Employment Law for NC Craft Brewers

Presented by

Steve Rowe &

Sebastian Wolfrum

Overview of Fair Labor Standards Act Coverage:

Minimum Wage, Overtime, and Hours Worked

These materials have been prepared by Poyner Spruill LLP for informational purposes

only and are not legal advice. This information is not intended to create, and receipt of it

does not constitute, a lawyer-client relationship.

Overview of Exemptions

• Exempt:

– Commissioned sales employees of retail or service establishments

(overtime only)

• NON-exempt:

– Head brewer or warehouse manager if they are directly working in

production of beer or its handling

Overview of Exemptions

• Employees of certain seasonal and recreational

establishments

• Executive, administrative, professional, and outside sales

employees

Risks of Noncompliance

• Record keeping

– Section 11(a) of the FLSA authorizes representatives of the

Department of Labor to investigate and gather data concerning

wages, hours, and other employment practices; enter and inspect

an employer’s premises and records; and question employees to

determine whether any person has violated any provision of the

FLSA.

– Failure to keep proper records is an FLSA violation

DOL Investigation on Recordkeeping

– The investigator will request certain records

– Will inspect payroll and time records; can make copies

– Employee interviews will be used to determine if records match the

reality of hours worked and wages paid

Reporting Requirements

• Failure to observe the recordkeeping requirements is a

violation of the FLSA for which criminal or civil sanctions

may be imposed

– An employer who fails to maintain the required records cannot

avoid liability in a wage and hour case through argument that there

is insufficient evidence of the claimed hours worked

– Where an employer's records are inaccurate or non-existent,

courts may award damages based on employees’ recollections

The Practical Result of Noncompliance with

Recordkeeping Requirements

• The plaintiff (i.e. your employee) must demonstrate he or

she performed work and was not properly compensated

and must provide evidence of the amount of work

performed

• The burden then shifts to the employer (i.e. you) to present

evidence to counter the plaintiff’s version or to alter the

inference the court might draw from the plaintiff’s evidence

• If the employer fails to produce this evidence (i.e. you kept

no records or poor records) the court may award damages

to the employee even though the result is only

approximate

Common Employer Mistakes

• Confusing salaried with exempt

• Confusing job titles with exempt

• Failing to police working time - remote work, breaks, off

the clock

– Failure to record and pay for break periods

• "Waivers" of minimum wage and overtime rights

• Lack of accurate time and payroll records

Common Employer Mistakes

• Contracts for “exempt” status

• Use of comp time

• Failing to pay overtime that is not “approved”

– Failure to keep records of non-authorized overtime

• Training time, travel time, and other off the clock work

when not properly paid

• Counting on employees to keep their own records

Common Employer Mistakes

• Not keeping a timesheet or timecard for non-exempt

workers

• Failing to record time of clock-in and clock-out.

• Believing there is a coverage threshold based on

employee headcount

• Independent contractor v. employee classification

mistakes

Deductions From Salary

• As a general rule, an exempt employee is entitled to

his/her full salary, without deductions or reductions.

• If improper deductions are made, you can lose the

exemption and have to pay overtime to the employee.

• Deductions may be made for absences of one or more full

days for personal, sick, or FMLA reasons, or for

disciplinary suspensions.

• If you make deductions from pay, comply with state law

regarding the timing and form of notice to the employee

about those deductions.

Uniforms

• If you require uniforms, you cannot reduce a non-exempt

employee’s pay below the minimum wage to reimburse

you for the uniforms.

• However, if you have a situation where you believe an

employee is wearing the uniforms outside of work and

causing damage necessitating continual replacement of

uniforms, you can require repayment through wage

assignment or direct reimbursement.

Proper Hiring Practices: Background Checks and Interviewing

Rightful Hires To Avoid Wrongful Discharge

• You can reduce or eliminate problems with

employees through careful hiring practices.

• Use interviews, reference checks, and

applications to find employees with the

characteristics your company needs for success.

Rule to Live By

• All employment decisions based on an

applicant’s personal characteristics (such

as criminal record and credit score) must

always be “job-related and consistent

with business necessity.”

– Not based on stereotypes

– Not based on assumptions

– Objectively defensible

Problematic Requirements

• Criminal Background—NO convictions

• Credit—MUST have clean credit history

• Examination requirements—MUST pass a certain test or

exam

• Education—MUST have a college degree

• Professional—MUST have professional certification

Can these requirements be justified?

Do we impose these requirements because they are

necessary or because they come from preferences

rooted in tradition or bias?

EEOC Enforcement Guidance On

Use of Criminal Records

• Employers should NOT rely on arrest records as a basis for screening

applicants.

• Employer use of criminal conviction records to screen applicants may

have “disparate impact” based on race and national origin. Disparate

treatment may also occur.

• Employer should “validate” use of criminal background checks. This

requires hiring a specialist to evaluate whether criminal background is

predictive of success at specific jobs.

• Probably cheaper to limit criminal record checks and/or

disqualifications to those positions that are easily defensible

• Avoid “automatic disqualification for a criminal conviction.”

Use of Credit History Under Scrutiny

• According to the EEOC

– Inquiry into an applicant's current or past assets, liabilities, or credit

rating, including bankruptcy or garnishment, refusal or cancellation of

bonding, car ownership, rental or ownership of a house, length of

residence at an address, charge accounts, furniture ownership, or

bank accounts generally should be avoided because they tend to

impact more adversely on minorities and females. Exceptions exist if

the employer can show that such information is essential to the

particular job in question.

• It will be difficult to establish business necessity, as there

is little evidence that credit is a factor in predicting job

performance.

Use of Credit History Under Scrutiny

• At least ten states have adopted statutes banning or limiting

use of credit checks in hiring

• Several other states have bills pending

• Most of the states with statutes have some exceptions

allowing credit checks for managers with access to funds or

other positions involving handling money

• Federal and state FCRA laws are implicated when credit

checks are procured

• A requirement of creditworthiness cannot be justified for most

jobs

BOTTOM LINE: Avoid performing credit checks on applicants

Interviewing Do’s and Don’ts

• You can reduce or eliminate problems with

employees through careful hiring practices

• Use interviews, reference checks and applications

to find employees with the characteristics your

company needs for success

• Thorough interviews reveal

– Past discipline problems

– Exaggerated skill claims

– Difficult personalities

Interviewing

• Interviews, and all other employee selection

procedures, are governed by state and federal

anti-discrimination laws such as Title VII of the

Civil Rights Act of 1964

• Avoid questions that tend to reveal protected

class characteristics such as race, national

origin, age, and sex, or that indicate a

preference for applicants without such

characteristics

Protected Characteristics

• Race

• Age

• Disability

– Actual

– Perceived

– By Association

• Ethnicity

– Color

– National Origin

• Gender

• Religion

• Sexual Orientation

(in some places)

Interviewing

• Use interviews to get to know the applicant

• Ask hard questions about

– Skills necessary to do the job

– Strengths and weaknesses

– Past “gaps” in employment history

– Relationships with prior employers

Things You Can and Cannot Ask

• Do not ask an applicant’s age or date of birth or

any questions showing a preference for any age

group

• You may ask an applicant if he or she is over 18

Things You Can and Cannot Ask

• Do not ask about an applicant’s place of birth or

family history

• You may ask if an applicant is authorized to work

in the United States or about an applicant’s ability

to read or write English or a foreign language if

the job requires such

Things You Can Ask

• You may ask about an applicant’s freedom to

travel if it is required by the job

• You may ask about an applicant’s ability to meet

work schedule requirements

• You may ask if the applicant is available for

weekend and holiday work provided it is a job

requirement

Things You Cannot Ask

• Do not ask about an applicant’s religion or what

religious holidays he or she observes

• Do not ask if an applicant’s religion would

prohibit weekend or holiday work

Things You Can and Cannot Ask

• Do not ask about organizations or activities that

may reveal the applicant’s marital status,

national origin, creed, religion, or other protected

class characteristics unless the information is

demonstrably job related

• You may ask about professional organizations to

which an applicant belongs

Things You Cannot Ask

• Do not ask if an applicant has ever been arrested

• Do not ask about height, weight, physical or

mental condition, or medical history

• Do not ask about any physical characteristics

such as scars, burns, or missing limbs

Things You Cannot Ask

• Do not ask about the applicant's health

• Do not ask if the applicant has ever been

hospitalized or received counseling or seen a

psychiatrist

• Do not ask if the applicant has a drug or alcohol

problem

Things You Cannot Ask

• Do not ask if the applicant

has ever been injured on

the job or about an

applicant’s workers’

compensation history

• Do not ask if the applicant

will need leave for treatment

Things You Can and Cannot Ask

• Do not ask if the applicant has a disability or medical

condition that will prevent the person from performing

the job

• You may ask if the person knows of any reason that he

or she cannot perform the essential functions of the job

• You may describe or demonstrate a job function and

ask all applicants if they can perform the functions with

or without reasonable accommodation

Overview of Confidentiality and Trade Secret Considerations

Departing Employees and Competitors

• Use of “exit” procedures and terminating access to

company information systems

• Use of non-compete covenants and other restrictive

covenants

• Protecting trade secrets and other confidential information

• Pursuing claims associated with departing employees

Claims Associated With Departing Employees

• Breach of non-compete covenants and other restrictive covenants

• Misappropriation of trade secrets

• Tortious interference with contract

• Unfair trade practices

• Computer Fraud and Abuse Act

• Conversion

• Breach of post-termination fiduciary duties

Being the “New” Employer When Hiring a Departing

Employee From a Competitor

• Finding and responding to non-compete covenants and other

restrictive covenants

• Avoiding use or transfer of ex-employer’s trade secrets Avoiding

and other confidential information

• and defending claims associated with departing employees

Types of Non-Compete Covenants

• Non-compete covenant

• Non-solicitation of customers

covenant

• Restriction on employment with

customers

• Restriction on employment with

specific competitors

Non-Compete Covenants

Are “Restrictions On Livelihood”

N.C. Gen. Stat. § 75-4

“ No contract or agreement hereafter made, limiting the

rights of any person to do business anywhere in the State

of North Carolina shall be enforceable unless such

agreement is in writing duly signed by the party who

agrees not to enter into any such business within such

territory.”

Legal Requirements for

Enforceable Non-Compete Covenant

• In writing and signed by Employee

New Hanover Rent-A-Car vs. Martinez, 136 N.C. App. 642 (2000)

• Made part of contract of employment

Brooks Distributing Co. vs. Pugh, 91 N.C. App. 715 (1988)

• Based on valuable consideration

Young vs. Mastrom, 99 N.C. App. 120, 392 S.E.2d 446 (1990)

Hejl v. Hood, Hargett & Associates, 196 N.C. App. 299 (2009)

MSC Industrial Direct Co. v. Steele, 2009 N.C. App. LEXIS 1307 (2009)

Legal Requirements for

Enforceable Non-Compete Covenant

• Reasonable as to time and “territory”

Hartman vs. Odell & Associates, 117 N.C. App. 307 (1994)

Wachovia Ins. Servs. v. McGuirt, 2006 NCBC 23 (2006)

• Designed to protect legitimate business interest

VisionAIR, Inc. vs. James, 167 N.C. App. 504 (2004)

Okuma America Corp. vs. Bowers, 181 N.C. App. 85 (2007)

• Not against public policy

CNC/Access, Inc. v. Scruggs, 2006 NCBC 20 (2006)

Cox v. Dine-A-Mate, Inc., 129 N.C. App. 773 (1998)

Finding and Responding to Non-Compete

Covenants and Other Restrictive Covenants

• Find out if employee signed agreement containing non-compete covenant or

other restrictive covenant with ex-employer

• If employee says he/she is not obligated to ex-employer under non-compete

covenant, require representation and warranty of such

• If employee signed such agreement, get copy of it

• If new employment conflicts with non-compete covenant, see if employee can

negotiate with ex-employer for release from non-compete covenant or

modification that permits new employment

• If possible, require representation and warranty from employee that he/she will

not breach non-compete covenant

• If possible, require employee to indemnify new employer for legal expenses or

damages against new employer if ex-employer sues

Protecting Trade Secrets and

Other Confidential Information

Legal Requirements for Protection as “Trade Secret”

• Information is not publicly available or otherwise known to competitors

or other outsiders

• Information would be difficult for competitors or other outsiders to

obtain or develop independently

• Information derives actual or potential commercial value from not

being known to competitors or other outsiders and

• Employer has taken reasonable steps to maintain information as

secret and confidential

N.C. Gen. Stat.§66-152, et seq.

Protecting Trade Secrets and

Other Confidential Information

Other Considerations for Protection as “Trade Secret”

• Amount of time and money spent by Employer in developing

information

• Extent to which information is guarded from non-essential disclosure

to employees and others involved in Employer’s business

• Steps taken by Employer to prevent employees or other insiders from

revealing information to competitors or other outsiders

Avoiding Use or Transfer of Ex-Employer’s

Trade Secrets and Other Confidential Information

• Instruct employee that he/she cannot retain or use any materials from

former employment that are ex-employer’s property or contain ex-

employer’s trade secrets or confidential information and require

representation and warranty from employee that he/she will not do so

• Instruct employee that he/she cannot use or disclose any of ex-

employer’s trade secrets or confidential information and require

representation and warranty from employee that he/she will not do so

• Instruct other employees not to induce or cause departing employee to

use or disclose ex-employer’s trade secrets or confidential information

Claims for Breach of Non-Compete Covenants

and Other Restrictive Covenants

Ex-Employer’s Legal Options When Non-Compete Covenant Is Breached

• Demand departing employee to “cease and desist”

• Notify new employer of departing employee’s contractual obligations and demand

compliance, but be careful and be sure non-compete covenant is enforceable

• Negotiation versus litigation

• Lawsuit against departing employee and/or new employer

• Beware “backlash” with customers and employees

• Use business measures to keep customers and employees

White vs. Cross Sales & Engineering, 177 N.C. App. 765 (2006)

American Marble Corp. v. Crawford, 84 N.C. App. 86 (1987)

Questions?

Steve Rowe

252.972.7108

srowe@poynerspruill.com

Sebastian Wolfrum

swolfrum@cbc-raleigh.com

919-699-6733