The 'gig' economy is an umbrella term that encompasses a broad range of flexible, part-time, temporary and freelance work, either as an employee or as an independent contractor. The growth of the gig economy, both nationally and regionally, is well-documented. Flexible and contract work, the backbone of the gig economy, is the fastest-growing segment of the US workforce, with growth approaching three to four times that of the traditional employee workforce. As of 2017, flexible and contract workers accounted for nearly one-quarter of the workforce at the 200 largest US companies, and the growth is expected to continue. By 2020, gig workers are expected to make up approximately 40% of the US workforce.
Just as the gig economy challenges the traditional definitions of work and employment, it also presents challenges for the traditional application of employment laws. The primary statutes regulating the employment relationship in Pennsylvania, including the federal Fair Labor Standards Act ('FLSA') and the Pennsylvania Wage Payment and Collection Law ('WPCL'), are not easily applied to gig relationships and many cases seeking to clarify the status of gig workers are winding their way through the federal and state court systems. These include cases challenging the classification of gig workers as independent contractors, rather than employees, for purposes of unemployment compensation, minimum wage and eligibility for overtime pay. The Pennsylvania Supreme Court recently heard argument in an important case alleging that drivers for the ride-sharing service Uber should be considered employees of Uber (and not as self-employed or independent contractors) for purposes of unemployment compensation (Lowman v. Unemployment Compensation Board of Review, No. 41 EAP 2018). Earlier this year, the US Department of Letter issued an opinion letter concluding that gig workers who obtain work through online- or app-based referral platforms (such as Uber, Instacart, and Caviar) are independent contractors and not employees of the company operating the referral platform (DOL Op. Letter 2019-6).
Greater clarity will likely emerge as the current wave of cases work their way through the court system and as federal and state agencies develop rules tailored to the gig economy. At present, however, it is important for global employers seeking to establish or enhance their presence in Pennsylvania to exercise diligence with respect to the use of gig workers and to adopt policies and procedures to solidify the workers’ classification as employees or non-employees, with the understanding that there is considerable legal and regulatory uncertainty.
The growth of social media, and its use at the workplace, is also matter significant importance both nationally and regionally. In recent years, the federal National Labor Relations Board ('NLRB') has acted aggressively to protect the right of employees to use social media, without retaliation, to express grievances or concerns about their employers and to discuss the terms and conditions of their employment. Global employers seeking to establish or enhance their presence in Pennsylvania should be certain to have comprehensive policies regarding employees’ use of social media in the workplace and should also make sure that other policies (such as those against discrimination and harassment) clearly apply to employees’ on-the-job or job-related activities in cyberspace.
Parallel with the broader growth of technology in the workplace is the increased use of artificial intelligence to guide or assist core business functions. However, many national and regional employers feel unprepared for the inevitable expansion of artificial intelligence. In a recent survey by the global accounting and consulting firm Deloitte, 72% of respondents indicated that adopting artificial intelligence was 'important' for their business, but only 31% indicated that they were prepared to address the issues presented by the use of artificial intelligence.
One area of significant grown of artificial intelligence use in the employment space is in Human Resources. A growing number of companies use artificial intelligence-powered technology to streamline basic Human Resources tasks. These include, for example, the use of 'chatbots' to respond quickly to basic employee questions on benefits and company policies, the use of computer algorithms to help screen job candidates, and to identify and solicit internal candidates for open positions.
The fast growth in employer use of artificial intelligence will inevitably continue. This growth presents great opportunities for global employers to streamline internal and external operations by harnessing the benefits of technology. But it also presents important questions, including finding the correct balance between human intuition and electronic efficiency, and avoiding the risk of employee disengagement through overreliance on non-human processes. As this growth continues, legal issues will inevitably arise, such as impact of artificial intelligence-driven selection processes on discrimination claims and the potential for claims that input biases may lead to biased computer-led decision making.
While its origins go back more than a decade, the #MeToo movement came to prominence with the viral use of the social media hashtag in late 2017.Since then, the movement - and a number of offshoot movements - have helped to generate significant changes in national and regional perceptions of sexual harassment and related conduct in the workplace.The #MeToo movement has been credited with bringing to light a culture of harassment in certain industries, the power dynamics underpinning such harassment, and the tolerance of and efforts to coverup allegedly harassing actions by key employees.
The impact of the #MeToo movement is confirmed by statistical data. Between 2017 and 2018, the number of sexual harassment charges filed with the US Equal Employment Opportunity Commission ('EEOC') grew by more than 10%.The number of harassment complaints brought through employers’ internal complaint processes rose by more than 25% over the same period.
Global employers seeking to establish or enhance their presence in Pennsylvania (and, more broadly, anywhere in the United States) should be aware that the #MeToo movement has challenged the historical corporate paradigm for addressing sexual harassment claims.Historically, employers would be advised to adopt an anti-harassment policy with clear complaint procedures, to have their Human Resources department investigate complaints as presented, and to conduct periodic employee training regarding discrimination and harassment. However, the #MeToo movement brought to light that many employees are reluctant to come forward with discrimination or harassment complaints due to workplace culture and are afraid of formal or informal retaliation (notwithstanding company policies prohibiting retaliatory actions).The #MeToo movement also highlighted a tendency by employers to seek to settle discrimination and retaliation complaints, impose non-disclosure obligations on complainants as a condition of settlement, and suppress the issues presented by the complaints.
As a result, the #MeToo movement has led to significant changes in employee expectations regarding anti-harassment policies and procedures. Global employers should create a specific, transparent, and independent process to address high-profile harassment scenarios, such as alleged harassment by a key executive (and should have a parallel public relations plan for responding to incidents of alleged harassment). Employers should also implement a system for anonymous reporting, which both minimizes fears of retaliation and properly focuses the investigation on the alleged harasser and not the alleged victim. Increased training, including training on early identification and interdiction, is essential. And employers must exercise care in the use of non-disclosure agreements in connection with the resolution of internal harassment complaints.
A growing reverberation of the #MeToo movement is an increased focus of pay equity and the potential for pay disparities between male and female employees performing similar work. While the federal Equal Pay Act and the Pennsylvania Equal Pay Law both prohibit gender-based pay discrimination, the pay equity movement is much broader and involves matters of apparent disparity, even where not unlawful. To protect against unanticipated pay equity issues, global employers should perform routine pay audits to uncover any apparent inequities, establish a well-benchmarked pay system based on objectively measurable factors, take steps to minimize subjective input into compensation practices, and invest in training so that managers are best-positioned to identify possible pay equity concerns.
An associated impact of the #MeToo movement has been a greater focus on issues related to employee privacy. In Pennsylvania, employees of private companies have only limited legal privacy rights at the workplace. For example, employers may search employee property (including personal effects) and workspaces under reasonable circumstances and, as a general rule, employers have great freedom to search employer-owned systems used by employees (such as e-mail, computer hard drives, and cloud storage systems). These rights are a benefit to the prompt investigation of harassment and other complaints. However, there is also legal authority confirming that employers have at least some obligation to ensure that employees are aware that their privacy rights are limited and that employers may not engage in unreasonable searches. Employers should therefore ensure that their policies make clear that employees should have no reasonable expectation of privacy at the workplace and should also ensure that the justifications for any searches are well-documented to protect against potential invasion of privacy claims.
Pennsylvania has traditionally had a deep connection to organized labor, with union membership above the US national average. This is still true today, even though union membership in Pennsylvania has been in steady decline, mirroring the nationwide trend. In 2017, 12% of Pennsylvania employees were union members, down from nearly 21% in 1989. Nationwide, approximately 10.7% of employees are union members, according to data from the US Department of Labor.
Despite the decline membership, unions still retain significant power in Pennsylvania. This is true both in the workplace (especially for traditional industrial or 'blue collar' employers) and in the political sphere, where there is still a deeply-embedded union influence that drives many legislative and regulatory proposals. The federal National Labor Relations Act ('NLRA') provides significant legal protections to unionized employees, employees that seek to organize their co-workers or otherwise support union campaigns, and even to non-union employees who act collectively on matters unrelated to union organization.
Global employers seeking to establish or enhance their presence in Pennsylvania should therefore be prepared to address issues related to potential unionization and collective bargaining. Employers with traditionally union-friendly practices should ensure that those practices translate to the Pennsylvania market. Employers seeking to avoid unionization should work with legal counsel to develop a tailored union avoidance strategy.
The National Labor Relations Board ('NLRB') is the primary federal agency tasked with matters of union organization and representation and the protection of employee rights under the NLRA. The NLRB is led by a five-member board, appointed by the President, and operates from a number of regional offices across the country, including in Pennsylvania.
Because the NLRB is led by Presidential appointees, its actions are often correlated to the national political environment. Under Republican administrations, including the Trump administration, the NLRB has traditionally taken a less-active role in enforcing and advocating for employee rights. Under Democratic administrations, the NLRB has typically taken a more activist role. Given the fluid nature of US politics, global employers should not assume that the NLRB’s actions under one Presidential administration will continue under a subsequent administration. The best advice is to ensure awareness of the political climate and the potential for changing approaches to administrative enforcement of the NLRA.
To ensure legal compliance, it is essential to properly define and understand the relationship between a company and its workers. A number of key recurring issues with respect to that relationship are discussed below.
Employee vs Independent Contractor
A threshold issue in defining the relationship between a company and a worker is whether the worker is an employee of the company or is an independent contractor. This question is more easily asked than answered, as its resolution may turn on any of a number of different tests depending on the government agency making the inquiry.
Irrespective of the specific test, the basic essence of the inquiry turns on the question of control. The greater the level of control by the company over the worker, the more likely the relationship will be deemed to be one of an employer and an employee. Factors relevant to control include whether the worker has the right to set his or her own work schedule, whether the worker has the freedom to accept or decline work assignments, whether the worker has independence to decide how the work will be performed, and whether the worker provides his or her own tools and supplies to perform the work. Other factors relevant to determining whether a worker in an employee include whether the worker performs work similar to that performed by others who the company classifies as employees, whether the worker works alongside company employees, and whether the worker is engaged in an independent business separate from the company.
The misclassification of an employee as an independent contractor can carry significant consequences under federal and Pennsylvania law. These potential consequences include liability to the federal or state government for unpaid employment taxes and liability to the worker for unpaid overtime and employee benefits. If the misclassification is discovered in connection with a government investigation, there may also be additional financial penalties. Furthermore, federal and Pennsylvania law both permit workers to bring 'class action' or 'collective action' claims on behalf of all similarly situated workers at the same employer, thereby creating the potential for significantly larger liability.
To minimize the risk of misclassification, global employers should closely review their worker relationships and implement policies to ensure that persons working as independent contractors are consistently treated as contractors and not as employees.
Under federal and Pennsylvania law, 'joint employment' occurs when two or more businesses similarly have the right to control the terms and conditions of a worker’s employment. This issue arises most commonly when a company obtains workers through a third-party staffing or temporary services agency. The workers are ostensibly employees of the agency, but if they are also controlled by the company (such as if their work is supervised by a company manager or the company sets their work hours or work rules), then they may also be legally deemed employees of the company. As with the misclassification of workers as independent contractors, a finding of joint employment can create significant unanticipated liability for employee benefits, overtime pay, and other compensation.
Federal and Pennsylvania law permits unpaid internship arrangements, but impose strict limitations to ensure that an intern is not simply an unpaid employee. As a general rule, an internship must be for the primary benefit of the intern (for example, gaining practical experience to accompany a student’s school studies) and not for the primary benefit of the company. There are also a number of other important factors that must be satisfied in order to have a valid internship arrangement. As a result, global employers should take care and retain knowledgeable counsel in connection with developing any unpaid internship program.
If there is an employment relationship, it is also important to understand and establish the nature of the relationship between the employer and the employee.
Employment 'At Will'
Pennsylvania follows the standard US doctrine that employment is 'at will' unless otherwise provided by a contract or union collective bargaining agreement, or, in limited cases, by law. An employer may terminate an at-will employee at any time, without advance notice, and for any reason or no reason. An employee may similarly choose to leave employment at any time, without advance notice, and for any reason or no reason.
Although the at-will doctrine gives employers considerable flexibility to manage their workforce, the right to terminate an at-will employee is not absolute. For example, an employer may not terminate an employee for a reason that would be considered discriminatory under federal or state law (and an employer should therefore take steps to confirm that a terminated is not motivated by discrimination, irrespective of the stated reason for the termination). For additional information regarding the application of federal and state anti-discrimination laws to the employment relationship, see 4.3 Discrimination, Harassment and Retaliation Issues.
Pennsylvania courts have also recognized three public policy exceptions to the at-will doctrine. First, an employer cannot terminate an employee for refusing to engage in criminal conduct. Second, an employer cannot terminate an employee for complying with a duty imposed by law. Third, an employer cannot terminate an employee where specifically prohibited from doing so by law.
Contractual Employment Relationships
The presumption of at-will employment may be altered by contract. While an employment contract must typically be reflected in a written agreement between an employer and an employee, a contract may also be implied based on other oral or written statements by an employer. The circumstances where an implied employment contract has been found a very fact-specific, but some examples include oral statements from a supervisor regarding a guarantee of future employment, written guarantees in an employee handbook and a consistent practice of only terminating employees for cause.
To minimize the risk of an implied contractual relationship, employers should include in each offer letter extending employment a clear statement that employment is at will and that the offer letter is not a guarantee of continued employment. A properly-drafted offer letter should also state any conditions to the employment offer, such as confirmation of the candidate’s eligibility to work in the US, the candidate’s execution of any required restrictive covenant agreements and the candidate’s passing a pre-employment drug test. An offer letter will also typically state the starting compensation for the position and indicate whether the position is 'exempt' or 'non-exempt' for purposes of federal and state minimum wage and overtime laws. For additional information regarding 'exempt' and 'non-exempt' positions, and the impact of the classification, please see below.
Pennsylvania law provides employers and employees with significant freedom to enter into contractual employment relationships. An employment contract may alter the at-will presumption in a number of ways. For example, a contract may guarantee an employee’s employment for a certain term, or may provide that an employee may only be terminated for 'cause', or may provide for a severance benefit in the event of an employee’s termination. An employment contract may also address other aspects of the employment relationship, such as establishing a fixed compensation schedule, guaranteeing certain employee benefits, or setting an employee’s expected work schedule.
Prior to terminating an employee with an employment contract, employers should carefully review the terms of the contract to ensure compliance with any obligations relating to termination.
Types of Employees
Exempt vs non-exempt employees
The federal Fair Labor Standards Act ('FLSA') and Pennsylvania law require employers to pay each employee a minimum hourly wage and to pay overtime for work in excess of forty hours per week, unless the employee is 'exempt'. The current minimum wage in Pennsylvania is USD7.25 per hour. Overtime work must be paid at a rate equal to one and a half times an employee’s regular hourly wage.
The employer has the burden to establish that an employee is exempt pursuant to a specific legal exemption. The most common exemptions from the hourly wage and overtime requirements are for bona fide 'executive', 'administrative' and 'professional' employees. To meet these exemptions, an employee must be paid on a salaried basis, with a salary above a set threshold (currently USD455 per week, but likely to increase in 2020), and must meet certain job duties tests established by the federal Department of Labor. Another primary exemption is for employees whose primary duty is 'outside sales', generally defined as making sales at locations outside of an office. There are also many other less-common exemptions for certain types of employment in certain professions (for example, seamen, farm workers, and certain seasonal employees).
The exemption rules, and the obligation to pay minimum wage and overtime to non-exempt employees, apply equally to all employees. There is no legal distinction between full-time or part-time employees, or based on whether an employee’s work is year-round, seasonal, or temporary. Furthermore, employers and employees cannot by contract avoid minimum wage and overtime pay requirements.
Full-time vs part-time employees
Pennsylvania law does not generally distinguish between full-time and part-time employment, and there is no legal threshold separating full-time and part-time employees. The distinction matters primarily for eligibility for employer-sponsored benefits programs, such as healthcare or vacation time, many of which – by employer choice – are offered only to full-time employees. In addition, certain employment-related laws, such as the federal Family and Medical Leave Act ('FMLA'), only protect employees who have worked more than a specified number of hours in a year.
Pennsylvania law also does not establish different rules for probationary or new employees. However, many employers have policies that create an initial probationary period for newly-hired employees. These policies typically provide for a review or evaluation after a short initial period of work, often sixty to ninety days. An employer may use an employee’s poor performance during a probationary period as a basis for termination. However, probationary employees are entitled to the same legal protections as all other employees under, for example, federal and state anti-discrimination laws.
A foreign national’s eligibility to work in the United States is governed by federal law. As a general rule, an employer may hire any foreign national who is authorized to work in the United States. Work authorization depends primarily on the foreign national’s visa status. The most common visas that confer work authorization are described generally below.
An H1-B visa allows foreign nationals to work for a specific employer in a 'specialty occupation', which is defined as a job that requires a bachelor’s or higher degree (or its foreign equivalent), in a specialty field and the theoretical and practical application of a body of specialized knowledge. The federal government establishes an annual allotment for H1-B visas, which is typically oversubscribed, resulting in a lottery to allocate the visas to timely applicants. For residents of Chile and Singapore, there is a special allocation that typically is not oversubscribed.
E visas (E-1, E-2, and E-3) are available to foreign nationals of countries with which the US has a treaty of commerce and navigation whose work in the US will involve the start-up, management, or running daily operations of a company that will do substantial trade with the US If the work will be for a US-based entity, the entity must be at least 51% owned by a national or company from the same country as the visa-holder. There is also a special class of E visa (E-3) for Australian professionals in specialty occupations.
L visas (L-1A and L-2B) are available to foreign nationals who are inter-company transferees who work in managerial positions. To be eligible, the foreign national must have been employed abroad for at least one out of the past three years by a parent, subsidiary, or affiliate of the US company to which the foreign national is being transferred.
There are also many other visa classifications that confer work authorization. Examples include the TN visa for Canadian and Mexican professional workers and the O-1 visa for foreign nationals with extraordinary ability in the sciences, arts, education, business, athletics, or the motion picture industry. Global entities seeking to hire or transfer foreign nationals to work in the US are advised to engage experienced immigration counsel.
Federal law guarantees the right of employees to organize, join and participate in labor unions. It is therefore important for global employers to understand the system of collective bargaining established by the National Labor Relations Act ('NLRA').
If a majority of employees in a group seeking representation indicate their support for a union, the National Labor Relations Board ('NLRB') will designate the appropriate 'bargaining unit' and an election will be held among the members of that bargaining unit. If a majority of the employees voting in the election choose union representation, then the union becomes the exclusive representative of all employees in the bargaining unit. The employer is then required to recognize and bargain in good faith with the union and the union is required to bargain in good faith on behalf of all bargaining unit employees, irrespective of whether they are union members. This collective bargaining process must address all essential terms of the employment relationship.
The employer-union bargaining process will typically result in a collective bargaining agreement ('CBA'). A CBA is a legally-enforceable contract that establishes the terms and conditions of employment for bargaining unit employees and that must be followed by both the employer and the union. Depending on the circumstances, violations of a CBA may be addressed in court, through private arbitration, or by the NLRB.
Depending on the form of a corporate transaction, the acquiring entity may assume the acquired entity’s existing employment obligations. In a stock purchase, the acquiring entity typically will assume, by operation of law, the acquired entity’s existing contractual obligations, including employment contracts and the obligation to recognize any unions representing the acquired entity’s employees. In an asset purchase, the typically will not assume the acquired entity’s union obligations unless it is 'perfectly clear' that the acquiring entity intends to retain the acquired entity’s bargaining unit employees following the transaction, in which case the acquiring entity has a duty to consult with the union before setting initial terms and conditions of employment for those employees. The scope of the 'perfectly clear' standard, and the factors relevant to determining whether the standard has been met, have been subject to significant revision by the NLRB in recent years. Global employers contemplating asset purchase transactions with US entities that have union workforces are therefore advised to consult with experienced legal counsel.
Federal and Pennsylvania law impose a number of constraints on the employee interview process that must be considered by global employers. The most important is the prohibition, established by federal and state anti-discrimination laws against making hiring decisions based legally-protected characteristics, such as (but not limited to) a candidate’s race, gender, age, religion, national origin, sexual orientation, disability status, pregnancy status, or marital status. Because these factors may not be considered in hiring a candidate, questions implicating the factors must also be avoided in the interview process. Just as important is the need to avoid asking questions that may indirectly involve a protected characteristic, such as asking when a candidate graduated from college (as that question may indirectly reveal the candidate’s age). Even if candidates volunteer information related to a protected characteristic in an interview, that information may not be used in making the hiring decision.
Pennsylvania law also prohibits employers from considering a candidate’s criminal history, except where a prior felony or misdemeanor conviction “relate[s] to the applicant’s suitability for employment in the position for which he has applied”. 18 Pa. Const. Stat. Ann. § 9125(b). This means that an employer may not consider a candidate’s arrest history or any convictions for minor offenses (such as traffic violations) that do not rise to the level of a felony or misdemeanor. Where an employer makes a hiring decision based on prior criminal convictions, the employer must also inform the candidate of that fact.
The City of Philadelphia also recently adopted a 'ban the box' ordinance that prohibits employers from inquiring about a candidate’s criminal history, including felony and misdemeanor convictions, until after the candidate receives a conditional offer of employment. If the employer makes a conditional employment offer to the candidate, the employer may – upon notice to the candidate – conduct a criminal background check. However, even at this point in the hiring process, the candidate’s criminal convictions may only be considered based on an individualized assessment of:
In addition, the employer may only consider offenses that occurred within the last seven years.
Pennsylvania does not have a state law prohibiting the consideration of a candidate’s wage history, but the City of Philadelphia recently enacted an ordinance barring employers from asking about or considering salary history unless this information is volunteered by a candidate. A federal court held that the prohibition on asking about salary history was unconstitutional and therefore unenforceable, but upheld the provision prohibiting employers from considering a candidate’s salary history in setting his or her wages. That decision is currently on appeal. Notwithstanding the decision, given the continuing bar on considering salary history, the best practice for employers in Philadelphia is to avoid asking candidates questions on the subject.
Background and Credit Checks
Pennsylvania does not have a state law regarding background or credit checks conducted by private employers. If an employer uses a third party to perform a background or credit check, then the federal Fair Credit Reporting Act ('FCRA') imposes specific notice, consent, and fairness requirements. Generally speaking, FCRA requires employers to provide candidates with written notice of the intent to obtain a third-party background or credit report, obtain candidates’ written authorization, and notify candidates of the intent to make an adverse employment decision based in whole or in part based on information in the report (and, in that case, must also provide candidates with reasonable time to review and dispute the report prior to making the decision).
Under Pennsylvania and federal law, employers may ask candidates if they require any reasonable accommodations to complete the interview or hiring process. However, as stated above, employers should not inquire on a job application or in an employment interview as to whether a candidate is disabled or requires reasonable accommodations to perform the job. If a candidate voluntarily discloses the existence of a disability and requests accommodation, then the employer has a legal obligation to determine whether the candidate’s disability can be reasonably accommodated.
The use of restrictive covenants in connection with an employment relationship has grown significantly in recent years, as employers seek additional protection against direct competition by their former employees. Common restrictive covenants include non-competition, employee non-solicitation, customer non-solicitation, and confidentiality agreements.
Pennsylvania courts often state that post-employment restrictive covenants are 'disfavored', as they suppress competition and may restrict the ability of a former employee to earn a living in his or her preferred field. However, restrictive covenants are typically enforceable under Pennsylvania law if supported by adequate consideration, reasonably necessary to protect a legitimate business interest of the employer and reasonably limited in temporal and geographic scope.
New employment is sufficient consideration to support restrictive covenant agreements that are signed as a condition of employment and that are signed contemporaneously with the start of employment. For this reason, the best and most common practice is to state in an offer letter that employment is contingent on the execution of any required restrictive covenants and to require a new employee to sign any such agreements on or before the first day of work.
For existing employees, continued employment alone is not valid consideration for a non-competition or non-solicitation covenant. To obtain an enforceable non-competition or non-solicitation covenant from an existing employee, an employer must offer separate consideration, such as an increase in pay or other benefits that are contingent on execution of the restrictive covenant agreement. An employer may require execution of a restrictive covenant agreement as a pre-condition to a promotion or raise in salary. With respect to a confidentiality covenant, Pennsylvania courts have held that continued employment is sufficient consideration to support the covenant.
Legitimate Business Interests
A post-employment restrictive covenant must protect legitimate business interests of the employer and may be only as broad as necessary to protect those interests. Legitimate business interests include protecting the employer’s trade secrets and confidential information, goodwill, and business relationships. An employee’s specialized training or knowledge regarding the employer and its business may also be a legitimate business interest sufficient to support a restrictive covenant.
Temporal and Geographic Scope
The permissible duration of a post-employment restrictive covenant will depend on facts specific to the employee’s position and knowledge and the competitive threats to the employer’s business. Pennsylvania courts will often enforce restrictions of up to one year post-employment for most employees, but a longer or shorter duration may be necessary based on specific facts and circumstances. A longer temporal restriction may also be permitted for covenants agreed to in connection with the sale of a business.
The permissible geographic scope is similarly fact-specific. If an employee has a broad geographic responsibility, then a broader restriction will often be enforceable. The same may be true if the employee’s work directly impacts the employer’s business over a large geographic area. By contrast, if an employee is only responsible for customers or business in a small geography, then the scope of the covenant must often be similarly circumscribed.
An employer seeking to enforce a post-employment restrictive covenant may request that a court issue a temporary restraining order or a preliminary injunction to prevent a former employee from violating the covenant. To obtain a restraining order or injunction, the employer must establish:
Where appropriate, an employer may also recover its actual damages resulting from the breach of the restrictive covenant.
Because the drafting and enforcement of post-employment restrictive covenants requires deep knowledge of the law and the facts of the employee’s employment and the employer’s business, global employers are advised to consult experienced local legal counsel.
An employer’s trade secrets are protected by the Pennsylvania Uniform Trade Secrets Act ('PUTSA') and well-established common law doctrines. Pennsylvania courts typically consider six factors to determine whether specific employer information is a trade secret:
An employer may also protect its confidential and proprietary information, including trade secrets, by requiring employees to execute a confidentiality agreement. A well-drafted confidentiality agreement can enhance the protections offered by the PUTSA and common law by defining the scope of the employer’s protected information and the employee’s obligations to protect that information. Unlike a non-competition or non-solicitation covenant, a confidentiality agreement does not need to be expressly limited in temporal or geographic scope.
Both federal and Pennsylvania law prohibit discriminatory employment practices and harassment based on an employee or prospective employee’s membership in any of a broad array of protected classes, including, but not limited to, sex, race, color, religion, ancestry, age, national origin, citizenship status, pregnancy status and disability. Recent court decisions have also suggested the expansion of protected classes to include sexual orientation and gender identity. Federal and Pennsylvania law further prohibit retaliation against employees or prospective employees who report in good faith potential incidents of discrimination or harassment.
The relevant federal laws include, but are not limited to, Title VII of the Civil Rights Act of 1968, the Age Discrimination in Employment Act, and the Americans with Disabilities Act. The primary state law prohibiting discrimination, harassment, and retaliation is the Pennsylvania Human Relations Act ('PHRA'). These laws apply broadly to all aspects of the employment relationship, including, for example, interviewing, hiring, the terms and conditions of employment and termination from employment. The laws prohibit both disparate treatment based on membership in a protected class and decisions or actions that are not expressly discriminatory, but which have a disparate impact on the members of a protected class.
There are also local laws that similarly prohibit discrimination, harassment and retaliation. An example is the Philadelphia Fair Practices Ordinance ('FPO'). The FPO largely mirrors the parallel federal and state laws, but also includes some notable additional protections that apply within the City of Philadelphia. One important additional protection is that the FPO requires reasonable accommodations for breastfeeding women. These accommodations include providing a private and sanitary location for pumping breast milk and allowing employees to have breaks for pumping.
Employer Policies and Training
Global employers conducting business in Pennsylvania should implement clear policies and procedures against discrimination, harassment, and retaliation. Although Pennsylvania does not require specific training, employers are recommended to implement training programs to ensure that employees know the policies and procedures and to ensure that they are followed in the work place. There is also a growing trend of employers training employees on issues of 'implicit' or 'unconscious' bias, such as the use of stereotypes, in a further effort to prevent workplace discrimination.
The federal Occupational Safety and Health Act is the primary law governing workplace safety and health in Pennsylvania. Under the law, employers are required to comply with the specific workplace safety and health regulations issued by the federal government and to keep workplaces free from 'recognized hazards' to employees. The law is enforced by the Occupational Safety and Health Administration ('OSHA'), which has broad investigative and enforcement authority, including the power to inspect workplaces, issue fines and shut down worksites for serious safety or health violations.
Pennsylvania law requires most employers to obtain workers’ compensation insurance for their employees. The insurance, which may be purchased from private insurers or through a state program, pays certain medical bills and lost wages for employees who suffer workplace injuries and provides continuing benefits in the event an employee is permanently disabled due to a workplace injury.
The federal Employee Retirement Income Security Act ('ERISA') regulates employee benefit plans and generally preempts all state laws insofar as they may affect employee benefits. ERISA contains specific requirements regarding the establishment and operation of pension, healthcare and other benefit programs, and protects the benefits offered to employee through these plans.
The Consolidated Omnibus Budget Reconciliation Act ('COBRA') establishes the right of employees to continue their employer-sponsored healthcare benefits following their separation from employment. COBRA generally requires all employers with 20 or more employees to allow employees to continue their healthcare benefits, at their own cost, for up to 18 months following a 'qualifying event', such as a termination. Pennsylvania has a separate 'mini-COBRA' statute that extends similar protections to employees of companies with between two and 19 employees for up to nine months following a qualifying event.
As discussed above in 2.2 Alternative Approaches to Defining, Structuring and Implementing the Basic Nature of the Entity, Pennsylvania has a strong presumption that employment is at will and, accordingly, that both an employer and an employee may end the employment relationship at any time and for any, or no, reason. Therefore, Pennsylvania courts will only recognize a legal claim for wrongful termination in very narrow circumstances where an employee’s termination implicates a clear public policy concern. If an employment agreement or employer policy limits an employer’s termination rights, or provides for severance pay upon termination, an employee may also bring a breach of contract claim for any violations of that agreement or policy
Layoff / Reduction in Force
Employers in Pennsylvania generally are not required by law to provide advance notice of employment terminations, except when mandated by the federal Worker Adjustment and Retraining Notification Act (“WARN Act”). The WARN Act requires employers with more than 100 employees to provide 60 days’ notice of a facility closure that will result in the termination of more than 50 employees at the location, a mass layoff that will result in the termination of between 50 and 499 employees, provided those employees represent more than one-third of the workforce at the location, or any layoff of more than 500 employees.
The City of Philadelphia has also adopted its own municipal WARN Act, which supplements the federal law by requiring employers with at least 50 employees in Philadelphia to provide the city with a statement outlining the expected economic impact of a facility closure or relocation to outside of the city. A court may enjoin a proposed facility closure or location until the employer complies with the notice requirement of the Philadelphia law.
Severance Pay and Wages Upon Termination
The Pennsylvania Wage Payment and Collection Law (“WPCL”) requires an employer to pay all wages due to a terminated employee by the next regular payday following the employee’s termination date. The required wages generally include only the employee’s regular pay, but may also include payment for any unused paid time off or vacation if the employer has a policy or practice to pay out such unused time at termination.
Pennsylvania law does not require severance pay. If an employer has a severance pay policy, or has entered into a contract promising severance pay, the employer must comply with the terms of the policy or contract. Because there is no statutory obligation to pay severance, employers should require employees to sign a general release of claims as a condition to the receipt of any voluntary severance pay.
Under Pennsylvania law, a general release of claims will typically be enforced to release all known and unknown employment claims that may be released by law. This includes, but is not limited to, most claims for discrimination, retaliation, and harassment under federal and state law. For employees over age 40, the federal Older Workers’ Benefit Protection Act prescribes additional requirements for the release of an age discrimination claim, including the employee’s right to review the proposed release agreement for at least 21 days and an additional seven-day period to revoke acceptance. Certain claims, including those for unpaid wages, unemployment benefits, Workers’ Compensation, and vested retirement benefits, generally cannot be released through a general release of claims.
Alternative Dispute Procedures and Arbitrations
The Federal Arbitration Act ('FAA') and the Pennsylvania Uniform Arbitration Act ('PUAA') establish a federal and state policy that favors the use of private arbitration and other alternative dispute resolution methods to resolve employment disputes. Under the FAA and PUAA, employers and employees may agree in advance to require arbitration of most employment claims. A properly-drafted arbitration agreement should be in writing and should clearly describe the claims subject to arbitration, the allocation of arbitration costs, and the rights, duties, and responsibilities of the arbitrator. A party may seek court enforcement of the terms of an arbitration agreement.
Collective Bargaining Agreements
Federal and state law protects the right of employees in Pennsylvania to organize unions and other units for the purposes of collective bargaining and to join unions. A collective bargaining agreement with typically contain specific contractual requirements relating to the termination of the employment relationship, including procedures for layoffs and terminations for cause, as well as procedures for the arbitration of employment disputes.
Class or Collective Action Waivers
The United States Supreme Court recently confirmed that class action and collective action waivers in agreements between employers and employees are enforceable under the FAA. Because the FAA expressly preempts any conflicting state laws, Pennsylvania employers may require employees to employees to waive their right to bring class action and collective action claims as a condition of employment or in exchange for other consideration.
Employers with unionized employees typically participate in pension and other benefit plans maintained by the employees’ union. In the event that an employer stops employing members of the union, either through layoff or the end of the collective bargaining relationship, the employer may be liable under ERISA for 'withdrawal liability', which is calculated as a percentage of the plans’ benefit obligations.
An employee may bring a claim for an employer’s breach of an employment contract or other agreement relating to the terms or conditions of employment. The contract may establish the proper forum for such a claim (for example, court or arbitration) and may also establish the law applicable to the claim (for example, Pennsylvania law or the law of another state).
In most cases, an employee bringing a claim for discrimination, harassment, or retaliation must first file an administrative claim with the federal Equal Employment Opportunity Commission ('EEOC') or the Pennsylvania Human Relations Commission ('PHRC'). Some cities, including Philadelphia and Pittsburgh, also have their own agencies that are authorized to investigate claims under municipal anti-discrimination laws. An employee may file claims with more than one agency, but each agency will only investigate claims under the laws that it is empowered to enforce. Upon completion of an agency’s review, an employee may file their claims in court.
Under the Pennsylvania Human Relations Act, an employee must file their administrative complaint within 180 days of the alleged act of discrimination. A claim for violation of a federal anti-discrimination law must generally be filed with the EEOC within 300 days of the alleged discrimination. If an employee fails to first file a timely administrative complaint, then the employee will typically be barred from bringing their claims in court.
Fair Labor Standards Act ('FLSA') and Pennsylvania Minimum Wage Act ('PMWA')
The FLSA and PMWA establish a fixed minimum wage and overtime rate for non-exempt employees. The minimum wage is USD7.25 per hour. Overtime must be paid to a non-exempt employee for all work over 40 hours in a week and is calculated as one-and-half times the employee’s regular hourly rate. The statute of limitations for claims under the FLSA is either two or three years, depending on the circumstances giving rise to the claim. The statute of limitations under the PMWA is three years.
The FLSA and PMWA require employers to keep accurate records of employee work hours and wages, allow investigators to inspect those records and allow investigators to question employees during work hours. Employers must also display, in a conspicuous place, certain posters, published by the US Department of Labor and the Pennsylvania Department of Labor and Industry, that summarize employee workplace rights.
Pennsylvania Wage Payment and Collection Law ('WPCL')
The WPCL establishes a statutory right to enforce an employer’s promise to pay earned wages and benefits. The WPCL does not create a right to wages or benefits, but rather provides a remedy where the employer breaches a contractual right to wages that have been earned. Under this law, a corporate officer may be personally liable for the corporation’s failure to pay wages if such individual is involved in compensation decisions relating to employees.
Pennsylvania’s Whistleblower Law defines a 'whistleblower' as a person “who witnesses or has evidence of wrongdoing or waste while employed and who makes a good faith report of the wrongdoing or waste, verbally or in writing, to one of the person’s superiors, to an agent of the employer or to an appropriate authority”. The Whistleblower Law provides that no employer may “discharge, threaten or otherwise discriminate or retaliate against an employee … because the employee or the person acting on behalf of the employee makes a good faith report or is about to report, verbally or in writing, to the employer or appropriate authority an instance of wrongdoing or waste by a public body or an instance of waste by any other employer as defined by this act”. The law also prohibits retaliation against the employee for the employee’s cooperation in any investigation, hearing or inquiry into the report.
An employee who alleges a violation of the Whistleblower Law may file a civil action in court within 180 days after the occurrence of the alleged violation. A claim under the Whistleblower Law requires an employee to present evidence that he or she made a good-faith report of wrongdoing prior to the adverse employment action and some evidence of a connection between the report and the adverse employment action. Once the employee meets this burden, the employer must present evidence “that its reasons for taking the adverse actions are: ‘separate,’ ‘legitimate,’ and ‘non-pretextual,’ that is, not merely a pretext for exacting retribution”.
Federal law provides that employers may, as a condition of employment, require employees to agree to the private arbitration of employment and other disputes. There are several alternative dispute resolution forums available to Pennsylvania employers and employees. Arbitration agreements often call for disputes to be arbitrated by one of a number of private organizations, including the American Arbitration Association ('AAA'), the Judicial Arbitration and Mediation Service ('JAMS'), and the International Institute for Conflict Prevention and Resolution ('CPR'). These organizations also offer non-binding private mediation services.
The EEOC offers fee mediation services relating to statutes enforced by the EEOC, such as Title VII, the ADEA and the ADA. The PHRC similarly offers free mediation services as a method to resolve employment and public accommodation disputes under the PHRA.
Federal and Pennsylvania law permits groups of employees with common claims to assert those claims in a single litigation as a class action or a collective action. The requirements for class action litigation are set forth in Rule 23 of the Federal Rules of Civil Procedure and Chapter 1700 of the Pennsylvania Rules of Civil Procedure. The requirements for collective action litigation, which apply to common claims for violations of the FLSA, are set forth in FLSA Section 216(b).
Employers may, as a condition of employment, require employees to waive their right to bring class or collective action claims, either in court or in arbitration.
The following remedies are available to employees in actions alleging violations of the principal federal and state employment laws.
Employees may bring actions alleging violations of federal anti-discrimination laws, including Title VII, ADEA and the ADA. The EEOC may also bring actions to enforce many of the federal anti-discrimination laws. The available remedies vary by statute, but generally include injunctive relief (such as a court order requiring reinstatement of terminated employee), back pay and front pay, compensatory and/or punitive damages, and attorneys’ fees.
Pennsylvania Human Relations Act ('PHRA')
Both employees and the PHRC may bring an action alleging violations of the PHRA. The available remedies include injunctive relief, back pay and front pay, compensatory damages, and attorneys’ fees.
The PHRA also allows actions under an 'aiding and abetting' theory that allows for individual liability of managers or other decision-makers who are found to have engaged and/or aided in discriminatory conduct.
Fair Labor Standards Act ('FLSA') and Pennsylvania Minimum Wage Act ('PMWA')
An employee may bring an action for unpaid minimum wage or overtime compensation under the FLSA or the PMWA. The available remedies include payment of the unpaid wages, liquidated damages equal to the unpaid wage amounts, statutory penalties, and attorneys’ fees.
Pennsylvania Equal Pay Law ('PEPL')
An employee may bring an action alleging violation of the PEPL based on an employer’s payment of lower wage rate based on gender for equal work on jobs that require equal skill, effort and responsibility, and that are performed under similar working conditions. The available remedies include payment of the wage differential, liquidated damages equal to the wage differential, and attorneys’ fees.
Federal laws generally apply only to the territorial United States, but Congress has extended the protection of certain employment laws, including Title VII, the ADA and the ADEA, to American employees working outside of the US for a US employer. This extraterritoriality principle generally extends only to US citizens, but may also extend to in certain circumstances to non-citizens with US work authorization. The 'Foreign Laws Defense' provides a narrow exception to extraterritorial liability where compliance with US law with respect to an American employee would require the employer to violate the law of the foreign country where the employee is employed.