United States: US Employment Litigation Round-Up for April: A Review of Key Cases and New Laws Affecting Employers

Ninth Circuit: No-Rehire Clause in Settlement Agreements May Be Unlawful Restraint of Trade

Decision: In Golden v. California Emergency Physicians Medical Group, the Ninth Circuit Court of Appeals held that a no-rehire clause in a settlement agreement violated California's broad prohibition on restrictive covenants (Business & Professions Code section 16600). In Golden, an emergency room physician sued a consortium of E.R. physicians after losing his staff membership at a hospital, and the parties ultimately agreed to settle. The agreement had a no-rehire provision so the physician refused to sign it and asked the district court to set it aside, arguing that the no-rehire provision violated section 16600 because it restrained him from the lawful practice of his profession. The court denied the physician's motion, finding the statute inapplicable because the provision at issue was not a covenant not to compete.

The Ninth Circuit reversed and remanded the case to the trial court to decide if the restraint was "substantial." The court concluded that the settlement agreement was a contract restraining the plaintiff from engaging in a lawful profession, trade or business, in violation of section 16600. Judge Kozinski dissented, opining not only that the clause was permissible, but that it should be challenged at the time it was actually used for improper purposes, not before.

Impact: Although the law on this subject is still evolving, employers should consider the risk of no-rehire clauses in California being invalidated when structuring settlement agreements with former employees.

Eight Circuit: Release Language on Cashed Settlement Checks for "Full Payment Of Wages" Is Insufficient to Release FLSA Claims

Decision: In Beauford v. ActionLink, LLC, the Eight Circuit Court of Appeals reversed a lower court's determination that employees who cashed checks issued by ActionLink that included language that the checks represented full payment for "wages earned, including minimum wage and overtime, up to the date of the check," had waived their rights to additional compensation. The checks were sent to employees following a US Department of Labor investigation into a complaint that ActionLink misclassified its "brand advocates" as exempt and failed to pay them overtime wages. The question of what constitutes a valid settlement was one of first impression for the Eighth Circuit, and the court relied on decisions by the Fifth, Seventh and Ninth Circuits in holding that employees cannot "agree to accept payment," under the Fair Labor Standards Act, unless they are given notice of the rights they are waiving. The Eighth Circuit determined that because the language on the checks did not adequately notify employees of the rights they were waiving, the waiver was inadequate.

Impact: This case adds to the authority finding that an agreement to waive claims must provide clear notice of the waived claims and also document an employee's agreement to the waiver.

Department of Labor Proposal Seeks to Expand Financial Advisers' Fiduciary Duties

Proposed Rule: A rule proposed by the US Department of Labor would eliminate a pair of ERISA exemptions that have allowed financial advisers and brokers to steer clients into investment vehicles that have a significant upside for the adviser but may not have been the best option for the client. The first proposed change would cause broker-dealers who provide one-time advice (rather than ongoing management of funds or other services) to be deemed investment advisers under ERISA. The second proposed change would eliminate a requirement that, in order for a broker to be considered a fiduciary, the financial adviser and the client agree that information provided by the broker was the primary basis for an investment decision. The proposal also creates a "best interest contract exemption" to allow firms to continue to set their own compensation practices so long as they meet certain requirements. There is a 75-day comment period on the proposed rule, plus a public hearing after the comment period closes.

Impact: The proposed rule has been criticized by the financial services industry as creating impediments to access to investment advice and choice. The proposal also has encountered bi-partisan criticism in Congress, and legislation currently pending in the House of Representatives would essentially nullify the proposed rule.

NLRB General Counsel Issues Report Concerning Employee Handbook Rules

Report: The General Counsel's Office of the National Labor Relations Board (NLRB) recently issued a report addressing the issue of whether certain employee handbook rules violate the National Labor Relations Act (NLRA) in one of two ways: (i) by explicitly restricting employees' right to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection or (ii) because employees would reasonably construe the rules to restrict that right. The report emphasized that the context in which a rule appears is of paramount importance in determining whether it violates the NLRA.

Impact: It will be important for employers to regularly review their handbooks with the assistance of counsel to ensure that their rules comply with the latest pronouncements from the NLRB on this subject.

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.