The new episode of Employment Law This Week offers a year-end roundup of the biggest employment, workforce, and management issues in 2016:

  • Impact of the Defend Trade Secrets Act
  • States Called to Ban Non-Compete Agreements
  • Paid Sick Leave Laws Expand
  • Transgender Employment Law
  • Uncertainty Over the DOL’s Overtime Rule and Salary Thresholds
  • NLRB Addresses Joint Employment
  • NLRB Rules on Union Organizing

Watch the episode below and read EBG’s Take 5 newsletter, “Top Five Employment, Labor & Workforce Management Issues of 2016.”

Practitioners know how difficult it is to obtain an award of fees against the government. However, in an opinion in which the Court states at the outset, “the government here chose to defend the indefensible in an indefensible manner,” the Fifth Circuit Court of Appeals has awarded attorneys’ fees to an employer in a wage-hour dispute based on the Department of Labor’s (“DOL”) bad faith– both in pursuing a legally indefensible case and in the conduct of the litigation.

The case, Gate Guard Services, L.P. v. Perez, 792 F.3d 554 (5th Cir. 2015), is an unusual one But in this case, the government’s conduct was found to be outrageous on two fronts.  The DOL continued to litigate a case long after it became apparent the case was meritless, and it did so in an inappropriately aggressive fashion.

The DOL jumped into the fray when a drinking pal of a DOL investigator, who was inexperienced in classification issues, expressed concern that he had been underpaid by Gate Guard Services, which provided gate attendants for remote drilling sites and treated the attendants as independent contractors.  After interviewing only three witnesses and destroying his original notes, the investigator concluded that the company owed $6 million in back wages, nearly its entire net worth.  Even though there were several violations of the DOL’s internal policy in the conduct of the investigation, the DOL filed suit.

During the course of the ensuing litigation, the government opposed nearly every motion on spurious grounds, even a routine motion to transfer the case to a division where many of the gate attendants and the investigator lived or worked.  During the investigator’s deposition, the DOL’s lead counsel objected 102 times and instructed the witness 18 times not to answer basic questions about his investigation.

To make matters worse for the government, the district court where the case was pending held that gate attendants in another case, with nearly identical facts, were not employees.  The DOL also learned that the Army Corps of Engineers classified its gate attendants as independent contractors.  Gate Guard won summary judgment at the district court level and was also awarded over $565,000 in attorneys’ fees.  Both sides appealed.

The Fifth Circuit did not hesitate to send a message to the DOL and awarded fees for bad faith, noting “[t]he government’s intransigence in spite of its legally deteriorating case, combined with extreme penalty demands and outrageous tactics, together support a bad faith finding.”

While the circumstances presented in this case are certainly unique, it makes clear that employers should not hesitate to seek fees when the government oversteps its bounds—either in pursuing a case that lacks merit or engaging in unethical and spurious litigation tactics.

34th Annual Workforce Management Briefing Banner

When:  Thursday, October 15, 2015    8:00 a.m. – 3:00 p.m.

Where:  New York Hilton Midtown, 1335 Avenue of the Americas, New York, NY 10019

This year, Epstein Becker Green’s Annual Workforce Management Briefing focuses on the latest developments that impact employers nationwide, featuring senior officials from the U.S. Department of Labor and the Equal Employment Opportunity Commission. We will also take a close look at the 25th anniversary of the Americans with Disabilities Act and its growing impact on the workplace.

In addition, we are excited to welcome our keynote speaker Neil Cavuto, Senior Vice President, Managing Editor, and Anchor for both FOX News Channel and FOX Business Network.

Our industry-focused breakout sessions will feature panels composed of Epstein Becker Green attorneys and senior executives from major companies, discussing issues that keep employers awake at night.  From the latest National Labor Relations Board developments to data privacy and security concerns, each workshop will offer insight on how to mitigate risk and avoid costly litigation.

View the full briefing agenda here. Contact Kiirsten Lederer or Elizabeth Gannon for more information and to register.   Seats are limited.

In a case that has strategic implications for employers’ use of arbitration agreements in response to collective claims brought under the Fair Labor Standards Act (“FLSA”), the Eighth Circuit has held that former servers at an Arkansas pizzeria chain lack standing to challenge the pizzeria’s enforcement of an arbitration agreement that bars current employees from joining the FLSA collective action.  Conners v. Gusano’s Chi. Style Pizzeria, No. 14-1829 (8th Cir. Mar. 9, 2015).

In Conners, the plaintiff filed a proposed collective action lawsuit on behalf of herself and other restaurant servers, alleging Gusano’s maintained an illegal tip pool in violation of the FLSA.  One month later, Gusano’s distributed a new arbitration agreement to all current servers which required individual arbitration of all employment disputes, including Conners litigation.

The former servers, who were not subject to the new agreement and had moved for conditional class certification, argued that Gusano’s engaged in improper communication with putative class members and sought to preclude the pizzeria from enforcing the agreement against the current servers.  In arguing that they had standing to challenge the agreement, the former servers alleged that they had suffered “a concrete and particularized injury” in the form of an increased share of litigation expenses.  Even assuming that was true, the Eighth Circuit held that the plaintiffs could not show an “actual or imminent” threat because, at the time of the challenge to the agreement, no current employees had opted into the lawsuit, and there was no indication that the arbitration agreement had chilled the participation of any current employees.  Therefore, the plaintiffs lacked standing and the courts did not have jurisdiction to enjoin the enforcement of the arbitration agreement.

Companies facing potential class or collective actions under the FLSA or state wage laws in the Eighth Circuit should take heed of the pizzeria’s strategic use of arbitration agreements in this case.  Gusano’s acted quickly after the filing of the Conners lawsuit and issued a new arbitration policy.  Notably, the arbitration agreement contained an explanation of “its scope, the required procedures for invoking arbitration, the effect the agreement will have on the employee’s ability to pursue relief in court, the right of every employee to opt out of the agreement free of retaliation, and how to opt out effectively.”  Along with the new agreement, the pizzeria issued a two-page memorandum describing the agreement’s terms in “plain English” and expressly explaining to employees that their failure to opt-out of the new policy would prevent them from joining the pending lawsuit.  By doing so, Gusano’s appears to have complied with the U.S. Supreme Court’s admonishment in American Express v. Italian Colors Restaurant, 133 S. Ct. 2304 (2012), that express contractual waivers of class arbitration are enforceable.

By acting swiftly and transparently, Gusano’s may limited the scope of the proposed collective action in Conners, and companies, particularly those in the Eighth Circuit, in similar situations should take note.  This strategy, however, is not without legal risk, and courts in other circuits may have a different view of Gusano’s course of conduct.  Employers who act too hastily and heavy-handedly in procuring signed agreements may be accused of improperly coercing employees into waiving their rights, which may nullify the waiver.  Further, if a new arbitration agreement is distributed before notice of a pending collective action has been disseminated, the employer might unintentionally inform employees about, and potentially encourage them to join, the lawsuit.

There are practical considerations as well.  Seeking a waiver of class or collective arbitrations under these circumstances may damage employee relations and erode employee morale if employees perceive that their employer is attempting to unfairly restrain the rights.  In addition, an employer may be subjected to increased fees if a number of employees bring individual arbitrations or if employees file suit in court and forces the employer to move to enforce the arbitration agreement.  Each of these considerations must be weighed carefully before instituting a new policy.

By:  Amy Messigian

In a major blow to California employers who utilize a monthly commission scheme but pay biweekly or semimonthly salary to their commission sales employees, the California Supreme Court ruled earlier this week in Peabody v. Time Warner Cable, Inc. that a commission payment may be applied only to the pay period in which it is paid for the purposes of determining whether an employee is exempt from overtime.  Employers may not divide the commission payment across multiple pay periods in order to satisfy the minimum compensation threshold for meeting the exemption in any earlier pay period.  California employers who classify their commission sales employees as exempt should immediately take action to ensure compliance with the law.

The plaintiff in the case, Susan Peabody, worked approximately 45 hours per week as a commissioned salesperson for Time Warner Cable.  Peabody received biweekly paychecks, which included her salary for the pay period, as well as commission wages on a monthly basis.  After leaving her employment, she sued for a variety of wage and hour violations.  Peabody alleged that Time Warner Cable had misclassified her as an exempt employee for which it was not required to pay overtime.

In order to meet the commission sales exemption under California law, among other things, an employee must earn more than one and one-half times the minimum wage.  Peabody was paid less than one and one-half times the minimum wage in any pay period in which she did not also receive her commission payment; however, she was paid far in excess of one and one-half times the minimum wage on each pay period in which she also received her commission payment and her total monthly wages exceeded one and one-half times the minimum wage.  Based on the fact that the commission payment was reflective of commissions earned over the course of a month, Time Warner Cable argued that it should be permitted to split the commission payment between the pay periods in the month for the purposes of determining Peabody’s exemption from overtime.

The California Supreme Court rejected this approach holding that commission wages paid in one biweekly pay period cannot be attributed to other pay periods for purposes of meeting the exemption.  Rather, whether the minimum earnings prong of the commission sales exemption is satisfied depends on the amount of wages actually paid in a pay period.  “An employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.”  This holding further differentiates that California commissioned sales exemption from the federal exemption, which permits employers to defer paying earned commissions so long as the employee is paid the minimum wage each pay period.

The Peabody ruling greatly impacts the manner in which companies structure their commission plans and payroll for commissioned employees.  Because a commission payment may only be allocated to the period in which it is paid for purposes of meeting the exemption, employers should consider adopting biweekly or semimonthly payroll structures for both salary and commission payments or allocating a greater distribution of employee income to base salary as opposed to commissions in order to meet the minimum salary threshold each pay period.

The ruling also forebodes a new wave of misclassification suits for unpaid overtime in cases such as this where an employee may only meet the exemption part of the time.  Of great concern will be the ability of employers to defend such suits where they have not kept good records of the hours worked by the employee, or their meal or rest breaks, due to the mistaken belief that they were exempt from overtime.  Employers with large numbers of commissioned salespeople should consult employment counsel to perform misclassification auditing and assess the risks of class litigation.

 By Michael Kun

              You run a supermarket.  You contract with a janitorial company to come in every night to clean the aisles after you close.

               You run an ad agency.  You retain a contractor to handle your mailroom.

               You run a law firm.  You bring in a company to update the books in your law library.

               You run a hotel.  You contract with a van service to shuttle your guests to and from the airport. 

               Whatever business you are in, you are bound to enter into contracts with vendors to provide a variety of services. 

               And, except where they subcontract that work out, each of those vendors uses its employees to fulfill its contract with you. 

               You may recognize the vendor’s employees from seeing them in your workplace.  You may even know a few by name and say hello to them, or ask them about their weekend. 

               You didn’t hire them, you don’t pay them, you don’t supervise them.  Yet, when they file suit against your vendor claiming they were not paid for all of the time they worked, or that they were not paid overtime, or they were not otherwise treated in compliance with the law, don’t be surprised to see that they (and their lawyers) sue your company, too, contending that you are their “joint employer.”  And that you are responsible for paying them the wages they claim they were not paid.  Penalties, too.  And don’t forget attorney’s fees.

               Yes, the person who you occasionally wave to in the hallway or exchange holiday greetings with is now claiming that you are his employer.

               The “joint employer” theory is by no means a new one.  It has been used by plaintiffs and their lawyers for years to bring more – often “deep pocket” — defendants into lawsuits and leverage larger settlements than they might otherwise be able to obtain from their actual employers. 

               The little company that employs them may not have much money.  But the companies it contracts with?  Your company?  That may be very different, and therein lies the appeal of suing you. 

               While the tests for whether a company is a “joint employer” vary in different jurisdictions and under different laws, they all essentially turn on one element – control.  Do you control the individual’s work or the manner in which it is performed –or are you merely (and appropriately) concerned with the end result? 

               Directing an individual which aisles to clean or how to do so is dangerous; reporting a concern to the vendor about the quality of the work performed is not.  The former goes to the manner in which the work is done; the latter, to the end result.

               In order to best position yourself to avoid or defend a claim that a vendor’s employees are also your employees, you should review your contracts and your relationships with your vendors.  And you should take steps to ensure that the relationships are focused on the end result alone.  Ideally, among other things, you would be able to do the following:

1)      Your contract with the vendor should provide very clearly that the persons the vendor hires are its employees, that it is obligated to pay them in compliance with the law and to otherwise comply with the law as it relates to them, and that you are interested in the end result alone.

2)      Don’t be involved in any way in the vendor’s hiring of its employees.  That’s their responsibility. 

3)      Don’t be involved in any way in the vendor’s paying of its employees.  That’s their responsibility. 

4)      Don’t be involved in any way in disciplining the vendor’s employees.  If there are concerns, report them to the vendor and let the vendor address them. 

5)      Don’t be involved in any way in the vendor’s termination of its employees. 

6)      Don’t supervise or direct the vendor’s employees.  That should come from the vendor. 

7)      Don’t give the vendor’s employees clothing or badges with your company’s name or logo on it.  And if the vendor gives its employees such items, tell it to stop. 

8)      Don’t give the vendor’s employees business cards with your company’s name or logo on them, or anything else that would identify thems as doing anything other than working for a vendor that provides services to you.

9)      Don’t give the vendor or its employees any tools with which to perform work.  No computers, no pencils, no pads, no mops, no brooms, no hammers or nails. 

10)   Don’t give the vendor’s employees offices or desks. 

11)   Don’t keep files on the vendor’s employees. No personnel files.  No logs of who worked when. 

12)   Don’t include the vendor’s employees in meetings with your employees.  Remember, they’re not your employees.  Don’t treat them like they are. 

13)   Don’t require your vendor to use specific employees. 

         This is not to suggest that you should stop saying hello to the vendor’s employees when you see them, or asking how their weekend was.  But if you want to talk about the quality of the services they are performing, talk with the vendor, not its employees. 

         Taking such steps may not prevent you from being sued under a “joint employer” theory, but it should enable you to make a strong argument that the theory does not apply to you.  And depending on the vendors you use and the number of persons they employ, that could be worth a small fortune.

By: Dean Silverberg, Bill Milani, Jeffrey Landes, Susan Gross Sholinsky, Anna Cohen, and Jennifer Goldman

The New York State Department of Labor (“DOL”) recently published its long-awaited proposed regulations (“Proposed Regulations“) pertaining to the newly expanded categories of permissible wage deductions pursuant to the New York State Labor Law (“Labor Law”). As we previously reported (see the Act Now Advisory entitled “New York Labor Law Significantly Expands the Scope of Permissible Wage Deductions“), the amendments to Section 193 of the Labor Law (“Section 193”), which govern permissible wage deductions, became effective on November 6, 2012. However, Section 193 required the Commissioner of Labor to issue regulations implementing the amendments. With the release of the Proposed Regulations, New York employers should plan to implement new processes and procedures relating to wage deductions once the Proposed Regulations become final.

To read the full text of the advisory, please click here.

By: Kara Maciel and Jordan Schwartz

As discussed in prior blogs, due to confusion surrounding FLSA tip pool requirements, the U.S. Department of Labor (“DOL”) Wage and Hour Division enacted a strict rule in 2011 related to proper tip pooling and service charge practices. This rule was met with swift legal challenges, and earlier this week the U.S. District Court for the District of Oregon concluded that the DOL had exceeded its authority when implementing its final rule. See Oregon Rest. and Lodging Assn. v. Solis, No. 3:12-cv-01261 (D. Or. June 7, 2013).

Inconsistent interpretations of the FLSA among various appellate courts have created confusion for both employers and courts regarding the applicability of valid tip pools. One of the most controversial interpretations of the FLSA occurred in early 2010, when the Ninth Circuit held that an employer could require servers to pool their tips with non-tipped kitchen and other “back of the house staff,” so long as a tip credit was not taken and the servers were paid minimum wage. See Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010).According to the court, nothing in the text of the FLSA restricted tip pooling arrangements when no tip credit was taken; therefore, because the employer did not take a tip credit, the tip pooling arrangement did not violate the FLSA.

The DOL initially announced that in accordance with the Woody Woo decision, it would permit employers in the Ninth Circuit to impose mandatory tip pooling on employees who did not customarily and regularly receive tips. However, on April 5, 2011, the DOL issued regulations that directly conflicted with the holding in Woody Woo. At that time, it was unclear whether the DOL would enforce the new regulations against employers in the Ninth Circuit. In early 2012, the DOL clarified its position on tip pooling by fully rejecting the Ninth Circuit’s decision in Woody Woo. As a result, employers could no longer require mandatory tip pooling with back of the house employees. In conjunction with this announcement, the DOL issued an advisory memo directing its field offices nationwide, including those within the Ninth Circuit, to enforce its rule prohibiting mandatory tip pools that include such employees who do not customarily and regularly receive tips.

Shortly after the DOL’s final rule, hospitality groups, including the Oregon Restaurant and Lodging Association, the Washington Restaurant Association, and the Alaska CHARR, filed a lawsuit against the DOL challenging the agency’s regulations that exclude back-of-house restaurant workers from employer-mandated tip pools. The lawsuit sought to declare the DOL regulations unlawful and inapplicable to restaurants that pay employees who share the tips at least the federal or applicable state minimum wage with no tip credit. On June 10, 2013, the court granted the plaintiffs’ summary judgment motion, holding that the DOL exceeded its authority by issuing regulations on tip pooling in restaurants. The court stated that the language of Section 203(m) of the FLSA is clear and unambiguous; it only imposes conditions on employers that take a tip credit. Quoting the Ninth Circuit’s opinion in Woody Woo, the court explained that “[a] statute that provides that a person must do X in order to achieve Y does not mandate that a person must do X, period.”

The court’s decision may have a large impact on the tip pool discussion currently before courts across the country, especially if employers in the restaurant and hospitality industries begin to challenge the DOL’s regulations. Given the court’s implicit message encouraging legal challenges against the DOL, the status of the law regarding tip pooling is more uncertain than ever. Although the decision is a victory for employers in the restaurant and hospitality industry, given the aggressive nature of the DOL, employers in all circuits should still be extremely careful when instituting mandatory tip pool arrangements, regardless of whether a tip credit is being taken.

By Elizabeth Bradley

With Election Day tomorrow, employers must be prepared to respond to employees’ request for time off to vote.  While there are no federal laws that require such leave, many states require that employees be provided with leave to vote.  Some states, such as California, Maryland and New York, require this leave to be paid.  Failing to comply with these requirements could result in financial penalties.

As illustrated below, state requirements vary greatly with regard to whether the leave must be paid, when employees are eligible for the leave, the length of the permissible leave, and whether notice is required.  All employers should take a moment to review their state law requirements in advance of Tuesday.

California:  Employees must be provided with enough time off that will enable them to vote; however, only 2 hours of the leave must be paid.  The leave must be at the beginning or end of the scheduled shift, unless otherwise mutually agreed.  Employees are eligible for paid time off for voting only if they do not have sufficient time outside of working hours to vote.  Employees must provide the employer with 2 days’ notice of the need for time off to vote.  Employers are required to post notice of the provisions of the voting law no fewer than 10 days prior to a statewide election.

Georgia: Employees may take up to 2 hours off to vote with reasonable notice to their employers.  The employer may specify the hours the employee may be absent to vote.  An employee is not entitled to time off if the employee’s workday begins at least 2 hours after the polls open or ends at least 2 hours before they close.  There is no requirement that employers pay employees for the time taken to vote.

Maryland:  Employers must provide up to 2 hours of paid time off to vote if the employee is registered to vote and does not otherwise have 2 hours of continuous off-duty time during the time the polls are open.  Employees must provide the employer with proof that they voted or that they attempted to vote, which can be obtained from the election judges upon request.

Massachusetts:  Employees in manufacturing, mechanical and mercantile establishments are not permitted to work during the two-hour period after the polls open if the employee has submitted an application for absence for voting.

New York:  Employees who are registered to vote may take off the amount of time that, when added to voting time outside working hours, will allow enough time to vote if that employee does not have sufficient time outside of working hours to vote.  If an employee has 4 consecutive hours off while the polls are open, the employee has sufficient time outside of work to vote.  Up to 2 hours of the time taken to vote must be paid.  Time off to vote must be taken at either the beginning or end of the shift unless otherwise mutually agreed upon between the employee and employer.  Employees who need time off to vote are required to provide notice to the employer no more than 10 days or less than 2 days before the Election Day.  Not less than 10 days before every election, employers are required to post a notice setting forth the provisions for time-off-to-vote law in a conspicuous place.

Texas:  Employers cannot take any deductions from wages for an employee who takes time off to vote.  There are no provisions setting forth the amount of time off allowed but the Attorney General has construed the law as giving employers the right to designate hours, provided sufficient time is allowed.  Employees are not entitled to leave to vote if the polls are open for 2 consecutive hours outside the voter’s working hours.

Virginia:  Virginia does not have a provision that requires leave for employees to vote.  However, employees who serve as an officer of election cannot be discharged or have any adverse employment action taken as a result of their absence from employment due to such service provided that the employee provided the employer with reasonable notice of the service.  In addition, any employee who servers for 4 or more hours, including travel time, as an officer of election, cannot be required to start any work shift that begins at or after 5 p.m. on the day of service or begins before 3 a.m. on the day following service.

In addition to the above, the following states have provisions governing voting leave:  Alabama, Alaska, Arizona, Arkansas, Colorado, Hawaii, Illinois, Iowa, Kansas, Kentucky, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Puerto Rico, South Dakota, Tennessee, Utah, Washington, West Virginia, Wisconsin, and Wyoming.  Interestingly, while the District of Columbia considers political affiliation to be a protected class, it does not require employers to provide their employees with time off to vote.

Jeff Landes, Bill Milani, Susan Gross Sholinsky, Dean Silverberg, Anna Cohen, and Jennifer Goldman have prepared an Act Now Advisory on the amendment to Section 193 of New York’s Labor Law, which is scheduled to take effect on Nov. 6, 2012. The amendment expands the list of employee wage deductions that New York employers may lawfully make, so long as the employee authorizes such deductions.