Are Non-competes Hurting Seattle’s Tech Industry?

This was the question posed more broadly in Fortune’s recent article “Are noncompete agreements hurting tech innovation?”

Washington joins Massachusetts and Rhode Island in considering new legislation that would severely limit or void many non-compete agreements. Known in Washington as House Bill 1926, the law would principally require that “every contract by which a person is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” If enacted, Washington would join other leading states like California that severely limit non-compete agreements in employee contracts.

Supporters of the bill point to the enormous success of the tech industry in Silicon Valley where similar bans exist. However, critics say non-competes are necessary to protect the employer’s investment in training, education, and exposure to confidential company information.

For the casual reader, non-competes agreements in Washington are often thought of in three parts: (1) agreements to not work for a competitor/customer; (2) agreements to not solicit customers; and (3) agreements to not solicit employees. The three are colloquially thought of as one agreement. However, Washington courts view each of these provisions differently with the burden on the employer to show that the agreement is reasonable.[1]

The debate surrounding non-compete agreements have increased due to recent reports of non-compete clauses showing up in low-wage manual labor contracts. The New York Times reported in 2014 of non-compete agreements showing up in Jimmy John’s employee contracts. The company’s actions have prompted congressional attention to ban non-competes for certain worker categories or workers earning below a monetary threshold. This is a notable contrast to non-competes widespread use for high-wage earners such as executives, engineers, scientists and high-commission sales employees.

[1] Sheppard v. Blackstock Lumber Co. 85 Wn.2d 929, 933, 540 P.2d 1373 (1975).

California Says Uber Driver is an Employee, Not an “Independent Contractor”

Yesterday, Uber appealed a California Labor Commission ruling that held an Uber driver was not an independent contractor, but an employee of Uber.  $4,152.20 in backwages is insignificant when compared to the broad implications of reclassifying Uber drivers as employees.

The ruling is in striking contrast to Uber’s long-held proclamation as a “logistics” or a “lead generating” service that simply connects independent contractors to consumers desiring those services.

A similar ruling here in Washington State could have a major impact on Uber operations here. The Washington State Supreme Court tackled the independent contractor v. employee issue recently in Anfinson v. FEDEX Ground Package System, Inc., 281 P.3d 289 (2012) in adopting the FLSA (“Fair Labor Standards Act”) “economic reality” test[1] for deciding whether an individual is an employee or an independent contractor.[2] The test largely focuses on the degree to which an employer asserts control over the worker. Should a similar ruling to California’s be adopted here, Uber would need to dramatically revise its business model.

[1] The Court referring it to also as the “economic dependence” test.

[2] See also: Bonnette, 704 F.2d at 1469-70 (Home health care workers jointly employed by social service agencies); Real v. Driscoll Strawberry Associates, Inc., 603 F.2d 748, 755-56 (9th Cir. 1979) (licensor of patented strawberries may have jointly employed strawberry growers, where it could control important growing and marketing decisions).

MIND THE GAP: Washington is One of Many States to Not Require “On-Call” Pay

This week, NPR reported on Attorney General Eric Schneiderman’s request for detailed staffing and scheduling information from 13 big retail chains, including Target, Ann Taylor, Gap, J.C. Penney and Abercrombie & Fitch.

The inquiry focuses on dated “reporting-time” laws intended to ensure workers are paid a minimum number of hours when they physically show up at a job for a scheduled shift. Nowadays, employees report being notified via text message or email whether they are required to work that day. This practice can circumvent the requirement to pay employees minimum hours.

New York is one of just 8 jurisdictions with reporting-time pay laws that include: California, Connecticut, The District of Columbia, New Hampshire, New Jersey, Massachusetts, Oregon (minors only), and Rhode Island. Surprisingly, Washington does not require “show-up” pay. The Washington Department of Labor states “Generally on-call pay does not have to be paid unless the worker is actually called back or receives a phone call at home that will fix the problem, which would be considered hours worked.”

Washington has very strong laws that protect workers from performing work without pay, however “on-call” or “show-up” pay is noticeably missing from these laws. As retailers use new technologies to meet efficient staffing needs, the employee ultimately loses where he or she is constantly “on-call” but without pay.

How Come You Don’t Get Paid Overtime?

Do you remember when you were an hourly employee and you received “time and a half” for hours worked over forty? Your boss needed you to work and you needed the money. Life was good. A great exchange of extra money for your valuable time.

But now, you are older, wiser, more educated, more experienced and now paid on a “salary”. So what happens when your boss asks you to work over 40 hours? You work… but you don’t get paid.

So whatever happened to overtime pay?

Odds are high, you don’t receive overtime and aren’t required to. In fact, a study done by the Economic Policy Institute (“EPI”) reported that only 11% of American workers are required to receive overtime. This is generally because:

  1. Your position is likely “exempt” under the current definitions of executive, administrative, and professional employees[1] and
  2. Your annual income does not fall below $23,660 ($455 per week) to qualify for mandatory overtime under the Federal Labor Standards Act (“FLSA”).

The FLSA, passed in 1938, gives the Federal Department of Labor (“DOL”) authority to promulgate regulations and enforce federal labor laws. However, the last update to the overtime dollar amount threshold occurred in 1975. As a result, most businesses are able to require “overtime” be performed by the employee without extra pay.

If this strikes you as unfair, then regardless of your political affiliation, you have a friend in the White House. On March 13, 2014, President Barack Obama issued a presidential memorandum calling for revisions of the DOL’s regulations that could have a major impact on salaried workers in America. These revisions are expected this Spring.

The President has called for revisions of the exemptions for “executive, administrative, and professional employees” (often referred to as “white collar” exemptions). These exemptions, in addition to the $455 per week regulations, have been criticized widely and allowed for low-wage positions to be exempt from overtime (i.e. “Assistant Managers” or “Shift Supervisors” at popular fast food restaurants, despite performing the same or similar duties as hourly employees).

So what does this all mean to you? Well, the Economic Policy Institute equates the current $455 per week, $23,660 per annum rate to $984 a week or $51,168 in today’s dollars. Meaning, employers paying less than $984 per week, may be required to pay non-exempt employees overtime if the new regulations adjust to these amounts and definitions are updated. This could have a substantial economic impact on white collar workers either directly in the form of additional compensation for additional hours worked (or reduced hours) or indirectly through increased hiring to fulfill a previous unpaid need.

[1] These are just a few of the positions excluded from the FLSA and state Minimum Wage Acts. The Minimum Wage Act and FLSA have different minimum wage and overtime exemptions. In addition, the Minimum Wage Act does not include many of FLSA amendments, namely, amendments passed in late 1940s.

Overtime laws vary widely from state to state.  If you have questions or concerns whether you are paid appropriately, you should seek legal advice from an employment lawyer.

Amazon Ruling: No Overtime for Those 25-Minute Security Lines

This week, the United States Supreme Court unanimously ruled in Integrity Staffing Solutions, Inc. v. Busk that employees working warehouse jobs at Amazon were not to be paid overtime for post-shift wait lines that sometimes reached 25 minute delays.

Two workers, who filed the class action, alleged they were forced to wait through excessive security check lines following their shifts. The workers contended they should have been compensated for their time spent during these lines. The Ninth Circuit Court of Appeals ruled in favor of the employees before The Supreme Court reversed. The Court reasoned the security screenings were not “integral” to their jobs as employees primarily hired to pack and ship products to Amazon customers; the employees were not hired to walk through security lines.

This logic is distinguished from previous Supreme Court rulings where certain pre/post-shift activities were deemed compensable.  These have included time battery-plant employees spent showering and changing clothes because the chemicals in the plant were “toxic to human beings” [1] and time meatpacker employees spent sharpening their knives because dull knives would “slow down production” on the assembly line, “affect the appearance of the meat as well as the quality of the hides,” “cause waste,” and lead to “accidents.”[2]

The decision is a major loss for wage and hour advocates who believe in principal that all workers should be paid for their time from the moment they are required to be at work. Although the decision was unanimous and now current law, this is not likely the end of pre/post-shift litigation. Employers such as Amazon, armed with this new Supreme Court decision, might be even more emboldened to reduce security screening staffing, reducing costs, and increasing worker lines.

[1] Steiner v. Mitchell, 350 U. S. 247 (1956)

[2] Mitchell v. King Packing Co., 350 U.S. 260 (1956)

Non-compete Agreements Popping Up in Uncommon Industries

If you think non-competes are just for executives and scientists, you should add the guy who makes your sandwich at Jimmy John’s. The Huffington Post recently reported that Jimmy Johns is one of a number of low-wage-field companies requiring non-compete clauses with workers. The New York Times and The Seattle Times similarly reported on the increased use of non-compete clauses for such positions as hair stylists, event planners, and camp counselors.

Generally, non-compete agreements are specific provisions in the employee’s contract that restrict an employee from working for a competitor after his or her employment ends. Non-competes are usually limited in scope, duration, and geography (i.e. Doctor may not practice anesthesiology for 1-year within a 5 mile radius upon leaving employment).[1] The agreements can have a significant impact on an employee seeking part-time work during or full-time work after his employment ends.

In Washington, non-compete agreements must be “reasonable and lawful.”[2] Generally, two factors are used to determine whether a non-compete is reasonable: the geographic scope of the restraint and the time period for which an employee is restrained.[3] Washington Courts recognize the competing interests of an employee’s desire and right to work after leaving employment and an employer’s interest in protecting an established client base and investment in employee training.

However, the growing trend in low-wage workers being subject to non-competes has garnered increased criticism as examples of employers using unfair leverage over low-wage workers; low wage workers who routinely lack the bargaining power or benefit of a lawyer in drafting a more reasonable agreement.

For further reading, see San Diego Law Professor Orly Lobel’s book on the rise of non-competes in “Talent Wants to Be Free: Why We Should Learn to Love Leaks, Raids, and Free Riding.”

[1] See also Emerick v. Cardiac Study Ctr., Inc., P.S., 170 Wash. App. 248, 258, 286 P.3d 689, 694, as amended (Aug. 8, 2012), review denied sub nom. Emerick v. Cardiac Study Ctr., Inc., 175 Wash. 2d 1028, 291 P.3d 254 (2012) (Washington courts have not yet held that restrictive covenants between physicians are unenforceable).

[2] See Wood v. May, 73 Wn.2d 307, 313, 438 P.2d 587 (1968)

[3] See, e.g. Alexander & Alexander, Inc. v. Wohlman, 19 Wn. App. 670, 688, 578 P.2d 530 (1978) (100-mile restriction to apply only to customers of employer’s Seattle office);

Paseo, The Workers, and The Sandwich Caught In-Between

Yesterday, hungry customers of beloved Paseo Restaurant in Seattle were met with a simple sign on restaurant doors reading

“Due to unfortunate circumstances, we are closing our doors. We appreciate all the support and loyalty you have shown us over the years. We will miss you. Thank you, The Paseo Crew.”

Paseo’s two restaurants in Fremont and Ballard, serving its famous cuban sandwich, have received national acclaim for its cheap eats cuisine and is a favorite among Seattleites.

However, local media, including the Puget Sound Business Journal, The Seattle Times, and The Stranger have reported on the possible reasons for the closing, namely, a lawsuit filed by four Paseo workers for unpaid overtime, rest-break violations, and alleged racial discrimination on September 14, 2014 in King County Superior Court (No. 14-2-24553-0 SEA). The complaint mainly alleges that employees were paid straight time wages for hours worked over 40 hours and not paid the additional 50% premium amounting to time-and-a-half. Non-exempt employees working over 40 hours per week, generally must be paid time-and-a-half their hourly rate under RCW 49.46.130.

As an attorney who regularly represents employees failing to receive wages and denied rest breaks inconsistent with the Washington Minimum Wage Act, Industrial Welfare Act and Federal Labor Standards Act, the Paseo workers’ claims, if true, are not uncommon in the restaurant industry.[1]

Workers who allege unpaid wages or denied rest breaks may file a claim at the Department of Labor & Industries or hire a private attorney. The "Dept. of L&I" may issue penalties and pressure businesses with threats to their licenses while private attorneys may seek recovery of the wages through the court system. Attorneys generally work on a contingency fee basis or recover attorneys’ fees from the other side if successful. This allows for low-wage workers to seek the services of a private attorney without the expense of hiring a lawyer by the hour.

Seattle has stepped-up efforts to address wage theft concerns by proposing new minimum-wage investigators in the Mayor’s new budget. The City of Tacoma is also making efforts to address wage theft by holding a Wage Theft Workshop for employees on November 20, 2014. For more information about the seminar, visit the City of Tacoma Human Rights Commission.

[1] See As Bad You Think It is, It’s Worse: Wage Theft Comes to America by Les Leopold published in the HUFFINGTON POST on November 11, 2014.