Category: Labor & Employment

Takeover Code Amendments Extend the Rights of Pension Scheme Trustees

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Amendments include new requirements regarding offerors’ intentions, documents provided to trustees, trustees’ opinions on offers, and publication of agreements between offerors and trustees.

On 22 April, the Code Committee of the UK Panel on Takeovers and Mergers (the Panel) published response statement RS 2012/2 (the Response Statement), which introduces amendments to the City Code on Takeovers and Mergers (the Code).[1] The Response Statement follows a consultation to consider extending the rights of trustees of offeree company pension schemes. Broadly, the amendments to the Code provide the following:

  • An offeror is required to state its intentions with regard to the offeree company’s pension scheme.
  • Certain information is required to be published in the offer document or otherwise provided to pension scheme trustees.
  • Trustees are allowed to provide an opinion on the effects of an offer on the company’s pension scheme.
  • Agreements between an offeror and pension scheme trustees that relate to pension scheme funding may be required to be published if they are material.

Background

On 19 September 2011, significant changes were made to the Code, including an extension of the obligations of the offeror and offeree in relation to information to be provided to, and the obligation to publish opinions of, the offeree company’s employees and employee representatives. During the Panel’s consultation on those changes, the pensions industry lobbied significantly for similar provisions to be added to the Code in relation to trustees of pension schemes. Proposed amendments to the Code were published in public consultation paper PCP 2012/2 (the PCP)[2] on 5 July 2012, and a period of consultation followed. The Response Statement sets out the Panel’s response to that consultation and the resulting changes to be made to the Code. Although many of the changes will be adopted as originally proposed in the PCP, certain modifications have been made.

In determining the new regime, the Panel has been mindful that the intended effect of the changes is to create a framework within which the effects of an offer on an offeree company’s pension scheme can become (i) a debating point during the course of the offer and (ii) a point on which the relevant parties can express their views.

Application of New Code Provisions to Defined Benefit Schemes

The new provisions of the Code are limited to funded pension schemes sponsored by the offeree (or any of its subsidiaries) that (i) provide pension benefits (either in whole or in part) on a defined benefit basis—and (ii) have trustees (or managers, in the case of non-UK schemes). The Code provisions are not limited to UK pension schemes and apply to all such schemes, regardless of size or materiality in the context of the offeree’s group.

The new provisions do not apply to pension schemes that provide pension benefits only on a “defined contribution” basis, as the Panel believes that the provisions of the Code granting rights to employees and employee representatives already create an appropriate framework for discussion in relation to the impact of an offer, and the offeror’s intentions, in relation to such schemes.

Publication of Offeror’s Intentions in Relation to Pension Scheme

An offeror will now be required to include in the offer document a statement of its intentions with regard to relevant offeree pension schemes, including with respect to employer contributions and arrangements for deficit funding, benefits accruals for current members, and the admission of new members to the scheme. However, the Panel has not required that the offeror include a statement on the likely repercussions of its strategic plans for the offeree company on relevant pension schemes. Similarly, the Panel has confirmed that such statements do not need to include an assessment of the future ability of the offeree company to meet its funding obligations to its pension scheme.

The Panel also confirmed that the general rule under Note 3, Rule 19.1 of the Code will apply to statements of intention made in respect of pension schemes. This means that an offeror will be considered to be committed by any such statements for 12 months after the offer ends (or such other period of time as is specified in the offeror’s statement), unless there has been a material change of circumstances.

Under the PCP, the Panel originally proposed to require the offeree to include in its offeree circular its views on the effects of the implementation of the offer—and the offeror’s strategic plans for the offeree—on the offeree’s pension schemes. However, following the consultation, the Panel did not make these changes but did confirm that the offeree board may include its views on these subjects in the offeree circular should it wish to do so.

Provision of Information to Pension Scheme Trustees

The amendments to the Code provide that trustees of the offeree company’s pension scheme will be entitled to receive the same documents that offerors and offerees are required to make available to employee representatives. These documents include the following:

  • The announcement that commences the offer period
  • The announcement of a firm intention to make an offer
  • The offer document
  • The offeree board circular in response to the offer document
  • Any revised offer document
  • The offeree board circular in response to any revised offer document

Pension Scheme Trustees’ Opinion on the Offer

Under the revised Code, pension scheme trustees will have the right to require the offeree’s board of directors to publish the trustees’ opinion on the effects of the offer on the pension scheme, and the offeree will be obliged to notify such trustees of this right at the commencement of the offer. As with employee representatives’ opinions, if the trustees’ opinion is received in good time, the opinion must be appended to the offeree board circular. If it is not received in good time, it must be published on a website, with such publication to be announced on a Regulated Information Service.[3] The Panel has confirmed that the trustees’ opinion may cover more than the impact of the offer on the benefits that the scheme provides to members (and other matters to be included in the offeror’s statement in the offer document) and that the opinion may also extend to the trustees’ views on the impact of the offer on the post-offer ability of the offeree company to make future contributions to the pension scheme (i.e., the strength of its funding covenant).

Unlike employee representative opinions, the offeree will only be responsible for the costs incurred in the publication of the trustees’ opinion and not for any other costs incurred in relation to its preparation or verification.

Agreements Entered into Between an Offeror and Pension Scheme Trustees

The revised Code also contains certain provisions relating to any agreements between an offeror and the trustees of an offeree pension scheme, for example, in relation to the future funding of that scheme. Following the consultation, the Panel determined that any such agreements should be treated in the same manner as any other offer-related agreement, with certain variations. As a result, the amendments contain the following requirements for agreements between offerors and pension scheme trustees:

  • Where any such agreement is a material contract for the offeror within the meaning of the Code, it should be published on a website in the same manner as any other material contract.
  • Where such an agreement is not material, but is nevertheless referred to in the offer document, there will be no requirement to publish it on a website.
  • Where such an agreement relates only to the future funding of the pension scheme, it will be excluded from the general prohibition on offer-related agreements contained in Rule 21.2(a).[4]

Pensions Regulator

The Panel has confirmed, following discussions with the UK Pensions Regulator, that there will be no obligation under the Code for the offeror or offeree to send offer-related documentation to the Pensions Regulator, nor will there be any obligation on the Panel to notify the Pensions Regulator of takeover offers. Accordingly, it is for the offer parties (and any other interested parties) to decide whether they wish to engage with, or seek clearance of the offer from, the Pensions Regulator.

Entry into Force

The amendments introduced by the Response Statement will take effect on 20 May 2013, and an amended version of the Code will be published on this date.

[1]. View the Response Statement here.

[2]. View the PCP here.

[3]. The UK Financial Conduct Authority has published a list of information services that are approved Regulated Information Services in Appendix 3 of the Listing Rules, which is available here.

[4]. The Panel, however, emphasised that any obligations or restrictions on the trustees regarding any other offeror or potential offeror would not be permissible.

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Worker Adjustment and Retraining Notification Act (WARN) Liability And Private Equity Firms

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Last month’s decision out of the Delaware District Court in Woolery, et al. v. Matlin Patterson Global Advisers, LLC, et al. was an eye opener for private equity firms and other entities owning a controlling stake in a faltering business.  Breaking from the norm, the Court refused to dismiss private equity firm MatlinPatterson Global Advisers, LLC (“MatlinPatterson”) and affiliated entities from a class action WARN Act suit alleging that the 400-plus employees of Premium Protein Products, LLC (“Premium”), a Nebraska-based meat processer and MatlinPatterson portfolio company, hadn’t received the statutorily-mandated 60 days advance notice of layoffs.

According to the plaintiffs, Premium’s performance began to decline in 2008 and, upon the downturn, the defendants became more and more involved in Premium’s day-to-day operations, including by making business strategy decisions (e.g., to enter the kosher food market), terminating Premium’s existing President, and installing a new company President.  Things got bad enough that, in June 2009, the defendants decided to “furlough” all of Premium’s employees with virtually no notice and close the plant.  The defendants then, in November 2009, converted the furlough to layoffs, and Premium filed for bankruptcy.  According to the plaintiffs, Premium’s head of HR raised WARN Act concerns back in June, when the decision to close the plant and furlough the employees was made, and the defendants ignored the issue.

With Premium in bankruptcy, the plaintiffs, unsurprisingly, turned to MatlinPatterson and the other defendants as the targets of their WARN Act claim, asserting that they and Premium were a “single employer.”  The Court then applied the Department of Labor’s five-factor balancing test, namely (1) whether the entities share common ownership, (2) whether the entities share common directors or officers, (3) the existence of de facto exercise of control by the parent over the subsidiary, (4) the existence of a unity of personnel policies emanating from a common source, and (5) the dependency of operations between the two entities.  This test often favors private equity firms, and on balance it did so in Woolery too, with the Court finding that the plaintiffs had made no showing as to three of the five factors.  The Court nevertheless refused to grant the defendants’ motion to dismiss, holding that the complaint alleged that the defendants had exercised de facto control over Premium and then essentially giving that factor determinative weight.

No one should be surprised by the decision given the plaintiffs’ allegations, which had to be accepted as true at the motion to dismiss stage.  They presented an ugly picture of a private equity firm dictating the most critical decisions (to close plant, layoff employees) and then attempting to duck the WARN Act’s dictates. The decision is nevertheless a cautionary tale for private equity firms and at first blush it presents a catch 22: (a) do nothing and watch your investment sink or (b) get involved and risk WARN Act liability.

So what is a private equity firm, lender or majority investor to do?  Obviously, the best scenario is to build in the required 60-day notice period or, if applicable, utilize WARN Act exceptions, including the “faltering company” and “unforeseen business circumstances” exceptions.  Even where that’s not possible, private equity firms and other controlling investors need not take a completely hands off approach.  They would, however, be best-served (at least for WARN Act purposes) to do the following:

  • Provide only customary board-level oversight and allow the employer’s officers and management team to run the employer’s day-to-day operations
  • Although Board oversight and input can occur, continue to work through the management team on major decisions, including layoffs and potential facility closures
  • Avoid placing private equity firm or lender employees or representatives on the employer’s management team
  • Have the employer’s management team execute employment contracts with the employer, not the private equity firm or lender, and have the contracts, for the most part, create obligations only to the employer
  • Allow the employer to maintain its own personnel policies and practices, as well as HR oversight and function

What the courts are primarily concerned with in these cases are (a) a high degree of integration between the private equity firm or lender and the actual employer, particularly as to day-to-day operations, and (b) who the decision-maker was with regard to the employment practice giving rise to the litigation (typically the layoff or plant closure decision).  Private equity firms and lenders that have refrained from this level of integration have had, and should continue to have, success in avoiding WARN Act liability and returning the focus of the WARN Act discussion to the actual employer.

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Supreme Court (Sort Of) Approves “Picking Off” Strategy in Fair Labor Standards Act (FLSA) Collective Action Cases

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If you have ever received a complaint alleging minimum wage or overtime violations from one of your employees, the United States Department of Labor’s Wage and Hour Division, or a similar state agency (in Wisconsin, the Labor Standards Bureau of the Equal Rights Division), you have probably considered the possibility that other employees might raise similar claims.  Depending on the size of your workforce, this single-employee headache could quickly evolve into a class action or collective action migraine.

Under the Fair Labor Standards Act (FLSA), a single employee may file a wage and hour lawsuit on behalf of himself and other “similarly situated” employees.  The FLSA’s collective action mechanism requires potential plaintiffs to opt into the lawsuit, meaning that individuals must choose to participate in the case.  This mechanism differs from a class action lawsuit because individuals covered by a class certified by the court mustopt out of the case.  In other words, in a class action, an individual covered by a certified class must choose to not participate in the case.

Defense counsel have typically attempted to protect employers from prolonged and costly collective action litigation by “picking off” the named plaintiff(s) in lawsuits filed under the FLSA.  This “picking off” strategy refers to Rule 68 of the Federal Rules of Civil Procedure, which allows a defendant to make an offer of judgment to the plaintiff.  An offer of judgment amounts to giving the plaintiff the full relief requested in the complaint and costs accrued by the plaintiff.  A plaintiff’s acceptance of a Rule 68 offer of judgment moots (i.e., a dispute no longer exists) the case as to the plaintiff, thereby depriving the court of jurisdiction.

In the collective action context, however, employers have had mixed results on the issue of whether acceptance of a Rule 68 offer by the named plaintiff(s) also moots the claims of the potential collective group of affected employees.  The question also remained:  what happens when the named plaintiff(s) rejects the Rule 68 offer of judgment?

On Tuesday, April 16, 2013, the United States Supreme Court issued a decision, Genesis Healthcare Corp. v. Symczyk, that attempted to answer this question.  In this case, the employer, Genesis, made a Rule 68 offer of judgment to the plaintiff, Symczyk, while simultaneously answering the complaint and prior to Symczyk moving for conditional certification.  By its terms, the offer automatically expired after ten days.  Symczyk did not accept the offer, and Genesis moved for judgment in its favor, arguing that its offer of judgment mooted Symczyk’s claim and the potential collective action.  Symczyk did not contest Genesis’ argument that the offer fully satisfied her claim.  The district court agreed with Genesis and dismissed the case for lack of subject-matter jurisdiction.

The Court of Appeals for the Third Circuit agreed with the district court that Genesis’ Rule 68 offer mooted Symczyk’s claim, but it disagreed about the effect the offer had on the potential collective action.  The court of appeals held that allowing a defendant to “pick off” named plaintiffs for the purpose of avoiding the certification of a collective action would run contrary to the purpose of the collective action mechanism permitted by the FLSA.

On appeal, the Supreme Court held that a plaintiff “has no personal interest in representing putative, unnamed claimants, nor any other continuing interest that would preserve her suit from mootness.”  According to the Supreme Court, a Rule 68 offer of judgment that renders the claims of the named plaintiff(s) moot also eliminates the plaintiff’s interest in the collective action.  More importantly, the Supreme Court held that a collective action under the FLSA, even if “conditionally certified” by a court, does not give the “class” of potential plaintiffs “an independent legal status.”  A “conditional certification” simply results in “the sending of court-approved written notice to employees[.]“  Thus, the Supreme Court has given some legitimacy to the strategy of “picking off” named plaintiffs by offering them full relief through a Rule 68 offer of judgment.

Note, however, that the Supreme Court did not hold that an unaccepted Rule 68 offer renders a claim (the named plaintiff’s or the collective action claim) moot.  Because Symczyk waived these arguments in the lower courts, the Supreme Court simply assumed, without deciding, that the unaccepted Rule 68 offer rendered her claim moot.

While, at first blush, the decision seems like a great win for employers, it has potential limitations, many of which Justice Elena Kagan points out in her dissent, including the following:

  1. Symczyk waived several important arguments throughout the litigation, including the argument that the unaccepted Rule 68 offer in fact did not moot her individual claim.
  2. The Genesis case addresses a scenario in which no other plaintiffs had yet joined the collective action (due in part to the timing of Genesis’ offer to Symczyk and her failure to move for certificaiton).
  3. The Court simply ignored the limitations of a Rule 68 offer of judgment, including that Rule 68 only gives courts authority to enter judgment when the plaintiff accepts the offer and that “[e]vidence of an unaccepted offer is not admissible except in a proceeding to determine costs.”

Despite the limitations of the Genesis decision, employers can take comfort in the Court’s indication of its leanings regarding collective actions.  In addition to the Court’s holding regarding the mootness issue, employers can also point to the Court’s statements calling into question the legitimacy of applying class action rules and precedent to collective actions under the FLSA.

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Recent Social Media Developments Impacting Employers

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NLRB: Latest Decisions Addressing Social Media Policies and Activities

Within the past several months, the National Labor Relations Board (“NLRB“) has issued four precedent-setting opinions addressing the legality of an employer’s use of social media as a basis for taking adverse employment action. These decisions apply to both unionized and non-unionized workforces.

The key issue in each of these cases was whether the employer’s actions compromised the right of employees to engage in “protected concerted activities” for the purpose of their “mutual aid and protection.” However, as noted in a prior alert, recent federal case law could void all NLRB decisions dating back to January 4, 2012 (including those discussed below). Until there is clarity the NLRB decisions continue to be significant in shaping social media use, policy and practice.

On April 19, 2013, the NLRB, in Design Technology Group, LLC, found that an employee’s Facebook posts that criticized a manager’s handling of employee concerns were a “classic connected protected activity” under the National Labor Relations Act (“the Act”).

In that case, workers had approached their manager about closing the store they worked in at 7 PM instead of 8 PM, because of safety concerns. The manager advised that she would discuss those concerns with corporate officials, but the issue was never resolved. Subsequently, two employees posted messages on Facebook that were critical of how the manager handled that issue. Another employee showed the manager those posts and six days later, both employees who made the critical Facebook posts were fired by the manager.

The NLRB determined that the Facebook posts were part of the employees’ efforts to convince their employer to close the store earlier in the evening, based on their concerns about working late in an unsafe neighborhood. The NLRB found that those posts were protected under the Act and that the employees’ terminations constituted unfair labor practices.

Design Technology comes on the heels of three other NLRB social media rulings issued late last year.

In Hispanic United of Buffalo (December 14, 2012), the NLRB held that the termination of five employees for violating an employer’s policies on the basis of their social media activity was unlawful. In that case, five employees posted comments on Facebook that were critical of a co-worker who was scheduled to meet with and complain to management about their work performance. The employer terminated the five employees for “bullying and harassing” the co-worker in violation of its policies.

Hispanics United of Buffalo applied settled NLRB law regarding oral communications among co-workers to the social media context. Under NLRB precedent, employees’ comments regarding the terms and conditions of their employment are protected if their comments are “concerted” — meaning they are “‘engaged in, with or on the authority of other employees,” not only by “one employee on behalf of himself.” Finding the actions of these employees to be protected, the NLRB set a relatively low threshold for interpreting social media activity as protected concerted activity under the Act.

The Hispanics United decision is especially controversial because it may conflict with an employer’s competing obligation under federal and state discrimination laws to prevent workplace harassment. And, the decision may ultimately be in conflict with workplace anti-bullying laws in those states where such legislation is being actively considered. In Karl Knauz Motors, Inc. (September 28, 2012), the NLRB ordered another employer to rescind its social media policy. In that case, the employer terminated the employee for multiple reasons, including violation of the employer’s “Courtesy” rule requiring employees to be “courteous, polite and friendly” to customers, vendors, suppliers and fellow employees and not to use “language which injures the image or reputation of the Dealership.”

The NLRB held that the “Courtesy” rule violated the NLRA because employees could “reasonably construe its broad prohibition against ‘disrespectful’ conduct and ‘language’ which injures the image or reputation of the Dealership as encompassing Section 7 activity.” However, the NLRB upheld the employee’s termination, finding it was not motivated by protected concerted activity, but rather was solely based on the employee’s Facebook postings that did not relate to the terms and conditions of his or any other employee’s employment. The NLRB did not address whether other posts would be protected by the Act.

In Costco Wholesale Corp. (September 7, 2012), the NLRB ruled that an employer’s overbroad social media policy violated the National Labor Relations Act because it prohibited employees from posting statements “that damage the Company, defame any individual or damage any person’s reputation or violate the policies outlined in the Costco Employee Agreement.” The NLRB ordered Costco to rescind the policy based on its finding that the policy inhibited employees from engaging in protected concerted activity.

NJ Legislative Update: Proposed Law Seeks to Protect Employee and Job Applicant Passwords

A-2878, a bill that prohibits employers from requiring, or requesting, a current or prospective employee to reveal, as a condition of employment, his or her user name, password or other means of accessing the employee’s personal social media account, has passed both houses of the NJ Legislature and is awaiting further action by Governor Chris Christie. While it is not clear as of this writing whether Governor Christie will sign or veto this bill, the implications to employers of this potential new law are far reaching.

If enacted, this bill would prohibit employers from even asking an employee or prospective employee whether he or she has a profile on a social media site. In addition, the bill would prohibit employers from requiring prospective employees to waive or limit any protection granted to them under the law as a condition of applying for or receiving an offer of employment. It provides for a $1,000 civil penalty for the law’s first violation and $2,500 for each subsequent violation. If Governor Christie signs this bill into law, New Jersey would join other states that have enacted legislation preventing employers from requesting social media access information, including Arkansas, California, Delaware, Illinois, and Michigan, though it would be the first state to prevent employers from inquiring if employees or applicants have a social media account.

Notably, the bill does not prevent employers from performing their own online search to determine if a prospective or current employee is on a social media site. Accordingly, if a social media account is publically available, an employer would not run afoul of this proposed law by independently viewing an employee’s or prospective employee’s social media account. This type of activity could have other potential pitfalls associated with it however, such as learning protected class information about applicants.

We will continue to monitor the signing status of this bill.

What These Decisions and the Prospective NJ Statute Mean to Employers

In light of the foregoing, we recommend the following:

  • Employers should review and consider revising social media polices and hiring practices to address the NLRB decisions, the new NJ legislation, if enacted, and EEO issues associated with searches on applicants.
  • With respect to policies, employers should ensure that prohibitions placed on employees’ communications do not prohibit employees’ rights to engage in protected concerted activity.
  • Employers should continue to exercise caution when disciplining or terminating any employee based on his/her social media activities and should also consider training its managers in this area so that they do not inadvertently run afoul of these laws.
  • It is important to consult with counsel to consider whether an employee’s comments or posts would be deemed to be protected concerted activity under the Act before any disciplinary action is taken by the employer based on those comments or posts.
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Pregnancy and Disability Discrimination the Focus of EEOC Enforcement Activity

Poyner SpruillSince Congress’ enactment of amendments to the Americans with Disabilities Act (ADA) in 2008, making it easier to establish disability status under that law, the EEOC has directed more of its attention to claims of pregnancy and disability discrimination and accommodation of pregnancy-related limitations. In its 2012 Strategic Enforcement Plan, the Commission identified the investigation and pursuit of this type of claim as a national priority.  This enforcement initiative was recently demonstrated in a lawsuit filed by the EEOC against an employer which allegedly denied accommodations to an employee who suffered from complications arising from her pregnancy. The suit, EEOC v. Engineering Documentation Systems, Inc.,settled for $70,000 before a judgment on the merits was reached. However, the case serves as a reminder to employers that the issue of pregnancy-related disability is now being targeted by the EEOC.

Title VII of the Civil Rights Act of 1964, as amended by the Pregnancy Discrimination Act (PDA), prohibits discrimination against employees or job applicants on the basis of pregnancy, childbirth or related medical conditions. The EEOC takes the position that Title VII and the PDA require employers to treat pregnant employees in the same manner as other employees with temporary medical conditions. For example, according to the EEOC, if an employer provides leaves of absence or light duty to employees with short-term medical conditions which render those employees unable to work, then an employee unable to work due to her pregnancy must also be afforded the same treatment.1   But Title VII is not the only potentially applicable law in this circumstance. The ADA requires employers to provide “reasonable accommodation” to an employee with an actual (or record of) disability. This raises the question whether a pregnant employee has a “disability” within the meaning of the ADA.

Under the ADA, a disability is defined in part as a physical or mental impairment which substantially limits a major life activity. Prior to the amendments to the ADA, temporary medical conditions generally were not found by the courts to constitute disabilities, on the grounds that short-term impairments were not “substantially limiting.” However, the ADA Amendments Act (ADAAA) has led to a more expansive interpretation of the term “disability.” Specifically, the EEOC’s regulations implementing the ADAAA state that an impairment may be substantially limiting of a major life activity, and thus a disability, even if it is of a duration of less than six months. While the EEOC still considers pregnancy itself not to constitute a disability (See EEOC’s “Questions and Answers on the Final Rule Implementing the ADA Amendments Act of 2008”), it recognizes that certain impairments resulting from pregnancy may be disabilities if they substantially limit a major life activity. As stated on the EEOC’s webpage regarding pregnancy discrimination, this could include short term complications of pregnancy such as gestational diabetes or preeclampsia.

With the possibility that more medical conditions and complications arising from pregnancy will now fall within the definition of disability under the ADAAA, employers must be more cognizant of when an obligation to consider and provide reasonable accommodation to employees with a pregnancy-related disability arises. Such accommodations might include leaves of absence, job reassignment, light duty, or job modifications, unless such accommodations would result in an undue hardship to the employer. It is also imperative that employers engage in the “interactive process” with such employees to identify reasonable accommodation. The failure to take such proactive measures can result in liability for an employer, particularly given that the EEOC is now focused on this area of enforcement.

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Do You Need Employment Practices Liability Insurance?

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According to the 2012-2013 Edition of Jury Award Trends and Statistics, the national median award for employment practice claims in 2011 was $325,000, up from $172,500 in 2010. This figure confirms what many in the employment law community already know to be true, that the number of employment practices claims has increased, and with that increase there has been an increase in the size of awards over the years as well.  There is no reason to believe that this trend will not continue, and no business should believe itself to be immune from employment practice claims.

Every business of size should seriously consider carrying Employment Practices Liability Insurance (“EPLI”) to protect itself from employment-related claims, which can encompass everything from sexual harassment, to wrongful termination, to defamation.  Although a business’s first line of defense should always be thorough up-to-date and well written HR procedures and policies, EPLI coverage can be a valuable lifeline when an expensive and lengthy lawsuit is looming and it just may save your business from financial ruin.

Costs of EPLI policies vary greatly; the price is generally based on your business type, size and associated risk of employment practices.  Insurance companies will normally want to review copies of the HR forms, policies, and manuals to assess risk probability.  If you seeking EPLI, there are some things you should be looking for in a policy. These include, but are not limited to,

  • A broad definition of “insured,” so that all directors, officers, and employees are covered;
  • A broad definition of “claim,” so that criminal, civil, and administrative proceedings are covered, as well as arbitrations and investigations;
  • A practical deductible that can be met if the insurance is needed;
  • A carve-out for claims under federal statutes; if an employee brings a whistleblower claim for exercising rights pursuant to certain statutes such as COBRA, ERISA, or OSHA, you will likely want these claims to be covered by the policy; and
  • A choice of counsel provision so that the business can utilize an employment attorney that is familiar with the business, locality, governing law, and particular claim.

As an added bonus, some EPLI insurers even offer additional services free to their customers, such as a call-in line for general employment questions or sample employee handbooks. EPLI can offer peace of mind and valuable protection in the increasingly litigious employment law arena.

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New I-9 Form Required by May 8, 2013

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Effective May 8, 2013, employers are required to use an updated version of the I-9 form when verifying employee work authorization. The new I-9s will not be required for previously verified employees, only new hires and employees requiring reverification. Failure to use the updated I-9 form following the implementation date may result in fines ranging from $110 to $1,100 for each incorrect form.

As many employers are aware, I-9 forms must be completed to document the identity and employment authorization of all new hires. Section 1 of the I-9 must be completed by the employee on the first day of employment, and Section 2 completed by the employer within three business days thereof. Section 3 (Reverification and Rehires) need only be completed by the employer when reverifying that an employee is authorized to work or when an employee is rehired within 3 years of the date the I-9 was originally completed.

Revisions to the new I-9 form are threefold: (1) new format, (2) clearer instructions, and (3) additional data fields.

  1. Format: The updated I-9 has a new two-page format, which should be easier for employers to use. The first page of the form relates to employee information and certification, while the second page consists of the employer verification and reverification.
  2. Instructions: Additionally, the updated I-9’s instructions provide a more detailed explanation of the information required of employees and employers to properly complete the form.
  3. Data Fields: Finally, the new I-9 asks for several new pieces of information from employees, including email address, telephone number, and foreign passport information. U.S. Citizenship and Immigration Services’ request for additional employee contact information suggests that the agency may be more inclined to directly contact employees for information moving forward. Employees are not required to provide such information, however. The employee email address and telephone number fields are optional.

The updated I-9 form is available for download here.

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“Gang of Eight” Senators Introduce Comprehensive Immigration Reform Legislation

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On April 17th, the group of Senators known as the “Gang of Eight” introduced the Border Security, Economic Opportunity, and Immigration Modernization Act of 2013, a comprehensive immigration reform bill, in the U.S. Senate. This bipartisan measure includes significant and wide-ranging changes to the nation’s current immigration system, including a path to citizenship for undocumented immigrants and key structural changes to temporary visas and employment verification requirements, as well as a new visa for low-skilled labor. Below is a summary of the key changes proposed in the new legislation, was also presented by the “Gang of Eight” in a press conference today. Greenberg Traurig will continue to monitor developments surrounding comprehensive immigration reform and provide additional updates about issue-specific proposals as we continue to assess the proposed changes contemplated by this bill.

Legalization for Undocumented Immigrants

The proposed legislation would permit unlawfully present individuals who entered the U.S. on or prior to December 31, 2011 to obtain Registered Provisional Immigrant (RPI) status. Such individuals would need to pay a penalty and back taxes. However, they would be permitted to apply for Legal Permanent Resident (LPR) status after ten years as well as eventual naturalization. Agricultural workers and DREAM Act-eligible applicants would receive the benefit of expedited eligibility for the benefits above.

Family-Based Immigration

The proposed legislation would transfer the FB-2A visa category applicable to the spouses and children of U.S. Legal Permanent Residents to the FB-2A category currently in effect for the immediate relatives of U.S. citizens, eliminate the FB-4 category for the siblings of U.S. citizens, and limit the age of eligibility for the married children of U.S. citizens to 31 years old. The bill would also reinstate the V visa for the spouses and children of Lawful Permanent Residents.

Employment-Based Immigration

The proposed legislation would exempt EB-1 immigrants, individuals with doctoral degrees, physicians who have completed the foreign residency requirements and derivatives from the annual quota. A new EB-6 category for certain classes of entrepreneurs would also be introduced.

H-1B Non-Immigrant Visas

The proposed legislation would increase the current annual quota of 65,000 H-1B visas to 110,000, with a yearly ceiling of 180,000 visas. The bill would increase the number of visas available to holders of advanced degrees from the current 20,000 visas to 25,000, with the caveat that this allotment be allocated toward STEM graduates only. The H-1B application process would also undergo major structural changes, including the introduction of a recruitment requirement for all Labor Condition Applications on a website managed by the U.S. Department of Labor, a non-displacement attestation, and a change to formula for calculating the prevailing wage. Significantly, H-4 dependents would also have access to employment authorization and H-1B holders would enjoy a 60-day grace period to find new sponsorship after termination.

Low and Lesser Skilled Labor

The new legislation aims to create a W visa for lesser-skilled non-agricultural workers (W-1), temporary agricultural workers who perform work under a written contract (W-2), and “at-will” workers who receive a full-time employment offer in an agricultural field (W-3). The new W visa program would supplant the current H-2A agricultural worker program.

Immigration Compliance

The new legislation would make E-Verify, the federal government’s Web-based employment eligibility verification system, mandatory for all employers across the nation. The phase-in period, ranging from 90 days to 4 years, would vary according to the company’s number of employees. In addition, the bill includes language indicating that employers will be presumed to have knowingly hired an unauthorized worker if they do not verify the individual’s work authorization via E-Verify after their mandatory enrollment date. The new bill would also permit employers to utilize a three-day grace period for re-verifying the work authorization of employees with expired work authorization. It also calls for the Social Security Administration (SSA) to create tamper-resistant Social Security Cards to combat document fraud.

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Senate Immigration Bill To Impact Business, Technology and Defense Sectors

Barnes & Thornburg

On April 17, 2013, a bipartisan group of U.S. Senators known as the “Gang of Eight” introduced an immigration bill entitled the “Border Security, Economic Opportunity, and Immigration Modernization Act of 2013.”

The bill includes provisions that substantially increase the number of visas for highly-skilled workers, creates a new visa category for lower-skilled workers, eliminates the backlog for employment-based immigration, and authorizes significant resources to achieve border security.

The bill aims to increase the annual cap of certain employment-based nonimmigrant visas (H-1B) from 65,000 to 110,000 and the number may increase up to 180,000 depending on labor demands and the unemployment rate. In order to ensure that American workers are not displaced by H-1B workers, employers will continue to be required to pay the prevailing wage to H-1B workers and it has been proposed that the prevailing wage system be strengthened. Also in fiscal year 2014, companies will be banned from bringing in additional workers if more than 75 percent of their workers are H-1B or L-1 employees. The bill also provides for dual intent visas for all students who come to the U.S. on a bachelor or advanced degree program.

To ensure the U.S. has sufficient lower-skilled workers, the bill creates a new nonimmigrant category known as the W-Visa. Eligible recipients would be immigrants who come to the U.S. to perform services or labor for a registered employer and for a registered position. Beginning April 1, 2015, unless the Secretary of Homeland Security extends the start date, the maximum cap for four years would be 75,000 visas.

The bill proposes to exempt from the annual numerical limits multinational executives and managers; immigrants of extraordinary ability in the sciences, arts, education, business, or athletics; and doctoral degree holders in the science, technology, engineering and mathematics (STEM) fields.

The bill allocates a significant number of all employment-based visas to individuals holding advanced degrees in STEM fields, in particular. The bill also creates startup visas for foreign entrepreneurs seeking to establish a company in the U.S.

The bill provides $3 billion to implement the Comprehensive Southern Border Security Strategy for achieving and maintaining effective control in all high risk border sectors along the southern border. The funds will be used for acquiring, among other things surveillance and detection capabilities developed or used by the U.S. Department of Defense; fixed, mobile, and agent portable surveillance systems; and unmanned aerial systems and fixed-wing aircraft and necessary and qualified staff equipment to fully utilize such systems.

The bill permits undocumented immigrants, who entered the U.S. before December 31, 2011 and who do not have a serious criminal record, to apply for a Registered Provisional Immigrant (RPI) status. This would permit an individual to work legally in the U.S. for any employer. RPI status would last for a 6-year term that is renewable if the worker has not committed any acts that would render the worker deportable.

The Senate bill is likely to undergo changes as other U.S. Senators and constituents weigh in on this important bill. A House bill is also expected to be unveiled soon. If the bills can pass their respective chambers, then bicameral negotiations would begin in an attempt to pass a final comprehensive immigration reform bill for the President to sign into law.

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Supreme Court Finds Fair Labor Standards Act (FLSA) Collective Action Mooted By Offer Of Judgment

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In a traditional lawsuit, when a defendant offers a plaintiff the full amount the plaintiff seeks, that generally ends the litigation because the plaintiff no longer has a justiciable interest in the matter.  On April 16, 2013, the Supreme Court held in Genesis Healthcare Corp. v. Symczyk that a collective action under the Fair Labor Standards Act (FLSA) affords no exception to that rule.

Symczyk, a registered nurse, sued her former employer, Genesis Healthcare Corporation, a nursing home operator, for allegedly automatically deducting a half hour’s pay for lunch breaks irrespective of whether an employee took one.  Symczyk brought her claim as a collective action under the FLSA, which requires that similarly situated employees must opt in to the action in order to be represented by the plaintiff.

Two months after Symczyk filed her complaint, Genesis offered her full recovery on her claim, plus attorneys’ fees and costs, pursuant to Federal Rule of Civil Procedure 68.  The offer gave Symczyk 10 days in which to respond.  Symczyk failed to respond within 10 days, after which Genesis moved to dismiss on the ground of mootness.  The District Court granted the motion, reasoning that no other plaintiffs had joined the action and that Symczyk’s individual claim was moot because she could not recover more than Genesis had offered her.  The Third Circuit reversed.  Although it found that the settlement offer mooted Symczyk’s individual claim, it ruled that the defendant’s strategy nonetheless frustrated the FLSA’s goals by “short circuit[ing]” the collective action process.

On April 16, 2013, the Supreme Court reversed.

In doing so, the majority declined to reach the question of whether Symczyk’s individual claim had been mooted by virtue of an unaccepted offer, finding that the question had been waived:

[W]e do not reach this question, or resolve the split, because the issue is not properly before us.  The Third Circuit clearly held in this case that respondent’s individual claim was moot….  Moreover, … [i]n the District Court, respondent conceded that “[a]n offer of complete relief will generally moot the [plaintiff ’s] claim, as at that point the plaintiff retains no personal interest in the outcome of the litigation.”  Respondent made a similar concession in her brief to the Court of Appeals, and failed to raise the argument in her brief in opposition to the petition for certiorari.  We, therefore, assume, without deciding, that petitioners’ Rule 68 offer mooted respondent’s individual claim.

Relying on Article III’s case-or-controversy requirement, the majority concluded that the District Court properly dismissed the case because “respondent has no personal interest in representing putative unnamed claimants or any other continuing interest” and thus “respondent’s interest became moot when her individual claim became moot.”  Justice Thomas concluded by noting that the claims of employees other than Symczyk had not been extinguished:  “While settlement may have the collateral effect of foreclosing un-joined claimants from having their rights vindicated in respondent’s suit, such putative plaintiffs remain free to vindicate their rights in their own suits.  They are no less able to have their claims settled or adjudicated following respondent’s suit than if her suit had never been filed at all.”

Justice Kagan’s dissent took the majority to task for relying on legal errors that she believes the lower courts had committed and the plaintiff had not challenged below:

The Court today resolves an imaginary question, based on a mistake the courts below made about this case and others like it.  The issue here, the majority tells us, is whether a ‘collective action’ brought under the [FLSA] ‘is justiciable when the lone plaintiff’s individual claim becomes moot.’  Embedded within that question is a crucial premise: that the individual claim has become moot, as the lower courts held and the majority assumes without deciding.  But what if that premise is bogus?  What if the plaintiff’s individual claim here never became moot? …. Feel free to relegate the majority’s decision to the furthest reaches of your mind: The situation it addresses should never again arise.

She then proceeded to offer her answer to the question the majority had declined to reach:

[A]n unaccepted offer of judgment cannot moot a case. When a plaintiff rejects such an offer—however good the terms—her interest in the lawsuit remains just what it was before.  And so too does the court’s ability to grant her relief.  An unaccepted settlement offer—like any unaccepted contract offer—is a legal nullity, with no operative effect….  Nothing in Rule 68 alters that basic principle….  So assuming the case was live before—because the plaintiff had a stake and the court could grant relief—the litigation carries on, unmooted.

She concluded by complaining that allowing a defendant to “eliminate the entire suit by acceding to a defendant’s proposal to make only the named plaintiff whole … would short-circuit a collective action before it could begin, and thereby frustrate Congress’s decision to give FLSA plaintiffs the opportunity to proceed collectively.”

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