Beyond the Ban: The FTC’s New Approach to Non-Competes

The Federal Trade Commission (FTC) has formally withdrawn its defense of the nationwide non-compete ban, a signature rule of the Biden-era agency. The ban, intended to curb restrictive employment contracts and enhance worker mobility, faced immediate legal challenges—most notably from the U.S. Chamber of Commerce and other business coalitions—which questioned the FTC’s authority to impose such a sweeping regulation. With the change in administration, the Trump-appointed FTC under Chair Andrew Ferguson moved to dismiss its pending appeals in Ryan, LLC v. FTC before the Fifth Circuit and Properties of the Villages v. FTC before the Eleventh Circuit, effectively abandoning the government’s defense of a nationwide non-compete ban in federal court.

Although this move shields employers from a blanket federal ban, it does not signal a reduction in federal oversight. FTC Chair Ferguson, in a statement joined by Commissioner Melissa Holyoak, made clear that the agency still intends to pursue non-compete enforcement vigorously. He cautioned that industries with heavy reliance on such agreements should expect to receive warning letters in the near term, urging companies to reconsider their use as the Commission moves forward with investigations and potential enforcement actions.

This shift was quickly illustrated in the FTC’s first enforcement action under its new posture. On September 4, 2025, the agency filed a complaint against a large national employer, alleging that its non-compete agreements—applied broadly to nearly 1,800 workers, including frontline and hourly staff—unlawfully restricted competition and employee mobility. Under the proposed consent order, the company must immediately stop enforcing these provisions and notify affected employees that the agreements are no longer valid.

Simultaneously, the FTC also issued a Request for Information (RFI) to the public on the use of non-compete agreements. In the notice, the Commission expressed concern that such agreements restrict workers across the economic spectrum—from hourly employees like security guards and manufacturing staff to highly skilled professionals including physicians, nurses, and veterinarians. The agency specifically invited the public to identify by name employers that continue to impose non-competes, soliciting input not only from current and former employees but also from competitors and market participants. Of particular focus is the healthcare industry, where restrictive covenants may directly impact patient access and workforce mobility. Comments are due by November 3, 2025, and the FTC has confirmed that submissions may be made on a confidential basis.

These actions underscore the FTC’s renewed focus on abusive or broadly applied restrictive covenants that disproportionately affect lower-wage and less mobile workers. Chair Ferguson, joined by Holyoak, emphasized that the agency will no longer pursue broad rulemaking, opting instead to pursue enforcement where non-compete agreements clearly violate antitrust principles. Meanwhile, Democratic Commissioner Rebecca Slaughter issued a strong dissent, lamenting the withdrawal of the broader rule and asserting that extensive public record—over 26,000 public comments, a vast majority supporting a ban—should have warranted continued defense of the rulemaking.

For California employers, the FTC’s pivot confirms a familiar reality: non-compete agreements remain broadly unenforceable under Business & Professions Code §16600, save for narrow exceptions such as the sale of a business. Nevertheless, employers with operations in multiple states face new complexity. Even where state law allows for narrowly tailored non-competes, the FTC’s enforcement strategy introduces a federal antitrust overlay. Employers may find that state-compliant agreements nonetheless trigger FTC scrutiny if they are deemed “anticompetitive” in effect or scope.

Next Steps: What Employers Should Be Doing Now
In light of the FTC’s recent enforcement announcements, employers should consider taking proactive steps to mitigate risk and ensure compliance, including the following:

Audit restrictive covenant agreements. Ensure all existing non-compete, non-solicitation, and related agreements—particularly those across multiple states—are narrowly tailored and defensible under both state law and FTC scrutiny.
Rely on enforceable alternatives in California. With non-competes broadly unenforceable in California, employers should continue to protect business interests via nondisclosure agreements, confidentiality policies, invention assignment clauses, and strong trade secret protections.
Exercise caution with non-solicitation provisions. These too may invite scrutiny if overly broad, possibly drawing FTC attention or legal challenges even if they are technically permissible under state law.
Monitor multi-state compliance challenges. Recognize that agreements enforceable in one state may still be vulnerable under FTC enforcement strategies focused on anticompetitive impact, irrespective of local legality.
Prepare for federal inquiries. The FTC’s open RFI and enforcement actions indicate that employers must be able to justify restrictive agreements with documented, legitimate business interests, especially in sensitive industries like healthcare.
Stay proactive in compliance planning. The FTC’s transition to targeted enforcement underscores that non-competes remain a significant risk—now more than ever—for employers nationwide.

Hirschfeld Kraemer LLP attorneys will continue to guide California and multi-state employers through this evolving regulatory environment—with strategic counsel for drafting defensible agreements, aligning employment policies with state-specific restrictions, and anticipating federal enforcement trends.

If you have any questions or concerns about how these new developments may affect your business, please reach out to Adam R. Maldonado in Hirschfeld Kraemer LLP’s San Francisco Office. Adam can be reached at amaldonado@hkemploymentlaw.com or (415) 835-9075.

Massive Increase in Immigration Enforcement: Employers Must Be Prepared!

As widely reported in the media, Congress approved a massive increase in funding for immigration enforcement in the One “Big Beautiful Bill.” It’s estimated that the new funding approximately triples the immigration enforcement budget. You can find details at the website of the American Immigration Council, https://www.americanimmigrationcouncil.org/fact-sheet/big-beautiful-bill-immigration-border-security/. This increases funding for worksite enforcement, among other things. Hiring more ICE agents and increasing detention facilities supports the administration’s mandates for ICE to detain 3,000 individuals a day and issue 6,000 I-9 audit notices a month, which so far have not been achieved. We expect worksite enforcement activities to keep rising over the next year.

It’s more important than ever for employers to (a) conduct an I-9 self-audit and address compliance issues, and (b) develop and communicate an ICE response plan for each worksite. Unfortunately, compliant I-9 self-audits and ICE response plans can’t be based simply on common sense, particularly in the current enforcement environment. Innocent steps like offering employees Know Your Rights trainings can subject employers to charges of obstructing justice or harboring. We are happy to provide guidance for I-9 self-audits and ICE response planning, to make sure your efforts are compliant and don’t make matters worse despite your best intentions.

CANCELLED WORK AUTHORIZATION
The compliance landscape is shifting. The cancellation of employment authorization for many individuals who have been working lawfully under programs such as Temporary Protected Status (TPS) already has caused widespread impacts in the U.S. workforce. The rules for employers remain unclear in many ways. Here’s what employers need to know:

If an employee reports that their work authorization is ending, the employer must terminate the employment unless and until the employee presents alternative I-9 documentation.
Employers enrolled in E-Verify must terminate employment if they receive an alert in E-Verify that the employee’s work authorization is ending. Employees may return to work with alternative I-9 documentation, in which case the employer must update the employee’s I-9 and E-Verify records and confirm their work authorization again.

If you have questions about how to respond to particular scenarios, please contact Leigh Cole for guidance at lcole@hkemploymentlaw.com or (415) 835-9001.

Pro-Employer Ruling by California Court of Appeal Upholds Prospective Meal Period Waivers

California employers scored an important win last week when the California Court of Appeal enforced an employee’s “standing” prospective meal period waiver. That decision, in Bradsbery v. Vicar Operating, Inc., confirmed that meal periods for shifts between five and six hours can be “waived by mutual consent” even in a prospective (i.e., forward-looking) waiver.

Procedural History
The Bradsbery case asked the Court to decide whether a prospective meal period waiver for shifts between five and six hours could satisfy the “mutual consent” requirement of Labor Code section 512.

A group of employees seeking compensation for meal period penalties lost at the summary judgment stage when the court upheld a valid, written agreement that prospectively waived meal periods for shifts between five and six hours. On appeal, the employees argued that prospective waivers violated California’s meal period laws. The Court of Appeal concluded that despite the forward-looking nature of the waivers, they were still enforceable. Among other things, the Court of Appeal relied on the fact that the waivers were voluntary and revocable by the employees.

What Bradsbery Means for Employers
This decision is a major win for employers. It removes any uncertainty over whether an employee can maintain a standing meal period waiver. Employers can rest assured that these standing waivers are permitted in California and in turn, avoid the administrative burden involved with obtaining a new waiver each time a non-exempt employee works a shift between five and six hours.

Although the Bradsbery decision did not directly address standing second meal period waivers for shifts between ten and twelve hours, it signals that the Court of Appeal may be receptive to upholding such waivers under similar circumstances.

Meal Period Waiver Drafting Considerations
Employers should keep a few guiding principles in mind when drafting or revising written meal period waivers:

Waivers should be standalone documents. They should not be embedded in employee handbooks.
Waivers must be revocable at any time by the employee. Make sure employees know this and include clear language in the waiver itself about revocation, such as a statement like, “I understand that I can revoke this waiver at any time upon written notice.”
As with any agreement, employers should review waivers for language that may be deemed unconscionable or coercive if later challenged in court. For example, do not include any language indicating that singing the waiver is mandatory as a condition of employment.
Employers must not retaliate in any way against an employee who chooses to revoke a meal period waiver.

For more information, contact China Daly in the San Francisco office of Hirschfeld Kraemer LLP. She can be reached at 415-835-9027 or cdaly@hkemploymentlaw.com

Immigration is Off to a Hot Start in the Second Trump Administration

We all know immigration enforcement is a top priority for the new Trump administration. What does this mean for employers and for colleges and universities?

I-9 audits will skyrocket.
ICE worksite enforcement actions will escalate.
Schools, medical facilities, churches and courthouses no longer are protected from immigration enforcement.
Work authorization may end abruptly, through no fault of the employee.
ICE will try to bring criminal charges whenever supportable, against workers and management.

Each of these items is discussed below, followed by advice to implement now so you’re as prepared as you can be.

I-9 audits will skyrocket. ICE plans to issue 6,000 I-9 audit notices a month. This is a major increase from past practice; ICE aspired to do as many as 12,000 I-9 audits a year in the past. All employers should do an I-9 self-audit now, and E-Verify employers should also do an E-Verify self-audit, to make sure you’re ready for an ICE audit.

ICE worksite enforcement actions will escalate. This is a major priority for the US Department of Homeland Security (DHS). National Guard troops may be deployed to worksites to support ICE officers, so ICE officers can spread out to accomplish more raids. This week the Trump leadership imposed a quota on ICE, requiring each field office to arrest at least 75 individuals per day. To do this, ICE will cast a wide net and target known or suspected unlawful employment. ICE I-9 audits that revealed compliance problems, and late-created or missing E-Verify records, can be expected to trigger worksite actions.

Schools, medical facilities, churches and courthouses no longer are protected locations. DHS rescinded the “sensitive locations” memo last week, which outlined a DHS policy dating back to at least 2011 when it was published in writing by the Obama administration. Under the sensitive locations policy, ICE avoided immigration enforcement actions at schools, medical facilities, churches, courthouses, and related sites. Now ICE officers may target individuals in these locations where the person’s presence may be predictable because they are a teacher, student, volunteer, patient or family of a patient, regular attendee or congregant, or witness or victim in a criminal case.

Work authorization may end abruptly, through no fault of the employee, and employers will have to remove them from the workforce. Policies that have allowed work authorization to continue for long periods while immigration cases are adjudicated by DHS or US Department of Justice (DOJ) are being cancelled, or not renewed when they expire.

ICE will try to bring criminal charges whenever supportable, against workers and management. This is the new approach ICE is saying it will take. If there’s any indication the employer had knowledge of unlawful employment, or should have known, or ignored indications of unlawful employment with disregard for compliance, you can expect ICE will try to bring criminal charges. Meanwhile the robust anti-discrimination rules DOJ long has enforced may no longer protect employers who gave employees the benefit of the doubt, because DOJ’s new mandate does not include anti-discrimination.

Here’s what we recommend doing now to prepare:
I-9 Self Audit. Plan and implement an I-9 self-audit. You can scope the audit to be reasonable and comprehensive, and make corrections carefully within the applicable self-audit rules, to avoid making matters worse. If the employer is in E-Verify, an E-Verify self-audit is critical too. Late-created or missing E-Verify records may trigger audits or even worksite enforcement actions. If a third party holds your I-9s, ask them for copies now so you have them in hand for timely response to an ICE audit, and all you have to obtain from the third party is the I-9s for subsequent new hires. Employers are 100% responsible for their I-9 compliance even if third party service providers are involved. ICE does not offer leniency if the audited employer is waiting to receive copies of its I-9s maintained in the custody of a third party, and the companies who maintain I-9s may be inundated with high numbers of audit requests from employers they serve. There have been situations in which third party providers haven’t had the capability to produce actual I-9s on the correct form version from data they collected from their client’s employee, let alone produce the I-9s within the three-day time frame for responding to an ICE audit.

Develop a site-specific policy for how to respond to ICE visits. Identify the access points where ICE officers could try to enter your location. Identify who the officer would encounter at those locations. Make sure those greeters know who to call in management if law enforcement officers arrive. Other federal and some local officers are supporting ICE in worksite actions, so don’t limit this policy to ICE officers or even DHS officers more broadly. Educate management about the nature of ICE warrants, subpoenas and I-9 audits, so they know what to do.

Educate your workforce about their rights. The American Civil Liberties Union publishes excellent Know Your Rights resources which explain the rights of individuals who are physically present in the United States, whether at work, at home, in a vehicle, at a public transit station, or in other public or private spaces.

Here are some other risk factors to consider:

Using contracted employees, and the co-employer maintains the I-9s.
Lax immigration compliance culture at the worksite, such as acknowledgement of unlawful employment within the workforce, without consequences
Late E-Verify records, which the government can compare to the employer’s tax records to find evidence of failure to make timely E-Verify entries.

State law for individuals in CA: California law imposes specific duties and protections around ICE visits and I-9 audits. So it’s essential for California organizations to educate their personnel on how to respond if ICE or other immigration law enforcement officers arrive at the worksite. California law requires employers to provide specific notices to their entire workforce if there’s a routine I-9 audit. California law does not allow employers to give immigration officials access to nonpublic areas of the workplace unless they present a judicial warrant (not an administrative warrant). Anyone in a position to allow officer access to a California workplace must be informed that they can’t “consent” to allow immigration officers entry to nonpublic areas. To ensure compliance at the worksite, you need training and policy that is California-specific. The California Attorney General has issued guidance and forms which are helpful but should only be followed within California.

Please note that if parties outside California try to follow the California AG’s guidance in dealing with ICE outside California, you can expect ICE will treat this as obstruction of justice in the absence of the state law protections in California.

If you have questions about how to prepare, or you’d like to have help with planning, policy development or training, please contact Leigh Cole, Immigration Counsel, lcole@hkemploymentlaw.com, (415) 835-9001, or your employment lawyer at Hirschfeld Kraemer LLP.

Navigating the Trump Administration’s New Executive Orders Targeting DEI Initiatives: Key Takeaways for Private Employers

Last week, the Trump administration introduced a series of executive orders aimed at reducing the scope of Diversity, Equity, and Inclusion (“DEI”) initiatives within federal agencies and among private employers working with the government. These new orders focus on curtailing programs that the administration believes may lead to reverse discrimination or violate principles of merit-based hiring and promotion. Though a significant portion of the administration’s executive orders apply to the federal government only, Section 4 of the administration’s January 21, 2025, executive order is squarely aimed at private employers. While many are skeptical of the constitutionality behind the administration’s new executive orders as infringing on private employers’ rights to free speech, their impacts are already being felt with major corporations such as Mark Zuckerberg’s Meta recently announcing the immediate termination of its major DEI programs due to the “changing legal landscape” surrounding DEI in the United States.

Entitled “Encouraging the Private Sector to End Illegal DEI Discrimination and Preferences,” Section 4 directs the heads of all agencies “with the assistance of the Attorney General” to take “all appropriate action . . . to advance in the private sector” the elimination of “illegal” DEI initiatives. The executive order further directs the Attorney General to “take other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI.” What those measures will be, exactly, remains to be seen. However, despite the constitutional concerns discussed above, the administration’s direct reference to: (a) publicly traded corporations; (b) large non-profit corporations or associations; (c) foundations with assets of $500 million or more; and (d) institutions of higher education with endowments over $1 billion have caused trepidation amongst private employers nationwide.

What’s more, the new administration’s swath of executive orders appear to align with the U.S. Supreme Court’s landmark 2023 decision in Students for Fair Admissions v. Harvard, which struck down race-based affirmative action in college admissions. As Hirschfeld Kraemer partner Derek Ishikawa highlighted in the aftermath of the decision, the Court ruled that race could no longer be used as a factor in the admissions process at public and private universities, declaring that such practices violated the Equal Protection Clause of the Fourteenth Amendment.

As was the case following Harvard, the administration’s recent DEI executive orders underscore the need for private employers to carefully consider their diversity efforts—both in hiring and in broader DEI strategies—so as not to engage in what the administration has amorphously categorized as “illegal” DEI related discrimination practices and preferences. With the Attorney General slated to provide the administration with a report containing recommendations for enforcing the administration’s DEI prerogatives against private sector employers within the next 120 days, employers are encouraged to act now to assess potential exposure under these new orders.

Recommendations for Private Employers
Whereas the administration’s new DEI executive orders are likely to be tied up in the courts should the Attorney General begin enforcement as to private employers, given their sweeping nature and the Harvard ruling, private employers should consult employment counsel to review and adjust their DEI programs to reduce potential legal and reputational risks in this area. Keys areas of focus should include:

1. Review Employee Handbooks: Employee Handbooks often contain references to organizational DEI initiatives and, in some instances, DEI-related mission statements and guidelines. Employers should immediately review handbooks to ensure that any references to DEI-related activities comply with the policies set forth in the new executive orders to avoid the potential for possible enforcement actions.

2. Assess Hiring and Promotion Practices: Employers should audit their hiring processes to ensure that they are based on job qualifications and performance, rather than demographic characteristics. While DEI initiatives for private employers are still very much lawful despite the new executive orders, private employers should be cautious about setting specific diversity quotas or goals unless mandated by law. This aligns with both the Trump administration’s executive orders and the Harvard decision, which stressed the importance of merit-based practices.

3. Reevaluate DEI Training Programs: Employers offering DEI trainings should assess the content and delivery of these programs to avoid potential conflicts with the new executive orders and the Harvard ruling. This is especially so for employers utilizing the services of third party vendors. Ensuring that such trainings do not advocate for discriminatory practices or promote divisive ideologies is key.

4. Documentation and Transparency: Employers should keep detailed records of their hiring practices, training programs, and any DEI-related initiatives to demonstrate that their practices comply with federal guidelines. Transparency in how diversity and inclusion efforts are implemented will help mitigate any potential liability.

5. Avoid Reactionary Measures Involving DEI Initiatives: While some employers may reduce, or outright eliminate, existing DEI initiatives in order to reduce potential risk under the new orders, doing so may have the opposite effect. Scaling back recruiting efforts for diverse job candidates, for example, could lead to claims that women, people of color or individuals who identify as being LGBTQ were not considered for jobs and promotions. Moreover, such employer conduct may also constitute evidence of “animus” in pending or future discrimination lawsuits. Furthermore, employers who choose to stop conducting pay audits may no longer be aware of discrepancies, such as gaps in pay for men and women, that could trigger future actions.

6. Be Prepared for Future Litigation: As these policies are enacted, it is likely that there will be legal challenges. Employers—especially those in the categories outlined in the administration’s January 25, 2025, executive order—should stay informed about any changes to the law and be prepared to make adjustments if needed to ensure their programs remain legally compliant. This includes staying updated on potential shifts in judicial interpretations, such as those in the Harvard case.

Next Steps for Private Employers
As the new administration’s approach to DEI initiatives continues to sharpen, it will be critical for employers to work closely with legal counsel to ensure compliance with both the new executive orders and existing federal regulations. Legal experts can help tailor DEI programs that promote inclusivity without violating anti-discrimination laws. By taking the right steps to reduce liability—such as reviewing hiring practices, reevaluating training content, and ensuring transparency—employers can better navigate these changes while maintaining an inclusive and legally compliant workplace. Hirschfeld Kraemer attorneys will continue to monitor this and related developments in the DEI landscape.

California Employers Face an Uphill Battle Requiring Plaintiffs to Arbitrate Sexual Assault & Harassment Claims

In a dramatic expansion of the Ending Forced Arbitration of Sexual Assault & Sexual Harassment Act (“EFAA”), two recent California Court of Appeal decisions have held that plaintiffs can avoid being compelled to arbitration so long as their lawsuit contains at least an allegation of sexual assault or harassment.

Background
In the wake of the #MeToo movement, Congress amended the Federal Arbitration Act (FAA) in March 2022 by passing the EFAA which rendered arbitration agreements unenforceable at a plaintiff’s election in sexual assault and sexual harassment cases. Prior to the EFAA, such agreements were commonplace throughout the United States, resulting in the private resolution of sexual harassment claims outside the public eye. As we highlighted in a prior post, by passing the EFAA, Congress sought to immediately remedy what it perceived to be the inappropriate silencing of sexual assault and harassment claims through private arbitration.

In twin decisions from the California Court of Appeal, Second Appellate District earlier this month (Doe v. Second Street Corp. and Liu v. Miniso Depot CA, Inc.), the court focused on the legislature’s use of the word “case” (as opposed to “claim” or “cause of action”) throughout the EFAA in evaluating its impact on cases involving a mix of sexual harassment and unrelated non-sexual harassment claims, for example a claim for failure to pay wages.

The Decisions
In Doe, a plaintiff filed a lawsuit against her employer and two supervisors alleging sexual harassment, discrimination, and wage and hour violations. In evaluating the applicability of the parties’ arbitration agreement, the court broadly reasoned that although not all of the plaintiff’s causes of action arose from her sexual harassment allegation, the plaintiff’s “case” nonetheless related to the sexual harassment dispute because all of the causes of action were asserted by the same plaintiff, against the same defendants, and had arisen out of the plaintiff’s employment. Therefore, according to the court, the plaintiff’s individual wage and hour claims, like the plaintiff’s sexual harassment claim, were exempt from mandatory arbitration under EFAA.

In Liu, which was decided one week after Doe, a plaintiff who identified as lesbian sued their former employer alleging constructive termination, whistleblower retaliation, sexual harassment, and wage and hour violations. As in Doe, the court similarly held that individual wage and hour claims were exempt from the mandatory arbitration agreement under the EFAA. In so ruling, the court noted the inefficiencies—and unreasonable litigation expenses—that would otherwise result were it to simultaneously permit separate proceedings in court and in arbitration.

Key Takeaways
In light of these decisions, employers will now face great difficulty when seeking to enforce an arbitration agreement when a plaintiff’s lawsuit contains any allegation of sexual harassment or assault. A few interesting issues remain:

How will the Courts respond to plaintiffs’ attorneys tacking potentially meritless sexual harassment claims onto wage and hour lawsuits in order to void enforceable arbitration agreements?
Will the EFAA prevent employers from compelling arbitration as to non-sexual harassment claims where a plaintiff’s sexual harassment claim is defeated through dispositive motion practice?
What impact will a plaintiff’s sexual harassment claim have on unrelated wage and hour claims in the context of class and collective actions?

Given the likelihood that the California Supreme Court and/or United States Supreme Court will eventually weigh-in on this issue, employers would be wise in the meantime to continue to move to compel arbitration wherever possible. Hirschfeld Kraemer attorneys will continue to monitor this and related developments in the ever-shifting California arbitration landscape.

If you have any questions or concerns about how this new development may affect your business, please reach out to Adam Maldonado, amaldonado@hkemploymentlaw.com, (415) 835-9075.

Major Pro-Employer Changes To PAGA Expected To Become Law This Week

In a dramatic victory for employers, California’s Private Attorneys General Act (PAGA) is expected to be reformed this week. The reform, expected to be signed into law this week, has the potential to severely limit employers’ exposure so long as they take “reasonable steps” to address Labor Code issues proactively.

This reform has the potential to upend the scourge of PAGA lawsuits that have plagued California employers with 7- and 8-figure demands for more than 20 years, providing employers with powerful tools to defend against those cases. The reform law lays out very clear, proactive steps employers must take in order to limit their exposure.

How Did We Get Here?
In 2004, the State enacted PAGA to deputize an “aggrieved employee” to recover civil penalties for violations that previously could only be recovered by the California Labor Commissioner. The law was extremely vague about critical terms – for example, what it meant to be “aggrieved” and how to calculate penalties – resulting in outsized judgments and settlements for immaterial and harmless Labor Code violations.

For the last 20 years, the State Legislature declined to seriously consider any meaningful reform to PAGA, but that changed this year due to a proposed initiative on the November ballot that would have undercut most private PAGA claims. Faced with this prospect, California legislators, with little time to spare, have agreed upon sweeping and impactful amendments to PAGA in exchange for an agreement by the backers of the ballot initiative to withdraw it. This deal is expected to pass the Legislature this week and be signed into law by Governor Newsom.

The Reforms
These are the most notable reforms:

Changes to Civil Penalties: The single most notable change is to the amount of penalties that can be awarded in a private PAGA case. In particular, the reform lays out “reasonable steps” that can be taken by employers and which can lower their exposure by up to 85 percent.

The PAGA reform caps penalties at 15 percent for employers who take “reasonable steps” to comply before a PAGA notice and 30 percent for employers who do so after a PAGA notice. Helpfully, the law defines “reasonable steps” to include periodic payroll audits; training supervisors on common Labor Code issues; having legally compliant policies; and taking effective corrective action with regard to supervisors as to noncompliant wage/hour practices.

This is an incredibly powerful defense for California employers, provided they follow those steps. An employer who can show that it routinely audits payroll practices, trains supervisors, distributes compliant policies, and responds effectively to wage-hour complaints, stands to insulate itself from the vast majority of PAGA liability. While employment lawyers for years have advised employers to take these steps already, they will become an absolute necessity with passage of these reforms.

Standing/Personal Experience: Over the past 20 years, courts have lowered the bar for PAGA plaintiffs to show that they were “aggrieved.” Among other things, courts found that plaintiffs could assert PAGA claims even if they did not personally experience the type of violation asserted in the lawsuit or if they only experienced violations outside the one year statute of limitations. In practice, this meant that PAGA plaintiffs who experienced one lone violation of the Labor Code could assert PAGA claims for all conceivable Labor Code violations for hundreds or thousands of employees.

The reform eliminates this obvious flaw by requiring the plaintiff to prove that (1) he “personally experienced” the Labor Code violations that he seeks to remedy on behalf of other employees and (2) the violation occurred within one year of sending a PAGA notice to the State. By narrowing the class of plaintiffs who can potentially bring PAGA claims, this reform will weed out many claims by undeserving plaintiffs.

Manageability: The plaintiff’s bar favored PAGA over class actions because, unlike a class action, in PAGA cases, employees did not have to prove “commonality,” namely that their claims had anything in common with other employees. In the PAGA context, employers made similar arguments that a case was “unmanageable” when employees shared little in common, but the California Supreme Court rejected that notion. The reform changes that, allowing courts to determine that PAGA claims are unmanageable and allowing a court to limit the scope of a PAGA claim or the evidence to be presented at trial to ensure manageability.

Cap On Penalties For Wage Statement Violations Without Injury: Under PAGA, employers would often receive huge demands for seemingly “technical” wage statement violations, such as a minor errors or abbreviations in an employer’s name and address, which caused no harm. Under the reform, if a paystub violation does not cause harm to the plaintiff, then the available penalty is capped at $25, which is a 75 percent drop from the $100 penalty that previously was being assessed.

No Derivative Penalties/“Stacking”: PAGA plaintiffs would routinely seek “stacked” penalties, which included numerous $100 PAGA penalties for what amounted to one violation for one employee in one pay period. The reform language significantly limits such “stacking” and makes it very hard for PAGA plaintiffs to seek them.

New Cure Provisions: The reform expands an employer’s ability to “cure” an asserted PAGA violation after receiving a PAGA notice. In practice, if an employee provides a PAGA notice asserting a Labor Code violation, an employer has the ability to pay the employee what he claims he is owed and avoid any PAGA liability. There are also new, detailed administrative procedures for both small (less than 100 employees) and large (100 or more employees) employers to execute upon such “cures” through court-administrated mechanisms, including but not limited to early evaluation conferences.

Other Reforms
There are other proposed changes of interest to employers, the most notable of which we mention briefly here:

$200 Penalties Are Limited: The reform makes clear that $100 penalties are the default and that $200 penalties can only be awarded after an unfavorable court or agency determination in the last five years.
Allocation of an Award: Previously, 75 percent of any plaintiff’s recovery went to the State’s Labor Development Workforce Agency and 25 percent went to the aggrieved employees. That ratio is now 65/35, meaning more money goes directly to the affected employees.
Court Discretion to Reduce Penalties: Courts have always had the power to reduce “unfair” penalties and this law strengthens that discretion.
Civil Penalties for Short Term Violations: The maximum violation for Labor Code violations occurring over 30 days or 4 pay periods (whichever is less) is capped at $50.
Relief for Staffing Agencies: Staffing agencies that pay employees on a weekly basis are not penalized for doing so by having more pay periods in a one-year period. Instead, they automatically receive a 50 percent reduction in penalties.

Takeaways/Next Steps
This PAGA reform will provide significant opportunities for employers to avoid costly PAGA civil penalties. However, such relief is not self-executing: employers need to be vigilant and work closely with their counsel to take full and appropriate advantage of the new protections and opportunities. Below are just some of the most prominent steps employers should take:

Routine Audits of Wage/Hour Policies and Practices: Employers should, without delay, conduct comprehensive audits of their wage/hour policies and practices, ranging from the propriety and completeness of rest and meal period policies to timekeeping (no “off the clock”) to ensuring that overtimes and meal/rest premiums are accurately paid at the regular rate of pay.
Training: The new PAGA language also expressly calls out “training” as a factor in penalty reduction–and with good reason: even the best policies and practices are not a shield against liability if the employer’s supervisors do not meaningfully implement, and if the employees generally do not know of or understand, what the employer’s relevant policies and practices are. Training fills that gap.
Arbitration Agreements: Now more than ever, employers should consider instituting mandatory arbitration agreements with class action and (to the extent permitted by law) representative action waivers. Under the current state of California arbitration law (which is always fluid, to be sure), arbitration agreements that meet certain benchmarks and are enforceable will allow employers, under the best of circumstances, to avoid class action claims altogether. Further, although “representative” PAGA claims are not subject to mandatory arbitration, “individual” arbitration claims should be under the California Supreme Court’s 2023 decision in Adolph v. Uber Technologies, Inc. Given the new PAGA language, if the only representative claims an employer has to litigate are PAGA claims, there are means to reduce the potential value of such claims to a point where they are either not worth pursuing, or at least have a greatly diminished settlement value.

Conclusion: Be Vigilant and Proactive
The PAGA reforms, while not a panacea, are a huge step in the right direction. The basic guidance remains the same: California employers should not assume that they are doing everything “right.” These reforms place an actual dollar value on the old adage that an ounce of prevention is worth a pound of cure, meaning that cautious, proactive employers stand to limit PAGA exposure dramatically.

Hirschfeld Kraemer will have a webinar in the coming weeks to discuss these important changes and answer the many questions that will undoubtedly arise.

For more information, contact Dan Handman or Monte Grix in the Los Angeles office of Hirschfeld Kraemer LLP. Dan can be reached at 310-255-0705 or dhandman@HKemploymentlaw.com. Monte can be reached at 310-255-1827 or mgrix@HKemploymentlaw.com

California Supreme Court Makes Defense of PAGA Claims More Difficult For Employers

Last week, the California Supreme Court issued a highly anticipated decision in Estrada v. Royalty Carpet Mills, Inc., finding that trial courts cannot strike claims under the Private Attorneys General Act of 2004 (PAGA) due to concerns about their “manageability.” Since PAGA was enacted twenty years ago, there has been a massive surge in lawsuits and an infinitely growing threat of significant penalties and attorneys’ fees. While employers were hoping that this decision would give them a tool to curtail PAGA’s harm, unfortunately, it was yet another blow for employers.

Procedural History
The Estrada case involved the issue of “manageability” of a PAGA claim. Unlike a class action, which requires a judge to certify that all class members have “commonality” in their claims, PAGA does not require such a certification. Still, some courts found that where there was a disparity in the types of claims that members of a PAGA class had experienced, a judge could strike the claim for being “unmanageable,” similar to a finding of a lack of commonality in a class action. That was precisely the holding by the Court of Appeal in Wesson v. Staples the Office Superstore, LLC, 68 Cal.App.5th 746 (2021), a 2021 decision, which found that striking a claim for lack of manageability was an inherent power held by judges in PAGA claims. A few months after the Wesson decision, the Court of Appeal in Estrada disagreed, holding that courts have no inherent authority to strike or limit PAGA claims before trial. Estrada v. Royalty Carpet Mills, Inc., 76 Cal.App.5th 685 (2022).

Last week, the California Supreme Court resolved this difference, finding that trial courts lack inherent authority to strike PAGA claims on manageability grounds. It also recognized, however, that employers have a due process right to present affirmative defenses and introduce evidence to challenge the plaintiff’s evidence and reduce damages and that there are valid concerns with manageability in complex PAGA cases, especially those involving highly individualized inquiries into the experiences of hundreds or thousands of alleged aggrieved employees.

The issue resolved by the Estrada decision is really one of timing: striking a claim because it was unmanageable would have given employers a tool to eliminate PAGA claims at the outset of the case before heavy litigation ensued. Without that tool, employers will have to rely on other procedures to limit PAGA liability, such as motions for protective orders into expensive discovery or motions for summary adjudication to limit the scope of the PAGA claim. Unfortunately, those procedural vehicles are likely to be costly and will require employers to defend themselves actively.

What Estrada Means for Employers
This holding is certainly disappointing for employers, given the time and expense of the tools available to them to curb the abuse of PAGA. While employers may no longer have a viable argument to strike a PAGA claim at the outset of a case based on manageability grounds, they should focus on using the various case management tools referenced by the Supreme Court to work their way through PAGA cases. Employers should be ready to attack PAGA complaints at the pleading stage through demurrers or motions to strike, limit the scope of discovery through phased discovery and motions to postpone discovery of contact information, and to demand an early trial management plan. Once discovery is complete, employers should consider viability of attacking the claim through a summary judgment motion.

PAGA’s Fate on the Ballot
Employers are not the only critics of PAGA claims. If a PAGA claim is settled, 75% of any penalties go to the Labor Workforce Development Agency, with the remaining 25% split between employees and their lawyers, leading employee advocates to believe that PAGA primarily benefits the plaintiff’s bar and the State, as opposed to compensating the “aggrieved employees.” In response, Californians will be voting on the California Fair Pay and Employer Accountability Act this November, which could potentially replace PAGA by providing the entire award of penalties to employees, not the State. More importantly, the Act will eliminate attorney’s fees entirely, propose an award of double penalties for employers who knowingly violate the law, and establish a Consultation and Publication Unit for employer guidance. This ballot measure will allow employees to pursue claims faster without having lawyers take large chunks of their settlements, while employers will have a defense against shakedown lawsuits. Employers, employees, and plaintiffs’ attorneys will be watching this ballot measure closely over the next year.

For more information, contact Alia Chaib or Dan Handman in the Los Angeles office of Hirschfeld Kraemer LLP. Alia can be reached at 310-255-1835 or AChaib@hkemploymentlaw.com. Dan can be reached at 310-255-1820 or DHandman@hkemploymentlaw.com.

U.S. Department of Labor Issues Its “Final Rule” Regarding the Classification of Independent Contractors versus Employees

On January 9, 2024, the U.S. Department of Labor issued its final rule regarding the classification of independent contractors versus employees, which becomes effective March 11, 2024. Although California employers are bound to the more restrictive “ABC Test” (that generally leads to findings that most workers are employees and not independent contractors), employers that are bound by the federal Fair Labor Standards Act, whether by virtue of conducting business in a state that follows the FLSA or some other reason (e.g., federal contractors), should take note of the new federal rule, which departs from the more employer-friendly rule issued under the Trump Administration and returns to a test that more closely aligns with the multi-factor “economic realities” test that prevailed prior to the 2021 rule change.

Background
During the Trump Administration, the Department of Labor revamped its independent contractor test. Although that test, like the one before it and the most recent revision, both apply an “economic realities” test (with that term dating back to U.S. Supreme Court decisions from the 1940s), the Trump-era test focused upon two “core” factors: the level of control exercised over key aspects of the work by the putative employer and the worker’s opportunity for profit or loss. The net effect of the Trump era test was to provide more flexibility and make it easier to classify workers as independent contractors.
Under the Biden Administration, the Department of Labor quickly staked out a new position by attempting to rescind the Trump era rule (which was never implemented) and institute its own rule on the basis that, as a matter of public policy, workers who are (mis)classified as independent contractors are denied important legal protections and benefits. The DOL’s initial attempts to rescind the Trump era rule resulted in protracted litigation, which seemingly persuaded it to roll out a more comprehensive and deliberate rule change that would have a better chance of withstanding future legal challenges.

The New Six Factor “Economic Realities” Test—No Single Factor is “Core” or Determinative
In some ways, everything old is new again: the new iteration of the “economic realities” test hinges upon whether, as a matter of economic reality, the worker is economically dependent upon the hiring entity for work. If (s)he is, then the appropriate classification is that of employee and not independent contractor. The factors of this test are: (1) the worker’s opportunity for profit or loss depending on managerial skill; (2) investments by the worker and the potential employer; (3) the degree of permanence of the work relationship; (4) the nature and degree of control exercised by the potential employer; (5) the extent to which the work performed is an integral part of the potential employer’s business; and (6) the skill and initiative involved in the work. Importantly, unlike the Trump era test, there are no “core” factors that are more important than others, and no single factor is determinative.

The New Test Is Not an “ABC Test”
In a nod to California-centric concerns and those of other states that apply similar independent contractor tests, the DOL, in its press release announcing the final rule, explicitly stated that the final rule does not adopt an “ABC Test.” As California businesses know, under this test, a potential employer must satisfy all three of the following to classify a worker as an independent contractor: one, the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both as a matter of contract and as a practical reality; two, the worker performs work that is outside the usual course of the hiring entity’s business; and three, the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed (for example, a carpenter who frames a house for one hiring entity routinely engages in framing for others as well).

Takeaways
As a threshold issue, if you are a California employer, unless subject to a statutory exemption, you are (or should be) applying the aforementioned “ABC Test.” If you are doing so, then the odds are that a determination of employee versus independent contractor under the ABC Test is going to be consistent with the federal “economic realities” test. In other words, if you are subject to California law regarding worker classification, the DOL’s new rule is not going to make a big impact.

On the flip side, however, although the new federal rule is closer to the California standard than the Trump era federal rule, employers who adhere to the federal economic realities test should not assume that their classification conclusions will pass muster under California law: the federal test is still more employer-friendly than the ABC test, and an “independent contractor” under the federal test may be an employee under California’s ABC test. It is accordingly critical that employers undertake classification audits under the guidance of experienced employment counsel, mindful of which standards, federal or state, should apply.

Should you have any questions regarding the foregoing, please contact Monte Grix in the Los Angeles office of Hirschfeld Kraemer LLP. He can be reached at 310-255-1827 or MGrix@hkemploymentlaw.com

Important Handbook and Policy Changes for 2024 and Beyond

As California employers rightfully reflect on their accomplishments from 2023, it is time to look ahead to 2024 and make sure your company’s New Year’s Resolutions include the following:

Employee Handbook/Policy Changes 2024
- Paid Sick Leave Changes: As of January 1, 2024, most employers are required to provide 5 days/40 hours of paid sick leave under California law, but this amount, and rollover accruals from year to year, can be even greater if your company is subject to a local sick leave ordinance. See our blog post here.
- Reproductive Loss Leave: Employers are now required to provide unpaid leave, intermittent or continuous, of up to five (5) days of leave following a “reproductive loss event,” which is defined as a day or, for a multiple-day event, the final day of a failed adoption, failed surrogacy, miscarriage, stillbirth, or an unsuccessful assisted reproduction. The leave can be up to 20 days for employees who suffer multiple loss events.
- Prohibition Against Discrimination for Cannabis Use/Drug Testing: Employers cannot discriminate against employees for their use of cannabis off the job and away from the worksite; for a required drug screening test that finds an employee to have non-psychoactive cannabis metabolites in their system; or for an employee’s prior cannabis use obtained from their criminal history unless the Company is permitted to consider or inquire about such information by state or federal law.
Workplace Violence Prevention Plans Required for Most California Employers. Effective July 1, 2024, California law requires most California employers to create a written workplace violence prevention plan, a workplace violence incident log (consistent with OSHA standards), a workplace violence prevention curriculum specific to the employer, and annual training for all employees concerning identification and internal reporting of workplace violence concerns. The employee training and the written plan are required to be customized to the particular risk factors associated with each employer. (All of this is in addition to employers’ existing obligation under Section 527.8 of the Code of Civil Procedure to seek a temporary restraining order and permanent injunction where an employee has suffered unlawful violence or a credible threat of violence from any individual that can reasonably be construed to be carried out or to have been carried out at the workplace.)
Compliance with California Consumer Privacy Act (“CCPA”), as amended by California Privacy Rights Act (“CPRA”): If a California employer/business engages in the selling or sharing of consumers’ (including employees, applicants and independent contractors) personal information OR had gross revenues in 2023 in excess of $25 million, it is subject to the CCPA. The CCPA creates a complex and comprehensive set of consumer rights and lays out steps, including a web-platformed privacy policy, a notice at collection, a procedure to respond to consumer requests to exercise such rights, and an obligation to eliminate and/or limit the use of consumers’ personal information as much as possible. Failure to comply can subject businesses to costly civil penalties and/or suits for damages by the State of California and consumers, individually or on a classwide basis. See our blog post here.
Non-Competition/Non Solicitation Agreements. Noncompetition agreements/clauses have long been unenforceable in California, as developed through a long line of decisional (case) law. Now the California Legislature has expressly made the decisional law part of California statutory law. In addition, for the first time, a California employer who attempts to enforce an invalid non-compete – even one that was signed outside of California and is otherwise governed by and fully enforceable under the laws of another state – will be at risk of being sued under a new legal claim–a private cause of action permitting a former or existing employee to be awarded damages, injunctive relief and attorney’s fees and costs when challenging an invalid non-compete agreement/clause. Additionally, no later than February 14, 2024, employers must send individual notices to all current and former employees (if they were employed after January 1, 2022) informing them that their non-competes are void under California law. See our blog post here.

The policies and procedures described above are comprehensive and complex and should not be undertaken without the advice of legal counsel. We at Hirschfeld Kraemer stand ready to strategize and assist your company with all aspects of compliance and implementation.

For more information, contact Monte Grix or your Hirschfeld Kraemer legal counsel with any questions. Monte can be reached at (310) 255-1827 or mgrix@hkemploymentlaw.com.

Think The New Consumer and Employee Privacy Laws Don’t Reach Your Business? Think Again.

Background for Employers
In 2018, the California Legislature enacted the California Consumer Privacy Act (“CCPA,” Civil Code section 1798.100, et seq.) As originally enacted, the CCPA created privacy rights for “consumers” – specifically regarding the personal information that businesses collect about them. Notably, “consumers” is broadly defined under the CCPA as a natural person who resides in California, but California employers were largely spared from obligations under the original incarnation of the CCPA, other than providing notice of rights under statute.

In 2020, by voter initiative, the CCPA was modified and expanded by the California Privacy Rights Act (“CPRA”). Among other changes, employees, job applicants, and independent contractors are now considered “consumers.” Thus, if a business is “covered,” it must comply with the CCPA not only as to its customers and potential customers but as to its employees, job applicants, and independent contractors.

(The CCPA and CPRA are together referred to as the “CCPA” throughout this post.)

What Businesses/Employers Are Covered Under the CCPA?
Generally, for-profit entities doing business in California that collect consumers’ personal information, whether directly or through a third party, who meet any one of the following:

Buy, sell, or share the personal information of 100,000 or more California residents or households;
Derive 50% or more of their annual revenue from selling or sharing California residents’ personal information; or
Have gross annual revenue of over $25 million for the prior calendar year.

“Selling” and “sharing” also have specific definitions under the CCPA. “Selling” is straightforward: it means providing a consumer’s personal information to others for monetary or other consideration. “Sharing” is different, but still has a profit motive: it essentially means providing a consumer’s personal information to others for cross-context behavioral advertising, (i.e., targeted advertising), regardless of whether there is a monetary payment/other consideration.

Importantly, even if an employer’s business model has nothing to do with selling or sharing of consumer’s personal information, the fact that employees, applicants and independent contractors are “consumers” means that an employer is “covered” if it meets the $25 million gross revenue threshold.

When Do Businesses/Employers Have To Comply?
Covered businesses/employers were required to comply with the CCPA as of January 1, 2023, and final regulations were issued on March 29, 2023. However, the California Chamber of Commerce obtained an injunction, delaying enforcement of the new regulations for one year from the date the regulations were issued, or until March 29, 2024.

What Rights Do Consumers (Including Employees, Applicants and Independent Contractors) Have Under the CCPA?
The California Privacy Protection Agency (CPPA), the new agency created to enforce CCPA rights, aptly used the acronym “LOCKED” (Limit, Opt-Out, Correct, Know, Equal, and Delete). Consumers have the right to:
L –LIMIT the use and disclosure of sensitive personal information collected about them. (“Sensitive Personal Information” is a subset of “Personal Information”: think Social Security numbers; Driver’s License numbers; financial account access information; precise geolocation information; contents of mail, email, and text messages; genetic data; biometric information; and/or information about a consumer/employee’s health, sex life, sexual orientation, racial or ethnic origin, citizenship or immigration status, religious or philosophical beliefs, or union membership.)
O –OPT-OUT of the selling or sharing (as defined above) of their personal information.
C –CORRECT inaccurate personal information collected about them.
K –KNOW what personal information is being collected about them, including the categories of personal information collected, the categories of sources from which the personal information is collected, the business or commercial purpose for collecting, selling, or sharing personal information, the categories of third parties to whom personal information is disclosed, and the specific pieces of personal information collected.
E –EQUAL treatment. Businesses cannot discriminate against consumers for exercising their CCPA rights.
D –DELETE personal information collected from them (subject to some exceptions).

What Steps Do Employers/Businesses Have to Do to Comply with the Revised CCPA:

Step 1: Inventory Personal Information Collected
Covered businesses/employers first need to map what personal information of their consumers (including employees, applicants and independent contractors) they collect, what it is used for, and how long it is retained.
Step 2: Create and Distribute a Privacy Policy and “Notice at Collection” for Consumers
Once the foregoing mapping is complete, covered businesses/employers must provide notice of consumers’ rights and also provide methods by which consumers can exercise these rights. The CCPA requires that covered businesses/employers post an online privacy policy on their website that provides a comprehensive description of the business’s information practices, informs consumers about their rights under the CCPA and provides information necessary to exercise those rights. Similarly, covered businesses/employers need to provide a “Notice at Collection” to consumers – before any personal information is collected about them – that spells out what personal information is collected, for what purpose, for how long it is retained, and that provides notice of the aforementioned rights.
Step 3: Reasonably Limit the Collection, Use and Retention of Consumer’s Personal Information
Additionally, covered businesses/employers must limit the collection, use, and retention of consumers’ personal information to only those purposes that: (1) a consumer would reasonably expect, (2) are compatible with the consumer’s expectations and disclosed to the consumer, or (3) purposes that the consumer legitimately agreed to. Bottom line: the collection, use, and retention of consumer information must be reasonably necessary and proportionate to the above purposes.
Step 4: Timely Acknowledge and Respond to Consumer Requests to Exercise CCPA Rights
Covered businesses/employers also need to set up a procedure to receive and timely respond to consumer requests to exercise their rights under the CCPA (as noted above). Generally, for requests to delete, correct, or know, covered businesses/employers must confirm receipt of the request and provide information about how it will process the request no later than 10 business days after receiving the request. The business /employer must respond to the request no later than 45 calendar days after receipt. A covered business/employer must comply with a request to opt-out or limit no later than 15 business days after receiving the request.

What If My Company Does Not Comply?
A consumer whose personal information is subject to unauthorized access and disclosure as a result of a business’s violation of the duty to implement and maintain reasonable security procedures and practices may bring a civil action for statutory damages on an individual or class-wide basis (after a 30-day cure period) to recover damages between $100 to $750 per consumer per incident, or for actual damages, whichever is greater.
Additionally, the State of California (through the California Attorney General) can bring a civil action against a business for violation of the CCPA to recover civil penalties of $2,500 to $7,500 per violation. As with class actions, these relatively small amounts can add up quickly and lead to multimillion dollar liabilities. The CPPA may also bring an administrative enforcement action to recover such penalties.

How Do I Get My Business Compliant?
Each step of this process is complex and time intensive. It should only be undertaken with counsel. Hirschfeld Kraemer’s employment lawyers are available to guide you through this process and make sure you will become compliant with the CCPA as quickly and efficiently as possible.

For more information, contact Monte Grix in the Los Angeles, or Jenna Rogenski in the San Francisco office of Hirschfeld Kraemer LLP. Monte can be reached at 310-255-1827 or mgrix@hkemploymentlaw.com. Jenna can be reached at 415-835-9009 or jrogenski@hkemploymentlaw.com.

Non-Competes Continue to Get “No Love” in California

No later than Valentine’s Day 2024, California employers will be required to send “candy grams” to former and existing employees with unenforceable non-competes informing them that those provisions are void. Complicating this new legal requirement is an expanded definition of what constitutes an unenforceable non-compete and the creation of a new legal claim that can be brought against an employer who pursues enforcement of an invalid non-compete.

California has long prohibited most non-compete agreements. Since 1941, California law has rendered them invalid except under very limited circumstances (mostly involving the sale of a business). California courts have issued a long series of rulings clarifying what constitutes an unenforceable non-compete and what limited exceptions to this prohibition entail.

Effective January 1, 2024, a new law, AB 1076, forbids California employers from entering into non-competes with any of their employees unless they expressly fall into one of the narrow exceptions allowed by California law.

Equally important, a California employer who attempts to enforce an invalid non-compete – even one that was signed outside of California and is otherwise governed by and fully enforceable under the laws of another state – will be at risk of being sued under a new legal claim. SB 699 creates for the first time a private cause of action permitting a former or existing employee to be awarded damages, injunctive relief and attorney’s fees and costs when challenging an invalid non-compete and exposes that same employer to liability based upon an unfair competition claim.

Finally, no later than February 14, 2024, employers must send individual notices to all current and former employees (if they were employed after January 1, 2022) informing them that their non-competes are void under California law.

In light of these new developments, the following open questions remain unanswered:

Will a non-California employee who is subject to a valid non-compete be able to escape from that prohibition by moving to California?
Are California employers actually prohibited from requiring their non-California employees from entering into non-competes that are otherwise fully enforceable in states where those employees live and work?
Does this new law also prohibit agreements forbidding non-solicitation of customers and employees? As of now, consistent with prior court decisions, it certainly seems that customer non-solicits are prohibited as well.
Can a California employer still try to rely upon Labor Code section 925 by entering into an employment agreement containing a non-compete with another state’s choice of law provision when that employee is separately represented by their own legal counsel?

What steps must employers take right now in order to comply with these new laws?

Make sure your legal counsel reviews all existing non-competes to determine if they must be revised.
Prepare a list of individuals who must be contacted by February 14th to inform them that their non-competes are void along with a letter meeting this notice requirement.
Don’t automatically assume that every applicant with a non-compete will be prohibited from working for your company. Consult your lawyer to do an individual assessment as the need arises.
Finally, given the open questions listed above, we strongly recommend that you consult with legal counsel to determine what, if any, circumstances going forward will your company have the legal right to require new employees to sign a non-compete particularly those employees working remotely outside of California.

For more information, contact Steve Hirschfeld or Greg Glazer. Steve can be reached at 415-835-9011 or sh@hkemploymentlaw.com, and Greg can be reached at 310-255-1830 or gglazer@hkemploymentlaw.com

NLRB Issues New Joint Employer Rule

On October 26, 2023, the National Labor Relations Board (NLRB or the Board) issued a new rule addressing how the Board will assess joint employer status under the National Labor Relations Act. In short, the new rule lowers the bar significantly for finding two entities to be joint employers and raises heightened concerns about the careful use of contractors and potentially franchisor-franchisee relationships. Here are some key takeaways:

The prior rule focused on whether a putative joint employer’s control over employment matters is direct and immediate. However, the new rule focuses on whether the putative joint employer indirectly affects employees’ terms and conditions of employment or has reserved the right to control, even if it does not actually exercise this right. In other words, if an employer can indirectly control or influence another employer’s employees’ terms and conditions of employment, or it has somehow reserved its authority to do so (e.g., via a contract or potentially certain Brand standards), it is at risk of being found a joint employer.
Under the new rule, the relevant terms and conditions of employment are defined by the following broad, exhaustive list: 1) wages, benefits, and other compensation; 2) hours of work and scheduling; 3) the assignment of duties to be performed; 4) the supervision of the performance of duties; 5) work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline; 6) the tenure of employment, including hiring and discharge; and 7) working conditions related to the safety and health of employees.
Based upon what we have seen from the Biden Board, we expect the new rule will be interpreted very broadly and will expand the universe of joint employers. As a result, we expect more joint employer relationships to be found in entity-contractor and entity-subcontractor situations. Concerningly, as expressly indicated in the new rule, the Board is likely to give increased scrutiny of relationships between a franchisor and the employees of a franchisee.
The new rule makes clear that the putative joint employer must bargain with the relevant Union as to the terms and conditions over which it exercises control (directly or indirectly), and over which it has retained authority. This is in addition to the historic rule that a putative joint employer would be jointly and severally liable for the primary employer’s unfair labor practices.
The new rule will be applied retroactively to all pending election cases.

The key change under the new rule is that the alleged joint employer no longer must exercise power over the primary employer’s employees’ essential terms and conditions of employment. Instead, a putative joint employer, either by itself or through an intermediary (e.g., another entity or agent), need only have the authority or potential to impact terms and conditions to be considered a joint employer.

As a result of the new rule, it will become easier for employees of franchisees and staffing agencies to show that the franchisor or contracting entity is their joint employer. In other words, a franchisor or user firm may be required to negotiate with the unionized workers of the franchisee or contractor if it directly or indirectly controls their job terms and conditions or retains the right to do so, even if those rights have never been exercised. In addition, the joint employer will be jointly liable for all unfair labor practices committed by its contractor or franchisee. Although the new rule establishes a purportedly uniform joint-employer standard, the NLRB will still conduct a “fact-specific analysis on a case-by-case basis to determine whether two or more employers meet the standard.” This will create uncertainty for employers until Board cases are issued or there is a change in the political makeup of the Board following an election. It is important to contact legal counsel to understand and discuss the implications of the new rule, especially in the context of franchisor-franchisee relationships.

The NLRB’s new rule will take effect 60 days after publication, on December 26, 2023. We expect there will be challenges brought as to the new standards and we will provide updates as they become available. Nonetheless, this is a good time not only to review your staffing and other contracts and relationships, but also to assess risk tolerance as you review your franchise agreements and related Brand standards.

For more information, contact Keith Grossman, Monte Grix, or Aram Karagueuzian in the Los Angeles office of Hirschfeld Kraemer LLP. Keith can be reached at 310 255 1821 or kgrossman@HKemploymentlaw.com. Monte can be reached at 415 835 9016 or mgrix@HKemploymentlaw.com. Aram can be reached at 310 255 1836 or akaragueuzian@hkemploymentlaw.com.