Category: Labor & Employment

Do Your Employees Use Cell Phones for Work While Driving?

Many employers have policies regarding the use of cell phones while driving, including the requirement to use the car’s hands-free, Bluetooth phone system, and abide by all applicable laws. But what happens when an employee still abides by the employer’s policy, is involved in a car accident, and causes injuries to a third party? Can the employer be held liable under the theory of respondeat superior?

Well, it depends on the facts and circumstances of the case. By way of background, respondeat superior means that an employer is vicariously liable for the torts of its employees when these employees commit the wrongful acts within the scope of their employment. California courts have held that the determination of whether an employee has acted within the scope of employment is a question of fact, but it also can be a question of law in circumstances where the facts cannot be disputed and there can be no conflicting inferences possible.

The California Court of Appeal in Ayon v. Esquire Deposition Solutions (decided on Sept. 21, 2018) was faced with this issue and held that under the facts presented the employer was not liable for the actions of its employee because there was no evidence that the employee in question was acting within the scope of her employment at the time of the accident.

In Ayon, the plaintiff’s car was struck by Brittini Zuppardo (“Zuppardo”), the scheduling manager of defendant Esquire Deposition Solutions (“Esquire”) while Zuppardo was driving. At the time of the accident, Zuppardo was on the phone with one of Esquire’s court reporters using her car’s hands-free Bluetooth phone system. This phone call (and hence the accident) occurred after normal business hours.

The plaintiff filed suit against Esquire and Zuppardo for personal injuries.  Esquire filed a motion for summary judgment on the ground that the plaintiff could not establish Esquire was vicariously liable for any damages its employee caused. The trial court agreed with Esquire, and the plaintiff appealed.

On appeal, the Court found that, based on the evidence presented, Zuppardo was not acting within the course and scope of her employment, particularly since (a) the phone call in question was after-hours, (b) Zuppardo was not on a work errand, but rather was coming home from a social engagement, and (c) although the phone call was with one of Esquire’s court reporters, Zuppardo and the court reporter were also friends and the conversation was not about work matters, but rather personal in nature. In sum, the trial court concluded that there was no evidence that Zuppardo talked about work matters at the time of the accident.

In Ayon, the Court found convincing the testimony of the Esquire employees who denied that they were discussing anything concerning work. And, their testimony was supported by undisputed evidence that (a) Zuppardo only made after-hours work calls on rare occasions, (b) it was not within her usual job duties, and (c) the two were friends. Accordingly, the Court of Appeal agreed with the trial court’s findings in favor of Esquire.

While it is unclear from Ayon whether the employee’s use of her cell phone (albeit hands-free) was a contributing factor to the accident, the employer was successful in avoiding liability in this case. Nevertheless, the outcome of this case may have been different if the employee was not using a hands-free device at the time of the accident. As such, enforcing policies can reduce the risk of claims.

 

©2018 Drinker Biddle & Reath LLP. All Rights Reserved.
This post was written by Pascal Benyamini of Drinker Biddle & Reath LLP.

New Wave of Employment Bills Signed into Law by California Governor

On Sunday, September 30, 2018, Governor Jerry Brown signed into law a number of bills that will have a significant impact on litigation and legal counseling in the employment context. Many of the new laws are a response to the traction gained by the “me-too” movement and are summarized herein.

NEW LAWS

AB 3109 – Banning Waiver of Rights to Testify

This new law nullifies any term in a contract or settlement agreement that waives a party’s right to testify in an administrative, legislative or judicial proceeding concerning alleged criminal conduct or sexual harassment. This would apply where the party has been required or requested to attend a proceeding pursuant to a court order, subpoena, or written request from an administrative agency or the legislature.

SB 820 – Settlement Agreements: Confidentiality

The passage of SB 820 prohibits and makes void any provision that prevents the disclosure of information related to civil or administrative complaints of sexual assault, sexual harassment, and workplace harassment or discrimination based on sex. SB 820 authorizes settlement agreement provisions that (1) preclude the disclosure of the amount paid in settlement, and (2) protect the claimant’s identity and any fact that could reveal the identity, so long as the claimant has requested anonymity and the opposing party is not a government agency or public official. SB 820 only impacts settlement agreements entered into after January 1, 2019.

SB 1300 – Unlawful Employment Practices: Discrimination and Harassment

SB 1300 makes it unlawful “for an employer, in exchange for a raise or bonus, or as a condition of employment or continued employment” to “require an employee to sign a release of claim or right.”

The bill also prohibits non-disparagements or other agreements that would “deny the employee the right to disclose information about unlawful acts in the workplace, including, but not limited to, sexual harassment.”

Notably, under this bill, these restrictions would not apply to “a negotiated settlement agreement to resolve an underlying claim . . . that has been filed by an employee in court, before an administrative agency, alternative dispute resolution forum, or through an employer’s internal complaint process,” so long as such agreement is voluntary and involves valuable consideration.

The bill also provides that a prevailing defendant is prohibited from being awarded fees and costs unless the court finds the action was frivolous, unreasonable, or groundless when brought or that the plaintiff continued to litigate after it clearly became so.

Significantly, this new law also expressly affirms or rejects specified judicial decisions, with the impact of making it increasingly difficult for employers to defeat harassment claims on summary judgment. The new law addresses the following judicial decisions:

  • Harris v. Forklift Systems, 510 U.S. 17 (1993): The Legislature affirms of the holding in Harris, which found that in a workplace harassment suit “the plaintiff need not prove that his or her tangible productivity has declined as a result of the harassment. It suffices to prove that a reasonable person subjected to the discriminatory conduct would find, as the plaintiff did, that the harassment so altered working conditions as to make it more difficult to do the job.”

  • Brooks v. City of San Mateo, 229 F.3d 917 (2000): The Legislature prohibits reliance on this opinion to determine what conduct is sufficiently severe or pervasive to constitute actionable harassment under the FEHA.

  • Reid v. Google, Inc., 50 Cal.4th 512 (2010): The Legislature affirmed reliance on the “stray remarks” standard articulated in Reid. Specifically, the California Supreme Court held that the existence of a hostile work environment depends upon the totality of the circumstances and a discriminatory remark, even if not made directly in the context of an employment decision or uttered by a nondecisionmaker, may be relevant, circumstantial evidence of discrimination.

  • Kelley v. Conco Cos., 196 Cal.App.4th 191 (2011): The Legislature explained that the legal standard for sexual harassment should not vary by type of workplace. Further, the Legislature found that it is irrelevant that an occupation may have been characterized by a greater frequency of sexually related commentary or conduct in the past. In determining whether or not a hostile environment existed, the Legislature holds that courts should only consider the nature of the workplace when engaging in or witnessing prurient conduct and commentary is integral to the performance of the job duties.  To that end, the Legislature prohibits reliance on any language in Kelley, which conflicts with these principles.

  • Nazir v. United Airlines, Inc., 178 Cal.App.4th 243 (2009): The Legislature affirmed the decision in Nazir, which observed that hostile working environment cases involve issues “not determinable on paper.” Specifically, SB 1300 states that “Harassment cases are rarely appropriate for disposition on summary judgment.”

SB 1412 – Applicants for Employment: Criminal History

Under existing law, employers, whether a public agency or private individual or corporation, are prohibited from (1) asking an applicant for employment to disclose, (2) seeking from any source, or (3) utilizing as a factor in determining employment, information concerning an applicant’s participation in a pretrial or posttrial diversion program or concerning a conviction that has been judicially dismissed or ordered sealed. It is a crime to intentionally violate these provisions. However, under existing laws, employers are not prohibited from asking an applicant about a criminal conviction or performing a background check regarding a criminal conviction to be considered in determining any condition of employment, so long as (1) the employer is required to obtain information regarding a conviction of an applicant, (2) the applicant would be required to possess or use a firearm in the course of his or her employment, (3) an individual who has been convicted of a crime is prohibited by law from holding the position sought, regardless of whether the conviction has been expunged, judicially ordered sealed, statutorily eradicated, or judicially dismissed following probation, or (4) the employer is prohibited by law from hiring an applicant who has been convicted of a crime.

Under the new law, employers can conduct background checks for employees under certain narrow exceptions. Specifically, under the new law, an employer, whether a public agency or private individual or corporation, cannot seek information regarding an applicant’s arrest or detention that did not result in conviction or occurred while the applicant was subject to the jurisdiction of the juvenile court. Nor can an employer seek information concerning a referral to, and participation in, any pretrial or posttrial diversion program, or concerning a conviction that has been judicially dismissed or ordered sealed pursuant to law. An employer may not consider such information when determining any condition of employment. However, under the new law, an employer may conduct a background check under narrow circumstances where: (1) the employer is a health facility as defined under Section 1250 of the Health and Safety Code; (2) an applicant’s juvenile arrest or detention resulted in a felony or misdemeanor conviction that occurred within five years preceding the application for employment; (3) the employer is required to obtain information regarding a conviction of an applicant; (4) the applicant would be required to possess or use a firearm in the course of his or her employment; (5) an individual who has been convicted of a crime is prohibited by law from holding the position sought, regardless of whether the conviction has been expunged, judicially ordered sealed, statutorily eradicated, or judicially dismissed following probation; or (6) the employer is prohibited by law from hiring an applicant who has been convicted of a crime.

AB 1976 – Lactation Accommodation

Existing law requires employers to provide a reasonable amount of break time to accommodate employees who are breastfeeding and requires an employer to make reasonable efforts to provide the employee with the use of a room or other location, other than a toilet stall, in close proximity to the employee’s work area, for the employee to breastfeed privately.

This new law clarifies what it means to make reasonable efforts to provide the employee with the use of a room or other location, other than a bathroom, in close proximity to the employee’s work area, for the employee to breastfeed privately. An employer is deemed to have complied with the law if it makes a temporary lactation location available to an employee, so long as: (1) the employer is unable to provide a permanent lactation location because of operational, financial, or space limitations; (2) the temporary lactation location is private and free from intrusion while an employee expresses milk; (3) the temporary lactation location is used only for lactation purposes while an employee expresses milk; (4) the temporary lactation location otherwise meets the requirements of state law concerning lactation accommodation. If the employer can demonstrate to the Department of Industrial Relations that this requirement would impose an undue hardship, the new law requires the employer to make reasonable efforts to provide a room or location for expressing milk that is not a toilet stall.

SB 1343 – Employers: Sexual Harassment Training Requirements

The new law requires employers with five or more employees, including temporary or seasonable employees, to provide at least 2 hours of sexual harassment training to all supervisors and at least one hour of sexual harassment training to all nonsupervisory employees by January 1, 2020, and one every 2 years thereafter.

AB 2079 – Janitorial Workers: Sexual Violence and Harassment Prevention Training

Introduced as the bill to empower janitors to prevent rape on the night shift, this new law bolsters existing sexual harassment and violence prevention training and prevention measures. The new law establishes the following requirements:

  • Effective January 1, 2020, all employers applying for new or renewed registration must demonstrate completion of sexual harassment violence prevention requirements and provide an attestation to the Labor Commissioner.

  • The Department of Industrial Relations (“DIR”) must convene an advisory committee by July 1, 2019 to develop requirements for qualified organizations and peer-trainers for employers to use in providing training. The DIR must maintain a list of qualified organizations and qualified peer-trainers.

  • Employers, upon request, must provide an employee a copy of all training materials.

AB 2079 would also prohibit the Labor Commissioner from approving a janitorial service employer’s request for registration or for renewal if the employer has not fully satisfied a final judgment to a current or former employee for a violation of the FEHA.

AB 3082 – Training for In-Home Supportive Services

The new law requires the In-Home Supportive Services (“IHSS”) program, administered by the State Department of Social Services and counties, to develop or otherwise identify standard educational material about sexual harassment and the prevention thereof to be made available to IHSS providers and recipients and a proposed method for uniform data collection to identify the prevalence of sexual harassment in the IHSS program. The bill requires the IHSS, on or before September 30, 2019, to provide a copy of the educational material and a description of the proposed method for uniform data collection to the relevant budget and policy committees of the Legislature.

AB 2338 – Talent Agencies: Education and Training

The law requires a talent agency to provide educational materials on sexual harassment prevention, retaliation, and reporting resources and nutrition and eating disorders to its artists. This law would require those educational materials to be in a language the artist understands, and would require the licensee, as part of the application for license renewal, to confirm with the commissioner that it has and will continue to provide the relevant educational materials.

Further, the new law requires that, prior to the issuance of a permit to employ a minor in the entertainment industry, that an age-eligible minor and the minor’s parent or legal guardian receive and complete training in sexual harassment prevention, retaliation, and reporting resources. The bill would further require a talent agency to request and retain a copy of the minor’s entertainment work permit prior to representing or sending a minor artist on an audition, meeting, or interview for engagement of the minor’s services.

To the extent these laws are violated, the commissioner is authorized to assess civil penalties of $100 for each violation, as prescribed.

SB 224 – Person Rights: Civil Liability and Enforcement

The new law provides additional examples of professional relationships where liability for claims of sexual harassment may arise.

VETOED BILLS

Several bills, which Governor Brown vetoed, are also notable because of the major impact they would have had on the employment context, had they been signed into law.

AB 1870 – Employment Discrimination: Limitation of Actions

Currently, under the existing laws, individuals have one year to file an administrative complaint with the Department of Fair Employment and Housing to enforce a FEHA claim. AB 1870 would have amended this deadline, extending it to three years to file a FEHA complaint from the date of the unlawful conduct. The bill would also add a 90-day extension to the filing deadline, which would apply if the aggrieved individual “first obtained knowledge of the facts of the alleged unlawful practice during the 90 days following the expiration of the applicable filing deadline.”

By vetoing this bill, the Governor has curbed the potential for frivolous FEHA lawsuits and the risk of lawsuits where memories of the circumstances giving rise to the claims have faded.

AB 3080 – Employment Discrimination: Enforcement

Governor Brown vetoed AB 3080, which would have prohibited employers from entering into arbitration agreements with employees. The passage of this bill would have directly conflicted with the U.S. Supreme Court’s May 2018 ruling in Epic Systems Corp., v. Lewis, 148 S. Ct. 1612 (2018), which affirmed employment arbitration agreements and class action waivers.

AB 3080 included four key provisions, including: (1) prohibiting arbitration agreements for wage and hour claims and discrimination, harassment and retaliation claims under the Fair Employment and Housing Act; (2) prohibiting employers from taking any employment action against employees who refuse to enter into arbitration agreements; (3) barring confidential agreements regarding harassment (possibly in the context of a settlement as well although the proposed text was not clear as to the scope of the prohibition); and (4) opening the possibility for individual liability for anyone that violates the provisions of the bill.

AB 3081 – Employment: Sexual Harassment

Governor Brown vetoed AB 3081, which broadly attempted to address workplace harassment by issuing three major prohibitions:

  • First, employers and labor contractors would be jointly liable for all civil liability for sexual harassment, including harassment on the basis of pregnancy, childbirth or related conditions. They would be forbidden from retaliating against employees who file claims.

  • Second, AB 3081 would have amended the California Labor Code to prohibit employers from discriminating or retaliating against an employee because of his/her status as a victim of sexual harassment.

  • Third, the bill would create a rebuttable presumption of unlawful retaliation if an employer “discharges, threatens to discharge, demotes, suspends, or in any manner discriminates against” an employee within 30 days after the employer has acquired actual knowledge of the employee’s status as a sexual harassment victim.

The fact that Governor Brown vetoed this bill is not particularly surprising given that he has expressed reluctance to expand concepts of joint liability in the past. However, this decision is still notable given the momentum of the #me-too movement.

TAKEAWAYS

California employers should consider these new laws when negotiating settlement agreements and engaging in litigation.  These laws serve as reminder of how important it is for all employers to review and revise where necessary their anti-harassment, discrimination, and retaliation policies on a more frequent and consistent basis. Importantly, employers may continue using arbitration agreements with class action waivers.

 

Copyright © 2018, Sheppard Mullin Richter & Hampton LLP.

Equal Pay Act Claim Requires Show of Pay Disparity “Based on Sex” as Part of Prima Facie Case, Court Holds

Departing from other federal appeals courts, the U.S. Court of Appeals for the Federal Circuit has held that Equal Pay Act plaintiffs must establish that the pay differential between similarly situated employees is “historically or presently based on sex” to make out a prima facie case.

In Gordon v. U.S., No. 17-1845 (Fed. Cir. Sept. 7, 2018), two female emergency room physicians employed by a Veterans Administration hospital alleged they were underpaid compared to male emergency room physicians. Their pay discrimination claim related primarily to one male physician who was hired at the same time they were hired at the same pay rate in the same position, but he received a pay increase one year after they were hired that the female plaintiffs did not receive.

To state a claim of an EPA violation, an employee must show the employer:

  • Paid employees of opposite sexes different wages;

  • For substantially equal work;

  • In jobs that require substantially equal skill, effort, and responsibility; and

  • That are performed under similar working conditions.

If an employee provides evidence establishing each of these elements, the burden shifts to the employer to prove the pay disparity is justified under one of four affirmative defenses: (1) a seniority system; (2) a merit system; (3) a pay system based on quantity or quality of output; or (4) any factor other than sex.

Here, the employer argued that the plaintiffs had not established a prima facie case and that, even if they had, the pay differential was justified under the “factor other than sex” affirmative defense. The Court, which hears appeals involving federal employee EPA claims, held that the plaintiff doctors must meet an additional requirement to establish their prima facie EPA violation:

To make their prima facie case, however, [the doctors] must also establish that the pay differential between the similarly situated employees is “historically or presently based on sex.”

Id. at 9-10. The Court held that the plaintiffs could not make this showing and that the employer was entitled to summary judgment on this basis alone. Notably, the Court held the employer had not introduced sufficient evidence to establish the “factor other than sex” affirmative defense. Id. at 10 n. 4.

The holding was based on a prior ruling, Yant v. United States, 588 F.3d 1369 (Fed. Cir. 2009). Judge Reyna wrote the panel decision, but also wrote separately to express the view that Yant should be overturned because the additional requirement improperly shifts the burden of proof in a manner inconsistent with the text of the EPA and Supreme Court precedent. Judge Reyna also notes that no other Circuit Court of Appeals requires this additional showing as part of the prima facie case. Id. at 17.

 

Jackson Lewis P.C. © 2018
This post was written by F. Christopher Chrisbens of Jackson Lewis P.C.

Wage and Hour Fundamentals: A Guide for Early Stage Companies

Introduction

Many emerging companies begin their corporate life without a firm grasp on critical issues related to wage and hour laws.  With limited financial and human capital at the outset, emerging companies have a tendency to take a reactive approach to HR, often with devastating near term effects.   With its initial core group of employees, an emerging company may try to keep the purse strings tight and seek an alternative to regular wages.  As it expands, an emerging company might bring on new personnel as independent contractors, or in a joint employment arrangement in lieu of a direct hire model.  Armed with a heightened understanding of the legal landscape, and with adequate preparation, emerging companies can maintain compliance with wage and hour laws and regulations and avoid the expensive hazards associated with transgressions in this complex and ever-evolving area of employment law.

The First Employees

In an emerging company’s infancy, its first employees are often the founders and/or others who have invested their capital, intellectual property, or unique talents in the enterprise.  In these early stages of development, oftentimes the primary objective is to keep the cash-poor company’s newly minted coffers as full as possible by compensating employees and other service providers with equity in lieu of wages, or by deferring wage payments to a later date.  These practices, while frugal, are problematic for a few reasons.

The first obstacle to this form of frugality is the federal Fair Labor Standards Act (“FLSA”) and its state law equivalents, which require employers to regularly pay all non-exempt employees at least the minimum wage and an overtime premium.   The FLSA applies to employees who work for businesses with annual sales of $500,000 or more (“enterprise coverage”), or who are engaged in interstate commerce (“individual coverage”).  While a fledgling startup may not meet the enterprise coverage sales threshold in its first year or two, individual coverage  is much broader. Under the United States Department of Labor’s rubric, virtually any contact by an employee with another state will trigger coverage.  This includes, but is by no means limited to, manufacturing goods to be sent out of state, regularly making telephone calls to people in other states, and traveling out of state on business.  In short, the FLSA covers virtually all workers, and those few that are not covered will likely be protected by state law.

Thus, in addition to coverage under federal law, most states have wage and hour laws that apply even more broadly.  For example, some state and local laws require employers to pay a higher minimum wage than the $7.25 called for by the FLSA.  Several of these cities and states are popular sites for startups, including California ($11.00 per hour), Massachusetts ($11.00 per hour) and New York City ($11.00 per hour up to $13.00 per hour depending on the number of employees).  Where the FLSA and state or local laws differ, the more employee-generous rule must be applied.

Coverage under the FLSA and state wage laws cannot be privately waived, even pursuant to a written agreement signed by the worker.  This is not to suggest that every early employee should be considered an hourly wage earner, as there are special exemptions for various positions discussed in greater detail below which may apply to one or more employees.  Suffice it to say, however, that in the early days of an emerging business, it is critical to appropriately define the terms of the relationships between the company and workers, and to ensure they are paid in accordance with all laws on the federal, state and local levels.

Irrespective of the rules, it is common for many startups, typically comprised of a group of likeminded and forward thinking individuals, to believe they will never face negative consequences for promising equity grants in lieu of wages or deferring payment of wages—that everyone is part of the team and looking out for the company’s best interests.  This optimism, while laudable, is at times misplaced for the simple reason that employees, including founders and early believers, may not remain with the company long enough to reap the rewards of equity participation.  It is when these individuals leave, or, worse, when management or new investors force them out, that grants of equity in lieu of wages or a deferred-wages arrangement go from thrifty ideas to costly headaches.  These departing employees may claim they have been underpaid or were not paid at all, and may sue, seeking not only reimbursement for unpaid wages and overtime, penalties, interest and possibly attorneys’ fees.  Some claims may expand into class actions as the company grows but, even before then, the company can be subjected to audits from the federal and/or state Departments of Labor.  These audits, once started, usually expand to and consider all workers and not just the one who raised the issue.  The prospect of this enormous financial liability can delay capital raising initiatives, refinancing efforts, or a potential sale.  Avoiding the pennywise, pound foolish practice of seeking alternatives to wage payments will avert these often costly headaches.

Independent Contractor or Employee

For a variety of reasons, including avoidance of payroll taxes and the myth that independent contractor classification provides more flexibility in the relationship, such as the right to terminate the relationship at will, some emerging companies classify initial service providers working full or part-time for the company as “consultants” or “independent advisors,” many times with the promise of a salaried position once the company is more suitably funded.  Some of these independent contractors are issued options in lieu of cash compensation.  In the event the independent contractor label is misapplied, this may, in addition to raising the specter of civil liability for FLSA and other wage/hour law violations, result in misdemeanor criminal liability for willful failure to pay wages.  Viewed through the lens of a federal and state administrative agency enforcement, the practice of mislabeling employees as independent contractors as a cost-saving measure is fraught with risk.  When a service provider is misclassified as an independent contractor, a number of consequences can arise: i.e., the employer is not withholding regular taxes or FICA; the employer is not remitting payroll taxes; and, depending on the number of other workers classified as employees who may be enjoying some benefits, the employer is not properly offering those benefits to the misclassified contractor.  Unsurprisingly, the IRS and state Departments of Labor are aware of this practice and routinely audit companies suspected of misclassifying employees as independent contractors, often resulting in significant penalties and fines.

In short, prior to designating a service provider as an independent contractor or consultant, a little consideration, analysis, and documentation can go a long way.

The Obama-era Department of Labor (DOL) issued guidance on misclassification that took an expansive view of these relationships, strongly favoring an employment relationship in order to maximize the protective reach of wage and hour laws, unemployment compensation, and workers compensation.  The Trump DOL rescinded this guidance in favor of a more traditional approach that examines the economic realities of the relationship between the provider and the employer.  Under this approach, courts typically consider some combination of the following factors:

  • the extent to which the work is an integral part of the business;

Typically, if the work being performed is “integral” to the employer’s business, an independent contractor designation is inappropriate, especially where other company employees perform the same or a similar job.  The work can still be integral if it is performed remotely.

  • the individual’s opportunity for profit or loss and investment in the business depending on his or her managerial skill;

If a worker’s managerial skills affect his or her opportunities for personal profit or loss, this factor will support an independent contractor relationship.  This factor addresses a worker’s ability to impact his or her own bottom line, not the employer’s.

  • the extent of the relative investments of the employer and worker;

If a worker’s investment in a given project, including the assumption of risk, is comparable to the employer’s investment, this factor will support an independent contracting relationship.

  • the degree of skill and independent initiative required to perform the work;

If a worker’s duties require special skills, business judgment, and initiative, this factor will support an independent contracting relationship.  The focus is on business skills, independent judgment and initiative.  Technical skills are not determinative of an independent contractor relationship.

  • the permanence or duration of the working relationship;

Independent contractors will tend to be those workers who provide services for the duration of a given project, not for a period of time.  A common mistake is to view a part-time or seasonal worker as an independent contractor simply because the position is temporary.

  • the degree of control exercised by the “employer” over the manner in which the work is to be performed.

Control should not play an outsized role in the determination.  The question is not whether the putative employer is looking over the worker’s shoulder but whether the method or means of performing the services is determined by the worker or the company.  To be an independent contractor, the worker must actually control meaningful aspects of his or her performance akin to conducting one’s own business.

It is important to note that no single factor in the economic realities test is determinative; rather, the factors are considered as a whole.  It is perhaps equally important to note that the label assigned to the relationship, whether by the employer, the worker, or by an agreement of the parties, is not controlling and usually given little or no weight.  The question is whether the alleged independent contractor is in business for him or herself, or instead is economically dependent on the employer.

Some states, including California, Massachusetts and Connecticut, use a slightly different approach referred to as the “ABC” test.  Under this test, an independent contractor designation will only pass muster upon a showing by the company that:

(A) the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;

(B) the worker performs work that is outside the usual course of the hiring entity’s business and/or place of business; and

(C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Each of these factors must be met to rebut the presumption that a worker is an employee.  This is less flexible than the economic realities test, and the costs associated with defending a misclassification claim under this rubric can be significant. A recent decision in California highlights the challenges companies face in misclassification cases.  In Dynamex Operations W., Inc. v. Super. Ct. of Los Angeles, 4 Cal. 5th 903, 232 Cal. Rptr. 3d 1, 416 P.3d 1 (2018), two delivery drivers asserted that they were misclassified as independent contractors and therefore entitled to seek relief for alleged violations of California’s wage and hour laws.  To determine whether the two drivers could bring a class action claim against Dynamex, the California Supreme Court adopted the ABC test, establishing a standard that assumes all workers are employees and not independent contractors, unless the hiring entity can establish every component of the ABC test.  The presumption of employment may be rebutted but generally reflects hostility to independent contracting in a state that is well known for attracting emerging businesses.

 This is not to suggest that an independent contracting arrangement is impossible, or even inadvisable.  It is only to say that the relationship should be thoroughly vetted, understood, and documented before it is implemented.  Independent contracting is not just an easy work-around for wage and hour obligations.

Freelance Isn’t Free

Some venues have recently broadened the protections for workers against potential misclassifications.  For example, under New York City’s “Freelance Isn’t Free” Act, a “freelance worker,” defined broadly as any person, whether or not incorporated or using a trade name, who is retained as an independent contractor to provide services in exchange for fees exceeding $800, either by virtue of a single contract or multiple agreements which have been entered into during any 120-day period, must be provided a written contract that includes, among other things, a specific description of the work to be performed, the value of the services, the rate and method of compensation, and the date payment is due.    The Act provides for penalties where full and timely payment pursuant to the contract is not made.  If the contract does not provide for a specific payment date, the due date shall be deemed to be 30 days after the work is completed.  Hiring parties cannot require freelancers to accept less than the agreed-upon payment as a condition of compensation.  In addition, companies are prohibited from retaliating against a freelancer for asserting rights protected under the Act.  The Act includes penalty provisions for violations, including a $250 fine for failing to provide a written contract, double the amount due for failing to make full and timely payment, statutory damages, civil penalties of up to $25,000, and attorneys’ fees.

As part of its classification decisions, emerging companies doing business in New York City should ensure that all new agreements with independent contractors comply with the Act’s requirements.

Exemptions

Another common wage related issue for emerging businesses concerns the use of salaries in lieu of hourly wages and, more broadly, the widely held misperception that compensating employees on a salaried basis automatically entitles the company to classify those employees as “exempt” from minimum wage and overtime laws.   Indeed, some emerging businesses attempt to simplify their payrolls, and endeavor to circumvent the hassle of compliance with wage and hour laws by paying all employees a fixed salary for all hours worked on the assumption that overtime pay is not required.  Through such classification as well, these companies believe that if employees receive a salary, especially if it’s a relatively high salary, they are not required to track the employee’s work hours.   Unfortunately, under both federal and state law, simply paying an employee a salary does not of itself alleviate the need to track and pay for all hours worked, and to pay overtime.  Instead, payment by salary is only one part of a two-part test for exemption from wage and hour laws.  The second, and arguably more critical, component of the test requires an analysis of the employee’s position and duties.

There are seven FLSA wage and hour exemptions commonly applicable to emerging companies: business owners, executive, administrative, professional, computer, outside sales, and highly compensated employees can all be considered exempt if they satisfy the following tests.  While the FLSA exemptions have been widely adopted, and adapted, by the states, some states do not recognize every exemption.  For example, California does not recognize the highly compensated employee exemption, so emerging businesses cannot rely on that exemption under California’s wage and hour laws. Also note that the minimum salaries discussed below are drawn from the FLSA; state and local laws may provide for greater minimum salaries.

Business Owner:

  • An employee who owns a bona-fide 20-percent equity interest in the company and is actively engaged in its management will be exempt from the FLSA’s wage and hour requirements.

The business owner exemption is frequently claimed, and sometimes later disclaimed, by early-stage employees.  It is sadly common for founding members of emerging companies to accept an equity grant, and the business owner exemption, only to claim a misclassification when an aspect of his or her relationship with the other founders sours.  To avoid misclassification hazards, and to claim this exemption, it is critical to ensure that the employee’s equity interest is both appropriately memorialized and valued, and made in good faith.  A hollow, verbal 20-percent equity grant issued to avoid cutting a paycheck will not pass scrutiny.

Executive:

  • Minimum Salary: $455/week
  • The employee’s primary duty must be managing the business, or managing a customarily recognized department;
  • The employee must regularly direct the work of two or more full time employees (or the equivalent of two full time employees);
  • The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

Administrative:

  • Minimum Salary: $455/week
  • The employee’s primary duty has to be office or non-manual work directly related to the management or business operation of the employer or its customers and the employee must exercise discretion and independent judgment with respect to matters of significance.

Professional:

  • Minimum Salary: $455/week
  • The employee’s primary duty has to be the performance of work that is predominantly intellectual in character in a field of science or learning, with knowledge gained through a prolonged course of specialized intellectual instruction.  The employee must also consistently use discretion and judgment.
  • There is also a creative professional exemption wherein the employee’s primary duty must consist of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Highly Compensated:

  • Minimum Salary: $100,000 per year
  • The employee’s primary duty includes performing office or non-manual work;
  • The employee customarily and regularly performs at least one of the duties of an exempt executive, administrative or professional employee

Computer:

  • Minimum Salary/Fee: $455/week or hourly rate of at least $27.63
  • The employee must be a computer systems analyst, computer programmer, software engineer, or similarly skilled;
  • Primary duties are highly technical and include, among other things: determining a computer system’s hardware or functional specifications, designing or testing computer systems/programs based on user or system design specifications and the machine’s operating systems.
  • It is important to note that a company’s help desk personnel do not qualify for this exemption.

Outside Sales:

  • Minimum Salary: None.
  • Primary duty must be making sales or obtaining orders or contracts for services, or for the use of facilities for which consideration will be paid;
  • Employee must be customarily and regularly engaged away from the employer’s place of business.

A thorough and honest audit of the workforce of an emerging company to determine whether to classify employees as exempt or non-exempt can make a random, or targeted, audit by the federal or state DOL, or a wage claim from a former employee, much less burdensome on a new company.

Note that the salary thresholds for the executive, administrative, professional, and computer exemptions are, in 2018, an almost astoundingly low annual sum of $23,660.  The FLSA minimum salary threshold has not been adjusted in over a decade.  An attempt by the Obama-era DOLto more than double the salary threshold was blocked in 2017.  At least one court has questioned the legality of a salary threshold in the first place.  U.S. Secretary of Labor R. Alexander Acosta has suggested the salary threshold should be adjusted up to “around $33,000” per year.  It is anticipated that the US DOL will begin the rulemaking process in 2019 with an eye toward implementing changes by 2020.  In addition to this likely change, as discussed above, some state and local laws currently require higher minimum salaries for exempt employees.  These state and local salary thresholds and exemption requirements must be reviewed in connection with any classification decision.

Before an emerging company makes the decision to classify an employee as exempt, it should undertake a careful analysis of an employee’s duties and ensure the employee’s salary meets the necessary weekly minimums, or other compensation requirements, for an exemption to apply.  While this may seem like a daunting, or even onerous task, appropriate classification from the outset can avoid costly disputes and financial liabilities.

Joint Employment Considerations

Another consideration for emerging companies concerns the joint employment arrangements that occur when an employer uses a staffing agency, either for administrative convenience, or based on the presumption that its liability is totally passed on to the agency for any compliance issues.  There are two types of joint employment relationships: horizontal, where an employee has employment relationships with two or more employers and the employers are sufficiently associated such that they jointly employ the employee; and vertical where an employee has a relationship with one employer (staffing agency, subcontractor, etc.) and the “economic realities” show that the employee is really economically dependent on, and employed by, another entity; typically a contracting employer.  Below we focus on vertical joint employment due to its greater relevance to emerging businesses.

The analysis for vertical joint employment focuses on the relationship between the employee and the potential joint employer.  Where an emerging business uses a staffing agency or subcontractor, the focus will be on the worker’s relationship with the emerging business.

Although they bear the same label, the economic realities test for vertical joint employment is different from the economic realities test for independent contracting.  For vertical joint employment, courts will generally look at some combination of the following factors:

  • Whether the potential joint employer directs, controls, or supervises the work performed.
  • Whether the potential joint employer has the power to hire or fire, modify employment conditions, or determine rates of pay.
  • Whether, depending on the industry at issue, the employee’s position is permanent, full-time, or long term.
  • If the employee’s work for the potential joint employer is repetitive, rote, unskilled, and/or requires little or no training, this is indicative of economic dependence between employee and potential joint employer.
  • Whether the employee’s work is integral to the potential joint employer’s business;
  • Whether the work is performed on the potential joint employer’s premises;
  • Whether the potential joint employer performs administrative functions for the employee (payroll, workers comp, etc.)

No single factor is determinative and courts tend to apply the factors flexibly.  It behooves an emerging company to carefully consider the realities of its relationships with staffing agencies and subcontractors to avoid unintended, and unwelcome, employment relationships.  In general, while companies can pass the responsibility for tax and other withholding to the staffing agency, which is the technical “employer,” nevertheless a joint employment relationship can still lead to liability for an emerging company for wage and hour law violations as well as violations of other state and federal laws governing the employment relationship, including leave and discrimination laws.

Internships

Another classification consideration often faced by emerging businesses is the internship relationship.  Many emerging companies are tempted to bring on young, energetic talent at a low wage rate or avoid paying wages altogether in favor of an educational experience.  However, the federal and state Departments of Labor have turned a keen eye to these relationships.  Emerging companies can look to interns as useful members of the workforce, but they should not do so without offering an appreciable benefit in exchange for the interns’ work.

Interns that qualify as employees are entitled to the protections afforded by federal and state employment laws, including minimum wage and overtime pay requirements.  The analysis turns on whether the intern or the employer is the primary beneficiary of the relationship.  To make this determination, courts will look at what the intern receives in exchange for the work he or she is performing.  If the intern is highly compensated, it is unlikely that any further inquiry will be necessary.  Ultimately, a court will look at the economic realities of the relationship and consider the following factors:

  • Extent to which intern/employer understand there is no expectation of compensation.
  • Extent to which internship provides training similar to what would be given in educational environment.
  • Extent to which internship is tied to intern’s formal education program by integrated coursework or receipt of academic credit.
  • Extent to which internship accommodates intern’s academic commitments by corresponding to the academic calendar.
  • Extent to which internship’s duration is limited to period in which it provides beneficial learning.
  • Extent to which intern’s work compliments, rather than displaces, the work of paid employees while providing significant educational benefits to intern.
  • Extent to which intern and employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

As with the other economic realities explored above, these factors are non-exhaustive and should be balanced as a whole; no one factor is more or less important than others.  The caution here for for-profit emerging companies is to ensure that interns who are brought into the fold are offered an appreciable benefit in exchange for their hard work.

Potential Liability

A major consequence of misclassification, whether by non-payment wages to an altruistic early employee, by nonpayment of overtime to a worker misclassified as exempt, or by failing to pay all wages earned by someone misclassified as an independent contractor, is the variety of damages available pursuant to state and federal laws.  Indeed, federal, state and local laws carry significant penalties for failing to pay the wages required by law, including civil fines, penalties, double and triple damage awards, attorneys’ fees, as well as the potential for criminal penalties.  Emerging companies need to also keep in mind that liability is not restricted to the entity, but rather, in most cases, may be borne by the individual decision-makers as well.

Arbitration Agreements  

Arbitration agreements are a common tool used by many companies in an effort to minimize the costs of employee wage claims, but they carry pros and cons.  Arbitrations tend to be private proceedings, avoiding the inherently public nature of state and federal court, allowing an emerging company to avoid unwelcome publicity related to an employee’s grievance.  Arbitration with a single employee is in most cases less costly than a jury trial.  Additionally, arbitrator’s awards tend to be smaller than awards from state and federal juries.  Arbitrators can be more professionally inclined, eschewing the emotion and bias that can accompany a jury’s award.  With the United States Supreme Court’s recent decision in Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 200 L. Ed. 2d 889 (2018), holding that employers can enforce arbitration agreements with class action waivers, emerging companies can view arbitration as an employer and single-employee transaction as opposed to a collective action with a massive award on the line.  The comparatively lower cost, efficiency, and enhanced likelihood of a reasonable award should factor into an emerging company’s consideration of arbitration agreements.

A significant drawback to arbitration concerns appellate review.  Although employers are loath to lose an arbitration, if the facts aren’t favorable, or if the arbitrator simply rules against the employer, arbitrator’s awards can only be vacated under very narrow circumstances.  In fact, under the Federal Arbitration Act, even an arbitrator’s mistake of law is not grounds to vacate an award.

In addition to appellate concerns, although arbitration costs remain comparably lower than litigation costs, they have grown more unwieldy in recent years as arbitrators have taken on more complex disputes and permitted more aspects of traditional litigation to seep into arbitration proceedings.  Employers also frequently face the expense of compelling employee arbitration disputes, a proceeding that has to occur in a court before arbitration commences.   Coupled with the fact that employers typically bear the burden of paying for the arbitration, cost should not be an afterthought.

If an emerging company does opt for arbitration, it should exercise great care in crafting the arbitration agreement, giving due consideration to every detail, including the time to claim arbitration, choice of arbitrator, and the rules to govern the arbitration.

Other Wage and Hour Considerations During the Employment Relationship

In addition to determining the appropriate classification for its workers, an emerging company has other wage and hour considerations once the employment relationship has been established, including paid sick leave, rest breaks, and travel time.

Paid Sick Leave

A number of jurisdictions, including eleven states, New York City, and the District of Columbia require employers who meet certain criteria to provide employees with paid sick leave, even where the entity has a modest number of employees.  Each paid sick leave law has its own unique characteristics, but there are a number of common denominators.  Covered employers are typically defined by the number of people they employ.  An emerging company should review state and local laws to determine what paid sick leave requirements, if any, it must follow.

Because it carries serious implications in a locality that attracts emerging businesses, we will use New York City’s paid sick leave law for illustration purposes.  New York City’s law requires employers with five or more employees who are employed for more than 80 hours per calendar year in the geographical confines of New York City to provide all its employees with paid sick time.  This determination can be made using a joint employer analysis, discussed above, and does not depend at all on where the employee maintains his or her residence; if a business is found to employ five people for 80 hours per year in New York City, up to 40 hours of paid sick leave per year, accrued at a rate of one hour for every thirty hours worked, must be provided.  Notably, this applies to employers who are themselves located outside of New York City; the focus is on where those five employees perform their work.

For any paid sick leave law, if an emerging business offers its employees paid sick leave that is more generous than the state or municipal law requires, provided the paid leave is accrued at a rate equal to or faster than the law requires, they will likely be in compliance with the law.  For example, if an employer permits its employees to accrue up to 80 hours of paid sick leave at a rate of one hour for every 20 hours worked, the employer will be in compliance with the New York City sick leave law’s accrual requirements.

Beyond sick leave accrual, emerging companies need to be mindful of state and local law, as well as their own internal policies, concerning the accrual and payout of accrued paid leave.  For example, in California, any accrued leave time is considered wages that must be paid out upon termination of the employment relationship and this cannot be waived.  Other jurisdictions carry accrued time payout requirements as well; an emerging company should ascertain what state and local laws require, and be sure to track accrued employee time to remain in compliance.

Rest Breaks

Most employers provide their employees with meal and rest breaks throughout the work day and a number of states require employers to provide such breaks.  The question of whether those breaks are compensable depends on the break.  Regulations promulgated by the US DOL provide that while breaks are not mandated, where breaks are given, those of 20 minutes or less in length are compensable because they are deemed to primarily benefit the employer.  Here again, state and local laws must also be reviewed to ensure compliance.

Travel Time

A final, but by no means the final, consideration for emerging companies is whether employee travel time is compensable when non-exempt employees travel for work.  The general rule is that travel away from home is worktime when it cuts across a regular workday, and travel outside of a regular workday as a passenger on a train or airplane is not worktime. FLSA compensable worktime does not include employee commuting time, and the use of a company vehicle does not transform non-compensable travel into compensable time.  An emerging business with employee travel considerations should also consult state and local laws concerning compensable travel time.

Conclusion

Obviously, a myriad of pitfalls face emerging companies in the area of wage and hour law that are too often overlooked or not given serious consideration due to the distraction and complications of corporate law applicable to starting a venture in the first place.  However, taking a proactive rather than reactive approach to employment law obligations can save emerging businesses from immeasurable financial hardships and headaches.  Devoting the time to consider, strategize, and appropriately implement employment relationships will ensure that an emerging company can focus on its own growth and success, rather than the worries of attracting the scrutiny of the Department of Labor and the courts when the “honeymoon” period between a new company and a worker turns sour.

 

© 1998-2018 Wiggin and Dana LLP

Your Presence Is Required: Employee Unable to Travel to Job Site Was Not “Qualified” Within the Meaning of the ADA

In recent years, particularly with technology making it easier for employees to work remotely, courts have struggled to determine whether onsite attendance is an essential job function under the Americans with Disabilities Act (“ADA”).  This question is often dispositive because only qualified individuals—those who can perform a job’s essential functions with or without a reasonable accommodation—are protected by the ADA.  A federal court in South Carolina recently ruled that an employee who could not get to his worksite for a six-month period could not perform the essential functions of his job and thus his employer did not run afoul of the ADA in terminating his employment.  Dunn v. Faithful+Gould Inc., Case No. 6:15-cv-04382 (June 18, 2018).

Dunn worked as a chief scheduler for Faithful+Gould (“FG”) from 2011 until his termination in August 2014.  For the first eighteen (18) months of his employment, Dunn worked remotely from his house because no local office had been established.  In 2013, a local office was formed, and Dunn changed supervisors.  Dunn’s new supervisor did not allow Dunn or other schedulers to work from home.  In the summer of 2014, Dunn had two epileptic seizures.  According to his doctor, Dunn had no restrictions and could return to work, but he could not drive for six months because South Carolina law prohibits someone from driving within six months of an epileptic seizure.  Dunn requested that he be permitted to work from home until his driving privileges were restored.  While FG was willing to allow Dunn to work from home one day a week for a four-week period while Dunn figured out a long-term transportation solution, FG refused to allow Dunn to work from home daily for an extended period.  In September 2014, Dunn’s employment was terminated after he exhausted all leave available under the FMLA and company policy.

Despite the fact that Dunn’s job description made no reference to onsite attendance and despite the fact that he worked from home for the first eighteen months on the job, the court concluded that onsite attendance was an essential function of Dunn’s job.  The court gave significant weight to the judgment of Dunn’s supervisor that onsite attendance was essential and Dunn’s statements to his doctor that he could not perform his job from home.  The court also noted that Dunn’s job had changed, and while onsite attendance may not have been essential during his first eighteen months on the job, it was at the relevant time.  The court rejected Dunn’s argument that FG should have granted him extended leave as a reasonable accommodation while he waited the six months to be able to legally drive again.  The court ruled extended leave was not a reasonable accommodation because it would have required FG to reallocate Dunn’s essential job duties to other employees for an extended period of time.

Dunn illustrates well the case-by-case analysis required in determining whether a job function such as onsite attendance is essential and that the essential nature of a function can actually change over time.  Thus, in considering potential accommodations, employers should always conduct an individualized assessment to determine whether any job function, including onsite attendance, is an essential function of a particular position.

Dunn is consistent with the Sixth Circuit’s en banc decision in EEOC v. Ford Motor Company, discussed in a previous blog.

 

Jackson Lewis P.C. © 2018
This post was written by Jonathan A. Roth of Jackson Lewis P.C. 

Are you Afraid of What Lurks in the Deep Water of your ERISA Plan?

Fear of creatures that lurk in deep water is pretty universal – for confirmation, look no further than the numerous summer movies featuring unexpected attacks by fierce underwater predators with sharp teeth. Inevitably, none of the victims seem to have any tools that will actually save them.  One after another, their tools break, and their escape attempts fail pitifully.  Unfortunately, such movies give the impression that the only protection from these predators is staying out of the water altogether.

If sponsoring and administering ERISA employee benefit plans seems as dangerous to you as swimming in deep water, be assured that there are tools and approaches that can be vital to risk management. Amending your ERISA plan document and summary plan description to include appropriate plan provisions, for instance, can minimize your exposure as a plan administrator.  For example:

  • Does your plan reserve discretionary authority to the plan administrator? Explicitly reserving discretionary authority to the plan administrator can prevent a court from exercising its own discretion to your detriment. Almost thirty years ago, the Supreme Court of the United States recognized the effectiveness of such language; court opinions continue to highlight the importance of this provision, as was done in a recent opinion issued by the Sixth Circuit in Clemons v. Norton Healthcare Inc. Retirement Plan, 890 F.3d 254 (May 10, 2018). Because it is so important, you should not assume that it is automatically included in every plan document and summary plan description. Work with benefits counsel to have your documents reviewed to make sure this provision is included.
  • Does your plan invalidate assignments of claims? Sometimes, a doctor or hospital asks a participant to sign a document that assigns to the provider the participant’s claim for benefits, meaning that the provider can stand in the shoes of the participant in bringing suit against your plan for coverage of claims. An anti-assignment clause invalidates such an assignment. Your plan’s participants and beneficiaries can still bring claims (and suit, if necessary), but they cannot assign such claims to their providers. Such a clause was upheld recently by the Third Circuit in American Orthopedic & Sports Medicine v. Independence Blue Cross & Blue Shield, 2018 WL 2224394 (May 16, 2018).
  • Does your plan contain a plan-based statute of limitations? In ERISA cases, a question about which statute of limitations applies (which, as a practical matter, means how many years later a plaintiff can sue you) can be a complicated issue, involving both state and federal law. Short-circuit those disagreements by amending your plan and summary plan description to establish a reasonable plan-based statute of limitations. Make sure your claims and appeal provisions, and all claim or appeal denial notices, discuss the statute of limitations. For example, a properly drafted plan-based statute of limitations resulted in a dismissal of a lawsuit because a plaintiff failed to bring suit within 3 years of his claim – without that plan provision, the court would have applied Puerto Rico’s default statute of limitations for contract claims, which would have permitted suit within 15 years of the claim. Santaliz-Rioz v. Met. Life Ins. Co., 693 F.3d 57 (1stCir. 2012), cert. denied., 569 U.S. 904 (2013).

When it comes to health and welfare plans, note that, if you do not yet have a plan document and summary plan description, now is the time to get one. Benefit summaries provided by your insurer are helpful and important documents, but they may not contain all the elements required by ERISA.  Moreover, by adopting a plan document and summary plan description, you will have a document to include provisions like those highlighted above.

Having an ERISA attorney review (or draft) your plan document and summary plan description can save you money and headaches down the line. After all, a lawsuit may not be quite as scary as staring into a 75-foot-long prehistoric shark’s open jaws – but do you really want to find out through personal experience?

 

© Steptoe & Johnson PLLC. All Rights Reserved.

You’ve Got Mail: NLRB Requests Briefing on Standard for Employee Use of Employer Owned Electronic Communication Systems

In what could signify the beginning of the end for Purple Communications, Inc., 361 NLRB 1050 (2014) and guaranteed employee access to Employer computer systems for union organizing purposes, the NLRB issued a notice on August 1 inviting the filing of briefs on whether the Board should uphold, modify or overrule the decision.  Under Purple Communications (which we previously covered here), employees have a presumptive right to use their employer’s e-mail system to engage in protected activity under Section 7 of the NLRA on nonworking time, unless the employer can demonstrate circumstances allowing it to restrict such use.  Overturning Purple Communications could return the Board to the standard under Register Guard, 351 NLRB 1110 (2007), which permitted employers to impose Section 7-neutral restrictions on an employee’s non-work use of their e-mail systems, even if those restrictions ultimately limited the employee’s use of the employer’s e-mail for communications involving protected activity.

The NLRB issued the notice in response to a 2016 ALJ decision finding that an employer’s computer usage policy did not comply with Purple Communications standard, because it prohibited employees from using their work e-mail for any nonbusiness purpose.  Board Members Pearce (who was in the Purple Communicationsmajority) and McFerran dissented from the decision to solicit briefs.  Both dissenting Members contended that issuing the notice was inappropriate in light of the pending appeal of Purple Communications before the Ninth Circuit and their view that there has been no change in workplace trends or evidence showing that Purple Communications has created significant challenges for employers, employees, unions or the Board.

Perhaps in recognition that workplace communication technology has clearly expanded beyond e-mail, the notice welcomes briefing on what standard the Board should apply to other methods of employee communication on employer-owned equipment (e.g., instant messages, text messages, and social media postings). While the Board has limited its holdings in the area of computer usage to employer e-mail systems, this notice may indicate a move by the Board to apply a consistent standard to all forms of workplace communication platforms.

 

© 2018 Proskauer Rose LLP.
This post was written by Michael J Lebowich and Jordan Simon of Proskauer Rose LLP.
For more labor and employment news, check out the National Law Review’s Labor and Employment Page.

Puerto Rico Law Authorizes Pay Deductions as Repayment for Employer-Provided Emergency Aid

Puerto Rico is still reeling from the aftermath of Hurricane Maria. Recently, the governor of Puerto Rico signed into law Act No. 115 of June 20, 2018, to promote recovery efforts and provide much-needed aid to affected non-exempt employees in situations of emergency. Ordinarily, Puerto Rico law does not allow deductions from a non-exempt employee’s salary, except for specific purposes defined in Act No. 17 of April 17, 1931, as amended. Act No. 115 amends Article 5 of Act No. 17 to lengthen the list of authorized payroll deductions. Consequently, employers in Puerto Rico are now able to prospectively recoup, via salary deductions, any loan, salary advance, or the cost of any equipment, materials, or goods provided to their non-exempt employees to help them in situations where there has been an emergency declaration by the president of the United States, the Federal Emergency Management Agency (FEMA), or the governor of Puerto Rico.

Act No. 115 added section (q) to Article 5 of Act No. 17 to provide that a non-exempt employee and his or her employer may agree, in writing, that the employer will deduct a fixed amount from the employee’s salary, in each of the employee’s regular pay cycles, until the employee has fully repaid the employer, without interest, for any “loan, salary advance, or [the cost] of any equipment, materials, or goods provided by the employer, whose benefit, use, or enjoyment is directly related to situations in which a state of emergency has been officially declared”, as provided by Act No. 115.

The deduction may not be greater than 20 percent of the net amount of the non-exempt employee’s pay after all other legal deductions and/or employee-authorized withholdings have been made. Further, the written authorization must include a breakdown of the repayment and a provision on how the debt will be repaid in the event the employment relationship is terminated.

 

© 2018, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

Brett Kavanaugh Nominated to U.S. Supreme Court

In the wake of Justice Anthony Kennedy’s retirement, President Donald Trump was presented with the rare opportunity to make his second U.S. Supreme Court nomination in as many years, nominating the Honorable Brett M. Kavanaugh to succeed Justice Kennedy. If confirmed by the Senate, Judge Kavanaugh would bring more than a dozen years of judicial experience to the position.

While the nomination process was swift, the confirmation process is likely to be contentious. Any nominee to the Supreme Court can expect deliberate and careful scrutiny, but in the context of losing Justice Kennedy’s critical “swing” vote, Judge Kavanaugh’s record of judicial decisions will receive even more attention than usual.

Career

Judge Kavanaugh, a federal judge on the U.S. Court of Appeals for the D.C. Circuit, received his B.A. from Yale College in 1987 and his J.D. in 1990 from Yale Law School, where he was a Notes Editor on the Yale Law Journal. Judge Kavanaugh’s lengthy experience with the judicial process began immediately upon graduation from law school, having clerked for Judge Walter Stapleton of the U.S. Court of Appeals for the Third Circuit (1990-1991) and for Judge Alex Kozinski of the U.S. Court of Appeals for the Ninth Circuit (1991-1992). Judge Kavanaugh served as a law clerk to the man he has been nominated to replace, Justice Anthony M. Kennedy of the U.S. Supreme Court, during October Term 1993.

Immediately following his U.S. Supreme Court clerkship, Judge Kavanaugh served in the Office of the Solicitor General of the United States. From 1994 to 1997, and for a period of time in 1998, Kavanaugh was Associate Counsel in the Office of Independent Counsel Kenneth W. Starr. He also spent time in private law practice, as a partner at Kirkland & Ellis in Washington, D.C., from 1997 to 1998 and again from 1999 to 2001. From 2001 to 2003, he was first Associate Counsel, and then Senior Associate Counsel to the President in the George W. Bush White House. From July 2003 until May 2006, Judge Kavanaugh was Assistant to the President and Staff Secretary to the President.

President Bush nominated Judge Kavanaugh to the D.C. Circuit and on May 30, 2006, he was appointed after being confirmed by a vote of 57-36.

Key Labor and Employment Decisions

 Judge Kavanaugh’s judicial philosophy is regarded as conservative; he is a textualist and an originalist, following in the footsteps of the late Justice Antonin Scalia. He generally takes a narrow and demanding approach to employment-related lawsuits and statutory interpretation, and routinely rules in favor of employers. That said, some of his opinions written for the majority, along with his dissents, reveal a flexible and nuanced approach to discrimination claims. How will Judge Kavanaugh treat workplace law cases that come before the Supreme Court? Following are summaries of several key decisions that illustrate his approach to deciding such cases.

Corporate Governance and Internal Investigations

 Judge Kavanaugh’s opinions display a tendency to refer to the plain text of statutes and their history, especially when voicing his support for the authority of the Executive Branch. See PHH Corp. v. Consumer Fin. Prot. Bureau, 881 F.3d 75, 165-67 (D.C. Cir. 2018) (Kavanaugh, J., dissenting). In his PHH dissent, Judge Kavanaugh held that the structure of the Consumer Financial Protection Bureau is unconstitutional, because having only one director erodes the President’s Article II powers. Id. at 166. Judge Kavanaugh reasoned that: (1) in light of historical practice, there has never been any independent agency so unaccountable and unchecked; (2) the lack of a critical check runs the risk of abuse of power and threatens individual liberty; and (3) Presidential authority to control the Executive Branch is of great importance and is diminished by this single-director independent agency. Id. at 167.

In an earlier dissent in Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 537 F.3d 667, 686 (D.C. Cir. 2008), Judge Kavanaugh asserted that the Public Company Accounting Oversight Board (PCAOB), created by the Sarbanes-Oxley Act, is unconstitutional because the appointment and for-cause removal powers of the PCAOB lie with the SEC, another independent agency. Kavanaugh stated this structure unconstitutionally restricted the President’s appointment and removal powers, either directly or through an alter ego, which he said has “never before [happened] in American history.” Id.

Discrimination in the Workplace

Judge Kavanaugh frequently writes opinions in a manner designed to portray himself as giving precise meaning to statutes, and resisting the urge to expand the law or “legislate from the bench.” See, e.g., Miller v. Clinton, 687 F.3d 1332, 1358 (D.C. Cir. 2012) (Kavanaugh, J., dissenting) (denouncing the majority’s decision to apply Age Discrimination in Employment Act (ADEA) to the State Department and quoting from Antonin Scalia & Bran A. Garner, Reading Law: The Interpretation of Legal Texts).

Several of Judge Kavanaugh’s decisions suggest he construes anti-discrimination statutes in a manner that may be considered plaintiff-friendly, but there is not a sufficient sample from which to draw a definitive conclusion on this issue. In both Ortiz-Diaz v. United States HUD, 831 F.3d 488, 494 (D.C. Cir. 2016), rev’d 867 F.3d 70, 81 (D.C. Cir. 2016), and Ayissi-Etoh v. Fannie Mae, 712 F.3d 572, 579-80 (D.C. Cir. 2013), Judge Kavanaugh argued in favor of making it easier for plaintiffs to establish a prima facie case of employment discrimination. In Ortiz-Diaz, Judge Kavanaugh was part of a three-judge panel that initially affirmed a district court’s ruling that refusal to grant a lateral transfer is not an adverse employment action under Title VII. See Ortiz-Diaz, 831 F.3d at 494. The ruling prevented the plaintiff from demonstrating harm resulting from his employer’s refusal to grant him a lateral transfer away from an allegedly racist and biased supervisor who the plaintiff claimed was hurting his ability to develop and succeed professionally. Id. at 491-92. Several months later, however, that three-judge panel reversed itself sua sponte, holding that when an employer denies a lateral transfer for reasons based on race or gender or other protected grounds, that employer violates Title VII. Ortiz-Diaz, 867 F.3d. at 74-77. In both decisions, Judge Kavanaugh wrote a concurring opinion arguing in favor of expanding the definition of adverse employment action to include discriminatory refusal to grant requests for lateral transfers. Id. at 81; Ortiz-Diaz, 831 F.3d at 494. Similarly, in Ayissi-Etoh, 712 F.3d at 579-80, Judge Kavanaugh wrote a concurring opinion, arguing that a single verbal incident ought to be sufficient to establish a hostile work environment. Judge Kavanaugh opined, “[t]he test set forth by the Supreme Court is whether the alleged conduct is ‘sufficiently severe or pervasive’ — written in the disjunctive — not whether the conduct is ‘sufficiently severe and pervasive.’” Id. at 579. He continued, “in my view, being called the n-word by a supervisor — as Ayissi-Etoh alleges happened to him — suffices by itself to establish a racially hostile work environment.” Id. at 580.

Employee Benefits

Some of Judge Kavanaugh’s dissenting and concurring opinions offer insight into what his approach may mean for employers. In Priests for Life v. United States Dep’t of Health & Human Servs., 808 F.3d 1, 14 (D.C. Cir. 2015), Judge Kavanaugh dissented from the denial of a rehearing en banc in a Religious Freedom Restoration Act (RFRA) challenge to the process for accommodating religious objections to the Affordable Care Act’s contraceptive mandate. Under the accommodation, the carrier still provides the services to the plan participants, but directly to those requesting them rather than the plan paying for the services as the mandate requires. The panel decision had upheld the accommodation, stating that a court is not required “simply to accept whatever beliefs a RFRA plaintiff avows—even erroneous beliefs about what a challenged regulation actually requires.” Id. at 4. Rather than join other conservative dissenters, who would have held for the religious organization agreeing that the government has no compelling interest in contraception facilitation, Kavanaugh wrote, “It is not our job to re-litigate or trim or expand Supreme Court decisions. Our job is to follow them as closely and carefully and dispassionately as we can. Doing so here, in my respectful view, leads to the conclusion that the plaintiff religious organizations should ultimately prevail on their RFRA claim, but not to the full extent that they seek.” Id. at 14.

Judge Kavanaugh’s approach to his cases is objective and literal, and he has shown a depth of understanding of ERISA, as well as an employer’s duties and responsibilities. His dedication to the text of the law or the plan document does not favor one side over the other, but rather illustrates his commitment to interpreting the language objectively before applying it to the situation.

Immigration

Judge Kavanaugh’s immigration decisions indicate a tendency to interpret the law to protect U.S. workers rather than employers who want to hire foreign nationals. For example, his dissent in Fogo de Chao (Holdings) Inc. v. U.S. Department of Homeland Security, 769 F.3d 1127 (D.C. Cir. 2014), offers a glimpse into his approach to immigration law. Fogo de Chao, a Brazilian steakhouse restaurant chain, claimed that a critical component of its success included employing genuine gaucho chefs, churrasqueiros, who “have been raised and trained in the particular culinary and festive traditions of traditional barbecues in the Rio Grande do Sul area of Southern Brazil.” Id. at 1129. Over the years, the company had brought over 200 chefs to the U.S. on L-1B visas. To qualify for an L-1B visa, the company must show that the individual has worked for the company abroad for at least one year in the prior three years and has “specialized knowledge.” The statutory definition states that an employee possesses specialized knowledge “if the alien has a special knowledge of the company product and its application in international markets or has an advanced level of knowledge of processes and procedures of the company,” and the regulation followed suit. 8 U.S.C. § 1184(c)(2)(B). The U.S. Citizenship and Immigration Services (USCIS) denied Fogo de Chao’s petition, and the district court granted the government summary judgment. The D.C. Circuit reversed, holding that: (1) the regulation regarding “specialized knowledge” would not be given Chevron deference because the regulation merely mirrored the statute; (2) judicial review was not barred because the denial was not statutorily in the discretion of the Attorney General or the Secretary of Homeland Security; and (3) the agency’s denial based upon a categorical bar on culturally acquired knowledge to prove specialized knowledge was not sufficiently supported. Fogo de Chao, 769 F.3d at 1149.

Judge Kavanaugh dissented, noting that even if Chevron deference was not required, under a de novo standard of review, the agency’s decision should have been upheld. He reasoned the categorical bar on culturally acquired knowledge was correct because any other interpretation would “gut the specialized knowledge requirement and open a substantial loophole in the immigration laws.” Id. at 1152. Moreover, Judge Kavanaugh agreed with the agency that Fogo de Chao’s argument that American chefs could not be trained in a reasonable amount of time was inadequate. He noted that Fogo de Chao already employed some American chefs and “common sense tells us that the chefs who happen to be American citizens surely have the capacity to learn how to cook Brazilian steaks and perform the relevant related tasks.” Id. at 1153.

Ultimately, Judge Kavanaugh concluded that Fogo de Chao’s argument was at least in part based on their desire to cut labor costs and that “mere economic expediency does not authorize an employer to displace American workers for foreign workers.” Id. He further stated that: “By claiming that its Brazilian chefs possess ‘cultural’ knowledge and skills that cannot be learned by Americans within a reasonable time, Fogo de Chao has attempted an end-run around the carefully circumscribed specialized knowledge visa program.” Id. at 1154. Finally, in an interesting footnote, Kavanaugh pointed out that the agency could adopt a binding regulation (instead of relying on a policy memo) that would make it clear that workers such as the chefs in this case do not possess specialized knowledge under the statute ― then their decision would be entitled to Chevron deference. Id.

Judge Kavanaugh’s majority opinion in Int’l Internship Program v. Napolitano, 718 F.3d 986 (D.C. Cir. 2013), also illustrates his inclination to protect U.S. workers from being undercut based on an employer’s economic needs. Napolitano involved an organization that sponsored a cultural exchange program that helped Asians find jobs in American schools. The exchange program applied for Q visas for these individuals. The USCIS denied several of these petitions because the individuals participating in the program were not paid. The agency interpreted the Q visa statute and regulations to require payment of wages. Id. at 987.

The plaintiff argued that unpaid interns were eligible for Q visas as long as there were comparable American workers in the program who were unpaid because the statute stated that the foreign participants “will be employed under the same wages and working conditions as domestic workers.” Id. citing 8 U.S.C. § 1101(a)(15)(Q). Judge Kavanaugh disagreed, opining that the terms included in the statute and regulations (“employed,” “wages,” “workers,” and “remuneration”), were “best read to require foreign citizens to receive wages and that those wages be equivalent to the wages of domestic workers.” Int’l Internship Program, 718 F.3d at 987.

Labor

Because Judge Kavanaugh sits in the D.C. Circuit, he has frequently been involved in cases reviewing National Labor Relations Board (NLRB) decisions, which he appears to analyze on a case-by-case basis rather than in service of an overarching judicial philosophy. Judge Kavanaugh has written several majority opinions that vacated an NLRB order. Writing for the majority in S. New Eng. Tel. Co. v. NLRB, 793 F.3d 93, 94 (D.C. Cir. 2015), Judge Kavanaugh vacated an NLRB decision that had found an employer unlawfully banned employees (who went into customer’s homes) from wearing union t-shirts that stated “Inmate” and “Prisoner of AT.” Judge Kavanaugh opened his opinion by noting: “Common sense sometimes matters in resolving legal disputes,” and criticized the Board for applying “the ‘special circumstances’ exception in an unreasonable way.” Id. at 94, 96; see also Verizon New Eng. v. NLRB, 826 F.3d 480, 483 (D.C. Cir. 2016) (granting the employer’s petition for review of an NLRB decision which had overturned a labor arbitration decision that had ruled for the employer); Venetian Casino Resort L.L.C. v. NLRB, 793 F.3d 85, 87 (D.C. Cir. 2015) (granting employer’s petition for review, finding employer had a First Amendment right to contact police regarding a union demonstration allegedly trespassing on its private property).

In addition, Judge Kavanaugh has authored several dissenting opinions in favor of employers’ arguments. Most recently, in Island Architectural Woodwork, Inc. v. NLRB,2018 U.S. App. LEXIS 16109, at *32 (D.C. Cir. June 15, 2018), he dissented from the majority opinion enforcing an NLRB order holding an employer was an alter ego of a unionized shop and thus violated the National Labor Relations Act (NLRA). Judge Kavanaugh stated that “the Board’s analysis is wholly unpersuasive.” Id. at *34. In NLRB v. CNN Am., Inc., 865 F.3d 740, 765-66 (D.C. Cir. 2017), Kavanaugh dissented in part, finding that the NLRB erred in its analysis of both the joint-employer and successor-employer issues when it found that CNN had violated the Act, stating, among other things, that he agreed with conservative Member Miscimarra’s dissent in the underlying NLRB decision. Judge Kavanaugh ended his decision bluntly, “Bottom line: In my view, the Board jumped the rails in its analysis of both the joint-employer and successor-employer issues.” Id. at 767.

Judge Kavanaugh also dissented in Agri Processor Co. v. NLRB, 514 F.3d 1, 10 (D.C. Cir. 2008), refusing to join the majority’s decision enforcing an NLRB decision that held individuals who are not legally authorized to work in the United States are nonetheless “employees” for the purposes of the NLRA (and permitted to organize and vote in Union elections involving their employer). Judge Kavanaugh’s dissenting opinion stated, “I would hold that an illegal immigrant worker is not an ‘employee’ under the NLRA for the simple reason that, ever since 1986, an illegal immigrant worker is not a lawful ‘employee’ in the United States.” Id. In Kavanaugh’s view, the case should have been remanded to the Board “to determine how a party can challenge a union election or certification upon discovering after the fact that illegal immigrant workers voted in the election and effected the outcome.” Id.; see also Midwest Div.-MMC, LLC v. NLRB, 867 F.3d 1288, 1304-05 (D.C. Cir. 2017) (dissenting from majority, stating he would hold Weingarten rights do not apply to peer-review committee interviews, noting he would vacate the Board’s order to the extent it ruled the Union was entitled to peer-review information).

However, Judge Kavanaugh has sided with the NLRB in some instances. Most recently, in Veritas Health Servs., Inc. v. NLRB, 671 F.3d 1267, 1269-70 (D.C. Cir. 2012), Kavanaugh enforced an NLRB decision that had determined that certain pro-union conduct of charge nurses (supervisors) did not taint a union election, determining the employer did not show that the Court should overturn the decision upholding the election that resulted in the union’s certification. See also New York-New York, LLC v. NLRB, 676 F.3d 193 (D.C. Cir. 2012) (finding the NLRB had been granted discretion pursuant to an earlier Circuit decision to decide whether a property owner could prohibit employees of an on-site contractor from distributing handbills on its property); Raymond F. Kravis Ctr. for the Performing Arts, Inc. v. NLRB, 550 F.3d 1183, 1186 (D.C. Cir. 2008) (enforcing Board Order holding the employer violated the NLRA when it unilaterally changed the scope of the bargaining unit and withdrew recognition from the union); United Food & Commercial Workers v. NLRB, 519 F.3d 490, 492 (D.C. Cir. 2008) (enforcing NLRB decision that held employer was required to engage in effects bargaining with the union after positions no longer constituted an appropriate bargaining unit due to technological change); E.I. du Pont de Nemours & Co. v. NLRB, 489 F.3d 1310, 1312 (D.C. Cir. 2007) (enforcing Board Order finding that employer’s refusal to provide requested information to the union precluded lawful impasse).

Workplace Privacy

Judge Kavanaugh’s dissent in Nat’l Fed’n of Fed. Employees-IAM v. Vilsack, 681 F.3d. 483 (D.C. Cir. 2012), is perhaps indicative of his stance on privacy issues. In Vilsack, the plaintiff union challenged the constitutionality of a policy of random drug testing of all employees working at the Job Corps Civilian Conversation Center (specialized residential schools for at-risk youth) run by the defendant, the Secretary of Agriculture and Chief of the U.S. Forest Service. 681 F.3d at 485. The district court granted the Secretary’s summary judgment motion, concluding that the government interest in preventing illegal drug use justified intrusion of employee privacy interests and Fourth amendment rights. Id. at 488. The D.C. Circuit Court reversed and remanded the case. Id. at 486.

The panel opinion considered the balancing of the government’s interest in a drug free work place with employee privacy interests, using the Skinner test in assessing the employees’ privacy interests, to determine both “the scope of the legitimate expectation of privacy at issue” and the “character of the intrusion that is complained of.” Id. at 490. In ruling in favor of the plaintiffs and their interest in employee privacy, the opinion emphasizes the defendant’s lack of explanation of how “general program features loosely ascribed staff responsibilities serve to undermine the reasonable expectations of privacy held by Job Corps employees” and the lack of notice of such testing, given that for over a decade employees in the same position were not tested. Id. at 493. Moreover, typically drug testing is considered permissible in high security or safety positions; however, here the Secretary defendant designated all employees to drug testing, and the court concluded the defendant’s rationale supporting “special needs” to justify drug testing all employees was too speculative. Id. at 494-95, 498.

Judge Kavanaugh’s dissent narrowly addressed the issue of drug testing government employees who work at specialized residential schools for at-risk youth, and avoided an assessment of when drug testing should or should not be permissible in the government setting in general. Id. at 499-500. In the specific context of random drug testing at a “public school” for “at-risk youth,” Kavanaugh stressed that there was no Supreme Court precedent. Id. at 500. He distinguished a case the majority relied on, Vernonia School Dist. v. Acton, 515 U.S. 646 (1995), that cautioned against “suspicionless drug testing” passing “constitutional muster” in the public school setting. In Vernonia, the public school attempted to justify “suspicionless drug testing” of teachers and other staff on the basis that in the same school, drug testing of student athletes was permitted. Judge Kavanaugh found the Secretary’s rationale supporting “special needs” to be persuasive. See Vilsack, 681 F.3d at 501. “To maintain discipline, the schools must ensure that the employees who work there do not themselves become part of the problem,” Kavanaugh stated. Id. “That is especially true when, as here, the employees are one of the few possible conduits for drugs to enter the schools.” Id.

Judge Kavanaugh emphasized that his dissenting opinion was narrowly limited to this specific factual situation. See id. at 499-500. Therefore, in this case, although Kavanaugh ultimately concluded that the government’s interest outweighed the employees’ right to privacy, it remains difficult to assess the degree to which this case signals Kavanaugh’s stance on privacy issues generally.

***

Next steps: Judge Kavanaugh’s nomination must be approved by the U.S. Senate after the Senate Judiciary Committee holds a hearing. After a hearing, the committee votes on whether to put Kavanaugh before the Senate. If the committee votes to move forward, the Senate will vote on the nomination. A majority vote of the Senate is needed to put Judge Kavanaugh on the Court.

President Trump will have the opportunity to leave a lasting mark on the federal judiciary, which currently has more than 100 vacancies pending in the U.S. District Courts and the Courts of Appeals. In addition to the selection of the current nominee and Justice Gorsuch’s appointment in April 2017, Trump may have occasion to fill another Supreme Court seat in the coming years, with Justice Ruth Bader Ginsburg at age 85 and Justice Stephen Breyer at age 79.

Jackson Lewis P.C. © 2018
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Ninth Circuit’s Decision Holds That Salary History Is Not a Defense to Equal Pay Claims

The federal Equal Pay Act (“EPA”) mandates equal pay for equal work regardless of sex.  Employers that pay men and women different wages for the same work are strictly liable for violations of the EPA unless they can show that one or more of four exceptions apply to explain the wage disparity. The four statutory exceptions are seniority, merit, the quantity or quality of the employee’s work, or “any other factor other than sex.”  The Ninth Circuit recently took up the question of the meaning of the fourth, catchall exception – “any factor other than sex” – in order to consider whether an employer may rely, in whole or in part, on an employee’s prior salary as a basis for explaining a pay differential in Aileen Rizo v. Jim Yovino.

Rizo was a math consultant who worked for the Fresno County Office of Education (“County”). After learning that comparable male employees were earning more for the same work, Rizo filed suit against her employer, alleging that its practice of calculating the salaries for newly hired employees based on their salary history violated the EPA. The County did not dispute that Rizo was paid less than her male counterparts, but it argued that basing her salary on past earnings was a lawful reason for the pay differential as it constituted a “factor other than sex” under the EPA.

On April 9, 2018, the Ninth Circuit sitting en banc rejected the County’s argument. The Court held that “prior salary alone or in combination with other factors cannot justify a wage differential.” Writing for the majority, Judge Reinhart stated that justification of a pay disparity based on “‘any other factor other than sex’ is limited to legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance.” The Court explained that the terms “job-related” and “business-related” are not synonymous and that an employer cannot explain a pay differential based on the benefit to the business as opposed to a legitimate work-motivated consideration.  Some examples of job-related factors identified by the Court included shift differentials, job hazards, physical job requirements, and training.  Unlike each of these things, past salary was not a “job-related” factor but rather, potentially, a business-related factor.

The Court further opined that permitting an employer to rely on historical pay information was inconsistent with the purpose of the EPA, which was to correct past pay discrepancies caused by sex discrimination.  “It is inconceivable,” wrote Reinhart, “that Congress, in an Act the primary purpose of which was to eliminate long-existing ‘endemic’ sex-based wage disparities, would create an exception for basing new hires’ salaries on those very disparities….”  Thus, the majority concluded that relying on past salary in order to explain a wage differential was improper, even if it was only one of the factors ultimately considered.  Confusingly, the Court also noted that there could be instances in which past salary might play a role in individualized negotiations and declined to resolve whether past salary could be taken into account in such circumstances.  However, given the broad pronouncement against factoring past compensation into current salary considerations, it would seem unlikely that the current court would countenance such an exception.

In finding that past salary may never be considered, the Rizo decision overrules the Ninth Circuit’s prior ruling in Kouba v. Allstate Insurance Co. 691 F.2d 873 (9th Cir. 1982).  Kouba held that past salary could be one of the factors considered by employers in evaluating pay, as it was a “factor other than sex” permissible to justify pay gaps between men and women under the EPA.  Notably, four of the eleven judges on the panel concurred with the decision in Rizo, because salary history was the sole reason for the pay disparity, but separated from the majority on the issue of excluding salary history from consideration under any circumstance.  The Rizo decision has also exacerbated a circuit split on whether salary history may be considered, and to what extent.  While certain circuits have taken an approach similar to the concurring judges in Rizo, permitting it as long as it is not the sole basis for a pay disparity, the Seventh Circuit has held that salary history is always a legitimate factor other than sex.

While California employers are no longer entitled to inquire about past salary as part of the job application process as of January 1, 2018, in light of the Rizo decision, employers with operations in California, Oregon, Washington, Idaho, Montana, Nevada, Arizona, Alaska, and Hawaii may wish to take actions to ensure that any pay disparities are not based on salary history, such as not asking about salary history during the hiring process (even in states where this practice is not prohibited by law) and conducting pay equity audits.

 

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