Labor & Employment | General Counsel Law.

Employment Law Update: New Approach to Determining Whether Employer Policies Violate the NLRA

The National Labor Relations Act (“NLRA”) serves to protect the rights of employees and employers while restricting certain management practices that may harm workers. The National Labor Relations Board (“NLRB”) is the federal agency that enforces the NLRA.

Section 7 of the NLRA protects an employee’s right to engage in concerted activity, organize, and bargain collectively. Section 8 prohibits employers from adopting workplace policies that interfere with, restrain, or coerce employees in their exercise of these Section 7 rights. Until recently, the NLRB analyzed employer policies under a “reasonable construction” standard created in Lutheran Heritage Village-Livonia, which asked whether employees could “reasonably construe” that an employer policy prohibited a Section 7 right (known as the Lutheran Heritage standard). This standard was very unclear and often led to arbitrary results, leaving much confusion about what rules were actually prohibited under the NLRA.

Recently, in The Boeing Company, the NLRB abandoned this approach and adopted a new standard, allowing the NLRB to consider unique characteristics of a particular situation, rather than the previous “one-size-fits-all” analysis. 365 NLRB No. 154 (Dec. 14, 2017). Under the new rule, the NLRB will first determine whether a facially neutral policy, when reasonably interpreted, could prohibit or interfere with the exercise of an NLRA right. If not, the rule is lawful, without consideration of business justifications.

However, if the NLRB finds that a policy may interfere with Section 7 rights, the NLRB will now analyze two factors: (1) the nature and extent of the potential impact on NLRA rights; and (2) legitimate justifications associated with the requirements. In making this evaluation, the NLRB will work to “strike the proper balance” between “asserted business justifications and the invasion of employee rights” under the NLRA.

After the NLRB analyzes a policy, it will fall into one of three categories:

Category 1 includes rules the NLRB designates as lawful to maintain, either because they aren’t interpreted to interfere with an employee’s NLRA rights or because any potential impact on these employee rights are outweighed by employer justifications for the rule. (i.e. rules that are lawful, because any impact on an NLRA right is outweighed by the employer’s reasoning for the rule).
Category 2 includes rules that warrant individualized scrutiny to determine if the policy would interfere with an employee’s NLRA rights, and if so, whether the potential impact on these rights is outweighed by legitimate employer justifications.
Category 3 includes rules the NLRB determines are unlawful to maintain because they prohibit or limit NLRA protected conduct and the potential negative impact on employees’ NLRA rights is not outweighed by employer justifications for the rule. (i.e. rules that are unlawful, because the impact on an NLRA right outweighs any employer justification for the rule)

The NLRB explained that in making its determination, it may differentiate among different types of NLRA protected rights, as well as substantial, rather than peripheral, employer justifications. The NLRB also noted that it may apply distinctions between different industries and work settings, as well as consider particular events that may be relevant to the purposes served by a specific policy.

The NLRB will weigh a policy’s potential impact on protected NLRA activity against the employer’s legitimate business justifications for the policy. If the policy’s justifications outweigh the potential impact of employee rights, the rule is lawful. If employer justifications don’t outweigh the impact on employee rights, the policy is unlawful.

This new approach is more favorable to employers since it offers greater consideration of employer justifications for rules. Additionally, employers and employees will have more confidence about the validity of policies, since the new standard provides greater clarity and certainty regarding whether, and to what extent, different types of rules are lawful.

Even though the NLRB’s new approach offers more security to employers, it is still important for employers to review their employee handbooks and other workplace policies to ensure they all comply with the NLRA. Attorneys at General Counsel PC are specialized in labor and employment law and have experience working with business owners and individuals across Virginia, specifically in Fairfax County, Arlington, Loudoun County, and Prince William. Our attorneys will stay informed of subsequent NLRB decisions offering additional guidance on the new approach, to ensure we can provide clients with the most up to date information. Call General Counsel PC at 703-556-0411 today to see how we can help you.

Employment Law Update: New Test for Determining if California Workers are Employees or Independent Contractors

Summary: California Supreme Court has established a new standard that makes it much more likely that workers will be W-2 Employees – not 1099 Contactors.

The distinction between a 1099 independent contractor and a W-2 employee is an important one, as this classification affects both federal and state tax issues, and it is important that business owners correctly determine the employment status of workers. Misclassifications can result in liability of the company for missing employment taxes, interest, and penalties and entitlement of the employee to past benefits.

Until recently, the test for determining whether a worker is an independent contractor or an employee could be complicated because the test was unclear and there were a number of factors to be considered. However, recently, the Supreme Court of California helped answer the question of whether workers should be classified as employees or as independent contractors for purposes of California wage orders. Dynamex Operations W., Inc. v. Superior Court, 4 Cal. 5th 903, 416 P.3d 1, 5 (2018). The court decided to utilize a new test to make this determination more clear. Now, in California, a worker is an independent contractor only if: (1) the worker is free from the control and direction of the hirer in connection with the performance of the work; (2) the worker performs work that is outside the usual course of the hiring entity’s business; and (3) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

This test adopts a much more expansive classification of “employee.” Under the first “control and direction” element, a business doesn’t need to control all details of the work in order for the worker to be an employee. The second “outside the usual course of business” element is likely to pull in many workers that were previously categorized as independent contractors. This element will include “individuals who can reasonably be viewed as working in the hiring entity’s business.” For example, if a clothing manufacturing company hires seamstresses to make clothing from home or a bakery hires cake decorators to regularly work on custom cakes, those workers are working in the same business as the hiring company, and are thus, employees. To be an independent contractor the scenario would have to more closely resemble that of a retail store hiring an outside plumber to repair a leak on the premises. Since there, the plumber’s business of plumbing is clearly much different than the hiring business’s retail business, the worker may properly be considered an independent contractor. Lastly, the “customarily engaged” element asks if the worker has independently made the decision to go into business for himself, taking the steps of establishing and promoting an independent business, rather than simply being designated an independent contractor by the hiring business.

If you are unsure how this update affects the employment status of individuals performing services for your business, call General Counsel PC at 703-556-0411 today and our attorneys can help you make that determination.

What is the Difference Between a 1099 Independent Contractor and a W-2 Employee?

The distinction between a 1099 independent contractor and a W-2 employee is an important one, as this classification affects federal income tax, social security and Medicare taxes, as well as impacts eligibility for Medicare benefits. It is important that business owners correctly determine whether individuals are employees or self-employed. If a company misclassifies a worker as an independent contractor that is actually an employee, the company could be liable for missing employment taxes, interest, and penalties. Additionally, the employee may be entitled to past benefits.

Business owners generally must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment taxes on wages paid to an employee. An employer also must provide a Form W-2 to an employee. No similar withholdings or taxes are required for payments to independent contractors. Instead, an independent contractor is required to pay his own income and self-employment taxes and may be able to deduct business expenses. The company may be required to provide an independent contractor a Form 1099-MISC.

How Do I know if an Individual is an Employee or Independent Contractor?

Before a company can determine how to treat payments for services, it must determine the business relationship between itself and the individual performing the services. Relevant information in making this determination includes any information that shows the degree of control and independence the individual has when performing services. An individual’s label or position title is not determinative, and instead, it’s necessary to look at the totality of the relationship. There is no magic formula for determining a worker’s employment status, but there are factors that help guide an assessment. There are generally three primary factors considered when determining if an individual is an independent contractor or an employee:

Behavioral Control: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- If a company gives extensive instructions on how work should be done, that indicates the worker is more likely an employee. Instructions may include how, when, and where to complete work; what tools or equipment must be used; what assistants need to be hired to help with any work; and where to purchase supplies and other services.
- If a worker receives extensive training or significant tools, materials, and other equipment from the company, the worker is more likely an employee.
- If a worker has set hours of work, established by the company, the worker is more likely an employee.
- Work performed on the premises of the company for whom the services are performed suggests the worker is an employee.
Financial Control: Are the business aspects of the worker’s job controlled by the company?
- If a worker has a significant investment in his work, he is more likely an independent contractor.
- If the worker is not reimbursed for some or all business expenses, he is more likely an independent contractor.
- If a worker is able to realize a profit or incur a loss, he is more likely an independent contractor.
Relationship of the Parties: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
- If a worker receives benefits, he is more likely an employee.
- If a contract exists, that might be an indication that the worker is more likely an independent contractor.
- If a company has a right to discharge the worker or the worker as the right to quit work at any time without incurring liability, he is likely an employee.

If a company is not able to accurately determine whether a worker is an independent contractor or an employee, a Form SS-8 Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding can be filed with the IRS. The Form SS-8 asks multiple questions about each category (behavioral control, financial control, and relationship type) to get a full picture of the degree of control and independence the worker has. The IRS will make a determination on the worker’s status.

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The factors listed above are not all-inclusive. There are other factors to be considered when determining the employment status of an individual. If your business is unsure of the employment status of individuals performing services, attorneys at General Counsel PC can help you make an accurate determination and avoid having to ask the IRS, or worse, facing penalties for misclassifications later. Our attorneys are specialized in labor and employment law and have experience working with business owners across Virginia, specifically in Fairfax County, Arlington, Loudoun County, and Prince William. Call General Counsel PC at 703-556-0411 today to see how we can help you.

Public Policy Exception to At-Will Employment Doctrine in Virginia

In Virginia, employment relationships are presumed to be “at will,” which means that the employment term extends for an indefinite period and may be terminated by either party for any reason, or no reason at all, upon reasonable notice. Virginia courts “have strenuously adhered” to the presumption of at-will employment. See Nguyen v.CNA Corp., 44 F.3d 234, 237-38 (4th Cir. 1995). Virginia courts have relied on an underlying theory that stresses the freedom of contract: “An employee is ordinarily at liberty to leave his employment for any reason or for no reason, upon giving reasonable notice, without incurring liability to his employer.” Miller v. SEVAMP, Inc., 362 S.E.2d 915, 917 (Va. 1987).

Virginia courts have found an exception to the at-will employment relationship if the termination violates a well-defined public policy of the state or violates Virginia statutory authority. Statutes expressing a public policy sufficient to form the basis of a wrongful discharge claim fall into two categories: (1) a statute explicitly stating that it expresses a public policy; and (2) statutes that do not explicitly state a public policy, but rather are “designed to protect property rights, personal freedoms, health, safety or welfare of the people in general.” Lockhart v. Commonwealth Educ. Sys. Corp., 247 Va. 98, 104, 439 S.E.2d 328, 331 (1994).

In Bowman v. State Bank of Keysville, 229 Va. 534, 331 S.E.2d 797 (1985), the Virginia Supreme Court first recognized a narrow public policy exception to the employment at-will doctrine, and held that the plaintiffs’ employer was liable for wrongful discharge after it had terminated plaintiffs in violation of public policy. There, the plaintiffs were stockholders in the bank corporation that employed them and they were terminated for refusing to vote their stock in accordance with the demands of management. The court reasoned that the employees’ termination violated the public policy expressed in Virginia securities law, which allows stockholders the right to vote their shares free from duress and intimidation by corporate management.

Recently, the Supreme Court of Virginia reaffirmed that the public policy exception is a narrow one in Francis v. National Accrediting Commission of Career Arts & Sciences, Inc. 293 Va. 167, 175, 796 S.E.2d 188, 192 (2017). In Francis, the plaintiff was an at-will employee who claimed a co-worker confronted her, yelled obscenities, and threatened bodily harm. The plaintiff filed a petition for and received a preliminary protective order (PPO) against the co-worker. A few days later, the company terminated the plaintiff because she “did not fit the vision of the organization.” The plaintiff filed suit against her employer, claiming wrongful termination under Bowman, arguing that she was discharged in violation of public policy embodied in Virginia’s protective order statutes. The plaintiff argued that her exercise of her statutory rights in obtaining a PPO was a motivating factor in her termination. The court ultimately held that the plaintiff failed to state a claim for wrongful termination under Bowman. The court reiterated that “while virtually every statute expresses a public policy of some sort, we continue … to hold that termination of an employee in violation of the policy underlying any one statute does not automatically give rise to a common law cause of action for wrongful discharge.”

The court explained that the Bowman public policy exception is only recognized in 3 scenarios: (1) when an employer violated a policy enabling the exercise of an employee’s statutorily created right; (2) when the public policy violated by the employer was explicitly expressed in the statute and the employee was clearly a member of that class of persons directly entitled to the protection enunciated by the public policy; and (3) when the discharge was based on the employee’s refusal to engage in a criminal act.

To make a successful claim under the first scenario, the court must first determine “what right was conferred on an employee by statute, and then whether the employer’s termination of employment violated the public policy underlying that right.” In order for the Francis plaintiff to be successful under this theory, she would have to argue that her termination violated the public policy underlying the rights conferred to her in the protected order statutes. However, the public policy of the protective order statutes is to protect the health and safety of the petitioner and his family. For the public policy exception to apply, the plaintiff must show that her termination violated that stated public policy of protection of health and safety, which she did not. Rather, the plaintiff argued that she was terminated because of her exercise of her statutory rights in obtaining a PPO, but the protective order statute does not include a public policy of protecting the exercise of the right to seek a protective order. Since the public policy exception does not recognize “a generalized cause of action for the tort of retaliatory discharge,” the plaintiff did not make a successful claim under Bowman.

The court’s decision in Francis showed an unwillingness to expand the scope of the public policy exception to Virginia’s at will-employment rule. This is likely encouraging for Virginia employers. However, wrongful discharge matters can still be complicated, and employers should continue to be mindful of applicable public policies when making termination decisions for at-will employees.

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Whether you are an employer or employee involved in a potential wrongful discharge matter, attorneys at General Counsel PC can provide you with the knowledge and assistance necessary protect your rights. Our attorneys are specialized in labor and employment law and have experience working with employees and employers across Virginia, specifically in Fairfax County, Arlington, Loudoun County, and Prince William. Call General Counsel PC at 703-556-0411 today to see how we can help you.

Unlawful Retaliation: How to reduce our exposure and protect our employees?

It is imperative for employers to be aware of the law on unlawful retaliation and its implications on their business practices and workplace. Title VII of the Civil Rights Act of 1964 declares it unlawful for an employer to discriminate against an employee because he/she opposed any unlawful employment practice or made any charge, testified or participated in an investigation of an unlawful practice. Moreover, such unlawful conduct need not require evidence of wrongdoing. An employer can be responsible for retaliation and accused of wrongdoing even if there was no discrimination, sexual harassment or other unlawful conduct. It is important that employers understand that it is never too late to implement change in their workplace. There is no time like the present to institute new practices or reorganize the way certain things are done.

In the past few years, employees have been protected under this unlawful retaliation law and it has been applied to the following situations:

Where an employee has complained about their employer’s treatment towards another individual under a different federal statute (Cracker Barrel case)
In an employer’s internal investigation, where an employee raised an issue when being asked questions by the investigator (Crawford case)

The types of claims that are brought under this law vary significantly. Therefore, it is vital that employers familiarize themselves with the suggested practices to be put in place at their workplace and the potential consequences of their failure to do so. Further, these practices are there to encourage employers to exercise heightened vigilance and promote a healthier and more productive work environment. The reality is that many employers are not mindful of the consequences that such a failure can have. It is helpful to understand what the most common mistakes are so that you, as an employer, can be aware and implement practices to avoid them.

Overall, employers should be documenting performance issues at the time that they arise. This facilitates a more efficient and prompt process for addressing the issue with the employee who raised it. This can be done in the form of reviews or other mechanisms that the employer feels are best to address a specific concern. Often times, employers are not aware of the resources that are available to them which include the Equal Employment Opportunity Commission. Such resources should be consulted if employers are uncertain about the protocol for a specific situation or even just to ensure that they are in compliance with employment laws.

At the bare minimum, employers must make sure that they have a policy implemented that prohibits unlawful retaliation (a non-retaliation policy). They should also consider engaging in and providing training on what that policy means and how it should apply in their workplace. “Claim-specific training and counseling” is a great way to do just that. Ironically, to reduce exposure, employers really just need to exercise common sense. For example, employers must never forget that “relying on instinct is not a good method for ensuring compliance” or that “ignorance of the law is no defense, it compounds liability”. Do not ignore or isolate complaints. Do not rule out some restructuring and reorganization that may be required. Pay close attention to subsequent employment actions. Think before you act and make sure a given action that you wish to take is not related to any complaint filed.

Even though this is all extremely simple and easy to employ in your workplace employers consistently make mistakes. Some of the most common mistakes that may expose the employer to liability or having a grievance filed against them include:

Failure to train managers on compliance with the basic requirements of employment laws
Failure to file a timely first party report of injury or illness of an employee
Basic documentation disasters (ex. no documentation showing the basis for an employee’s termination, padded performance reviews, mean-spirited memos, sloppy documentation that is imprecise, etc.)
Failure to follow your companies policies without good reason
Failure to investigate and conclusively confirm the factual basis for a termination

So what does this mean moving forward? Employers really need to ensure that the practices they implement in their workplace comply with the law and that they represent the positive values and moral integrity of the employer. Yes, it is that simple. Be careful and ensure that you develop your workplace based on the principles compassion and calmness and the desire to foster the commitment to the company’s core philosophy and values.

Employer Liability for Hostile Work Environment Claims

In a recently decided employment law case, Cooper v. Smithfield Packing Company, Inc., the Fourth Circuit found that summary judgment in favor of an employer was proper because another employee’s actions couldn’t be imputed to the employer. Cooper v. Smithfield Packing Co., Inc., No. 17-1002, 2018 WL 1151787, at *4 (4th Cir. Mar. 5, 2018). In this case, the plaintiff, Lisa Cooper (“Cooper”), was an employee of the defendant, The Smithfield Packing Company (“Smithfield”), and brought suit against Smithfield under Title VII of the Civil Rights Act and state tort law based on the actions of another employee of Smithfield.

Cooper alleged that a superintendent of Smithfield, Tommy Lowery (“Lowery”) sexually harassed her on a regular basis for a period of four years. According to Cooper’s claims, Lowery repeatedly asked her to sleep with him, threatened her when she refused to sleep with him, physically brushed up against her, demeaned her relationship with her husband, and required her to work in close proximity with him for no reason. Eventually, Cooper reported Lowery’s behavior to Smithfield’s HR department, provided a written statement, and then resigned the following day while Smithfield was investigating her claims. Cooper’s claims against Smithfield alleged retaliation, wrongful termination, gender discrimination, hostile work environment, negligent infliction of emotional distress, intentional infliction of emotional distress, and negligent supervision and retention. The District Court dismissed all of Cooper’s claims, except the hostile work environment claim.

Supervisor Liability vs. Coworker Liability

The crux of Cooper’s hostile work environment claim and the finding most instructive to employers deals with supervisor liability. In Cooper, the court discussed the ways an employee’s actions can be imputed to the employer. An employer may be liable for an employee’s harassing behavior: (1) if the plaintiff demonstrates that the harasser is the plaintiff’s supervisor or (2) if the employer “knew or should have known about the harassment and failed to take effective action to stop it.”

If the plaintiff is able to show that the harasser is the plaintiff’s supervisor, “the employer is strictly liable for harassment culminating in a tangible employment action.” If an employer can establish “that it exercised reasonable care to prevent and correct the harassing behavior, and that the plaintiff unreasonably failed to take advantage of the employer’s preventive or corrective measures” the employer has an affirmative defense. Under Title VII, an employee is a “supervisor” if he is “empowered by the employer to take tangible employment actions against them.”

However, if the harasser is only a coworker, rather than a supervisor, then the employer is only liable if the employee can show the employer “knew or should have known about the harassment and failed to take effective action to stop it.” Employer negligence can be shown by establishing that the employer did not provide “reasonable procedures for victims of harassment to report complaints.” If an employer has a written anti-harassment policy in place, there is “compelling proof” that the employer exercised the necessary reasonable care to avoid liability, unless the policy was “adopted or administered in bad faith or . . . it was otherwise defective or dysfunctional.”

In Cooper, the court found that Lowry was not involved in the hiring or firing of Cooper and that he had no authority over those decisions, and thus, he was not Cooper’s supervisor. While Lowry provided informal evaluations of Cooper to the HR department and had some oversight of Cooper’s vacation days, this was insufficient to establish supervisory status. Viewing the matter in the light of Lowry and Cooper as coworkers, the court found that Smithfield was not negligent. Smithfield had a written anti-harassment policy and a written code of conduct prohibiting harassment, as well as annual training for employees on anti-harassment standards and a hotline for employees to report concerns anonymously. Additionally, Smithfield only learned of the harassment days before Cooper resigned. Once notified of the harassment, Smithfield immediately began investigating the claims and offered to change Cooper’s work assignment during the investigation.

What does Cooper mean for employers?

Cooper is illustrative of some best practices that could be beneficial for employers to implement into their own businesses to avoid liability for similar situations down the road. As mentioned in Cooper, if an employer waits until a problematic situation arises to implement these measures, it may be too late and the employer may find itself liable for an employee’s wrongdoing. It’s important to take the time now to determine what procedures should be put in place and make sure those procedures are sufficient to avoid a finding of employer negligence. So what should employers do? Below are a few suggestions for steps employers should consider taking:

Codify an anti-harassment policy – Look over the organization’s policies and make sure an anti-harassment policy is included. The policy should also include a requirement that any violations of the harassment policy should be reported immediately. If there isn’t an anti-harassment policy in place, consider updating the policies as soon as possible and adding an anti-harassment policy. If a policy update is required, consider notifying employees that the organization’s policies have been updated to ensure that all employees are on notice of the existence of such policies.
Create set procedures for reporting complaints of harassment – In addition to a general prohibition of harassment, employers should have a set procedure in place detailing how employees are able to report complaints of harassment. It is important that departments or specific individuals tasked with receiving or handling these complaints are aware of the proper steps to take when complaints are made.
Annual training – If your organization has annual training or annual meetings, consider including a discussion of the organization’s anti-harassment policy and what type of behavior constitutes harassment. In the absence of annual training, annual reminders to employees detailing the organization’s standards and reporting procedure should be considered.
Investigate immediately – One of the most important things to remember is that if any complaints are made, they need to be addressed immediately through investigations and any necessary corrective actions.

In sum, the two critical steps that employers can take to minimize the likelihood of employee conduct being imputed to the employer are to (1) develop, distribute, and actively enforce an effective anti-harassment policy that provides clear guidance to employees on how to report complaints; and (2) exercise reasonable care in addressing all complaints through investigations and corrective actions. It is important to emphasize that having an anti-harassment policy but failing to train supervisors and employees will make it difficult to later assert the policy as a defense against a harassment claim.

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Attorneys at General Counsel PC are specialized in labor and employment law and have the knowledge necessary to help you understand what these findings mean for your business. Our attorneys have experience working with business owners across Virginia, specifically in Fairfax County, Arlington, Loudoun County, and Prince William. Whether you want to make sure current procedures are sufficient or you are looking for assistance creating these policies and procedures from scratch, General Counsel PC has the expertise you need. For more information about how you can ensure your business is protected, call General Counsel PC at 703-556-0411 today.

Breaching a Non-Competition Agreement in Virginia

A non-compete agreement serves to restrict the right of an employee from competing with a previous employer after the end of an employment relationship. In general, non-competition agreements will be strictly construed against employers. These agreements must be as narrowly drafted as possible to protect the vital interests of the employer. For more information about the enforceability of non-competition agreements, see our discussion of the laws for Maryland, D.C., and Virginia.

Can A Court Force Me To Quit My New Job?

You’ve left your previous employer to work for a competitor, doing similar work, and now your previous employer sues you for breaching your non-competition agreement. What now? Will you have to quit your new job?

In a similar scenario, General Counsel, P.C. attorney, Andrew Baxter, recently successfully argued for his client when the former employer wanted the court to issue a preliminary injunction, forcing the client to terminate her employment with her new employer.

When deciding whether or not to grant a preliminary injunction, a court will consider whether or not: (1) the plaintiff is likely to succeed on the merits of the case; (2) the plaintiff is likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tip in the plaintiff’s favor; and (4) the injunction is in the public interest.

In the case recently argued by General Counsel, P.C., the client was a physician who terminated her employment at a medical institution to work for a competing medical institution. The previous employer argued that the physician’s new employment with a competitor caused them to lose patients and that to prevent the continued loss of patients, the physician should be required to terminate her employment for the competitor, since the physician had breached her non-competition agreement.

After analyzing the factors, the court rejected the request for an injunction and allowed the physician to continue her employment. The court determined that in that case, the damages were ascertainable. Since injunctions are generally not favored by the court, the court found that since any damages owed to the previous employer could be easily calculated, monetary damages, rather than an injunction would be the appropriate remedy. The court also noted that it was in the public interest to have more doctors and for individuals to have more options for their health care needs.

It is important to keep in mind that just because a court decided not to grant an injunction in this case, that doesn’t apply to every case. These types of issues are decided on a case-by-case basis, and other situations may be decided differently. However, a takeaway from the court’s finding may be that an employee should not reasonably expect a court to grant injunctive relief for a non-competition agreement in Virginia where (1) monetary losses are calculable, and (2) the employee performing his job serves the public interest.

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Whether you’re an employer or employee wondering about a breach of a non-competition agreement, attorneys at General Counsel PC can provide you with knowledge and assistance to better understand your rights. Our attorneys are experienced in reviewing, drafting, negotiating, and litigating non-compete and non-solicitation agreements for businesses and individuals across Virginia, specifically in Fairfax County, Arlington, Loudoun County, and Prince William. Call General Counsel PC at 703-556-0411 today to see how we can help you protect your legal rights.

Impact of 2018 Tax Changes on Taxation of Employment-Related Settlement Payments

Passage of the Tax Cuts and Jobs Act (the “Tax Act”) has greatly altered the individual and business tax landscape. A significant change under the Tax Act is the income tax treatment for employers and employees that are parties to employment-related settlements. (For more information on how the Tax Act affected the taxation of employment-related settlement payments, see Taxation of Employment-Related Settlement Payments). The language of the provisions included in the new tax law leave some uncertainty about how the law will apply in practice. The IRS will likely issue guidance to clarify some of this ambiguity, but until then, employers and employees must take extra care when engaging in settlement negotiations to understand the plain text of the statute and it’s potential implications.

Confidentiality v. Deductibility

Confidentiality in sexual harassment cases will now be more expensive for employers since they will not be able to deduct any payments related to the matter if nondisclosure provisions are included in the settlement agreement. This deduction elimination essentially leaves employers to choose between deducting payments made or retaining confidentiality of the settlement. Since virtually all settlement agreements involving claims of sexual harassment or sexual abuse contain nondisclosure provisions, employers are going to have to think hard about what they value more – money or reputation. This change will likely alter the dynamic of settlement negotiations moving forward, but how that will actually play out remains unclear.

If employers choose to move forward without nondisclosure provisions included in the settlement agreements, they may not be willing to settle for as much as they would if the agreement would remain confidential. Additionally, in cases where the employee would like the matter to remain confidential, employers may leverage this to settle for lesser amounts. On the other hand, if plaintiffs are subject to additional tax liability due to the non-deductibility of attorney’s fees paid by the employer, plaintiffs may want to increase settlement amounts to account for this additional tax, which will make settlements more costly. These opposing considerations stand to make settlement negotiations more difficult. Additionally, now that confidentiality may be essentially off the table for employers not willing to lose the deduction, these employers may be less likely to settle all together and would rather take a chance and go to trial.

Scope of the Statute

With the broad language used in the relevant Tax Act provisions, there remains a question about what specific payments the statute disallows deductions for. The statute doesn’t define “settlement or payment related to sexual harassment or sexual abuse.” The statute makes clear that it applies to the settlement payment itself, as well as attorney’s fees, but what about other related fees? Does the statute also disallow deductions for fees paid to experts or investigators assisting with the case? If a plaintiff brings a sexual harassment claim in addition to other discrimination claims, can a portion of the settlement be allocated to the sexual harassment claim to allow for a deduction for the remaining portion? Does the statute apply to false or unfounded claims of sexual harassment or sexual abuse as well? These questions will be left open until the IRS clarifies the statute.

It is also unclear how the IRS will treat payments made in accordance with confidential agreements that broadly waive claims, including sexual harassment. If the IRS views such a payment as “related to sexual harassment,” the payment will not be deductible. Until the IRS clarifies this question, employers should consider including a provision in settlement agreements stating that there was no claim of sexual harassment or sexual abuse and that the payments are not related to such claims, to ensure the payments remain deductible.

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Moving forward, it will be important to keep up to date on any additional guidance issued by the IRS on questions noted above, as well as other uncertainties that arise. Both employers and employees will need to consider these new legal and financial issues when engaging in settlement negotiations involving sexual harassment or sexual abuse.

With so many unanswered questions surrounding settlement agreements, it’s important to speak with an experienced attorney before entering into settlement negotiations with an employee or employer. Attorneys at General Counsel PC are experienced in employment law and are informed of any additional guidance given on these new tax laws. Our attorneys have helped businesses and individuals across Virginia, specifically in Fairfax County, Arlington, Loudoun County, and Prince William. Call General Counsel PC at 703-556-0411 today to see how we can help you get the best outcome for your legal claims.

Taxation of Employment-Related Settlement Payments

Claims Involving Sexual Harassment or Sexual Abuse

Under the old tax law, employers could deduct the ordinary and necessary expenses incurred in carrying out a trade or business, which generally included legal settlement payments or other payments made to a plaintiff, such as a plaintiff’s attorneys fees, and other legal fees the employer incurred in the course of its defense.

However, under the new tax law, settlement agreements may be more expensive for both employers and employees. Now, under Internal Revenue Code Section 162(q), employers are not entitled to deduct “any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement” or “attorney’s fees related to such a settlement or payment.” This provision seems to also apply to legal fees paid by the employee. There is some uncertainty regarding whether or not “attorney’s fees related to such a settlement or payment” refers to claims of sexual harassment in general, or only to settlements or payments for such claims when a nondisclosure agreement is included. The IRS will likely issue guidance clarifying this ambiguity, but until then employers and employees need to be aware of the possible tax issues.

The Tax Act also eliminated miscellaneous itemized deductions, which was often a way for taxpayers to deduct legal fees that didn’t qualify for an above the line deduction. This elimination further limits the deductibility of legal fees.

Payments Made to the Government or Governmental Entities

Additionally, the Tax Act amends Code section 162(f). The previous version of this provision denied deductions for amounts actually paid to the government or government entities, unless the payment was established as restitution or amounts required to come into compliance with a law that was violated. These amounts were only nondeductible if paid directly to the government, but were deductible if paid directly to a plaintiff. Under the updated version, deductions are denied for any amount paid or incurred to or at the direction of a government or governmental entity in relation to the violation of any law or investigation of such violation. The section doesn’t apply to private claims, but applies to claims brought by the Equal Employment Opportunity Commission. With this change, payments that represent a fine or penalty, whether paid to the government, a government entity, or to a plaintiff, are not deductible. Therefore, treble or punitive damages are no longer deductible, but damages to come into compliance with a law or restitution damages, such as lost wages or recovery for pain and suffering, are still deductible. However, for these restitution or compliance damages to be deductible, the court order or settlement agreement laying out the damages must specifically identify the damages as restitution or damages paid to come into compliance with a violated law. Therefore, parties to settlement discussions will have to take extra care to ensure that the final settlement agreement includes any necessary language to allow the payments to be deductible.

Call General Counsel PC Today

With so many unanswered questions surrounding settlement agreements, it’s important to speak with an experienced attorney before entering into settlement negotiations with an employee or employer. Attorneys at General Counsel PC are experienced in employment law and are staying informed of any additional guidance given on these new tax laws. Our attorneys have helped businesses and individuals across Virginia, specifically in Fairfax County, Arlington, Loudoun County, and Prince William. Call General Counsel PC at 703-556-0411 today to see how we can help you get the best outcome for your legal claims.

What Employers Need To Know About Federal Employment Laws

Brief video overview of employment laws business owners need to know about.

View this brief video overview.

Most employees are at-will employees, meaning the employer or employee can terminate the employment relationship at any time, for most any reason. However, there are federal laws that govern that employment relationship and place some restrictions on the employer. It’s important for employers to be aware of these laws and understand the basics of how to comply to ensure they’re not engaging in employment practices that could put their businesses in danger. Below are 7 applicable federal employment laws employers should be familiar with:

Title VII of the 1964 Civil Rights Act – prohibits discrimination based on race, religion, national origin, or sex. Discrimination may include refusing to hire, demoting, terminating, or taking other adverse action on an employee or potential employee on the basis of a protected classification. In 2012, an employer was required to pay a female employee over $1,000,000 in damages and back pay after it engaged in sexual discrimination in violation of Title VII. The court found that the employer engaged in discrimination when it assigned the employee to a specific customer based on her gender and because the supervisor determined the customer was attracted to her. Hylind v. Xerox Corp., 481 F. App’x 819, 821 (4th Cir. 2012).
Pregnancy Discrimination Act – protects employees from discrimination based on pregnancy, childbirth, and related medical conditions. In 2002, the 4^th Circuit found that an employee was discriminated against on the basis of her pregnancy when her employer terminated her shortly after she returned from a pregnancy related absence. Her former employer was required to pay over $250,000 in damages for the discrimination. Golson v. Green Tree Fin. Servicing Corp., 26 F. App’x 209 (4th Cir. 2002).
Equal Pay Act – requires employers to pay equal wages to men and women doing the same work. In 2004, the 4^th Circuit found that an employer had violated the Equal pay Act when it paid a male employee a higher salary than a female employee for substantially similar work. The female employee was awarded $100,000 for the pay discrimination, as well as $250,000 for gender discrimination under Title VII. Lovell v. BBNT Sols., LLC, 299 F. Supp. 2d 612, 614 (E.D. Va. 2004).
Americans with Disabilities Act – applies to employers with 20 or more employees and protects employees with disabilities capable of performing the essential functions of a job, with or without a reasonable accommodation, from discrimination. In 2008, the 4^th Circuit found that an employer had violated the ADA when it denied reasonable accommodation to a deaf employee. The employee made repeated requests for an interpreter so he was able to understand what was said at employee meetings and filed a charge of discrimination with the EEOC when the requests, as well as others, were repeatedly denied. The employer was required to pay the employee over $100,000 in damages for the ADA violation. E.O.C. v. Fed. Express Corp., 513 F.3d 360 (4th Cir. 2008).
Age Discrimination Employment Act – prohibits discrimination of individuals aged 40 years old or older on the basis of age. In 2007, an employee was awarded $250,000 in back pay after his employer terminated him due to his age. There, the employer told the employee he was being “retired” because they wanted younger managers and made other negative remarks regarding the age of employees. The court determined that the employer violated the statute since the employee’s termination was “motivated by his age.” Loveless v. John’s Ford, Inc., 232 F. App’x 229 (4th Cir. 2007).
Fair Labor Standards Act – governs minimum wage and whether or not employees need to be paid overtime. Generally, most employees need to be paid overtime, unless they fit into an exception. In 2016, an employer was required to pay employees over $400,000 in damages and attorney fees for violating the FLSA and state law when employees were denied minimum wage and overtime compensation. Jackson v. Egira, LLC, No. CV RDB-14-3114, 2016 WL 5815850, at *1 (D. Md. Oct. 5, 2016), reconsideration denied, CV RDB-14-3114, 2016 WL 6583604 (D. Md. Nov. 4, 2016), and appeal dismissed,No. 16-2292, 2016 WL 10570709 (4th Cir. Dec. 16, 2016).
Family Medical Leave Act – requires employers with 50 or more employees within a 75 mile radius to give eligible employees up to 12 weeks of unpaid, job protected leave for the birth or adoption of a child or for serious illness of the employee, spouse, child, or parent. To be eligible, an employee must have worked at least 12 months, and within that 12 month period, at least 1,250 hours. In 2007, the 4^th Circuit required an employer to pay over $100,000 in lost wages and attorneys’ fees after a court found the employer interfered with an employee’s rights under the FMLA and denied her requested leave to care for her grandmother. Dillon v. Maryland-Nat’l Capital Park & Planning Comm’n, No. CIV. WGC-04-994, 2007 WL 4557850 (D. Md. Mar. 9, 2007).

These laws can be very complicated and only a basic overview was discussed above. Violations of these laws can lead to severe economic losses for employers. Attorneys at General Counsel PC are specialized in labor and employment law and have the knowledge necessary to help you understand what these laws mean for your business. Our attorneys have experience working with business owners across Virginia, specifically in Fairfax County, Arlington, Loudoun County, and Prince William. For more information about these laws and how you can ensure your business is in compliance with these federal standards, call General Counsel PC at 703-556-0411 today.