• State Ban on Non-Competes. Effective July 1, 2023, Minnesota became the fourth state in the United States (following California, Oklahoma and North Dakota) to ban employment-related non-competes. The law specifically states that employers cannot avoid application of the law by choosing non-Minnesota law or venue in the agreement. • California Civil Actions. Effective January 1, 2024, California employees will be able to bring civil actions against any employer who subjects the employee to a post-employment non-compete. Aside from invalidating the non- compete, prevailing employees will be entitled to damages, attorneys’ fees and costs. Moreover, as of February 14, 2024, employers will be required to notify current and former employees subject to an unlawful non-compete that such non-compete is void. The notice must be in a written, individualized communication to any employee or former employee employed after January 1, 2022. Failure to comply may result in civil penalties under California law. • Pending New York Legislation. In June 2023, the New York State legislature approved a bill that would ban employment-related non-competes. On December 22, 2023, Governor Kathy Hochul vetoed the bill and recommended that non-competes be banned in the state for any employee earning under $250,000 per year. Revised legislation is expected in the future. Non-compete law varies drastically from state to state and continues to change rapidly. PE investors should continue to monitor these laws as they apply to the current operations of their portfolio companies and new states where they are looking to expand.
Non-Disparagement Clauses in the Wake of McLaren
The NLRB has taken the position that broad non-disparagement clauses for non-supervisors violate the National Labor Relations Act (the Act) because the clauses restrict the rights of non-supervisors to freely discuss (and criticize) the terms and conditions of their employment (commonly referred to as employees’ Section 7 rights where such rights for non-supervisory employees are found in the Act). In McLaren Macomb, 372 NLRB No. 58 (2023), the NLRB took the position that broad non-disparagement clauses in severance agreements unlawfully infringe on Section 7 rights of non- supervisory employees. The NLRB’s general counsel issued a memo thereafter stating that these non-disparagement clauses in employment agreements also would be considered a violation of an employee’s Section 7 rights. The NLRB also found that confidentiality clauses in severance agreements prohibiting the disclosure of the terms of a severance agreement infringe on Section 7 rights as well. The NLRB’s general counsel has stated that “a narrowly-tailored, justified, non-disparagement provision that is limited to employee statements about the employer that meet the definition of defamation as being maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity, may be found lawful.” This is obviously just a statement that employees may not defame their employer by stating something “maliciously untrue,” which employees are already prohibited from doing under common law. However, absent having agreed to a non-disparagement clause, employees may openly criticize their employer as long as such criticism does not include any false factual statements. Hence, there is a need for non-disparagement clauses. One particular challenge regarding healthcare services of which PE investors should be aware is the question of whether physicians and advanced practice providers (APPs) are “supervisors” for purposes of the Act. The Act defines “supervisor” as “any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.” Employers in the healthcare field often wish to take the position that physicians and APPs are supervisors under the Act because physicians and APPs “responsibly direct” other providers such as nurses or medical assistants while caring for patients. The current NLRB appears to be reluctant to accept that kind of direction as indicia of supervisory status and looks further for evidence of whether the physician or APP assigns the time and place of work or whether the record demonstrates that a nurse or medical assistant was actually hired, promoted, disciplined or fired solely based upon the recommendation of the physician or APP. If an argument for supervisory status relies on the fact that the
11 HEALTHCARE PRIVATE EQUITY: 2024 OUTLOOK & TRENDS IN M&A |
Powered by FlippingBook