On November 4, 2016, Pennsylvania Governor Tom Wolf signed into law Senate Bill 1265Act 161 of 2016 (the “Act”) amends the Pennsylvania Wage Payment and Collection Law (the “WPCL”) and allows employers to pay wages and other compensation via the use of debit cards commonly called payroll cards. This Act, which takes effect on May 3, 2017, supersedes previous case law which held that the use of payroll cards violated the WPCL.

Copyright: nyo09 / 123RF Stock Photo
Copyright: nyo09 / 123RF Stock Photo

There are some very important employee protections embedded in the Act. For example, the decision to accept payment via a payroll card must be authorized in the writing or electronically by the employee. Additionally, receipt of wages or other compensation via payroll card cannot be made a condition of employment in any way. An employee also must be permitted at least one free withdrawal and one free ATM withdrawal for each payroll period, or weekly, if the employee is paid more frequently than weekly.

Before an employer may shift employees to payment by payroll card, an employer must provide its employees with “clear and conspicuous notice” of the following information:

  • All of the employee’s payment options (i.e., check, draft, cash, etc.);
  • The terms and conditions of payroll card option, including any fees to be charged by the card issuer;
  • A notice that third parties may assess fees in addition to an issuer fees; and
  • The methods available to the employee for accessing wages without fees.

Regarding fees, the Pennsylvania Legislature has prohibited many of them, including any fees relating to:

  • the application, initiation or privilege of participating compensation via payroll card;
  • the original issuance of the payroll card or any employee-requested replacements (up to one per year);
  • the process of placing wages, salary or other compensation into the payroll account;
  • purchase transaction at a point-of-sale; and
  • nonuse or inactivity during the first 12 months after compensation is transferred onto the payroll card account.

An employee must also be provided with manner of determining a card’s balance without cost. Importantly, compensation transferred to a payroll card cannot expire.

There are several more requirements to the Act. I would encourage all employers, franchisors and franchisees alike, considering utilizing voluntary payroll cards after the Act becomes effective on May 3, 2017, to review its terms, and any regulations or guidance issued by the Department of Labor and Industry respecting it. At long last, however, the question of the use of payroll cards in Pennsylvania has been put to rest. So long as employers practice careful adherence to the law, payroll cards will soon be legal in Pennsylvania.

Copyright: olegdudko / 123RF Stock Photo
Copyright: olegdudko / 123RF Stock Photo

On November 22, Judge Mazzant of the U.S. District Court for the Eastern District of Texas issued a nationwide injunction against the Department of Labor blocking its Final Overtime Rule, which was set to go into effect on December 1, 2016. The Final Rule would have more than doubled the Fair Labor Standards Act (FLSA) salary test for executive, administrative, and professional employees from $455 per week to $913 per week. White-collar employees earning below the $913 threshold would have been entitled to overtime. The Department of Labor rules also established a mechanism for the threshold to adjust automatically every three years starting in 2020.

Click here to read the full alert published by our Labor & Employment practice, which includes important takeaways for employers.

Not long before the election, the Obama Administration issued a “call to action” statement in which it urged state governments to restrict many of the non-compete agreements that employers often impose on employees. The statement calls on state legislatures to adopt certain “best practices” for regulating employee non-compete agreements, including:

  • banning non-compete clauses for certain categories of workers, such as workers under a certain wage threshold, workers in certain occupations that promote public health and safety, and workers who are unlikely to possess trade secrets;
  • refusing to enforce non-compete clauses against workers who are laid off or terminated without cause;
  • disallowing non-competes unless they are proposed before a job offer or significant promotion has been accepted;
  • requiring employers to give additional consideration (i.e., more than just continued employment) to workers who sign non-compete agreements;
  • encouraging employers to better inform workers about the law in their state and the existence of non-competes in contracts and how they work; and
  • encouraging the elimination of unenforceable provisions through the use of legal doctrines that make such provisions (or contracts containing them) void.
Copyright: bswei / 123RF Stock Photo
Copyright: bswei / 123RF Stock Photo

The statement follows the administration’s May 2016 report titled “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses.” The administration stated that the May 2016 report was intended to address “issues regarding misuse of non-compete agreements and describe[] a sampling of state laws and legislation to address the potentially high costs of unnecessary non-competes to workers and the economy.”

The statement noted that the laws of three states (California, Oklahoma, and North Dakota) already contain significant restrictions on non-compete agreements signed by employees, and at least a dozen states have considered legislation in this area during the past year. To accompany the report, the White House also published a “state-by-state explainer” of existing state non-compete laws to help interested parties understand the restrictions that are already in place across the country.

Despite last week’s election, the Administration’s proposal is certain to attract a significant amount of attention, both pro and con. For one thing, there is an ongoing discussion in the economic and business press regarding whether non-compete agreements are good for the economy. Of particular importance for franchisors and franchisees, unless the Republican Congress and Trump Administration enact national non-compete laws and regulations, the focus of non-compete regulation is likely to shift to the individual states over the next four to eight years. Given the deep political divides present in the country, regional and national franchise systems could be facing a myriad and conflicting patchwork set of state regulations. Because of this, franchisors and franchisees should be careful to note that a particular form agreement may be fine for employees in some states but less-than-ideal for employees in a different state. The “explainer” document can be a helpful tool to help franchisors and their franchisees understand those differences when they hire new employees across the country.

Much of the text of this post was originally authored by Jim Singer and first appeared in a slightly different form on his IP Spotlight Blog. We thank Jim greatly for his permission to re-post it here in a slightly modified form.

Payroll debit cards can be a useful way for employers like franchisees to pay wages to employees. They are convenient for both employers and employees and, especially for unbanked employees, a way of having ready access to earnings. A recent decision from the Pennsylvania Superior Court in Siciliano, et al., v. Mueller, et al., 2016 PA Super 229, clarifies that mandatory use of payroll debit cards is presently barred by the Pennsylvania Wage Payment and Collection Law (the “WPCL”).

Copyright: kues / 123RF Stock Photo
Copyright: kues / 123RF Stock Photo

The Siciliano case involved a franchisee who operated 16 McDonalds franchises in Pennsylvania. The litigation case was brought as a class action by employees against the franchisee, alleging that mandatory payment of wages via a payroll debit card violated the WPCL. After the trial court denied the franchisee’s motion for summary judgment, the court certified that the issue of whether the mandatory use of debit cards for payment of wages was legal under the WPCL was a controlling issue of law previously undecided in the Commonwealth’s jurisprudence. The Superior Court, one of Pennsylvania’s intermediate appellate courts, agreed and accepted the case on an immediate, interlocutory basis.

The Superior Court began its opinion by looking at the plain language of the WPCL, which states:

Wages shall be paid in lawful money of the United States or check.

Based on the definition of a “check” given in the statute itself, the Superior Court quickly concluded that a debit card was not a check or a other bank draft payable on demand. The Court spent a little more time explaining “lawful money”. While the term is not defined in the statute, the Court reviewed other Pennsylvania statutes where it is defined. The definition of lawful money did not include a debit card in any of them. Consequently, the Court held that the payment of wages by debit card is not lawful under the WPCL.

In particular, the Court seemed very concerned that the debit card chosen by the franchisee only permitted one free withdrawal, and that the bank charged $5.00 per withdrawal thereafter. Similarly, the Court rejected the amicus arguments of the American Payroll Association. The Association cited to the Pennsylvania Banking Code for the proposition that “lawful money” may be paid by deposit to an account at a financial institution and that a deposit to a check card was by necessity a deposit to such an account. The Court rejected this argument because the Banking Code permits such deposits only upon the request of the recipient. It reasoned that the mandatory use of debit cards for the payment of wages could not reasonably be considered to be done at the request of the employee.

Bottom line: At this point in time, it is illegal for an employer to pay wages in Pennsylvania via debit card. Importantly, the Superior Court made it clear its decision applies to both mandatory and voluntary use of debit cards. Help, however, is on the way for employers. The Pennsylvania legislature recently enacted, and Governor Wolf signed, legislation that amends the WPCL to permit the voluntary use of debit cards, at the specific authorization of an employee, for the payment of wages beginning May 3, 2017.

A recent ruling by the Nebraska Supreme court reminds franchisors to properly renew their Franchise Agreements with their franchisees as they may lack contractual protection, and in the least clarity, as to their rights in the case of hold-over franchise arrangements.

Copyright: styxclick / 123RF Stock Photo
Copyright: styxclick / 123RF Stock Photo

In Donut Holdings, Inc. v. William Risberg, — N.W.2d —, 294 Neb. 861 (Neb. Sept. 30, 20160), the Nebraska Supreme Court affirmed a trial court’s decision that a franchisor was not entitled to recover lost royalties or fees from a hold-over franchisee for the time period after the franchisor notified the franchisee that the franchise agreement had expired.  In this case, neither the franchisor or franchisee took action to renew the franchise agreement when it expired in 2004 and the parties continued to operate, including the payment of royalties and advertising fees, as if the franchise agreement were in effect until 2009.  In 2009, the franchisee ceased paying the franchisor and, in response, the franchisor sent a letter stating  “the agreement had expired in 2004, and that [the franchisee] should review the provisions of the franchise agreement relating to its obligations upon the expiration of the franchise.”  The franchisee apparently continued to operate without payments to the franchisor until 2012.

The franchisor sued the franchisee for breach of contract and claimed damages in compensation of lost royalties and advertising fees from 2009 through 2012.   This was brought as a breach of contract claim.  The franchisor apparently did not bring any tort or statutory claims such as unjust enrichment or unfair competition.  The trial court denied the franchisor’s breach of contract claim and the Supreme Court agreed, holding that while the parties had an implied in fact contract from 2004 to 2009, the franchisor’s 2009 letter terminated that implied contract.   The franchisor did argue that they a should be allowed to recover royalties and fees as the franchisee continued to use franchisor’s recipes and trademarks after 2009, but the court rejected that argument since the franchisor had not plead unjust enrichment.

In summary, this case is a strong reminder that franchisors may lack contractual protection in the situation of a hold-over franchise and should endeavor to prevent this situation from happening by renewing their franchise agreement in accordance with their terms.  However, should they find themselves with a hold-over franchisee, they should consider also seeking tort or statutory remedies when enforcing their rights against a hold-over franchisee.

 

The FTC has issued an updated data breach response guide. The guide provides an outline of steps the FTC believes your company should follow in the event of a data breach. They fall into several broad categories:  securing operations, fixing vulnerabilities, and notifying appropriate parties.

Under the heading of “securing operations,” the FTC suggests things such as assembling a team of forensics and legal experts, securing physical areas, taking servers and other affected equipment offline, and conducting an investigation into what occurred. This is all good advice. But, in my opinion, it comes too late. Companies need to plan for data breaches before they occur. Planning proactively allows you to have your response plan in place. Then, all your leadership team needs to do is implement it.

If you have a response plan in place, then “fixing the vulnerabilities” will be easier, too. Your forensic investigation will inform what vulnerabilities the attack and breach uncovered. Nonetheless, the FTC advice here is a little weak as well. For example, only at this stage does the FTC suggest creating a comprehensive communications plan. You need to have a draft communications plan in place that you can update and put into action at the first sign of trouble. If you don’t, you will be overwhelmed responding to rumor and false information instead of setting the agenda for the post-breach conversation.

The “notifying appropriate parties” section of the FTC guide, in contrast, is chock full of good advice, including sample notification letters and contact information for key agencies and entities like credit reporting agencies. The guide also reminds us that most states now have state reporting requirements that need to be followed and that breaches involving health information involve an entirely separate area of federal notification law. Especially in cases involving health information, strict compliance with the law is necessary.

While imperfect, the FTC guide for responding to data breaches has substantial information and is worth reviewing. Importantly, it provides guidance as to the type of response the FTC desires. Complying with the guidance by definition reduces the likelihood the FTC with bring an administrative action respecting any data breaches you suffer and helps in your defense to any actions the FTC does initiate.

In a development that applies to all businesses operating in California, Governor Jerry Brown recently signed a new bill which prohibits employers in California from requiring employees, as a condition of employment, to submit to the law of another state or foreign jurisdiction for disputes related to their employment.

© 2005 iStockphoto LP. All rights reserved.Applicable to employees who primarily reside and work in California, the new law provides that employers may not include provisions in employment agreements that require the adjudication of claims outside of California, or apply another jurisdiction’s law to disputes arising in California. As an example, a New York business with employees in California could not include provisions that require disputes with such employees to be heard in New York courts or governed by the laws of New York. The law further provides that provisions in employment agreements that violate the foregoing prohibitions are voidable, upon request of the employee, and any disputes over a voided provision must be adjudicated in California courts under California law.

The law, known by its legislative moniker of California Senate Bill No. 1241, will become effective January 1, 2017 and applies to contracts entered into, modified, or extended after January 1st. It is viewed by many as an attempt to target mandatory arbitration provisions commonly found in employment agreements. Additionally, especially given the nationwide fight being waged to redefine many franchisees as “employees” of the franchisor, this new law has the potential to void common choice of law and forum provisions in franchise agreements entered into the California residents.  This law is sure to be challenged, as it seems to fundamentally assault the ability of employers and employees to bargain freely, so stay tuned.

Thanks to Evan McGillan for his research and drafting assistance for this post.

In Williams v. Jani-King, counsel for Jani-King has requested the Third Circuit en banc reconsider its decision to allow class certification to franchisees who claim to be employees, rather than independent contractors. Although the Third Circuit did not reach the merits of the case, which claims misclassification of the franchisees as independent contractors, the Third Circuit considered the controls inherent in the franchise relationship as a factor under Pennsylvania law.  In a strong dissent, Circuit Judge Cowen recognized franchising as a “bedrock” of the economy, and the majority decision threatens to undermine the entire franchise industry by confusing trade mark and operational controls as evidence of control over employment.

At oral argument, counsel for Jani-King, Aaron D. Vanoort, argued to the panel that  “control over what” is important.  His argument, adopted by the dissent, is that control over trademarks, required by the federal Lanham Act, should not be considered at all in the evaluation of whether franchisees are really employees. In support of the en banc request, Jani-King argues that the uniform franchise documents used to support class treatment, should actually be read by the court to address whether the class action should go forward.

As the merits remain undecided, the case creates uncertainty for the franchise industry.

 

A recent article in Wired instructed employees in how to digitally erase all their stuff when they quit their jobs. The problem is that the author drew few distinctions between wiping computers of all personal items–family photographs or videos, personal emails, etc.–and company-related work product. Most franchisors and franchisees will take the position–and rightly so!–that employees’ work product on their company-issued laptops, cell phones, and voicemail accounts is company property.

The corollary to the Wired article is what the employer should shut down when an employee resigns. Whenever an employee resigns their employment, companies must be prepared to take some immediate steps:

1. Unless there are ongoing projects that the employee needs to complete, the company should shut down or limit the employee’s access to confidential and proprietary information;

2. The IT Department needs to monitor the employee’s computer activity to ensure that they are not downloading or sending to personal email confidential or proprietary documents or information, including client lists; and

3. The employee should be reminded of any existing obligations under a confidentiality or non-disclosure agreement, or company policy. While many states have adopted uniform trade secret acts, and the recently passed Defend Trade Secrets Act provides a cause of action if a company’s trade secrets are misappropriated even in the absence of a restrictive covenant, it is helpful to be able to point an employee to concrete obligations in an agreement when they resign their employment.

Post-separation, franchisors and franchisees need to be prepared to enforce their restrictive covenants. If an employee destroys or misappropriates trade secrets when they wipe their company-issued computer clean, companies should be prepared to enforce their rights.

This post was authored by Catherine Barbieri and first appeared in slightly edited form on Fox Rothschild’s Tech in the Workplace blog.

Neon NoOn September 22, 2016, California Governor Brown vetoed two pieces of franchise legislation which had been passed by both houses.  Both of these bills originated with the State Bar of California’s Franchise Law Committee.

The first bill is Assembly Bill 1782.  Effectively, Bill 1782 provided for a Limited Trade Show Exemption, which means that a franchisor can attend a trade show in California without being registered in California.  The provisions of the bill included numerous conditions for allowing a franchisor to attend these trade shows, including submission of a detailed notice to the commissioner regarding the franchisor, the posting of a conspicuous sign at the show stating that the franchisor is not legally able to offer a franchise for sale in California and the payment of a fee. Other states, such as New York, make certain allowances for franchisors to attend trade shows in state without being registered.

The Governor vetoed this legislation stating the following reasons:  “Registration gives the Department [of Business Oversight] the opportunity to review franchise disclosure documents and ensure that franchisors are providing accurate information to potential customers.  Allowing unregistered franchisors to market at these events without verifying their eligibility to do business in California is a step in the wrong direction.”

The second bill is Assembly Bill 2637.  Bill 2637 removed the present provision in California franchise regulation requiring that a franchisor disclose to a prospective franchisee all terms of the franchise agreement and related agreements which the franchisor had negotiated with other franchisees in the past 12 months in order to be exempt from an additional registration requirement for sales on terms different than those reflected in the registered franchise disclosure document.  The proposed legislation added the requirement that the original offer was of the documents registered with the state and that language must be added to the cover page or state addendum in the franchise disclosure document to the effect that the franchisor is able to negotiate the terms of the franchise agreement and related documents.

The Governor vetoed this legislation stating the following reasons:  “While it is important to promote bringing new businesses into California, doing so at the expense of transparency could be detrimental to potential franchisees, as the bill proposes to do.  The current process, which allows the Department to review contract changes, ensures that franchisees are not placed at a disadvantage in their final agreement.”

Both veto responses seem to misunderstand some of the effects of this legislation.  With respect to the trade show legislation, no transactions may take place without registration so I am not sure what additional protection this may provide.  I suspect that many trade shows may be looking for alternative venues.  Even more obvious to me, however, is the second veto.  The result will be that many franchisors will continue to refuse to negotiate or give any requested concessions to their franchisees in California.