Category: Regulatory

Department of State Releases June 2013 Visa Bulletin

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EB-2 category for all chargeable areas other than China and India remains current, with considerable forward movement—but continued backlog—in the EB-3 category for a second month in a row.

The U.S. Department of State (DOS) has released its June 2013 Visa Bulletin. The Visa Bulletin sets out per country priority date cutoffs that regulate the flow of adjustment of status (AOS) and consular immigrant visa applications. Foreign nationals may file applications to adjust their status to that of permanent resident or to obtain approval of an immigrant visa at a U.S. embassy or consulate abroad, provided that their priority dates are prior to the respective cutoff dates specified by the DOS.

What Does the June 2013 Visa Bulletin Say?

EB-1: All EB-1 categories remain current.

EB-2: Foreign nationals in the EB-2 category from all countries other than China and India remain current. A cutoff date of July 15, 2008, reflecting minor forward movement, has been imposed for foreign nationals in the EB-2 category from China. A cutoff date of September 1, 2004 remains in effect for foreign nationals in the EB-2 category from India.

EB-3: There is continued backlog in the EB-3 category for all countries, with considerable forward movement for EB-3 individuals chargeable to countries other than India and the Philippines.

The relevant priority date cutoffs for foreign nationals in the EB-3 category are as follows:

China: September 1, 2008 (forward movement of 275 days)

India: January 8, 2003 (forward movement of 17 days)
Mexico: September 1, 2008 (forward movement of 275 days)

Philippines: September 22, 2006 (forward movement of 7 days)

Rest of the World: September 1, 2008 (forward movement of 275 days)

Developments Affecting the EB-2 Employment-Based Category

Mexico, the Philippines, and the Rest of the World

In November 2012, the EB-2 category for individuals chargeable to all countries other than China and India became current. This meant that EB-2 individuals chargeable to countries other than China and India could file an AOS application or have the application approved on or after November 1, 2012. The June Visa Bulletin indicates that the EB-2 category will continue to remain current for these individuals through June 2013.

China

The June Visa Bulletin indicates a cutoff date of July 15, 2008 for EB-2 individuals chargeable to China. This means that EB-2 individuals chargeable to China with a priority date prior to July 15, 2008 may file an AOS application or have the application approved on or after June 1, 2013.

India

Since October 2012, the cutoff date for EB-2 individuals chargeable to India has been September 1, 2004. The June Visa Bulletin indicates no movement of this cutoff date. This means that EB-2 individuals chargeable to India with a priority date prior to September 1, 2004 may file an AOS application or have the application approved through June 2013.

Developments Affecting the EB-3 Employment-Based Category

The May Visa Bulletin announced that the cutoff dates for EB-3 individuals chargeable to most countries had advanced significantly in an attempt to generate demand and fully utilize the annual numerical limits for the category. The June Visa Bulletin indicates that the cutoff dates for EB-3 individuals chargeable to most countries have advanced significantly for a second month in a row. The June Visa Bulletin notes that this forward movement is not indicative of what can be expected in the future, and that rapid forward movement in cutoff dates is often followed by a dramatic increase in demand for numbers within the following three to six months. If such demand materializes, such movement in cutoff dates may slow, or stop, for a period of time.

China

The May Visa Bulletin indicated a cutoff date of December 1, 2007 for EB-3 individuals chargeable to China. The June Visa Bulletin indicates a cutoff date of September 1, 2008 for these individuals, reflecting forward movement of 275 days. This means that EB-3 individuals chargeable to China with a priority date prior to September 1, 2008 may file an AOS application or have the application approved on or after June 1, 2013.

India

Additionally, the May Visa Bulletin indicated a cutoff date of December 22, 2002 for EB-3 individuals chargeable to India. The June Visa Bulletin indicates a cutoff date of January 8, 2003 for these individuals, reflecting forward movement of 17 days. This means that EB-3 individuals chargeable to India with a priority date prior to January 8, 2003 may file an AOS application or have the application approved on or after June 1, 2013.

Rest of the World

The May Visa Bulletin also indicated a cutoff date of December 1, 2007 for EB-3 individuals chargeable to the Rest of the World. The June Visa Bulletin indicates a cutoff date of September 1, 2008 for these individuals, reflecting forward movement of 275 days. This means that individuals chargeable to all countries other than China and India with a priority date prior to September 1, 2008 may file an AOS application or have the application approved on or after June 1, 2013.

How This Affects You

Priority date cutoffs are assessed on a monthly basis by the DOS, based on anticipated demand. Cutoff dates can move forward or backward or remain static. Employers and employees should take the immigrant visa backlogs into account in their long-term planning and take measures to mitigate their effects. To see the June 2013 Visa Bulletin in its entirety, please visit the DOS website here.

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The Jobs Act: Improving Access to Capital Markets for Smaller Companies

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On April 5, 2012, the Jumpstart Our Business Startups Act or “Jobs Act” was signed into law by President Obama with the stated purpose of increasing American job creation and economic growth by improving access to the public capital markets for emerging growth companies. Specifically, the Jobs Act:

  • creates a new category of “emerging growth company” under the securities laws and reduces certain financial reporting and disclosure obligations on these companies for up to 5 years after their initial public offering;
  • directs the Securities and Exchange Commission to eliminate the prohibition on general solicitations for private offerings under Rule 506 of Regulation D and resales under Rule 144A;
  • legalizes crowdfunding through brokers and “funding portals”;
  • authorizes the SEC to increase the maximum amount permitted to be raised in a Regulation A offering from $5 million to $50 million in any 12-month period; and
  • increases the number of shareholders of record that a company may have before it becomes obligated to file SEC reports.

Creation of the ‘Emerging Growth Company’ Designation

The Jobs Act creates the “emerging growth company” as a new category of issuer under both the Securities Act and the Securities Exchange Act.

Definition of “Emerging Growth Company”

An “emerging growth company” is an issuer that had total annual gross revenues of less than $1 billion during its most recently completed fiscal year. The issuer would continue to be an “emerging growth company” until the earlier of:

  • the last day of the fiscal year during which it had total annual gross revenues of $1 billion or more;
  • the last day of the fiscal year of the issuer following the fifth anniversary of its initial public offering;
  • the date on which the issuer has, during the previous 3-year period, issued more than $1 billion in non-convertible debt; and
  • the date on which it is deemed a “large accelerated filer.”

Notwithstanding the foregoing, an issuer that consummated an IPO on or prior to December 8, 2011 will not be eligible to be deemed an emerging growth company. The relief provided to emerging growth companies is available immediately.

Benefits for Emerging Growth Companies

Emerging growth companies will have more lenient disclosure and compliance obligations with respect to executive compensation, financial disclosures and certain new accounting rules. Specifically, an emerging growth company will not be required to:

  • comply with “say on pay” proposals or pay versus performance disclosures;
  • include more than two years of financial statements in the registration statement for its IPO;
  • include selected financial data for any period prior to the earliest audited period presented in connection with its IPO; or
  • comply with new or revised accounting standards that are only applicable to public reporting companies.

In addition, emerging growth companies will be exempt from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, or SOX, and be given a longer transition period for compliance with new audit standards. Further, SOX has been amended to provide that any rules of the Public Company Accounting Oversight Board, or PCAOB, requiring mandatory audit firm rotation or auditor discussion and analysis will not apply to an emerging growth company. In addition, any future rules adopted by the PCAOB would not apply to audits of emerging growth companies unless the SEC determines otherwise.

The Jobs Act provides that emerging growth companies may start the IPO process by confidentially submitting draft registration statements to the SEC for nonpublic review. Confidentially submitted registration statements would need to be publicly available at least 21 days prior to beginning the road show for the IPO. Emerging growth companies would also be free to “test the waters” with qualified institutional buyers and institutional accredited investors before and during the registration process.

Analyst Reports for Initial Public Offerings of Emerging Growth Companies

The Jobs Act removes some of the restrictions on investment banks underwriting public offerings while simultaneously providing analyst research reports on a particular issuer that was designated as an “emerging growth company.”

Elimination of Prohibition on General Solicitation For Accredited Investors and Qualified Institutional Buyers

The Jobs Act directs the SEC to revise its rules to:

  • provide that the prohibition against general solicitation or general advertising will not apply to offers and sales of securities made pursuant to Rule 506, provided all purchasers of the securities are accredited investors, and
  • provide that the prohibition against general solicitation or general advertising will not apply to offers and sales made under Rule 144A, provided that the seller reasonably believes that all purchasers of the securities are qualified institutional buyers.

It is currently unclear whether these exemptions will apply to offerings exempt from registration under Section 4(2) of the Securities Act to the extent they do not satisfy all of the conditions of Rule 506. The SEC has 90 days from the date of enactment of the Jobs Act to promulgate rules to effect elimination of the specified prohibitions on general solicitation and general advertising.

Creation of a ‘Crowdfunding’ Exemption

Crowdfunding refers to the recent (often internet facilitated) technique of seeking financing for a business through small investments from a relatively large pool of individual investors. Under current securities laws, crowdfunding raises a number of problematic registration exemption issues. The Jobs Act attempts to remedy this by creating a new crowdfunding exemption from the registration requirements of the Securities Act for transactions involving the issuance of securities through a broker or SEC-registered “funding portal,” for which:

  • the aggregate amount of securities sold in the previous 12 months to all investors by the issuer is not more than $1 million; and
  • individual investments by any investor in the securities during any 12-month period are limited to:
    • the greater of $2,000 or 5 percent of the annual income or net worth of such investor, as applicable, if either the annual income or the net worth of the investor is less than $100,000; and
    • 10 percent of the annual income or net worth of such investor, as applicable, not to exceed a maximum aggregate amount sold of $100,000, if either the annual income or net worth of the investor is equal to or more than $100,000.

Such securities would be considered restricted securities subject to a one-year holding period, with certain exceptions, such as sales to accredited investors or family members. The Jobs Act also provides express securities fraud remedies against the issuer of securities sold under the crowdfunding exemption, which includes extending liability to directors, partners and certain senior officers of the issuer.

Disclosure Requirements

The issuer must file with the SEC, provide to the broker or funding portal, and make available to potential investors at least 21 days prior to the first sale, certain information about the issuer. This information is similar to what many companies currently use in offering memoranda in private offerings and includes:

  • the name, legal status, physical address and website of the issuer;
  • the names of officers, directors and greater than 20% shareholders;
  • a description of the issuer’s current and anticipated business;
  • a description of the financial condition of the issuer, including, for offerings where the aggregate amounts sold under the crowdfunding exemption are:
    • $100,000 or less, income tax returns for the most recently completed fiscal year and financial statements, certified by the principal executive officer of the issuer;
    • more than $100,000, but less than $500,000, financial statements reviewed by an independent public accountant; or
    • more than $500,000, audited financial statements;
  • a description of the intended use of proceeds;
  • the target offering amount and the deadline to raise such amount;
  • the price to the public of the securities, or method to determine the price;
  • a description of the ownership and capital structure of the issuer, including the terms of the offered security and each other security of the issuer and how such terms may be modified, limited, diluted or qualified;
  • risks to purchasers of minority ownership and corporate actions, including issuances of shares, sales of the issuer or its assets or transactions with related parties; and
  • such other information as the SEC may prescribe.

The issuer must also annually file with the SEC and provide to investors its results of operations and financial statements.

‘Blue Sky’ Pre-emption

Securities sold pursuant to the crowdfunding exemption are “covered securities” for purposes of the National Securities Markets Improvement Act, or NSMIA, and, therefore, are exempt from state securities registration requirements, or “Blue Sky,” laws. This preemption does not prohibit state enforcement actions based on alleged fraud, deceit, or unlawful conduct.

Creation of ‘Funding Portals’

A person acting as an intermediary in an offer or sale of securities under this new crowdfunding exemption will have to register with the SEC as a broker or funding portal and will also need to register with any applicable self-regulatory organizations. Such intermediary will also have to comply with a number of requirements designed to ensure that investors are informed of the possible risks associated with a new venture, including conducting background checks on each officer, director and greater than 20% shareholders of the issuer. Additionally, the Jobs Act instructs the SEC to promulgate rules or regulations under which an issuer, broker or funding portal would not be eligible, based on its disciplinary history, to utilize the exemption.

SEC Rulemaking

The SEC is directed to issue rules as may be necessary or appropriate for the protection of investors to implement the crowdfunding exemption within 270 days after the enactment of the Jobs Act. In addition, the dollar amounts are to be indexed for inflation at least every five years for changes in the consumer price index.

Raising the Regulation A Limit to $50 million

The Jobs Act amends Section 3(b) of the Securities Act to direct the SEC to amend Regulation A so as to increase the aggregate offering amount that may be offered and sold within the prior 12-month period in reliance on Regulation A from $5 million to $50 million. The SEC is required to review the limit every two years and to increase the amount as it determines appropriate or explain to Congress its reasons for not increasing the limit on Regulation A offerings.

No ‘Blue Sky’ Pre-emption

Predecessor bills would have made the Regulation A exemption more appealing by making Regulation A offered securities exempt from “Blue Sky” laws. Although the Jobs Act does not provide that securities offered under Regulation A are explicitly exempt, it does have a provision requiring the Comptroller General to conduct a study on the impact of Blue Sky laws on offerings made under Regulation A. Securities offered and sold to “qualified purchasers,” to be defined under NSMIA, or on a national securities exchange would be “covered securities” and exempt from Blue Sky laws.

Modifying Registration Thresholds

Currently, Section 12(g) of the Exchange Act requires an issuer with assets in excess of $1 million and a class of security held by more than 500 shareholders of record to register such security with the SEC and, therefore, become subject to the reporting requirements of the Exchange Act. The Jobs Act amends the registration thresholds to require registration only when an issuer has:

  • either 2,000 or more shareholders of record, or 500 shareholders of record who are not accredited investors, and
  • assets in excess of $10 million.

Exceptions to “Held of Record” Definition

Further, the Jobs Act amends the definition of “held of record” to exclude securities held by persons who received the securities pursuant to an employee compensation plan in transactions exempted from the registration requirements of the Securities Act. It also directs the SEC to adopt rules providing that securities acquired under the crowdfunding exemption are similarly excluded.

Increased Thresholds for Community Banks

The Jobs Act amends Section 12(g) of the Exchange Act by increasing the shareholder registration threshold in the case of an issuer that is a bank or a bank holding company to 2,000 persons. The bill also makes it easier for banks and bank holding companies to deregister and cease public company compliance requirements by increasing the threshold for deregistration for those entities from 300 persons to 1,200 persons.

Implementation of the Jobs Act

SEC Rulemaking and Studies

The Jobs Act directs the SEC to adopt rules implementing certain provisions of the act as well as to conduct a number of studies and report back to Congress.

SEC Concerns

A number of SEC Commissioners, including Chairman Mary Schapiro, have publicly expressed concerns on the balance between enhancing capital formation and the reduction in investor protections. The Jobs Act does not affect Rule 10b-5 of the Securities Act and adds some additional securities fraud remedies, so issuers should continue to be scrupulous about compliance with their disclosure obligations.

Full Text of the Jobs Act

The Jobs Act was enacted on April 5, 2012. The text of the act is currently available at http://www.gpo.gov/fdsys/pkg/BILLS-112hr3606enr/pdf/BILLS-112hr3606enr.pdf.

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Equal Employment Opportunity Commission (EEOC) Offers Updated Americans with Disabilities Act (ADA) Guidance Q&A’s Pertaining to Cancer, Diabetes, Epilepsy and Intellectual Disabilities

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In a measure to keep up with the changes made by the Americans with Disabilities Amendments Act (ADAAA) in relation to what employees and applicants must show to establish that they have a “disability,” the Equal Employment Opportunity Commission (EEOC) has revised its informal “Question and Answer” guidance forms pertaining to four categories of medical conditions – cancer, diabetes, epilepsy, and intellectual disabilities– to provide clarification as to how employers should address such conditions and to confirm that individuals having each of the types of conditions discussed “should easily be found to have a disability” within the ADA’s initial prong of the definition of a disability. These revised forms can be found by clicking on the links above.

The revised guidance materials include not only a general discussion of each type of condition and discuss prohibitions against discrimination, harassment, and retaliation against individuals with such conditions, they further discuss the means by which employers can obtain, use and disclose medical information relating to such conditions and possible accommodation scenarios for such conditions. In addition, the EEOC explicitly states its position as to why individuals with each type of medical condition at issue should be found to have a disability under the ADA/ADAAA:

1.    “[P]eople who currently have cancer, or have cancer that is in remission, should easily be found to have a disability within the meaning of the first part of the ADA’s definition of disability because they are substantially limited in the major life activity of normal cell growth or would be so limited if cancer currently in remission was to recur . . . Similarly, individuals with a history of cancer will be covered under the second part of the definition of disability because they will have a record of an impairment that substantially limited a major life activity in the past . . .  Finally, an individual is covered under the third (“regarded as”) prong of the definition of disability if an employer takes a prohibited action (for example, refuses to hire or terminates the individual) because of cancer or because the employer believes the individual has cancer.”

2.    “[I]ndividuals who have diabetes should easily be found to have a disability within the meaning of the first part of the ADA’s definition of disability because they are substantially limited in the major life activity of endocrine function . . . Additionally, because the determination of whether an impairment is a disability is made without regard to the ameliorative effects of mitigating measures, diabetes is a disability even if insulin, medication, or diet controls a person’s blood glucose levels. An individual with a past history of diabetes (for example, gestational diabetes) also has a disability within the meaning of the ADA . . . Finally, an individual is covered under the third (“regarded as”) prong of the definition of disability if an employer takes a prohibited action (for example, refuses to hire or terminates the individual) because of diabetes or because the employer believes the individual has diabetes.”

3.    “[I]ndividuals who have epilepsy should easily be found to have a disability within the meaning of the first part of the ADA’s definition of disability because they are substantially limited in neurological functions and other major life activities (for example, speaking or interacting with others) when seizures occur . . . Additionally, because the determination of whether an impairment is a disability is made without regard to the ameliorative effects of mitigating measures, epilepsy is a disability even if medication or surgery limits the frequency or severity of seizures or eliminates them altogether . . . An individual with a past history of epilepsy (including a misdiagnosis) also has a disability within the meaning of the ADA . . . Finally, an individual is covered under the third (“regarded as”) prong of the definition of disability if an employer takes a prohibited action (for example, refuses to hire or terminates the individual) because of epilepsy or because the employer believes the individual has epilepsy.”

4.    “[I]ndividuals who have an intellectual disability should easily be found to have a disability within the meaning of the first part of the ADA’s definition of disability because they are substantially limited in brain function and other major life activities (for example, learning, reading, and thinking) . . . An individual who was misdiagnosed as having an intellectual disability in the past also has a disability within the meaning of the ADA . . . Finally, an individual is covered under the third (“regarded as”) prong of the definition of disability if an employer takes a prohibited action (for example, refuses to hire or terminates the individual) because of an intellectual disability or because the employer believes the individual has an intellectual disability.”

The guidance provided by the EEOC also contains multiple examples and fact patterns for employers to consider in making decisions in their workplaces when faced with situations involving employees and applicants having the identified conditions.

Shippers Rolling the Dice to Gain Oil Pipeline Capacity

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With the growing capacity constraints on oil pipelines, the Federal Energy Regulatory Commission (“Commission”) has recently extended the bounds of what it considers acceptable methods of apportioning limited capacity. In Seaway Crude Pipeline Company LLC, 143 FERC ¶ 61,036 (2013), the Commission approved a new lottery system that will select, at random, new shippers who will be permitted to tender the minimum monthly volume requirement. The catch, however, is that there are approximately 275 new shippers on the system, meaning a given shipper has roughly only a 5 percent chance of winning the lottery each month. And to achieve regular shipper status and thus gain access to the 90 percent of system capacity reserved for regular shippers, it must win that lottery twelve consecutive times.

After reversing flow on its Longhaul System and commencing north-to-south transportation service, Seaway saw the number of new shippers dramatic multiply from 5 (when to service commenced) to 275 by April, 2013. Seaway alleged that some of the proliferation was due to shippers attempting to game the system and broker capacity in the secondary market. Like other oil pipelines, Seaway dedicates 90 percent of the system capacity to regular shippers and 10 percent to new shippers, and to achieve regular shipper status, Seaway’s customers must tender the minimum volume (60,000 barrels per month) for 12 consecutive months. Before the lottery, Seaway allocated the 10 percent of capacity to new shippers on a pro rata basis, but with so many new shippers, none was able to meet the requirements to achieve regular shipper status because of the relatively high minimum tender requirement. As a result the number of new shippers multiplied with those shippers informally aggregating batches to meet Seaway’s minimum monthly tender requirement.

Seaway concluded that such a system was unworkable and proposed a lottery system to replace its existing pro rata system. The lottery system will use a software-generated random process to determine which new shippers will be allowed to tender the 60,000 barrel minimum each month, meaning about 13 new shippers will get capacity for a given month.

Despite several protests, the Commission approved Seaway’s lottery system for two main reasons. First, the Commission reasoned that the lottery system will deter manipulation during the nomination process and thus make capacity more readily available to legitimate new shippers; and second, the lottery would not be unduly discriminatory because the system would apply to all new shippers.

Although this is not the first time that the Commission has approved the use of a lottery system to award new shipper capacity when a pipeline faces apportionment problems, Seaway’s proposed lottery system, coupled with the requirement that new shippers must tender the minimum monthly volumes for 12 consecutive months, means that it will be highly improbable for new shippers to ever achieve regular shipper status, unless the number of new shippers dramatically decreases. Thus, the decision treads slightly new ground on what the Commission is willing to consider as a “reasonable” remedy to address the multiplication of new shippers and the vast over-nomination issues some crude pipelines are facing in the current environment.

Finally, the Seaway decision underscores the importance of open seasons as being the principle method of obtaining reliable transportation service on oil pipelines. For example, gaining access to the Longhaul System as a new shipper is difficult enough because a prospective new shipper will now have to win the lottery simply to tender the minimum amount requirement in one month. However, to gain access to the remaining 90 percent of system capacity, that prospective customer must win the new shipper lottery 12 consecutive times. By contrast, Seaway held two opens seasons for capacity on its Longhaul System and committed shippers were able to access the 90 percent of the system capacity reserved for regular shippers. Thus, shippers seeking access to reliable capacity might consider a commitment during an open season rather than gambling on a future—and perhaps unforeseen—lottery.

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Employee Shareholders: It’s Happening, but What Does it Mean?

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New Growth and Infrastructure Act introduces employee shareholder provisions that are expected to come into force later this year.

On 25 April, the Growth and Infrastructure Act 2013[1] came into effect and, among other things, introduced employee shareholder or “rights for shares” provisions that are expected to take effect this autumn in the UK. Broadly speaking, these provisions amend the Employment Rights Act 1996 (the ERA) to allow employees to give up some of their employment rights in exchange for shares in their employer company. However, in the absence of any additional guidance, the practical scope and impact of these changes remains unclear.

What We Do Know

Any company with share capital can enter into an agreement with an employee to allow them to become an “employee shareholder”. An employee shareholder will receive fully paid-up company shares that have a value of no less than £2,000 on the day of issue.

In exchange, the employee shareholder will give up the right to

•    request to undertake study or training;

•    request flexible working;

•    not be unfairly dismissed; and

•    a redundancy payment.

Further, the notice that employee shareholders will need to give before returning to work after maternity, parental, paternity, or adoption leave will be increased to 16 weeks.

Employee shareholders cannot waive their right to claim unfair dismissal where their dismissal breaches the Equality Act 2010 or health and safety legislation or is automatically unfair under the ERA. However, employers can make a job offer contingent on an applicant agreeing to become an employee shareholder. If an applicant refuses to do so, the employer can simply withdraw the job offer.

Before becoming an employee shareholder, each employee (or applicant to whom a job has been offered) must receive independent legal advice paid for by the employer (up to a “reasonable” level). The employer must pay these legal costs whether or not an employee elects to become an employee shareholder. Employees and applicants will then be given a seven-day cooling-off period in which they can withdraw their agreement.

For any acceptance to be valid, the employer must have provided the employee with a statement of particulars that sets out, among other things, the following:

•    The rights the employee shareholder gives up

•    The rights attached to the shares, e.g., voting, dividend, and ability to participate in the distribution of any surplus assets on winding up

•    Whether there are any restrictions on the transferability of the shares

•    Whether the employee shares are subject to drag-along rights or tag-along rights

Finally, an employee must not suffer a detriment for refusing to accept an offer to become an employee shareholder. Moreover, the dismissal of an employee for refusing to become an employee shareholder will be regarded as unfair.

What We Do Not Know

Transfer of Undertakings (Protection of Employment) Regulations (TUPE) Transfers.

If employee shareholders transfer across to an employer who does not operate an employee shareholder scheme or does not have any share capital, there is no guidance as to whether that employee shareholder automatically regains their rights or if they must surrender their shares first.

Share Schemes.

It is not clear whether companies that operate share schemes can make it a precondition of future participation in any company share scheme that an employee becomes an employee shareholder.

Termination.

On termination of the employment contract, a company can buy back shares from an employee shareholder. However, the conditions that must be satisfied before an employer buys back an employee’s shares are still unknown.

Potential Impact on UK Employers

•    £2,000 seems a relatively small amount when weighed against the potential value of rights that would be forfeited by employee shareholders. Employers can give shares worth more than £2,000, and it is therefore possible that, once the provisions are in force, along with salary, the sticking point in contractual negotiations will be the value of the shares given. That said, any deviation from the £2,000 figure may give rise to significant tax complications.

•    The provisions could create a two-tier workforce of employee shareholders and non-employee shareholders, with the former potentially subject to enforced contractual changes and other less favourable treatment that would normally result in potential constructive unfair dismissal claims.

•    In theory, an employer undertaking a redundancy exercise could simply select employee shareholders as redundant to avoid any unfair dismissal risk and/or any need to make redundancy payments.

By making both job offers and participation in employee share schemes conditional upon an employee’s accepting employee shareholder status, it is possible that some employers could significantly reduce and ultimately eradicate the risk of “pure” (i.e., non-discriminatory or non-whistleblowing related) unfair dismissal claims and the flexible working rights of their workforce.

[1]. View the Growth and Infrastructure Bill here.

Under Pressure: Unions Espouse New Organizing Models and Take Action

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Back in March, AFL-CIO President Richard Trumka summarized his view of the state of union representation in America: “To be blunt, our basic system of workplace representation is failing to meet the needs of America’s workers by every critical measure.” Last week in a Washington Post Op-Ed, this view was echoed by columnist and long-time advocate of big labor’s policies Harold Meyerson. Meyerson identified an “existential problem” facing unions, which are continuing to see membership numbers decline.

It is not difficult to understand the concern. Membership decline means one thing for unions: less dues. Measures that weakened public sector unions in Wisconsin and passage of right to work legislation in traditional union Midwest strongholds of Indiana and then Michigan, along with ever-shrinking private sector union membership, have forced labor into a place of critical self-evaluation. And what is emerging from this self-evaluation is a dedication to expanding the scope of union organizing.Union membership decline

In March, Trumka highlighted new targets of organizing that are being explored – non-traditional targets. Trumka noted home care workers, taxi drivers and others who don’t fit neatly into the traditional models of unionization will be targets. The point is: unions are increasingly setting their sights on individuals who “do not neatly fit the legal definition of an employee.” And businesses and employers who before may have not traditionally considered themselves targets for big labor should be paying attention.

Such efforts are not just anecdotal.  As we saw in Michigan with home health care unionization, these non-traditional unionization efforts can have a lot of upside for unions, even if they are not ultimately successful in keeping their representative status. SEIU collected $34 million in dues from more than 59,000 home health care workers in Michigan before it was ultimately forced to end its status as bargaining representative in 2012.

Meyerson also points out the recent one-day strikes of fast-food workers in New York and Chicago as evidence of a changing model. Workers in other cities, including St. Louis and then Detroit this past weekend, have followed suit. Employers will be mindful to pay attention to such trends.

Meyerson explains the AFL-CIO’s plan too. And, it starts with seeking more political power – not necessarily more dues paying members. As Meyerson explains: “The first part of this plan is to expand its Working America program, a door-to-door canvass that has mobilized nonunion members in swing-state working-class neighborhoods to back labor-endorsed candidates in elections in the past decade.”  Phase Two, according to Meyerson quoting Trumka, is “we’re asking academics, we’re asking our friends in other movements ‘What do we need to become?’” And Phase Three: “We’ll try a whole bunch of new forms of representation.  Some will work; some won’t, but we’ll be opening up the labor movement.”

Where all of this ends up is anyone’s guess – but this is clear: the model of unionization is changing.  Change means new challenges. The bottom line for employers: Be Prepared.

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“Essential Functions” Under the Americans with Disabilities Act (ADA) Can Include Job Functions that are Infrequently Performed

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The Americans with Disabilities Act (ADA) requires covered employers generally to provide reasonable accommodations to qualified employees with disabilities. The ADA provides, however, that the employee must be able to perform the “essential functions” of the job with the accommodation, and that the accommodation cannot prove to be an “undue hardship” on the employer.

In the recent case of Knutson v. Schwan’s Home Service, the U.S. Court of Appeals for the Eighth Circuit held that a job requirement can be an “essential function,” even if the employee is not required to perform the function on a regular basis.

In this case, Mr. Knutson was a manager for Schwan’s Home Service, which delivers frozen food. Managers for Schwan’s are required to maintain DOT driving certification.  In March 2008, Mr. Knutson sustained an eye injury.  Because of the eye injury, Mr. Knutson was required to undergo a medical exam and be recertified.  In December 2008, an eye doctor refused to give Mr. Knutson a DOT certification or a waiver.  Schwan’s then gave Mr. Knutson 30 days to find a job within the company that did not require DOT driving certification.  Mr. Knutson was unable to find such a job within the company and was terminated by Schwan’s.

Following his termination, Mr. Knutson filed suit against Schwan’s pursuant to the ADA.  He argued that since he was able to successfully manage his terminal without driving a truck that maintaining the DOT certification was not an “essential function” of his position.  The evidence before the court showed that Mr. Knutson was DOT qualified at the time of his injury; he admitted to delivering product in his personal vehicle; and he testified that since November 2007 that he had driven a truck less than 50 times while working as a manager.

The court disagreed with Mr. Knutson and held that “essential functions” of a job are determined based on the written job description, the employer’s judgment, and the experience and expectations of all individuals working in the same position.  The Court of Appeals affirmed the trial court’s granting of summary judgment in favor of Schwan’s.

The court’s ruling in this case is good news for employers.  Employers should use this case as a reminder of the importance of having a carefully analyzed comprehensive written job description for all positions, clearly identifying essential functions of the position.  In addition, if essential functions of a position change over time, it is important to make appropriate revisions to the written job description for the position.

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Sixth Circuit Upholds Michigan Law Which Bars Schools from Collection Union Dues

Barnes & Thornburg

The 6th Circuit in Bailey v. Callahan, decided Thursday, May 9, has vacated an injunction entered by the District Court and has upheld Michigan’s Public Act 53 which prohibits Michigan’s public schools from assisting in the collection of dues and service fees for unions. The Court summarized the Union’s First Amendment challenge to the statute in this way:

“Unions engage in speech (among many other activities); they need membership dues to engage in speech; if the public schools do not collect the unions’ membership dues for them, the unions will have a hard time collecting the dues themselves; and thus Public Act 53 violates the unions’ right to free speech.”

The problem with that, according to the majority opinion, is that this argument has already been rejected by the U.S. Supreme Court in Ysursa v. Pocatello Education Association, 555 U.S. 353 (2009). Moreover, the Court determined that Public Act 53 does not restrict speech and is not designed to specifically suppress speech by teachers’ unions. Finally, the Court, in two paragraphs, rejected the plaintiff’s equal protection argument.

The opinion incited a lengthy dissent from Circuit Judge Jane Stranch who contended that the majority “mischaracterizes the First Amendment interests at stake, glosses over key distinctions the Supreme Court requires us to observe, and averts its gaze from Act 53’s blatant viewpoint discrimination.”

With a 2-1 decision and a lengthy dissent on a Constitutional claim, one would think this is headed for an en banc determination by the full Sixth Circuit.

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Circuit Court Upholds Michigan Public Act 53: Public Schools Prohibited from Collecting Union Dues

Varnum LLP

Responding to a challenge to the constitutionality of Michigan Public Act 53, which prohibits public schools from collecting union dues from employees, the Sixth Circuit ruled that the act is constitutional. The result of this ruling is that, at this point, public schools are statutorily precluded from collecting dues for the union under any bargaining agreement that was entered into, renewed or extended after March 16, 2012.

The plaintiffs, who are school unions and union members, argued that the act violates their First Amendment and Equal Protection rights.  The district court, agreeing with the plaintiffs, had issued a preliminary injunction barring enforcement of the law.  The Sixth Circuit reversed the district court, dissolved the injunction and remanded the case “for further proceedings consistent with this opinion.”  It is unclear whether any viable challenge to the statute remains for the district court to address or whether dismissal of the claim is now in order.

The 6th Circuit ruled that Public Act 53 does not violate the First Amendment.  The plaintiffs argued that unions need membership dues to engage in speech and if the public schools don’t collect the union dues for them, the unions will have a hard time collecting the dues themselves.  Therefore, Public Act 53 violates the unions’ right to free speech.  The majority opinion stated that the First Amendment prohibits government from limiting the freedom of speech, but it does not give the right to use government payroll systems for the purpose of obtaining funds for speech.  The court concluded that Public Act 53 does not restrict speech.  It “merely directs one kind of public employer to use its resources for its core mission rather than for the collection of union dues.”

Similarly, the Court decided that the plaintiffs’ Equal Protection claim fails.  The plaintiffs argued that Public Act 53 violates the Equal Protection clause of the 14 Amendment because it applies only to unions that represent school employees and not to other public employers.  The court held that there is a legitimate interest in this classification.  That is, the Michigan legislature “could have concluded that it is more important for the public schools to conserve their limited resources for their core mission than it is for other state and local employers.”

It remains to be seen whether the Sixth Circuit’s opinion ends the debate or if there will be continued challenge.

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Timely Performance Management in Avoiding Family and Medical Leave Act (FMLA) Liability

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Managing the performance or conduct of an employee who has recently utilized leave under the Family and Medical Leave Act (FMLA) can be a legal minefield for employers.  If the poorly performing employee does not improve his or her performance upon return from FMLA leave, the employer may be hesitant to take further employment action against the employee for fear that the timing of the decision will create a risk of liability under state or federal leave laws.  A comparison of two recent court decisions serves as an important reminder that contemporaneously addressing and documenting performance or conduct issues as they occur can go a long way in protecting the employer from liability in a later FMLA retaliation claim.

In Benimovich v. Fieldston Operating, LLC, Case No. 11-CV-780 (S.D.N.Y 3-22-2013), the plaintiff, Galina Benimovich, took FMLA leave to undergo and recover from knee replacement surgery.  While on leave, the employer hired and trained a replacement.  When Benimovich learned that she had been replaced, she contacted the employer and offered to return from leave.  When the parties met a few days later to discuss the situation, the employer terminated Benimovich’s employment.

Benimovich subsequently filed a lawsuit against the employer alleging a variety of claims, including a claim that the employer had unlawfully terminated her in retaliation for exercising her FMLA rights.  The employer defended that its owners had actually decided to terminate Benimovich months before she took FMLA leave, but that they wanted to hire and train a replacement before firing her. The employer claimed its motivation to terminate Benimovich was poor performance, specifically inaccurate processing of payroll records, manipulation of time records, failure to issue accurate paychecks, and untimely payments to vendors.

The court denied the employer’s motion for summary judgment on the FMLA retaliation claim.  In allowing the case to go forward, the court noted that the temporal proximity between the leave and the termination was suspect.  However, the court also relied heavily on the fact that there was no written documentation substantiating Benimovich’s alleged performance problems or the owners’ decision to terminate Benimovich months earlier.  The court further noted that Benimovich’s performance was rarely, if ever, criticized.

Contrast the outcome in Benimovich with the analysis and decision of the Court of Appeals for the Eight Circuit in Brown v. City of Jacksonville, Case No. 12-1730 (8th Cir. 2013).  The plaintiff in Brown took FMLA leave from August 9, 2008 through October 18, 2008 to undergo hip replacement surgery.  A few months before going on leave, Brown received a written warning for insubordination.  Brown’s supervisors had also verbally counseled her regarding her performance on a number of occasions.

After returning from leave, Brown received another written warning for failure to perform her duties as purchasing manager.  Brown filed a complaint with the Equal Employment Opportunity Commission (EEOC), which led the City to conduct an internal investigation into Brown’s complaints.  The investigation revealed that Brown’s co-workers considered her to be a very negative presence in the workplace and felt they had to walk on “pins and needles” due to Brown’s attitude issues.  Additionally, the investigation revealed that Brown’s co-workers were able to adequately perform Brown’s purchasing duties during her absence.  The City concluded that Brown was creating a hostile work environment for her co-workers and terminated her employment for “failure in performance of duties” and “failure in personal conduct.”

Following her termination, Brown filed a lawsuit against the City alleging FMLA retaliation and a number of other discrimination claims.  On appeal, the Eighth Circuit approved of the lower court’s grant of summary judgment to the employer on Brown’s FMLA retaliation claim.  First, the court noted that the timing of Brown’s termination – eight months after returning from leave – did not raise an inference of discrimination.  Second, the court held that the undisputed evidence (which included written warnings) showed that Brown was warned about her poor performance prior to even going on leave.  Accordingly, the Court affirmed summary judgment in favor of the City.

There are a number of distinguishing factors that explain the differing outcomes in Benimovich and Brown – including the amount of time between the employee’s leave and termination.  Importantly, however, employers should also take note of the critical role that written warnings and performance counseling played in the Eight Circuit’s award of summary judgment to the employer.  The employer in Brown was able to justify its termination and avoid liability in a tricky situation because it had the written documentation and prior performance counseling to support its claim of poor performance.   Conversely, the employer in Benimovich was denied summary judgment because it had failed to document either the purported performance issues or the earlier decision to terminate.

No doubt, terminating or taking adverse employment action against an employee who has recently utilized legally protected leave rights is risky, and an employer should consult legal counsel before taking any such action.  However, these cases illustrate that proper documentation of performance and disciplinary issues is one of the most important preventative steps an employer can take now to reduce the risk of future liability.

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