Employment Law Observer

Insight & Commentary on Employment & Agency Issues

NLRB Will Ask Supreme Court To Affirm Board Members

By Peter Felsenfeld on Posted in NLRB

The National Labor Relations Board (“NLRB”) announced today that it would ask the U.S. Supreme Court to review a federal court ruling that invalidated the appointment of three members and put hundreds of mostly pro-union board actions in jeopardy.

In Noel Canning v. NLRB, a DC Circuit panel held that President Barack Obama improperly exercised his recess appointment power by nominating a majority of the NLRB in January of 2012 while Congress was technically still in session.  The ruling calls into question every action taken by the board in the past year, including many that directly impact employers.

The NLRB will team up with the Justice Department to challenge the decision before the nation’s highest court, according to a press release.  The agency chose this approach rather than seeking an en banc rehearing before the full D.C. Circuit.

The NLRB must file its petition for certiorari by April 25, 2013.  We will follow any developments closely and keep you posted.

DOL Issues ObamaCare Self-Compliance Checklists For Employers

By Michael A. S. Newman on Posted in Affordable Care Act

The Department of Labor has issued a “self-compliance tool,” (complete with a handy checklist) to help employers operating group health plans comply with the Affordable Care Act.

As the DOL explains,

Our approach to implementation is and will continue to be marked by an emphasis on assisting (rather than imposing penalties on) plans, issuers and others that are working diligently and in good faith to understand and come into compliance with the new law.”

The checklist starts by helping people understand whether their group plans are grandfathered in under the ACA. It then goes on to set out the necessary elements for a non-grandfathered plan under the ACA. The list is also very helpful in that it provides citations to the underlying legal provisions.

The length of the document — 29 pages — which the DOL characterizes as “an informal explanation of the statutes and the most recent regulations and interpretations” is a vivid reminder of how complex the requirements are under the ACA, and the challenges that face all employers who must comply with it.

Likewise, the DOL has issued a checklist for complying with the HIPAA requirements under the ACA. This is another useful and helpful document that employers should take advantage of.

Please contact the author to discuss the obligations of employers under the ACA.

Employers Must Give Breast-Feeding Mothers Time And Privacy Under The Affordable Care Act

By Michael A. S. Newman on Posted in Affordable Care Act

Under the Affordable Care Act (ObamaCare), an employer is required to provide the following for breast-feeding mothers who are employees:

  • A reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child’s birth each time such employee has need to express the milk;
  • A place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk.

The employer is not  required to compensate the employee receiving break time for expressing milk for any work time spent for this purpose.

Furthermore, an employer that employees less than 50 employees is not required to provide the above time and facilities to nursing employees:

if such requirements would impose an undue hardship by causing the employer significant difficulty or expense when considered in relation to the size, financial resources, nature, or structure of the employer’s business.”

However, given the amorphous nature of this quoted language, even small employers (i.e., those with fewer than 50 employees), would be well-advised to provide the break time and facilities, if at all possible.

The above requirement can be found in section 4207 of the Affordable Care Act and at 29 USC 208(r)(1) of the Fair Labor Standards Act of 1938.

ObamaCare’s Whistleblower Protections Go Into Effect

By Peter Felsenfeld on Posted in Retaliation

Though President Obama and Congress established broad requirements in the Affordable Care Act (aka ObamaCare), they tasked federal agencies with filling in myriad blanks regarding implementation.  The agency rules that are emerging, often with little fanfare, can have an enormous effect on how the law operates in the real world.

One important rule regarding the handling of retaliation complaints became effective this week.

ObamaCare includes protections for “whistleblowers” who complain about violations of the law’s provisions.  Individuals, for example, are protected from retaliation if they report that an insurer has denied coverage on the basis of a preexisting condition or that they have been denied access to tax credits that the law provides.  Employees are further protected if they testify in a proceeding against a violator or refuse to participate in a violation.

These protections, which were added as Section 18C to the Fair Labor Standards Act, became effective in March of 2010, when the health care law was enacted.  Exactly how the whistleblower provisions would work in practice has been unclear, until now.

Under an interim rule issued by the Department of Labor’s Occupational Safety and Health Administration (“OSHA”), an employee who believes he or she has been retaliated against may file a complaint with the Secretary of Labor within 180 days of the alleged retaliation.  The Secretary must then notify the alleged violator, and each side has 60 days to conduct an investigation and obtain witness statements.

The Secretary may conduct its own investigation if the complainant makes a prima facie showing that an adverse action was taken in response to a protected whistleblower activity.  If the Secretary concludes there is a reasonable possibility that retaliation occurred, he or she must issue written findings and a preliminary order requiring the alleged violator to remedy the violation.  This may include reinstatement of a fired employee, restoring the previous terms and conditions of employment or providing compensatory damages.

The parties have 30 days after issuance of the preliminary order to file objections and request a hearing before an administrative law judge.  If a hearing is not requested, the preliminary order becomes final.

Significantly, where the Secretary determines that a violation has occurred, he or she may charge the alleged violator with all fees associated with bringing the complaint, including attorneys fees and expert witness fees.  A party may appeal the Secretary’s final order to the United States Court of Appeals for the circuit where the violation allegedly occurred.

The interim rule became effective on February 27, 2013.  Comments can still be submitted to OSHA by April 23, 2013, after which hearings on a final rule will be held.

Barger & Wolen attorneys are available if you have any questions about the new OSHA requirements.

Who is an employee and who is an independent contractor under the employer mandate provisions of the Affordable Care Act (ObamaCare)?

By Michael A. S. Newman on Posted in Independent Contractor v. Employee, Opinion

As we have written in this space in the past, whether a worker is an employee or an independent contractor can have many consequences.  The classification can determine whether the principal is liable for the negligent acts of the worker, whether the worker may sue for wrongful termination or discrimination, is entitled to workers’ compensation insurance, is subject to tax treatment as an employee, and a lot more.

Now, the Affordable Care Act (aka ObamaCare) has added still more consequences.  Among other things, as reported in the Wall Street Journal, the Affordable Care Act requires firms with 50 or more “full-time equivalent workers” to offer health plans to employees who work the requisite number of hours per week, or else pay a $2,000 penalty for each uncovered worker beyond 30 employees. The Wall Street Journal reports that many businesses have been moving full-time employees to part-time positions in an effort to avoid the mandate.

Businesses might also be tempted to re-classify employees as independent contractors, since only employees fall within the mandate.  But this option might be fraught with peril, since it inevitably leads to the thorny question of who is an employee and who is an independent contractor for purposes of the employer mandate provisions of the Affordable Care Act.  Furthermore, government agencies, including the IRS, have long been aware of this temptation, and have increasingly cracked down on what they deem to be misclassification of employees.

The Affordable Care Act, which uses the word “employer” more than 500 times, and employee more than 400 times, never explicitly defines either term in any overarching way.  However, for anyone willing to follow us down the rabbit hole, here is what we have found:

  • The employer mandate provisions of the Affordable Care Act are found in Title I of the law
  • Section 1551 provides that “[u]nless specifically provided for otherwise, the definitions contained in section 2791 of the Public Health Service Act (42 U.S.C. 300gg-91) shall apply with respect to this title [Title I].
  • So, following the trail, we come to section 300gg-91, which provides the following definitions of the terms “employee” and “employer”:
      (5) Employee. The term “employee” has the meaning given such term under section 3(6) of the Employee Retirement Income Security Act of 1974 [29 USCS § 1002(6)].
      (6) Employer. The term “employer” has the meaning given such term under section 3(5) of the Employee Retirement Income Security Act of 1974 [29 USCS § 1002(5)], except that such term shall include only employers of two or more employees.
  • And this, at long last, leads us to sections 3(6) and 3(5) of the Employee Retirement Income Security Act of 1974 (ERISA) [29 USCS § 1002(5), (6)], which provide the following definitive answers:
      (5) The term “employer” means any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.
      (6) The term “employee” means any individual employed by an employer.

So now we know.  An employer is someone acting as an employer or in the interest of an employer — while an employee . . .  well, that’s an individual employed by an employer.  Everyone got that?

In Nationwide v. Darden the U.S. Supreme Court was asked to determine the distinction between an employee and an independent contractor under ERISA, and arriving at the second of these two “definitions,” the Justices were not amused. Justice Souter wrote on behalf of a unanimous Court:

ERISA’s nominal definition of ‘employee’ as ‘any individual employed by an employer,’ 29 U. S. C. § 1002(6), is completely circular and explains nothing.”

The Supreme Court therefore adopted the following federal common law definition of employee for the purposes of ERISA:

In determining whether a hired party is an employee under the general common law of agency, we consider the hiring party’s right to control the manner and means by which the product is accomplished. Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party.”

As Justice Souter went on to explain, “no shorthand formula or magic phrase that can be applied to find the answer, . . . all of the incidents of the relationship must be assessed and weighed with no one factor being decisive.”  Various Circuit and district courts have added their own interpretive spin to this standard in the last twenty years.

Since the definition of an employee in Title I of the Affordable Care Act appears to be the same as that used in ERISA cases, it is reasonable to conclude that, in determining what constitutes an employee under the employer mandate provisions of the Affordable Care Act, Courts will likewise use the common law definition provided in Darden.

This standard, incidentally, is similar to the common law definition of employee in many states, including California.  However, as a predictive tool, it is of limited use.  Under many circumstances, it is far from easy to determine with any certainty whether a judge, jury, or administrative body would find a particular worker to be an independent contractor or employee.  As always, no one will penalize you for classifying your workers as employees, but the Affordable Care Act adds yet another reason why businesses may look for ways to avoid such classification.

Finally, we offer a caveat:  We believe that the above analysis is a viable reading of the law.  But the Affordable Care Act is a complex statute, not to mention a new law.  To our knowledge no court or regulator has addressed the issues discussed above.  So it is conceivable that courts and/or regulators will ultimately adopt some analysis different from ours above.  We will continue to follow the development of this law on this page.

For further discussion on this topic, please contact Michael Newman.

Exhaustion Of Leave Under the Pregnancy Disability Leave Law Does Not Prevent An Employee From Making A Claim Under The FEHA, Court of Appeal Rules

By Michael A. S. Newman on Posted in California Court of Appeal, Case Updates, Fair Employment and Housing Act

In Sanchez v. Swissport, the California Court of Appeal, Second Appellate District, determined that an employee who has exhausted all permissible leave available under the Pregnancy Disability Leave Law (PDLL), Gov. Code 12945, can also state a cause of action under the California Fair Employment and Housing Act (FEHA), Gov. Code 12900 et seq.

Plaintiff requested temporary leave from her job with Swissport due to a high risk pregnancy. She alleged in her complaint that Swissport granted her the four months of disability leave, which is the amount of leave an employer must allow for under the provisions of the PDLL. However, she also alleged she was entitled to additional leave as a reasonable accommodations for her pregnancy-related disability under the FEHA, independent of the leave provisions provided in the PDLL. Swissport argued that, once it had fulfilled its requirement to provide four months of leave under the PDLL, it necessarily satisfied all of its obligations under the FEHA.

The Court of Appeal agreed with Plaintiff, and not with Swissport. As the Court explained, the requirements of the PDLL were meant to augment, not supplant, those set forth elsewhere in the FEHA. For this reason, an employer might satisfy its requirements under the PDLL, but still might have additional requirements under the FEHA.

The FEHA requires an employer to provide reasonable accommodations to an employee suffering from a disability, including the temporary impairments associated with pregnancy, unless the employer can demonstrate that the accommodation would produce undue hardship to its operation. There are no statutory limits on the amount of leave that might be required as a reasonable accommodation under the FEHA.

Thus, where an employee requires reasonable accommodation of her pregnancy in the form of leave that exceeds four months, and where the employer is able to provide such accommodation without undue hardship, the employer is not permitted to terminate the employee simply because she has already been on leave for four months, and thus exhausted the leave provisions of the PDLL.

Please contact Michael Newman if you would like to discuss the issues in this article.

Employers May Not Engage In Coercive Surveillance of Unions

By Peter Felsenfeld on Posted in NLRB

An employer risks violating federal labor laws by monitoring employees’ union activities, or even creating an impression of surveillance.

Whether an employer’s union monitoring is considered coercive, and therefore illegal, depends on several factors, including the duration of the observation, the employer’s distance from employees while observing them and whether the employer engaged in other coercive behavior during the observation. See Aladdin Gaming LLC, 345 NLRB 585, 586 (2005).

A National Labor Relations Board (“NLRB”) judge held that an employer had violated the prohibition against coercive surveillance in the recent case Allied Medical Transport, Inc. and Transport Workers Union of America, AFL-CIO. Allied Medical Transport, Inc. (“AMT”) provides transportation services to disabled Florida residents who are unable to use public transportation.

The surveillance allegedly occurred in November of 2011 when the Transport Workers Union of America, AFL-CIO (“the Union”) held an organizing meeting at a Comfort Inn near AMT’s Lauderdale Lake’s facilities. According to Administrative Law Judge Robert A. Ringler’s findings, company CEO Wayne Rowe parked 10 feet from the hotel’s entrance for 30 minutes and watched as employees entered the meeting.

One employee testified that Rowe called him over and said “[t]he union is not going to be able to do anything for you guys.” In addition, company officials allegedly phoned employees and told them that the Union’s organizing campaign would be futile. Other employees stated that they were offered benefits if they voted against the Union.

Rowe maintained that he never engaged in improper surveillance. Because the Comfort Inn is close to AMT’s facilities, Rowe testified, he erroneously thought that the meeting was on company property and he wanted to confirm that his fleet was secure.

Judge Ringler ruled against AMT, holding that Rowe’s presence in the parking lot, coupled with his allegedly coercive statements, constituted an illegal labor practice. These activities left employees “to reasonably assume that management was monitoring . . . union activities.” Judge Ringler also held that AMT had engaged in improper disciplinary procedures.

The court ordered AMT to cease its anti-union actions and to appoint an official to read a notice to employees that outlined their rights with respect to union activities. The court also ordered reinstatement of employees who had been improperly fired as a result of the disciplinary procedures.

Understanding exactly when union monitoring crosses the line into coercive surveillance is not always easy. Barger & Wolen attorneys are available to answer any questions you may have.

FINRA Panel rules in favor of Charles Schwab’s class action waiver clause

By Barger & Wolen LLP on Posted in Class Actions

By Gregory Eisenreich

In October 2011, Charles Schwab (“Schwab”) began inserting into its customer Account Agreements a class action waiver clause.

Schwab’s Account Agreements require arbitration of any dispute arising out of a customer’s use of Schwab’s services. The waiver language that Schwab began inserting states that:

You and Schwab agree that any actions between us and/or Related Third Parties shall be brought solely in our individual capacities. You and Schwab hereby waive any right to bring a class action, or any type of representative action against each other or any Related Third Parties in court.”

Schwab’s insertion of this waiver language followed the United States Supreme Court’s decision in AT&T Mobility v. Concepcion in which the Supreme Court held that the Federal Arbitration Act preempted state laws that might otherwise limit the ability of companies to include a class action waiver clause in an arbitration agreement.

The AT&T Mobility decision invalidated a California Supreme Court decision, Discover Bank, which had placed some limits on the ability to enforce class action waiver clauses in arbitration agreements. The United States Supreme Court reasoned that the Federal Arbitration Action preempted such state laws.

The Financial Industry Regulatory Authority, Inc. (“FINRA”) instituted a disciplinary proceeding against Schwab taking the position that the Schwab class action waiver clause violated FINRA’s rules.

It is FINRA’s position that it:

has enacted, and the SEC has approved, two applicable rules: first, that class actions cannot be arbitrated in the FINRA forum; and second, that member firms may not limit the rights of public investors to go to court for claims that cannot be arbitrated.”

On February 21, 2013, a FINRA arbitration panel ruled on FINRA’s and Schwab’s cross-motions for summary judgment (Department of Enforcement v. Charles Schwab & Company). The panel found that:

Enforcement [of the FINRA rules preserving judicial class actions] is foreclosed by the Federal Arbitration Act, as construed by the Supreme Court in Concepcion and other decisions. Those decisions hold that adjudicators must enforce agreements to go to arbitration to resolve disputes and must reject any public policy exception that disfavors arbitration, unless Congress itself has indicated an exception to the Act.”

However, the panel also ruled that Schwab’s arbitration language violated FINRA Rule 2268(d)(1). Rule 2268(d)(1) specifies the circumstances in which arbitrators may arbitrate consolidated claims. The panel noted that since FINRA rules prohibit arbitration on a class action basis,

it is clear that consolidation [under Rule 2268(d)(1)] is a non-representative type of procedure, distinguished from class actions.”

The panel reasoned that the Federal Arbitration Act does not bar enforcement of Rule 2268(d)(1) because the Act does not dictate how an arbitration forum should be governed and operated or prohibit the consolidation of individual claims. Therefore, Schwab was, inter alia, ordered to “cease using the portion of the Waiver purporting to delimit the authority of the arbitrators” to consolidate individual (non-representative) claims and notify customers that such a limitation is not effective. In addition, the panel fined Schwab $500,000.

While the dispute involved the arbitration provision in Schwab’s customer agreements, the panel’s decision potentially opens the door for the insertion of similar class action waiver clauses in employment agreements for those working in the financial services industry.

The panel’s decision is subject to appeal to, and/or review by, FINRA’s National Adjudicatory Council within 45 days.

Originally published on Barger & Wolen‘s Insurance Litigation & Regulatory Law blog.

Exotic Dancers Are Employees, Not Independent Contractors, Kansas Supreme Court Rules

By Michael A. S. Newman on Posted in Case Updates, Independent Contractor v. Employee

In Milano’s v. Kansas Department of Labor, the Kansas Supreme Court determined that exotic dancers were employees, not independent contractors, for purposes of unemployment insurance.

Milano’s had purchased the club in 2002.  In 2004, Milano’s began treating the exotic dancers as independent contractors, rather than employees. The Supreme Court, affirming the rulings of the Court of Appeal, the trial court and Kansas Department of Labor, found that the dancers were in fact employees under Kansas law.

The Court based its ruling upon the common-law definition of employment under Kansas law, which focuses primarily upon the right to control the employer has over the employee and his or her work. The Court found that substantial evidence demonstrated that Milano’s had the right to control, rendering the dancers employees.  Most telling, from the Court’s point of view, was the fact that Malino’s set various rules — specifically prohibiting illicit or illegal conduct and regulating interaction among the dancers and between dancers and customers, as well as enforcing minimum tips for various dancers.  The dancers’ violations of those rules were punishable by fines and termination.  This, the Court concluded, demonstrated a right to control.

Comment: In many states, including California, the right to control is the most important factor in determining the existence of an employment relationship.  But there are different ways of interpreting what “the right to control” means as a practical matter, and this case demonstrates how such interpretations can vary from state to state.  For example, California law allows for a principal to exercise a certain level of general supervision over an independent contractor with respect results without transforming the relationship to into one of employment.  In sum, although we could not predict with certainty how the same fact scenario would have played out outside of Kansas, it is possible this case might have had a different result in California.

Nevertheless, a business must carefully consider any decision to designate a worker as an independent contractor, as this case illustrates.  More and more often, disgruntled workers are filing lawsuits claiming to be employees.  The consequences for making a mistake in classification (including liability for overtime, wage and hour violations, unemployment insurance, taxes, and attorney fees) can be substantial.  Thus, it is advisable for an employer to obtain good legal advice before deciding to classify a worker as an independent contractor.

Please contact the author of this article, Michael Newman, if you would like to discuss any of the issues in this article, including the proper classification of workers.

Why Employers Need To Keep Adequate Records

By Michael A. S. Newman on Posted in Meal & Rest Break, Wage & Hour, Wrongful Termination

Here is a pattern that tends to repeat itself often in employment litigation.  A disgruntled employee sues an employer for discrimination, harassment, or wrongful termination.  A lawsuit is filed.  And then, the attorney who files the suit includes wage and hour claims — i.e., the non-payment of overtime, meal and rest breaks.  The employee may also include a claim based on the failure to reimburse the employee for expenses incurred in the course of his or her employment.

Why do these causes of action almost invariably get thrown in?  For two reasons.

  1. The law puts the burden on the employer to keep accurate records.  If the employer’s records of compliance with wage and hour laws are inadequate or are missing, in litigation the employee may be able to meet their burden of proof in wage actions simply with testimony showing that they have in fact performed work for which they have not been compensated. Further, employers can be subject to civil penalties for failure to keep adequate records.
  2. An employee may obtain reasonable attorney fees in a successful wage and hour claim or for reimbursement of expenses.  A relatively small error in payment of wages can result in tens of thousands, sometimes hundreds of thousands, in attorney fees.

In sum, employers need to make sure they are in compliance with the Federal and California laws governing the keeping of employment records.  A lawsuit that begins as a discrimination or wrongful termination case may quickly evolve into a situation where the employer has the burden of proving its compliance with California and Federal compensation laws.

For more information on ensuring that you are in compliance with California and Federal compensation laws, please contact Michael Newman.