Tag: Labor Law

Barnes & Thornburg Labor Relations’ Top Ten Traditional Labor Stories of 2011 (Part 1)

‘Tis the season for year-end recaps, and we here at BT Labor Relations couldn’t resist taking our own look back at the year in traditional labor. As we move into 2012, here’s our countdown of the top ten traditional labor issues that made the news this year. Numbers 10 through 6 are below; check back tomorrow for our top five.

10. The Board sues Arizona over secret ballot constitutional amendment

2011 started off with a bang in January when the Board’s Acting General Counsel Lafe Solomon threatened to sue four states (Arizona, South Carolina, South Dakota, and Utah) over their secret ballot union election constitutional amendments. All four states added provisions to their state constitutions mandating that union elections be held by secret ballot only, after constitutional amendments passed by public referendum at the November 2010 election. These constitutional amendments were in response to the Employee Free Choice Act (EFCA) proposed in Congress in 2009, which would have required an employer to recognize a union if a majority of employees signed cards stating their desire for representation. This “card check” method of recognition is currently allowed by the NLRA, but employers have the option of demanding that election of the union be confirmed by a secret ballot. EFCA would have taken this option away from employers (as well as enacting other pro-union changes to the NLRA).

EFCA never became law, but the constitutional amendments in these states passed anyway, purportedly preserving the right of a secret ballot election for employers in those states. The amendments as they currently stand do not conflict with the NLRA, but the NLRB nevertheless took exception to them, claiming that such state provisions are preempted by federal law. After a back and forth discussion with the states’ Attorneys General during the early part of 2011, the NLRB filed suit against Arizona in May, asking the court to declare that Arizona’s constitutional amendment was preempted by federal law and therefore unenforceable.

Although EFCA never became law, the NLRB has made attempts to individually implement many of the pro-union changes proposed in the bill, and Arizona has become the battleground for card checks. So far, the NLRB’s lawsuit appears to have some traction. The Arizona federal court hearing the case has deniedArizona’s motion to dismiss and litigation continues. Stay tuned in 2012 as this issue continues to develop …

See B&T’s previous coverage of this issue here.

9. The NLRB strikes a blow to mandatory arbitration policies in Supply Technologies

Companies love mandatory arbitration policies in contracts and in May, the U.S. Supreme Court issued a landmark decision in AT&T v. Concepcion upholding such policies in consumer contracts. Employers also see the appeal of mandatory arbitration clauses and many union contracts include such provisions. However, an NLRB Administrative Law Judge reminded employers of the limits of such policies in a decision in June, finding in Supply Technologies LLC that an employer’s arbitration policy violated the NLRA by unlawfully restricting employees’ rights by suggesting that an employee had to bring any unfair labor practice charge through the arbitration procedure, and thus could not make that charge with the Board. This decision served as a warning for employers hopeful after theConcepcion decision that arbitration provisions should be carefully reviewed before being included in collective bargaining agreements. Employers should know that just because SCOTUS approves, doesn’t mean the Board will.

See B&T’s previous coverage of this issue here.

8. Congress sits up and takes notice (although no new legislation is actually passed)

With a new majority in the House of Representatives after the 2010 elections, certain Republican members of Congress have made the NLRB their new target this year. Several hearings were held by Congressional Committees to discuss what many characterize as the pro-union, “activist agenda of the National Labor Relations Board.” The Board’s complaint against Boeing was a frequent target, as well as its decisions regarding posting requirements, “quickie” elections, and “micro” bargaining units.

Additionally, Republicans in both the House and the Senate have introduced bills to amend the NLRA to reverse these controversial actions taken by the NLRB in 2011. The Democrats weren’t able to get EFCA passed when they had a majority of both houses, so it is unlikely that any of this legislation will actually be passed by a divided Congress, but the NLRB’s continued perceived pro-union actions have made traditional labor a key issue as we move into the 2012 election season.

See B&T’s previous coverage of this issue here.

7. General Counsel memo regarding mandatory language in settlement agreements puts additional pressure on employers

This year, the Board has placed additional pressure on employers looking to settle NLRB proceedings with the issuance of a memo by General Counsel Solomon in January which requires mandatory language in settlement agreements whereby an employer in effect agrees in advance that if it is even accused of violating the agreement, all of the prior charges against it have merit. Although the Board characterized this language as necessary for effective enforcement of such agreements, this requirement likely has the effect of simply making employers less willing to settle a case. And it was another example of the Board’s aggressive efforts to secure rights for unions in 2011.

See B&T’s previous coverage of this issue here.

6. Specialty Healthcare decision opens the door for “micro” bargaining units

One of the Board’s more controversial decisions of 2011 was issued in August regarding appropriate bargaining units. In Specialty Healthcare (357 NLRB No. 83), the Board overturned 20 years of precedent regarding determination of an appropriate bargaining unit in non-acute health care facilities. The Board increased the burden on employers who wish to challenge a bargaining unit petitioned for by a union to include more employees. Under the new standard, employers have the burden to prove that the employees the employer believes also should be part of the unit share an “overwhelming community interest” with the petitioned for employees. The previous rule (as articulated by the Board inPark Manor Care Center, 305 NLRB 872 (1991)), applied a lower standard: whether the community of interest of the employees the employer sought to include was “sufficiently distinct from those of other employees” in order to justify their exclusion from the bargaining unit.

The upshot is that this decision allows unions to pursue so-called “micro” bargaining units, and it will be easier for unions to certify bargaining unit(s) piecemeal, even when a majority of employees in a facility do not desire union representation. This decision helps unions trying to “get a foot in the door” by allowing them to target vulnerable employer sub-groups.

This decision was targeted by legislation introduced in Congress to reverse it, but for now, it remains current Board law and sets up new challenges for employers seeking to avoid unionization.

See B&T’s previous coverage of this issue here.

Disagree with our picks? Let us know in the comments what traditional labor issues you think were most important in 2011. And don’t forget to check back tomorrow for our top five!

© 2011 BARNES & THORNBURG LLP

California Wage Theft Prevention Act Takes Effect January 1, 2012

Posted in the National Law Review on January 01, 2012 an article by the Labor & Employment Practice of Morgan, Lewis & Bockius LLP regarding The Wage Theft Prevention Act of 2011:

California Governor Jerry Brown recently signed into law Assembly Bill 469, also known as The Wage Theft Prevention Act of 2011 (the Act). The Act requires employers to provide all new nonexempt hires with written notice of specific wage information. It also increases the penalties for nonpayment of all wages due, including overtime premiums and minimum wage for all hours worked. The Act also mandates that the Labor Commissioner prepare a template of the written notice, which the Division of Labor Standards and Enforcement (DLSE) issued on December 28. A copy of the template is available online.

The Act is similar to wage theft statutes recently enacted in other states, including New York, New Mexico, Maryland, and Illinois. Below is a summary of the Act’s key provisions, which take effect on January 1, 2012.

Background

A UCLA study released in 2010 suggested that wage theft was costing low-wage California workers $26.2 million per week. Further, the DLSE, the state enforcement agency, was reporting more penalties assessed than actually collected. These statistics influenced the legislature to create the newer, heightened incentives for wage and hour compliance that are contained in the Act.

Labor Code § 2810.5: New Written Notice Requirements for New Employees

Under the Act, at “the time of hire” of any nonexempt employee, an employer will need to provide to the employee a written notice containing all of the following information:

  • The employee’s rate or rates of pay (including overtime rates), and whether the employee is paid hourly, by the shift, by the day, by the week, by salary, by piece, by commission, or otherwise.
  • Any allowances claimed as part of the minimum wage (i.e., allowances for meals or lodging).
  • The regular payday.
  • The name of the employer, including any D/B/A names the employer uses.
  • The physical address of the employer’s main office or principal place of business, and a mailing address if it is different.
  • The employer’s telephone number.
  • The name, address, and telephone number of the employer’s workers’ compensation insurance carrier.
  • Any other information that the Labor Commissioner deems necessary.

Employers need to provide the notice in the language that the employer normally uses for communicating employment-related information to employees. Employees must be notified of any changes to the information provided in the initial notice within seven calendar days after these changes are made. This notice of changes may take the form of an entirely new notice containing all of the information required by Section 2810.5, a notice of only the changed information, or a timely wage statement that reflects the changes.

Recordkeeping

The Act significantly increases employers’ recordkeeping obligations. Specifically, Labor Code § 226 requires that employers keep a copy of both an employee’s wage statement and a record of deductions, rather than just one or the other, for at least three years. The Act also amends Labor Code § 1174, requiring employers to keep payroll records for each employee for at least three years, instead of two years as previously required.

Increased Penalties and Damages and More Time for the Labor Commissioner to Seek Them

The Act contains numerous provisions that subject employers to significantly increased penalties and damages for noncompliance with various Labor Code provisions, including the following:

  • Labor Code § 98: The Labor Commissioner is now authorized to collect liquidated damages, in addition to wages and penalties, for failure to pay the minimum wage. Previously, liquidated damages were only available in civil court.
  • Labor Code § 240: The time period for which the Labor Commissioner can require that employers post bonds in order to incentivize compliance and ensure the employer can pay any future awards during that period has been increased from six months to two years. If the employer does not post the bond and does not appeal the order requiring a bond, the Labor Commissioner may order an accounting of the employer’s assets and subject the employer to an additional civil penalty of up to $10,000.
  • Labor Code § 243: An employer that has been convicted of violating wage laws for the second time within 10 years or has failed to satisfy a judgment for nonpayment of wages could be issued an immediate restraining order from conducting business within the state for 30 days unless the employer posts a bond conditioned on making correct wage payments or satisfying any judgment for nonpayment of wages.
  • Labor Code § 200.5: The DLSE now has three years-rather than one year, as previously-from the date a penalty or fee becomes final to collect it.
  • Labor Code § 1197.2: An employer may be criminally liable for a misdemeanor for the willful refusal to pay a final court judgment or final order for wages by the Labor Commissioner within 90 days. Each offense carries a minimum $1,000 fine or minimum six months of imprisonment. If the total wages due are more than $1,000, the minimum fine per offense is $10,000 and an employer may be subject to both the fine and imprisonment.

Conclusion

Under California’s new Wage Theft Prevention Act, employers have additional Labor Code compliance obligations, including the new written notice requirements in Section 2810.5. The Act also significantly increases the damages and penalties available for violations of the Labor Code. Thus, it is important that employers become familiar with the new requirements and take steps now to bring their policies and procedures into immediate compliance.

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

Health Care Entities Using Social Media: Guidance from the Division of Quality Assurance

Recently posted in the National Law Review an article by Diane M. Welsh and Linda C. Emery of von Briesen & Roper, S.C. regarding  the use of social media and web-based email services:

Many articles have been written about the legal and business risks associated with the use of social media and web-based email services. However, the risk of using social media is heightened in the health care industry in light of a health care entity’s legal and regulatory obligations to protect the privacy and security of health care information. Health care entities need to be particularly familiar with the risks of using social media in the health care industry and methods for reducing those risks.

The DQA October 24, 2011 Memorandum

On October 24, 2011, the Wisconsin Division of Quality Assurance (“DQA”) issued numbered memorandum 11-026 entitled, “Using Social Media Platforms, such as Twitter, Facebook, MySpace and LinkedIn”. The Memo is available at www.dhs.wisconsin.gov/rl_DSL/Publications/11-026.htm.

The DQA definition of “Social Media” includes what one would normally consider social media, as well as “free and unencrypted web-based email services” such as Yahoo and Gmail, and web-based calendars. The purpose of the Memo is to “provide guidance to providers on the fast-changing landscape of the internet and the impact of using social networking and social media as a communications tool”.

DQA released the Memo to address concerns raised about (1) health care entities and their staff using web-based email accounts (e.g., Gmail) or web-based calendars (e.g., Yahoo Calendars) to convey patient or resident care information; and (2) health care entity staff members sharing protected health information on FaceBook.

The DQA notes that inappropriate use of Social Media or use of Social Media without adequate security protections may violate a patient’s or resident’s privacy rights. Moreover, DQA emphasizes that Social Media sites are now major targets of the hacker underground, creating further risk of a network security breach. DQA also warns health care entities of the potential for criminal and civil risks of using Social Media, (including criminal prosecution or civil actions under HIPAA) because it is the United States Department of Health and Human Services Office of Civil Rights—and not the Division of Quality Assurance—which has jurisdiction over such violations.

Risk Management Considerations With Regard to Entity Use of Social Media

DQA includes a number of recommendations for reducing the risks associated with the use of social media by health care entities.

First, the DQA recommends that each health care entity conduct a risk assessment to determine whether the entity or its staff members are utilizing Social Media in a manner that may violate patient or resident rights.

DQA also recommends that providers and staff members should be fully aware of the broad definition of “protected health information.” If a health care entity chooses to utilize a Social Media tool, it should insure that the information it discloses is “de-identified under HIPAA.” DQA points out that no health care provider should ever post any protected health information on-line without the appropriate written patient authorization. Merely omitting a patient’s name from a post does not make it a permissible disclosure. Posts that discuss the patient’s condition—even without disclosing the patient’s name—contain protected health information.

DQA emphasizes that “a covered entity should consider the need for a business associate agreement with a social media site, if the entity is uploading protected health information to the site. HIPAA makes it mandatory for all covered entities along with their business associates to ensure complete protection of patient health information, which they store, process and exchange between themselves.”

Finally, DQA recommends that health care entities should develop a social media policy that guides employees on the appropriate use of social media, and includes specific guidance (e.g., “Refrain from discussing patients, even in general terms.”). The organization should also provide staff with ongoing training on resident rights, privacy and security.

Marketing Uses of Social Media

DQA does not directly address the use by healthcare entities of social networking sites like FaceBook, Twitter or YouTube, or even the providers’ own websites, to promote their services or discuss advances they have made in healthcare. Many health care entities use videos, photos, and patient interviews to promote their services. If a health care entity posts a video, photograph, or patient interview of actual patients, that provider would be disclosing protected health information.

Any health care provider using protected health information in this manner should only do so with the express written authorization of the patient. Even with such authorization, the provider must be sure that the patient understands that when posting information online, the provider and the patient lose much control of the information. Although the provider could remove the materials if a patient withdraws authorization, the patient and the provider cannot get back any material that may have been downloaded by others.

Although not referenced in the Memo, health care providers should institute a social media policy which identifies who is permitted to use social media for the business purposes of the organization and what information may be posted on the company’s website or a social media web page.

Considerations for Staff Member’s Personal Use

One of the greatest risks of social media sites is that a health entity staff member may post protected information on the staff member’s social media page. The internet is filled with stories of hospital employees being fired for providing their opinions about a patient on a Facebook account, albeit without identifying the patient’s name. Given that any information disclosed about a patient or resident would likely constitute a breach of protected health information, it is imperative that providers inform staff that they are not to share any confidential information whether at work, or outside of work—including on their FaceBook pages or through Twitter (or in actual conversation with their family or friends). Staff should understand that they are not to share any patient information online—even if they are not naming the individual patient.

Additional Resources

Additional information on this issue is available through the HIPAA Collaborative of Wisconsin website, at www.hipaacow.org.

©2011 von Briesen & Roper, s.c

IRS Extends Transition Relief for Puerto Rico Qualified Plans to Participate in U.S. Group Trusts and Deadline to Transfer Assets

Posted in the National Law Review an article by attorney Nancy S. Gerrie and Jeffrey M. Holdvogt of McDermott Will & Emery regarding  U.S. employers with qualified employee retirement plans that cover Puerto Rico:

On December 21, 2011, the U.S. Internal Revenue Service (IRS) issued Notice 2012-6, which provides welcome relief for U.S. employers with qualified employee retirement plans that cover Puerto Rico employees.  Notice 2012-6 provides that the IRS will extend the deadline for employers sponsoring plans that are tax-qualified only in Puerto Rico (ERISA Section 1022(i)(1) Plans) to continue to pool assets with U.S.-qualified plans in group and master trusts described in Revenue Ruling 81-100 (81-100 group trusts) until further notice, provided the plan was participating in the trust as of January 10, 2011, or holds assets that had been held by a qualified plan immediately prior to the transfer of those assets to an ERISA Section 1022(i)(1) Plan pursuant to a spin-off from a U.S.-qualified plan under Revenue Ruling 2008-40.

Notice 2012-6 also extends the deadline for sponsors of retirement plans qualified in both the United States and Puerto Rico (dual-qualified plans) to spin off and transfer assets attributable to Puerto Rico employees to ERISA Section 1022(i)(1) Plans, with the resulting plan assets considered Puerto Rico-source income and not subject to U.S. tax.

There are now two separate deadlines:

    • First, in recognition of the fact that Puerto Rico adopted a new tax code in 2011 with significant changes to the requirements for qualified retirement plans, the IRS has extended the general deadline to December 31, 2012, for dual-qualified plans to make transfers to Puerto Rico-only plans, in order to give plan sponsors time to consider the effect of the changes made by the new tax code.
    • Second, in recognition of the fact that the IRS has not yet issued definitive guidance on the ability of an ERISA Section 1022(i)(1) Plan to participate in 81-100 group trusts, the IRS has extended the deadline for dual-qualified plans that participate in an 81-100 group trust to some future deadline, presumably after the IRS reaches a conclusion on the ability of a dual-qualified plan to participate in an 81-100 group trust, as described in Revenue Ruling 2011-1.

For more information on the issues related to participation of ERISA Section 1022(i)(1) Plans in 80-100 group trusts, see “IRS Permits Puerto Rico-Qualified Plans to Participate in U.S. Group and Master Trusts for Transition Period, Extends Deadline for Puerto Rico Spin-Offs.”

For more information on the issues plan sponsors should consider with respect to a dual-qualified plan spin-off and transfer of assets attributable to Puerto Rico employees to ERISA section 1022(i)(1) plans, see “IRS Sets Deadline for Transfers from Dual-Qualified to Puerto Rico-Only Qualified Plans.”

© 2011 McDermott Will & Emery

New Facebook Cases – No Protected Concerted Activity, But Is It Surveillance??

Posted in the National Law Review an article by Adam L. Bartrom and Gerald F. Lutkus of Barnes & Thornburg LLP regarding Facebook cases continue to be examined by the NLRB

Facebook cases continue to be examined by the NLRB as a new technology cloaked in traditional case law.  The NLRB’s General Counsel has recently decided to dismiss three complaints brought by terminated employees who were fired for their Facebook posts.  In all three cases, the GC found the conduct not to be protected concerted activity under Section 7 of the NLRA.  That approach is consistent with the GC’s memo earlier this year which emphasized that content and context were key in analyzing whether disciplinary action brought as a result of social media chatter violated the NLRA.  A recent blog post on the topic appears here. To access the GC’s office memoranda on these cases, click here.  All three continue to show the NLRB’s focus on whether the Facebook chatter is merely an expression of individual gripes or is the chatter an effort to initiate group dialogue or group action.  Employers must continue to evaluate decisions to discipline for social media postings within that context.

 However, buried in one of the opinions, Intermountain Specialized Abuse Treatment Center, is a provocative and concerning analysis by the GC’s office regarding union surveillance.  The Advice Memorandum concludes that it agrees with the Regional Director that the Employer did not unlawfully create the impression that it was engaged in surveillance of protected union activity by having knowledge of the Facebook post.  What??  The memorandum states that employer surveillance or creation of an impression of surveillance constitutes unlawful interference with Section 7 rights.  Here, there was no such impression of surveillance because the employer received the Facebook information from another employee and the conduct at issue turned out not to be protected activity.  However, the memorandum certainly raises the question of whether an employer practice to examine Facebook posts on a regular or even on an as needed basis would violate Section 7 rights.  The jury is still out on that issue.  Stay tuned.

© 2011 BARNES & THORNBURG LLP

Divided NLRB Issues Controversial Expedited Election Rules

Posted in the National Law Review an article by attorneys Thomas E. Obenberger and Scott C. Beightol of Michael Best & Friedrich LLP regaring  the National Labor Relations Board recent vote which reversed decades of precedent and practice:

 

On December 22, 2011, the National Labor Relations Board (the “NLRB” or “Board”) published final rules (76 Fed. Reg. 80138) adopted by the Board on a split 2-1 vote which reversed decades of precedent and practice as to how the Board will process representation proceedings. While the final rules place into effect only about one-half of the amendments proposed in its June 22, 2011, Notice of Proposed Rulemaking (76 Fed. Reg. 36812), leaving the others for “further deliberation,” the amendments adopted by the Board dramatically change the substance, timing and procedures involved in union organizing campaigns and representation proceedings, and substantially alter the rights of the parties involved. The amendments adopt many of the “reforms” sought by organized labor through its previously unsuccessful efforts to secure passage of the Employee Free Choice Act. The following comments highlight some of the major changes made by the Board to representation case processing.

While the rules, scheduled to become effective April 30, 2012, have already been challenged in court, it is important for employers to evaluate where they are in terms of their labor relations and union free policies, how well prepared they are to respond to union organizing activities which conceivably could result in a representation election being conducted between 10 to 20 days after the filing of a petition, and how best to communicate with employees on an ongoing and expedited basis.

Among the more significant changes are those relating to initial stages of processing of a representation petition. Changes impact the all-important determination of the scope and composition of an appropriate bargaining unit; inclusions in or exclusions from the voting unit of various individuals or classifications of employees; and, rights to have decisions of an NLRB Hearing Officer or Regional Director reviewed and determined prior to the conduct of an NLRB election.

Significantly, the rules narrow the scope of initial hearings conducted before a Regional Office Hearing Officer following the filing of a petition. The rules generally prevent litigation and pre-election determination of the nature and scope of the appropriate bargaining unit, and inclusions or exclusions of individuals or classifications of employees from that unit, leaving such issues for a post-election hearing, with questioned voters being permitted to vote subject to challenge.  Eligibility issues would be combined in a single post-election hearing also encompassing post-election challenges and objections. Based on the amendments, the only issues generally resolved at a pre-election hearing are to be whether a question of representation exits, and whether there exists any bar to the conduct of the election.

This presents a significant issue for employers, many of whom currently employ numerous individuals who may or may not be supervisors as defined by the National Labor Relations Act, or who may work in classifications which may or may not share a community of interest with a petitioned for unit.  Inclusion or exclusion of such individuals or groups from the voting unit can present serious ramifications. For example, an employer who employs a number of lead persons or working foremen would be found to have committed an unfair labor practice and interfered with the representation election, resulting in a set aside, if those individuals, subsequently found to be statutory supervisors, would have been permitted to participate in the election as eligible employees. Likewise, an employer who prohibits the participation of such individuals, thinking that they may be statutory supervisors, would be guilty of interfering with the protected rights of those individuals if they were found to be eligible and not supervisory employees.

Other than observing that a Regional Director or Hearing Officer might choose, in their discretion, to consider such issues in a pre-election hearing, the Board offers little comfort to employers faced with this dilemma. In fact, in its published comments accompanying the amended rules (76 Fed. Reg at p. 80165), the Board acknowledges that it has previously held in Barre-National, Inc., (1995), 316 NLRB 887, that a Hearing Officer erred by preventing an employer from presenting evidence at a pre-election hearing regarding the eligibility of 24 group leaders (just under 10% of the total unit) to vote in an election directed in a unit of production, maintenance and warehouse employees. The Board brushed off this issue, stating “The Board will no longer follow Barre-National under the amended rules.” (76 Fed. Reg. at p. 80165).  Employers are apparently left, under the amended rules, with trying to persuade a Hearing Officer or Regional Director to take discretionary evidence as to eligibility or exclusion of employees even if the number of employees involved might significantly change the size or character of the voting unit.

Just as importantly, the amended rules severely restrict the rights of an employer to appeal adverse Regional Director or Hearing Officer decisions to the full Board for review. In the past, post-election regional determinations as to challenges and election objections were appealable, as a matter of right, to the NLRB. Such determinations, now including pre-election determinations, as to which no separate right of appeal exists, will only be considered by the Board on appeal in its discretion, and then only if they present an issue of first impression or if there exists a conflict in the law.

Among other noteworthy amendments, the Board has now eliminated the previous 25 day waiting period for an election to be scheduled following a direction of election by a Regional Director, and, in a major change, the terms of a “stipulation” agreement for an election can no longer provide for final resolution of post-election challenges and objections by the NLRB, leaving such final determination to a Regional Director – the same as if the parties were to have entered into a “consent” election agreement, rather than the previously more widely favored “stipulation” form of agreement.

The effect of the amendments was well stated in the dissenting comments of Board Member Hayes upon publication of the then proposed rule changes (76 Fed. Reg. at 36831):

What is certain is that the proposed rules will (1) substantially shorten the time between the filing the petition and the election date, and (2) substantially limit the opportunity for full evidentiary hearing or Board review on contested issues involving, among other things, appropriate unit, voter eligibility, and election misconduct. Thus, by administrative fiat in lieu of Congressional action, the Board will impose organized labor’s much sought after “quickie election” option, a procedure under which elections will be held in 10 to 21 days from the filing of the petition. Make no mistake, the principal purpose for this radical manipulation of our election process is to minimize, or rather, to effectively eviscerate an employer’s legitimate opportunity to express its views about collective bargaining.

© MICHAEL BEST & FRIEDRICH LLP 

Congress Reconsiders Independent Contractor Classification

Posted in the National Law Review an article by Robert B. Meyer and David L. Woodard of  Poyner Spruill LLP regarding Employee MisClassification Prevention Act (EMPA):

 

 

It appears that Congress has again turned its attention to the issue of employee/independent contractor classification.  On October 13, 2011, Rep. Lynn Woolsey (D-CA) reintroduced legislation titled the “Employee Misclassification Prevention Act” (EMPA).  This bill, if enacted, would amend the Fair Labor Standards Act to impose new obligations on employers which utilize independent contractors, and also penalties for employers which misclassify employees as contractors.  Similar legislation was also introduced in the Senate last April, further suggesting that this issue of contractor classification is gaining traction in Congress.  The EMPA, as it is presently drafted, proposes the following:

  • Require employers to keep records of wages and hours worked by independent contractors.  The failure to do so would result in a presumption that the worker is an employee.
  • Require employers to provide written notice to every worker of his/her classification as either an employee or contractor.  The notice must also direct the worker to a Department of Labor website for information regarding worker rights under the EMPA, and encourage workers to contact the DOL if they have questions about classification.
  • Prohibit employers from discriminating or retaliating against workers who exercise their rights under the EMPA.
  • Amend the FLSA to make misclassification a prohibited act, and impose double liquidated damages for violations of the minimum wage and overtime pay provisions of the FLSA resulting from the misclassification.
  • Impose civil penalties upon employers for violating the EMPA (up to $1,100 for first violation, and up to $5,000 for repeat or willful violations).
  • Authorize the DOL to conduct targeted audits of employers in “certain industries with frequent incidence of misclassifying employees as non-employees….”
  • Permit the DOL to share information with the Internal Revenue Service regarding employers found to have misclassified workers.
  • Amend the Social Security Act to establish “administrative penalties for misclassifying employees, or paying unreported wages to employees without proper recordkeeping, for unemployment compensation purposes.”
  • Require state unemployment benefits agencies to conduct worker classification audits of employers.

The potential impact of this proposed legislation is far-reaching.  It is apparent that the EMPA would create a new federal offense for both intentional and unintentional contractor misclassifications.  In addition, the law would create a federal source of new employee rights, and would empower the DOL to seek expanded monetary damages on behalf of workers.  Therefore, employers should not only remain watchful of this legislation as it works its way through Congress, but also cautious about their use and classification of independent contractors.

© 2011 Poyner Spruill LLP. All rights reserved.

Illinois Supreme Court Establishes A New Test To Determine Whether Non-Compete Agreements Are Enforceable

Posted in the National Law Review on December 17, 2011 an article by Eric H. Rumbaugh, Brian P. Paul and  Sarah E. Flotte of Michael Best & Friedrich  LLP regarding  Illinois Supreme Court’s clarification whether a non-compete agreement or other restrictive c ovenant is enforceable:

In a case with favorable implications for employers, in Reliable Fire Equip. Co. v. Arredondo, 2011 IL 111871 (Ill. Dec. 1, 2011), the Illinois Supreme Court clarified the “legitimate business interest test” that Illinois courts must use to determine whether a non-compete agreement or other restrictive covenant is enforceable. BeforeArredondo, appellate courts in Illinois were divided on how to apply this test, which resulted in uncertainty and legal expense for businesses and employees. The Arredondo decision provides clarity and a reasonable rule, both of which should help employers reduce risk and uncertainty.

This dispute began in late 2009, when the Fourth District of the Illinois Appellate Court took the position that an enforceable non-compete agreement only had to be reasonable as to time and geography. In doing so, the Fourth District rejected the legitimate business interest test that required that a former employer establish either that confidential information or near-permanent customer relationships were at risk if the non-compete agreement was not enforced. The legitimate business interest test had been used consistently by Illinois Appellate courts since 1975. However, after the Fourth District’s decision, almost every Illinois appellate court district struggled with the Fourth District’s opinion and, as a result, each district developed its own standards. Thus, employers and employees had to evaluate which district their lawsuit would proceed in before either could figure out whether the non-compete agreement was enforceable.

Thus, the Illinois Supreme Court agreed to hear Reliable Fire Equip., a very typical non-compete case where Arnold Arredondo (“Arredondo”) and Rene Garcia (“Garcia”) were employed as salespersons for Reliable Fire Equipment Company (“Reliable”). Reliable sells installs and services portable fire extinguishers and related equipment. Both Arredondo and Garcia signed a non-compete agreement prohibiting them from competing with Reliable in Illinois, Indiana and Wisconsin for one year after their termination. When Arredondo and Garcia went to work for a newly formed competitor, Reliable sued to enforce the non-compete agreements.

The Trial Court ruled that the covenant was unenforceable, finding that Reliable had failed to identify a legitimate business interest that needed to be protected by the non-compete agreements. A divided panel of the Appellate Court upheld the Circuit Court’s order, but questioned whether it was applying the appropriate test for non-compete agreements.

The Illinois Supreme Court reversed and remanded the case for further proceedings. In doing so, the Court held that a valid and enforceable non-compete agreement must meet three basic components of reasonableness:

A restrictive covenant, assuming it is ancillary to a valid employment relationship, is reasonable only if the covenant: (1) is no greater than is required for the protection of a legitimate business interest of the employer-promisee; (2) does not impose undue hardship on the employee-promisor, and (3) is not injurious to the public.

However, the Supreme Court then went one step further. Over the last 36 years, the Appellate Court decisions that applied the legitimate business interest test had held that there were only two legitimate business interests that would justify enforcing a non-compete agreement: (1) protecting confidential information; and (2) protecting near-permanent customer relationships.  The Illinois Supreme Court rejected the rigidity of this standard, holding that the Illinois Appellate Court decisions of the last 36 years are “are only nonconclusive aids in determining the promisee’s legitimate business interest.”

Under Reliable, the new standard for determining whether a legitimate business interest exists is:

[B]ased on the totality of the facts and circumstances of the individual case. Factors to be considered in this analysis include, but are not limited to, the near-permanence of customer relationships, the employee’s acquisition of confidential information through his employment, and time and place restrictions. No factor carries any more weight than any other, but rather its importance will depend on the specific facts and circumstances of the individual case.

Most carefully drafted non-compete agreements for use in Illinois proactively identify confidential information and near-permanent customer relationships as the business interests the employer is trying to protect. Given this ruling, the door is open for employers to enforce restrictive covenants in a broader range of circumstances and even perhaps for the purpose of protecting customer goodwill. Employers should reevaluate their non-compete agreements in light of the decision in Reliable Fire Equip. Co. v. Arredondo to determine whether additional business interests should be identified as protectable business interests and whether additional job positions now warrant non-compete agreements.

© MICHAEL BEST & FRIEDRICH LLP

Beware of Online Applications and Background Check Authorizations

Posted in the National Law Review on December 15, 2011 an article by Luis E. Avila, Nancy L. Farnam, Richard D. Fries, Jeffrey T. Gray, Jr., Richard A. Hooker and David E. Khorey of Varnum LLP regarding class actions against employers’ conducting background checks:  

 

Varnum LLP

An increasing number of employers have been recipients of proposed class actions alleging that the way they conduct background checks on prospective employees violates the Fair Credit Reporting Act 15 U.S.C. §1681 (“FCRA”).

A recent example is a claim filed in Virginia, which focuses on the employer’s online job application. The process asks potential employees whether they are willing to allow the company to obtain a consumer report or criminal background check on them. Applicants must then click a button labeled either “Accept” or “Decline.” The claim alleges that for purposes of the FCRA, an electronic disclosure is not one made “in writing” and that an electronic signature (Accept/Decline) does not satisfy the requirements of the act.

As it relates to employers conducting background checks on prospective employees, the FCRA requires that a person may not procure a consumer report for employment purposes with respect to any consumer, unless (1) a clear and conspicuous disclosure has been made in writing to the applicant at any time before the report is procured, in a document that consists solely of the disclosure that a consumer report may be obtained for employment purposes; and (2) the consumer has authorized in writing the procurement of the report by that person.

Electronic disclosures of this sort have traditionally been viewed as falling under the Electronic Signatures in Global and National Commerce Act (“E-Sign”). However, this claim challenges this understanding of E-Sign by alleging that the law does not apply to job applicants, but instead only to consumers, which it defines as an individual who obtains products or services.

Under the FCRA, employers may be liable to each class member for up to $1,000.00 or actual damages, plus punitive damages and attorneys’ fees and costs. So far this year, two companies have agreed to multimillion-dollar settlements in similar cases.

We strongly recommend that employers review their online job application process to ensure that it does not run afoul of the FCRA and obtain competent labor counsel to address any concerns

© 2011 Varnum LLP

10 Tips for Conducting an Internal Investigation

Recently posted in the National Law Review an article by Catherine Salmen Wright of  Dinsmore & Shohl LLP regarding conducting an internal investigation:

The recent news involving Penn State highlights how high the stakes can be when conducting an internal investigation. In fact, Penn State has hired former FBI director Louis Freeh to lead its internal investigation into alleged criminal conduct by a former employee. But while most employers do not face circumstances this challenging, the reality is that employers are presented with circumstances on a regular basis that must be investigated effectively to avoid significant legal liability.

Of course, this begs the question of when an employer needs to investigate. The simplest answer is when the employer has knowledge of misconduct. Misconduct can include a breach of an employer policy, violation of a drug or alcohol policy, theft or other criminal activity, or even misuse of company property. Employers should not, however, too narrowly construe what constitutes “knowledge,” which can include formal and informal complaints, information obtained during exit interviews, anonymous tips and third-party information.

Employers should also keep in mind that an internal investigation may become your defense in any subsequent litigation and therefore may be subject to significant scrutiny by the plaintiff, the plaintiff’s lawyer and possibly a jury. For example, in a sexual harassment lawsuit, the employer’s investigation is what typically shows that the employer exercised reasonable care to prevent and correct any harassing behavior. Another defense used by employers in wrongful termination lawsuits is the “honest belief” rule. Specifically, if the employer can show that it reasonably relied on the particularized facts that were before it at the time the decision was made, it can potentially avoid liability over a challenged decision. The investigation does not need to be perfect, but the employer must make a reasonably informed decision before taking an adverse employment action.

As a result, conducting an effective internal investigation is critically important. Every investigation comes with a unique set of facts and challenges, but the following 10 principles serve as a guide for conducting an effective investigation.

1. Determine the objectives and strategy for the investigation.

At the outset, employers must establish the objectives of the investigation. Questions that should be addressed include:

  • Are you trying to develop a complete record to justify a decision?
  • Are you attempting to avoid litigation?
  • What are your legal obligations?
  • Do you need an attorney involved?

Evaluating the answers to these questions will allow you to tailor your investigation.

2. Maintain confidentiality.

A guiding principle in any investigation is confidentiality, which employers should maintain to the extent possible. However, don’t promise what you can’t deliver. Absolute confidentiality when employees will be interviewed is virtually impossible. Also, employers need to be vigilant when it comes to thoroughness and promptness. For example, if you had to answer questions one year later in a deposition, can you give a reasonable explanation of why it took the amount of time it did to complete the investigation?

3. Determine if immediate actions need to take place to protect the workforce.

Based on what you know at the time the investigation begins, you may need to take immediate steps to protect the complaining party, alleged victim or the workforce in general. For example, an accused harasser may be put on a paid or unpaid leave, supervisory responsibilities could be changed or an employee could be temporarily transferred pending an investigation, but in no case should an employer penalize the alleged victim.

4. Review company policies.

Take an inventory of employer policies that may impact the investigation process. For example, a collective bargaining agreement may provide an employee the right to have a representative present at any interview.

5. Conduct a preliminary search of available records.

This includes reviewing personnel files and any documents relating to the misconduct. Act quickly to retrieve what electronic information is still available, including emails and text messages.

6. Select the appropriate personnel to conduct the investigation.

Investigators should be unbiased and unprejudiced — and perceived as such. Good investigators are skilled at setting people at ease and drawing out reticent witnesses in order to collect facts. They also need knowledge of company policies and procedures, the ability to maintain confidentiality and a level of authority consistent with the significance of the matter being investigated.

7. Control the interview process.

Obtaining detailed statements from interviews with the complaining party and the accused are a critical part of any investigation. Documentation should include the facts, not legal conclusions, or your interpretations and assumptions. Give witnesses ground rules: No conclusion has been reached, no reprisal will be taken, and no discussions about the interview are allowed with anyone.

8. Communicate throughout the process.

Many employers launch an investigation, only to fail to keep the complainant reasonably informed during the process. Unfortunately, this results in the complaining party believing their complaint was ignored, which may prompt them to involve an attorney.

9. Close the investigation properly.

Having invested the time and cost associated with the investigation, protect your investment by properly closing out the investigation. Make a decision, communicate the decision and document the process.

10. Ensure against retaliation.

Employees who make complaints may be legally protected from experiencing an adverse employment action. This includes complaints involving discrimination, harassment, safety violations, wage and hour violations and more. Do ensure against retaliation by continuing to monitor the situation.

As seen in the December 9th issue of Business Lexington.

© 2011 Dinsmore & Shohl LLP. All rights reserved.