Category: Labor & Employment

Pokémon Go: At (Or Coming To) A Workplace Near You

Pokemon GoIf you haven’t already heard, Pokémon Go, a virtual reality app created by Nintendo and Niantic, is taking the world by storm. According to Forbes, the app is about to surpass Twitter on the Android platform in daily active users, even though it was first released just a couple weeks ago in the United States and Australia and has not yet been made available worldwide. More and more people are getting in on the action, exploring real world landscapes with their smart phones in hopes of capturing virtual Pokémon appearing on their screen based on their phone’s clock and GPS location. It seems that no location is off limits, as Pokémon appear on or near both public and private property – even in bathrooms. As the Pokémon franchise motto commands, users “Gotta Catch ’Em All” at designated “Pokéstops” in their quest to become a renown Pokémon “trainer” who can out battle other users at local, virtual “Gyms.”

Pokémon Go users have been wreaking havoc, day and night, along the way. They have been loitering near, and trespassing on, private property, so much so in Massachusetts that the Boston police are calling for users to be “vigilant” in avoiding private property and the “obvious inherent dangers” presented by playing Pokémon Go. They have disrupted operations at hallowed sites, such as the 9/11 Memorial and the Holocaust Museum. One even interrupted a live weather report. Users have used the app to lure and then rob other, unsuspecting users. One gamer ran his car into a tree while playing the app. Another was hit by a car trying to cross a public highway while playing the app. They have even fallen off a 75 foot-high cliff while playing the app.

Employers are not immune from the Pokémon Go fun. They have been – or soon will be – affected not only as property owners but also as managers of their employees.

Employer as Property Owner

As legal bloggers have noted, Pokémon Go challenges the traditional paradigm for legal property rights. It blurs the lines between reality and augmented reality, raising a number of interesting legal questions in the process. Does placing a Pokémon on private property without permission affect a property owner’s common law right to exclusive ownership of his property? Are Nintendo/Niantic potentially liable for placing characters on private property? Does the presence of virtual Pokémon on a property create an attractive nuisance that could create liability for the owner in the event a child-user injures himself on the property? If so, how would the property owner abate the nuisance? Can the state preclude users from playing Pokémon Go on public property consistent with the First Amendment? The answers to these questions are unclear.

What is clear, however, is a property owner’s right to exclude others from his property under West Virginia law. A property owner generally has the right to exclude other persons from his property, but there are exceptions to this rule. For example, if the property is a place of public accommodation, the property owner may not exclude persons based on their protected status, e.g., race, sex, religion, disability, or national origin. Generally speaking, however, property owners could legally exclude Pokémon Go users from their premises. To wit, in the case of a trespasser, a property owner could seek monetary damages for any damages caused by a trespass, even if such damages are only nominal.

A property owner’s obligation to keep his property safe is also clear. In the case of an invited person, the property owner must exercise reasonable care to protect the invited person from anticipated/foreseeable hazards. In the case of a trespasser, such as a wandering Pokémon Go user, the property owner need only refrain from willfully or wantonly injuring the trespasser to escape liability.

Pokémon Go isn’t all bad from a property owner’s perspective, however. For the right property/business owner, Pokémon Go could be a very useful marketing tool. Just Google “6 Ways To Use Pokémon Go in Your Local Marketing Campaign” to learn how. One New York Pizzeria spent just ten dollars to have a dozen Pokémon lured to its store and saw a 75% increase in their business. How’s that for return on investment?

Employer as Manager

Pokémon Go also raises several concerns for employers as managers. Several of these concerns are obvious. The foremost of these concerns may be workplace safety. In a little more than a week, Pokémon Go users have shown just how dangerous the app can be. Think about what could happen if you added a distracted user to the existing hazards in your workplace. Disaster. In addition, there is the age-old concern of vicarious liability, especially for employers who have employees out on the road. Your mobile device policy should preclude employees from using a mobile device while driving, if it doesn’t already. West Virginia law makes it unlawful to use your phone while operating a motor vehicle on a public road.

Further, Pokémon Go is yet another appealing fad, much like March Madness, that threatens to bring your workforce to a halt while on the clock, particularly if you employ groups of Millennials or Gen Zers. You must set appropriate boundaries and outline clear expectations with your employees, especially where you are relying on broad language in your company handbook. If you need a “catchy” sign to get your employees’ attention, one human resource manager has got you covered:

pokemon forbidden

Otherwise, revisit your personnel policies and update them as needed to mitigate the potential employment carnage that could result from Pokémon Go. At bare minimum, no Pokémon hunts in the bathroom!

There are at least a couple of hidden concerns with Pokémon Go too. For one, users participate on the Pokémon Go program with their phone’s camera and will soon, if they do not already, have the option of recording or even live streaming their Pokémon Go gameplay. That is cause for concern where employees are permitted to play Pokémon Go on breaks in the workplace. In their quest to capture Pokémon “living” around the office, they may record or stream unsuspecting coworkers, or worse, confidential company information. This creates one more avenue for workplace conflict among employees and raises security concerns for private company information.

For another, Pokémon Go may be a cyber-security concern for company’s using Google products, such as Chrome, Gmail, and Google drive. When the app first debuted, it requested “full access” to the user’s Google account, which meant that Nintendo and/or its partner, Niantic, could not only review your email, your Google docs, Google photos, your location history, your search history, but also, modify all that content, and even send emails as the user of your Gmail account! For users who signed up with a company-related Google account, Niantic was functionally a business partner. It appears that recent outcry has led the Pokémon Go creators to modify the permissions required to download the app. It will be interesting to see whether this change is enough to quell the public outcry. Either way, the initial cyber-security scare is a reminder that employers should remain vigilant in maintaining the wall between work and play with employees that have been granted a company-sanctioned mobile device.

What You Should Do

Pokémon Go is all the rage and promises to be for your employees soon, if it isn’t already. Regardless of whether the app catches on at your workplace, go through the exercise of reviewing your mobile device and social media policies. Are they inclusive of augmented reality apps? If necessary, update them to ensure that they are clear on the use, non-use, or limited use of augmented reality apps like Pokémon Go at your workplace. But don’t stop there. Review your policies with your employees, even if you don’t make any changes. Make sure that employees are aware of the boundaries for augmented reality apps at the office.

ARTICLE BY Benjamin W. Mounts of Steptoe & Johnson PLLC
© Steptoe & Johnson PLLC. All Rights Reserved.

OSHA to Employers: No Gagging Whistleblowers!

OSHA whistleblowersOn September 9, 2016, the United States Occupational Safety and Health Administration (“OSHA”) published new guidelines for approving settlements between employers and employees in whistleblower cases to ensure that those agreements do not contain terms that could be interpreted to restrict future whistleblowing. OSHA reviews settlements between employees and employers to ensure that they are fair, adequate, reasonable, and in the public interest, and that the employee’s consent was knowing and voluntary. The guidance provides that OSHA will not approve settlement agreements that contain provisions that discourage (or have the effect of discouraging) whistleblowing, such as:

  • “Gag” provisions that prohibit, restrict, or otherwise discourage an employee from participating in protected activity, such as filing a complaint with a government agency, participating in an investigation, testifying in proceedings, or otherwise providing information to the government. These constraints often arise from broad confidentiality or non-disparagement clauses, which complainants may interpret as restricting their ability to engage in protected activity. The prohibited constraints may also be found in provisions that:

    • restrict the employee’s right to provide information to the government, file a complaint, or testify in proceedings based on a respondent’s past or future conduct;

    • require an employee to notify his or her employer before filing a complaint or voluntarily communicating with the government regarding the employer’s past or future conduct;

    • require an employee to affirm that he or she has not previously provided information to the government or engaged in other protected activity, or to disclaim any knowledge that the employee has violated the law; and/or

    • require an employee to waive his or her right to receive a monetary award from a government-administered whistleblower award program for providing information to a government agency.

  • Provisions providing for liquidated damages in the event of a breach where those provisions are clearly disproportionate to the anticipated loss to the respondent of a breach, the potential liquidated damages would exceed the relief provided to the employee, or whether, owing to the employee’s position and/or wages, he or she would be unable to pay the proposed amount in the event of a breach.

When OSHA encounters these types of provisions, it will ask the parties to remove those provisions and/or prominently place the following statement in the settlement agreement: “Nothing in this Agreement is intended to or shall prevent, impede or interfere with the complainant’s non-waivable right, without prior notice to Respondent, to provide information to the government, participate in investigations, file a complaint, testify in any future proceedings regarding Respondent’s past or future conduct, or engage in any future activities protected under the whistleblower statutes administered by OSHA, or to receive and fully retain a monetary award from a government-administered whistleblower award program for providing information directly to a government agency.”

ARTICLE BY Shennan Harris of Squire Patton Boggs (US) LLP

© Copyright 2016 Squire Patton Boggs (US) LLP

Oklahoma and U.S. DOL Agree to Tag-Team Worker Misclassification Initiatives

As the effort to stamp-out worker misclassification under the Fair Labor Standards Act continues to run strong, Oklahoma is the latest state to join the U.S. Department of Labor’s Misclassification Initiative. Specifically, the Oklahoma Employment Security Commission entered into a three-year Common Interest Agreement with the U.S. DOL’s Wage and Hour Division, under which the agencies agree to share data, exchange information, and coordinate investigations and other enforcement actions within Oklahoma. As part of this collaboration each agency will be responsible for designating a “Point of Contact” and a representative to participate in quarterly (if not more frequent) meetings.

Employers in Oklahoma need to be cognizant of the risks of worker misclassification and continue to ensure that they are not improperly classifying employees as independent contractors. Indeed, Oklahoma’s joinder with the DOL’s Misclassification Initiative serves as a reminder to employers that this is a hot-button issue of particular interest to both state and federal officials, and targeted efforts are being made to eradicate misclassification nationwide. For more information, employers can look to the U.S. DOL’s website dedicated to the Misclassification Initiative. The DOL has provided a map identifying those 35 states that have partnered with the DOL as part of the Misclassification Initiative and details of such arrangements, as well as fact sheets and general DOL guidance on worker classification issues that may be of use.

This post was written by Koryn M. McHone of Barnes and Thornburg LLP.

Employee’s Disparaging and Misleading Tweets May Be Protected Under NLRA: Holy Guacamole!

Guacamole, Food, disparaging social mediaRetail employers dismayed by employees publicly airing workplace grievances in disparaging social media posts must think twice before taking disciplinary action.  On August 18, 2016, the National Labor Relations Board (“NLRB”) confirmed the finding by Administrative Law Judge Susan A. Flynn that Chipotle’s social media policy forbidding employees from posting “incomplete” or “inaccurate” information, or from making “disparaging, false, or misleading statements” on Twitter, Facebook and other social media sites violates Section 8(a)(1) of the National Relations Labor Act (“the Act”).

Chipotle discovered that an employee responded to a customer’s tweet thanking Chipotle for a free food offer, by tweeting back: “@ChipotleTweets, nothing is free, only cheap #labor. Crew members make only $8.50hr how much is that steak bowl really?”  Then, attaching a news article describing how hourly workers at Chipotle were required to work on snow days while certain high-level employees were not, the employee tweeted his displeasure, specifically referencing Chipotle’s Communications Director: “Snow day for ‘top performers’ Chris Arnold?”  Informed by his manager that Chipotle considered his tweets to be in violation of Chipotle’s social media policy, the employee removed them at Chipotle’s request.  Then, several weeks later, Chipotle fired the employee after he circulated a petition about employees not receiving required breaks.

Finding the provision in Chipotle’s policy prohibiting employees from spreading “incomplete” or “inaccurate” information to be unlawful, Judge Flynn opined that: “An employer may not prohibit employee postings that are merely false or misleading. Rather, in order to lose the [NLRA]’s protection, more than a false or misleading statement by the employee is required; it must be shown that the employee had a malicious motive.” Judge Flynn also found the policy provision prohibiting “disparaging” statements to be unlawful, explaining that it “could easily encompass statements protected by Section 7 [of the NLRA]” including “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”   Although Chipotle’s social media policy contained a disclaimer that the policy “does not restrict any activity that is protected by the National Relations Labor Act, whistleblower laws, or any other privacy rights,” Judge Flynn concluded that this “sentence does not serve to cure the unlawfulness of the foregoing provisions.”

The NLRB adopted Judge Flynn’s decision that Chipotle was wrong, not only for firing the employee, but for attempting to limit his commentary on social media by its unlawfully termed social media policy.  While agreeing with Judge Flynn’s reasons for finding the social media policy unlawful, the NLRB disagreed with Judge Flynn’s finding that Chipotle violated the NLRA by asking the employee to delete the tweets.  In particular, while Judge Flynn opined that the employee engaged in “concerted activity” even though he did not consult with other employees before posting his tweets because “concerted activities include individual activity where individual employees seek to initiate or to induce … group action,”  the NLRB disagreed, asserting, with no true explanation, that it did not find the employee’s conduct to be concerted.  Agreeing that Chipotle violated the NLRA by terminating the employee after he engaged in protected concerted activity by circulating a petition regarding the Company’s break policy, the NLRB required Chipotle to, among other things, post signs acknowledging that its social media policy was illegal, and to re-instate the employee with back pay.

The message from the NLRB to retail employers is that, barring malicious misstatements, speech concerning terms and conditions of employment is often protected activity, even for employees who want to criticize their employers on Twitter and other social media websites.  To avoid Chipotle’s fate, ensure that your social media policies are up to date and provide for the increasing protections afforded to employee social media activity by the NLRB.

ARTICLE BY John M. O’Connor of Epstein Becker & Green, P.C.
©2016 Epstein Becker & Green, P.C. All rights reserved.

Fair Pay and Safe Workplaces Final Rule Presents Challenges to Government Contractors

fair payLast week, the FAR Council released its Final Rule implementing President Obama’s 2014 Fair Pay and Safe Workplaces Executive Order. At the same time, the U.S. Department of Labor released its Final Guidance on the rule. Contractors need to take action immediately—the Final Rule goes into effect on October 25, 2016.

The proposed rule was issued back in May of 2015 and there has been lots written about it (and more than 10,000 comments and responses submitted). In today’s post, we highlight some of the requirements that may present challenges to contractors. Remember, once the rule takes effect, contractors will be required to report certain details about their labor law violations.

Public Disclosure of Labor Law Violations

Actually, contractors will be required to disclose violations of 14 federal labor laws and executive orders and state equivalents. Those laws range from the Fair Labor Standards Act and the Occupational Safety and Health Act to the Service Contract Act, the Davis Bacon Act and the Family and Medical Leave Act. The E.O.s include E.O. 13658 (Establishing a Minimum Wage for Contractors) and E.O. 1124 (Equal Employment Opportunity). The Final Rule also requires contractors to update their reports every six months. And, all disclosures under the new rule will be public.

Phase-In Periods

That’s probably one of the main takeaways here—the rule will be “phased in” over time. Starting on October 25, 2016, the disclosure requirements will become effective as to prime contracts valued at $50 million or more. By April 25, 2017, those requirements will apply to prime contracts valued at $500,000 or more. Subcontracts are not covered by the rule until October 25, 2017. Initially, the disclosure rules only will look back one year, but that “look back” period will stretch to three years by October 25, 2018.

Paycheck Transparency and Arbitration Restrictions

Starting on January 1, 2017, the “paycheck transparency” provisions take effect. Among other things, starting in 2017, contractors will be required to provide notices to workers about their status as independent contractors and whether they are exempt from overtime pay. Those notices will be particularly problematic for contractors who have not previously focused on proper classification and for all contractors in light of new overtime regulations and DOL’s increased attention to alleged worker misclassifications.

Subcontractor Reporting Directly to DOL

The Final Rule includes one significant change from the proposed rule and requires subcontractors to report directly to the Department of Labor rather than to the prime contractor. The rule also includes a contorted pathway for consideration of subcontractors’ disclosed violations, bouncing from DOL back to the sub and then up to the prime and then to the contracting officer. It remains to be seen how that process will work and if it will work efficiently.

Reporting Does Not Extend to Affiliates

The text of the Final Rule makes it clear that the reporting requirements do not extend to corporate parents, subsidiaries or affiliated companies. Instead, it is limited to the contracting party only.

Perhaps it is a silver lining for prime contractors that they will not be required to report on their subcontractors’ and their own affiliates’ labor law violations. But the new rules contain many new requirements and contractors should get ready now for the implementation to begin on October 25, 2016.

EEOC Transgender Case, New York City Labor Peace Agreements, Parental Leave: Employment Law This Week – August 29, 2016 [VIDEO]

EEOC Transgender CaseEEOC Loses Transgender Case in Michigan

Our top story: An employer wins a landmark case after firing a transgender employee. A funeral home in Michigan decided to terminate its director after he notified the business that he would be transitioning from male to female. The U.S. Equal Employment Opportunity Commission (EEOC) filed suit. On a motion to dismiss, a U.S. district court held that Title VII does not prohibit discrimination on the basis of transgender status or gender identity but allowed the EEOC to pursue a claim for sex stereotyping. The funeral home argued that it was protected under the Religious Freedom Restoration Act (RFRA), and the district court agreed, granting the employer’s motion for summary judgment.

“Once the employer is able to prove that they are entitled to a defense under the RFRA, the EEOC has a burden of not just establishing that the purpose of Title VII is a compelling government interest, but it also has to show that the means and application of Title VII was done in the least burdensome way possible. The EEOC failed to address this point in their briefing, and also failed to examine whether this was the least restrictive, or whether there was an alternative, way to enforce Title VII against this employer. . . . In order to be eligible to invoke the RFRA, an employer has to be a private, closely held corporation and cannot be a publicly traded corporation. Secondly, the RFRA can only be invoked if the party suing the employer is the government or a government agency. And third, if the employer is a government itself, they can’t invoke that they have a religion, and therefore the RFRA is not applicable.”

New York City Mandates “Labor Peace” Agreements

New York City is trying to force certain employers to sign “labor peace” agreements with unions. Mayor Bill de Blasio has signed an executive order mandating that a property developer receiving at least $1 million in “Financial Assistance” require its large retail and food service tenants to accept “Labor Peace Agreements.” These agreements would prohibit the companies from opposing union organization and provide what some consider to be affirmative support and assistance to unions. City Development Projects that were authorized or received “Financial Assistance” before July 14, 2016, are exempt from this order.

Lawmakers Urge Rejection of EEOC’s Pay Data Proposal

Senators ask for a halt to the EEOC’s pay data proposal. Three Republican senators have sent a letter to the Office of Management and Budget asking them to shut down a recent proposal from the EEOC. The proposal would expand pay data collection and require employers to categorize hours worked by sex, ethnicity, and race. The lawmakers argue that this kind of data collection would waste time and put significant new burdens on employers.

Parental Leave Requests Increase as School Year Starts

Parental leave requests are on the rise as kids head back to school. An increasing number of states now require that businesses grant unpaid leave to employees for school-related events and activities that happen during the workday. These laws apply to private employers in Washington, D.C., and in such states as California and Massachusetts. As the school year begins, employers will likely see more requests for parental leave and should consider checking the laws in their states to make sure they’re in compliance.

Tip of the Week

Finally, it’s time for our Tip of the Week. Ann Morris, Partner at Finn Partners, is here with some advice on developing a communications plan before a crisis.

ARTICLE BY George Carroll Whipple, III of Epstein Becker & Green, P.C.

©2016 Epstein Becker & Green, P.C. All rights reserved.

Key Recent Decisions in Employer Stock Plan Litigation

employee stockEach year, the National Center for Employee Ownership updates its employer stock litigation review (the ESOP and 401(k) Plan Employer Stock Litigation Review 1990–2016). Over the last 12 months, there has been a significant decline in litigation on this front, with only 21 new cases reaching the court, by far the fewest in recent years.  Seventeen dealt specifically with Employee Stock Ownership Plans, but only a few provided significant new guidance. Most dealt with legally non-controversial issues, such as distributions errors, attempts to set up ESOPs in companies with just one or two participants, and other administrative matters.

There were, however, some important decisions.

Standards of Review under the Dudenhoeffer Doctrine

The most important developments were in how the Supreme Court’s rulings on the Fifth Third v. Dudenhoeffer (Np. 12-751, U.S., June 25, 2014) would affect litigation. In that case, the Court dismissed the presumption of prudence for investing in employer stock that had long been the standard with a new pleading standard that required plaintiffs to plead a plausible alternative course of action for trustees that would not end up hurting more than helping. The standard clearly was designed with public companies in mind, but in two cases, it was applied by the courts to private companies, albeit in a very limited way. In public companies where prior decisions under the prudence presumption were remanded, the new standards have proven challenging for plaintiffs.

A number of cases were remanded after the ruling. In Tatum v. R.J. Reynolds Tobacco Co., No. 1:02-cv-00373-NCT-LPA (M.D.N.C, Feb. 18, 2016), a district court ruled for R.J. Reynolds, saying the fiduciary actions were reasonable under any standard of review. Similarly, in In re Lehman Bros. Sec. & ERISA Litig., No. 1:08-cv-05598-LAK (S.D.N.Y., July 10, 2015), the court ruled against the plaintiffs, this time saying they had failed to meet the heightened pleading standards that the Dudenhoeffer ruling set out. In Pfiel v. State Street Bank and Trust, No. 14-1491 (6th Cir., Nov. 10, 2015), the Sixth Circuit dismissed a claim by plaintiffs from GM arguing that GM stock should not have been an option in the company’s 401(k) plan, saying the efficient market theory provided that trustees could not be expected to outguess the market as to whether a particular stock is overpriced at any time. The Supreme Court declined to review the case in Pfiel. State Street Bank & Tr. Co., No. 15-1199 (U.S., cert. denied, June 27, 2016). The same logic was used to rule for the defendants in Coburn v. Evercore Tr. Co., N.A., No. 1:15-cv-00049-RBW (D.D.C., Feb. 17, 2016), with the court  specifically rejecting the argument that a fiduciary should have known from publicly available information alone that a stock’s price was “over or underpriced.”

Amgen Inc. et al. v. Steve Harris (U.S. no. 577, Jan. 25, 2016) presented a more complex scenario. The Supreme Court for the second time reversed the Ninth Circuit’s decision on the prudence of continuing to hold employer stock in Amgen’s 401(k) plan. The Ninth Circuit on remand said that the fiduciaries should have removed Amgen stock, which would have the same effect on the market as disclosure of the potentially adverse information. The Supreme Court ruled that a plausible argument could be made along these lines, but “the facts and allegations supporting that proposition should appear in the stockholders’ complaint. Having examined the complaint, the Court has not found sufficient facts and allegations to state a claim for breach of the duty of prudence.” The Supreme Court said that the complaint needs to claim an alternative action that “a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it.” The district court can now decide it if wants to allow the stockholders to amend their complaint.

The Dudenhoeffer ruling was also extended to private companies in two cases, also with unfavorable results for plaiintiffs. In Allen v. GreatBanc Trust Co., No. 1:15-cv-03053 (N.D., Ill., October 1, 2015), the court dismissed a lawsuit against GreatBanc Trust in its role as a fiduciary in an ESOP transaction at Personal-Touch Home Care in a valuation case. The Court referred to the Dudenhoeffer Supreme Court case in ruling that “absent an allegation of special circumstances regarding, for example, a specific risk a fiduciary failed to properly assess, any fiduciary would be liable for at least discovery costs when the value of an asset declines. Such a circumstance cannot be the intention of Rule 8(a), or Dudenhoeffer. An allegation of a special circumstance is missing in this case—in fact, we know absolutely nothing about the financial situation of Personal-Touch.”

In Hill v. Hill Brothers Construction Co., No. 314-CV-213SAA (N.D. Miss., Sept. 11, 2015), a district court dismissed the plaintiff’s claims of a breach of fiduciary duty by the plan’s trustees, holding that plaintiffs had not shown that, under Dudenhoeffer there was an alternative action that “a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the [plan] than to help it.” The court noted that although Dudenhoeffer applied mostly to public companies, “that does not necessarily preclude the application of the alternative action pleading standard to closely-held entities.”

Disclosure

Two cases came to different conclusions about financial disclosure requirements. Murray v. Invacare Corp., No. 1:13-cv-01882-DCN (N.D. Ohio, 8/28/15  found that there was a duty to disclose, but In re BP P.L.C. Sec. Litig., No. 4:10-MD-2185 (S.D.-Tex, Oct. 30, 2015) found there was not.

Other Decisions of Interest

 In Harper v. Conco ESOP Trs., No. 3:16-CV-00125-JHM (W.D. Ky., July 7, 2016), a district court ruled that employees of the bankrupt company Conco could not sell their stock for at least three years. The court affirmed a bankruptcy court’s ruling that was meant to give the company an opportunity to reorganize.

In Chesemore v. Fenkell, No. 14-3181, 14-3215, 15-3740, (7th Cir., July 7, 2016), the Seventh Circuit ruled that Alliance Holdings’ CEO David Fenkell had to indemnify the trustees of Trachte Building Systems. Trachte’s ESOP trustees, the courts argued, were controlled by Fenkell, thus making him a cofiduciary. The decision is at odds with rules for cofiduciary liability with the Eighth and Ninth Circuits.

In Perez v. Mueller, No. 13-C-1302, (E.D. Wis., May 27, 2016), a district court ruled that the Department of Labor could not make a blanket claim of privilege to prevent discovery of individual documents in an ESOP valuation case.

Finally, in Precise Systems Inc. v. U.S., No. 14-1147C (U.S. Court of Federal Claims, July 28, 2015), the court ruled that Precise Systems Inc. did not qualify for a service-disabled veteran-owned small business set-aside program. The company issued two “series” of common stock (A and B). Each share had one vote. A qualifying individual owned over 51% of the total voting shares. The ESOP shares, however, had an additional right pertaining to voting on a dividend and had a dividend preference. The company argued that they were the same class of shares, but the court agreed with the SBA and Office of Hearings Appeals rulings that they were two classes and, therefore, Precise Systems did not qualify.

ARTICLE BY Corey Rosen of The National Center for Employee Ownership              
 © 2016 by NCEO

FAR Council Issues Final Rule, DOL Issues Final Guidance on Fair Pay and Safe Workplaces (“Blacklisting”) Executive Order, Effective October 25, 2016

fair pay and safe workplacesYesterday, the Federal Acquisition Regulations Council (“FAR Council”) and the U.S. Department of Labor (“DOL”) issued its Final Rule and Guidance implementing the Fair Pay and Safe Workplaces Executive Order (the “Order”), commonly referred to as the “blacklisting” rule.  In total, the Final Rule, Guidance, and accompanying commentary totaled nearly 900 pages, responding to nearly 20,000 comments on the Proposed Rule and Guidance released earlier this year.  Some of our previous posts on the Order and the Proposed Rule and Guidance can be found here and here.  This post will highlight the notable changes and clarifications made in the Final Rule and Guidance as well as key takeaways for federal government contractors.

Effective Date

The Final Rule is effective on October 25, 2016.  This is earlier than anticipated and dramatically shortens the time for contractors to prepare to comply with the Order and its implementing regulations.  That being said, as discussed below, the Final Rule also phases in a number of the disclosure and compliance obligations, lessening the initial burden of the implementation.

Phase-In of Labor Violation Disclosure Requirements

One of the overarching concerns raised during the notice and comment period was the enormous burden the Order would place on the contracting community.  In an effort to lessen that burden, the Final Rule and Guidance announced a phased implementation of the disclosure obligations.  The phase-in has two key components.

First, the Order and the Proposed Rule contain a three-year look back for covered violations.  Recognizing that contractors have not been cataloging covered labor violations prior to the issuance of the Order, the Final Rule only requires contractors to look back one year for reportable violations when the rule becomes effective.  The look-back period will increase each year by one year until October 2018, when it will become a three-year look back.

Second, the Final Rule also limits which contractors must make labor law violation disclosures in the first six months following the effective date.  Contractors will not be required to disclose labor law violations until April 24, 2017, unless the contractor is responding to a solicitation for a contract valued at $50 million or more after the effective date of the Final Rule.  For most contractors, this provides an additional six-month window to prepare for the implementation of the disclosure obligations.

The phase-in of disclosure obligations does not just impact prime contractors.  The Final Rule also included a lengthier phase-in for subcontractor disclosure obligations.  Subcontractors must begin disclosing labor violations for solicitations issued after October 25, 2017, one year after the effective date.

A Pause on The Disclosure of “State Law Equivalent” Violations

When the Proposed Rule was released, the Proposed Guidance stated that a supplement would follow containing a list of which state-law equivalents for the 14 enumerated federal laws require disclosures of violations under the Order.  To date, no list has been released.  The Final Rule and Guidance acknowledge this and state that the DOL will release a comprehensive list of state laws that are covered by the Order.  This listing will be subject to notice and comment before it becomes effective.  In the meantime, only the 14 federal labor laws listed in the Proposed Rule and in the Order, along with state OSHA plans, are covered by the rule.

Minor Clarifications on Scope of Violations

Overall, despite numerous comments and criticisms, the DOL declined to substantively modify its list of covered labor violations in the Final Guidance.  Thus, the list of administrative merits determinations, arbitral awards, and civil judgments remain exceptionally broad and sweeping.

Although the DOL declined to narrow its definition of a violation, the Final Guidance does contain some minor modifications that broaden the definition of a violation.  For example, the definition of administrative merits determination in the Proposed Guidance did not include violations of the anti-retaliation provisions of the Occupational Safety and Health Act (“OSHA”) or the Fair Labor Standards Act (“FLSA”).  The final rule clarifies that these were unintentionally omitted from the Proposed Guidance and are now included in the Final Guidance.  Additionally, the Proposed Guidance limited “determination letters” from the DOL Wage and Hour Division to letters outlining violations of Sections 6 and 7 of the FLSA (minimum wage and overtime).  In the Final Guidance, the DOL has clarified that this was unintentionally narrow, and that the Final Guidance includes determination letters finding any FLSA violation.

Assessing A Subcontractor’s Responsibility – Removing The Burden From The Prime

One highly controversial aspect of the Proposed Rule was the burden placed on the prime contractor to perform the same type of responsibility determination of covered subcontractors’ labor violations that the government will perform on prime contractors.  In response to numerous comments, the Final Rule has modified the process for assessing a subcontractor’s violations, largely removing the burden from the prime contractor.

Instead, starting October 25, 2017, under the Final Rule, covered subcontractors will submit their list of labor violations to the Agency Labor Compliance Advisor (“ALCA”).  The ALCA will then perform an assessment of the disclosed violations and make a recommendation.  The prime contractor must make the ultimate decision as to responsibility.  If the subcontractor disagrees with the finding of the ALCA, it can raise the dispute with the prime contractor.

Clarification of Assessment Process of The Labor Compliance Advisors

The Proposed Rule and Guidance introduced a new government official into the contracting process, the ALCA.  There was substantial controversy surrounding this new role, particularly the potential disparate application of the Order between agencies and perhaps even within agencies.  The Final Rule and Guidance provides additional details regarding the process by which federal agencies and departments will assess a contractor’s labor violations.  Moreover, the Final Rule and Guidance recognizes the need for guidelines and training for the ALCAs.

The Final Rule and Guidance states that the ALCA will have three days to assess labor violations disclosed by a contractor.  Although the contracting officer is permitted to give the ALCA additional time, the contracting officer may make his or her own assessment of responsibility without the recommendation of the ALCA.  The ultimate responsibility for making a responsibility determination will remain with the contracting officer, not the ALCA.  The ALCA’s role is to “assesses the nature of the violations and provide[] analysis and advice.”

The Final Guidance also clarifies the process the ALCA will follow during his or her assessment.  The ALCA will first review all of the violations to determine if any are “serious, repeated, willful, and/or pervasive.”  Then, the ALCA “weighs any serious, repeated, willful, and/or pervasive violations in light of the totality of the circumstances, including the severity of the violation(s), the size of the contractor, and any mitigating factors that are present.”  Finally, the ALCA provides written analysis to the contracting officer.

Public Dissemination of Disclosures

The Proposed Rule and Guidance noted that information submitted to the contracting agency would be publicly disseminated.  Despite numerous comments criticizing this proposed provision, the Final Rule and Guidance declined to remove this requirement.  However, the Final Rule and Guidance provided clarification as to how this public dissemination will work in practice.  Pursuant to the Final Rule, the following information will be publicly disclosed based upon the contractor’s violation submissions:  (1) the law violated; (2) the case identification number or docket number; (3) the date of the decision finding a violation; and (4) the name of the body issuing the judgment.

The contractor will input this information into the System for Award Management (“SAM”).  From SAM, the information will be made available to the public through the Federal Awardee Performance and Integrity Information System (“FAPIIS”).  The Final Rule clarified that while the four enumerated data points must be made public, the contractor has the choice as to whether any additional documents provided by the contractor to demonstrate its responsibility and mitigation efforts shall be made public.

Key Takeaways

With the Final Rules and Guidance published, it is more important than ever that contractors begin preparing for the implementation of the Order and its regulations.  Contractors have two months before the effective date of the Final Rule, and while certain obligations will be phased-in, contractors will need time to prepare for compliance.

Contractors should start cataloging any violations during the past six months that constitute covered violations as well as any evidence of mitigation efforts taken as a consequence of the violations.  Because complaints and charges alleging violations of the 14 federal laws covered by the Order, a central official of office should be designated to coordinate the collection of this information (concerning both past and future violations) and a central repository for it.  Contractors should view the ability quickly to provide a comprehensive list to the contracting officer as a competitive advantage, as competitors may not be prepared to do so in a timely manner.

Additionally, if the ALCA makes an inquiry concerning the disclosed violations, contractors should be prepared to advocate, with appropriate evidence, why certain violations are not willful, repeated, pervasive or severe.  For instance, the contractor could point to its size or the number of employees in the organization.  It can also identify measures taken by the contractor to address the issues raised in the violation.  It will be important that these disclosures be vetted by a central authority within the organization.

In addition to preparing to report labor violations, contractors should also work internally to reduce and mitigate the risk of future violations.  This can be achieved by: (1) developing and implementing effective policies and training; (2) auditing compliance; (3) adopting a robust internal complaint mechanism; (4) developing alternative dispute resolution processes; and (5) undertaking early case assessment and management. Taking these proactive measures can help lessen the impact of future compliance by reducing the number of violations that must be reported.

NLRB Excludes Theology Teachers from Bargaining Unit at Catholic Universities

theology NLRBWhile the National Labor Relations Board’s (NLRB) decision this week in the teaching assistants’ case caught most of the headlines, the very same day the Board also issued two important rulings defining appropriate bargaining units at Catholic universities.

In cases arising at Seattle University (a Catholic university operated by the Jesuit order) and Saint Xavier University (a Chicago-area Catholic university founded by the Sisters of Mercy), the Board determined that faculty teaching theology and religion were exempt from the coverage of the National Labor Relations Act (NLRA) and therefore must be excluded from the petitioned-for bargaining units.

At Seattle University, the Service Employees International Union, Local 925, sought to represent a bargaining unit comprised of all non-tenure eligible faculty at the university other than those teaching nursing and law. At Saint Xavier, the Illinois Education Association (IEA-NEA)  petitioned to represent all part-time faculty at the university other than those teaching at the School of Nursing.

In reaching its decision, the Board retraced its torturous reasoning in Pacific Lutheran University, 361 NLRB 157 (2014), in which it sought to avoid the U.S. Supreme Court’s ruling in NLRB v. Catholic Bishop of Chicago, 440 U.S. 490 (1979). In that case, the Supreme Court instructed that the NLRA must be construed to exclude teachers in church-operated schools because to do otherwise “will necessarily involve inquiry into the good faith of the position asserted by the clergy-administrators and its relationship to the school’s religious mission.” The court concluded that the Board’s assertion of jurisdiction over teachers in church-operated schools would give “rise to entangling church-state relationships of the kind the Religion Clauses sought to avoid.”  For the Board to engage in such inquiry would violate the First Amendment.

In Pacific Lutheran, the Board purports to follow the teaching of Catholic Bishop but instead formulates the following seemingly non-compliant test: “[T]he Act permits jurisdiction over a unit of faculty members at an institution of higher learning unless the university or college demonstrates, as a threshold matter, that it holds itself out as providing a religious educational environment, and that it holds out the petitioned-for faculty members as performing a specific role in creating or maintaining the school’s religious educational environment.”

In both the Seattle and Saint Xavier cases, the Board agreed that both universities identify themselves as “providing a religious educational environment,” thus meeting the first part of the two-part test. However, in both cases, the Board concluded that only the faculty in Seattle’s Department of Theology and Religious Studies and School of Theology and Ministry and Saint Xavier’s Department of Theology met the second part of the test. Therefore, those individuals could not be part of the bargaining unit.

In his dissents in each case, NLRB Board Member Phillip A. Miscimarra lays bare the clear conflict between the Pacific Lutheran decision and the Supreme Court’s decision in Catholic Bishop. “My colleagues and I are not permitted to write from a clean slate regarding this issue. It is governed by NLRB v. Catholic Bishop of Chicago, where the Supreme Court rejected the Board’s assertion of jurisdiction over ‘lay teachers’ at church-operated schools, which the Board had attempted to justify on the basis that the schools were ‘religiously associated’ rather than ‘completely religious.’” The Supreme Court held that the Board could not exercise jurisdiction over teachers in church-operated schools based on “abundant evidence” that doing so “would implicate the guarantees of the Religion Clauses.”

And as Miscimarra points out in dissent, the decision reached by the Board in these two current cases actually proves his point. “In other words, my colleagues draw the precise distinction—between faculty members who teach  ‘religious’ subjects, on the one hand, and those who teach ‘secular’ subjects, on the other—that the Supreme Court rejected as entailing the type of ‘inquiry’ that, by itself, may impermissibly impinge on rights guaranteed by the Religion Clauses.” That impingement necessarily results, Miscimarra writes because “[l]engthy reflection is not needed to recognize that it will often be impossible to determine whether faculty members at religiously affiliated schools who ostensibly teach ‘secular’ subjects nonetheless perform a ‘specific role in creating or maintaining the school’s religious educational environment.’”

One would expect that both of these cases will be appealed, particularly because, as Miscimarra points out, the D.C. Circuit Court of Appeals reads Catholic Bishop in an entirely different fashion than does the Board.  In University of Great Falls v. NLRB, 278 F.2d 1335 (D.C. Cir 2002), that court articulated a three-part test under Catholic Bishop. Under its test, the Board has “no jurisdiction over faculty members at a school that (1) holds itself out to students, faculty and community as providing a religious educational environment; (2) is organized as a nonprofit; and (3) is affiliated with or owned, operated, or controlled, directly or indirectly, by a recognized religious organization, or with an entity, membership of which is determined, at least in part, with reference to religion.”

Copies of the Seattle Board Decision and Saint Xavier Board Decision decisions are available here.

ARTICLE BY Gerald F. Lutkus of Barnes & Thornburg LLP
© 2016 BARNES & THORNBURG LLP

Fair Pay and Safe Workplaces Final Rule Released

Fair pay safe workplaces DOLThe Department of Labor and FAR Council have released, for publication tomorrow, final guidance and regulations implementing Executive Order 13673: Fair Pay & Safe Workplaces (also colloquially referred to as the Blacklisting Executive Order.)

We are in the process of digesting the almost 1000 pages of regulations, as well as an amendment to the Executive Order itself, and will be back with an in-depth analysis and our insights soon, so stay tuned.

ARTICLE BY Laura A. Mitchell of Jackson Lewis P.C.

Jackson Lewis P.C. © 2016