Employment Law Update
Pennsylvania Federal District Court Declines to Enjoin Federal Trade Commission’s Non-Compete Rule
On July 23, 2024, U.S. Federal District Court Judge Kelley Brison Hodge declined to enjoin the Federal Trade Commission’s (FTC’s) final non-compete rule (Final Rule). The FTC’s final rule’s anticipated effective date was Sept. 4, 2024, and would invalidate nearly all pre-existing non-compete agreements and bar such agreements in the future. A U.S. District Court Judge in Eastern District of Texas enjoined the FTC’s Final Rule earlier this month. However, the injunction in the Eastern District of Texas was limited to plaintiffs in that case and was not nationwide.
Judge Hodge’s ruling in Pennsylvania held that the plaintiffs seeking the injunction had not shown that they would suffer irreparable harm – a required element for an injunction. The ruling went further and opined that the plaintiffs are unlikely to prevail on the merits of their challenge to the Final Rule, concluding that the FTC’s Final Rule was within the scope of authority granted by the FTC Act. That Act empowers the FTC to “make rules and regulations of the purposes of carrying out the provisions” of the statute, which include preventing “unfair methods of competition.” Judge Hodge found that this authority necessarily includes the ability to make prospective rules, such as the Final Rule.
As it now stands, the two U.S. District Courts to have issued rulings on the Final Rule have reached inconsistent results. The District Court for the Eastern District of Texas has stated that it will issue a decision on the merits of the case on or before Aug. 30, 2024 – before the Final Rule’s effective date of Sept. 4, 2024. That decision may include a nationwide injunction.
We will continue to monitor and report on developments as Sept. 4, 2024, draws closer
NLRB Abandons its Attempt to Revive its 2023 Joint Employer Rule
On July 19, 2024, the National Labor Relations Board (NLRB) voluntarily dismissed its appeal of the Eastern District of Texas’ decision vacating the NLRB’s 2023 joint-employer final rule. The NLRB’s final rule had been challenged by the U.S. Chamber of Commerce and was stayed by the district court in February 2024. The NLRB filed an appeal on May 7, 2024.
In its voluntary dismissal of the appeal, the NLRB reiterated its “opinion that its 2023 rule meets the procedural and substantive requirements of the Administrative Procedure Act and the National Labor Relations Act,” notwithstanding the district court’s ruling that the 2023 rule did not comply with these provisions. The NLRB also stated that it preferred to “further consider the issues in the district court’s opinion” and noted that several rulemaking petitions were on the Board’s docket regarding the joint employer issue that raised similar issues. There are currently also cases pending in the D.C. Circuit – one which has been stayed by the D.C. District Court and the second which has been placed in abeyance by the D.C. Circuit. The NLRB’s voluntary dismissal alluded to those cases and the desire to get other court’s views on these issues.
The saga of the NLRB’s joint employer rule continues, and we should anticipate the next major development will come from the D.C. Circuit. Employers should seek counsel if they have concerns about the application of the joint employer rule to their operations.
California Jury Awards $20 Million Verdict in Race Harassment Case Against Stanford Medicine Cancer Center
On March 28, 2024, a California jury awarded current Stanford Health Center patient testing technician Qiqiuia Young a total of $20 million in emotional distress, defamation and punitive damages against Stanford Health Center and Stanford University.
Young filed a suit while still employed by Stanford Health Center. Her lawsuit alleged a series of acts of racial harassment and discrimination, beginning with her coworker’s threats to, and then actually dressing as, a Ku Klux Klan member in the workplace. Young also detailed multiple instances of the “N” word used in the workplace as well as reports of patient safety care concerns and retaliation against her and colleagues for reporting the safety issues and race harassment on her behalf. The day after Young filed the case, Stanford University dean and the Stanford Health Care CEO sent an email to more than 22,000 people and implied that Young was dishonest in her reports of racism or patient safety issues.
The trial of Young’s claims lasted seven weeks, during which other employees, including the former associate dean of admissions of Stanford University School of Medicine, testified on Young’s behalf and provided the jury with sufficient basis to find Young was subjected to racial harassment, discrimination, whistleblower retaliation and defamation. The defendants petitioned the trial court for a new trial and to set aside the verdict. The trial court conditionally reduced the verdict to $10 million while upholding the $2 million award in punitive damages against Stanford University for retaliation and $3 million award in punitive damages against Stanford Healthcare.
Pennsylvania Bans (Most) Non-Compete Agreements for Healthcare Practitioners
Consistent with the nationwide trend prohibiting or limiting non-compete agreements, the Fair Contracting for Health Care Practitioners Act (Act) passed and will go into effect in Pennsylvania on Jan. 1, 2025. The Act is the result of an initial effort to improve patient care, address rural healthcare challenges and completely ban non-competes for healthcare workers. The Act, as enacted, restricts the ability of some healthcare employers and practitioners to enter non-compete agreements under most circumstances. “Practitioners” under the Act include physicians, physician assistants, certified registered nurse practitioners, certified registered nurse anesthetists and osteopaths. The Act makes void and unenforceable any non-competition covenant that “has the effect of impeding” certain healthcare practitioners’ ability to treat or accept new patients. The Act is not retroactive, and valid non-compete agreements entered into before Jan. 1, 2025, are still enforceable.
As an exception, where an employee voluntarily terminates employment, the Act allows non-compete covenants not longer than one year. However, where the employer terminates the employee’s employment, such a non-compete would remain invalid. The Act does not have any “for cause termination” exception and does not prohibit non-compete agreements in the sale or transfer of a business entity, if the healthcare practitioner is a party to the transaction.
The Act also allows enforcement of contractual provisions related to the recovery of reasonable expenses for relocation, training or establishing a patient base as long as these expenses are “directly attributable” to a practitioner and incurred within three years prior to separation, and the practitioner voluntarily departed.
The Act has certain patient notification requirements as well, including requiring employers to notify patients of a departing healthcare practitioner within 90 days if the practitioner has had an ongoing outpatient relationship with the patient for at least two years as well as other requirements not described here.
Selective Enforcement of Employment Policies in “Nazi” Joke Case Provides Grounds for Idaho Supreme Court’s Remand of Unemployment Claim
The Idaho Supreme Court recently remanded an unemployment insurance decision from the Idaho Industrial Commission (Commission). The case arose in the Idaho Department of Labor (IDOL) when Thomas Hennig filed a claim for unemployment benefits after being fired by his employer Money Metals Exchange, L.L.C. (Money Metals). Hennig had worked as a weekend shift supervisor for Money Metals and was responsible for monitoring and correcting time clock entries for coworkers. In this capacity, Hennig advised a new employee how he handled employee time variances and, as an example, specifically referenced another employee who took longer lunches to care for her pet. The employee with the pet learned Hennig had referenced her by name and complained to management.
Hennig’s manager Daniel Novak met with Hennig to discuss this issue and “re-briefed” Hennig on the company’s communication policy. The policy stated that all conversations, whether in person, by phone, email, or chat should be handled with courtesy and professionalism. Novak reminded Hennig that he was an extension of the management group and needed to hold himself to a high standard; however, the discussion was not documented, and no formal reprimand was issued. Subsequently, management monitored Hennig’s electronic communications. Two days after the meeting with Novak, Hennig had an exchange with a coworker in the breakroom about clocking out for lunch. Hennig later discovered that the coworker had failed to clock out for lunch and messaged him on the company’s instant message system. During the conversation, Hennig wrote: “I’m paid to be a good little Nazi, so I want to try to be the best little Nazi I can. I probably shouldn’t have put that into writing… On a work chat. Oh well, they’re the ones paying me.” The following day, Money Metals fired Hennig.
After his termination, Hennig applied for unemployment insurance benefits through the IDOL. The IDOL found Hennig was ineligible for benefits because he was discharged for misconduct. Hennig appealed to the Commission. The Commission affirmed the denial of benefits and found Hennig was ineligible due to misconduct connected with his employment. Hennig then appealed to the Idaho Supreme Court, arguing that the Commission’s decision was unsupported by evidence.
On appeal, the Supreme Court focused on the standard for determining misconduct for unemployment benefits purposes. The Court emphasized that for an employee’s behavior to be considered misconduct under Idaho law, the employer’s expectations must be reasonable and that the employee’s actions must demonstrate a willful disregard of those expectations. The Court found that the Commission had failed to assess the reasonableness of Money Metals’ expectations. Hennig argued that Money Metals selectively enforced its communication policies and that it had previously encouraged his irreverent sense of humor at work, communicating that it had been one of the reasons Money Metals hired him in the first place. Hennig claimed that his “Nazi” message was intended as a joke about his strict enforcement of the company’s time clock rules. Further, Hennig asserted that Money Metals tolerated racist comments of a coworker and argued that the company’s expectations of Hennig was contrary to the company’s established course of conduct. Hennig argued the communication policy was selectively enforced because Money Metals had previously promoted an employee who had repeatedly and intentionally used “highly charged incendiary language” in front of management and other coworkers. The Court agreed with Hennig that the Commission failed to address whether Money Metals tolerated other racial slurs in the workplace.
The Court remanded the case back to the Commission to conduct further analysis, requiring it to consider whether Money Metals consistently applied its communication policy to all employees or if there was selective enforcement of this rule. Selective enforcement implies possible bias, which could render the company’s expectations unreasonable. Moreover, the Court instructed the Commission to analyze whether Money Metals encouraged Hennig’s jovial and unorthodox humor, as he testified. If the company fostered a culture where such humor was tolerated, it would be unreasonable to penalize Hennig for such behavior whereas another employee received a promotion based on potentially more egregious behavior. The Court found if Money Metals encouraged Hennig’s use of irreverent humor when speaking to his coworkers, then he may be entitled to unemployment insurance benefits.
The Court’s decision in Hennig emphasizes the need for consistent application and enforcement of communication policies necessary for maintaining a professional and respectful work environment, ensuring all employees are held to the same standards and preventing selective or biased treatment in the workplace.
