No More Non-Competes?

The Federal Trade Commission took the extraordinary step last week of issuing a nationwide ban on non-competition agreements.  The implications of the FTC's actions are significant and worth a quick discussion.

First of all, there is serious doubt whether the Commission has the constitutional authority to rewrite law across the country in such a manner. There is no statute from Congress authorizing such a move; the Commission made this sweeping change based on its determination that non-compete agreements, which are matters of individual employment contracting, fall within the Commission's purview to regulate anticompetitive actions between businesses. Given the Supreme Court's recent and pronounced disfavor with federal executive actions that effectively usurp congressional power, I think it's unlikely that this action will survive even an initial court review. Although it is highly likely to be in effect at least through the presidential elections this fall, which I suppose is the actual goal of the Commission's action.

Secondly, the Commission's action removes an irreplaceable tool for employers to protect their investment in senior management employees. There are very few means for a company to prevent the loss of corporate and business expertise when a manager intimately familiar with product development, marketing demographics, sales strategy, and the like, departs for a competing business.  Often the business expertise of the departing manager developed over years with a particular company and is a direct product of the company's efforts to train and develop her talent. A transferring senior manager instantly makes the gaining company a formidable competitor, but without the time and investment made by the former employer.  

The Commission asserts that current trade secret law is sufficient to protect the losing company's interests.  Sometimes I wonder if the federal bureaucrats making these decisions spend any time working in the private sector. There is no way to extend trade secret or other intellectual property protection to the kind of long-term business practice expertise that non-competes, properly employed, are designed to protect.  The Commission's actions, like the actions of so many of our federal executive agencies, simply add to the burden and risk of hiring employees for the long term.

Acronym Soup-NPR and the NLRA

The saga of Uri Berliner, a senior editor at NPR, has some interesting angles from an employment law perspective.

Berliner published an article in The Free Press that detailed a lack of political and intellectual diversity at NPR that he claimed significantly damaged its journalism. He criticized the monoculture and groupthink mentality that supposedly permeates NPR's decision-making with respect to the stories that it covers and how it covers them. NPR's new CEO came in for specific criticism in the article, which was published without prior coordination from NPR management, and which violates NPR's internal policies.

The organization's reaction was immediate- it suspended Berliner for five days without pay and warned him that if he spoke or provided content to another outside media entity without prior NPR approval he would be fired.

My first reaction upon reading this was that NPR's actions were almost certainly a violation of Section 7 of the National Labor Relations Act, which prohibits employers from retaliating against employees who engage in so-called “protected concerted activity.” “Protected concerted activity” has two elements- the activity, typically a complaint or other demonstration of dissatisfaction, must relate to the terms and conditions of employment, and it must relate to circumstances that affect other members of the organization, not just the individual raising the concern. The term has recently been litigated before the National Labor Relations Board which adopted a “totality of the circumstances” analysis to determine whether employee conduct falls under the coverage of Section 7. 

It's clear that Berliner’s comments fall within the ambit of this term. The issue is whether NPR fired him for this conduct or for the alleged violation of its internal policies. And here I think NPR has some problems. For one thing, there are apparently other instances where NPR members either granted interviews or wrote for other outside media without facing disciplinary action. Perhaps more importantly, the immediate response by NPR management against a long-time senior employee with little or no investigation and only a whiff of progressive discipline is indicative of a response based on the content of the column and not its lack of coordination.

Berliner has indicated he will not challenge the suspension but this widely publicized story is a cautionary tale for management. In situations like this, avoid the immediate, knee-jerk response to hit back at the employee. NPR would have been better served by taking its time, performing an investigation (and especially an investigation that looked at other examples of this conduct and the discipline meted out), and then dealing with the employee. The company may have dodged a bullet here.

EEOC Goes After An AI As An Employer

There's an interesting employment law case developing in California (it's always California) involving the status of a software company as an employer or employment agency for one of its clients.  The case potentially represents a major expansion of employment law liability for companies supplying services that involve employee screening, hiring, or any other kind of concrete employment decision. The implications for artificial intelligence programs in particular look to be very serious. 

The facts are straightforward. An individual made over 100 applications to various employers that used an online application template provided by a company named Workday.  Potential hires would apply online to companies through various hiring sources (e.g., LinkedIn) and were then directed to the Workday app where they would input a resume and personal details, and in some instances take an aptitude test. The plaintiff in this case was rejected for all of his applications (we have no indication of whether he was qualified for the jobs for which he applied). He is now claiming that these rejections were based on his race and disability, which he apparently was revealing as a matter of course in the application process. 

Important safety tip here- while I have not seen the Workday template, I'm reasonably certain that it does not ask for the race and a list of disabling conditions on the part of applicants, At least as part of an initial hiring process. How and why this information was being input at this stage raises an interesting question about whether these were bona fide employment applications. 

In any event, the Workday app reviews the templated information and then forwards qualifying applications on to the employer. There is no interview interaction or any other kind of personal evaluation of the applicant- the software simply screens the application for job requirements and determines if this is a potentially good match based on the criteria from the employer. 

Given its relatively mundane function, imagine Workday's surprise when it found itself in the crosshairs of an employment discrimination lawsuit filed not by one of its employees, but by one of its customer's employees. And to make matters worse, the EEOC has now jumped into the fray, arguing that the company is in fact acting as an employment agency and therefore is subject to Title VII for the employment decisions that are, in essence, being made as a result of the criteria Workday receives from its customers. 

The motion detailing these arguments is here. The implications are much broader than simply whether Workday is acting as an employment agency. Many companies are moving to artificial intelligence algorithms to assist them in making employment decisions involving hiring, firing, promotions, etc. Under the EEOC's theory, the manufacturers of these software systems could find themselves in the Commission's sights either as employers outright or as some kind of quasi-employer. I'm reasonably certain the Commission is attacking AI systems as discriminatory across the board because their widespread use will likely mean the end of affirmative action as we know it.

Imagine you manufacture an AI system that helps employers assess talent for internal promotions. Suddenly you are subject to Title VII liability not only for the employees in your own company, but for the tens of thousands of employment decisions for which your application is used throughout the United States. Sound crazy? I agree. But this is the logical outgrowth of the EEOC's position in this Workday case. 

Stand by for more exciting news from Northern California. 

The NFL and the End of Race-Norming Benefits

The NFL concussion protocol and the legal issues surrounding how to compensate several generations of players who sustained cumulative neurological trauma continue to evolve, albeit at a slower pace than when the litigation was originally started 15 years ago. 

The latest round involves a practice known as "race-norming," which is a methodology of assessing cognitive damage that is as mercenary as it is offensive. In a nutshell, a number of NFL players applying for benefits under the concussion protocol were not subject to the cognitive baseline assessments that are now performed on NFL players at the start of every season. And although these former players were now presenting with clear evidence of cognitive decline as a result of thousands of head impacts, without knowing the individual cognitive starting point, it's impossible to determine the extent of the overall injury and thus the NFL concussion benefit plan's liability. 

To make up for this lack of baseline knowledge, the insurance plan administrators did what they always do-they used an average cognitive baseline for players given their demographic characteristics, which included race. These averages lowered the cognitive baseline for black players based on practices used in a variety of other medical specialties. The upshot of this was that black football players without the individual cognitive baseline assessment had to show a steeper decline in cognitive ability to get the same level of benefits that a white player would receive with a similar cognitive score. 

This all came out in litigation over concussion benefits in 2020 and the picture wasn't a pretty one. The NFL formally stopped the practice in 2022. It looks like the last lawsuit over this issue is now about to be settled, which I'm sure is a very welcome result at the NFL's Park Avenue headquarters. 

Once Again, Basic Management Principles Would Have Helped Avoid A Lawsuit

Occasionally,  I run across a case that is such a model of management missteps that it practically begs to be included in the blog. Here is there another example. 

A female employee had worked her way up through the ranks at Aramark to a senior management position. Her problems started when a new manager came in, one whose actions went apparently unmonitored.

You can read a more complete version of the facts here, but let me summarize a couple of timeless lessons that apply to virtually every employee management situation.

1. Long-term employees, and in particular long-term employees who have worked their way up through the ranks into management positions in the company, are entitled to a basic level of respect in how management deals with them. That respect normally takes the form of some kind of extended due process, especially in termination situations. A company terminating a long-time employee should be particularly diligent in reviewing the circumstances surrounding the termination, and management's actions in dealing with the employee.

2. While employers may generally expect the workforce to adapt to the requirements of new leadership, a radical change in subordinate performance evaluations may well indicate a problem with the leadership rather than the subordinate employees. Company leadership should be sensitive to a new manager finding significant faults with established performers. See, #1, above.

3. Complaints from management-level employees should never be ignored, but instead investigated carefully. That doesn't mean that the employer accepts as true every allegation from a manager, but the company must establish a rational basis for not taking corrective action in response to those allegations.

4. No termination decision should take place in a vacuum. The employer must be aware of all the circumstances within its span of knowledge surrounding an employee who is about to be fired. In this case, someone should have noted that the employee filed an HR complaint days before the termination was effected.

This is relatively common sense stuff, or put another way, Smart and Legal Employee Management 101.  Not following these basic principles gets expensive very quickly.

Thoughtcrimes Now in Vogue at Air Force?

Here's a strange and disturbing story out of the Air Force Academy. It seems that in an effort to police what it believes are incidents of bullying, disinformation, or extremist commentary the AF leadership has set up a social media monitoring mechanism that reviews the personal, off-duty activities of cadets in places like Instagram, TikTok, Facebook, X and the like. 

Now, military members have significantly fewer protections under the Constitution than civilians. This has been clear since the founding of the Republic. Service members are prohibited by law from openly criticizing certain elected officials, for example. But airmen, soldiers and sailors don't forfeit all of their constitutional rights, and the open-ended nature of this monitoring program sounds a clear signal that Academy officials are not interested in just correcting incidents of illegality that might be revealed on social media. Those officials are interested in discovering people who have improper thoughts about, well, who knows? The originator and overseer of the project is quoted as saying, "The goal of monitoring social media is to educate cadets, prevent them from spreading harmful material online and respond when someone is posting content that academy leaders consider harmful to the base’s culture."  

Well. Nothing overreaching or potentially problematic about that. The Air Force cadet squadrons already contain what most of us familiar with the program refer to as political officers- cadets who have been stewed in the military's version of  DEI - to report their wrong-thinking peers for reeduca-, uh, counseling when they express opinions inconsistent with DEI theology. It's not much of an intellectual leap to see how monitoring off-duty and private social communications can greatly assist in ferreting out wrongthink.  

As you can see from the article, several constitutional and privacy law specialists who are real lawyers are raising 4th Amendment questions about this program. My hope is that the monitoring system gets cut before it provides Academy officials with information that their DEI programs aren't being taken seriously by the cadets. If that happens, the program will expand dramatically unless it's curtailed by legal challenge. 

COVID Vaccine Aviation Cases Continue to Lose

One of the major disappointments among the many arising out of the COVID vaccine mandates was the almost complete failure of the US legal system to adequately respond to this unprecedented breach of employment law. There were a couple of big wins- Biden was unable to force virtually the entire US workforce into getting a shot with an unlicensed vaccine against its will, for example- but for the most part employer vaccine mandates have been approved by state and federal courts. This notwithstanding the fact that almost every one of the mandates, and the questions being asked leading up to the mandates, were a clear violation of the Americans with Disabilities Act ("ADA") and Title VII in cases where religious exemptions were in play. 

Examples include cases involving pilots for United Airlines (the only airline that actually terminated employees for refusing to get vaccinated) and Kalitta Air, a cargo carrier. In both cases, pilots who refused the vaccine on religious grounds had their claims disposed of on procedural grounds before any meaningful litigation could take place. 

The story of COVID vaccine employer mandates is one that needs to be explored in much greater detail. Here's my summarized take: The US set up a legal regime under the ADA specifically designed to prevent precisely what happened with the COVID vaccine mandates, namely, a presumption by employers that their employees were disabled because they were contagious, accompanied by unauthorized inquiries into the vaccination status of the workforce. Because no judge wanted to be the one who authorized a shutdown of vaccine mandates in the face of a supposedly terrifying epidemic, these legal issues went basically unexamined. The irony, of course, is that as we learn more about the nature of the disease and the vaccine development itself, there is less reason to support these mandates. I'll hope at some point this story gets the coverage it deserves. 

The Next ERISA Litigation Frontier--Drug Plans and Fiduciary Duty

The Employee Retirement Income Security Act, better known as ERISA, was enacted to provide protections for employee benefit plans that companies were setting up as inducements for hiring and employee retention.  ERISA's requirements are highly technical and involved, part of ERISA's protection scheme against nefarious employers and plan administrators who just don't seem to be able to keep their mitts off the significant amounts of money controlled in these benefit plans. 

As an employment lawyer, my perception of ERISA is that it is a never-ending source of plaintiff's litigation as plan administrators seem to make one misstep after another in handling employee investments and returns. The latest round of endless ERISA litigation involves drug plans and the entities set up by employer health insurance plans to monitor drug costs. Most of this litigation involves an alleged failure by the plan administrators to ensure that drugs covered by employer health insurance plans are the cheapest, most effective, and most readily available. There's a very detailed and boring description of the litigation here-- it looks like the plaintiff's bar has discovered another relatively untapped source of money to exploit with huge class action claims. 

As with most litigation claims under the statute, this new variety should serve as a warning that employers cannot simply dump responsibility for the management of their benefit plans - health, retirement, etc. - to third parties without some type of oversight. Remember, the statute does not require that everything be done on the lowest cost basis, but rather that plan decisions are based on rational and justifiable reasons. It wouldn't hurt to sit down with plan administrators annually and get an explanation for the decisions they are making on your retirement and health insurance programs.