Employment Standards for 2020: New Overtime Rules, Non-Compete Agreements, Paid Family Medical Leave Update

Thursday, February 20, 2020
Shannon Lawless

Shannon Lawless

Member
Ryan, Swanson & Cleveland, PLLC

Shannon Lawless, a member of the law firm of Ryan, Swanson & Cleveland, PLLC spoke at the February CEOtoCEO event in Bellevue, and provided clarification on the new regulations for employers that took effect in January. These new requirements include: new rules regarding exempt salaried employees and overtime pay, restrictions on non-compete agreements, and the update to Paid Family Medical Leave (PFML) obligations.

New Overtime Rules

Shannon began by explaining the changes to Washington State's overtime rules, and how they will compare to the new federal rules on overtime pay. The new federal overtime rule took effect on January 1, 2020. The new federal rule requires employees to be paid a minimum of $684 per week ($35,568 annually) to be classified as exempt from overtime pay. This threshold exceeds Washington State's new requirement of $675 per week ($35,100 annually) for exempt employees that will take effect in July of 2020, but Washington's threshold will increase incrementally each year until 2028.

State of Washington 2020 - 2028
1-50 Employees 51+ Employees
Date x Minimum Wage Salary x Minimum Wage Salary
July 1, 2020 1.25 x min. wage $675$684/week
$35,100.00$35,568.00/year
1.25 x min.wage $675$684/week
$35,100.00$35,568.00/year
Jan 1, 2021 1.5 x min. wage $810/week
$42,120.00/year
1.75 x min. wage $945/week
$49,140.00/year
Jan 1, 2022 1.75 x min. wage $945/week
$49,140.00/year
1.75 x min. wage $945/week
$49,140.00/year
Jan 1, 2023 1.75 x min. wage $945/week
$49,140.00/year
2 x min. wage $1,080/week
$56,160.00/year
Jan 1, 2024 2 x min. wage $10,080/week
$56,160.00/year
2 x min. wage $1,080/week
$56,160.00/year
Jan 1, 2025 2 x min. wage $10,080/week
$56,160.00/year
2.25 x min. wage $1,215/week
$63,180.00/year
Jan 1, 2026 2.25 x min. wage $1,215/week
$63,180.00/year
2.25 x min. wage $1,215/week
$63,180.00/year
Jan 1, 2027 2.25 x min. wage $1,215/week
$63,180.00/year
2.5 x min. wage $1,350/week
$70,200.00/year
Jan 1, 2028 2.5 x min. wage $1,350/week
$70,200.00/year
2.5 x min. wage $1,350/week
$70,200.00/year
Implementation schedule for new salary thresholds for exempt employees (struckthrough figures are WA State thresholds overridden by higher federal thresholds)

The increase will be accelerated for large employers with more than 50 employees (total employee headcount).

  1. Large employers will reach higher multipliers one year before small employers. Large employers reach the 200% of minimum wage threshold on January 1, 2023.
  2. Small employers reach the 200% threshold on January 1, 2024.

Washington's new threshold will exceed the federal requirement on January 1, 2021.

  1. Employers 1 - 50 employees must pay exempt employees a minimum of approximately $827 per week ($43,004 annually).
  2. Employers with 51+ employees must pay a minimum of approximately $965 per week ($50,180 annually).

Shannon added that Washington State revised the job duties test for overtime exemption. The job duties test, while fairly broad, is designed to establish that an employee is performing work that is either executive, administrative, or professional (EAP) to qualify for exempt status.

Shannon outlined action items employers should take to ensure they were in compliance with the new requirements. These include:

  1. Survey company payroll to ensure all exempt employees meet the new minimum salary requirements
  2. Plan for upcoming Washington salary basis increases, while also monitoring for legal action that could prevent them from taking effect

New Non-Compete Statute

The new non-compete statute for Washington State, which took effect in January, limits the scope of new non-compete agreements, and restricts the enforceability of agreements made before 2020. The new statute has five main provisions for enforceable non-compete agreements.

  1. Employee earns more than $100,000 per year, or more than $250,000 per year for independent contractors
  2. The term of the non-compete must be no longer than 18 months. (Longer terms may be permissible for very limited cases.)
  3. Employee must be paid base salary during the term of the non-compete if laid off.
  4. Terms of the non-compete must be disclosed no later than employee's acceptance of an offer of employment. Independent consideration (e.g., raise, bonus, or promotion) will be required if agreement is made after employment has begun.
  5. Employee cannot be prohibited against having an additional job (or "side hustle" for millennials), contract, or self-employment if employee earns less than twice the state minimum wage.

Shannon continued this discussion by helping define what a non-compete agreement is, and how it differs from other agreements such as non-solicitation or confidentiality agreements, with which a non-compete is often combined.

A non-compete agreement is strictly an agreement that states that an employee will not work for a competing business in a similar industry for a period after employment.

A non-solicitation agreement states that an employee will not actively pursue the business of an employer's clients after leaving the employer.

A non-servicing agreement goes further to state that an employee will not do business with an employer's clients after leaving the company, even if those clients come without the former employee pursuing them.

Under the new statute, the non-servicing agreement is considered to be unenforceable.

Non-solicitation agreements are still enforceable, as client lists often have determinable monetary value, and can be closely related to trade secrets. Trade secret agreements are still protected, and the new statute specifically indicates that it does not apply to non-solicitation agreements or trade secret laws.

Any agreement entered after January 1, 2020 which violates any of the five main provisions listed above, or attempts to restrict an employee's ability to service a former employer's clients, will be considered unenforceable. Any agreement written before 2020 that violates any of the five provisions listed above may still be partially enforceable, but non-compete or non-servicing elements may not be enforced.

The Risk for Employers

Attempts to enforce agreements that are considered unenforceable in their entirety, or to enforce elements of a pre-2020 agreement that are now prohibited, may be subject to adjudication through an attorney general or a private civil lawsuit. Any non-compete determined to be in violation of the law will subject the employer to a $5,000 penalty, and the employer must pay any attorney fees incurred by the employee.

Shannon recommended the following action items for employers to ensure they were in compliance with the new statute:

  1. Review existing non-competes and analyze them to determine necessary changes.
  2. Craft new non-competes to comply with the new statue.
  3. Eliminate general prohibitions against employees having multiple jobs from employee handbooks and agreements. Make new anti-moonlighting agreements specific to appropriate employees.
  4. Consider alternative agreements, such as non-solicitation, trade-secret, and confidentiality agreements to protect proprietary information and client lists.

Paid Family & Medical Leave

The third major change to employment regulations for 2020 is the new Paid Family and Medical Leave (PFML) program, which began collecting premiums from employees and employers in 2019, but only commenced distribution of benefits this year. Administrated by the Washington State Employment Securities Department, the PFML program is a statewide insurance program for employees who have to miss work due to the birth or adoption of a child, or a serious medical condition of themselves or a family member.

Premiums are paid into the fund for the program by both employer and employee for companies with 50 or more employees. Current premiums are 0.4% of an employee's gross wages, up to the social security cap. Employers must pay and report premiums to the Employment Security Department (ESD) quarterly.

Employers with fewer than 50 employees are not required to pay the employer's portion of the premium, but must still collect and pay the employee's portion to the ESD.

The Paid Family and Medical Leave program will provide partial wage replacement of up to $1,000 per week to eligible employees for up to 12 - 18 weeks. The amount of the benefit is based on a percentage of the employee's average weekly wage from all of the jobs held during the last 12 months. The maximum weekly benefit is $1,000, and the minimum weekly benefit is $100. The benefit paid will be a larger percentage of the employee's wages for those making less money. Employees making minimum wage will receive a benefit of 90% of their average weekly wage.

It will also provide job protection for employees working for companies with 50 or more employees. Employees of such companies are entitled to be restored to the same or equivalent job if they meet the following conditions:

  1. The employee has worked for the current employer for at least 12 months.
  2. The employee has worked at least 1,250 hours during the 12 months preceding leave.

Shannon cautioned that there are other laws (such as the Americans with Disabilities Act) which provide job protection even if the employee is not eligible for protection under the Paid Family and Medical Leave regulations.

Washington State's Paid Family and Medical Leave program has similarities with the federal Family Medical Leave Act, but provides additional coverage for family members outside of spouses, parents, or dependent children. The Family and Medical Leave Act (FMLA) provides job protection for employees who need to leave work to care for a sick or injured family member—for up to 12 weeks of unpaid leave.

The Paid Family and Medical Leave program expands the definition of family to include grandchildren, grandparents, siblings, in-laws, and older non-dependent children.

Paid Family and Medical Leave job protection runs concurrently with Family Medical Leave Act protection when eligibility is aligned between the two. The most likely exceptions to this are:

  1. FMLA was used in 2019 and PFML was used in 2020 due to a qualifying event that spans both years
  2. PFML is used to care for extended family member not covered by FMLA
  3. The employee delays application for PFML
  4. Intermittent leave

Employees taking Paid Family Medical Leave will apply for benefits online with the Employment Security Department, in a similar process to the one used for unemployment benefits. The employee will reapply each week, and each qualified weekly application will prompt payment of the weekly benefit.

The demand for the PFML program has far exceeded expectations. The ESD originally estimated that they would receive 6,000 applications per month, but received 20,000 applications in the first three weeks of the program. The Department has advised that applications are taking longer than expected to process, but that approved benefits will be paid retroactively to the date of leave, and not the date the application was approved.

Employees may not receive PFML benefits for absences that are paid from another source such as unemployment benefits, worker's compensation, or sick leave. If the absence is being paid from another source, PFML benefits will not be approved.

However, if the PFML application is approved first, then employees are allowed to supplement their PFML benefits with any employer-based accrued sick or vacation time. Employers should note that while they can notify and allow employees to exercise their right to use their accrued sick or vacation pay to supplement PFML benefits, they cannot legally require them to do so.

Employers do have the option of setting up their own self-funded insurance for family and medical leave. Such voluntary plans must be approved by the ESD and be capable of providing benefits equivalent or superior to those provided by the state plan. While 248 companies have been approved to administer voluntary plans, Shannon advised that the state system will be a far cheaper option for most companies.

Shannon provided the following action items for companies to be in compliance with Paid Family and Medical Leave requirements:

  1. Pay premiums and file reports quarterly with the ESD
  2. Display the mandatory poster available on the PFML website and distribute notices advising employees of their rights (please scroll down to section 3 to find poster and pay stub insert)
  3. Provide notices regarding PFML rights and benefits to employees absent over a week for family or medical reasons
  4. Update the employee handbook to advise employees of their rights and how to access benefits
  5. Train managers to report absences and keep administration aware of all leave activity

Shannon concluded this presentation with the recommendation that company Executives, Human Resource professionals, and Managers should devote some time in their schedule to staying up to date on developments in employer law. Employers need to be wary of violating new regulations while providing their employees with a clear understanding of their rights.

Employers can subscribe to Ryan Swanson's Employment Rights, Benefits, & Labor email newsletter to stay informed on developments on employment law.


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