Labor & Employment Archives - Page 66 of 155

Making Your Employees’ Votes Count: Employer Obligations on Election Day

With just days to go before the 2018 midterm elections, candidates are sending out their final pleas for voters’ endorsements and employers are taking steps to ensure that their employees have the ability to voice their choice. According to electionday.org, nearly 60% of voting-eligible Americans did not vote in the last midterm elections, with 35% of those nonvoters reporting that “scheduling conflicts with work or school” kept them from getting to the polls.

So, what are employers’ obligations to employees when it comes to getting out to vote? Federal law does not require employers to provide workers with time off to vote, though it does generally protect an employee’s right to vote by prohibiting interference with the voting process. The majority of states (nearly 60%), however, have laws on the books that provide some level of protection to employees who need to take time off work in order to cast their vote. The laws vary state-by-state – some states simply require an employer to allow an employee “sufficient” unpaid leave time to vote, while other states mandate 2-4 consecutive non-working hours of paid leave to vote. In states with laws requiring employers to allow employees time off to vote, they apply to both public and private employers, and the majority of these state laws require that employees be paid for at least a portion of any such voting leave.

In order to ensure compliance with various state laws, employers should consider the following practices:

Maintaining voting leave policies that are compliant with the laws in all states/localities in which the company operates;
Training managers on the applicable voting laws and any policies in advance of any major elections – particularly if they manage non-exempt employees;
Providing employees anywhere between 2-4 hours of paid or unpaid time off at the beginning or end of a shift for voting leave in certain circumstances (typically where the employees’ daily schedule would not allow them a block of 2-4 consecutive non-working hours between the opening and closing of the polls to vote);
Scheduling employees’ work hours on election days so that every employee will have the opportunity to exercise their right to vote;
Allowing employees to vote during the first two hours in which polls are open in the state;
Posting notices in the workplace reminding employees that they have the right to use time off to vote (note that such posted notices are required by some states, including California and New York); and
Requiring employees to provide reasonable notice (anywhere from 1-7 days, depending on the applicable law) of their intention to take time off to vote.

At a minimum, employers should ensure they are in compliance with any state or local voting leave laws applicable to their locations. Some of those laws are very detailed (time off can vary based on the mileage between a voter’s place of employment and their designated polling location; some laws apply only to employees in certain industries) while others are much more generic in scope (requiring employers to allow “reasonable” or “sufficient” time off, or “encouraging” employers to allow time off, but setting no specific rules). In order to prevent abuse, some state laws require proof of voting before an employer is obligated to make a payment for voting leave, and many require that employees provide some level of advance notice that they will be taking time off to vote. In many states, failure to comply with the applicable laws can subject employers to the possibility of criminal or civil penalties.

Even in states where the law does not mandate employee time off to vote, best practice for employers is to provide some base level of paid time off to employees to vote. For employers operating in multiple states, maintaining one policy that complies with the most favorable of all of the states’ laws where the company is located is advisable. In addition, employers will be well-served by training managers on any company voting leave policy well in advance of any major election in order to ensure that employees are aware of the policy and that managers know how to apply it.

In preparation for next week, employers should review their existing voting leave policies to ensure compliance with applicable laws. Employers without voting leave policies should analyze the potential barriers their employees face in getting to the polls, determine the legal requirements of the states in which they operate and implement a policy that is compliant with the applicable laws and meets the company’s operational needs. Employers should also treat time off for early voting the same way they do Election Day voting, document employees’ requests for time off to vote, direct non-exempt employees to record their time appropriately, and maintain a record of voting leave. In addition, employers can be proactive by adding Election Day to the work calendar and having managers remind employees that the company encourages employees to use their time to vote.

Employment, Labor & Benefits at Mintz Levin

Five Things You Should Know About Employment Practices Liability Insurance

If you listen closely on a quiet weekday afternoon, you can hear the steady thumping of stamps on inkpads at the Equal Employment Opportunity Commission’s (EEOC) offices on West Madison Street in Chicago. And it’s no different throughout the country — employee claims of discrimination, harassment, and retaliation are high paced and showing no signs of slowing down.

This high rate of claims means your company needs to be savvy about a number of key strategies that can help you minimize risk. One of these strategies may include purchasing employment practices liability insurance (EPLI). Here, we answer some core questions about EPLI:

1. What is EPLI, and how does it differ from related insurance policies?

EPLI policies allow employers to protect themselves against the exposure and costs associated with claims and litigation arising out of the employment relationship. These policies generally cover claims made by current and former employees, applicants who were never hired, or third-parties claiming the employer has engaged in wrongful conduct.

Discrimination, harassment, retaliation, wrongful discharge, and invasion of privacy are the typical claims covered by EPLI. On the other hand, claims that an employer violated the Fair Labor Standards Act (e.g., failure to pay overtime, misclassification as an independent contractor) are typically not covered by EPLI policies, nor are claims under ERISA, COBRA, or the National Labor Relations Act, although it may be possible to purchase limited coverage for defense costs.

Not surprisingly, EPLI is but one item on a buffet of insurance offerings to employers; alongside it are directors and officers (D&O), commercial general liability (CGL), and errors and omissions (E&O) policies, each serving a distinct purpose. D&O insurance covers acts committed by a company’s directors and officers only; it is of no help when an employee’s supervisor is accused of sexually harassing an employee. Likewise, E&O policies are concerned with true errors and omissions allegedly committed in the course of doing what your company does for a living, and are not implicated by allegations of discriminatory discharge, which is seldom an accident. CGL policies often expressly exclude wrongful employment practices. In other words, EPLI may overlap with other types of coverage, but it largely exerts its own force in confronting an array of everyday claims.

2. Should my company purchase EPLI?

Maybe — it’s a business decision that requires you to take into account several factors, such as the cost of the EPLI premiums and the extent of the deductible (or self-insured retention, to be explained below), your company’s location and number of employees (and how these correlate with the likelihood of a claim being filed against your business), history of claims and losses, and whether you have written, preventative employment policies in place.

According to the 2017 Hiscox Guide to Employee Lawsuits, U.S. companies have a 10.5% chance of being on the receiving end of an employment-related charge, and the chances for Illinois companies are 35% higher than the national average. On average, small-to-medium size companies facing such claims battle for 318 days before resolution and leave the arena with a $160,000 bruise.

As with every type of insurance, the perceived value of the coverage depends upon the company’s level of comfort with the self-insured retention (SIR) or deductible. The SIR is the amount the company must pay out of pocket at the beginning stages of a claim; the insurer is not required to pay a penny until after the SIR has been met by actual payment of defense costs and/or losses by the insured. A deductible, on the other hand, is subtracted by the insurer from its total policy payment, which then must be paid by the company.

As expected, the policy premium will seesaw with SIR levels. Policies with a high SIR amount (or deductible) typically will have lower premiums than the same policy with a low SIR or deductible. These policies are better suited for companies that view EPLI as a type of catastrophic coverage. On the flip side, if your cash flow would make it difficult to absorb a high SIR, then a higher premium with a lower SIR amount may make economic sense.

The number of individuals employed by your company should also factor into your decision-making. Although most federal anti-discrimination statutes apply only to businesses with 15 or more employees, smaller companies are subject to state anti-discrimination laws, which may govern employers with only one employee (depending on the nature of the claim). Nevertheless, it is not unreasonable for a small company in certain industries to forego EPLI, while maintaining strong training and preventative strategies, until it grows closer to 15 employees.

Given the numerous factors that must be taken into account, employers should consult with their attorneys and business advisors to reach a sound decision about whether and what type of EPLI to purchase.

3. What should I do when negotiating the purchase of an EPLI policy?

It is better to negotiate a good EPLI policy up front, than to sign up for standard terms, stuff the policy packet in your desk drawer, and later bemoan its shortcomings when an issue pops up.

A good first step is to talk to your attorney about her previous experiences with various insurance companies; lawyers repeatedly deal with EPLI carriers and it’s best to make decisions based upon known trends than to shop just based on price.

You should determine whether the policy imposes on the insurer a “duty to defend” or a “duty to reimburse.” A duty to defend requires the insurer to defend the claim or lawsuit, cover legal fees and costs, and pay for liability (all up to the policy limits). Insurers with a duty to defend retain high levels of control over the defense of claims, the selection of counsel, and litigation and settlement strategies. The duty to defend extends to all claims, even frivolous ones, or issues reasonably related to the underlying claim.

An insurer subject to a “duty to reimburse,” on the other hand, must reimburse covered costs and losses and is typically not required to defend matters reasonably related to the underlying claim. However, the company retains higher levels of control in selecting counsel and executing its defense strategies.

You may want to consider negotiating a “mutual selection of counsel” endorsement to the policy, which will provide you with greater flexibility in retaining your own counsel, even where the insurer has a duty to defend with the corresponding high levels of control. This will prove helpful when you want your preferred counsel to handle a case, and do not want to relinquish your fate to unknown lawyers selected by the insurance company. Be aware, however, that even if you are able to obtain a selection of counsel provision, you may be required to share in the cost of attorneys’ fees to the extent your preferred counsel charges rates higher than the default panel rates typically paid by insurers. This should be another point of discussion during your negotiations.

4. Even if my company has an EPLI policy, does it always make sense to report a claim?

Unlike auto insurance policies, reporting a claim does not typically impact the cost of maintaining or renewing your EPLI policy. Therefore, it is usually wise to report claims as you become aware of them. However, there may be circumstances where it does not make sense to do so. For example, if your policy comes with an SIR (self-insured retention) of $25,000, and you believe you can settle the matter for $10,000, reporting the claim may achieve nothing but a headache. But even that logic comes with risks; if you are wrong in your estimates and the settlement numbers start to creep up, you risk losing coverage altogether due to untimely notice to the insurer. When in doubt, err on the side of reporting, and consult your attorney to help reach a sound decision.

It is also wise to “park” a potential claim. “Parking” a claim means notifying your carrier that you have been made aware of facts or circumstances that might give rise to a future claim (but for which no current claim exists). If a claim based upon those facts or circumstances later materializes outside of the policy period, because you “parked” your claim, it will be treated as though it arose and was reported during the relevant period.

Staying silent when you know something is brewing may backfire, as insurers are not interested in selling fire insurance to someone who already smells smoke. Providing timely and transparent notice via “parking” also demonstrates to the insurer that your company is prudent, which fosters confidence in the relationship and promotes a sense that you are serious about risk management.

5. What are some common mistakes companies make regarding EPLI policies?

Because most companies prefer to focus on running their business than worrying about the minutiae of an insurance policy, it is easy to overlook potentially critical missteps. Many companies, for example, have never heard of EPLI or don’t even know if they have it. Others automatically renew policies they’ve never read, rather than negotiate more favorable terms. Sometimes, a company is unaware of relevant policy periods, or neglects to promptly ascertain whether an event or awareness of an event constitutes a claim or otherwise triggers reporting requirements. Finally, because there are so many types of insurance policies out there, it is not uncommon for companies to think their existing policies will address employment practices claims, only to later discover that they’re hung out to dry.

ARTICLE BY

Laura A. Elkayam

Neil B. Posner

Much Shelist, P.C.

How to Avoid Halloween Horror Stories in the Workplace

This is the season of pumpkin spice, crisp air, falling leaves, and costume parties. But as much as we love autumn, it brings its own set of workplace complexities—especially when celebrating Halloween. Below are a few tips for keeping Halloween festive and nonlitigious:

Optional Participation

Employers may want to ensure that employees are not forced to wear costumes, pass out candy, or attend a Halloween party. Today, Halloween is largely secular, but some believe it has its roots in the religious holiday of All Hallows’ Eve, the night before All Saints’ Day. All Hallows’ Eve celebrations were influenced by ancient Celtic harvest festivals, such as Samhain. Several religions choose not to celebrate Halloween because of these roots in other traditions.

To avoid religious discrimination claims and prevent overall morale concerns for those who may not want to participate, an employer can convey that participation in office Halloween events is optional, not mandatory, and that retaliation against and harassment of people who opt out is not acceptable. Calling someone a “party pooper” or “poor team player” because he or she doesn’t feel comfortable participating in Halloween festivities—either because he or she does not want to be “spooked” or because Halloween traditions conflict with his or her religious or cultural beliefs—could expose an employer to liability.

Appropriate Costumes

If an employer allows employees to wear costumes to work, it can provide clear guidelines of what’s acceptable and specific examples of what’s not. For example, an employer can discourage employees from making racially and culturally insensitive costume choices as well as sexually suggestive outfits. Employers can keep in mind that employees dressed in the traditional attire of any ethnicity, as undocumented immigrants, or as Middle Eastern terrorists may face national origin discrimination accusations. In addition, some costumes could be considered racially insensitive and lead to race discrimination claims, such as wearing blackface or carrying nooses.

In addition, the office isn’t the place for provocative outfits, such as scantily clad nurse uniforms. Employees or third parties may make offensive comments or jokes to an employee in a revealing costume, and the costumes themselves may make other employees uncomfortable. Keeping the office PG should keep those concerns to a minimum.

Job-Specific Costume Concerns

Employers can encourage employees to think about context when deciding on a costume to wear to work. A waiter serving food while fake brains ooze out of his head is not appetizing. A hospital chaplain breaking bad news while she’s dressed as a unicorn is not very comforting. A schoolteacher diagramming a sentence while he’s decked out as a pack of cigarettes doesn’t send a great message to students. A bank teller counting change with a mask on could make customers uneasy. Even on Halloween, these combinations don’t work well.

Key Takeaways

Employers can make sure everyone understands that normal workplace rules about harassment and professionalism apply, even on Halloween. If complaints of harassment surface, employers can investigate them promptly and thoroughly.

Most importantly, Halloween is an opportunity to have fun, boost employee morale, and foster a sense of community in the workplace.

ARTICLE BY:

Amanda C. Couture

Austin E. Smith

Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

New Federal Overtime Rule Expected in Early 2019

It doesn’t seem that long ago that employers were busily preparing for the new overtime rule that would have doubled the minimum salary level for the “white collar” exemptions from $23,660 to nearly $48,000. That new rule—finalized in May 2016 and set to take effect on December 1 of that year—was struck down by a Texas federal court in late November 2016.

President Trump took office in January 2017, and the DOL—with less interest in so aggressively raising wages as the predecessor administration—pushed the pause button on revisions to the overtime rule. In public comments, however, Labor Secretary Alexander Acosta, who assumed the post in late April 2017, repeatedly indicated that he favors some increase in the minimum salary threshold for exemption, which was last raised in 2004 (and before that, in 1975).

In July 2017, the DOL began seeing public comment on a revised overtime rule, publishing a Request for Information in the Federal Register. The comment period closed in September 2017.

In its Spring 2018 Regulatory Agenda, the Trump Administration formally announced its intention to issue a Notice of Proposed Rulemaking (NPRM) in January 2019 “to determine what the salary level for exemption of executive, administrative, and professional employees should be.”

So what should employers expect in a new overtime rule? Likely an increase in the minimum salary for exemption to something in the low-to-mid $30,000s. This would be consistent with Secretary Acosta’s comments on the issue, but still considerably lower than the level proposed by the Obama Administration. It would also be significant lower than some state law minimum salaries for exemption (consider New York’s minimum for exempt executive and administrative employees, which will climb to $58,500 at the end of 2018).

Another thing we could see in a new overtime rule are more modern examples of how the various exemptions might apply in today’s workplaces. The DOL included a number of new examples in its sweeping revisions to the overtime exemption rules in 2004. It would make sense to revisit those examples, and to consider additional examples, given how the workplace has evolved in the last 15 years.

It’s also possible the DOL will depart from a one-size-fits-all salary minimum and propose different tests for smaller or non-profit employers. Small businesses, non-profits, and educational institutions were among the loudest voices in opposition to the 2016 overtime rule changes, and would be among the hardest hit by any increase in the minimum salary levels.

What I don’t expect from a new overtime rule are automatic future increases (which were part of the 2016 rule) or a change from a qualitative to a quantitative (e.g., California-style) primary duties test.

I also don’t expect any new overtime rule to take effect before 2020. Even assuming the DOL meets its expected deadline of proposing a new rule in January 2019, it will likely receive (and have to review) hundreds of thousands of public comments. (The DOL received more than 270,000 comments in response to the proposed overtime rule that was finalized in 2016.) In all likelihood, the DOL will give employers plenty of lead time to plan and prepare for any increases in the minimum salary for exemption. So for employers who are not subject to more stringent state rules around exemption, it’s likely you have at least a year and a few months before you’d have to implement any changes.

This post was written by Allan Bloom of Proskauer Rose LLP

Learn more labor and employment news on the National Law Reviews Labor & Employment page.

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.

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.

This post was written by Limore Torbati of 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.

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. 5^th 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.

ARTICLE BY

Mary A. Gambardella

Lawrence Peikes

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.

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 (1^stCir. 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?

ARTICLE BY: Jamie L. Leary

Steptoe & Johnson PLLC

Share this:

Like this:

1. What is EPLI, and how does it differ from related insurance policies?

2. Should my company purchase EPLI?

3. What should I do when negotiating the purchase of an EPLI policy?

4. Even if my company has an EPLI policy, does it always make sense to report a claim?

5. What are some common mistakes companies make regarding EPLI policies?

Share this:

Like this:

Optional Participation

Appropriate Costumes

Job-Specific Costume Concerns

Key Takeaways

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

NEW LAWS

VETOED BILLS

TAKEAWAYS

Share this:

Like this:

Share this:

Like this:

Introduction

The First Employees

Independent Contractor or Employee

Freelance Isn’t Free

Exemptions

Joint Employment Considerations

Internships

Potential Liability

Arbitration Agreements

Other Wage and Hour Considerations During the Employment Relationship

Paid Sick Leave

Rest Breaks

Travel Time

Conclusion

Share this:

Like this:

Share this:

Like this:

Share this:

Like this: