EEOC Issues Long-Awaited Guidance on Harassment in the Modern Workplace

On September 29, 2023, the U.S. Equal Employment Opportunity Commission issued long-awaited enforcement guidance on workplace harassment. The “Proposed Enforcement Guidance on Harassment in the Workplace,” published in the Federal Register on October 2, 2023, advises employers on handling new workplace realties, including LGBTQ rights, online misconduct, abortion, and a number of different types of harassment.

This new guidance is the first voted document the EEOC has issued on harassment since its “Enforcement Guidance on Vicarious Liability for Unlawful Harassment by Supervisors” in 1999.

The EEOC’s new guidance responds to the changing workplace landscape and salient issues confronting employers as a result of the #MeToo movement, the COVID-19 pandemic, the overturning of Roe v. Wade, and the U.S. Supreme Court’s decision in Bostock v. Clayton County that sex discrimination includes bias on the basis of gender identity and sexual orientation.

LGBTQ Harassment

Consistent with its long-standing position amplified by the Bostock v. Clayton County decision, the EEOC guidance emphasizes that sex discrimination includes sexual orientation and gender identity.

For example, the guidance discusses misgendering as a type of actionable harassment, stating that refusing to use a name or pronoun “consistent with the individual’s gender identity” may constitute harassment. According to the EEOC, another potential form of sex-based harassment is refusing to allow an employee to use a bathroom that matches their gender identity.

Further, religious accommodations for employees with sincerely held religious beliefs do not include allowing an employee with such accommodations to create a hostile work environment for an LGBTQ co-worker. In other words, the obligation to accommodate an employee’s religious beliefs does not extend to religious beliefs that infringe on another employee’s protected category.

Online Harassment

The EEOC guidance also addresses remote work, teleconferencing, and social media issues that have grown out of the way employees work coming out of the COVID-19 pandemic. The guidance emphasizes that conduct within a virtual work environment can contribute to a hostile work environment.

Going a step further, the EEOC also notes that employers may be liable for harassment occurring online, even if only over employees’ private social media accounts. If put on notice of the conduct, the employer may need to take remedial steps or disciplinary action against the offending employee for their non-workplace and non-worktime conduct.

Harassment Based on Reproductive Decision-Making

The draft guidance notes that sex-based harassment includes mistreatment based on an employee’s pregnancy and reproductive decisions, such as decisions about contraception or abortion. This is consistent with the EEOC’s longtime stance that terminating a pregnancy constitutes a pregnancy-related condition protected under the law.

The EEOC’s proposed guidance, which remains open for public comment until November 1, 2023, covers a number of other topics. Given the comprehensive guidance and constantly changing landscape of the modern workplace, employers are strongly encouraged to seek advice of counsel to ensure compliant policies and practices. Employers’ harassment policies in particular should be carefully reviewed in light of this guidance, including policies on religion, race, and national origin, in addition to sexual harassment policies.

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Sexual Harassment Prevention Training Deadline Approaches for Chicago Employers

As a reminder to employers in Chicago, anti-sexual harassment training is required by Chicago’s Human Rights Ordinance and must be completed by July 1, 2023.  This requirement applies to all Chicago employers, regardless of size or industry.

The training consists of one (1) hour of anti-sexual harassment training for all non-supervisory employees and two (2) hours of anti-sexual harassment training for supervisory employees.  Regardless of supervisory status, all employees must also undergo one (1) hour of bystander training.  Employers must provide training on an annual basis.  Additional information about training requirements can be found here. Employers who fail to comply may be subject to penalties.

© 2023 Vedder Price

Michigan House Moves Quickly to Repeal Michigan Right to Work Act

The Michigan House of Representatives moved quickly yesterday to advance legislation repealing Michigan’s Right to Work law, which has been in effect for the last decade. Right to Work prohibits the inclusion of a clause in a union labor contract that conditions access to employment (and continued employment) on becoming and remaining a Union member in good standing. Before enactment of Michigan’s Right to Work law, Unions could legally negotiate a union security clause into a labor contract. In a nutshell, union security means that employees performing work covered by a labor contract must join the union and remain in good standing with the union or be terminated. On March 8, the House passed both House Bill 4005 (private sector unions) and House Bill 4004 (public sector unions). The bills will now be taken up by the Michigan State Senate.

What Does Repeal of Right to Work Mean for Michigan Companies?

If Right to Work is repealed, employers with Union labor contracts can expect requests to meet and bargain regarding union security clauses. If repealed, existing labor contracts will not be presumed to include such clauses. Rather, union security clauses and the terms and scope of such provisions are a subject of negotiation. Existing labor contracts should be reviewed with labor counsel to determine the employer’s obligations to engage in mid-contract bargaining on this important topic. Labor contracts on this issue vary. For example, labor contracts may contain:

  • A union security clause that becomes effective upon a change in the law;
  • An obligation to meet and negotiate with the Company upon a change in the law; or,
  • The labor contract may be silent on the issue.
© 2023 Varnum LLP

The NLRB Curtails the Scope of Nondisparagement and Confidentiality Provisions in Severance Agreements

On Tuesday, February 21, 2023, the National Labor Relations Board (“NLRB” or “Board”) issued McLaren Macomb, a decision that curtails the permissible scope of confidentiality agreements and non-disclosure provisions in severance agreements. See McLaren Macomb, 372 NLRB No. 58 (2023). Analyzing the broad provisions in the agreements at issue in this case, the Board held that simply offering employees severance agreements that require employees to broadly waive their rights under Section 7 of the National Labor Relations Act (“NLRA” or “the Act”) was unlawful. The Board held:

Where an agreement unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights, the mere proffer of the agreement itself violates the Act, because it has a reasonable tendency to interfere with or restrain the prospective exercise of Section 7 rights, both by the separating employee and those who remain. Whether the employee accepts the agreement is immaterial.

The Board’s decision is part of a broader trend by courts and administrative agencies applying heightened scrutiny to contractual provisions that limit employees’ rights. The decision also provides a crucial reminder to union and nonunion workers alike of the relevance of federal labor law in providing legal protections for most private-sector workers.

Case Background

The case arose when Michigan hospital operator McLaren Macomb permanently furloughed eleven employees, all bargaining unit members of Local 40 RN Staff Council, Office of Professional Employees International Union (OPEIU), AFL-CIO, because it had terminated outpatient services during the COVID-19 pandemic in June 2020. After McLaren Macomb furloughed these employees, it presented them with a “Severance Agreement, Waiver and Release” that offered severance amounts to the employees if they signed the agreement. All eleven employees signed.

The agreements provided broad language regarding confidentiality and nondisparagement. The confidentiality provision stated, “The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouse, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.” (emphasis added). The non-disclosure provision provided, in relevant part, “At all times hereafter, the Employee agrees not to make statements to Employer’s employees or to the general public which could disparage or harm the image of Employer…” The employees faced substantial financial penalties if they violated the provisions. The Employer conditioned the payment of severance on Employees’ entering into this agreement.

The NLRB’s Decision

In McLaren Macomb, the Board held that simply offering employees severance agreements that contain these broad confidentiality and nondisparagement provisions violates the NLRA.

The NLRA provides broad protections of employees’ rights to engage in collective action. Section 7 of the NLRA vests employees with a number of rights, including the right “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Section 8(a)(1) of the Act makes it an unfair labor practice (ULP) for an employer to “interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 7.” As the Supreme Court, federal courts, and the NLRB have repeatedly held and reaffirmed, Section 7 provides broad rights for employees and former employees—union and nonunion alike—to engage in collective action, including discussing terms and conditions of employment and workplace issues with coworkers, a union, and the Board. As the Supreme Court has stated in elaborating on the broad construction of Section 7, “labor’s cause often is advanced on fronts other than collective bargaining and grievance settlement within the immediate employment context.” Eastex, Inc. v. N.L.R.B., 437 U.S. 556, 565 (1978).

Applying these foundational principles to the severance agreements at hand, the Board reversed Trump-era NLRB precedent and concluded that the employer’s proffer of these broad nondisparagement and confidentiality provisions contravened the employees’ exercise of Section 7 rights, which is an unfair labor practice under Section 8(a)(1). Notably, the Board held that an employer’s merely offering such broad provisions violates the Act—it does not matter whether the employee signs the agreement or not.

The Board determined that the nondisparagement provision substantially interfered with employees’ Section 7 rights on its face. That provision prohibits the furloughed employee from making any “statements to [the] Employer’s employees or the general public which could disparage or harm the image of [the] Employer.” Analyzing this language, the Board reasoned that the provision would encompass employee conduct or critiques of the employer regarding any labor issue, dispute, or term and condition of employment. Accordingly, this proscription sweeps far too broadly—it prohibits employees from exercising their right to publicize labor disputes, a right which is protected by the Act. Moreover, the nondisparagement provision chills employees from exercising Section 7 rights, including efforts to assist fellow employees, cooperate with the Board’s investigation and litigation of unfair labor practices, and raise or assist in making workplace complaints to coworkers, their union, the Board, the media, or “almost anyone else.” As the Board underscored, “Public statements by employees about the workplace are central to the exercise of employee rights under the Act.”

The Board then concluded that the confidentiality provision also interfered with employees’ Section 7 rights in at least two ways. First, the Board explained that because the confidentiality provision prohibits the employee from disclosing the terms of the agreement “to any third person,” the agreement would reasonably tend to coerce the employee not to file a ULP charge with the Board or assist in a Board investigation. (emphasis added). Second, the same language would also prohibit the furloughed employee from discussing the terms of the agreement with former coworkers in similar situations, which would frustrate the mutual support between employees at the heart of the Act. As the Board summarized, “A severance agreement is unlawful if it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment.”

Takeaways for Employment Lawyers and Plaintiffs

First, while one might assume that labor law is exclusively the province of unions, their members, and their lawyers, McLaren Macomb demonstrates the relevance of the NLRA for employees regardless of union status. Although the workers in this case were unionized, the Section 7 rights at the heart of the NLRA apply to most private-sector employees, including nonunion employees. Indeed, because nonunion workers often have fewer workplace protections than their unionized counterparts, Section 7’s protections are critically important for nonunion employees. Employees who are asked to sign confidentiality and nondisparagement provisions and their attorneys should be aware that broad restrictions on employees’ concerted activity may be illegal.

Second, this decision is part of a broader effort to protect workers from being muzzled by their employers. For instance, the recent federal Speak Out Act establishes that predispute nondisclosure clauses and nondisparagement clauses—often included in employment contracts—are unenforceable in disputes involving sexual assault or sexual harassment. These recent developments in the law should be on the radar of workers and their attorneys who are navigating employer’s contracts, policies, handbooks, and proposed severance agreements.

Katz Banks Kumin LLP Copyright ©

EEOC Announces Enforcement Priorities for 2023-2027

On Tuesday January 10, 2023, the Equal Employment Opportunity Commission (“EEOC”) publicly released its Draft Strategic Enforcement Plan (“SEP”) for fiscal years 2023-2027. The SEP describes the EEOC’s top enforcement priorities, making it critical information for employers around the country.

The Draft SEP sets out the EEOC’s six subject matter priorities for fiscal years 2023-2027:

  1. Eliminating Barriers in Recruitment and Hiring;

  2. Protecting Vulnerable Workers and Persons From Underserved Communities From Employment Discrimination;

  3. Addressing Emerging and Developing Issues;

  4. Enforcing Equal Pay Laws;

  5. Preserving Access to the Legal System; and

  6. Preventing Harassment Through Systemic Enforcement and Targeted Outreach.

With respect to the first category, “Eliminating Barriers in Recruitment and Hiring,” the Draft SEP states the EEOC will focus on “the use of automatic systems, including artificial intelligence or machine learning, to target advertisements, recruit applicants, or make or assist in hiring decisions where such systems intentionally exclude or adversely impact protected groups.” The Draft SEP also expressly emphasizes the “lack of diversity” in both the construction and tech industries, noting the EEOC’s priority will typically involve systemic cases, though claims by an individual or small group may qualify for enforcement focus if it raises a policy, practice, or pattern of discrimination. Employers should note the EEOC’s decision to focus on AI and the tech industry demonstrates a heightened priority on remedying and preventing discrimination from automated and electronic screening tools used in hiring practices and employment decisions.

On January 31, 2023, the EEOC held a public hearing titled “Navigating Employment Discrimination in AI and Automated Systems: A New Civil Rights Frontier” where higher education professors, nonprofit organization representatives, attorneys, and workforce consultants prepared statements regarding the EEOC’s new focus.

The Draft SEP includes specific details regarding the types of hiring practices and policies that the agency seeks to scrutinize. For example, the EEOC aims to prevent employers from isolating and separating workers in certain jobs or job duties based on membership in a protected class. The EEOC plans to achieve this goal by identifying vulnerable workers for more focused attention. In addition, the EEOC will scrutinize practices which limit access to work opportunities, such as (1) job postings which either exclude or discourage some protected groups from applying, and (2) denying training, internships, or apprenticeships based on protected status. The Draft SEP also prioritizes preventing employers from denying opportunities to move from temporary to permanent roles.

As for the second category, “Protecting Vulnerable Workers and Persons From Underserved Communities From Employment Discrimination,” the Draft SEP expands the ”vulnerable worker priority” to include categories of workers who, according to the EEOC, “may be unaware of their rights . . . or reluctant or unable to exercise their legally protected rights.” These categories include workers with intellectual and developmental disabilities, individuals with arrest or conviction records, LGBTQI+ individuals, pregnant workers, individuals with pregnancy-related medical conditions, temporary workers, older workers, individuals employed in low-wage jobs, and persons with limited literacy or English proficiency. The Draft SEP proposes that district EEOC offices and the agency’s federal sector program will identify vulnerable workers and underserved communities in their districts or within the federal sector for focused attention. Employers should be aware that the “vulnerable workers” focused on under this category may vary based on location.

The Draft SEP’s third category, “Addressing Emerging and Developing Issues,” includes a focus on (1) qualification standards and inflexible policies or practices that discriminate against individuals with disabilities, (2) protecting individuals affected by pregnancy, childbirth, and related medical conditions under the Pregnancy Discrimination Act, the Americans with Disabilities Act, and the newly enacted Pregnant Workers Fairness Act, (3) employment issues relating to backlash in response to local, national, or global events, and (4) “employment discrimination associated with the COVID-19 pandemic.” The priorities for the EEOC’s COVID-19-related enforcement in this category include:

  • pandemic related harassment, particularly against individuals of Asian descent;

  • unlawful denials of accommodations to individuals with disabilities;

  • unlawful medical inquiries, improper direct threat determinations, or other discrimination related to disabilities that arose during or were exacerbated by the pandemic; and

  • discrimination against persons who have an actual disability or are regarded as having a disability related to COVID–19, including individuals with long COVID, and pandemic-related caregiver discrimination based on a protected characteristic

With respect to the fourth category, “Enforcing Equal Pay Laws,” the Draft SEP sets out a focus on pay discrimination based on any protected category. The Draft SEP also states the EEOC may use “Commissioner Charges and directed investigations” to enforce equal pay. Notably, the EEOC has been hesitant to use Commissioner Charges in the past, as they comprise of less than 1% of annual charge volume since 2015. However, Commissioner Charges may become necessary to identify and remedy discrimination based on artificial intelligence or machine learning, as outlined in the first category.

The fifth and sixth categories remain largely unchanged from prior EEOC SEPs. The focus for the fifth category, preserving access to the legal system, will continue to identify and target (1) overly broad waivers, releases, non-disclosure and non-disparagement agreements; (2) improper mandatory arbitration provisions; (3) employers failure to keep proper records; and (4) improper retaliatory practices. As for the final category, the EEOC will continue to focus on promoting comprehensive anti-harassment programs and practices.

The EEOC will vote on a final version of the SEP following the public notice and comment period, which concludes on February 9, 2023.

Copyright © 2023, Sheppard Mullin Richter & Hampton LLP.

SECURE 2.0 Act Brings Slate of Changes to Employer-Sponsored Retirement Plans

In December, the SECURE 2.0 Act of 2022 (“SECURE 2.0”) was passed, a package of retirement provisions providing comprehensive updates and changes to the SECURE Act of 2019. The legislation includes some key changes that affect employer-sponsored defined contribution plans, such as profit-sharing plans, 401(k) plans, 403(b) plans and stock bonus plans. While some of the changes are effective immediately upon the law’s enactment, most required changes are not effective before the plan year beginning on or after January 1, 2024, so employer sponsors have time to prepare for compliance.

Required Changes

Mandatory automatic enrollment in new plans.

Plan sponsors are currently allowed to provide for automatic enrollment and automatic escalation in 401(k) and 403(b) plans. SECURE 2.0 requires new 401(k) and 403(b) plans to automatically enroll participants at a new default rate, and to escalate participants’ deferral rate each year, up to a maximum of 15%, with some exceptions for new and small businesses. This provision applies to new plans with initial plan years beginning after December 31, 2024.

Changes to long-term part-time employee participation requirements.

The Act currently requires 401(k) plans to permit participation in the deferral part of the plan only by an employee who worked at least 500 hours (but less than 1000 hours) per year for three consecutive years. SECURE 2.0 changes this participation requirement by long-term part-time employees working more than 500, but less than 1000, hours per year to two consecutive years instead of three. However, this two-year provision does not take effect until January 1, 2025, which means the original SECURE Act three-year provision still applies for 2024. Employers should start tracking hours for part-time employees to determine whether they will be eligible in 2024 or 2025 under this provision. For vesting purposes, pre-2021 service is disregarded, just as service is disregarded for eligibility purposes. This provision is applicable to 401(k) plans and 403(b) plans that are subject to ERISA and does not apply to collectively bargained plans. This provision applies to plan years beginning after December 31, 2024.

Changes to catch-up contributions limits.

If a defined contribution plan permits participants who have attained age 50 to make catch-up contributions, the catch-up contributions are now required to be made on a Roth basis for participants who earn at least $145,000 (indexed after 2024) or more in the prior year. This provision is effective for taxable years beginning after December 31, 2023.

Changes to the required minimum distribution (RMD) age.

Currently, required minimum distributions must begin at age 72 for participants who have terminated employment. SECURE 2.0 increases the age to age 73 starting on January 1, 2023, and to age 75 starting on January 1, 2033. This means that participants who turn 72 in 2023 are not required to take an RMD for 2023; instead, they will be required to start taking RMDs for calendar year 2024, the year in which they turn 73. This provision is effective for distributions made after December 31, 2022, for individuals who turn 72 after that date.

Early withdrawal tax exemption for emergency withdrawal expenses.

SECURE 2.0 provides for an exception from the 10% early withdrawal tax on emergency expenses, defined as certain unforeseeable or immediate financial needs, on a limited basis (once per year, up to $1000). Plans may allow an optional three-year payback period, and participants are restricted from taking another emergency withdrawal within three years of any unpaid amount on a previous withdrawal. This provision is effective for plan years beginning on or after January 1, 2024.

Changes to automatic enrollment for new plans.

Almost all new defined contribution plans will be required to auto-enroll employees upon hire (existing plans are exempt from this provision). This provision is applicable for plan years beginning on or after January 1, 2025.

Optional Changes

Additional catch-up contribution opportunities.

Currently, the catch-up contribution limits for certain plans are indexed for inflation and apply to employees who have reached the age of 50. SECURE 2.0 increases catch-up contribution limits for individuals aged 60-63 to the greater of: (1) $10,000 (indexed for inflation), or (2) 50% more than the regular catch-up amount in effect for 2024. This provision is effective for plan years beginning on or after January 1, 2025.

Additional employer contributions to SIMPLE IRA plans.

Current law requires employers with SIMPLE IRA plans to make employer contributions to employees of either 2% of compensation or 3% of employee elective deferral contributions. SECURE 2.0 allows employers to make additional contributions to each employee of a SIMPLE plan in a uniform manner, provided the contribution does not exceed the lesser of up to 10 percent of compensation or $5,000 (indexed). This provision is effective for taxable years beginning after December 31, 2023.

Replacing SIMPLE IRA plans with safe harbor 401(k) plans.

The new law also permits an employer to elect to replace a SIMPLE IRA plan with a safe harbor 401(k) plan at any time during the year, provided certain criteria are met. The current law prohibits the replacement of a SIMPLE IRA plan with a 401(k) plan mid-year. This provision also includes a waiver of the two-year rollover limitation in SIMPLE IRAs converting to a 401(k) or 403(b) plan. This change is effective for plan years beginning after December 31, 2023.

Increasing involuntary cash-out threshold.

Currently plans may automatically cash-out a vested participant’s benefit that is between $1,000 and $5,000 and roll this amount over to an IRA. SECURE 2.0 allows plans to increase the $5,000 involuntary cash-out limit amount to $7,000. This provision of the law is effective for distributions made after December 31, 2023.

Relaxation of discretionary amendment deadline.

Under current law, a discretionary plan amendment must be adopted by the end of the plan year in which it is effective. SECURE 2.0 allows plans to make discretionary plan amendments to increase benefits until the employer’s tax filing deadline for the immediately preceding taxable year in which the amendment is effective. This applies to stock bonus, pension, profit-sharing or annuity plans to increase benefits for the preceding plan year. This provision is effective for plan years beginning after December 31, 2023.

Elimination of unnecessary plan notices to unenrolled participants.

SECURE 2.0 eases the administrative burden on plan sponsors by eliminating unnecessary plan notices to unenrolled participants. Under the amended law, plan sponsor notices to unenrolled participants may consist solely of an annual notice of eligibility to participate during the annual enrollment period, as opposed to numerous notices from the plan sponsor. This provision is effective for plan years beginning after December 31, 2022.

Crediting of student loan payments as elective deferrals for purposes of matching contributions.

Under SECURE 2.0, student loan payments may be treated as elective deferrals for the purposes of matching contributions to a retirement plan. This provision is available for plan years beginning on or after January 1, 2024.

Matching contributions designated as Roth contributions.

Previously, employer matching contributions could not be made as Roth contributions. Effective on the date of the enactment of SECURE 2.0, 401(a), 403(b), or governmental 457(b) plans may allow employees the option to designate matching contributions as Roth contributions.

Expansion of the Employee Plans Compliance Resolution System (EPCRS).

Currently, EPCRS contains procedures to self-correct certain limited, operational failures that are insignificant and corrected within a three-year period. SECURE 2.0 expands this, generally permitting any inadvertent failure to be self-corrected under EPCRS within a reasonable period after the failure is identified, without a submission to the IRS, subject to some exceptions. This provision went into effect on the date of enactment.

Recoupment of overpayments.

Currently, fiduciaries for plans that have mistakenly overpaid a participant must take reasonable steps to recoup the overpayment (for example, by collecting it from the participant or employer) to maintain the tax-qualified status of the plan and comply with ERISA. Under SECURE 2.0, 401(a), 403(a), 403(b), and governmental plans (not including 457(b) plans) will not lose tax qualification merely because the plan fails to recover an “inadvertent benefit overpayment” or otherwise amends the plan to permit this increased benefit. In certain cases, the overpayment is also treated as an eligible rollover distribution. This provision became effective upon enactment with certain retroactive relief for prior good faith interpretations of existing guidance.

Simplified plan designs for “starter” 401(k) and 403(b) plans.

Effective for plan years beginning after December 31, 2023, SECURE 2.0 creates two new plan designs for employers who do not sponsor a retirement plan: a “starter 401(k) deferral-only arrangement” and a “safe harbor 403(b) plan.” These plans would generally require that all employees be enrolled in the plan with a deferral rate of three percent to 15 percent of compensation.

Financial incentives for contributions.

SECURE 2.0 allows participants to receive de minimis financial incentives (not paid for with plan assets) for contributing to a 401(k) or 403(b) plan. Previously, plans were prohibited from offering financial incentives (other than matching contributions) to employees for contributing to a plan. This provision became effective for plan years starting after the date of enactment.

When do employers need to amend their plans for the SECURE Act, CARES Act, and SECURE 2.0 (“the Acts”)?

If a retirement plan operates in accordance with the Acts, plan amendments must be made by the end of the 2025 plan year (or 2027 for governmental and collectively bargained plans). (The amendment deadlines for SECURE and CARES were extended late last year.)

© 2023 Varnum LLP

SCOTUS Takes a Pass on “Gap Time” Dispute

It’s two months into argument season at the Supreme Court, and we’re always keeping our fingers crossed that the justices will take up a wage and hour issue and clear up some ambiguities in the law or a circuit split.

Top billing this SCOTUS term goes to Helix Energy Solutions Group, Inc. v. Hewitt, in which the Court will address whether a supervisor who earned more than $200,000 a year but was paid on a daily basis is exempt from the overtime laws as a “highly compensated employee” under 29 C.F.R. § 541.601, notwithstanding the salary basis rules in 29 C.F.R. § 541.602 and 29 C.F.R. § 541.604.  The Court held arguments on October 12, and you can read the transcript here.  We’ll report on that decision as soon as it’s published.

This week’s news is a denial of a petition for a writ of certiorari in Cleveland County, North Carolina v. Conner, a case about gap time.  The plaintiff in the case—an EMT worker—was paid under a fairly complex set of ordinance-based and contractual terms, but the gist of her claim was that the county shorted her on straight-time pay she was owed under her contract, and by doing do violated the Fair Labor Standards Act.  The district court dismissed the claim, on the ground that the FLSA governs minimum wage and overtime pay, but not straight-time pay (assuming no minimum wage violation).  On appeal, however, the Fourth Circuit noted that “there are situations … that fall between [the minimum wage and overtime] provisions of the FLSA.  It explained:

In addition to seeking unpaid overtime compensation, employees may seek to recover wages for uncompensated hours worked that fall between the minimum wage and the overtime provisions of the FLSA, otherwise known as gap time ….  Gap time refers to time that is not directly covered by the FLSA’s overtime provisions because it does not exceed the overtime limit, and to time that is not covered by the FLSA’s minimum wage provisions because … the employees are still being paid a minimum wage when their salaries are averaged across their actual time worked.  (Internal citations and alterations omitted.)

The Court of Appeals differentiated between two types of gap time—“pure gap time” and “overtime gap time”—with the former referring to unpaid straight time in a week in which an employee works no overtime, and the latter referring to unpaid straight time in a week in which the employee works overtime.  The court noted, correctly, that no provision of the FLSA addresses gap time of either type, and that there is no cause of action under the FLSA for “pure gap time” absent a minimum wage or overtime violation by the employer.  Such claims would arise, if at all, under state law.

On the other hand, the circuit court noted that courts are divided on whether an employee can bring an “overtime gap time claim” under the FLSA.  While the statute itself is silent on the issue, the U.S. Department of Labor’s interpretation of the FLSA—set forth in 29 C.F.R. § 778.315—states that:

[C]ompensation for … overtime work under the Act cannot be said to have been paid to an employee unless all the straight time compensation due him for the nonovertime hours under his contract (express or implied) or under any applicable statute has been paid.

In its simplest sense, the argument for recognizing “overtime gap time” claims under the FLSA is this:  Say an employer promises an overtime-eligible employee base pay of $1,000 per week for up to 40 hours of work, and the employee works more than 40 hours in a given week.  In that scenario, the employee’s hourly overtime rate would by $37.50 ($1000 ÷ 40 yields a regular rate of $25, and time-and-a-half on $25 is $37.50).  But if the employer only pays the employee $800 in base pay for the week and not the promised $1,000, the regular rate becomes $20 ($1000 ÷ 40) and the hourly overtime rate becomes $30 (time-and-a-half on $20).  So the employee is short-changed $7.50 on each overtime hour, which the Fourth Circuit found violates 29 C.F.R. § 778.315 and the spirit, if not the letter, of the FLSA.

“Pure gap time” is different, in this important sense:  it only arises when the employee has not worked any overtime in the week.  So there is no possibility of short-changing the employee on overtime pay, and—assuming the employee has, on average, received the minimum wage for all hours worked that week—no other provision of the FLSA that provides any relief.  (The employee is ostensibly free to seek relief under an applicable state wage payment law or common law for failure to pay promised compensation.)

The Fourth Circuit concluded that 29 C.F.R. § 778.315 has the “power to persuade,” and therefore is entitled to “considerable deference” under Skidmore v. Swift & Co., 323 U.S. 134 (1944).  As such, the court held that “overtime gap time claims” are indeed cognizable under the FLSA, and that “courts must ensure employees are paid all of their straight time wages first under the relevant employment agreement, before overtime is counted.”  The court acknowledged a circuit split on the issue, with the Second Circuit declining to afford deference to 29 C.F.R. § 778.315 and rejecting “overtime gap time” claims as lacking a statutory basis (“So long as an employee is being paid the minimum wage or more, [the] FLSA does not provide recourse for unpaid hours below the 40–hour threshold, even if the employee also works overtime hours the same week.”).

The county filed a petition for a writ of certiorari with the Supreme Court, presenting not only the question of whether the FLSA permits “overtime gap time” but also seeking clarification on how federal courts should apply the Skidmore doctrine to agency interpretations such as 29 C.F.R. § 778.315.  The Supreme Court denied the petition on December 12, leaving both questions for another day.

© 2022 Proskauer Rose LLP.
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Washington State’s Pay Transparency Law Takes Effect January 1, 2023

Effective January 1, 2023, Washington employers must comply with SB 5761, commonly known as Washington’s Pay Transparency Law, signed by Governor Jay Inslee on March 30, 2022. SB 5761 amends Washington’s Equal Pay and Opportunity Act (RCW 49.58) to require employers with 15 or more employees to include in each job posting the wage scale or salary range of the job and a general description of all of the benefits offered and to identify other compensation offered. The law also requires employers to provide existing employees who are promoted or offered a new position with the wage scale or salary range of the new position.

IN DEPTH


Washington’s Equal Pay and Opportunity Act currently only requires employers to provide applicants with the minimum wage or salary for the position they seek and only upon the applicant’s request after the employer makes the job offer.

WHAT IS THE PAY TRANSPARENCY LAW?

Effective January 1, 2023, employers must disclose in each posting for each job opening the wage scale or salary range and a general description of all benefits and other compensation to offered to the hired applicant.

Job postings mean “any solicitation included to recruit job applicants for a specific available position,” and electronic or hard-copy records that describe the desired qualifications, whether the employer solicits applicants directly or indirectly through a third party.

Washington’s Department of Labor and Industries (DLI) has published a draft administrative policy that provides employers with guidance on compliance.

WHICH EMPLOYERS ARE COVERED?

The law applies to employers with 15 or more employees.

DLI’s guidance clarifies that the law applies to all employers with 15 or more employees, engaging in any business, industry, profession or activity in Washington. The 15-employee threshold for covered employers “includes employers that do not have a physical presence in Washington, if the employer has one or more Washington-based employees.” This law applies to employers even if they do not have a physical presence in Washington but engage in business in Washington or recruit for jobs that could be filled by a Washington-based employee.

WHAT MUST EMPLOYERS INCLUDE IN THE POSTING?

Employers must disclose in each posting for each job opening:

  • The opening wage scale or salary range
  • A general description of all benefits and other compensation offered.

Per the DLI’s guidance, employers must make these disclosures in postings for remote work that could be performed by a Washington-based employee. Employers cannot avoid these disclosure requirements by stating in the posting that it will not accept Washington applicants.

Wage Scale or Salary Range

The DLI’s guidance identifies examples of information that should be included in a posting.

A wage scale or salary range should provide the applicant with the employer’s most reasonable and genuinely expected range of compensation for the job, extending from the lowest to the highest pay established by the employer prior to publishing the job posting. If the employer does not have an existing wage scale or salary range for a position, the scale or range should be created prior to publishing the job posting. For example, the scale or range’s minimum and maximum should be clear without open-ended phrases such as “$60,000/per year and up” (with no top of the range), or “up to $29.00/hour” (with no bottom of the scale).

Employers should update the posting to reflect any changes to the wage scale or salary range. If the employer offers a different position than what the applicant applied for, the employer may offer the applicant the wage scale or salary range specific to the position offered, rather than the position in the posting.

If an employer intends to implement a “starting range” or “starting rate” for an initial timeframe of employment or probationary period, the starting range or rate may be listed on the posting, but the entire scale or range must also be listed on the posting.

If an employer publishes a job posting for a job opening that can be filled with varying job titles, depending on experience, the employer should specify all potential wage scales or salary ranges that apply. The job posting should clearly define the lowest to highest pay established for each potential job position, as indicated in the example below:

  • Accounting Analyst 1: $27.00 – $29.00 per hour
  • Accounting Analyst 2: $65,000 – $75,000 per year
  • Accounting Analyst 3: $80,000 – $95,000 per year.

If an employer posts a job that is compensated by commission rates, the employer should include the rate or rate range (percentage or otherwise) that it would offer to the hired applicant, as indicated in the example below:

  • Commission-based salesperson: 5–8% of net sale price per unit.

General Description of All Benefits 

A general description of all benefits includes, but is not limited to, healthcare benefits, retirement benefits, any benefits permitting paid days off (including more-generous paid sick leave accruals, parental leave, and paid time off or vacation benefits), and any other benefits that must be reported for federal tax purposes, such as fringe benefits.

If the general description of all benefits changes after an employer has published a posting and the posting remains published, the employer should update the posting.

If insurance or retirement plans are included as part of the position’s benefits package, employers should list the types of insurance and retirement plans in the job posting, such as medical insurance, vision insurance, 401k and employer-funded retirement plan. Similarly, if an employer offers paid vacation, paid holidays or paid sick leave benefits, employers should list in detail the amount of days or hours offered for each benefit.

The DLI’s example of a general description of all benefits is as follows:

  • “Employees (and their families) are covered by medical, dental, vision, and basic life insurance. Employees are able to enroll in our company’s 401k plan, as well as a deferred compensation plan. Employees will also receive eight hours of vacation leave every month, as well as eight hours of Washington paid sick leave every month. Employees will also enjoy twelve paid holidays throughout the calendar year. Two weeks of paid parental leave will also be available for use after successful completion of one year of employment.”

General Description of Other Compensation 

Other compensation includes, but is not limited to, any discretionary bonuses, stock options or other forms of compensation that would be offered to the hired applicant in addition to their established salary range or wage scale. Some forms of other compensation can include, but are not limited to, commissions, bonuses, profit-sharing, merit pay, stock options, travel allowance, relocation assistance and housing allowance.

Employers need only describe the other compensation and need not include the total monetary value of the other compensation in a job posting. However, employers who choose to include the total monetary value of other compensation in a job posting must also include the required general description of benefits and other compensation in addition to the wage scale or salary range.

The DLI’s example of a general description of other compensation is as follows:

  • “Hired applicant will be able to purchase company stock, receive annual bonuses, and can participate in profit-sharing. Hired applicant will also receive an equity grant in the form of either a direct grant of stock that will be specified in the employment contract or an option to purchase stock in the future for a specified price.”

In electronic job postings, the posting must have the general description of the benefits and other compensation, but employers can use a link to provide a more detailed description of benefits and other compensation. However, “it is the employer’s responsibility to assure continuous compliance with functionality of links, up-to-date information, and information that applies to the specific job posting, regardless of any use of third-party administrators.”

WHAT ARE THE CONSEQUENCES OF NONCOMPLIANCE?

Where an employer is out of compliance with this law, applicants and employees will be able to file a complaint with the DLI or file a civil lawsuit against the employer in court.

If applicants or employees file a complaint with the DLI, the DLI may issue a citation and/or notice of assessment and order the employer to pay to the complainant actual damages, double statutory damages (or $5,000, whichever is greater), interest of 1% per month on compensation owed, payment to the department for the costs of investigation and enforcement, and other appropriate relief. The DLI may also order an employer to pay civil penalties in response to complaints, ranging from $500 for a first violation to $1,000 or 10% of damages (whichever is greater) for a repeat violation.

If applicants or employees file a civil lawsuit, remedies may include actual damages, double statutory damages (or $5,000, whichever is greater), interest of 1% per month on compensation owed, and reimbursement of attorneys’ fees and costs. Recovery of wages and interest will be calculated back four years from the last violation.

Note: This alert was drafted based on Washington State’s Department of Labor & Industries’ Draft Administrative Policy, which may be superseded by a revised final version before January 1, 2023. 

© 2022 McDermott Will & Emery

IRS and Treasury Department Release Initial Guidance for Labor Requirements under Inflation Reduction Act

On November 30, 2022, the IRS and the Treasury Department published Notice 2022-61 (the Notice) in the Federal Register. The Notice provides guidance regarding the prevailing wage requirements (the Prevailing Wage Requirements) and the apprenticeship requirements (the Apprenticeship Requirements and, together with the Prevailing Wage Requirements, the Labor Requirements), which a taxpayer must satisfy to be eligible for increased amounts of the following clean energy tax credits under the Internal Revenue Code of 1986 (the Code), as amended by the Inflation Reduction Act of 2022 (the “IRA”):

  • the alternative fuel vehicle refueling property credit under Section 30C of the Code (the Vehicle Refueling PC);
  • the production tax credit under section 45 of the Code (the PTC);
  • the energy efficiency home credit under section 45L of the Code;
  • the carbon sequestration tax credit under section 45Q of the Code (the Section 45Q Credit);
  • the nuclear power production tax credit under section 45U of the Code;
  • the hydrogen production tax credit under section 45V of the Code (the Hydrogen PTC);
  • the clean electricity production tax credit under section 45Y of the Code (the Clean Electricity PTC);
  • the clean fuel production tax credit under section 45Z of the Code;
  • the investment tax credit under section 48 of the Code (the ITC);
  • the advanced energy project tax credit under section 48C of the Code; and
  • the clean electricity production tax credit under section 48E of the Code (the Clean Electricity ITC).[1]

We discussed the IRA, including the Labor Requirements, in a previous update.

Start of Sixty-Day Period

The IRA provides an exemption from the Labor Requirements (the Exemption) for projects and facilities otherwise eligible for the Vehicle Refueling PC, the PTC, the Section 45Q Credit, the Hydrogen PTC, the Clean Electricity PTC, the ITC, and the Clean Electricity ITC, in each case, that begin construction before the sixtieth (60th) day after guidance is released with respect to the Labor Requirements.[2] The Notice provides that it serves as the published guidance that begins such sixty (60)-day period for purposes of the Exemption.

The version of the Notice that was published in the Federal Register on November 30, 2022, provides that the sixtieth (60th) day after the date of publication is January 30, 2023. January 30, 2023, however, is the sixty-first (61st) day after November 30, 2023; January 29, 2023 is the sixtieth (60th) day. Currently, it is unclear whether the Notice erroneously designated January 30, 2023 as the sixtieth (60th) day or whether the additional day to begin construction and qualify for the Exemption was intended, possibly because January 29, 2023 falls on a Sunday. In any event, unless and until clarification is provided, we expect conservative taxpayers planning to rely on the Exemption to start construction on creditable projects and facilities before January 29, 2023, rather than before January 30, 2023.[3]

Beginning Construction for Purposes of the Exemption

The Notice describes the requirements for a project or facility to be deemed to begin construction for purposes of the Exemption. As was widely expected, for purposes of the PTC, the ITC, and the Section 45Q Credit, the Notice adopts the requirements for beginning of construction contained in previous IRS notices (the Prior Notices).[4] Under the Prior Notices, construction of a project or facility is deemed to begin when physical work of a significant nature begins (the Physical Work Test) or, under a safe harbor, when five percent or more of the total cost of the project or facility is incurred under the principles of section 461 of the Code (the Five Percent Safe Harbor). In addition, in order for a project or facility to be deemed to begin construction in a particular year, the taxpayer must demonstrate either continuous construction or continuous efforts until the project or facility is completed (the Continuity Requirement). Under a safe harbor contained in the Prior Notices, projects and facilities that are placed in service no more than four calendar years after the calendar year during which construction of the project or facility began generally are deemed to satisfy the continuous construction or continuous efforts requirement (the Continuity Safe Harbor).[5]

In the case of a project or facility otherwise eligible for the newly-created Vehicle Refueling PC, Hydrogen PTC, Clean Electricity PTC, or Clean Electricity ITC, the Notice provides that:

  • “principles similar to those under Notice 2013-29” will apply for purposes of determining whether the project or facility satisfies the Physical Work Test or the Five Percent Safe Harbor, and a taxpayer satisfying either test will be deemed to have begun construction on the project or facility;
  • “principles similar to those under” the Prior Notices will apply for purposes of determining whether the project or facility satisfies the Continuity Requirement; and
  • “principles similar to those provided under section 3 Notice 2016-31” will apply for purposes of determining whether the project or facility satisfies the Continuity Safe Harbor, with the Notice specifying that the safe harbor period is four (4) years.

Taxpayers and commentators have observed that the existing guidance in the Prior Notices is not, in all cases, a good fit for the newly-created clean energy tax credits. Additional guidance will likely be required to ensure that the principles of the Prior Notices may be applied efficiently and seamlessly to the newly-created tax credits.

Prevailing Wage Determinations

The Notice provides that, for purposes of the Prevailing Wage Requirements, prevailing wages will vary by the geographic area of the project or facility, the type of construction to be performed, and the classifications of the labor to be performed with respect to the construction, alteration, or repair work. Taxpayers may rely on wage determinations published by the Secretary of Labor on www.sam.gov to establish the relevant prevailing wages for a project or facility. If, however, the Secretary of Labor has not published a prevailing wage determination for a particular geographic area or type of project or facility on www.sam.gov, or one or more types of labor classifications that will be performed on the project or facility is not listed, the Notice provides that the taxpayer must contact the Department of Labor (the “DOL”) Wage and Hour Division via email requesting a wage determination based on various facts and circumstances, including the location of and the type of construction and labor to be performed on the project or facility in question. After review, the DOL will notify the taxpayer as to the labor classifications and wage rates to be used for the geographic area in which the facility is located and the relevant types of work.

Taxpayers and commentators have observed that the Notice provides no insight as to the DOL’s decision-making process. For instance, the Notice does not describe the criteria that the DOL will use to make a prevailing wage determination; it does not offer any type of appeal process; and, it does not indicate the DOL’s anticipated response time to taxpayers. The lack of guidance on these topics has created significant uncertainty around the Prevailing Wage Requirements, particularly given that published wage determinations are lacking for many geographical areas.

Certain Defined Terms under the Prevailing Wage Requirements

The Notice provides definitions for certain key terms that are relevant to the Prevailing Wage Requirements, including:

  • Employ. A taxpayer, contractor, or subcontractor is considered to “employ” an individual if the individual performs services for the taxpayer, contractor, or subcontractor in exchange for remuneration. Individuals otherwise classified as independent contractors for federal income tax purposes are deemed to be employed for this purpose and therefore their compensation generally would be subject to the Prevailing Wage Requirements.
  • Wages. The term “wages” includes both hourly wages and bona fide fringe benefits.
  • Construction, Alteration, or Repair. The term “construction, alteration, or repair” means all types of work (including altering, remodeling, installing, painting, decorating, and manufacturing) done on a particular project or facility. Based on this definition, it appears that off-site work, including off-site work used to satisfy the Physical Work Test or the Five Percent Safe Harbor, should not constitute “construction, alteration, or repair” and therefore should not be subject to the Prevailing Wage Requirements. It is not clear, however, whether “construction, alteration, or repair” should be read to include routine operation and maintenance (“O&M”) work on a project or facility.

The Good Faith Exception to the Apprenticeship Requirements

The IRA provides an exception to the Apprenticeship Requirements for taxpayers that make good faith attempts to satisfy the Apprenticeship Requirements but fail to do so due to certain circumstances outside of their control (the Good Faith Exception). The Notice provides that, for purposes of the Good Faith Exception, a taxpayer will be considered to have made a good faith effort to request qualified apprentices if the taxpayer (1) requests qualified apprentices from a registered apprenticeship program in accordance with usual and customary business practices for registered apprenticeship programs in a particular industry and (2) maintains sufficient books and records establishing the taxpayer’s request of qualified apprentices from a registered apprenticeship program and the program’s denial of the request or lack of response to the request, as applicable.

Certain Defined Terms under the Apprenticeship Requirements

The Notice provides definitions for certain key terms that are relevant to the Apprenticeship Requirements, including:

  • Employ. The Notice provides the same definition for “employ” as under the Prevailing Wage Requirements.
  • Journeyworker. The term “journeyworker” means a worker who has attained a level of skill, abilities, and competencies recognized within an industry as having mastered the skills and competencies required for the relevant occupation.
  • Apprentice-to-Journeyworker Ratio. The term “apprentice-to-journeyworker ratio” means a numeric ratio of apprentices to journeyworkers consistent with proper supervision, training, safety, and continuity of employment, and applicable provisions in collective bargaining agreements, except where the ratios are expressly prohibited by the collective bargaining agreements.
  • Construction, Alteration, or Repair. The Notice provides the same definition for “construction, alteration, or repair” as under the Apprenticeship Requirements. This suggests that, like the Prevailing Wage Requirements, off-site work is not subject to the Apprenticeship Requirements. In addition, the same open question regarding O&M work under the Prevailing Wage Requirements applies for purposes of the Apprenticeship Requirements as well.

Record-Keeping Requirements

The Notice requires that taxpayers maintain and preserve sufficient records in accordance with the general recordkeeping requirements under section 6001 of the Code and the accompanying Treasury Regulations to establish that the Prevailing Wage Requirements and Apprenticeship Requirements have been satisfied. This includes books of account or records for work performed by contractors or subcontractors of the taxpayer.

Other Relevant Resources

The DOL has published a series of Frequently Asked Questions with respect to the Labor Requirements on its website. In addition, the DOL has published additional resources with respect to the Apprenticeship Requirements, including Frequently Asked Questions, on its Apprenticeship USA platform. It is generally understood that, in the case of any conflict between the information on these websites and the information in the Notice, the Notice should control.


[1] The Labor Requirements also are applicable to the energy-efficient commercial buildings deduction under section 179D of the Code.

[2] The IRA provides a separate exemption from the Labor Requirements projects or facilities otherwise eligible for the ITC or the PTC with a maximum net output of less than one megawatt.

[3] Interestingly, the DOL online resources described below observe that projects and facilities that begin construction on or after January 29, 2023 are not eligible for the Exemption, which appears to recognize that January 29, 2023, and not January 30, 2023, is the sixtieth (60th) after publication of the Notice.

[4] Notice 2013-29, 2013-20 I.R.B. 1085; Notice 2013-60, 2013-44 I.R.B. 431; Notice 2014-46, 2014-36 I.R.B. 541; Notice 2015-25, 2015-13 I.R.B. 814; Notice 2016-31, 2016-23 I.R.B. 1025; Notice 2017-04, 2017-4 I.R.B. 541; Notice 2018-59, 2018-28 I.R.B. 196; Notice 2019-43, 2019-31 I.R.B. 487; Notice 2020-41, 2020-25 I.R.B. 954; Notice 2021-5, 2021-3 I.R.B. 479; and Notice 2021-41, 2021-29 I.R.B. 17.

[5] In response to procurement, construction, and similar delays attributable to the COVID-19 pandemic, the length of the safe harbor period was extended beyond four (4) years for projects or facilities for which construction began in 2016, 2017, 2018, 2019, or 2020, which we discussed in a previous update.

For more labor and employment legal news, click here to visit the National Law Review.

© 2022 Bracewell LLP

Mexico’s Minimum Wage Set to Increase on January 1, 2023

On December 1, 2022, Mexican President Andrés Manuel Lopez Obrador announced that, unanimously, the business and labor sectors, as well as the government, had agreed to increase the minimum wage by 20 percent for 2023, which will be applicable in the Free Zone of the Northern Border (Zona Libre de la Frontera Norte or ZLFN), as well as the wage applicable in the rest of the country. The increase will become official when it is published in the Official Gazette of the Federation (Diario Oficial de la Federación).

Before the increase was determined, the Mexican National Commission on Minimum Wages (Comisión Nacional de los Salarios Mínimos, or CONASAMI) applied an independent recovery amount (Monto Independiente de Recuperación or MIR) in accordance with the following:

  • MIR for the ZLFN: MXN $23.68
  • MIR for the rest of the country: MXN $15.72

On top of the MIR, the CONASAMI approved a 10 percent increase from the 2022 rate to the daily minimum wage applicable to the ZLFN and the rest of the country, resulting in MXN $312.41 (approximately USD $16.11) for the ZLFN and MXN $207.44 (approximately USD $10.69) for the rest of the country. The new rates would be effective as of January 1, 2023.

The MIR and the 10 percent increase—combined—would represent a 20 percent increase in the daily minimum wage rate which translates to more than MXN $30 per day.

Finally, Secretary of Labor Luisa Maria Alcalde stated that the above increases would directly benefit 6.4 million workers in Mexico.

© 2022, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.