Tag: labor and employment

SECURE Act Brings About Significant Changes to IRAs

As we reach the end of 2019 and prepare to flip the calendar to 2020, Congress and the president have finally passed the SECURE (Setting Every Community Up for Retirement Enhancement) Act. The act brings about significant changes to federal tax law impacting individuals and business owners alike. Here are some of the law’s most significant provisions:

Removes Some Stretch Distributions for Inherited IRAs

This is a long-expected change that significantly impacts what an IRA beneficiary receives upon the death of the account owner. Under current law, any traditional IRA account owner must begin taking required minimum distributions (RMDs) from the IRA upon reaching age 70½. If the account owner dies after that age, any funds remaining in the IRA at the owner’s death may be inherited, with the RMDs being paid out to the heir over his or her life expectancy in most cases. This stretch enabled a younger beneficiary to grow the inherited IRA substantially (and tax-free), sometimes over many decades.

As a result of the SECURE Act, most beneficiaries will be required to distribute the entirety of an inherited IRA over a 10-year period. The writing has been on the wall since 2014 when the Supreme Court declared that an inherited IRA in the hands a non-spouse beneficiary was not a retirement account in the bankruptcy context (Clark v. Rameker). However, RMDs payable to the following persons still qualify for the stretch:

  • Surviving spouse of an account owner
  • Person who is not more than 10 years younger than the account owner
  • Minor child of the account owner
  • Disabled person
  • Chronically ill person

These new RMD rules apply to retirement accounts whose owners die after December 31, 2019.

Increases RMD Ages

As noted above, under current law, any traditional IRA owner must begin taking RMDs upon reaching age 70½. Under the SECURE Act, this age has been raised to 72, providing for a slightly increased period of tax deferral as well as greater clarity given the lack of half-birthday celebrations.

Removes Age Limitations on Traditional IRA Contributions

Under current law, while an individual could contribute to a Roth IRA without any age restriction, contributions to a traditional IRA were disallowed upon attaining age 70½. As a result of the SECURE Act, any individual may continue contributing to a traditional IRA throughout his/her lifetime with no age restriction.

The benefit of the removal of the contribution age restriction is significantly muted when read in conjunction with the removal of the stretch distributions for non-spousal beneficiaries above. Nevertheless, the removal of age restrictions on contributions presents an attractive tax deferral opportunity for the septuagenarian wage earner with a younger spouse who is named as the IRA’s beneficiary.

Adds Penalty-Free Distributions for Birth of Child or Adoption

As a default rule, withdrawals from retirement accounts prior to age 59 1/2 are subject to income tax on the withdrawn amount plus a 10 percent penalty. The SECURE Act provides a specific carve-out from the penalty if the funds – up to $5,000 – are withdrawn in order to pay expenses associated with a qualified birth or adoption. You’ll still pay income tax on the funds withdrawn but only if they aren’t repaid.

Adds Qualified 529 Plan Expenditures

The Tax Cuts and Jobs Act signed into law back in December 2017 permitted 529 account funds to be used for the payment of K-12 education expenses on behalf of the account beneficiary. The SECURE Act further expands the list of permissible uses of 529 funds to include costs associated with registered apprenticeships and student loan repayments.

Unfortunately, Michigan residents are still in a strange limbo with regard to using 529 account funds to pay K-12 education expenses as Michigan has not amended state law in coordination with the change in federal law. As a result, while withdrawals from 529 accounts for K-12 education expenses are explicitly qualified withdrawals under federal tax law, they may or may not be qualified expenses under Michigan state law. This position is further complicated by the presence of the Blaine amendment in Michigan’s constitution requiring that no money be appropriated from the state treasury for the benefit of any religious sect. If the Michigan Department of Revenue determined that withdrawals for the payment of K-12 education expenses were not qualified, any income withdrawn from the 529 account would be subject to income tax as ordinary income along with a 10 percent penalty.

Enhances Small Employer Access to Retirement Plans

Congress previously authorized the creation of the SIMPLE (1996) and SEP (1978) IRAs in an effort to improve access to retirement accounts for small employers. In the SECURE Act, Congress acknowledged that those previous efforts produced some success but left room for improvement. The new law should increase the willingness of small employers to participate in pooled retirement plans by softening the impact for an employer when another employer in a pooled plan fails.

The act also increases the credit for plan start-up costs, which will make it more affordable for small businesses to set up retirement plans. The existing $500 credit is increased by changing its calculation from a flat dollar amount to the greater of (1) $500 or (2) the lesser of (a) $250 multiplied by the number of nonhighly compensated employees of the eligible employer who are eligible to participate in the plan or (b) $5,000.

The SECURE Act will bring about both opportunities and complications for individuals planning their own financial futures as well as employers seeking to maximize their attractiveness to potential employees.

© 2019 Varnum LLP

For more on retirement regulation, see the National Law Review Labor & Employment law page.

Congress (Finally) Passes the SECURE Act

After a delay of several months, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, clearing the way for one of the most substantial pieces of retirement plan legislation in years to become law.

The House of Representatives initially passed the SECURE Act in May by an overwhelming 417−3 vote. Although the Act was set for easy bipartisan passage, it foundered in the Senate. The bill found new life at the eleventh hour of the 2019 legislative session as an attachment to the must-pass $1.4 trillion spending bill, which passed by significant margins.

The SECURE Act brings quite a few changes that will affect both plan sponsors and participants. It is intended to incentivize employers (particularly small businesses) to offer retirement plans, promote additional retirement savings, and enhance retiree financial security, including several provisions that will impact current plan administration. The changes brought by the Act are generally positive in our view, but certain ones will create some new administrative challenges and questions.

Key changes include:

Open Multiple Employer Plans (MEPs)

Among several other MEP-related provisions, the Act provides for the establishment of defined contribution Open MEPs – referred to as “Pooled Plans” – which will be treated as single ERISA plans. Under current law, where a plan is sponsored by a group of employers that are not under common control, the employers must have certain “commonality” of interests, or the arrangement may be treated as multiple component plans for ERISA purposes. Even though the recent Department of Labor regulation on “Association Retirement Plans” relaxed the commonality requirement significantly, a limited commonality requirement nonetheless remained. As a result, Open MEPs (which are generally offered by service providers and open to any employer who wishes to adopt them) remained subject to potential treatment as multiple ERISA plans. In a move largely cheered by the industry, the SECURE Act goes further by abolishing the commonality requirement entirely.

Part-Time Employee Eligibility for 401(k) Plans

Sponsors of 401(k) plans will be required to allow employees who work at least 500 hours during each of three consecutive 12-month periods to make deferral contributions ─ in addition to employees who have satisfied the general “one year of service” requirement by working at least 1,000 hours during one 12-month period. Long-term part-time employees eligible under this provision may be excluded from eligibility for employer contributions, and the Act provides very significant nondiscrimination testing relief with respect to this group. Nonetheless, this is an example of a provision that – while positive in the sense of encouraging additional retirement plan coverage – will nonetheless create new recordkeeping and administrative challenges.

Required Minimum Distributions (RMDs)

The age at which required minimum distributions must commence will be increased to 72 from 70 1/2. This is another example of a helpful change that will nonetheless lead to additional compliance questions.

Increased Tax Credits

The cap on start-up tax credits for establishing a retirement plan will increase to up to $5,000 (depending on certain factors) from $500. Small employers who add automatic enrollment to their plans also may be eligible for an additional $500 tax credit per year for up to three years.

Safe Harbor 401(k) Enhancements

Employers will have more flexibility to add non-elective safe harbor contributions mid-year. Additionally, the Act eliminates the notice requirement for safe harbor plans that make non-elective contributions to employees. The automatic deferral cap for plans that rely on the automatic enrollment safe harbor model (known as the “qualified automatic contribution arrangement” or “QACA” safe harbor) also will increase to 15% from 10%.

Other Retirement Plan Highlights

  • Penalty-free (but of course, not tax-free) retirement plan withdrawals for a birth or adoption.
  • An objective fiduciary safe harbor for the selection of a lifetime income provider is being added to encourage employers to offer in-plan annuity options. The Act also provides for tax-advantaged portability for a lifetime income product from one plan to another or between plans and IRAs to help avoid surrender charges and penalties where the lifetime income product is removed from a particular plan.
  • A separate provision also requires participant lifetime income disclosures illustrating the monthly payments if the participant’s account balance was used to provide lifetime income in an annuity.
  • Nondiscrimination testing relief for some closed defined benefit plans.
  • Certain clarifications relating to the termination of 403(b) custodial accounts and 403(b) retirement income accounts within church-sponsored plans.
  • Increase in penalties for failing to file plan returns on time.

While it is not related directly to employer-sponsored plans, readers may be interested to know that the Act also repeals the maximum age for IRA contributions and eliminates the stretch IRA. As to the latter, non-spouse beneficiaries of inherited IRAs will be required to take their benefits in income on an accelerated basis (as compared with current law) – this will have estate planning implications for individuals and families that should be understood and reviewed.

The SECURE Act is one of the most comprehensive retirement plan reforms in a decade and brings many changes for consideration. Plan sponsors should consider how the SECURE Act will impact the administration of their plans. Employers that do not currently sponsor retirement plans may wish to consider (or reconsider) doing so given the Act’s additional incentives ─ or may consider joining a MEP.

Most provisions of the Act will go into effect on January 1, 2020. In the coming months, it will be necessary to consider its practical effects on plan design and administration, including the interplay between certain of the Act’s provisions and existing regulatory guidance where there is subject-matter overlap.

©2019 Drinker Biddle & Reath LLP. All Rights Reserved

More on retirement regulation on the National Law Review Labor & Employment law page.

Sexual Harassment Training Becomes Mandatory for All Professionals Licensed by IDFPR

All professionals licensed by the Illinois Department of Financial and Professional Regulation (IDFPR) whose licenses come up for renewal after January 1, 2020 and who must satisfy continuing education requirements need to complete one hour of sexual harassment and prevention training under a law that Governor J.B. Pritzker recently signed.

Health care companies that employ registered nurses, pharmacists, doctors and other health care professionals licensed by IDFPR should start making plans to conduct sexual harassment training to help their employees avoid license renewal issues next year.

Most large and medium-sized corporations have conducted in-house harassment and discrimination training for years. More than 20 years ago, the U.S. Supreme Court ruled that companies may have an affirmative defense against lawsuits alleging that a supervisor sexually harassed a subordinate if the employer adopted and annually trained its employees on policies that:

  • define the different forms of sexual harassment,

  • detail to whom to report harassment complaints,

  • detail how the company will investigate such complaints, and

  • prohibit retaliation for good-faith reporting of such complaints

After those Supreme Court decisions, the Equal Employment Opportunity Commission adopted a similar standard for all forms of illegal discrimination.

The new Illinois law, an outgrowth of the #MeToo movement, governs only sexual harassment, not other forms of discrimination. But smart employers will protect their employees and themselves by combining sexual harassment training with training on other types of discrimination. That approach allows employees to obtain the needed continuing education credits under the new law while simultaneously ensuring that employees understand what constitutes harassment and discrimination, to whom employees can report complaints and how their employers will investigate such complaints.

The new state statute is short on details. It simply says that all professionals who have continuing education requirements and are renewing their licenses after January 1, 2020 need one hour of continuing education credits on sexual harassment. The statute authorizes IDFPR to provide detailed regulations on such training, which IDFPR has not yet done.

© 2019 Much Shelist, P.C.

For more states requiring sexual harassment training, see the National Law Review Labor & Employment law page.

Dealing With “Attitude” at Work, Part 3 – Helping Staff Help Themselves

In the first two posts in this series, I looked at the law around workplace attitudes which might stem from some form of disability. But what if your employee is fit and well in all respects bar being exceptionally painful to work with?

He may be relentlessly negative, make heavy weather out of every instruction, or just operate on a very short fuse, often perfectly civil but prone to detonation when colleagues overstep some clearly very important, but also absolutely invisible, line in their dealings with him. He is, in every sense, grit in the gearbox of your business. But without obvious performance or conduct concerns, what can you do?

Probably the first point is to ascertain whether the employee himself recognises the problems he is causing to his colleagues. This won’t be an easy conversation but it forces him to confront the problem head-on. He may demand to know who has complained and require detailed examples of where others have been offended. By the very nature of a poor attitude, however, individual manifestations of it seem trivial and raising them individually with the employee like a series of miniature disciplinary charges is just going to lead to a precipitous further decline in workplace relationships. So I would suggest in many cases that the attitude issue is put as a collective perception without the identification of either individual complainants or specific examples. This is the view people have on you. You don’t need details of individual complainants or examples to decide whether you recognise that as having any truth in it. If you do accept that there is something in it, you can do something about it. If you can’t/don’t do anything about it, the employer will need to do so instead.

That meeting will best take place in private and without any offer of a companion, so it is not disciplinary action and cannot be relied upon as a warning at a later stage. It is intended to be no more than a word to the wise.

This leaves the employee with some choices. Is he going to be wise or not? If secretly he recognises that this is how he might come across, then without admission and without formal disciplinary proceedings he can amend his behaviours and all will be well at minimum disruption and cost. Alternatively he may flatly deny those behaviours both to you and (more importantly) to himself. However, he will then have to address in his own head the question of why so many of his colleagues say otherwise. Or he may accept the behaviours in broad terms, but allege that they are the product of some treatment he has received from the employer or his colleagues. He withdrew from social interaction with them because they withdrew from such interaction with him, and they did it first, so there. He is being passive-aggressive because they are being aggressive-aggressive. He doesn’t trust them because they didn’t support him about something a long time ago which he has been unable to get over, and so on.

Of course, you can make such a response the subject of a formal grievance and disciplinary process, but this will have more oh yes you did and oh no I didn’t than the average Christmas panto and at the end of it you will find the same two things every time: first, that no one is completely blameless and second, that by conducting the effective artillery duel which those formal procedures encourage, you have converted a relationship which didn’t work very well into one which no longer works at all.

Therefore if you can catch your employee’s attitude issue early enough to avoid having to go through a formal process, why not try to mediate a resolution? Use the safe space created by that process to exchange some views about how each side’s conduct makes the other feel. It may be the first time your employee has heard this “from the heart”. Ideally this should be in non-aggressive terms – “You intimidate me” cries out to be whacked back over the net with added topspin, but “I feel intimidated by you” cannot so easily be argued with because it is about what someone feels, not what someone else did.

You might reasonably expect emotion and tears at such a mediation (dawning self-awareness can be very painful) so it won’t necessarily be an easy process. But at the end, if it works, you will have a newly functioning working relationship and not the cratered and smoking wreckage of what used to be the team spirit.

If it doesn’t work? More next week.

 

See Parts 1 & 2:

© Copyright 2019 Squire Patton Boggs (US) LLP

For more on workplace attitudes, see the National Law Review Labor & Employment law section.

Dear Former Employee, Here Are a Few Things I Want You to Know

Do you provide terminated employees with information regarding their employee benefits upon termination? If not, consider doing so now—especially if you typically provide a lot of your benefits information on your intranet site, which employees will lose access to upon termination. Even though there is generally no legal requirement to do so, providing departing employees with a letter that includes important reminders and deadlines related to their benefits is beneficial for two reasons: (1) it will save your HR department time by reducing the number of benefits-related inquiries they receive from former employees, allowing them to focus their time on more valuable tasks, and (2) the letter can help defend against a claim by a former employee who loses benefits because they missed a deadline.

Here is a non-exhaustive list of items we recommend including in your letter to exiting employees regarding their benefits:

Remind them of important dates and deadlines, and provide them with other relevant information regarding their benefits, including:

  • The date their medical and other insurance coverages will stop
  • Whether their accrued vacation will be paid out
  • When they can expect to receive their last paycheck
  • If applicable, the deadline to exercise their outstanding stock options
  • Their right to convert their group life insurance coverage to an individual policy
  • The deadline to use their Flexible Spending Account (FSA) balances

    **Note that California recently passed a law that actually requires employers to notify employees starting January 1, 2020 of any deadline to withdraw funds from their FSAs before the end of the plan year, such as when an employee terminates employment.By drafting this letter now, you can get ahead of this requirement!

  • If applicable, the date that their non-qualified deferred compensation payments will begin

Provide them with a list of important documents they should be watching for in the mail to prevent employees from inadvertently throwing these important documents away, including:

  • 401(k) or pension distribution packets
  • COBRA election packets

Remind them to update you and your plan administrators if their address changes (both residential and email addresses), and provide them contact information for whom to send updated information, since you will need this information to send out their final Form W-2 and your plan administrators will need it to be able to provide plan information and notices.

As mentioned above, this is a non-exhaustive list. Consider gathering your HR and benefits professional staff together for a 15-minute brainstorming session about other topics to include. We’re sure you’ll come up with other helpful items.

© 2019 Foley & Lardner LLP

Indiana Federal Court Gives Frostbitten ADA Plaintiff The Cold Shoulder

The U.S. District Court for the Southern District of Indiana recently granted summary judgment on behalf of a logistics employer in a case alleging discrimination under the Americans with Disabilities Act (ADA). The court found that because the plaintiff employee could not work in the freezer area of his employer’s warehouse, as was required for his job, he failed to establish that he was a “qualified individual” with a disability.

In Pryor v. Americold Logistics, LLC, the defendant employer operates a cold-storage warehouse that “provides temperature-controlled food warehousing and distribution services,” with “five cooler rooms, two freezer rooms, a loading dock, a designated battery-changing room, and a small office.” The plaintiff was a Lift Truck Operator (LTO) who filled orders by picking items from the various rooms of the warehouse and wrapping them on a skid for pickup by another employee. He had previously “suffered severe frostbite on his left hand after he spent three-quarters of a shift in the freezer with defective gloves,” and due to his prior frostbite “exposure to the freezer’s extreme cold caused pain and risked further injury.”

After treatment (and intervening stints of alternate duty), the plaintiff employee “reached maximum medical improvement” and was put on “a permanent restriction of exposure to the freezer for no more than thirty minutes per workday.” The plaintiff’s LTO role, however, required nearly constant exposure to subzero temperatures. When the plaintiff did not return from leave, he was terminated.

The plaintiff alleged that his employer “discriminated against him by failing to provide a reasonable accommodation for his disability and by terminating his employment.” The employer argued that the plaintiff was not a “qualified individual” under the ADA because “he could not perform the essential duties of an LTO with or without a reasonable accommodation.” The district court held that the plaintiff had not “presented sufficient evidence that he was able to perform the essential functions of his job with a reasonable accommodation,” and thus granted summary judgement in favor of the employer.

The court explained the employer’s judgment as to which job functions are essential is entitled to consideration. And with regard to the essential functions of the LTO role, the court found that the LTO role required “substantial exposure to freezer temperatures” each workday. The court explained that, because the plaintiff admittedly could not work in the freezer for more than thirty minutes per day, “he could not perform the essential functions of his LTO order selector position without reasonable accommodation.” He was thus a “‘qualified individual’ under the ADA only if he could perform the essential functions with reasonable accommodation.”

As for the question of what a reasonable accommodation might entail, the plaintiff argued that he could have been reassigned to a non-freezer position, a temporary “cooler-only” position, or a position in the loading dock or office. However, the court stated, “it is the plaintiff’s burden to show that a vacant position exists for which he was qualified.” The court explained that the ADA does not require an employer to “create a new position or transfer another employee to create a vacancy,” or to “transfer a disabled employee to a temporary position on a permanent basis.”

Ultimately, with regard “cooler-only” positions, the court held that the plaintiff failed to identify any vacancies, and noted that pursuant to a union contract, those positions had to be filled according to seniority. With regard to the vacant loading dock or office positions, the plaintiff failed to demonstrate that he was qualified. Thus, the court held that the plaintiff failed “to create a genuine issue of material fact whether reassignment was a reasonable accommodation,” and summary judgement in favor of the employer was appropriate.

The key takeaways from the Pryor decision for employers facing ADA claims are that employees must still be able to perform the essential functions of their job, and that courts should consider the employer’s determination of which job functions are essential. Moreover, the Pryor decision reaffirms that the ADA does not require employers to create positions or vacancies as part of the interactive process.

© 2019 BARNES & THORNBURG LLP
For more ADA cases, see the National Law Review Labor & Employment law page.

Third Thursdays with Ruthie: The Intersection of Religion and Labor Law [PODCAST]

In this episode of the Third Thursdays podcast, Ruthie Goodboe examines how religious discrimination and accommodation intersect with traditional labor law. She will cover religious accommodation under Title VII of the Civil Rights Act of 1964, best practices for handling requests for religious accommodation when an employee is governed by a collective bargaining agreement, and how Section 7 of the National Labor Relations Act comes into play with religious accommodation.

© 2019, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

For more labor law developments see the Labor & Employment law page on the National Law Review.

Ohio District Court Delivers Win For Pizza Drivers

Following the guidance set forth in the U.S. Department of Labor (DOL)’s Field Operations Handbook, the U.S. District Court for the Southern District of Ohio recently ruled in favor of pizza delivery drivers and in the process confirmed the standard for reimbursement of vehicle expenses under the FLSA.

In Hatmaker, et al., v. PJ Ohio, LLC, et al., the court granted summary judgment in favor of pizza delivery drivers who incurred costs to “purchase, maintain and operate” their vehicles, and alleged that because they were not paid “their actual expenses or the IRS standard business mileage rate,” they were effectively paid less than minimum wage. According to the decision, the defendant employer operated 73 Papa John’s locations, and paid the plaintiff delivery drivers at or near the minimum wage. The parties filed cross-motions for summary judgment, and the court ruled in favor of the delivery driver employees.

The DOL’s anti-kickback regulation prohibits arrangements that “shift part of the Employer’s business expense to the employees . . . to the extent that it reduce[s] an employee’s wage below the statutory minimum.” For example, as the DOL has explained, if the employer requires that an employee provide his or her own equipment or tools, the FLSA is violated “in any workweek when the cost of such tools purchased by the employee cuts into the minimum or overtime wages required to be paid.” As the court explained, “[i]n the pizza delivery context, the cost associated with delivering food for an employer is a ‘kickback’ to the employer that must be fully reimbursed, lest a minimum wage violation be triggered.”

The DOL recognizes that tracking delivery employee expenses is a potentially cumbersome task. Enter the Field Operations Handbook (FOH), which affords employers the option of either tracking and reimbursing delivery drivers for their actual delivery expenses (such as “gasoline, oil and other fluids, vehicle parts, auto repair and maintenance, registration costs, licensing and taxes”) or simply reimbursing delivery drivers at the IRS standard business mileage rate.

The defendant employer in this case neither tracked and reimbursed drivers’ actual expenses nor reimbursed drivers at the IRS standard rate. Thus, the plaintiff delivery drivers argued that they received less than the FLSA minimum wage. The employer argued that the FOH is not entitled to any deference and that it is based on outdated IRS publications. Moreover, the employer asserted that the IRS daily rate does not pertain to reimbursements under the FLSA.

The court found that while the FOH was not entitled to Chevron deference, Skidmore deference was appropriate, as the FOH is “one of the ‘interpretations, opinions and explanatory Guidelines’ of the Department of Labor, to which a court ‘may properly resort for guidance’…”

Based on the DOL’s guidance, the court explained that employers may not “guess” or “approximate” employee expenses, because some employees would inevitably receive less than the minimum wage. Echoing the FOH, the court held that the “the proper measure of minimum wage compliance for pizza delivery drivers is to either (1) track and pay delivery drivers’ actual expenses or (2) pay the mileage reimbursement rate set by the Internal Revenue Service.”

So, the court concluded, employers may defeat summary judgment by showing “that they tracked and paid actual expenses and paid an amount equal to the minimum hourly wage rate plus actual expenses.”

The decision in Hatmaker provides a roadmap for employers of delivery drivers engaged in similar wage and hour litigation, which have become prevalent across the country. Employers of food delivery drivers or other employees who are required to provide their own tools or equipment may wish to review their practices and policies to ensure compliance with the FLSA.

© 2019 BARNES & THORNBURG LLP

More on employee rights under FLSA, see the National Law Review Employment & Labor law page.

AB 1291 Forces California Cannabis Companies To Sign “Labor Peace Agreements” With Unions, But Statute May be Unconstitutional

 

On October 12, 2019, Governor Newsom signed Assembly Bill 1291 (“AB 1291”) into law, which requires companies to sign a so-called “labor peace” agreement with a union or risk losing their cannabis license; thereby, strengthening already union-friendly statewide cannabis law. AB 1291 was supported and endorsed by various unions, including the United Food and Commercial Workers Western States Council, a 170,000-member branch representing thousands of cannabis workers. This bill, as well as other California statutes and local laws, signals a growing insistence by state and local regulators that employers doing business in California accept pro-union requirements. However, many of these new pro-union laws, including AB 1291, may be unconstitutional.

The main takeaways of AB 1291 are as follows:

  1. Effective January 1, 2020, California cannabis license applicants must sign so-called labor peace agreements with a union within 60 days of their 20th hire or risk losing their cannabis license.
  2. Employers and business associations seeking to challenge AB 1291, and other similar state or local union-related ordinances, are encouraged to speak with experienced labor counsel to discuss their options.
  3. Employers seeking to comply with AB 1291 and sign labor peace agreements should conduct due diligence on the labor unions they are considering entering into negotiations with. Not all unions are the same. Additionally, businesses should be thoughtful about what they agree to put into a labor peace agreement to satisfy the requirements under California’s cannabis laws. For example, these agreements are frequently mistakenly referred to as “neutrality agreement.” Neutrality agreements typically contain a commitment from the employer to remain “neutral” through a union organizing campaign. In contrast, AB 1291 does not use the term “neutral(ity)” and, thus, arguments can be made that strict “neutrality” is not required under the statute and may not need to be included in the labor peace agreement. Thus, employers should speak with experienced labor counsel before negotiating labor peace agreements with unions.

Background

Since its adoption into law in 2018, the Medicinal and Adult Use of Cannabis Regulation and Safety Act (“MAUCRSA”) has required applicants for state cannabis licenses with 20 or more employees to “provide a statement that the applicant will enter into, or demonstrate that it has already entered into, and abide by the terms of a labor peace agreement.”1 (Cal. Bus. & Prof. Code § 26015.5(a)(5)(A).) A labor peace agreement, as defined under California’s cannabis laws, must contain the following commitments, at a minimum:

  1. Employer shall not “disrupt” efforts by the union to “communicate with, and attempt to organize and represent” the employer’s employees;
  2. Employer shall give the union “access at reasonable times to areas in which the employees work, for the purpose of meeting with employees to discuss their right to representation, employment rights under state law, and terms and conditions of employment;” and
  3. Union and its members shall not engage in picketing, work stoppages, boycotts, and any other economic interference with the employer’s business.

(Cal. Lab. & Prof Code § 26001(x).)

Effective January 1, 2020, AB 1291 requires an applicant for a state license under MAUCRSA with 20 or more employees to provide a notarized statement that the applicant will enter into, or demonstrate that it has already entered into, and abide by the terms of a labor peace agreement. If the applicant has less than 20 employees and has not yet entered into a labor peace agreement, AB 1291 requires the applicant to provide a notarized statement as a part of its application indicating that the applicant will enter into and abide by the terms of a labor peace agreement within 60 days of employing its 20th employee. By expanding the scope of the crime of perjury, AB 1291 imposes a state-mandated local program and authorizes the Bureau of Cannabis Control, the Department of Food and Agriculture, and the State Department of Public Health to revoke or suspend a license for a violation of these requirements.

AB 1291 May Be Unconstitutional

AB 1291 poses substantial questions as to whether it is unconstitutional due to preemption by the National Labor Relations Act (“NLRA”) under two complementary preemptions doctrines: Garmon and Machinists. In San Diego Building Trades Council v. Garmon, 359 U.S. 236 (1959), the U.S. Supreme Court declared that the states are constitutionally barred by the U.S. Constitution’s supremacy clause from regulating conduct that NLRA protects, prohibits, or arguably protects or prohibits. Garmon preemption exists to protect the National Labor Relations Board’s (“NLRB”) primary jurisdiction and to preclude a state’s interference with its interpretation and enforcement of the integrated regulatory scheme that is the NLRA. Indeed, Congress delegated exclusive authority to the NLRB because it sought to establish a single, uniform national labor policy that would be unaffected by the vagaries of state law or shaped by local attitudes or prejudices. (Garner v. Teamsters Union, 346 U.S. 485, 490 (1953).) In Machinists v. Wisconsin Employment Relations Comm’n, 427 U. S. 132 (1976), the U.S. Supreme Court similarly declared that the NLRA forbids states to regulate conduct that Congress intended “to be unregulated because left ‘to be controlled by the free play of economic forces.’” Together, Garmon and Machinists preempt state and local policies that would otherwise interfere with the “integrated scheme of regulation” and disrupt the balance of power between labor and management embodied in the NLRA.

It appears AB 1291’s purpose is to afford unions greater rights than provided under the NLRA and make it easier for unions to organize cannabis employers. AB 1291 arguably presents the type of state interference in labor-management relations that Garmon and Machinists preemption forbids. For example, in Golden State Transit Corp. v. City of Los Angeles (“Golden State I”), 475 U.S. 608, 616 (1986), the Supreme Court held that while the NLRA “requires an employer and a union to bargain in good faith, … it does not require them to reach agreement,” nor does it demand a particular outcome from labor negotiations.” The substance of labor negotiations, and the results therefrom, are among those areas Congress intentionally left to the free play of economic forces when it legislated in the field of labor law. (Id.) In that case, the Supreme Court found that Machinists preempted the City of Los Angeles’ (“City”) refusal to renew a taxi cab company’s license when it failed to reach an agreement with striking union members. By conditioning the renewal of the taxi cab franchise on the acceptance of the union’s demands, the City effectively imposed a timeline on the parties’ negotiations and undermined the taxi cab company’s ability to rely on its own economic power to resist the strike. (Id. at 615.) The Supreme Court held that the City could not pressure the taxi cab company into reaching a settlement and thereby “destroy[] the balance of power designed by Congress, and frustrate[] Congress’ decision to leave open the use of economic weapons.” (Id. at 619.)

The facts of Golden State I are instructive here. Like the taxi cab company in Golden State I, California cannabis businesses now face a Hobson’s “all or nothing” choice under AB 1291. If a cannabis business refuses to negotiate a labor peace agreement with a labor organization, it effectively loses the right to do business in California. But if the cannabis business negotiates a labor peace agreement, the union knows full well that it can hold out for significant concessions in exchange for its members giving up one of their most valuable economic weapons – the power to strike.

The U.S. Supreme Court’s decision in Chamber of Commerce v. Brown, 554 U.S. 60 (2008) is also instructive. At issue in Brown was California’s Assembly Bill 1889 (“AB 1889”), prohibiting certain private employers from using state funds to “assist, promote, or deter union organizing.” (Id. at 63 [quoting Cal. Govt. Code §§ 16645.1–16645.7].) The Court held that AB 1889 was unconstitutional. As explained by the Court, the current text of Sections 7 and 8 of the NLRA are amendments made to the NLRA in 1947 as part of the Labor Management Relations Act, also known as the Taft Harley Act, for the purpose of overturning earlier NLRB precedent. The NLRA was amended in in several key respects. First, it emphasized that employees “have the right to refrain from any or all” union activities. (29 U.S.C. § 157.) Second, it added Section 8(b), which prohibits unfair labor practices by unions. (29 U.S.C. § 158(b).) Third, it added Section 8(c), which protects speech by both unions and employers from regulation by the NLRB. (29 U.S.C. § 158(c).) Specifically, Section 8(c) provides:

The expressing of any views, argument, or opinion, or the dissemination thereof, whether in written, printed, graphic, or visual form, shall not constitute or be evidence of an unfair labor practice under any of the provisions of this subchapter, if such expression contains no threat of reprisal or force or promise of benefit.

With the amendments, Section 8(c) “manifested a “congressional intent to encourage free debate on issues dividing labor and management.” (Id. at 6-7.) That Congress amended the NLRA, rather than leaving to the courts the task of correcting the NLRB’s decisions on a case-by-case basis, is “indicative of how important Congress deemed such ‘free debate.’” (Id. at 7.) In addition, Sections 8(a) and 8(b) “demonstrate that when Congress has sought to put limits on advocacy for or against union organization, it has expressly set forth the mechanisms for doing so.” (Brown, 554 U.S. at 67.) Moreover, “the amendment to §7 calls attention to the right of employees to refuse to join unions, which implies an underlying right to receive information opposing unionization.” (Id.) “[T]he addition of §8(c) expressly precludes regulation of speech about unionization so long as the communications do not contain a ‘threat of reprisal or force or promise of benefit.” (Id. [internal quotation omitted].) Thus, based on these overriding principles, the Court concluded that “California’s policy judgment that partisan employer speech necessarily interfere[s] with an employee’s choice about whether to join or to be represented by a labor union” and struck down AB 1889. (Id. at 68 [internal quotation omitted].)

AB 1291 is arguably no different. By forcing unwilling cannabis businesses to negotiate and accept labor peace agreements, AB 1291 compels a result Congress deliberately left to the free play of economic forces. The NLRA does not allow state and local governments to interfere with employer rights to communicate with employees regarding unionization under Section 8(c). Nor does it allow state and local governments to “introduce some standard of properly balanced bargaining power . . . or to define what economic sanctions might be permitted negotiating parties in an ideal or balanced state of collective bargaining.” (Machinists, 427 U.S. at 149-50.) Yet, this is exactly what AB 1291 appears to do. Accordingly, AB 1291 may be unconstitutional.

1 A labor peace (aka a labor harmony agreement) is essentially a contract between an employer and an organized labor union in which the employer agrees to help the union organize the employer’s workforce (i.e., unionize) by providing, for example, certain information or agreeing not to interfere with the union organizing efforts, in exchange for the union’s agreement not to strike or cause other disruption in the employer’s workforce during a union organizing campaign. Because these agreements open the door to union activity within the workplace, they should not be entered into casually. Rather, unionization may result in increased labor costs, contractual contributions to union pension plans, loss of flexibility, and adherence to union rules set forth in a legally binding contract. In addition, once a union is recognized or certified as the collective bargaining representative of employees, it is practically impossible to terminate that relationship. Indeed, only after a costly and divisive decertification election can a workforce return to the merit-based and flexible non-union environment.

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

For more on union regulation, see the National Law Review Labor & Employment law page.

To Stalk or Not to Stalk . . . That Is the Question – Using Social Media for Applicant Review

Now more than ever, employers are using social media to screen job applicants. According to a 2018 survey, 70 percent of employers use social media to research candidates. Using social media to research job applicants can provide you with useful information, but it can also get you into trouble.

When you review an applicant’s social media account, such as Facebook, LinkedIn, Twitter, etc., you may learn information regarding the applicant’s race, sex, religion, national origin, or age, among other characteristics.

As our readers are aware, a variety of state and federal laws, such as Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, and the Americans with Disabilities Act prohibit employers from choosing not to hire a candidate based on a number of legally protected classes. Just as it would be unlawful to ask an applicant if he or she has a disability during an interview and fail to hire that applicant based on his or her disability, it would also be illegal not to hire an applicant because you observed a Facebook post in which she expressed her hope to be pregnant within the next six months.

Consider the following best practice tips for using social media to screen applicants:

  1. Develop a Policy and Be Consistent – Implement a policy detailing which social media websites you will review, the purpose of the review and type of information sought, at what stage the review will be conducted, and how much time you will spend on the search. Applying these policies consistently will help to combat claims of discriminatory hiring practices should they arise.
  2. Document Your Findings – Save what you find, whether it is a picture or a screenshot of a comment the applicant made. What you find on social media can disappear as easily as you found it. Protect your decision by documenting what you find. In case the matter is litigated, it can be produced later.
  3. Wait Until After the Initial Interview – Avoid performing a social media screening until after the initial interview. It is much easier to defend a decision not to interview or hire an applicant if you do not have certain information early on.
  4. Follow FCRA Requirements – If you decide to use a third party to perform social media screening services, remember that these screenings are likely subject to the Fair Credit Reporting Act requirements because the screening results constitute a consumer report. This means the employer will be required to: 1) inform the applicant of the results that are relevant to its decision not to hire; 2) provide the applicant with the relevant social media document; 3) provide the applicant notice of his or her rights under the FCRA and; 4) allow the applicant to rebut the information before making a final decision.
  5. Do Not Ask for Their Password – Many states have enacted laws that prohibit an employer from requesting or requiring applicants to provide their login credentials for their social media and other internet accounts. Although some states still allow this, the best practice is not to ask for it. Further, while it is not illegal to friend request a job applicant, proceed with caution. Friend requesting a job applicant (and assuming the applicant accepts the request) may provide you with greater access to the applicant’s personal life. Many people categorize portions of their profiles as private, thereby protecting specific information from the public’s view. If you receive access to this information you may gain more knowledge regarding the applicant’s protected characteristics. If you are going to friend request applicants, you should include this in your written policy and apply this practice across the board.

© 2019 Foley & Lardner LLP

More information for employers considering job applicants on the National Law Review Labor & Employment law page.