Category: Civil Rights

Treasury Department Recognizes All Legal Marriages for Tax Purposes

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On August 29, 2013, the Treasury Department issued Revenue Ruling 2013-17, Internal Revenue Bulletin 2013-38, which states that same-sex couple legally married in jurisdictions that recognize their marriage will be treated as married for ALL federal tax purposes. As a result, legally married same-sex couples are treated the same as legally married opposite-sex couples for federal tax purposes if the state of ceremony of their marriage recognizes same-sex marriage even if their state of residence does not recognize same-sex marriage.

This Ruling has significant impact for legally married same-sex couples and their tax advisors. However, it does not impact state law rules regarding the definition of marriage and may complicate income tax filings for same-sex couples legally married but living in a state that does not yet recognize their marriage, like Wisconsin and Illinois.

Background Leading Up to the Ruling

The Defense of Marriage Act (DOMA) was enacted by President Clinton in 1996. Section Two of DOMA says states do not have to recognize same-sex marriages performed in other states. Section Three of DOMA defined marriage for all federal purposes as only between one man and one woman.

On June 26, 2013, in Windsor v. United States (Windsor), the United States Supreme Court held that Section Three of DOMA was unconstitutional. Therefore, any same-sex married couple that lives in a state that recognizes same-sex marriage is to be treated the same for all purposes as any other married couple, and thereby are entitled to all of the 1,138 rights and privileges under federal law that are granted to married persons, which includes federal tax law.

Section Two of DOMA was unaffected by Windsor. Therefore, a same-sex couple that marries in one of the thirteen states that recognizes same-sex marriage who then moves to one of the thirty-seven states that does not recognize same-sex marriage would not be treated as married if the state of residence determines whether a couples is considered married, as opposed to the state of ceremony determining if a couple is married.

Absent guidance from the Treasury Department, a same-sex couple legally married in a recognition jurisdiction who then move to a state that does not recognize same-sex marriage, would most likely not be treated as married for federal tax law purposes. This is because the majority of federal tax laws are determined by a couple’s state of residence, not the state of ceremony of their marriage.

State of Ceremony Versus State of Residence

Consider the following examples to illustrate Windsor and this Ruling:

Britney and Jason are married in a drive-through chapel by an Elvis impersonator in Las Vegas and then go home to California. Their opposite-sex marriage is recognized for federal tax law purposes in California (and all other states) because California recognizes legal Nevada marriages. Sadly, Britney and Jason’s marriage only lasted 55 hours.

Mitchell and Cam are a same-sex couple married in New York (New York being a state of ceremony that recognizes same-sex marriage) and move back to Milwaukee (Wisconsin being a state of residence that does not recognize same-sex marriage). Prior to the Revenue Ruling, Mitchell and Cam are not married for federal law purposes, even though their marriage would be recognized if they stayed in New York. This is because Article Two of DOMA says that Wisconsin does not have to recognize New York marriages.

After the Revenue Ruling, with an effective date after September 16, 2013, Mitchell and Cam in Wisconsin will be treated as married for federal tax law purposes just like Britney and Jason in California. Mitchell and Cam will be able to utilize all federal tax laws Britney and Jason would be able to utilize (if Britney and Jason had respected the sanctity of their marriage).

Federal Tax Impact of Ruling

As a result of the Revenue Ruling, regardless of a couple’s state of residence, if they are married in a state that legally recognizes their marriage, the couple will be entitled to the following federal tax law benefits (among others): filing status as married filing jointly, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, spousal rollovers of IRA’s, unlimited marital deduction for estate and gift tax purposes, gift tax splitting, and estate tax exemption portability.

The Revenue Ruling does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law that are not considered “marriage” under state law.

Legally married same-sex couples must file their 2013 income tax returns as either “married filing jointly” or “married filing separately.” They may also, but are not required to, file amended returns for open years (generally 2010, 211, and 2012) to be treated as married for federal tax law purposes.

Also, if an employee purchased health insurance coverage from their employer on an after-tax basis for their same-sex spouse, they may now treat the amounts paid for that coverage as pre-tax and excludable from their income, and file amended returns for a refund for open years. Further, if their employer paid Medicare and Social Security tax on those taxable benefits to the employee, the employer may file for a refund for both the employee and employer portions of those overpayments for open years.

Continuing Issues in Non-Recognition States

As of August 30, 2013, the District of Columbia and thirteen states (California, Connecticut, Delaware, Iowa, Maine, Massachusetts, Maryland, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington) recognize same-sex marriage. Therefore, clients who get married in those states or have employees who get married in those states, but subsequently reside in a non-recognition state, need to be aware of the new federal tax law benefits and obligations.

Even though married same-sex couples may now file as “married filing jointly” for federal income tax purposes, states like Wisconsin and Illinois that do not recognize same-sex marriage would still require those couples to either file as single or as married filing separately on their federal returns. This is because most state income tax forms use federal income tax amounts as the starting point for preparing the state return, and most state returns require the federal return to be attached to the state return. Without further guidance from state tax authorities, this could complicate income tax filings for same-sex married couples in non-recognition states.

Estate, gift, and generation skipping transfer tax laws now treat all legally married same-sex couples the same as opposite-sex couples, but, like opposite-sex couples, the Revenue Ruling does not mitigate the need for same-sex married couples to prepare estate plans. Many property law issues are driven by whether someone is classified as a “spouse” under state law, including who inherits under intestacy and other survivorship rights, all of which can be controlled by a will or trust in non-recognition states (like Wisconsin and Illinois). Finally, some states (like Illinois) have state estate and gift tax exemptions that are lower than the current federal estate and gift tax exemptions, which requires careful estate tax planning for all married couples, be they opposite-sex or same-sex.

The impact of Windsor and how same-sex couples are recognized for federal and state laws is a fast changing arena, and additional federal and state guidance will be required.

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U.S. Department of Labor (DOL) Clarifies Family and Medical Leave Act (FMLA) Leave Entitlement for Same-Sex Spouses

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In the wake of the Supreme Court’s Windsor decision, employers should review and, if necessary, revise their FMLA policies and procedures to ensure compliance.

The U.S. Department of Labor (DOL) recently clarified that same-sex spouses are now covered by the Family and Medical Leave Act (FMLA) to the extent that an employee’s marriage is recognized in the state in which the employee resides. This clarification, which follows the U.S. Supreme Court’s decision in United States v. Windsor,[1] is consistent with the existing FMLA regulatory language defining a “spouse” for purposes of FMLA coverage.

The DOL did not issue any new formal, stand-alone guidance but instead revised several existing FMLA guidance documents to remove references to the Defense of Marriage Act (DOMA). It also affirmatively stated in a newly released Field Operations Handbook section on the FMLA that “[s]pouse means a husband or wife as defined or recognized under state law for purposes of marriage in the State where the employee resides, including common law marriage and same sex marriage.”

Moving forward, FMLA spousal leave will only be available to employees who reside in a state that recognizes same-sex marriage, given that the existing FMLA regulatory language tied spousal coverage to the place of residence prior to the Windsor decision. However, the U.S. Office of Personnel Management (OPM), which has jurisdiction over FMLA rights for federal employees, recently issued post-Windsor guidance that extends FMLA leave rights to the spouses of federal employees without regard to states of residence.[2] OPM’s approach could eventually be followed by DOL for private sector employees and those employees otherwise covered by DOL rules but likely would require regulatory changes that would involve a notice and comment period.

It is worth noting that, while DOL’s clarification reflects a general increase in federal FMLA leave rights available to same-sex couples, in some circumstances, the availability of FMLA leave rights could mean a decrease in a given employee’s overall leave entitlement. For example, same-sex spouses residing in states recognizing same-sex marriage will now be subject to the FMLA’s restrictions on the combined amount of leave that spouses working for the same employer can use in certain circumstances. Similarly, an employee might have been entitled pre-Windsor to leave pursuant to state (but not federal) law to care for a same-sex spouse, which meant that the employee’s state and federal leave entitlements could not be exhausted concurrently.

Conclusion

In light of DOL’s updated guidance, employers should make sure that their FMLA policies allow spousal leave for employees in a same-sex marriage that is lawful in the state in which the employee resides. Employers, however, will need to think carefully about how they will administer such policies to avoid both employee relations issues and sexual orientation discrimination claims. For example, if an employer does not request documentation from an employee in an opposite-sex marriage as to whether the employee’s marriage is recognized in the state in which he or she resides, issues may arise if this information was requested of an employee in a same-sex marriage. While some employers may choose simply to grant FMLA leave to all employees regardless of domicile, employers need to be aware that such time may not be recognized as statutory FMLA leave. Employers should also pay close attention to future developments in this area as more states consider recognizing same-sex marriages.

[1]. United States v. Windsor, 133 S. Ct. 2675 (2013).

[2]. See U.S. Office of Personnel Admin., Benefits Administration Letter No. 13-203, Coverage of Same-Sex Spouses (July 17, 2013).

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First Post-Supreme Court Defense of Marriage Act (DOMA) Case Rules in Favor of Same-Sex Spouse

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In one of the first post-Supreme Court DOMA cases, the Eastern District of Pennsylvania, applying Illinois state law, held that the surviving same-sex spouse of a deceased participant in an employer sponsored pension plan was entitled to the spousal death benefit offered under the plan. See Cozen O’Connor, P.C. v. Tobits, Civil Action No. 11-0045; 2013 WL 3878688 (E.D. Pa., July 29, 2013).

This case is significant because it is the first case after the Supreme Court’s June 26, 2013 decision in United States v. Windsor, 133 S. Ct. 2675 (2013) to grapple with choice of law in determining whether a marriage is valid for purposes of obtaining spousal benefits under an ERISA-covered plan. While Windsor ruled that Section 3 of DOMA defining marriage only as between persons of the opposite sex unconstitutional for purposes of applying federal law, it did not address or invalidate Section 2, which permits states to decline to recognize same-sex marriages performed in other states.

Case Background

In 2006, Sarah Farley and Jean Tobits were married in Canada. Shortly after they were married, Ms. Farley was diagnosed with cancer, and she died in 2010. At the time of her death, Ms. Farley was employed by the law firm of Cozen O’Connor and a participant in the firm’s profit sharing plan (the Plan). The Plan provided that a participant’s surviving spouse would receive a death benefit if the participant died before the participant’s retirement date. If the participant was not married or the participant’s spouse waived his or her right to the death benefit, the participant’s designated beneficiary would be entitled to the death benefits. The Plan defined “Spouse” as “the person to whom the Participant has been married throughout the one-year period ending on the earlier of (1) the Participant’s annuity starting date or (2) the date of the Participant’s death.”

Ms. Farley’s parents and Ms. Tobits both claimed a right to the Plan’s death benefits. Ms. Farley’s parents claimed that they had been designated as the beneficiaries, but it was undisputed that Ms. Tobits had not waived her rights to the death benefits. Cozen O’Connor filed an interpleader action in the Eastern District of Pennsylvania asking the court to determine who was entitled to the benefits. Therefore, the case focused on whether Ms. Tobits qualified as a “Spouse” under the Plan and thus was entitled to the death benefits.

The Court’s Ruling

The court noted that Windsor “makes clear that where a state has recognized a marriage as valid, the United States Constitution requires that the federal laws and regulations of this country acknowledge that marriage” irrespective of whether the marriage is between a same-sex couple or a heterosexual couple. With Windsor’s emphasis on states’ rights to define marriage, lower courts are left with the complicated task of deciding which state law applies when determining whether a same-sex spouse is entitled to benefits under federal law in those instances, as in Cozen, where multiple jurisdictions with different laws on same-sex marriage are implicated.

Apparently, because Cozen O’Connor is headquartered in Pennsylvania, the Plan is administered there, and the Plan’s choice of law provision references Pennsylvania law, the Farleys asked the court to apply Pennsylvania state law to determine the validity of the marriage. Pennsylvania’s mini-DOMA statute expressly defines marriage as between a man and a woman. The court concluded that ERISA preempted Pennsylvania law. It reasoned that if courts were required to look at the state in which the plans were drafted, plan administrators might be encouraged to forum shop for states with mini-DOMA laws to avoid paying benefits to same-sex couples. The court thought this kind of forum shopping would upset ERISA’s principle of maintaining national uniformity among benefit plans. Without further analysis, the court concluded Pennsylvania state law was not an option for determining Ms. Tobits’ status as a spouse within the meaning of the Plan.

Instead, the court applied Illinois law, the state where Ms. Farley and Ms. Tobits had jointly resided until Ms. Farley’s death. It was undisputed that Ms. Farley and Ms. Tobits had a valid Canadian marriage certificate. The court concluded that the marriage was valid in Illinois and that Ms. Tobits was Ms. Farley’s spouse within the Plan’s definition. Accordingly, the court held that Ms. Tobits was entitled to the Plan’s death benefit. Although not entirely clear, the court presumably came to this conclusion based on Illinois’ civil union statute (even though it was enacted after Ms. Farley’s death). The statute provides that (i) same-sex marriages and civil unions legally entered into in other jurisdictions will be recognized in Illinois as civil unions and (ii) persons entering into civil unions will be afforded the benefits recognized by Illinois law to spouses. See 750 Ill. Comp. Stat. An. 75/5 and 75/60 (West 2011).

Impact of Cozen on ERISA Benefit Plans

Cozen is the first ruling in the wake of Windsor to address which state law might apply when there are conflicting state laws as to whether a valid marriage is recognized for the purpose of being a “spouse,” and therefore whether the spouse is entitled to benefits under an ERISA-covered plan. In Cozen, Ms. Farley and Ms. Tobits were lawfully married in Canada, and the court ruled that Illinois’s civil union law recognizes lawful marriages performed in other jurisdictions. The court applied the law of the domicile state to support its holding that Ms. Tobits was a surviving spouse entitled to the Plan’s death benefit.

The Cozen decision may have little value outside of cases where a valid same-sex marriage is performed in one state (the “state of celebration”) and the state where the couple is domiciled recognizes same-sex marriages. In other situations, faced with a choice of law where the law of the state of domicile conflicts with the law of the state of celebration, the outcome could be different, because Section 2 of DOMA survives after the Windsor decision. Unless the federal government creates a uniform method of determining the choice of law question, ERISA cases raising benefit entitlement questions in the context of same-sex marriages are likely to continue to complicate plan administration, and ERISA’s goal of maintaining national uniformity in the administration of benefits will remain elusive.

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Will Obesity Claims Be the Next Wave of Americans with Disabilities Act (ADA) Litigation?

Poyner SpruillIn a new federal lawsuit in the U.S. District Court for the Eastern District of Missouri, Whittaker v. America’s Car-Mart, Inc., the plaintiff is alleging his former employer violated the Americans with Disabilities Act (ADA) when it fired him for being obese.  Plaintiff Joseph Whittaker claims the company, a car dealership chain, fired him from his job as a general manager last November after seven years of employment even though he was able to perform all essential functions of his job, with or without accommodations.  He alleges “severe obesity … is a physical impairment within the meaning of the ADA,” and that the company regarded him as being substantially limited in the major life activity of walking.

The EEOC has also alleged morbid obesity is a disability protected under the ADA.  In a 2011 lawsuit filed on behalf of Ronald Katz, II against BAE Systems Tactical Vehicle Systems, LP (BAE Systems), the EEOC alleged the company regarded Mr. Katz as disabled because of his size and terminated Katz because he weighed over 600 lbs.  The suit alleged Mr. Katz was able to perform the essential functions of his job and had received good performance reviews.  The case was settled after BAE Systems agreed to pay $55,000 to Mr. Katz, provide him six months of outplacement services, and train its managers and human resources professionals on the ADA.  In a press release announcing the settlement, the EEOC said, “the law protects morbidly obese employees and applicants from being subjected to discrimination because of their obesity.”

Similarly, in 2010, the EEOC sued Resources for Human Development, Inc. (RHD) in the U.S. District Court for the Eastern District of Louisiana, for firing an employee because of her obesity in violation of the ADA. According to the suit, RHD fired Harrison in September of 2007 because of her severe obesity.  The EEOC alleged that, as a result of her obesity, RHD perceived Harrison as being substantially limited in a number of major life activities, including walking.  Ms. Harrison died of complications related to her morbid obesity before the case could proceed.

RHD moved for summary judgment, arguing obesity is not an impairment.  The court, having reviewed the EEOC’s Interpretive Guidance on obesity, ruled severe obesity (body weight more than 100% over normal) is an impairment.  The court held that if a plaintiff is severely obese, there is no requirement that the obesity be caused by some underlying physiological impairment to qualify as a disability under the ADA.  The parties settled the case before trial for $125,000, which was paid to Ms. Harrison’s estate.

In June 2013, the American Medical Association (AMA) declared that obesity is a disease.  Although the AMA’s decision does not, by itself, create any new legal claims for obese employees or applicants under the ADA, potential plaintiffs are likely to cite the new definition in support of ADA claims they bring.  In light of these recent developments, obesity related ADA claims will likely become more common.

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Picture This: The National Labor Relations Board’s Division of Advice Wants to Sue Employer for Issuing Social Media Policy with Photo/Video Ban

Michael Best Logohe National Labor Relations Board’s Division of Advice (the Division) recently recommended that the Board issue a complaint against Giant Foods for implementing its social media policy without first bargaining with two unions, and for maintaining a social media policy that included unlawful provisions. Although the Division analyzed several social media policy provisions, its criticism of two provisions in particular—a ban on using photo and video of company premises, and restrictions on employees’ use of company logos and trademarks—makes it very difficult for employers to protect their brands while at the same time complying with federal labor laws.

Giant Foods’ social media policy forbade employees from using company logos, trademarks, or graphics without prior approval from the company. The policy also prohibited employees from using photographs or video of the “Company’s premises, processes, operations, or products” without prior approval as well.

The Division concluded that these provisions were unlawful under the National Labor Relations Act (NLRA) and that the National Labor Relations Board (the Board) should issue a complaint against Giant Foods for implementing them. As employers are becoming keenly aware, the NLRA safeguards employees’ right to engage in protected concerted activity. Such activity includes group discussions and some comments by individual employees that relate to their wages, hours, and other terms conditions of employment.

The Division concluded that banning employees from using company logos or trademarks was unlawful because: (1) employees should be allowed to use logos and trademarks in online communications, including electronic leaflets or pictures of picket signs with the employer’s logo; and (2) those labor-related interests did not raise the concerns that intellectual property laws were passed to protect, such as a business’ interest in guarding its trademarks from being used by competitors selling inferior products.

Additionally the Division concluded that restricting employees from using photo and video of company premises unlawfully prevented them from sharing information about participation in protected concerted activities, such as snapping a picture of a picket line.

Unfortunately, the Board’s expansive view will likely hamper companies’ ability to prevent damage to their brand and reputation.  Not allowing employers to ban the taking of videos and photos on their premises, or restricting the use of company logos/trademarks could lead to public relations nightmares such as the one Subway Foods recently endured after it was revealed that an employee posted a graphic picture on Instagram of his genitalia on a sub, with the tag line “I will be your sandwich artist today.”

Given the prevalence of cell phones with photo and video capabilities, and the ease of uploading photos and videos to the internet, a company that cannot control its employees’ use of those devices on their premises will be one bad employee decision away from public embarrassment.

What else can be gleaned from the Giant Foods Advice Memorandum? That the Board’s General Counsel will continue to prod employers to eliminate blanket bans on certain kinds of employee conduct from their social media policies and replace those bans with provisions that include specific examples of what employee conduct the policy prohibits. The Board and its General Counsel have previously found social media policies that restricted employee use of confidential information and complaints about an employer’s labor practices as unlawful; Giant Foods makes clear that the agency is also scrutinizing other kinds of policy provisions that potentially could infringe on an employee’s right to engage in protected concerted activities.

Accordingly, employers should review their policies with counsel so that they can tailor them to restrict employee conduct that will damage the company and its brand, but not be “reasonably” read to restrict employees’ rights to engage in protected concerted activities.

Unpaid Internships – Opportunity or Liability for Businesses?

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Unpaid internships have long been viewed by students, recent graduates and industry newcomers as a chance to gain experience that might help them select or launch a career, and to some, a chance to eventually land a paying job.  Employers can capitalize on this to teach their trade or profession and find new talent; but, they should not use interns just to cut labor costs.

The United States Department of Labor and many states use six criteria to determine whether internships in for-profit company operations can lawfully be unpaid: 1) the internship must be similar to training given in an educational institution; 2) regular paid workers are not displaced; 3) the intern works under close observation; 4) the employer derives no immediate advantage from intern activities; 5) there is no guaranty of employment upon internship completion; and 6) it is clear up front that there is no expectation of payment.  The overarching theme is that unpaid internships must be educational and predominantly for the benefit of the intern, not the employer.

Some employers have no idea the criteria exist and unwittingly expose themselves to expensive single-plaintiff, class action and regulator’s claims to reclassify interns as employees and to recover unpaid minimum wages, overtime pay, interest, multiple penalties and attorneys fees.  [For more on this see our post on Unpaid Interns Deemed Employees Under the FLSA].  Add to that, there are potential employer and decision maker risks for failure to withhold income and employment taxes.

“Warning bell” examples of internship programs that may be subject to reclassification include, use of unpaid internships to simply minimize labor costs or merely as an extended job interview to see if interns can make the cut later for a paid job; no real, supervised education and training, beyond what the intern might happen to observe; and a predominance of work assigned to interns that paid employees would normally do to generate or support the business.  Likewise, interns whose work is primarily running errands, answering phones, filing, organizing documents, data entry, scanning or coping images, or cleaning – even though they arguably have good exposure to work going on around them – tend to look like they are merely doing what paid support staff employees ought to be doing.

By contrast, if the intern is closely supervised and taught learning objectives that can be applied to multiple different employers, with occasional support staff type work incidental to the learning, with no guaranty of employment, and a writing that specifies a limited duration of an internship without pay, odds are better that intern can lawfully be unpaid.  As a practical matter, if a school or college will give the intern course credit, the odds of legal compliance increase.

A safe path to avoid classification risks is to pay interns at least minimum wage and for any overtime worked, afford meal and rest breaks, and manage their work assignments to reduce overtime needed.   Depending on employer policies and applicable laws, an intern who is part-time or a short-term temporary employee may not be eligible for certain employee benefits.

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Reporters Committee and Media Companies Back Google, Microsoft in Foreign Intelligence Surveillance Court (FISA)

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In a historic move for The Reporters Committee for Freedom of the Press (RCFP), the organization has filed an amicus brief with the secretive Foreign Intelligence Surveillance Court (FISA) to support the free-speech rights of Google and Microsoft. The July 15, 2013 action marks the first time RCFP has both filed with the FISA Court and backed the First Amendment interests of Internet companies.

The RCFP has provided free legal advice, resources, support, and advocacy to journalists for more than 40 years.  It is joined in the brief by the following media companies: The Associated Press, Bloomberg L.P., Dow Jones & Company, Inc., Gannett Co., Inc., Los Angeles Times, The McClatchy Company, National Public Radio, Inc., The New York Times Company, The New Yorker; The Newsweek/Daily Beast Company LLC, Reuters America LLC, Tribune Company, and the Washington Post.

In June, both Microsoft and Google filed petitions with the FISA Court seeking permission to publish data on national security requests they received and which had been authorized by the court. The same month the American Civil Liberties Union (ACLU) and the Media Freedom and Information Access Clinic at Yale Law School filed a brief with the FISA Court requesting that it publish its opinions on the meaning, scope, and constitutionality of Section 215 of the Patriot Act.

That section authorizes the government to obtain “any tangible thing” relevant to foreign-intelligence or terrorism investigations.  It was the legal basis for an April FISA Court order requiring Verizon to turn over “on an ongoing daily basis” to the National Security Agency all call logs “between the United States and abroad” or “wholly within the United States, including local telephone calls.” The order was revealed by U.K.-based newspaper The Guardian in early June.

The amicus filing by RCFP and the coalition of news-media organizations supports the ACLU arguments that the court should release decisions that interpret the FISA laws and create binding precedent. However, the RCFP  brief emphasizes a related point: that the public has a First Amendment right to know both about the secretive court’s core activities and receive information from Google and Microsoft. The brief describes the two companies as “speakers” with significant free-speech interests who want to provide the public with information about the government surveillance programs in which they have been required to participate.

“In addition to implicating their rights as speakers, the Google and Microsoft cases raise important concerns relating to the interests of the public in receiving information, an interest that the Supreme Court has long recognized as a separate component of the speech and press freedoms under the First Amendment,” the brief argues. “Where the communications providers are willing speakers, the public has a heightened interest in hearing their speech. That interest is heightened even more when the government is itself choosing to provide information to the public regarding issues central to the Google and Microsoft cases.”

The information Google and Microsoft want to share with the public is not prohibited by law, the media coalition states, and this information “will better explain the nature of their participation in these (government-surveillance) programs and correct popular misconceptions about the operation of key antiterrorism initiatives undertaken by the government.”

The brief continues that the issues raised in the petitions are vitally important to both national security and civil liberties: “They inevitably and rightfully are going to be the subject of public reporting and debate, and secrecy is preventing the public and the press from having even the rudimentary information needed for the kind of informed discussion that the country deserves.”

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Virtual Communications with Real Consequences: Terminations for Social Media Posts Continue to Draw the Attention of the National Labor Relations Board (NLRB)

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In the late autumn of 2012, an otherwise innocuous private Facebook discussion amongst employees of Skinsmart Dermatology (Skinsmart) suddenly devolved into an expletive-laced tirade. At one point during the conversation an employee boasted that she told her supervisor to “back the freak off,” called her employer “full of sh**,” and dared Skinsmart to “fire” her and “[m]ake [her] day.”

Notably, none of the other participants in the Facebook chat directly responded to the employee’s comments. One of those participants, however, reported the employee’s remarks to Skinsmart, who promptly fired her after concluding that it was “obvious” she did not want to continue working there.

Following her termination, the employee filed an Unfair Labor Practice Charge (ULP) with the National Labor Relations Board (NLRB) claiming that Skinsmart fired her in violation of the National Labor Relations Act (NLRA). The NLRA prohibits an employer from interfering with or restraining an employee’s right to engage in “protected concerted activities.”

As background, “protected” activities include discussing wages, hours and other terms and conditions of employment with coworkers. “Concerted” activities include: (1) when an individual employee seeks to “initiate or to induce or to prepare for group action”; (2) where an individual employee brings “truly group complaints” to management’s attention; and (3) where employees discuss “shared concerns” among themselves prior to any specific plan to engage in group action.

After analyzing the evidence, the NLRB’s Division of Advice recommended dismissal of the employee’s ULP Charge. First, it found the terminated employee’s Facebook comments were “an individual’s gripe” rather than an expression of “shared concerns” over working conditions among employees. Second, it found there was no evidence that the terminated employee’s coworkers viewed her remarks as an assertion of shared concerns regarding employment conditions. Consequently, the Division of Advice concluded that the employee did not participate in concerted activity, and therefore Skinsmart did not illegally fire her in response to her Facebook comments.

Significantly, before recommending dismissal of the ULP Charge, the Division of Advice also considered whether the terminated employee’s comments constituted “inherently concerted” activity that deserved protection under the NLRA.[1] While the Division of Advice ultimately ruled that they were not, its consideration of “inherently concerted” activity suggests that it will continue to interpret “protected concerted activity” as broadly as it can.

Under the “inherently concerted” analysis, an employee’s expressions may be considered protected concerted activity if those expressions involve “subjects of such mutual workplace concern” like wages, schedules, and job security, even if there was no contemplation of group action. Because the employee’s posts did not relate to any of those mutual workplace concerns, the Division of Advice concluded, the employee did not engage in “inherently concerted” activity.

In light of Skinsmart, before taking any adverse action against an employee for inappropriate social media communications, an employer should scrutinize the employee’s comments to determine whether they constitute an individual gripe or protected concerted activity. Because the NLRB has targeted “Facebook firings” as infringing on employees’ right to engage in protected concerted activity, we recommend that employers undertake this analysis with the benefit of counsel to minimize their exposure to a ULP Charge or other legal action.

[1] The term, “inherently concerted,” arose out of an earlier NLRB decision in 2012. See Hoodview Vending Co., 359 N.L.R.B. No. 36 (2012).

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A Bad Smoke Break: Stringent Documentation of Work Rules Defends Against Unemployment Claims

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A recent Missouri case demonstrates the importance of documentation when defending against unwarranted unemployment claims. The case also underlines the need for the reforms passed by the Missouri General Assembly and pending signature by Gov. Jay Nixon.

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Facts

James Sullivan worked as a part-time cook for nearly a year and a half at Landry’s Seafood House. One day, he disappeared during dinner service and was found 20 minutes later smoking and talking on his cell phone in the parking lot. He was fired and filed a claim for unemployment benefits. In Missouri, when employees are terminated for work-related misconduct, they can be disqualified from receiving unemployment benefits. However, a deputy at the Missouri Division of Employment Security initially determined that Sullivan was eligible for benefits. The restaurant appealed that determination to the Division Appeals Tribunal.

Appeals Tribunal Finds Willful Misconduct

During the hearing, which Sullivan failed to attend, Landry’s Seafood House offered the testimony of a senior kitchen manager. The manager said the restaurant had policies prohibiting employees from smoking at work or leaving their work area without a supervisor’s permission. Landry’s posted signs on its doors to remind employees of the rule and had discussed the policy with employees at shift meetings. Further, Landry’s provided employees with a copy of its policies. Sullivan had signed an acknowledgment of receipt when hired. Sullivan had been counseled for violating the rules in the past and had complied with the policies on several occasions by asking for permission to leave his workstation and clocking out before going outside to smoke a cigarette.

After the hearing, the Appeals Tribunal reversed the determination and found in favor of Landry’s. Sullivan was to be disqualified from receiving unemployment benefits because he was discharged for work-related misconduct. Sullivan appealed.

Court of Appeals Sides with the Employer

The Missouri Court of Appeals upheld the decision in Landry’s favor, finding there was substantial evidence to support it. The court noted that Sullivan was aware of the rules, had signed a written statement acknowledging receipt of the policies, and had been counseled on the rules. The supervisor’s testimony at the hearing established these facts and constituted substantial evidence that Landry’s terminated Sullivan for work-related misconduct. The court explained that Landry’s rule on breaks was also reasonable because a restaurant’s business depends on employees preparing food for its customers in a timely manner. Landry’s rule against smoking on the clock was reasonable because an employer has a right to expect employees to be engaged in meaningful work while being paid.

Bottom Line

At the time of this case, Missouri law defined misconduct as a “wanton and willful” act in order to disqualify a terminated employee from receiving unemployment benefits in Missouri. But as the first decision made by the deputy at the Missouri Division of Employment Security shows, that definition can lead to inconsistent rulings. Although the Missouri Court of Appeals ruled in favor of the employer, it was a time-consuming and expensive undertaking to work through the appeals process to secure a decision that would seem obvious to most people.

During the 2013 Legislative Session, the Missouri Chamber championed legislation to change the definition of misconduct to provide more consistency in unemployment compensation cases. Sponsored by Rep. Will Kraus, a Republican from Lee’s Summit, SB 28 is currently pending signature by Gov. Jay Nixon. House Bill 611 contains similar language and also awaits signature. Proof that you properly communicated your work rules to employees and required them to acknowledge receipt of the rules is key when seeking to establish that an employee’s violation of the rules was intentional. Landry’s actions in this case protected the restaurant from having to pay unemployment benefits to a former employee who violated its well-publicized policies.

Published in the July 2013 issue of Missouri Business, the Magazine of the Missouri Chamber of Commerce and Industry

New York State Court of Appeals Backs Starbucks Policy on Tip-Pooling

Sheppard Mullin 2012

Starbucks shift supervisors can legally participate in tip-sharing with other store employees, but the coffee chain’s assistant managers have enough managerial responsibility to disqualify them from sharing in customer tips, according to the New York State Court of Appeals.

Starbucks’ policy provides for weekly distribution of gratuities to the company’s two lower ranking categories of employees, baristas and shift supervisors, but not to its two higher ranking categories of employees, assistant managers and store managers. In addressing questions certified by the Second Circuit regarding the validity this policy, the Court of Appeals concluded that since shift supervisors, like baristas, directly serve patrons, they remain tip-pool eligible even if their role also involves some supervisory responsibility. But assistant managers, because they are granted “meaningful authority” over subordinates, are not eligible to participate in the tip pool.

The decision provides guidance to the Second Circuit as it hears appeals of two suits, Barenboim et al. v. Starbucks Corporation, No. 10–4912–cv, and Winans et al. v. Starbucks Corporation, No. 11–3199–cv, each brought by a different putative class of Starbucks workers. The plaintiffs in Barenboimare Starbucks baristas who argue that only baristas, and not shift supervisors, are entitled to participate in tip-sharing. The Winans plaintiffs are assistant managers who claim that they should be allowed a share of the tips. In both cases, the Southern District of New York awarded summary judgment to Starbucks, and the plaintiffs appealed. The Second Circuit certified questions to the New York Court of Appeals regarding the interpretation of New York Labor Law §196-d, which governs tip-pooling.

Shift Supervisors Are Not Company “Agents”

New York Labor Law §196-d prohibits an “employer or his agent or an officer or agent of any corporation, or any other person” from accepting or retaining any part of the gratuities received by an employee. It also states, “Nothing in this subdivision shall be construed as affecting the… sharing of tips by a waiter with a busboy or similar employee.”

According to the plaintiff baristas in Barenboim, Starbucks’ policy of including shift supervisors in the stores’ tip pools violates §196-d because the shift supervisors are company “agents” and therefore not permitted to “demand or accept, directly or indirectly, any part of the gratuities, received by an employee.” Starbucks argues that shift supervisors are sufficiently analogous to waiters, busboys and similar employees, and should therefore be permitted to share in the gratuities pursuant to §196-d.

The Court of Appeals, in deciding that shift supervisors are entitled to share in the tip pool, deferred to the New York State Department of Labor’s (“DOL”) long-standing view that “employees who regularly provide direct service to patrons remain tip-pool eligible even if they exercise a limited degree of supervisory responsibility.” The Court compared the shift supervisors to restaurant captains who have some authority over wait staff, but are nonetheless eligible to participate in tip pools pursuant to the DOL’s Hospitality Industry Wage Order and DOL guidelines dating back to 1972.

“Meaningful Authority” Standard

In Winans, the Starbucks assistant store managers argue that they should be deemed similar to waiters and busboys under §196-d (and therefore eligible for tip-sharing) because they do not have full or final authority to terminate subordinates. The Court of Appeals disagreed: “[W]e believe that there comes a point at which the degree of managerial responsibility becomes so substantial that the individual can no longer fairly be characterized as an employee similar to general wait staff within the meaning of Labor Law §196-d.” That line is drawn, according to the decision, at “meaningful or significant authority or control over subordinates.”

Examples of meaningful authority, according to the decision, are the ability to discipline subordinates, the authority to hire and terminate employees, and input into the creation of employee work schedules. Contrary to the plaintiffs’ claim, authority to hire and fire is not the exclusive test for determining whether an employee is similar to wait staff for the purposes of §196-d.

Tip-Sharing Required?

In addition to the question of which employees are eligible for tip-sharing, the Second Circuit asked the Court of Appeals to consider whether an employer may deny tip pool distributions to an employee who is eligible to split tips under §196-d. The Court held that §196-d excludes certain employees from tip pools, but does not require employers to include all employees who are not legally barred from participating.

Conclusion

The Court of Appeals decision provides specific guidance to the Second Circuit Court of Appeals in connection with the two Starbucks cases pending on appeal, but it also provides helpful clarity to any employers with tip-sharing policies. In particular, the decision confirms that employees who regularly provide direct service to patrons may still participate in tip-sharing, but are not required to do so, even if they exercise a limited degree of supervisory responsibility. On the other hand, employees with meaningful authority over subordinates are not eligible to participate in tip-sharing. Employers should carefully review their tip-sharing policies in light of this guidance from the Court of Appeals.

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