something fundamentally flawed in any scheme like that. But what we really need is more guidance regarding the exemptions. So, and the exemptions, I just want to go through them. We have an executive exemption. So, if an employee who’s compensated on a salary basis and their primary duty is managing the enterprise or managing a recognized department or subdivision, and they must customarily and regularly direct the work of at least two or more other full-time employees. So, that means you’re not an executive if you don’t manage, let’s say you manage two part-timers, you’re not, you don’t meet the executive exemption. So, if you’re only making $50,000, it doesn’t matter if they call you senior vice president, you don’t meet the executive exemption. If you work 60 hours, you get 20 hours overtime. We have the administrative exemption, and the administrative exemption is really a lot of law firms and a lot of professional firms. That’s the nightmare. Administrative exemption. The employee must be compensated on a salary or fee basis at not less than, it’s been $684 a week. The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer. And their primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. So, if you’re somebody scheduling clerk, you’re just, “schedule my next meeting for you. Get me so and so on the phone, type this letter,” and you’re making, I’m going back to my numbers here…you’re making $42,000 on July 1. Make it $44,000 on July 1. So, you’re over the limit on July 1. You don’t meet the administrative exemption because you are not exercising discretion and independent judgment with respect to matters of significance. Okay? Professional exemption. So, there’s a learned professional. So, lawyers, doctors, CPAs, RNs, those are easy. You get the extra, you have a special degree, then you’re gonna be exempt from overtime. The creative professional’s a little bit different. Suppose you’re an artist, a recording engineer, a performer. If your duty is the performance of work requiring invention, imagination, originality, or talent, in the recognized field of artistic or creative endeavor. That’s the, that you’ll meet the creative professional. And then there are other exemptions, and I don’t want to take all our time doing that, but there are a number of computer employee exemption, outside sales exemption, highly compensated employees and the highly compensated employee number also went up with this renovation. That went up from $107,432 dollars a year up to one, $132,964 on July 1, and all the way up to $151,164 on January 1, 2025. What’s interesting about that $151,164 number is it’s really close to the FTC’s number in its rule on who’s a senior executive.
Alyson: Interesting.
Harold: You almost feel like somebody was looking at somebody else’s notes.
Alyson: You never know. That’s very interesting though. Yeah. That’s super, super interesting. My takeaway from that is that there is actually a lot more included in this regulation compared to what is just shared from the headlines. And it’s very important for people to look through all those exemptions and really like map that out if they have to change up payroll and all that type of stuff. So…
Harold: Yeah, the bottom line is folks, employers need to look at their job descriptions. And if employers don’t have job descriptions, they should get them. They should have them. They need them. They’re important for many things, not the least of which is for providing for accommodations for workers under the Americans with Disabilities Act. If you don’t know what the job description is, how can you know what the essential functions of the job are? And that’s essential for ADA. But without drifting too far afield, the primary, the job description is going to tell us, are they using discretion? Do they have, does their job duties include matters of significance for the company? And the job descriptions can really track these exemptions in a way that will help the employer know, “oh, this person is exempt, I don’t have to worry about it.” If not, the employer is going to have to look at their payroll scale. They’re going to have to look at who’s, and then they got to be really careful about how they’re paying people. Are they paying men and women the same amount? You don’t want to back into an equal pay act violation. There’s a lot of HR work that’s going to be associated with this. I don’t know that this one is as likely to be stayed. There is litigation pending. I don’t know that it’s as likely to be stayed as the FTC rule. They may let this one go into effect. I don’t know. The jury is out when I talk to my fellow experts on who thinks which one’s gonna stop first.
Alyson: So on that same note, what other proactive measures besides looking at job descriptions, checking out payroll, all that type of stuff could employers start to do as they prepare for everything to roll out?
Harold: I think employers should take advantage of this time to reset. The economy is a lot different than it was, the workplace is a lot different than it was four years ago when the pandemic hit. The idea of telecommuting was not, it was considered unusual, an adaptation, and now it’s sort of commonplace.
Alyson: It’s silly to think about now, it’s just the norm.
Harold: Yeah, it’s amazing how much can be done without people in the room together. I was in a, at a status conference with a federal magistrate just yesterday. And we have a case involving seven or eight parties and we’re trying to find a time to do a settlement conference. And the settlement conference was going to be in Allentown. Now I’ve gone to Allentown for settlement conferences. The Eastern District has courthouses in Allentown and in Reading, it’s part of the territory. But ultimately, at least one council was coming from Illinois, didn’t want to come in, and the magistrate said, “we can do this hybrid, we can do it combined live and hybrid.” And that was just never a possibility before. So, and…just today, SHRM announces that 45% of employees say they feel emotionally drained from their work. And workers who feel a strong sense of belonging at their organization are two and a half times less likely to feel burned out from their work. Most people change jobs for reasons other than payroll. They change jobs because they don’t like their working conditions. And the most expensive part of running any business is payroll. And the most expensive part of payroll is onboarding new employees, recruiting and onboarding. So, take care of your employees. Use this as an opportunity to reset. Are pay scales reasonable? Are people properly incentivized to do what we need them to do in order to be successful? Are they classified properly? Do they have the right responsibilities? Can they leave at the end of the day feeling more like, well, I did something good as opposed to, well, I got my 25 widgets out?
Alyson: Yes, absolutely. So, with this new eligibility threshold, I saw something that it is, once it goes into effect, it’s set to update based off of updated wage information and whatnot every three years. So, what can employers then do to ensure that they are staying compliant as these things continue to change?
Harold: Well, and that’s something that the Fair Labor Standards Act probably should have taken care of at the outset. That these regulations are the first attempt to really make sure that we don’t fall 10, 20, 30 years behind payroll like we did. And I think that, I think that it’s fair to assume that payroll companies will help employers track this stuff, that there are a lot of just third-party vendors who don’t even need a law firm, a lawyer to do this, that’ll tell you, hey, these are what the pay scales are, this is what you need to be paying, this is what you should be aware of. And employers can ask their payroll providers for that sort of help. Make sure that they’re tracking things properly. One of the interesting things about this new regulation is there are going to be employees who do not make a flat income, especially salespeople who are getting commissions and so forth, where they may, July may be fabulous and August could be dreadful. Christmas tree company, I figure October, November, December, gangbusters, January, they’re not selling anything and the regulations provide for what we call catch-up payments. So, if you find you’re falling behind and you might be violating the regs, you can make a catch-up payment and bring yourself within compliance near the end of the year.
Alyson: Okay, that’s very good to know. Very interesting. Again, not something that is in the headline, something you have to dive in a little bit deeper to find. So, with these changes, do you have any insight on how you would maybe advise employers to communicate with their staff about some of these changes or any changes coming to payroll and things like that?
Harold: I think employers, first of all, employers are already checking in with me. And I have on my desk several job descriptions I need to check and advise the employer what I think, whether they’re going to be exempt or not, whether they need to change that, how they handle that. So, I think employers should check in with their employment lawyer, their counsel, their counsel there. I think employees need to understand that pay scales are going to change. And some employees are going to be eligible for overtime now, but we’re not eligible for overtime. And I just want to mention, there are some employees who don’t like to be considered hourly. They like to be salaried. They don’t want a punch of time clock. They don’t want to have to deal with that, what if I’m five minutes late, 10 minutes late. There’s…people are gonna have to understand that the rules are different, and the employers can’t get in trouble. One of the central aspects of the Fair Labor Standards Act is the employer has to have records. If the employer doesn’t have records, the employee is allowed to say whatever they wanna say and the employer is not allowed to rebut. Best example of this is a case I had – a restaurant in New York had seven bicycle delivery people. And they used to say to the delivery people, we’ll pay you $20 a shift and you can keep all your tips. Well, they weren’t getting overtime. They weren’t even being paid minimum wage. It was wrong. And these seven delivery drivers, a public interest firm represented them and sued the restaurant. And I said, to the restaurant owner, “well, will you get me their timecards?” I said, “you have a time,” “oh yeah, we have a time clock, it’s over there in the restaurant, and we have the timecards.” I said, “okay, well, we’re gonna be taking the depositions of these drivers, and I would really like to have their timecards before I take their depositions.” “Oh yeah, no problem.” A week goes by, two weeks go by, I’m finally having this giant box with photocopies of timecards. Finally, so I bring some of these timecards to my first deposition of the first bicycle delivery person and the delivery person goes, “that’s not my time card.” I go, “what about this one?” “It’s not my timecard.” And like I kept, they were like not acknowledging that these are their time cards. I’m thinking this is not right. So, I remember I was leaving New York, the deposition is around New York. I’m leaving New York, I’m about to go into the Holland Tunnel. And I remember the last thing I said to the client was, “look, these witnesses are saying those aren’t their timecards. I said, I don’t want you to tell me where these timecards came from or anything about them. I just want to tell you that if they’re not really time records, you need to settle this case.” And just as I went into the tunnel, the client says, “settle a case.”
Alyson: Oh my gosh. That is wild.
Harold: Yeah, I’ve never seen any examples worse than that, but you gotta have time records. You just you can’t make it up.
Alyson: That is just mind blowing to me. Literally in deposition and yeah, wow.
Harold: And there was a good restaurant. I have to tell you I ate there. Good restaurant, bad timekeeping.
Alyson: Oh my gosh, you see you have just the craziest stories. You really do. Oh my gosh. Well, that is definitely a prime example. So, is there anything else that you want to add or mention about the overtime rules?
Harold: Just stay tuned to this space. I did a lot of training. I went out and when the when the 2020 rule came in, I did a lot of speaking to employers and trade groups about the effects and I suspect I may be doing that again if this rule is not stopped. And that’s fine. I’m happy to do that and sort of stay tuned to this space or to our website and we’ll let you know what’s going on.
Alyson: Absolutely. Last question for you. For employees or employers listening, what role exactly do you see for legal counsel helping employers and employees as we…we move forward with some of these things.
Harold: I’ve sort of said this before on this podcast. I love those employer clients who have me on their speed dial. Who before they make a mistake.
Alyson: The best kinds.
Harold: Before they make a mistake, they call me. It’s not a question of expense because if I talk to them for two minutes, 10 minutes, 15 minutes, it’s not a lot of expense compared to the expense of getting sued or having somebody file a lawsuit against you. And I encounter a number of employees. Just this week, I’ve had three prospective client employees call me, all of whom ended their employment in September, October of last year. Why did you wait six months? You have to file a charge of discrimination in 180 days. You can file it in 300 days, but I prefer to file much sooner. In fact, and some of them have gone, well, I couldn’t take it anymore, so I quit. Well, why didn’t you call me before you called? I might have been able to save things for you or at least negotiate a sentence back. So, if you think you got a legal problem, waiting six months isn’t going to make it go away. Call first and we’ll tell you if you’ve got a problem or not. I have a lot of people who call me and I know there isn’t anything I can do for you, but I’m glad you called. It’s the right thing to do. I’m sorry I can’t help you, but you called me at the right time, at the right moment in what’s going on with you. This is what the situation is, but I can’t help.
Alyson: Absolutely. I think the biggest lesson there is get Harold on your speed dial.
Harold: I like that. Perfect.
Alyson: Well, thank you again, Harold, so much for going through both of these regulations and just providing some clarity. I know it’s going to be very, very helpful. As always, love having you on the podcast. This is always so fun. So, thank you again.
Harold: I enjoyed myself as usual. Thank you.
