You’re Hired: Labor Policy Under Trump Administration and 115th Congress

labor policy trump administrationIf personnel reflect policy, President-elect Donald Trump’s selection of Andrew Puzder as the next Secretary of Labor signals a turning point for labor and employment policy.  The Chief Executive Officer of CKE Restaurants, Mr. Puzder has been critical of many of the Obama administration’s labor initiatives.  His efforts to carry out Mr. Trump’s job creation agenda will likely intersect with action in Congress and in the courts, where several pivotal labor-related cases are currently being heard on appeal.  These dynamics mean that the early days of the Trump administration and the 115th Congress will be a time of flux for employers, with changes to existing regulations and new legislative and regulatory initiatives.  This article details several of the most important policy areas that are likely to undergo change.  Employers should consider engaging in the policymaking process now to help shape legislation and regulations.

New Players, New Priorities

As the leader of a major fast-food company, Mr. Puzder brings a “real-world” perspective on how policy decisions affect employers and employees.  He has been a vocal critic of several Obama-era labor initiatives, especially its activities with respect to the joint employer standard, expanded eligibility for overtime pay and paid leave, among others.

Mr. Puzder’s views on these topics are largely in alignment with the Republican leadership of the Congressional committees with jurisdiction over labor and employment issues.  On the House Education and Workforce Committee, Representative Virginia Foxx (R-NC) is expected to become the new Chair following the retirement of current Chair John Kline (R-MN).  Representative Foxx has promised “to do whatever [Republicans] can to stop the rules coming out of the [Obama] Labor Department – either block them or repeal them.”  She has named the repeal of the Department’s overtime and persuader rules as top priorities, in addition to the National Labor Relations Board’s (NLRB) broadened joint employer standard and rules related to the union election process.  Representative Bobby Scott (D-VA) will remain the Ranking Member on Education and Workforce.

In the Senate, Senator Lamar Alexander (R-TN) will remain the Chairman of the Senate Health, Education, Labor, and Pensions Committee (HELP), while Senator Patty Murray (D-WA) will continue to serve as the top Democratic or ranking member.

Overtime Rule

One of the key labor policies that Mr. Puzder, Rep. Foxx, and their Republican colleagues may consider for reform are the Obama administration’s initiatives with respect to overtime pay.  The overtime rule, which was published in the Federal Register on May 23, 2016, revises income thresholds for determining overtime pay for executive, administrative, professional, outside sales, and white collar employees exempt from regular minimum wage and overtime pay requirements, and raises the cut-off salary of employees eligible for overtime pay from $23,660 to $47,476 per year.  The rule was due to become effective on December 1, 2016.

However, a U.S. District Court Judge in Texas on November 22 issued a nationwide preliminary injunction blocking implementation of the overtime rule, just a few days before its December 1 effective date.[1] This preliminary injunction has given businesses that had not yet moved to comply with the new rules a respite from updating their systems and notifying employees.  In turn, knowing that some businesses have not yet had to comply, Congress has now prioritized repeal of the overtime rule as an early order of business in 2017.

Under complex procedural rules, repeal of the overtime rule could possibly be accomplished through use of the Congressional Review Act (CRA).  CRA is a 1996 law that allows Congress to repeal new “major rules” through an expedited resolution of disapproval as long as those regulations were issued within sixty legislative days in the House or session days in the Senate of the start of the new administration.  With the House and Senate still holding occasional pro forma sessions into mid-December, the Overtime Rule is in a grey area of the CRA window, and the final determination will be made by the Office of the Clerk.  Notably, the Senate Republican Policy Committee has identified the Overtime Rule as a potential candidate for review under the CRA.[2]

Paid Leave

Another key issue is the Department of Labor’s (DOL’s) final September 2016 rule implementing President Obama’s Executive Order 13706 to require federal contractors and subcontractors to provide certain employees with up to seven days of paid sick leave annually.  President-elect Trump has not made any statements regarding his position on mandated paid sick leave for federal contractors.  Delivering on a broad campaign promise to rescind executive orders issued by President Obama, it is possible that President-elect Trump may repeal the executive order, along with other Obama executive orders, during his first weeks in office.

On the other hand, the Trump administration and 115th Congress also could address issues surrounding paid leave.  During the campaign, the President-elect proposed six weeks of mandatory paid maternity leave, as well as tax incentives to support child and elder care.  Although the details of the plan, including what percentage of their salaries mothers will receive, have yet to be clarified, it could offer an opportunity for Democrats and Republicans to find common ground.

Minimum Wage

President-elect Trump has not taken a strong position on the federal minimum wage and has indicated an openness to an increase in the minimum wage as recently as July 2016.

Federal minimum wage legislation was last considered by Congress in April 2014, but the Minimum Wage Fairness Act could not garner enough support in the Senate to proceed to a vote.  This act would have gradually raised the federal minimum wage from $7.25 to $10.10 per hour over a two-year period.  Notably, there were attempts at compromise, which although unsuccessful could serve as a foundation in the case the issue moves forward, perhaps prompted by state-by-state action.[3] For example, Senator Susan Collins (R-ME) proposed to increase the federal minimum wage to $9 per hour, a wage that the Congressional Budget Office had projected would greatly reduce the negative impact on jobs.[4]

A Trump administration may look favorably towards an increase in the minimum wage — indeed, in a television appearance Mr. Puzder said that he was “not opposed to raising the minimum wage rationally.”  However, Congressional Republicans have generally not voiced support for increasing the minimum wage, so prospects for action remain unclear.

Joint Employer Standard

Mr. Puzder and Rep. Foxx will likely prioritize the NLRB’s joint employer standard for repeal.  The NLRB ruling broadens the standard for who is considered an employer from the company that is currently exercising control, to any company with authority to exercise control over the employee.  The result is that when two or more companies are involved with a worker — such as a temporary employment agency and the current employer — they may be considered joint employers.  The implication of this change is that it creates stronger grounds for organizing unions that represent workers at both of the joint employers, thus giving employees more leverage.  The change also increases exposure to liability because a company can now be held liable for labor violations committed by sub-contractors, franchisees, and other companies to which it outsourced responsibilities.

The issue remains unsettled into the next administration because the underlying case that prompted the NLRB decision is currently on appeal in the D.C. Circuit.[5]  In Congress, HELP Committee Chairman Lamar Alexander (R-TN) and House Education and the Workforce Chairman Kline introduced a bill to repeal the changes to the joint employer standard created by the NLRB’s ruling in Browning-Ferris Industries.  The Protecting Local Business Opportunity Act provides potential models for the next Congress.  The legislation would reaffirm that multiple employers must have “actual, direct, and immediate” control over employees to be considered joint employers, rather than the “indirect” or even “potential” control over employment decisions permitted under the NLRB’s new joint employer standard. Because the broadened standard was established by an NLRB ruling, it would require either future litigation or legislative action to overturn.

Additionally, the Committee on Education and the Workforce has been focusing its attention on this issue in part by conducting a year-long investigation of the Occupational Safety and Health Administration (OSHA) joint employer standard, which, they claim, instructs OSHA’s inspectors to “delve into unrelated matters – financial and otherwise – far outside their expertise,” and drifts from the agency’s core mission of examining workplace health and safety in a way that benefits union leaders.  In October, the Committee wrote a letter to Labor Secretary Thomas Perez expressing these concerns.

Persuader Rule

In March of this year, the DOL finalized its much-anticipated “persuader rule,” which requires employers to report any third-party arrangement entered into with the goal of persuading employees, whether directly or indirectly, regarding their right to organize or bargain collectively.  Critics of the rule argue that it will have a chilling effect on employer speech and prevent employers from hiring legal counsel or speaking on labor issues.

Since its passage, the persuader rule has faced significant hurdles in the form of lawsuits challenging its enforcement as unconstitutional, unlawful, and exceeding DOL’s authority.  Although it was set to go into effect July 1, a U.S. District Court judge in Texas granted a nationwide preliminary and later permanent injunction against enforcement of the rule.[6] The DOL is appealing the injunctive relief to the U.S. Court of Appeals for the Fifth Circuit.[7] However, since the persuader rule is based on an administrative determination of the DOL, it is likely that Trump administration changes in DOL priorities or personnel would moot the appeal at some point.  Relying in part on the assumption that a Trump DOL would abandon the rule and the permanent nationwide injunction issued in Texas, a federal judge in Minnesota faced with a similar case recently stayed that litigation, despite his earlier decision not to grant injunctive relief.[8] The split suggests that the issue could ultimately make its way to a federal court of appeals or to the Supreme Court.

Blacklisting Rule

Another DOL regulation following a path similar to that of the Persuader Rule is the DOL’s guidance for implementing E.O. 13673, Fair Pay and Safe Workplaces.  The DOL’s rule is popularly referred to as the “Blacklisting Rule,” and it was published on August 25, 2016.  E.O. 13673 requires that federal contracting officers consider a contractor’s compliance with certain federal and state labor laws as part of the determination of contractor responsibility in awarding federal contracts. The Blacklisting Rule requires that federal contractors bidding over $500,000 report violations of fourteen different labor laws, as well as similar state laws, to the federal government.  Contractors are obligated to report violations even if they are still being contested in court.

The rule was due to become effective on October 25, but just two days before that date, the U.S. District Court for the Eastern District of Texas granted a temporary injunction blocking parts of the rule from going into effect. Judge Marcia Crone ruled that the portion requiring disclosure of labor law violations — even if those violations are being challenged in court or have been settled without any actual violation of the law — was in violation of the First Amendment.[9]  While the injunction is temporary, it demonstrates that the court is likely to eventually rule in favor of the plaintiffs, Associated Builders and Contractors, and strike down the rule.  The ruling left intact the rule’s paycheck transparency provision, which requires employers to note on paychecks information such as whether the person is an independent contractor or an employee under the Fair Labor Standards Act.

In the event that the injunction is lifted, Congress may pursue repeal of the Blacklisting Rule through use of the CRA.  Since the rule was published on August 25, it falls within the CRA’s sixty-legislative or -session day window.  Similar to the Overtime Rule, the Senate Republican Policy Committee has identified the Blacklisting Rule as a potential candidate for review under the CRA.[10]

Predictive Scheduling

Proposed legislation to regulate work schedules has emerged at the state and local levels in the wake of San Francisco’s enactment of its “Retail Workers Bill of Rights” ordinance in November 2014.  A similar law, which applies to retail and food service establishments employing 500 or more workers, will take effect in Seattle on July 1, 2017.  The provisions of these scheduling laws vary, but most require employers to give good faith estimates of an employee’s work hours in advance and provide additional compensation to employees whose hours are changed on short notice, among other provisions.

Proposals similar to the San Francisco and Seattle laws are pending in state legislatures in California, Connecticut, Illinois, Indiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, Oregon, and Rhode Island, as well as in major cities like New York and at the federal level.

In the event state and local scheduling laws begin to gain momentum, the Republican majorities in the House and Senate could advance federal legislation to preempt such efforts. As a veteran of the fast-food industry, which has been a target of the push for restrictive scheduling, Mr. Puzder could be sympathetic to calls for a federal solution that balances the interests of employers and employees.

Conclusion

The Trump administration and leadership of the 115th Congress are charting a different course with respect to labor and employment policy than the outgoing Obama administration on the issues described above as well as many others.  The incoming administration and Congress will almost certainly advance efforts to repeal some of the Obama administration’s key labor and employment initiatives, and Congress will also position itself to react to state-based initiatives and legal challenges.  These developments promise a period of changing obligations for employers, as well as opportunities to shape the future of this important policy area.

Labor Regulation/Issue Status Options for Repeal/Change
Overtime Rule Under temporary injunction
  • Possibly CRA repeal
  • Congressional action
  • Final court ruling
Paid Leave for Federal Contractors Obama executive order and DOL implementing regulation passed
  • President-elect Trump can repeal with an executive order
Federal Paid Leave Legislation Currently none
  • Congressional action
Federal Minimum Wage Currently $7.25; no pending Congressional action
  • Congressional action
Joint Employer Standard NLRB ruling issued, currently on appeal in the D.C. Circuit
  • Congressional action
  • Final court ruling
Persuader Rule Under permanent injunction
  • Congressional action
  • Final court ruling
Blacklisting Rule Under temporary injunction
  • CRA repeal
  • Congressional action
  • Final court ruling
  • Reversal of underlying executive order
Predictive Scheduling This is currently being handled at the state and local level
  • Congressional action
ARTICLE BY Karishma Shah Page, Amy Carnevale & Peter V. Nelson of K & L Gates
Copyright 2016 K & L Gates

[1] State of Nevada v. U.S. Dep’t of Labor, No. 4:16-CV-00731 (E.D. Tex. Nov. 22, 2016).

[2] Reining in Obama Regulatory Overreach, SENATE REPUBLICAN POL’Y COMM. (Dec. 6, 2016).

[3] Alexander Bolton, Centrist Republicans Cool to Minimum Wage Hike Compromise, THE HILL (Apr. 4, 2014 6:00AM).

[4] Id.

[5] Browning-Ferris Indus. of California, Inc. d/b/a Newby Island Recyclery, 362 NLRB No. 186 (Aug. 27, 2015).

[6] Nat’l Fed’n of Indep. Bus. v. Perez, Case No. 5:16-cv-00066-C (N.D. Tex. June 27, 2016) (preliminary injunction); Nat’l Fed’n of Indep. Bus. v. Perez, Case No. 5:16-cv-00066 (N.D. Tex. Nov. 16, 2016) (permanent injunction).

[7] Lawrence E. Dubé, DOL Persuader Rule Blocked by Federal Judge, BLOOMBERG BNA (Nov. 17, 2016) https://www.bna.com/dol-persuader-rule-n57982082867/.

[8] Vin Gurrieri, Persuader Case Halted Pending Trump DOL Action, LAW 360 (Dec. 8, 2016, 6:27 PM), https://www.law360.com/articles/870551/persuader-case-halted-pending-trump-dol-action;  Labnet, Inc., d/b/a Worklaw Network v. U.S. Dep’t of Labor, Case No. 16-CV-0844 (PJS/KMM) (D. Minn. June 22, 2016) (stay of proceedings issued on Dec. 7).

[9] Assoc. Builders and Contractors of Southeast Texas v. Anne Rung, Administrator, Office of Fed. Procurement Policy, Office of Mgmt. and Budget, Case No. 1:16-CV-425 (E.D. Tex. Oct. 23, 2016).

[10] Reining in Obama Regulatory Overreach, SENATE REPUBLICAN POL’Y COMM. (Dec. 6, 2016) http://www.rpc.senate.gov/policy-papers/reining-in-obama-regulatory-overreach.

San Marcos, Texas Joins Growing Ranks of Cities Raising Minimum Wage to $15 Dollars

San Marcos Texas Minimum wageTaking its cue from other, larger cities, San Marcos, Texas, recently voted to raise the minimum wage to $15 dollars per hour for businesses applying for tax breaks and others incentives to build or expand in the city. In addition to the higher wage, businesses must also offer all employees and their dependents benefits equal to those offered to full-time employees. The San Marcos City Council saw requiring the higher pay rate as a way businesses could return the favor of receiving tax incentives to the local economy. This new law applies only to future businesses seeking economic development incentives, and not companies already doing business in San Marcos.  The city joins the ranks of cities such as Los Angeles, Seattle, San Francisco, and Washington, D.C. that require a “living wage.”

Key Takeaways for Businesses in San Marcos

Businesses seeking tax incentives to build or expand in San Marcos need to be prepared to pay a higher minimum wage and offer benefits to all of employees. This trend is likely to continue in other cities across the nation.

ARTICLE BY Raven Applebaum of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

© 2016, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

New Partnership Tax Audit Rules: Ready or Not, Here They Come!

IRS partnership tax auditOn November 2, 2015, the Bipartisan Budget Act of 2015, (the Act), H.R. 1314, 114 Congress/Public Law No. 114-74, made significant changes to the rules governing US federal income tax audits of partnerships (New Audit Rules). The New Audit Rules are codified at Internal Revenue Code Sections 6221 through 6241. On August 4, 2016, the IRS released temporary and proposed regulations relating to certain aspects of the New Audit Rules. And, on December 6, 2016, technical corrections to the New Audit Rules (Technical Corrections) were introduced in both the House of Representatives, H.R. 6439, and in the Senate, S. 3506.

The New Audit Rules take effect for taxable years beginning on or after January 1, 2018, and are intended to facilitate Internal Revenue Service (IRS) audits and adjustments with respect to certain types of partnerships. In the wake of the New Audit Rules, all partnerships should evaluate whether their agreements (existing as well as those in the negotiation stages) address the new rules.

The New Audit Rules apply broadly to partnerships with 11 or more partners at any one time during the tax year. A partnership is also subject to the rules if any of its partners is a partnership, a limited liability company which is treated as a partnership or as a disregarded entity (it is expected that additional guidance will be released in the future to allow a “look through” to the regarded member of a disregarded entity, but that guidance has not yet been issued), a trust, a nominee, a nonresident alien or an S corporation. Partnerships with 100 or fewer partners, however, may be eligible to elect out of the New Audit Rules. Recommended Action: The partnership agreement should address the election out and if the election out is intended to be perpetual, the agreement might include a covenant to remain under 100 partners.

The New Audit Rules provide for tax adjustments at the partnership rather than the partner level. Technical Corrections would focus the adjustments to amounts or items relevant in determining the income tax liability of any person (e.g., partnership items, affected items, and computational items). Mechanically, the partnership may cause its current partners to bear the tax liability or may “push out” the tax liability to the persons who were partners during the reviewed year. The election must be made no later than 45 days after receipt of a notice of final partnership adjustment. If the push out election is made, the interest rate on imputed underpayments is determined at the partner level and is 2 percent higher than the rate for imputed underpayments which are not pushed out. Technical Corrections would provide guidance with respect to the push out election for tiered partnerships. Recommended Action: Consider whether the push out election should be mandatory, and if so, amend the partnership agreement accordingly.

The TMP is no more! Under the New Audit Rules, the partnership designates a “partnership representative.” The partnership representative has the sole authority to act on behalf of the partnership in an audit. The partnership and the partners are bound by the actions taken by the partnership representative on behalf of the partnership. The partnership representative does not need to be a partner in the partnership. Recommended Action: Consider amending the partnership agreement to define the standards for selecting, terminating and replacing the partnership representative. Consider amending the partnership agreement to require the partnership representative to consult with the partners with respect to key issues, such as extending the statute of limitations, settling an audit, filing a petition for readjustment and making the push out election.

A partnership may elect to apply the New Audit Rules to any of its partnership returns filed for a partnership taxable year beginning after November 2, 2015, and before January 1, 2018. Temporary Regulations § 301.9901-22T provide time, form and manner for a partnership to elect into the New Audit Rules. Recommended Action:  Consider whether there is any benefit to electing to apply the New Audit Rules before the mandatory application date. The benefits of electing early application of the New Audit Rules may include a more efficient audit process and the ability to cause current year partners to bear the tax liability following an adjustment. If your partnership is tiered with partnerships as partners, electing into an entity level tax may obviate the need to issue amended Forms K-1 and having to amend multiple federal and state returns due to an IRS adjustment.

ARTICLE BY Kevin Spencer, Madeline M. Chiampou & Kristen E. Hazel of McDermott Will & Emery

© 2016 McDermott Will & Emery

Innovation, Change and Accountability: A Way Forward for Law Firm Leadership

Law firms across the country are facing a crisis in leadership, but many of them don’t know it yet.  Despite all the challenges discussed in Part 1 of this series, many law firms, especially small and mid-sized firms,  are not changing their strategies, in fact, they keep on doing the same old things.

law firm leadership and governance

Many law firms are structured where decisions are made based on consensus, and the Managing Partner is tasked with conducting the orchestra–managing the processes, focusing on firm administration and the tasks the firm is working on.  Even though this decision and execution process is clunky, no one seems to be leaving it behind.  According to Re-Envisioning, “Most MPs enjoy the positive aspects of the MP role, but many don’t seem to want accountability or to be responsible for holding others accountable for getting results.”  Tough conversations are not had, problems are not addressed, and necessary changes are not being made because Managing Partners are not empowered to focus on the right things.  David Maister, author of True Professionalism, says, “What worries me most is not that today’s law firm leaders are often imperfect in fulfilling the role, but rather than many of them aren’t even aiming at it.”

law firm leadersHow can law firms change their leadership structure to be more like a business?

As we discussed in Part 1, one of the major recommendations of Re-Envisioning is changing the Managing Partner to a CEO, in name and in function.  This requires the MP to act more as a CEO–focusing on having tough conversations to ensure client service is provided at the highest level, and that results and profits are being made.  One suggestion is that the MP/CEO have a formal job description.  Of the MPs surveyed for Re-Envisioning, 53% indicated that they did not have a formal job description, and an additional 20% indicated that one existed, but that it was not closely followed.  In fact, only 19% of respondents indicated that they had a written job description and that it was followed, and of those 19%, 93% said that they liked having a job description–that it gave them something to “focus on.”  Armed with a title change and a job description, CEO’s are better equipped to move the firm forward in the direction it needs to go.

Other changes that can help re-shape the firm’s culture can be achieved through the Executive Committee.  Hiring a Chief Operating Officer and giving him or her a strong voice on the leadership team can help the firm keep eyes on the prize.  Additionally, Re-Envisioning suggests morphing the Executive committee so “it functions like a CEO’s senior leadership team.”

To function like a leadership team the executive committee needs to do the following:

  1. Oversee firm-wide strategic priorities
  2. Members would be elected for terms by owners on a staggered basis
  3. But with no term limits for committee members.  If someone is doing a good job in a position, you want them to keep doing a good job in that position.law firm managers managing partner

What kind of firm culture should the executive committee strive for?

Innovation, Change and Accountability are things the Executive Committee should promote in the firm.  The new culture of legal services demands creative thinking, an ability to adapt to shifting circumstances, and a willingness to hold everyone accountable for achieving results.  But what does that mean in practice? Innovation as a value will reward creativity and taking risks to find better ways to accomplish things–and looks at everything, all processes and asks “why do we do it this way?” and most importantly, makes changes as needed.  With Change, the firm and its leaders are open to new ideas, conflicting opinions and constructive feedback, always looking for better solutions and embracing changes that improve results and profitability.

Finally, accountability means the CEO:

  1. Holds himself or herself to high standards and achieving results
  2. Communicates expectations of executive committee members, stakeholders/owners and members of the firm
  3. Identifies the need for change and makes adjustments when necessary
  4. Quickly and firmly addresses problematic partners and underperformers
  5. Build trust in order to enact changes
  6. Emphasize clients first, firm second, individuals third as a guiding principle
  7. Expect others to follow his or her lead and hold others accountable for achieving results and performing at a high level

It’s clear that there is plenty of work to do in law firm leadership.  To achieve the objectives of re-orienting law firm leadership to a CEO structure, and to encourage the adoption of innovation, change and accountability as firm-wide principles, law firm leadership needs to set priorities. The survey results that Re-Envisioning was based on indicate that the top 3 contributions that leaders should focus on were Strategic objectives, being a Change agent, and making the tough decisions and holding people accountable.  These objectives can help law firm leaders make the changes in their firms that need to be made.

These recommendations may seem daunting, or a huge disruption of firm life, however, they are the changes the new industry demands.  Terry Isner, President of Marketing and Business Development at Jaffe says, “Law firm leadership isn’t about boots on the ground anymore–it’s a 10,000 foot perspective with 360-degree views of the firm, its clients and the industry as a whole at all times.  It’s being able to adapt to change quickly and making hard choices that will inspire and empower greatness.”

 law firm leaders

This is NLR’s second article on the report  Re-Envisioning the Law FIrm: How to Lead Change and Thrive in the Future  developed by the Managing Partner Forum, Jaffe, and The Remsen Group and released on December 8th.  You can read the first article here.

ARTICLE BY Eilene Spear & Jennifer Schaller of The National Law Review / The National Law Forum LLC

Winter Is Coming —Wage and Hour Considerations During Weather-Related Emergencies

winter weather winter is comingWith winter storms around the corner, it’s the right time to revisit employer rights and responsibilities during a weather-related emergency or other major disruption.  We discuss below some typical scenarios that you are likely to face during weather-related or other emergencies, and the consequences under the wage and hour laws.

“Our office was closed for a few days because of the storm.  Do we have to pay our employees for those days?”

Non-exempt (i.e., overtime-eligible) employees generally have to be paid only for hours they actually work.  So if a non-exempt employee cannot work because your office is closed—or because the employee cannot make it into the office because of weather-related conditions—the wage and hour laws do not require you to pay the employee for non-working time.  On the other hand, a non-exempt employee who performs work remotely (say, from home, from a temporary site, or from a coffee shop) is entitled to pay for the time worked.

An exception exists for salaried non-exempt employees, who may—depending on the terms of their agreement with the employer—expect to receive their full weekly salary regardless of how many hours they actually work that week.

Exempt employees (i.e., employees not entitled to overtime pay) generally receive their full salary for any week in which the office is closed for less than a full workweek.  Employers who prorate an exempt employee’s weekly salary because of office closure risk losing the exemption for the week in question—a consequence that may or may not be material depending on how many hours the employee works that week.  If your office is closed for an entire workweek, you can inform all employees of the closure and you need not pay them for that week (unless they are working remotely).

Be sure to check any agreements with exempt employees—as well as offer letters, policies, or other statements regarding the nature of their pay—which may also limit your ability to prorate salary during office closures and/or give rise to pay claims.

 “Our office was open, but some of our staff could not make it in because of the weather.  Do we need to pay them?

As described above, non-exempt employees generally must be paid only for hours they actually work, but salaried non-exempt employees may have a contractual right to receive their full salary for any week in which they perform any work.

Exempt employees who are absent from work for one or more full days because of inclement weather, including because of transportation difficulties, are considered to be absent for personal reasons (if the office is otherwise open).  Absent a contractual right to be paid, they do not have to be paid for the days they fail to report to work, and your failure to pay them for such days will not jeopardize their exempt status.  Deductions for partial-day absences under these circumstances, however, will violate the salary basis rules and jeopardize the exemption for that week.

“Because of flooding or another dangerous condition, we had to close our office after a number of employees had already reported for work.  Do we have to pay them for the day?” 

Exempt employees who report to work but are turned away or sent home by their employer generally must receive their salary for that day.  Non-exempt employees who report to work but are turned away or sent home must be paid for all hours actually worked that day.  In addition, some states have “reporting pay” or “call in” pay laws that require employers to pay non-exempt employees a minimum number of hours’ pay for any day in which they report to work.

“Our payroll records were destroyed in the storm, or are inaccessible.  How do we pay our employees?”

Exempt employees paid on a salary basis should receive their normal salary payment (less any permissible full-day deductions).  For hourly non-exempt employees, use a reasonable method to determine the number of hours worked, such as:

  • Asking the employees themselves to submit a certified time sheet indicating the number of hours they worked;

  • Recreating hours worked through electronic records (g., card/ID swipes or log-ins/log-outs);

  • Making assumptions based on an employee’s fixed or regular schedule of hours;

  • Asking managers to verify hours worked; or

  • Some combination of the above.

“Can we require our employees to use available vacation days or other paid time off during a weather-related office closure or absence?”

Yes.  Under federal law and the laws of most states, employers are not required to provide vacation benefits or other paid time off to employees.  Such benefits are generally a matter of agreement between employer and employee, or set forth in the employer’s handbook or policy.  Under these circumstances, there is no prohibition on an employer giving PTO and requiring that it be taken on specific days.  So long as it’s permitted under the applicable PTO policy or agreement, employers can reduce an employee’s accrued PTO bank for either partial or full day absences, without violating the wage and hour laws.

“Can we give our staff additional paid or unpaid time off to assist in recovery or relief efforts?”

Employers can grant their employees additional paid and unpaid time off for any reason, including assisting with storm-related recovery and relief efforts.

Employees who are assisting in relief efforts as part of the National Guard or Armed Forces Reserves may have additional rights under federal and state law.

Because of the snow, it took our employees twice as long to commute to work as opposed to most other days.  Do we need to pay them for the additional commute time?”

Time spent in an employee’s normal commute from home to work at the beginning of the workday, and from work to home at the end of the workday, is not considered time worked and need not be paid.

“Some of my employees are members of a union.  Do these rules apply to them as well?”

Collective bargaining agreements generally cannot waive or reduce the protections available to employees under federal, state, or local wage and hour laws.  Collective bargaining agreements can, however—and often do—impose different and additional pay, time off, and other obligations on employers.  Employers with unionized employees should consider all applicable agreements when analyzing their rights and responsibilities in the context of a weather-related emergency or other “force majeure” event.

“We want to do more for our employees, to go above and beyond what the law requires. What are some things we can do?”

There are many options available to an employer who wants to do more for its employees, including:

  • Granting additional paid or unpaid time off

  • Allowing employees to donate accrued paid time off to other employees (i.e., leave-sharing plans)

  • Allowing affected employees to work remotely for some period of time

  • Making emergency advances of salary or loans

  • Setting up disaster-relief programs or payments

  • Making certain payments to assist disaster victims that can be excluded from their taxable income

  • Setting up food and clothing drives

Final Thoughts

Employers making decisions about scheduling, pay, and time off during weather-related emergencies and disruptions should bear in mind the potential implications on employee morale.  Flexibility and support in times of need—or the absence of them—are likely to be remembered long after the storm passes.

As always, check state and local laws—as well as your contracts and policies—before making any final decisions regarding wages, hours, or time off.

ARTICLE BY Allan S Bloom & Arielle E. Kobetz of Proskauer Rose LLP
© 2016 Proskauer Rose LLP.

Employment Based Immigration: New Form I-9, Employment Eligibility Verification

Employment Eligibility VerificationOn November 14, 2016, U.S. Citizenship and Immigration Services (USCIS) published a revised version of Form I-9, Employment Eligibility Verification (“Form I-9”). Employers can continue to use the most recent version dated March 8, 2013 until January 22, 2017. By January 22, 2017, employers must use only the new version or face serious fines.

Form I-9 requirements were established in November 1986 when Congress passed the Immigration Reform and Control Act (IRCA). IRCA prohibits employers from hiring people, including U.S. citizens, for employment in the United States without verifying their identity and employment authorization using Form I-9.

Among the changes in the new version, Section 1 asks for “other last names used” rather than “other names used,” and streamlines certification for certain foreign nationals. The revised Form I-9 is easier to complete using a computer. Enhancements include drop-down lists and calendars for filling in dates, on-screen instructions for each blank item, easy access to the full instructions, and an option to clear the form and start over.

Additionally, prompts have been added to ensure the information is entered correctly, and now employers can enter multiple preparers and translators. There is a dedicated area for including all additional information rather than having to add it in the margins. There is also a supplemental page for the preparer/translator. When the employer prints the completed form, a quick response (QR) code is automatically generated, which can be read by most QR readers and may be used to streamline audit processes.

The instructions have been separated from the form, consistent with other USCIS forms, and include specific instructions for completing each field.

ARTICLE BY Elise S. Levasseur of Dickinson Wright PLLC

© Copyright 2016 Dickinson Wright PLLC

Supreme Court Punts Design Patent Damages Back to Federal Circuit

design patent damagesThe Supreme Court issued a rare decision on the issue of damages for design patent infringement in the Apple v. Samsung smartphone case. The result could mean significant changes in the calculation of damages for infringement of design patents.

The decision is one more step in the ongoing battle between Apple and Samsung that originally included claims of patent infringement, design patent infringement and trade dress infringement. Samsung’s phones were found to infringe the ornamental designs in each of the three design patents shown below and Apple was awarded Samsung’s entire profit from the sale of its infringing smartphones, which amounted to nearly $400 million. The only issue on appeal was the basis for the damages award.

Generally, a design patent holder may seek damages under the standard patent damages statute 35 U.S.C. §284 that sets a floor for damages as “a reasonable royalty for the use made of the invention by the infringer.” As an alternative, the patentee can collect damages under the design-patent-damages provision in 35 U.S.C. §289. Section 289 provides for the significant remedy of profit disgorgement based upon a defendant’s use of the patented “article of manufacture.” The infringer “shall be liable to the owner to the extent of his total profit.”

The Federal Circuit affirmed the damages award, rejecting Samsung’s argument that damages should be limited because the relevant articles of manufacture on which damages are based were the front face or screen as opposed to the entire smartphone. The Federal Circuit’s reasoning was that such a limit was not required because the components of Samsung’s smartphones were not distinct articles of manufacture.

The Supreme Court held unanimously that the Federal Circuit incorrectly interpreted §289 in holding that the “article of manufacture” for the purpose of calculating damages must be the entire smartphone and remanded the case back to the Federal Circuit for additional briefing on what constitutes an “article of manufacture” in the context of the design patents at issue.

Although the Supreme Court did not completely resolve the issue, this decision will be significant in future design patent cases when the design patent protection is directed solely to a component or element of a product as compared to the entirety of the product.

ARTICLE BY Patrick M. Bergin of von Briesen & Roper, S.C.

©2016 von Briesen & Roper, s.c

Obama Bans Drilling Offshore Atlantic, Arctic – But For How Long?

Drilling OffshoreWith a new President on the White House doorstep, President Obama has announced a ban – ostensibly permanent – on offshore oil and gas drilling in federal waters along the Eastern seaboard and offshore Alaska. President Obama appears to be relying upon a seldom-used provision of the 1953 Outer Continental Shelf Lands Act (“OCSLA”) 43 U.S.C. §§ 1331 et seq.), which allows the President to withdraw any “unleased lands of the outer Continental Shelf.” Whether the ban proves permanent is likely to be tested politically and legally, as the Trump Administration takes office alongside a Republican-controlled Congress.

OCSLA and the Authority to Ban

OCSLA mandates that the Secretary of the Interior expeditiously develop the resources on the submerged lands three or more nautical miles offshore the coast of the United States. The purpose of OCSLA is “to assert the exclusive jurisdiction and control of the Federal Government of the United States over the seabed and subsoil of the outer Continental Shelf, and to provide for the development of its vast mineral resources.” See S. Rep. No. 411 (June 15, 1953) (the “1953 Senate Report”). The Secretary implements the mandate through a leasing program that involves auctions in which developers compete to acquire OCS leases. The program is administered and enforced by the Bureau of Ocean Energy Management (“BOEM”), the Bureau of Safety and Environmental Enforcement (“BSEE”), and the Office of Natural Resources Revenue (“ONRR”).

Section 12(a) of OCSLA provides that “the President of the United States may, from time to time, withdraw from disposition any of the unleased lands of the outer Continental Shelf.” 43 U.S.C.A. § 1341(a). In his announcement on December 20, President Obama indicated his intention to remove federal submerged lands in the Atlantic and Arctic from future leasing. Shortly after the November 2016 election, the Obama Administration had already removed any Atlantic and almost all Arctic lease sales from the auction schedule through 2022, but this announcement appeared to go further by triggering the President’s authority under Section 12(a) to withdraw certain OCS lands from the leasing program indefinitely.

Prior Leasing Moratoria

Historically, Congress has been the one to bar certain regions on the OCS from leasing, but Presidential withdrawals under Section 12(a) have also occurred. Congress first enacted a moratorium in 1982 as part of an appropriations bill, removing three-quarters of a million acres offshore California from federal leasing. Because appropriations bills only cover one fiscal year, the moratorium lasted only a year, but Congress passed new moratoria in subsequent years, generally for areas offshore California, but also in the North Atlantic and the Eastern Gulf of Mexico.

In 1990, President George H.W. Bush issued a Presidential statement – not expressly relying upon OCSLA Section 12(a) – to state his support for a moratorium on new leasing offshore most of California, Oregon, Washington, the North Atlantic, and the Eastern Gulf of Mexico. But the President limited the duration of the ban, setting it to expire in 2000 (or 1996 in the case of certain subareas offshore California). In 1998, President Clinton announced similar withdrawals through 2012, expressly on the basis of Section 12(a).

In January 2007, President George W. Bush modified President Clinton’s withdrawal by narrowing it, and in July 2008 he modified his own 2007 withdrawal and two prior withdrawals by President George H.W. Bush and President Clinton. He also threatened to veto any appropriations bill that sought to renew the Congressional ban. Without the votes to override the veto, Congress stopped banning offshore leasing, until Congress passed the Gulf of Mexico Security Act in 2006, which locked up most of the Eastern Gulf of Mexico until 2022.

As this history indicates, both Democratic and Republican Presidents have used Section 12(a) to ban leasing for periods of time that encroached on future Administrations (even before knowing the political persuasion of those later Administrations). Likewise, later Presidents have modified (in particular, narrowed) the withdrawals made by prior Presidents and have done so under the authority of Section 12(a).

The New Ban

President Obama has not yet publicly released the language by which he apparently intends to invoke Section 12(a), but his announcement leaves little doubt that it will cover much of the OCS offshore the Atlantic seaboard and Alaska. Moreover, it is clear that he intends the ban to be indefinite – that is, without a sunset date. Some proponents of the ban argue that the decision is irrevocable because Section 12(a) only works ‘one way,’ authorizing withdrawals but remaining silent about the rescission of withdrawals. Others may argue that Section 12(a) itself contemplates change, as it refers to decisions made “from time to time,” and in any event prior withdrawals have been modified numerous times in the past. Moreover, they may argue, an irrevocable ban would flout OCSLA’s imperative to develop the offshore for the nation’s benefit subject to balancing considerations of the environment, competition, and national defense. Inherent in this balancing mandate is that the balance must be struck anew from time to time, as the weight of the statutory considerations changes in the balance.

As with many of President Obama’s environmental and energy initiatives, we anticipate this latest move will be challenged in federal court and through political efforts in Congress, which penned the withdrawal authority in Section 12(a). As the recent presidential election has shown, the balance of power and policy can shift, from time to time.

ARTICLE BY Kevin A. Ewing & Michael Weller of Bracewell LLP
© 2016 Bracewell LLP

Attend the NAMWOLF 2017 Business Meeting – February 12-14 in Fort Lauderdale

NAMWOLF

The National Association of Minority & Women Owned Law Firms (NAMWOLF), founded in 2001, is a nonprofit trade association comprised of minority and women-owned law firms and other interested parties throughout the United States. Join them for their 2017 Business Meeting in Fort Lauderdale, February 12-14. 

The NAMWOLF Business Meeting is a great opportunity to increase your participation and relationships with NAMWOLF Law Firm Members. All attendees further benefit by attending CLE sessions specific to NAMWOLF Member Law Firms’ practice areas, which provides greater insight into each Member Law Firm’s experience and capability to handle complex legal matters. The Business Meeting also provides the opportunity to network with NAMWOLF Leadership, such as the Advisory Council and NAMWOLF Board of Directors. If you have never been to a NAMWOLF event, the Business Meeting is the place to start!

Where: Marriott Harbor Beach, Fort Lauderdale, FL

When: February 12-14, 2017

Register today!

Alaska Minimum Wage, Tip Credit, and Overtime Rights Ruling: Gallo’s and Taco Kings

alaska wage and hourOn Dec. 12, 2016 the Alaska Wage and Hour Division announced a settlement with a small chain of restaurants local to Alaska in the amount of $835,000.00.[1] Considering this is a small locally owned business this a staggering amount.  To put this in perspective there are a total of only 9 eating establishments involved, three Gallo’s and six Taco Kings. Gallo’s are traditional sit down restaurants with full service.  Taco Kings are small walk up and order off a menu board establishments with self-serve soda fountains and condiments and no wait staff.

In conversations with persons at both Gallo’s and the Alaska Wage and Hour Division it became clear that the overtime issues had been ongoing for several years.  The current settlement was related to an audit conducted by the Alaska Wage and Hour Division and covered the period of Nov. 2013 to Dec. 2015.[2]  Prior to the recent settlement, dating back to 2011, Gallo’s/Taco King had settled six previous complaints for a total of $50,000.[3]  It was this systemic abuse of the Alaska overtime law that led to the audit which revealed overtime being owed to 159 employees.[4]

Alaska law requires workers be paid minimum wage (currently $9.75/hr. and increasing to $9.80/hr. on Jan.1, 2017) with time and a half paid for overtime over 40 hours in a week.[5]  Alaska does not allow for a tip credit[6] and as such this was a straight overtime case.[7]

Despite this being an overtime violation case, a settlement of this significance will tend to catch the attention of restaurant workers around the country.  Add to that the recent nationwide injunction issued by Judge Mazzant with respect to the Final Rule,[8] there is likely to be heightened awareness of minimum wage and overtime rights among workers in general.  As such it is probably worthwhile for practitioners to remind their clients and perhaps update policies with respect to tipped employees.

Federal wage law as it relates to wait staff allows for a tip credit, but still requires that wait staff earn at least minimum wage when the hourly wage and tips are added up for the hours worked.[9]

One of the requirements of the tip credit often overlooked is the requirement that the employer inform the employee of the tip credit.  According to DOL Wage and Hour Division Fact Sheet #15: Tipped Employees Under the Fair Labor Standards Act, employers must inform tipped employees of the following before the tip credit can be applied:

1) The amount of cash wage the employer is paying a tipped employee, which must be at least $2.13 per hour;

2) The additional amount claimed by the employer as a tip credit, which cannot exceed $5.12 (the difference between the minimum required cash wage of $2.13 and the current minimum wage of $7.25);

3) That the tip credit claimed by the employer cannot exceed the amount of tips actually received by the tipped employee;

4) That all tips received by the tipped employee are to be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and

5) That the tip credit will not apply to any tipped employee unless the employee has been informed of these tip credit provisions.

Failure to properly inform the tipped employee of the credit entitles the worker to receive both the Federal Minimum Wage of $7.75 and all of the tips received.[10]  Although the notification can be either verbal or written, it is advisable that employers have their employees sign a formal notification that the tip credit allowed under Federal law is being utilized by the employer to ensure minimum wage requirements are being met.

Cases like Gallos/Taco King are becoming more frequent as workers become more educated about their rights.  While many employers are taking advantage of employees’ ignorance of employment laws, in particular minimum wage/overtime, many more are making innocent mistakes which could result in significant violations. Now is the perfect time to be proactive to make sure employers who have tipped employees are not hit with significant wage violations for not having informed their employees of the tip credit.

ARTICLE BY Jim Arkell of University of Alaska Fairbanks

© 2016 University of Alaska Fairbanks

[1] Press Release No. 16-45 – State of Alaska Dept. of Labor and Workforce Dev., Heidi Drygas, Commissioner http://labor.alaska.gov/news/2016/news16-45.pdf

[2] Conversation with Commissioners office of the Alaska Wage and Hour Division on Dec. 14, 2016. 

[3] Id

[4] Above Note i

[5] Alaska Statute Sec. 23.10.065.

[6] Id.  According to the DOL 6 other states (California, Minnesota, Montana, Nevada, Oregon and Washington) and Guam also do not allow for a tip credit.  https://www.dol.gov/whd/state/tipped.htm#Alaska

[7] Above Note ii

[8] Nevada et al. v. U.S. Department of Labor et al., —F.3d—, 2016 WL 6879615 (Civil Action No.4:16-CV-00731) U.S.D.C (E.D. Tex. Nov.22, 2016).

[9] 29 U.S. Code Sec. 3(m)

[10] DOL Wage and Hour Division Fact Sheet #15: Tipped Employees Under the Fair Labor Standards Act (Revised July 2013)