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).

The “Real” Price of Nails and Blueberries for Workers

Last Sunday, The New York Times uncovered how consumers can unknowingly play a part in wage theft of exploited workers. Reporter Sarah Maslin Nir was having her nails done one day and asked the salon worker what her schedule is like. The manicurists stated that she works 24 hours a day, with naps, 6 days a week and not paid minimum wage. Maslin’s research uncovered that the price of nails in New York City was far less than the national average and began to connect the dots between exploited immigrants and the real price of a manicure.

Federal Law requires that employees be paid minimum wage[1] for all hours worked.[2] However, sometimes employers pay employees using more elaborate forms such as a “piece rate” or a “salary”. This can lead to issues for employees where the “piece rate” falls below the state or federal minimum wage. For example, overtime is calculated at time-and-a-half the “regular rate”. The regular rate must include all compensation, other than overtime compensation. See: Hisle v. Todd Pac. Shipyards, 151 Wn.2d 853, 862-63, 93 P.3d 108 (2004). This is then divided by the total hours worked during the workweek, so that the pay can be expressed as an hourly rate on which the 50% overtime premium can be calculated. Alternatively, employees can be paid a “salary”, but when divided by the number of hours the employee works and the per hour rate falls below the minimum wage, an illegal practice occurs.

The New York Times' article highlights how the price of many consumer goods or services do not reflect the real price of the good or service. For example, the Washington Supreme Court is likely to issue their ruling on if or how fruit pickers in Eastern Washington should be paid for rest breaks. Washington’s law requires a 10 minute rest break for each four hours worked under WAC 296-126-092(4), however Sakuma Farms employees paid per basket or bushel complain of never receiving pay for their rest. A new ruling that mandates this pay may have a financial impact to farmers and consumers alike, where the price of blueberries rises to the real price.

[1] The 2015 Federal Minimum Wage is $7.25.

[2] “Work” is not defined by the Washington Minimum Wage Act or the Fair Labor Standards Act, and is defined through case law as that which is pursued predominantly for the employer’s benefit, even though it confers a benefit on the employee. See, e.g.: Tennessee Coal, Iron & Railroad Co. v. Muscoda Local 123, 321 U.S. 590, 598, 64 S. Ct. 698 (1944) (defining work as “physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business”).

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.

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)

Human Rights Commission Holds Free Wagetheft Workshop in Tacoma

The City of Tacoma Human Rights Commission is holding a Wagetheft Workshop for workers and victims of wagetheft tonight in Tacoma, WA. Wagetheft is a major issue both nationally and here in the Pacific Northwest. Last week’s closing of Paseo in Seattle set off a flurry of media attention and social media on the issue of exploited workers. The Human Rights Commission’s effort to educate the community on wagetheft and the remedies available through the Department of Labor & Industries and private attorneys should be applauded.

“Wagetheft” is an employer’s taking of time from the employee and not appropropriately compensating the worker for that time. Wagetheft violations can include unpaid overtime, denial of rest breaks and meal periods, improper tip sharing, misclassification etc. Wagetheft disproportionately affects low-wage workers who have rights under Washington State Law and the mirroring Federal Labor Standards Act. However, many low-wage workers have unclear immigration status, do not speak English, or are otherwise afraid to complain to their employers. Tacoma’s leading effort to address wagetheft in our community is essential to addressing the needs of working local residents.

For Questions or More Information about the Workshop, Contact:

William Yi, Tacoma Human Rights
wyi@cityoftacoma.org or (253) 591-5162

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.