Many employers, union and non-union, require employees to enter into non-competition and confidentiality agreements.  These provisions typically prohibit employees from using confidential company information outside their work relationships, and prohibit employees from competing against the employer during and for a certain period of time after their employment terminates.  Most employers would not consider the NLRB to play a role in such agreements, but now that situation has changed.  Minteq International, Inc., 364 NLRB No. 63 (7/29/16). 

In Minteq, the employer required new employees to sign a Non-Compete and Confidentiality Agreement (NCCA) as a condition of employment.  The NCCA bound employees to most of its provisions on the date it is signed until at least eighteen (18) months after their employment ends.  The NCCA prohibited an employee from working for another company that might have any connection to the employer’s business during his employment and for eighteen (18) months afterwards.  The "confidential information" provision of the NCCA was specific, but ended in the phrase: "any other information which is identified as confidential by the company." 

The union considered the NCCA to be an unlawful work rule because it was made a condition of employment without giving the union notice and an opportunity to bargain about its implementation.  The NLRB agreed, as the provision was a type of work rule and a mandatory subject of bargaining.  The NLRB also rejected the employer’s argument that it had no obligation to bargain over the NCCA because the requirement that individuals sign the NCCA applies to "applicants" and is a "hiring practice" excluded from the bargaining obligations imposed by the Labor Act.  Instead, the NLRB found that the NCCA is not the equivalent of a drug test, a qualifications requirement, or a "method of processing applications" that affects prospective employees as "applicants" without having any impact on terms and conditions once the applicants become employees.  The provisions of the NCCA did not become effective until, at the earliest, the individuals became employees, and affects terms and conditions of employment.

The NLRB also rejected the employer’s argument that the management rights clause gave the employer the right to implement the rule.  Instead, the NLRB finds the management rights provision was not sufficiently specific to show that the union "clearly and unmistakably" waived its right to bargain over implementation of the NCCA.  That is, the Board will not infer the waiver of the statutory right from general contractual provisions, including generally worded management-rights clauses.

The NLRB also rejected two other employer defenses.  The Board rejected the employer’s argument that the union waived its right to bargain over implementation of the NCCA by failing to request bargaining during subsequent negotiations.  The employer never gave the union notice that it was requiring new employees to sign the NCCA, and by the time the union learned of the requirement from an employee, it had already been unlawfully implemented for more than two years.

The employer also argued that the complaint was barred by the six-month statute of limitations in Section 10(b) of the Labor Act.  The Board finds the provision inapplicable because the six-month limitation period begins to run only when the union has clear and unequivocal notice, either actual or constructive, of a violation of the Labor Act.  The Board credited testimony that the union first learned of the NCCA after the employer invoked it against a former employee and the union thereafter timely filed an unfair labor practice charge with the Board. 

The Board did rule in favor of the employer on the confidentiality of information provision.  While viewed in isolation, a prohibition on releasing "any . . . information which is identified as confidential by the company" would clearly be overbroad, and thus unlawful, the Board considered that the effect of the prohibition does not stand alone and must be read in context.  The context would lead employees reading the phrase to reasonably understand that it refers to the preceding examples of proprietary information and trade secrets, not information related to employees’ wages or working conditions.

The case also addressed another provision of the NCCA called the "interference with relationships" rule, which prohibited solicitation or encouragement of any customer or supplier of the company to terminate or otherwise alter their relationship with the company in an adverse manner.  The Board found that this rule placed restrictions on employees’ ability to communicate with the employer’s customers and restricted employees’ efforts to improve the terms and conditions of employment through channels outside the immediate employee-employer relationship.   Since these efforts could include asking customers to boycott the employer’s products or services, and could also encompass other forms of appeals to the employer’s customers, a provision on this type of conduct was found to be an unlawful restriction of employees’ Section 7 rights.

Editor’s Note: As a result of this case and related cases, both union and non-union employers will have to consider the application of the Labor Act in implementing non-competition and confidentiality rules.  In the case of a union employer, such rules would normally be subject to giving the union notice and an opportunity to bargain prior to implementing such rules.  It should be noted that some employers have actually negotiated non-competition and confidentiality provisions into their collective bargaining agreements.  In the case of non-union employers, such employers will have to consider whether such rules are overbroad and thus may be struck down by the NLRB even in the case of a non-union employer.

The Immigration Reform and Control Act of 1986 (IRCA) prohibited certain discriminatory immigration-related employment practices because of a person's citizenship or national origin.  In 1990 Congress added a new provision prohibiting certain discriminatory documentary practices during the employment eligibility verification process (also called the Form I-9 process).  In 1996 Congress further amended the 1990 provision by stating that certain documentary practices were unlawful only if done "for the purpose or with the intent of discriminating against an individual" in certain situations because of the individual's citizenship or national origin.  The Department of Justice (DOJ) issued a notice of proposed rulemaking on August 15, 2016 describing possible changes in the way DOJ will interpret and enforce the governing laws.  Comments on the proposed regulations must be submitted on or before October 14, 2016.

The proposed rules provide new definitions that ignore existing law and make proving a case of discrimination much easier.  For example, "discriminate" means the act of intentionally treating an individual differently, regardless of the explanation for the discrimination and regardless of whether the different treatment is because of animus or hostility.  The phrase "for purposes of satisfying the requirements of section 1324a(b)" (which refers only to the Form I-9 process) will be interpreted to include the E-Verify process. Also, the phrase "for the purpose or with the intent of discriminating against an individual in violation of paragraph (1)" is proven if the individual is treated differently because of citizenship or national origin regardless of the explanation for the discrimination and regardless of whether it is based on animus or hostility.  In another departure from the current statute, the proposed rules interpret the prohibition against asking for "more or different documents than are required under such section" to include making a request for specific documents because of a person's citizenship or national origin. 

DOJ admits that the proposed rules impose new requirements that employers will need to learn.  In addition, DOJ anticipates that employers will need to review and revise their hiring and employment eligibility verification policies.  DOJ even contemplates providing as many as three training webinars per month to assist employers, employees, and attorneys in understanding the changes resulting from the new requirements.

Although the proposed rules are not final and binding and are not consistent with the applicable law, the proposed rules reflect the positions DOJ has taken during the Obama administration on these issues.  Accordingly, employers should consider whether to review and revise hiring and employment eligibility verification practices.

Employers have always feared receiving the dreaded "mismatch" letter from the Social Security Administration ("SSA") and have struggled to implement consistent and comprehensive plans to address these situations.  SSA would generally send these types of letters to employers to resolve any discrepancies in matching the employee's name and social security number on wage and tax statements like the Form W-2. 

While the SSA mismatch Letters made clear that it did not raise questions regarding the employment eligibility of the employee and cautioned that no adverse action should be taken on the basis of the letter alone, employers were rightfully concerned that such information could be used to show that it had constructive knowledge of unauthorized employment.  In fact, the Department of Homeland Security ("DHS") at one time proposed detailed rules (since rescinded) on the specific steps employers had to take upon receipt of a no-match letter to qualify for a "safe harbor" from certain immigration liability.  Employers also had to be careful not to discriminate or engage in document abuse against any employee on the basis of the mismatch letter alone which could lead to an investigation by the Department of Justice-Civil Rights Division, Office of Special Counsel ("OSC").

Fortunately for employers, SSA does not have any enforcement powers and cannot prosecute or penalize employers for failing to resolve such mismatches.  In addition, SSA does not provide mismatch information to other government agencies such as DHS or ICE.   This greatly diminishes the chance that an employer would be investigated on how it dealt with such situations.  Due to litigation and changes to the policy priorities of the current administration, the use of SSA mismatch letters has greatly diminished and is now less of a concern to employers. 

But now employers are dealing with similar issues arising from the reporting requirements under Obamacare.   And unlike mismatch letters from the SSA, these issues are handled by the IRS which can impose serious penalties that have real teeth.

Under Obamacare, Applicable Large Employer Members (ALE Members) and group health plans are subject to certain IRS reporting requirements - commonly referred to as "Form 1095 filings."  Such employers must supply certain identifying information to the IRS for covered employees including name, address, birth date, social security number and his or her dependents.  IRS then uses this information to confirm insurance coverage for the covered individuals which is required by Obamacare.  

One of the unintended consequences of Obamacare is that the IRS is now running into situations in which the employee's SSN provided by the employer does not match SSA's records.  This has triggered notification letters to employers from the IRS to resolve the discrepancies (similar to a SSA mismatch letter).  IRS regulations recommend certain steps that employers should take to show good faith compliance with the Obamacare's reporting requirements in response to such notices.  But unlike the SSA, IRS can impose significant penalties on employers who fail to correct the discrepancies. 

The penalties were recently increased so the late filing penalty is now $250 per return (e.g., per 1095-C), to a maximum of $3,000,000 per year.  There is a lower cap (only $1,000,000) for smaller entities with gross receipts of not more than $5,000,000.  Other penalties can be assessed for not turning in corrected forms or providing incorrect information on the Form W-2.  There are certain exceptions that would act to waive these penalties if the filer can show "that such failure is due to reasonable cause and not to willful neglect."  This would include events beyond the control of the employer such as the unavailability of business records (i.e. fire destroying records or employee no longer employed) or if the employee failed to provide a correct, or provided an incorrect, social security number to the employer.

IRS regulations provide specific procedures that an employer must follow to establish that it has taken reasonable steps to obtain a social security number from each employee.  By following and documenting these steps, an employer can demonstrate that it has acted in a responsible manner so as to avoid IRS penalties in the event that it has the incorrect information for an employee.  This includes making the initial solicitation of the employee's social security number upon hire (generally on the W-2), followed by two annual solicitations (the second solicitation is made at a reasonable time thereafter and the third solicitation is made by December 31 of the year following the initial solicitation) if the individual's social security number still has not been secured or a mismatch continues to occur.

If the annual solicitations are made by mail or telephone, the individual must be informed that he or she is subject to a $50 penalty imposed by the IRS if he or she fails to provide the correct information.  Mail solicitations also must include a Form W-9 and a self-addressed return envelope (which may or may not have postage prepaid).  IRS has stated that if an employer receives additional notices based on a missing social security number for the employee after making the two annual solicitations, no further solicitations are necessary and that the employer's initial and two annual solicitations demonstrate that it acted in a responsible manner.

IRS publications state that an employer is not required to solicit a social security number from an individual whose coverage has terminated and stress that employers should not use a IRS mismatch notice alone as grounds to terminate the employee.  However, like the SSA mismatch letters before it, employers are rightfully concerned that these IRS notices will trigger an obligation to take reasonable steps to verify and correct the information provided by the employee or face immigration related penalties.  These penalties were also recently increased so now paperwork violations on the Form I-9 range from $216 to $2,156 per violation.  Penalties for the first offense of employing unauthorized workers range from $539 to $4,313 per violation.

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