January 2010

Georgia Employers Get Ready for SUI Increase for 2010!

According to U.S. Department of Labor estimates, by 2011, 40 state unemployment trust funds will be drained as a result of the recession’s jobless toll. Employers’ unemployment taxes for 2010 are projected to rise as a result.

Currently, 25 states and the Virgin Islands have run out of unemployment money and have borrowed more than $24 billion from the federal government to fill the gap. Nine states have borrowed more than $1 billion with California alone borrowing $5.63 billion.

When there is a shortfall in state unemployment-compensation funds, state governments generally are forced to cut the benefit or to raise the payroll tax.

A recent survey of all 50 states and Puerto Rico administered by the National Association of State Workforce Agencies (NASWA) shows 35 states have increased their unemployment insurance (UI) taxes on employers for 2010. Specific survey findings include the following:

*Seven states (Ark., Fla., Ind., N.H., Tenn., Vt. and W.Va.) have enacted legislation to increase their “taxable wage base,” the level of wages subject to a payroll tax on employers.

*Twenty-seven states and Puerto Rico (Alaska, Ala., Ariz., Colo. Ga., Hawaii, Iowa, Idaho, Ill., Kan., Mass., Md., Maine, Minn., Mont., N.D., Neb., N.H., N.J., N.Y., Ohio, Ore., Pa., Va., Vt., Wis. and Wyo.) said that the tax schedule in their state will see an increase in 2010 compared to 2009. The majority of these increases will be automatic; adjustments are triggered by low levels of reserve funds in the state accounts used to finance unemployment benefits.

*In addition, 10 states (Calif., Conn., Del., Ky., Mich., Mo., N.C., R.I., S.C. and Tenn.) indicated that their tax rate schedules were already at the highest tier, which would prevent them from automatically increasing in 2010. In these states, the state legislatures must enact changes in state laws—either increasing the tax rates by changing tax rate schedules or increasing the state taxable wage bases.

*Seven of the 51 programs surveyed (Ark., Calif., Conn., Fla., Hawaii, Mass. and S.D.) said that they will automatically increase their tax rates due to a solvency tax already in state law. The majority of these solvency taxes also activate when states’ trust fund balances fall below specified levels.

*Thirty-five states estimated the level of UI tax revenue collected in 2010 would surpass the level collected in 2009; with a median projected increase of 27.5 percent. The range of these projected increases was 2.5 percent to 600 percent.

While the percentage increases in UI taxes for some employers in 2010 is substantial, the average tax rate on total wages paid by employers is relatively low by historical standards. Since 1938, the average national UI tax rate on employers as a percent of total wages ranged from 0.5 percent to 2.7 percent, while the average national UI tax rate on employers as a percent of taxable wages has varied between 1.25 percent and 3.25 percent. The average national employer tax rate as a percent of total wages in 2008 was 0.6 percent.

State unemployment taxable wage bases have been relatively low compared to other social insurance programs. In 2010 state unemployment insurance taxable wage bases will range from $7,000 in Arizona, California, Mississippi, Puerto Rico, and South Carolina to $37,800 in Hawaii. In contrast, the taxable wage base under the social security old age, survivors and disability insurance program will be $106,800 in 2010.

Trust Fund Loans Outstanding loans from the Federal Unemployment Account Balances as of Dec. 17, 2009 Alabama $129.12 million Arkansas $200.34 million California $5.63 billion Connecticut $118.33 million Florida $839.5 million Georgia $4 million Idaho $93.51 million Illinois $1.02 billion Indiana $1.44 billion Kentucky $556.4 million Michigan $3.05 billion Minnesota $225.22 million Missouri $424.03 million Nevada $86.42 million New Jersey $848.6 million New York $1.96 billion North Carolina $1.52 billion Ohio $1.65 billion Pennsylvania $1.72 billion Rhode Island $115.32 million South Carolina $654.96 million South Dakota $5.39 million Texas $1.19 billion Virgin Islands $8 million Virginia $90.61 million Wisconsin $851.31 million Total $24.44 billion

Decatur Employer Faces OSHA Penalties

WASHINGTON-U.S. Immigration and Customs Enforcement (ICE) Assistant Secretary John A Decatur employer is facing $69,550 in penalties in the wake of an inspection by the U.S. Occupational Safety and Health Administration (OSHA). The agency’s inspection showed that Wheel Repair Solutions, doing business as World of Wheels, failed to address several violations identified in the past. The previous violations included failure to: develop a written hazard communication program; provide hazard communication training; certify that a hazard assessment had been conducted; develop or implement a written respiratory protection program, and to train workers who wear tight-fitting respirators. The company also allowed workers to use hazardous levels of compressed air for cleaning. For those violations, OSHA has proposed a penalty of $66,750.

OSHA also cited the company for three repeat violations with a proposed penalty of $2,800. Those violations included hazardous storage of cylinders of compressed oxygen and acetylene and failure to conduct medical evaluations on employees wearing tight-fitting respirators or fit them for the equipment.

World of Wheels was given 15 business days from receipt of the citations to comply, request an informal conference with OSHA's area director, or contest the citations before the Occupational Safety and Health Review Commission.

"All workers deserve a safe workplace. This company is fully aware of what needs to be corrected with its safety and health program. It is time that World of Wheels & Hubcaps takes responsibility for its employees' safety and health," said Gei-Thae Breezley, director of OSHA's Atlanta-East Area Office.

Diane Cadrain 12/4/09

11th Circuit: Ledbetter Act Does Not Preclude Validly Executed Waivers Under ADEA

Earlier this year, in response to a decision by the U.S. Supreme Court, Congress passed the Lilly Ledbetter Fair Pay Act of 2009, extending the timeframe within which employees may sue their employers for wage discrimination under Title VII, the Age Discrimination in Employment Act (ADEA), and the Americans with Disabilities Act. A key element in the Ledbetter Act states that “a discriminatory compensation decision or other practice that is unlawful under such acts occurs each time compensation is paid pursuant to the discriminatory compensation decision or other practice, and for other purposes.” What this means for employers is that an employee may bring a lawsuit over an allegedly discriminatory compensation decision that was made years ago, as long as the employee continues to receive paychecks that are the result of the past compensation decision.

The 11th U.S. Circuit Court of Appeals, which encompasses Alabama, Florida and Georgia, recently addressed the question of whether the Ledbetter Act precludes employers from obtaining signed waivers of any ADEA claims. The court answered that waivers are permissible as long as the release contains the necessary language and otherwise meets the requirements for waiving age claims.

The matter before the court involved an early retirement program established by the city of Fort Lauderdale, Fla., and the Police Officers’ and Firefighter’s Retirement Board. The city’s Deferred Retirement Option Program (DROP) allowed participating officers to earn early retirement benefits even though they continued to work and draw a regular salary for a specified period of time. To participate, however, officers were first required to execute an “Acknowledgment, Waiver and Release Agreement” releasing all claims of age discrimination against the city, and to submit an irrevocable letter of resignation that would become effective at the end of that employee’s DROP period.

Thirteen police officers sued the city, claiming that the DROP program discriminated based on age because younger officers had an opportunity to earn higher pension accruals before reaching the age for DROP eligibility. The city’s primary defense to this lawsuit was that all the officers, except for one who never entered the DROP, had executed the waiver in order to be eligible for the DROP program.

The district court and 11th Circuit agreed with the city that the waivers barred the employees’ claims. In making their decisions, the courts looked closely at the release language to see whether it complied with the requirements of the Older Workers Benefit Protection Act (OWBPA), which must be met whenever an employee releases a claim under the ADEA. Specifically, the courts found that the waivers, which contained the required language and seven-day revocation period, were written in “plain English” that could be understood by the officers, and most importantly, the waivers were knowing and voluntary.

The 11th Circuit addressed an additional argument by the officers that the passage of the Ledbetter Act precluded employers from requiring officers to waive their ADEA rights in order to participate in the DROP. The court rejected this argument and reiterated the fact that employees may waive their rights under the ADEA if the waiver is knowing and voluntary and in compliance with the OWBPA.

Lerman v. City of Fort Lauderdale Fla., 11th Cir., No. 09-10420, unpublished (Sept. 28, 2009).

Professional Pointer: The Ledbetter Act does not prohibit employers from obtaining valid waivers of age discrimination claims. Employers must be certain, however, that any such waiver satisfies the requirements of the OWBPA. Although these requirements may seem formalistic and unnecessary, failure to satisfy the OWBPA can expose the employer to liability for age discrimination, even when both the employer and the employee intended to release such claims.

John Park is an attorney in the Labor and Employment practice of the law firm Waller Lansden Dortch & Davis LLP in Nashville, Tenn

John Park 10/16/09

TA noncompete clause in an employment agreement was overbroad and unenforceable under Georgia law, but even without a restrictive covenant, an employee may not disclose to a competitor a trade secret learned during employment with a former employer, the state Supreme Court ruled.

Software engineer Brendan Coleman was hired by The Retina Eye Center, a medical practice specializing in retina surgery, to develop an integrated electronic medical records and image storage system with a billing software component. The software Coleman developed for the center was based on a medical billing program called Clinex that he wrote and marketed before he was hired. It was undisputed that Coleman incorporated the retina center’s proprietary information and trade secrets into his Clinex program to create the new software, dubbed Clinex-RE. It also was undisputed that Coleman owned Clinex and the center had only a nonexclusive license to use and sell it.

A few years after he was hired, Coleman and the retina center entered into an agreement that provided, in part, that Coleman would not distribute, vend or license to any ophthalmologist or optometrist Clinex software or any computer application competitive with the Clinex-RE software without the written consent of The Retina Eye Center.

Approximately five years after signing the employment agreement, Coleman left the retina center and began marketing the Clinex and Clinex-RE software to other ophthalmologists. Before he left, he took with him encryption keys required to install the Clinex-RE package, source and access codes, and manual/installation instructions.
The retina center filed suit for breach of contract to enforce its noncompete clause. The trial court issued an injunction prohibiting Coleman from marketing the software and Coleman appealed, claiming the restrictive covenant was unenforceable as a matter of law.

The noncompete clause was not limited as to time or geographical location, the Georgia Supreme Court found, so it was overbroad and unenforceable. But, even without a restrictive covenant, a contract is not required for an employer to maintain an action or to obtain injunctive relief for misappropriation of a trade secret, the court noted.

Because the Clinex-RE package was a trade secret belonging to The Retina Eye Center, the injunction properly prohibited Coleman from using it to compete with his former employer. He could not, however, be prohibited from using and marketing his own version of Clinex, the court ruled. Therefore, the trial court erred to the extent it imposed requirements on Coleman with respect to his personal program, the Supreme Court held, affirming in part and reversing in part the trial court’s order.
Coleman v. Retina Consultants, P.C., Ga., No. S09A1485 (Nov. 9, 2009).  

Professional Pointer: Courts do not favor noncompete clauses in employment contracts because they restrict an individual’s ability to work. All states require that these clauses be limited as to duration, geographical coverage and scope of activity, to be enforceable. Although some states will “blue pencil” noncompete agreements, severing the nonenforceable provisions or even rewriting them and enforcing the rest, Georgia is not one of those states, the Supreme Court said. If one provision is overbroad, the entire covenant fails. Employers that want to protect themselves from competition by former employees should see to it that restrictive covenants in employment contracts are drafted as narrowly as possible as to time, scope and place. 

SHRM Online Staff 11/19/09