Tag: Employment Law

Tax Court Decision Subjects LLP Service Providers/Equity Partners to Self-Employment Tax

Posted last week at the National Law Review by Paul A. Gordon and Casey S. August of  Morgan, Lewis & Bockius LLP new developments concerning partners in a law firm established as a limited liability partnership (LLP) under state law  subject to Self-Employment Contributions Act (SECA) tax on their distributive share of LLP income received in respect of their services.

In a decision issued February 9, the U.S. Tax Court ruled, in part, that the partners of a law firm established as a limited liability partnership (LLP) under state law were subject to Self-Employment Contributions Act (SECA) tax on their distributive share of LLP income received in respect of their services. In doing so, the court determined that the LLP partners could not avail themselves of the exemption from SECA for nonguaranteed service payments to “limited partners.” This ruling illustrates the potential risk for service provider limited partners and limited liability company members of assuming that state law entity and limited liability classifications alone shield them from being subject to SECA tax.

Background

Generally, payments to service providers who are not classified as employees for federal payroll tax purposes are not subject to any payroll tax withholding or payment liability on the part of the payor. Instead, Section 1401 imposes SECA tax on “self-employment” income at the rate of 15.3%, a combination of a 12.4% old-age, survivors, and disability insurance (OASDI) tax and a 2.9% Medicare tax. The OASDI tax is only imposed on the first $106,800 of “net earnings” (which allows for offsets to gross earnings for deductible expenses associated with the creation of the income) for 2011. Subject to certain exemption rules, self-employment earnings include income derived by an individual from any trade or business carried on by such individual plus his or her distributive share of partnership income or loss from any trade or business carried on by a partnership in which he or she is a partner. One of the exemption rules, included in Section 1402(a)(13) of the Internal Revenue Code, excludes from self-employment earnings “the distributive share of any item of income or loss of a limited partner, as such, other than guaranteed payments described in Section 707(c) to that partner for services actually rendered to or on behalf of the partnership to the extent that those payments are established to be in the nature of remuneration for those services” (emphasis added). Unfortunately, Congress failed to provide a definition for limited partner in the statute.

In order to resolve this definitional ambiguity, the U.S. Treasury released temporary regulations in 1997 under which partners with either authority to contract on behalf of the partnership or who participate in the partnership’s trade or business for more than 500 hours during the partnership’s taxable year could not be limited partners for Section 1402(a)(13) exemption purposes. In addition, no service partner in a service partnership could be a limited partner. This guidance created political shockwaves so extensive that Congress imposed a 12-month moratorium on Treasury’s ability to issue further guidance under Section 1402(a)(13). Since that time, Treasury has not provided guidance on the limited partner exemption from SECA tax.

Confronted with the dearth of authority on this issue, many tax practitioners have taken the position that all partners in a tax partnership, who are limited partners or limited liability company members under state law, are per se eligible for the Section 1402(a)(13) limited partner exemption. Others, although not required by law, have followed the guidance under the proposed regulations.

Renkemeyer Decision

It was this definition of “limited partner” that was at issue before the Tax Court in Renkemeyer, Campbell & Weaver, LLP v. Commissioner, 136 T.C. No. 7 (2011). In that case, the Tax Court addressed an IRS challenge to both (1) the special allocation of the LLP’s (a law firm treated as a partnership for federal income tax purposes) distributive share of income to its partners and (2) the treatment of the LLP distributive share allocations of business income to its service partners (the law partners) as being exempt from SECA tax. After ruling in favor of the IRS on the allocation issue (the petitioner could not produce a partnership agreement supporting the challenged special partnership allocations), the court turned to the SECA tax issue.

The LLP partners argued that the limited partner exemption should apply because (1) the LLP organizational documents designated their interests as limited partnership interests and (2) they enjoyed limited liability under state law. The Tax Court disagreed, reaching the result that would have been required under the temporary regulations. Noting that Congress passed the limited partner exemption prior to the state law advent of LLPs and LLCs, the court reviewed the exemption’s legislative history and determined that the impetus for the exemption was not a limited partner’s individual protection from the partnership’s liabilities, but instead its status as a nonservice investment partner in a traditional limited partnership. In doing so, the court found that Congress did not intend for active service partners, such as the LLP partners, to be exempt from self-employment taxes. Specifically, the court referred to the partners’ minimal LLP capital contributions in exchange for their interests in LLP as indicating that the partners’ distributive share of income arose from the legal services performed on behalf of LLP and “not . . . as a return on the partners’ investments and . . . not [as] ‘earnings which are basically of an investment nature.'” (citing the Section 1402(a)(13) legislative history). Additionally, the Renkemeyer opinion hinted that the same rationale could be applied to prevent members of an LLC from qualifying as Section 1402(a)(13) limited partners.

Implications

Renkemeyer demonstrates the hazards of assuming that state law entity and limited liability classifications should control for purposes of determining eligibility for the Section 1402(a)(13) SECA tax limited partner exemption. That is, there may be danger in taking the per se limited partner exemption position described above. Service providers to tax partnerships (including LLCs treated as tax partnerships) in which they are also equity partners should thus be wary of whether both their service-related payments and guaranteed partnership equity allocations would be considered self-employment income subject to SECA tax.

Copyright © 2011 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

A Four-Step Guide for Securing Patent Portfolios after Stanford v. Roche

Posted today at the National Law Review by Jason Miller of Lowndes, Drosdick, Doster, Kantor & Reed, P.A. some great tips on how to review patent portfolios after Staford v. Roche:  

 

 

On June 6, 2011, the U.S. Supreme Court issued its highly anticipated decision in the Stanford v. Roche case. The facts behind Roche are easily replicated on college and university campuses around the nation, forewarning institutions of the potentially problematic IP issues that lurk behind each of their patent and technology transfer agreements. Today, most major research universities boast of vast IP portfolios, including dozens of patents, which were invented by professors and the like during the course of their employment. Oftentimes, these patents allow universities to generate a critical revenue stream by licensing the patents through established licensing offices or policies. However, under Roche, the ownership of the patents may not be as clear as universities previously thought. Though a serious review of existing patent portfolios and potential modifications of boilerplate patent agreement language is likely necessary, first understanding the facts behind Roche will clarify why these steps are strongly advised for universities.

Research fellow, Dr. Holodniy, signed a Copyright and Patent Agreement with Stanford University agreeing to assign his “‘right, title and interest in’ inventions resulting from his employment at the University.” Stanford, like many institutions, received federal funding from the National Institutes of Health for the HIV measurement technique research that Dr. Holodniy participated in. Dr. Holodniy, in pursuit of developing an improved method for quantifying HIV levels in blood samples, later collaborated with Cetus, a California research company that worked with Stanford’s scientists. Equally wary of patent laws and eager to get the right to the findings, Cetus had Dr. Holodniy sign a Visitor’s Confidentiality Agreement stating he “‘will assign and do[es] hereby assign’ to Cetus his ‘right, title and interest in each of the ideas, inventions and improvements’ made ‘as a consequence of [his] access to Cetus.’”

Two research entities. Two patent right agreements. One patent. Who wins?

According to the majority opinion in Roche, authored by Chief Justice Roberts, Cetus prevailed. This opinion is by no means groundbreaking. Rather, the decision merely reinforces the historical rule that “rights in an invention belong to the inventor.” Any institution involved with research and potential IP issues traditionally has their employees sign copyright and patent agreements since an employer has no right to their employees’ inventions without an express grant. Barring such agreement, employee inventions “remain the property of him who conceived it.” Thus, Roche mirrors the general principle that inventors own their inventions by holding, “mere employment is [not] sufficient to vest title to an employee’s invention in the employer.”

Next, Roche is not fodder for major legislative change since it simply provides a straightforward reading of the Bayh-Dole Act. An undoubtedly landmark piece of legislation, Bayh-Dole recognized the need for the commercialization of inventions that federal money was heartily supporting. Bayh-Dole has promoted and facilitated federal collaboration with commercial and nonprofit organization research by specifying what rights each party has when federal funding is involved. The relevant part of the Act cited in Roche provides that federal contractors (which include individuals, small business firms or nonprofits that are a party to the funding agreement) may “elect to retain title to any subject invention.” “Subject invention” is then defined as “any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement.” The Roche opinion begins to sound more like a grammar lesson than a ruling from the highest court as Roberts explains what the phrase “of the contractor” means. Just as it reads, an “invention of a contractor” would be an invention that a contractor owns. And for the contractor to own such invention in the university context, its employees who participated in the federally funded research would have had to sign an agreement transferring their ownership rights. Thus, the Act is simple: federal contractors can elect to retain title to any invention they own.

Thus, Roche does not change the fact that universities still need to obtain express agreement from employees in order to acquire the rights to any inventions of their employees. The case also does not change any of the traditional interpretations or precedents involving the Bayh-Dole Act. However, the case does clarify the technology transfer and related rights between universities with federally funded research and the private companies with which they collaborate. This clarification signals the need for a stricter approach that universities should take in terms of drafting and ensuring their rights under patent agreements. In light of Roche, an immediate four-step plan should be implemented by colleges and universities.

First, institutions must examine their existing patent portfolios. As the marketability of portfolios increases with the sheer volume of patents, many universities strive to possess a wealth of patented inventions. The value of portfolios thus is not generally linked to a single patent, but the number of patents that outside firms are willing to invest in or collaborate with. Universities therefore capitalize on their portfolios through technology transfers, facilitating the commercialization of research and incentivizing future research through income generation. Thus, examining existing portfolios requires universities to determine what patent rights they currently possess. For those universities that receive federal funding for research, verify whether such funding was acquired before or after the development of each patented invention. If the patent was developed under the funding, check to see whether the employee solely assigned their rights to the university and whether the university has elected to retain the rights to such patent. As Roche explicitly held, “the Bayh-Dole Act does not confer title to federally funded inventions on contractors or authorize contractors to unilaterally take title to those inventions; it simply assures contractors that they may keep title to whatever it is they already have.”

Further, determine which patents were developed collaboratively with outside research firms and institutions. Because academia, private firms and the government are the holy trinity for innovation, universities must be clear on which of their patents were developed by their sole efforts. Creating a framework of mutual benefit that technology transfer ultimately desires requires an examination of the actual benefits universities have afforded themselves through their existing patents.

Second, institutions should closely scrutinize their previously signed employment agreements. Begin by checking whether employees even had rights to transfer in the first place. If the employee came from other institutions or private firms, are they now conducting research at their current university employer that was started elsewhere? Are current employees starting from scratch or building upon existing inventions developed through the funding, efforts and resources of outside entities with which the university has no connection? Finding these answers may require a look into the backgrounds of employees who joined the university as experienced researchers and professors, since they are likely to have signed prior patent agreements. Speak with employees who raise concern and inquire about any past employment agreements they signed. As part of inspecting existing patent agreements, determine the scope of the agreement- does it cover only the original invention or does it extend to any other inventions developed based off the underlying research? Answering these questions is vital in guaranteeing that a university actually retains rights to the patents marketed in their portfolios.

Third, develop a plan for amending existing agreements, or obtaining written intellectual property agreements if none exist. Start by finding out which employees have not signed patent and copyright agreements. Of those employees who have not signed, determine whether any have, or are in the process of, researching and developing inventions. Work with an attorney to develop specific agreements that will assign all existing rights to the university and will also transfer the employee’s rights to future inventions developed during their employment to the university. Any professor who knows that if they invent it, they own it, may be reluctant to hand over such rights. However, patent marketability and the benefit of commercialization of inventions that comes with university technology transfers should leverage some bargaining power over a hesitant employee. Alternatively, incentive provisions may be warranted in certain instances.

Further, refine or amend existing assignments that do not operate under the assumption that the university owns the patent rights. As part of this change, determine whether there are any employees who have transferred departments since the original patent or copyright agreement was signed. If a professor is currently in a research capacity but was not previously, determine whether that departmental change necessitates a revision of their previous agreement or the execution of a new one. Also research and ensure that employees have not assigned their rights to underlying inventions elsewhere or at any previous point during their current employment. Develop a plan for handling employees who are unwilling to sign modified agreements, as reluctance from some employees should be expected. Finally, care should be given in regard to the potential tax implications of amendments to existing agreements and additional incentives offered in connection with any transfer of existing rights in an invention.

Fourth, institutions should draft future employment agreements with more stringent language to prevent the type of patent right quandary exhibited in Roche. The problem in Roche could have been solved by conforming the tense of the verbs to the intention of the university- had Dr. Holodniy’s agreement with Stanford read that he “does” assign his rights, the ownership would have immediately transferred to Stanford. However, the language that Dr. Holodniy “agree[d] to assign” his rights was only a promise to do something in the future. That expectancy did not vest, however, because the Dr.’s subsequent agreement with Cetus included language immediately transferring ownership rights. The “will assign and do[es] hereby assign” phrase gave priority of ownership to Cetus, serving as partial justification for Stanford losing the suit. Thus, it is not an exaggeration to say that each agreement signed with professors and research fellows must be ironclad and reviewed to make certain the existing agreement accomplishes its intended purpose. This may require terminating the old form of agreement and replacing them with individualized agreements that definitively establish a status quo transfer of rights. The use of present tense verbs is imperative to ensure that rights actually are assigned, rather than just promising to be assigned subsequently.

In addition, incorporate provisions within the new agreements to handle situations where researchers work with other institutions in order to prevent an inadvertent transfer of rights. Employ language that specifically requires consent from the university before any employee signs over their rights to an outside institution. Also, include provisions requiring the disclosure of previously signed patent agreements at the outset of employment so that universities will be aware of potential litigation arising from contract and patent disputes.

With a large enough patent portfolio, the process of reviewing and updating patent agreements may appear daunting. However, based on the undisputable message of inventor rights in Roche, a serious assessment of existing agreements and the need for heightened specificity in the future is paramount. The decision in Rocheencourages vigilance on the part of universities and requires steps to be taken to reduce liability to patent infringement and contract violation claims. The four above recommended steps above are not an exhaustive list of actions universities could take; instead, they provide a necessary starting point for universities in navigating patent portfolio review and reform.

*Jason Miller is admitted to the North Carolina and the US Patent bar. He is not yet a member of the Florida Bar.

*Co-author, Lara L. Tedro, is a summer clerk and a rising third year law student.

© Lowndes, Drosdick, Doster, Kantor & Reed, PA, 2011. All rights reserved.

Employers are Watching Your Facebook: Worker Privacy Significantly Diminished in the Digital Era

Congrats to Michael Carlin  of University of Minnesota Law School winner of the Spring 2011 National Law Review student legal writing contest winner!   Michael’s topic explores the legal basis for privacy in and out of the workplace, specifically off- duty employee monitoring in the private sector.    

  Introduction

As surveillance technology improves, employers increasingly monitor their employees, both in and out of work.  Public sector employees enjoy First and Fourth Amendment protections, but private sector employees lack these fundamental protections.  State and federal common law and statutory protections developed during the past twenty years provide a handful of remedies for private workers when employers unduly infringe upon their right to be let alone.  Nevertheless, these laws fail to provide adequate protection in light of technological advances that make employer monitoring simple, cheap, and surreptitious.   Employees, with limited exceptions, should be given greater protection of their privacy and freedom of expression both in and especially out of the workplace.

This paper explores the legal basis for privacy in and out of the workplace, specifically off- duty employee monitoring in the private sector.  Part I details this history, discusses disturbing trends in employee monitoring, and explores open legal and ethical questions stemming from the increase in employee monitoring.  Part II reviews the interests implicated by employee monitoring and suggests a balancing point to stem employer invasiveness but protect against employee malfeasance.  The current common law protections described in Part III as well as the statutory protections covered by Part IV demonstrate that, in practice most law misses the mark and leaves employees with insufficient rights against invasive monitoring.  Finally Part V proposes new federal legislation to close the gaps in employee privacy law.

I.  Social and Historical Context of Off Duty Monitoring

A.  History of Worker Monitoring

The separation between work and home life is a recent phenomenon, developed during industrialization and urbanization.[1] The typical family in preindustrial society received little privacy; “business was conducted in the house, and the house was a crowded bustling place with little opportunity for the family to retreat in isolation.”[2]  It was not until city dwellers started working predominantly in offices that the home life was thought of as separate from work life.[3]  As Justices Warren and Brandeis stated, “[t]he intensity and complexity of life, attendant upon advancing civilization, have rendered necessary some retreat from the world. . .”[4]

Today privacy is taken, albeit mistakenly, for granted.[5]  However, even in the early Twentieth Century, the concept of privacy was challenged by the desire to monitor employees in and out of the workplace.  For example, Henry Ford created a “Sociology Department . . . . responsible for ferreting out immoral and undesirable behaviour on the part of Ford employees.”[6]  Today news stories frequently describe how employees are disciplined for their off duty behavior.[7]  Underlying these stories is a private employer’s right to substantially monitor their employees.  Employers are given broad discretion, with some exceptions, to log and monitor an employee’s phone use, voicemail,[8] and much more.

B.  Recent Developments of Off Duty Monitoring

An American Management Association study found sixty six percent of employers monitor workers’ Web site connections; forty three percent review e-mail; forty percent of companies analyze the contents of outbound e-mail; forty five percent track content, keystrokes, and time spent at the keyboard; and thirty percent have fired for misuse of the internet.[9]  RFID is another tool many employers use to track the location of their employees in and out of work, although not much is known about the extent to which this is used for off-duty monitoring.[10]  Eight percent of employers now use GPS technology to track wherever their employees go.[11]

Aligo’s WorkTrack is a technology that allows employers to monitor the location of their employees over the internet using employer provided cell phones.[12]  Technologies like Aligo promise to increase productivity, efficiency, and overall cost savings.[13]  However there are serious invasion of privacy concerns. First, the product has an “on break” mode, which allows employers to know when an employee is not working.[14]  These monitoring features often do not shut off at the end of the workday, allowing the employer to monitor even off duty behavior.[15]  Aligo and similar technologies are used by large employers such as Sun Microsystems, Lucient Technologies, and Motorola.[16]

The trend in monitoring appears to be increasing.[17]  As technology becomes more accessible, monitoring becomes easier. The social networking revolution is one prime example of how, if given easy means, employers will pry into the lives of their employees.  Employers increasingly use social networks to screen job applicants,[18] “Forty-five percent of employers use social networking sites to research job candidates.”[19]  Employers now have the power “to gather enormous amounts of data about employees, often far beyond what is necessary to satisfy safety or productivity concerns.”[20]  It is very likely that without greater privacy protections, as GPS and RFID monitoring become less expensive that more employers will begin utilizing it.

C.  Unanswered Legal Questions

Underlying the employer’s power to collect data on employers is the long line of court decisions upholding an employer’s right to monitor.  The Supreme Court’s latest of decision was City of Ontario v. Quon. Although concerning public employees, and the First and Fourth Amendments, the Quon decision raised interesting policy concerns regarding the potential importance of electronic communications as essential means of for self expression.[21]  However, the court also mentioned that these devices are so easily and cheaply available that one could easily purchase a device for personal use, defeating any expectation of privacy.[22]  This decision failed to analyze the basis for which an employee has a reasonable expectation of privacy,[23] so the expectation of privacy regarding digital monitoring is still not clear.[24]

II.  Should There Be a Line Between Work and Private Life Online? If so Where Should We Draw the Line?

A.  Employer’s Perspective

First, from an employer’s perspective, monitoring of employees is within their discretion because of the nature of at-will employment.  Generally, with the exception of Montana, employment is considered at will in the U.S,[25]  meaning employees can be fired, or leave, at any time for whatever or even no reason.[26]  Employers argue that if employees do not want to be monitored they can leave.

Employers also need to protect the integrity of their business and prevent unlawful activity.  Never before has so much damage been accomplished by low level employees through mindless behavior and social media.  One example of this occurred in April 2009 when two Domino’s Pizza employees posted several videos of disgusting, and unsanitary activities in preparation of a customer’s pizza.[27]  The video went viral and was responsible for a steep decline in stock values.[28]

Employers also need to protect against the leaking of confidential data.  In February 2010 the personal information of Shell employees in dangerous parts of the work was leaked to a blogger and published.[29]  This leak posed a great threat to the lives of these individuals; Shell employees have been attacked, and kidnapped in places like Nigeria.[30]  Similarly, the risk of liability is high for leaking of trade secrets and for initial public offerings before they are public.[31]

Productivity concerns also cause many employers to monitor employees. Even minor personal internet use in the workplace can lead to millions in lost profits.[32]  Off-duty, employers can claim fewer interests in monitoring, but in a world where telecommuting is on the rise, the line between office and home is blurring and this means that an employer may need to monitor an employee while working remotely.  Additionally, employers may want to check against irresponsible drinking, and negligent driving as evidenced by traffic tickets, especially if the worker is in a driving profession.[33]

B.  Employee’s perspective

When employers monitor their workers morale can decrease substantially.[34]  Monitoring may also undermine intended purposes of increasing productivity by spurring stress related ailments such as increased illness and absenteeism.[35]  Information gleaned from social media may also be inaccurate, forgeries of facebook accounts are commonplace.  Moreover, monitoring is usually inequitable where employees are not represented by unions, “[b]ecause of the substantial interests individuals have in both employment and in privacy, invasive monitoring puts employees in a ‘catch-22’ situation, forcing them to sacrifice reasonable expectations of privacy because of their need to work.”[36]

Technological advances exacerbate the invasiveness of monitoring and allow employers to know intimate details about an employee’s life, as one commenter notes “what happens when an employer virtually observes the employee stopping during her lunch hour at Planned Parenthood and fires her based on assumptions about her position on family planning methods?”[37]  Further, technology like social networking has become such an integral part of self expression.  Although in the context of cell phones, the Supreme Court acknowledged that it may be that some forms of communication are “essential means or necessary instruments for self expression, even identification.”[38]  This is just as true of social media.[39]

Employer monitoring has already altered the online behavior of many bloggers and social networking users, “29% of employees have become more conservative online because they fear that ‘employers can use anything and everything as an excuse to fire” them in a down economy.”  Social networking and blogging merits protection because not only is it integral to self expression, it serves a socially useful purpose by keeping people connected, and sharing and breaking news in a more effective way than traditional means ever could.[40]  Although First Amendment protection does not extend to workers in the private sphere, employer monitoring can affect speech in ways that would be unconstitutional if done by a government employer.  Most Americans spend nearly a quarter of their lives at work;[41] do we want constitutional protections to extend to only three quarters of a person’s life?  Do we want to allow employers to treat their employees like sex offenders, under constant surveillance?

Most social networking users begin using in their teens; because of this many of these users have material from their youth that depicts less than mature behavior.  Young people’s past lawful, but unfortunate conduct should not harm their employment prospects later.[42]  Even those with private profiles, as discussed in Part IV may still be at risk for having their profiles hacked by employers. Without protections we allow employers to be voyeurs and produce a chilling effect to use of online communications.[43]  Finally, the right to adequate livelihood is an international human right; one should not have to waive expression rights to enjoy the right to a livelihood.[44]

C.  Other Policy Considerations Make Line Drawing Difficult.

On one hand the free flow of information should not be impeded to protect what is usually discriminated against: misconduct and unpopular speech.  We should not have to protect people from making public fools of themselves.  Nevertheless, as the lifestyle discrimination statutes and case law discussed in Part IV attest to, employers who monitor off duty scrutinize a great deal of legal and socially important behavior including political speech.

Another issue is that the internet is by definition public, and speech is not being infringed by any unconstitutional means by employers checking social media.  However, off-duty social networking use merits privacy protections because employees have a higher expectation of privacy off the clock.[45]  Although any manager could check out an employee’s Facebook, there is a difference when this action is done with the intention to dig up dirt.  This argument also fails to consider that employers may find ways to view even non public profiles.

Finally, we must also consider whether employers should be punished just because they are using information for actions socially disapproved of.  After all, there are many anti-discrimination and collective bargaining labor laws designed to prevent employers from the really harmful discrimination.  However, anti-discrimination lawsuits are not a simple means of protecting the worst forms of discrimination; they are among the most difficult cases to prove.[46]  Employers who reserve the right to monitor of social network use and GPS location off duty can relatively easily use any information they gather as pretext for more heinous action.  Finally, the low interest the employer has in off-duty behavior, and the high value of privacy in U.S. culture, tips the balance in favor of the employee.  Although when employers suspect serious misconduct that would expose the employer to liability or lost profits, they should be allowed to monitor the employee with proper notice.

III.  Common Law Protections Are Generally Not Available for Digital Off-Duty Monitoring

Private sector privacy actions are typically based in the common law tort of intrusion upon seclusion.[47]  The elements for an intrusion claim are “[1] [intentional] intru[sion], physically or otherwise, upon the solitude or seclusion of another or his private affairs or concerns . . . [and] [2] the intrusion would be highly offensive to a reasonable person.”[48] In other words, did an individual have a reasonable expectation of keeping a matter private which the employer intruded upon.  Voluntary disclosure of information is a problem for social networking users.[49]  Some jurisdictions allow for an employer to use “intrusive and even objectionable means to obtain employment-related information about an employee.[50]  Generally, invasion of privacy actions will not be available to bloggers and social network users given the public nature of these activities.[51]  However, invasion of privacy claims may be available for monitoring off-duty personal cell phones,[52] home computer use, and location via GPS.  Still, these claims will probably fail if the employer reserves the right to monitor in an employee handbook.[53]

One recent exception to waiver of a reasonable expectation of privacy via employer notice has been found if the communication is privileged.  In Stengart v. Loving Care Agency, Inc., a home care nursing professional used her employer provided laptop to communicate with her attorney via a web-based yahoo mail account.[54]  The employer collected these emails in preparation for a lawsuit the employee filed against it. Although the employer use policy stated that employees can expect to be monitored, the New Jersey Supreme Court held that the employee had a reasonable expectation of privacy in her attorney-client privileged emails even on a work computer.[55]

IV.  Current Statutory Causes of Action Provide Little Protection.

A.  ECPA Claims Against Off-Duty Monitoring Fail.

The Electronic Communications Privacy Act (ECPA) was enacted “to provide greater protection of an individual’s privacy from emerging communication technologies in the private sector.”[56]  The Act “prohibits the intentional or willful interception, accession, disclosure, or use of one’s electronic communication.”[57]  It extends the protections of the Wiretap Act to electronic communications; it allows for criminal prosecution as well as civil action.[58]  However, “[c]ase law interpreting ECPA is virtually uniform in finding that employers can monitor with or without consent, even without notice.”[59] Further, courts disagree as to whether the interception of emails stored on a centralized server are prohibited by ECPA.

All that is necessary for a party to waive their privacy is to give so called consent, which can easily be done by the employer providing a poster or notice in a policy handbook that communications will be monitored.[60]  Further, consent or notice is not required in many federal jurisdictions when equipment is used in the course of business.[61]  Because the EPCA effortlessly allows employers to skirt the statute’s requirements, off-duty monitoring suits do not succeed against employers.[62]

B.  SCA Claims Require Employers to Behave Extremely Irresponsibly.

The Stored Communications Act (SCA) prevents communications companies from turning over communications to the government, but also prohibits hacking and exceeding authorization to view information.[63]  In Konop, an employee of Hawaiian Airlines created a blog, requiring authorization and terms of use that prohibited the airline management from reading and any disclosure of the contents of the blog.[64]  Hawaiian Airlines used the usernames and passwords of other employees to access Konop’s blog.  The company then terminated Konop after reading his critical commentary of the airline’s president and labor practices. The court held that because only a website user or provider could authorize a third party’s access under SCA, summary judgment should not have been granted for this claim.[65]

Although the employee here was given a cause of action, the remedy was limited because the court decided that “for a website such as Konop’s to be ‘intercepted’ in violation of the Wiretap Act, it must be acquired during transmission, not while it is in electronic storage.”[66]  The First Circuit disagreed with this in United States v. Councilman, holding that communications in storage can be intercepted in violation of the ECPA.[67]

Another shortcoming of these statutes is that neither EPCA or SCA would not protect all instances of employer digital snooping.  The following alteration of Konops facts illustrates this.  If Hawaiian Airlines was given the Facebook login information of Konop’s Facebook friend, and used it to login and see Konop’s critical wall posts of the company; the employer would avoid liability under SCA because there is no Facebook policy prohibiting the use of another’s login information.[68]  ECPA and SCA weaknesses points to the need for stronger statutory protections in the area of employee privacy.

C. CFAA Generally Does not Apply to Employers.

The Computer Fraud and Abuse Act (CFAA) is a criminal statute that prohibits the unauthorized access of computers involved in interstate or foreign commerce.[69]   However, unless an employer hacked into an employee’s personal computer, an action would not be possible against a monitoring employer.

D. State Protections, Statutory Privacy and Lifestyle Discrimination Statutes Mostly Miss the Mark.

Though as many as ten state constitutions explicitly provide privacy protections, nine of these provisions are interpreted to require government invasion of privacy.[70]  California is exceptional in that the state constitution provides a remedy for invasion of privacy actionable against private individuals.[71]

Twenty five states protect against employee discrimination for the use of tobacco and other legal products off-duty.[72]  However, these laws would not protect against employer monitoring and adverse action based on political or other lawful expression gleaned from social network use.  Five states prohibit adverse action based on political behavior.[73] Only California, Colorado, New York, and North Dakota protect against discrimination from legal off-duty behavior in general,[74] but these statutes may be limited where an employer declares a policy that prohibits blogging about work.[75]  Limiting employee monitoring is not a popular option even when tailored narrowly; Michigan and Illinois are the only states that prevent an employer from monitoring political activity.[76]  Only eleven states have some form of RFID use restrictions, and none have GPS monitoring restrictions.

V.  “Privacy Protection in Employment Act” a Proposal to Close Privacy Gap

Congress made two attempts to pass employee privacy legislation, the broad Privacy for Consumers and Workers Act in the 1990s and the toothless Notice of Electronic Monitoring Act in 2000.[77]  Though these failed, federal legislation is necessary for several reasons. The courts are too slow and lack the technological expertise to adequately keep privacy up to date with technological changes.  Moreover, “providing protections for employees on a state-by-state basis can cause “a race to the bottom” with states purposefully providing low protections to encourage business.”[78]  To close the gaps in employee privacy law Congress should pass what some have call the “Privacy Protection in Employment Act”.[79]  This Act would generally prevent all off-duty monitoring of employees in the home, and in any secluded area. Employers would only be permitted to monitor off-duty behavior if the employer has “reasonable grounds to believe the employee is engaging in behavior that will cause a significant concrete harm to the employer.”[80]  However, the employer must carry the burden to prove reasonable grounds.  An employer also must put the employee on notice of the scope and duration of any monitoring, and provide them an opportunity to review all information collected. The Department of Labor would also monitor compliance with these provisions, and a violation of the Act would allow a civil action with an allowance for plaintiff’s attorney fees.[81]

VI.  Conclusion

Statutory and common law protections show that there should be a line between work and private life even in this age of diminishing privacy.  However, these protections are inadequate to keep up with monitoring techniques.  Although there are important interests in promoting the free flow of information and the profitability of businesses; the risk for discriminatory use of information is great.  Interests in privacy must be balanced against interests in security of employment and reflect well reasoned normative views of society.  This can be accomplished by enacting legislation like the Privacy Protection in Employment Act.

[1] Daniel J. Solove, Conceptualizing Privacy, 90 Cal. L. Rev. 1087, 1138 (2002) (documenting the history of the concept of privacy and exploring new ways to think of it).

[2]Id. (“homes were primarily devoted to work, a shop with a place in the back or above to eat and sleep.”)

[3]Edward Shils, Privacy: Its Constitution and Vicissitudes, 31 Law & Contemp. Probs. 281, 289 (1966). See also Tamara K. Hareven, The Home and the Family in Historical Perspective, 58 Soc. Res. 253, 259 (1991) (“Following the removal of the workplace from the home as a result of urbanization and industrialization, the household was recast as the family’s private retreat, and home emerged as a new concept and existence.”).

[4]Samuel D. Warren & Louis D. Brandeis, The Right to Privacy, 4 Harv. L. Rev. 193, 196 (1890).

[5]C.f. Solove, supra note 1.

[6]Donald V. Nightingale, Workplace Democracy: An Inquiry into Employee Participation in Canadian Work Organizations 9 (1982).

[7]See Stephanie Chen, CNN International, Can Facebook get you fired? Playing it safe in the social media world, http://edition.cnn.com/2010/LIVING/11/10/facebook.fired.social.media.eti… (reviewing story of woman fired for posting about her boss reprimanding her for union activity); Don Aucoin, MySpace vs. WorkPlace, Boston Globe, May 29, 2007, at D1 (describing an Olive Garden employee fired for posting MySpace pictures of herself); Hyoung Chang, Bud Man: Canned for Coors?, USA Today, May 18, 2005, http://www.usatoday.com/money/industries/food/2005-05-18-beer-man_x.htm (finding a Budwieser employee was fired for drinking a Coors in public).

[8]Jane Kirtley, Privacy Protection, Safety and Security, Intellectual Property Course Handbook Series PLI Order No. 23334 15, 119 (Practising Law Institute, 2010) (citing Fact Sheet 7: Workplace Privacy and Employee Monitoring, Privacy Rights Clearinghouse, June 30, 2010, http://www.privacyrights.org/fs/fs7-work.htm#2c) (finding exceptions in California, where in state callers must be informed of monitoring, and in the Eleventh Circuit where the employer realizes the call is personal).

[9] American Management Association, 2007 Electronic Monitoring & Surveillance Survey: Many Companies Monitoring, Recording, Videotaping and Firing Employees, Feb. 8, 2008, http:// www.amanet.org/press/amanews/ems05.htm.

[10]Although less is known, RFID presents the largest potential invasion of privacy issues; RFID can be placed in Id badges, clothing, cell phones, and just about anything without being detectible by employees. Jeremy Gruber, RFID and Workplace Policy, (last visited, Dec. 1, 2010)  http://www.workrights.org/issue_electronic/RFIDWorkplacePrivacy.html#_ft….

[11]Id.

[12]Aligo – The Mobile Enterprise Software Company, WorkTrack, http://aligo.c3design.jp/products/workTrack/ (last visited Dec. 1, 2010).

[13]Id.

[14]This feature is marketed to help reduce unnecessary billing time, but it has troublesome invasion of privacy implications.  Jill Yung, Big Brother Is Watching: How Employee Monitoring in 2004 Brought Orwell’s 1984 to Life and What the Law Should Do About It, 36 Seton Hall L. Rev. 163, 173 (2005).

[15]Id.

[16]Aligo Inc., Aligo Customers, (last visited December 1, 2010), http://aligo.c3design.jp/customers/.

[17] Friedman, Barry A. and Lisa J. Reed, Workplace Privacy: Employee Relations and Legal Implications of Monitoring Employee E-Mail Use, 19 J. Bus. Ethics 75 (2007) (describing the follies of employer use of social networks as a monitoring tool).

[18] Jenna Wortham, More Employers Use Social Networks to Check Out Applicants, New York Times, http://bits.blogs.nytimes.com/2009/08/20/more-employers-use-social-netwo… (finding an increasing trend in use of social networks to screen applicants).

[19]Career Builder, Press Release, Forty-five Percent of Employers Use Social Networking Sites to Research Job

Candidates, CareerBuilder Survey Finds, August 19, 2009, http://uncw.edu/stuaff/career/documents/employersusingsocialnetworkingsi…

[20]Frederick S. Lane III, The Naked Employee: How Technology Is Compromising Workplace Privacy 3-4 (2003).

[21] Id. (“Cell phone and text message communications are so pervasive that some persons may consider them to be essential means or necessary instruments for self-expression, even self-identification.”)

[22]Id. (“[E]mployees who need cell phones or similar devices for personal matters can purchase and pay for their own.”).

[23]City of Ontario v. Quon, 130 S.Ct. 2619, 2630 (2010).

[24]The court also did not address whether employers can monitor their employees while off duty. C.f. Gregory I. Rasin & Ariane R. Buglione, Social Networking and Blogging: Managing the Conversation, N.Y.L.J., July 27, 2009, available at http://www.law.com/jsp/nylj/PubArticleNY.jsp?id=1202432487473&slreturn=1….

[25]See, e.g., Ariana R. Levinson, Carpe Diem: Privacy Protection in Employment Act, 43 Akron L. Rev. 331, 338 (2010).

[26]See generally, James A. Sonne, Monitoring for Quality Assurance: Employer Regulation of Off-Duty Behavior,43 Ga. L. Rev. 133, 140 (2008).

[27]Paul E. Starkman, What You Need to Know about Monitoring Employees’ Off-Duty Social Networking Activity (last accessed Dec. 2, 2010), http://chiefexecutive.net/ME2/Audiences/dirmod.asp?sid=&nm=&type=Publish….

[28]Id. (receiving over a million views in two days).

[29]Id.

[30]James Herron, Shell Data Leak May Compromise Safety Of Staff –Emails, Feb. 4, 2010 http://royaldutchshellplc.com/2010/02/04/shell-data-leak-may-compromise-….

[31]See Starkman, supra note 27.

[32]See, Association of  Local  Government Auditors, Monitoring  Internet  Usage, Spring  2010, http://www.governmentauditors.org/index.php?option=com_content&view=arti… This potential loss may only get worse as the average gen-y’er spends upwards of thirty four percent of their time online doing personal tasks, as opposed to the twenty five percent found in the rest of the working population.  Burst Media, “Online At Work”, Nov. 11, 2007,http://www.burstmedia.com/pdfs/research/2007_11_01.pdf.

[33]Ronald J. Rakowski, Employee Off-Duty Conduct: Be Careful!, Sep 7, 2010, http://www.suite101.com/content/employee-off-duty-conduct-be-careful-a28….

[34]See Mia Shopis, Employee Monitoring: Is Big Brother a Bad Idea?, Dec. 9, 2003, http://searchsecurity.techtarget.com/news/interview/0,289202,sid14_gci94….

[35]Jay P. Kesan, Cyber-Working or Cyber-Shirking?: A First Principles Examination of Electronic Privacy in the Workplace, 54  Fla. L. Rev. 289, 319-20 (April 2002)

[36]S. Elizabeth Wilborn, Revisiting the Public/Private Distinction: Employee Monitoring in the Workplace, 32 Ga. L. Rev. 825, 835 (1998).

[37]Yung, supra note 14at 174.

[38] City of Ontario v. Quon, 130 S.Ct. 2619, 2630 (2010).

[39]See Peggy Orenstein, The Way We Live Now: I Tweet, Therefore I Am, August 1, 2010, available at http://www.nytimes.com/2010/08/01/magazine/01wwln-lede-t.html

[40]I use social media broadly: it includes blogs, YouTube, and any other internet based means of conveying information.

[41]See supra note 36.

[42] Leigh A. Clark & Sherry J. Roberts, Employer’s Use of Social Networking Sites: A Socially Irresponsible Practice, 95 J. Bus. Ethics 507 (2010) (exploring the ethical concerns of employer use of social networking to monitor employees and screen applicants in the private workplace).

[43] Friedman, Barry A. and Lisa J. Reed. 2007. Workplace Privacy: Employee Relations and Legal Implications of Monitoring Employee E-Mail Use, 19 J. Bus. Ethics 75.

[44]Nevertheless, the U.S. does not recognize the International Covenant on Economic, Social and Cultural Rights, or the optional protocol, which would give rise to a claim for damages for the right to work. G.A. Res. 2200A (XXI), U.N. Doc. A/6316 (Dec. 16, 1966), Dec. 16, 1966, 993 U.N.T.S. 3, entered into force Jan. 3, 1976.

[45] Compare withthe following “the use of computers in the employment context carries with it social norms that effectively diminish the employee’s reasonable expectation of privacy with regard to his use of his employer’s computers.” TBG Ins. Servs. Corp. v. Superior Court, 96 Cal. App. 4th 443, 452 (2002) (holding that an employee who used a computer designated for working at home did not have sufficient privacy interests to prevent an employer from monitoring his computer use).

[46]See generally Michael Selmi, Why are Employment Discrimination Cases So Hard to Win?, 61 La. L. Rev. 555, (2001), see also Jonah Gelbach et al.,Passive Discrimination: When Does It Make Sense To Pay Too Little?, 76 U. Chi. L. Rev. 797 (2009) (“federal antidiscrimination law inadequately addresses either intentional or unintentional passive discrimination”)

[47] Tanya E. Milligan, Virtual Performance: Employment Issues in the Electronic Age, 38 Colo. Law. 29, 34 (2009) (exploring defamation, invasion of privacy, wiretap, EPCA, and SCA causes of action as a result of employer monitoring).

[48]Restatement 2d. Torts § 652B.

[49] Robert Sprague, Fired for Blogging, 9 U. Pa. J. Lab. & Mp. L. 355, 384 (2007) (exploring legal protections bloggers may be able to assert as a result of monitoring off duty conduct).

[50] Kelly Schoening & Kelli Kleisinger, Off-Duty Privacy: How Far Can Employers Go, 37 N. Ky. L. Rev. 287, 290-292 (2010) (exploring the limits of employer peering into the private lives of employees using technology under several privacy statutes as well as common law tort claims) (citing Baggs v. Eagle-Picher Indus., Inc., 957 F.2d 268 (6th Cir. 1992)).

[51]Sprague supra note 49at 363.

[52] But see Karch v.  Baybank FSB, 794 A.2d  763  (N.H.  2002) (refusing to find a cause of action against an employer who uses information surreptitiously intercepted from a cell phone conversation by a third party to reprimand an employee).

[53]See e.g. Thygeson v. U.S. Bancorp, 2004 WL 2066746 (D. Or. 2004).

[54]990 A.2d 650 (N.J. 2010)

[55]Id. at  663-664 (“e-mails she exchanged with her attorney on her personal, password-protected, web-based e-mail account, accessed on a company laptop, would remain private.”).

[56] Michael Newman, Shane Crase, What in the World is the Electronic Communications Privacy Act? An Overview of the ECPA Hurdles in the Context of Employer Monitoring, 54 Fed. Law. 12 (2007).

[57]  18 U.S.C. §§ 2510-2520.

[58]18 U.S.C. §§2510 to 2712.  Although an employer cannot violate the wiretap act because of a deficiency in language of the statute, they could be liable under the ECPA).  Jill Yung, supra note 14at 182 n.90.

[59]Corey A. Ciocchetti, The Privacy Bailout: State Government Involvement in the Privacy Arena, 5 Entrepreneurial Bus. L.J. 597, 605 (2010).

[60]See United States v. Rittweger, 258 F. Supp. 2d 345, 354-55 (S.D.N.Y. 2003) (finding a handbook made monitoring policy clear).

[61]Arias v. Mutual Cent. Alarm Serv. Inc., 202 F.3d 553, 559 (2d Cir. 2000).

[62]Cf. Konop v. Hawaiian Airlines, Inc., 302 F.3d 868 (9th Cir. 2002) cert denied, 537 U.S. 119 (2003) (dismissing the 18 U.S.C.A. § 2511(1)(a) claim).

[63] 18 U.S.C. § 2701, et. seq.

[64]Konop 302 F.3d at 876.

[65]Id.

[66]302 F.3d 868, 878-879.

[67]See Newman supra note 56at 14 (quoting 418 F.3d 67, 79-81 (1st Cir. 2005)).

[68]See Facebook terms http://www.facebook.com/terms.php.

[69] 18 U.S.C. §1030.

[70]See, Corey A.Ciocchetti, The Privacy Bailout: State Government Involvement in the Privacy Arena, 5 Entrepreneurial Bus. L.J. 597, 620.

[71]Chico Feminist Women’s Health Ctr. v. Butte Glenn Med. Soc’y, 557 F. Supp. 1190, 1203

(E.D. Cal. 1983) (finding an action against defendants for an infringement of the state’s constitutional privacy right to prevent procreative choice interference).

[72]Corey A.Ciocchetti, The Eavesdropping Employer: A Twenty-First Century Framework For Employee Monitoring, 17 (2010)http://www.futureofprivacy.org/wp-content/uploads/2010/07/The_Eavesdropping_Employer_%20A_Twenty-First_Century_Framework.pdf

[73]Id.

[74]Id.See also e.g., Colo. Rev. Stat. § 24-34-402.5 (“[i]t shall be a discriminatory or unfair practice for an employer to terminate the employment of any employee due to that employee’s engaging in any lawful activity off the premises of the employer during nonworking hours. . .”); N.D. Cent. Code §§ 14-02.4-03 (“[i]t is a discriminatory practice for an employer to fail or refuse to hire a person; to discharge an employee; or to [otherwise discriminate with respect to] participation in lawful activity off the employer’s premises during nonworking hours . . . .”).

[75] Levinson,supra note 25at 372.

Jessica Jackson, Colorado’s Lifestyle Discrimination Statute: A Vast and Muddled Expansion of Traditional Employment Law, 67 U. Colo. L. Rev. 143 (1996).

[76]Ciocchetti, supra note 72.

[77]Levinson,supra note 25at 343.

[78]Id.

[79]Id. at 331.

[80]Id. at 402 (These would exclude activities that merely reduce office morale, and injury to reputation and would include, but are not limited to activity such as: competition with employer’s business, reduction in the employees work or that of co-workers, harassment, obscene behavior if the employee is a child’s role model, financial harm, and complaints).

[81]Id. at 411.

© Copyright 2011 Michael Carlin

Florida Minimum Wage To Increase Tomorrow

An important FYI posted today by Jay P. Lechner of Greenberg Traurig, LLP about the impending increase in minimum wage in Florida:

 

Florida’s minimum wage increases tomorrow to $7.31 per hour — a 6 cent increase. The minimum wage for tipped workers also goes up 6 cents, to $4.29 per hour. These increases are the result of a recent circuit court decision in Leon County ruling that the state’s method of calculating minimum wage was incorrect under the Florida Constitution.

The Florida Constitution and the Florida Minimum Wage Act require the state to annually “calculate an adjusted state Minimum Wage rate by increasing the state Minimum Wage by the rate of inflation for the twelve months prior to each September 1st using the consumer price index (CPI) for urban wage earners and clerical workers….” Neither the Constitution nor the Act specifically addresses deflation in the computation of the minimum wage. Yet, due to a slight cost of living decrease during the 12-month period preceding September 1, 2009, the state lowered the state minimum wage rate in 2010 from $7.21 to $7.06, dropping it below the federal minimum wage. Then, in determining the 2011 rate, the state calculated an increase to $7.16 (still below the federal rate) based on a 1.4 percent cost of living increase during the 12-month period preceding September 1, 2010.

The court found that the state’s method for calculating the state minimum wage rate was incorrect because, based on the constitutional language, the minimum wage cannot be decreased. Soon after the ruling, a Florida Senate bill intended to amend the Act consistent with the state’s approach was withdrawn from consideration.

When the federal and Florida minimum wage rates differ, Florida employers are required to pay the higher rate. Tomorrow’s increase raises the Florida minimum wage above the $7.25 federal minimum wage rate. Thus, employers currently paying federal minimum wage to eligible workers in Florida must adjust their pay practices accordingly.

©2011 Greenberg Traurig, LLP. All rights reserved.

 

2nd Social Media Legal Risk and Strategy Conference Jul 19-21 SanFrancisco

The National Law Review would like you all to know about the upcoming 2nd Social Media Legal Risk and Strategy Conference:  Minimizing Legal Risk for Corporations Engaged in Social Media July 19-21 in San Francisco, CA.  

Key Conference Topics Include:

  • Insights and updates on the changing legal landscape for social media
  • Practical strategies to develop robust and compliant social media strategies
  • The role and involvement of legal in the social media initiatives
  • Overcoming the various legal risk from IP, Employment Law to Privacy when organizations engage in social media engagement
  • Analyzing emerging trends and potential legal risk in social media

Key Conference Features Include:

  • Pre-Conference Workshop A (July 19th): Uncovering Current and Emerging Social Media Trends and Applications To Forecast and Minimize Potential Legal Liabilities
  • Pre-Conference Workshop B (July 19th): Monitoring And Tracking Online Activities To Mitigate Legal Risk
  • For More information and to Register Please Click Here:

Attendees are eligible to receive up to 20 CLE credits!

 

Which Employers Will Be Responsible For Health Coverage In 2014?

Recently posted at the National Law Review by Abby Natelson  of  Greenberg Traurig, LLP – provides more details about which employers will be responsible for providing healthcare coverage in 2014:

The new health care law, otherwise known as the Patient Protection and Affordable Care Act (PPACA), requires that, beginning after December 31, 2013, “applicable large employers” must provide affordable health coverage to their full-time employees.   Failure to do so may subject these employers to a shared responsibility payment, or an “assessable payment,” pursuant to Internal Revenue Code §4980H.

An “applicable large employer” is defined as “an employer who employed an average of at least 50 full-time employees on business days during the preceding calendar year.” A full-time employee with respect to a given month is defined as “an employee who is employed on average at least 30 hours of service per week.”

While these definitions may appear to be straightforward, the recent Notice issued by the Internal Revenue Service, together with the Department of Labor and the Department of Health and Human Services, indicates that the analysis is not so simple.

Notice 2011-36 was issued on May 2, 2011, seeking comments and providing suggested rules for interpreting and applying the meaning of “full-time employees” for purposes of IRC §4980H.

Notably, the Notice provides rules for determining whether an employer has “50 full-time employees,” which includes full-time equivalents. This means that, on a monthly basis, an employer must take the following steps to determine whether 50 full-time employees are employed:

1)                  Determine the number “full-time” employees. 
This group includes seasonal employees and all employees of a controlled group, an affiliated group, and a predecessor employer. This group does not include leased employees.

2)                  Determine the “full-time equivalents.”
This number is determined by aggregating the number of hours of service for all employees determined not to have a full-time status for the month, and then dividing these hours by 120.

At the end of a calendar year, the employer must add together the 12 monthly calculations, and divide the sum by 12 to get the average monthly full-time employees for the prior year. If the final number is 50 or more, the employer is an “applicable large employer.” 

For example, if a business employs 40 full-time employees with 40 hours of service per week and 20 part-time employees with an average of 20 hours of service per week, the employer will still be considered an “applicable large employer.”   This is because each month, the employer will have to add approximately 13.3 “full-time equivalents” (approximately 80 hours worked per month by each part-time employee, multiplied by 20 part-time employees, divided by 120) to the 40 full-time employees, bringing the total “full-time employees” for purposes of health coverage obligations to 53.3. As this example demonstrates, an employer that relies on part-time employees may still be subject to the shared responsibility provisions of the PPACA.

The Notice provides for an exception in the case of seasonal workers. This seasonal employees exception applies where an employer’s workforce exceeds 50 full-time employees for 120 days or less during a calendar year and the employees in excess of 50 were employed during those days as seasonal employees. In this case, the employer is not considered an “applicable large employer.”

Employers “not in existence during an entire preceding calendar year,” are not exempt from assessment payment liability pursuant to the Notice, and will be considered an applicable large employer if the employer reasonably expects to employ an average of at least 50 full-time employees on business days during the current calendar year.

The Notice also indicates the intent of the IRS, DOL, and HHS to allow employers to measure 130 hours of service per month to determine full-time status, rather than 30 hours of service per week. Further, the Notice includes a safe harbor for determining an employee’s full time status for future months based on the employee’s status as a full-time employee in prior months, which is intended to make administration of this rule for full-time employees easier.

In short, the proposed guidance set forth in Notice 2011-36 expands upon the inclusive definition of “full-time employees” set forth by the PPACA and reinforces the continuous burden imposed on employers to evaluate the “full-time” status of each of their employees.

©2011 Greenberg Traurig, LLP. All rights reserved.

NLRB A 'Twitter Over Employers' Social Media Policies

Recently posed at the National Law Review by Laura M. Lawless Robertson of Greenberg Traurig, LLP – updates of the National Labor Relation Board’s (NLRB’s) recent recent scrutiny of  employer’s social media policies for compliance with the National Labor Relations Act (NLRA):  

The National Labor Relations Board’s (NLRB) recent scrutiny of social media policies for compliance with the National Labor Relations Act (NLRA) has alarmed many employers – including non-union employers. Two recent developments in this area add fuel to an already heated debate over employer actions based on employees’ use of social media.

The first case is Lee Enterprises, Inc. d/b/a Arizona Daily Star. The Daily Star newspaper did not have a social media policy, but urged its reporters to use social media, including Twitter, to disseminate information to the public. After deciding that its crime/public safety reporter had gone too far with his unprofessional, sexually inappropriate, and pro-violence tweets, including one in which he called the reporters on a local television station “stupid,” the newspaper’s managing editor admonished him to refrain from engaging in any further social media postings. The reporter was later terminated, after which he filed a charge with the NLRB, contending that his termination violated the NLRA.

The NLRB General Counsel’s Office acknowledged that, “in warning the Charging Party to cease his inappropriate tweets, and then discharging him for continuing to post inappropriate tweets, the Employer made statements that could be interpreted to prohibit activities protected by Section 7 [of the NLRA],” but nevertheless concluded that the newspaper terminated him for violating workplace policies and disregarding its repeated warnings to cease his unprofessional tweets. The General Counsel’s Office concluded that “it would not effectuate the purposes and policies of the [NLRA] to issue a complaint where the statements were directed to a single employee who was lawfully discharged,” and recommended dismissal of the charge.

If employers presumed, based on the Arizona Daily Star outcome, that the NLRB had backed down from its aggressive stance regarding employers’ social media policies, they would be mistaken. On May 9, 2011, the NLRB issued a complaint alleging that Hispanics United of Buffalo, a nonprofit social service agency, unlawfully discharged five employees who complained about their working conditions on their Facebook accounts. After one employee questioned how hard the staff worked to help the agency’s clients, several employees chimed in on her Facebook status, defending their job performance and blaming workload and staffing issues for any unmet client needs. After learning about the posts, Hispanics United fired all of the employees who participated in the flame war. The NLRB issued a complaint, alleging that the Facebook dialogue was protected concerted activity under the NLRA – a discussion among coworkers about the terms and conditions of their employment and undertaken for mutual aid and protection. The case is set for a hearing before an administrative law judge on June 22, 2011, absent settlement (which seems to be the trend in these sort of cases).

These two cases illustrate that employers may discipline employees for social media misconduct, such as disclosing confidential and proprietary information, engaging in “textual harassment,” or libeling competitors, but must scrupulously avoid instituting or enforcing social media policies that impinge on employees’ rights to discuss the terms and conditions of their employment, e.g., wages and working conditions. One thing is for certain…we haven’t heard the last of this topic from the NLRB.

©2011 Greenberg Traurig, LLP. All rights reserved.

Illinois Civil Union Law Requires Employer Action

Posted yesterday at the National Law Review by Thomas G. Hancuch and Jessica L. Winski of Vedder Price P.C. a great overview of the implications for employers in Illinois of the law recognizing civil unions which will be in effect June 1st:

The recently enacted Illinois law recognizing civil unions has implications for all Illinois employers.  The law becomes effective June 1, 2011.  Before that date, employers should review and update their policies and employee benefit programs that may be affected by the law.  This is true for both employers that provide domestic partner benefits and those that do not.

The Illinois Religious Freedom Protection and Civil Union Act ( the “Civil Union Act”) allows same-sex and opposite-sex couples to enter into a new form of legal relationship called a “civil union.”  Under the Act, persons entering into a civil union are entitled to the same legal protections, benefits, obligations and responsibilities as spouses under Illinois law.  The law provides a process for establishing a civil union and for dissolving one.

The Civil Union Act also contains a reciprocity provision under which Illinois will recognize as a civil union any same-sex marriage, civil union or other substantially similar legal relationship (other than a common law marriage) that was legally entered into in another jurisdiction.  Currently, five states (Connecticut, Iowa, Massachusetts, New Hampshire and Vermont) and the District of Columbia, as well as a number of foreign countries (including Canada) permit same-sex couples to marry.  Other states (including Oregon, Nevada, New Jersey and Washington) have laws similar to the new Illinois Civil Union Act recognizing civil unions or domestic partnerships.  Still other states (including Colorado, Maine, Maryland and Wisconsin) accord more limited legal recognition to such relationships.

Complicating matters, the federal Defense of Marriage Act provides that, for purposes of federal law,  “the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife.”  So, while civil union partners generally are to be treated the same as spouses under Illinois law once the Civil Union Act becomes effective later this year, it appears that they will not have the same rights or status as spouses under federal law.

Of course, employers operating in Illinois are subject to both Illinois and federal law.  Certain programs maintained by private-sector employers, such as bereavement leave, are governed exclusively by state law; others, such as retirement plans and flexible spending accounts, exclusively by federal law; and still others, such as insured health benefits plans (but not self-insured plans), by both federal and state law.  Unfortunately, this creates significant complexity for employers.

Illinois employers that currently offer domestic partner benefits should review their domestic partner benefit program in light of the Civil Union Act.  For example, the definition of “domestic partner” in the domestic partner benefits policy and the applicable benefit program documents and leave of absence and other policies may need to be revised to specifically encompass civil union partners.  In addition, consideration should be given to whether an affidavit attesting to the existence of a domestic partnership will continue to be regarded as sufficient, or if Illinois employees should be required to formalize the relationship as a civil union in order to receive domestic partner benefits.

Illinois employers that do not offer domestic partner benefits will need to review their benefit plans and leave of absence and other human resources policies that involve spouses of employees to determine the impact of the Civil Union Act.  For example, an employer with medical or dental insurance funded through a group insurance policy issued in Illinois will find that civil union partners will be eligible for coverage on the same terms as spouses beginning June 1, 2011, even though the employer may not want to provide such benefits.

© 2011 Vedder Price P.C.

Wage and Hour Headaches for Employers: The Department of Labor Has an App for That

Posted this week at the National Law Review  by Mitchell W. Quick, Brian P. Paul and Steven A. Nigh of Michael Best & Friedrich LLP – details for employers about the Department of Labor’s (DOL) new App to track wages and work hours….

The U.S. Department of Labor Wage & Hour Division (“WHD”) recently released a free application (“app”) for iPhone and iPod Touch that allows employees to track their wages and work hours. The “Timesheet” app allows employees to enter their hourly rate and hours worked for multiple employers. The app also lets employees record time spent on meal breaks and “other” breaks. Time can be recorded manually or by using the app’s embedded stopwatch. Timesheet calculates employee pay, including overtime, and lets employees export Timesheet data via e-mail in Microsoft Excel format. While the current version calculates pay based on an hourly rate, WHD is exploring the possibility of adding functions for commission pay, shift differentials and other methods of compensation in future versions, along with Android- and Blackberry-compatibility. The app currently is available in both English and Spanish.

Timesheet presents a number of challenges to employers. WHD perceives the app as an enforcement aid that contains potentially “invaluable” information about alleged hours worked. Timesheet also encourages employees to file claims by giving them contact information for both local and national wage and hour agencies.  Furthermore, employee complaints about pay for alleged “off-the-clock” work—such as voluntarily checking work e-mails when at home—may increase as such time can be easily recorded. Employees might also record any work issues raised during break time, raising the specter of employers having to treat that time as compensable “hours worked.” Finally, employees improperly classified as exempt and for whom the employer kept no time records would now have “documentation” to support their damage claims.

Fortunately, employers can take steps to protect themselves:

  • Keep accurate records. This obvious best practice has only become more important now that some employees may keep records of their own.
  • Require non-exempt employees to sign off on company time sheets. This will help ensure both sides agree on the number of hours worked, and can help wage and hour disagreements surface—and get resolved—sooner rather than later.
  • Audit exempt employees to make sure they are exempt. This is particularly true for employees for whom the company has limited time records
  • Update employee handbooks. Make sure employees know that they cannot falsify any company records, including time records. Also consider establishing a complaint process for employees to use when they are told not to report work time.
  • Do not retaliate against employees who keep their own time records. Retaliation claims are on the rise, and Timesheet is another possible pitfall for employers.

“Timesheet” should serve as a reminder of the importance of maintaining complete, accurate wage and hour records.

© MICHAEL BEST & FRIEDRICH LLP

Additional Information on this is also available here:

Department of State Releases June 2011 Visa Bulletin

Posted this week at the National Law Review by Morgan Lewis –  details on the June 2011 Visa Bulletin:

The U.S. Department of State (DOS) has released its June 2011 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 application at an American embassy or consulate abroad, provided that their priority dates are prior to the cutoff dates specified by the DOS.

What Does the June 2011 Bulletin Say?

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

EB-2: Priority dates remain current for foreign nationals in the EB-2 category from all countries except China and India.

The relevant priority date cutoffs for Indian and Chinese nationals are as follows:

China: October 15, 2006 (forward movement of 10 weeks)

India: October 15, 2006 (forward movement of 14 weeks)

EB-3: There is continued backlog in the EB-3 category. 

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

China: May 15, 2004 (forward movement of four weeks)

India: April 22, 2002 (forward movement of one week)

Mexico: December 22, 2004 (forward movement of 14 weeks)

Philippines: September 15, 2005 (forward movement of three weeks)

Rest of the World: September 15, 2005 (forward movement of three weeks)

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 and unchanged. 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 2011 Visa Bulletin in its entirety, please visit the DOS website at http://www.travel.state.gov/visa/bulletin/bulletin_5452.html.

Copyright © 2011 by Morgan, Lewis & Bockius LLP. All Rights Reserved.