Category Archives: Employment Law

Overtime, Independent Contractor Status on Regulatory Agenda for Department of Labor

A couple of weeks ago, the federal Department of Labor announced its regulatory agenda for the immediate future. The DOL does this twice a year, and the announcement indicates what its rulemaking and enforcement priorities will be.

The Wage and Hour Division will be busy in the coming months. According to the agenda, the DOL is looking at amending the Family and Medical Leave Act regulations to explicitly include same-sex spouses (following the Supreme Court’s decision in U.S. v. Windsor), and possible changes to child labor rules to clarify how old an employee must be to operate patient lifting equipment.

Two entries on the list follow directly from President Obama’s efforts to work outside of Congress to move his agenda forward: The DOL plans to propose rules raising the minimum wage for certain federal contractors to $10.10 an hour, and to consider revising the overtime exemptions for professional, administrative, and executive employees (the so-called “white collar” exemptions).

Finally, the DOL is continuing to look at problems of employee misclassification as independent contractors. in 2011, the DOL launched its “misclassification initiative,” intended to reduce misclassification and step up enforcement against employers whose “independent contractors” really should be classified as employees. As the DOL points out, this problem leads directly to reduced tax revenue to the state and federal governments. It also denies a range of benefits and protections (from minimum wage and overtime to family and medical leave and protections from discrimination) to the employees who are misclassified.

The DOL has already stepped up enforcement; check out the long list of press releases announcing these actions at its Employee Misclassification as Independent Contractors page. The DOL has also surveyed employees, to find out what they know about their rights and their status. In the regulatory agenda, the DOL proposes regulatory action to its record keeping rules, requiring employers to tell employees what their job status is (employee or independent contractor) and how their pay is calculated. There’s no timeframe or proposed “next steps” for this action, however. (In fact, the regulatory agenda says “next action undetermined.”) But it’s clearly a continuing enforcement priority for the DOL.

Noncompete Madness

contractHere in California, we don’t have to give much thought to noncompete agreements: contracts by which, typically, an employee agrees not to go work for a competitor or start a competing business for a certain period of time after leaving a job with the employer. The reason? These contracts are illegal in California. California law plainly states that a noncompete is an impermissible effort to limit the employee’s ability to earn a living in his or her chosen field. California employers have tried to get around this prohibition in different ways over the years, without success.

An article in the New York Times illustrates how far employer overreach can go in states that don’t protect employees in this way. The article (“Noncompete Clauses Increasingly Pop Up In Array of Jobs“) describes noncompete arrangements mostly in Massachusetts; the employees asked to sign them include a hairdresser, a pesticide sprayer, an intern at an electronics firm, and a camp counselor. And, the article explains that some employees are driven out of the workforce altogether for the length of the noncompete, because they fear being sued if they take a job in their field near their home. (Believe it or not, the hairdresser actually was sued for going to work for a nearby salon. And he lost.)

Employers use noncompetes for a variety of reasons. Many have a legitimate concern with protecting their trade secrets. However, some employers cited in the article took a broader view of their rights. Because they had invested in employee training, for example, or had a particular business model that was successful, these employers felt entitled to avoid giving these assets to competitors. The problem is that, in these cases, the “assets” are people, with careers they have invested in, bills to pay, and homes they don’t want to leave. Forcing them to change fields, move, or spend a stint unemployed in order to get a job is problematic at best.

A spokesperson for a group that opposes proposed protections for Massachusetts employees in this area said that noncompetes are working just fine, “to the seemingly mutual satisfaction of employers and individuals.” That seemingly says a mouthful: What interest would an employee possibly have in signing a noncompete, significantly limiting his or her rights in the future? Typically, employees sign them only because they are required to do so in order to get or keep a job. These agreements offer no benefit to employees, only to employers. This doesn’t make them illegal (in most states), but it should at least change the terms of the dialogue a bit.

If you’re faced with a noncompete agreement — or your company plans to require employees to sign one — check out our article Understanding Noncompete Agreements.

How Does COBRA Work With Obamacare?

cobra-240x203Last week, the federal Department of Labor issued proposed regulations dealing with COBRA notices. The regulatory proposal is quite uninteresting: Basically, the administration is removing the model notices from the Code of Federal Regulations and providing them instead on the Department of Labor’s website. This allows the notices to be changed much more quickly and easily, without resort to the federal rulemaking process.

The Labor Department also posted the new model versions of these notices: The general notice employees receive when they sign-up for employer-provided healthcare, and the election notice employees receive when a qualifying event occurs and they have to actually decide whether or not to continue their health insurance through COBRA. (You can find links to both new versions at the DOL’s COBRA Continuation Coverage page.)

The changes to the notices mostly involve Obamacare: specifically, the interface between Obamacare and COBRA. The notices explain that employees (and other beneficiaries) who are losing their employer-provided coverage may continue that coverage for at least 18 months by paying the full premium, pursuant to COBRA. However, employees also have the option of foregoing COBRA coverage and instead buying insurance through the Health Insurance Marketplace.

Ordinarily, anyone who wants to buy insurance on the Marketplace must wait for an open enrollment period. One just closed; the next one doesn’t start until mid-November. So what if you get laid off between now and then? The new notices explain that there is a 60-day “special enrollment” period triggered by losing job-based coverage. In other words, a laid-off employee has 60 days to choose a new health plan through the Marketplace; the same 60-day period applies to choosing COBRA coverage.

The new election notice provides some good answers to questions about switching coverage, too:

  • If you choose COBRA coverage, but decide you want to buy through the Marketplace instead, you may do so during the initial 60-day special enrollment period. If you miss this deadline, you’ll have to wait until open enrollment rolls around, just like everyone else (unless you have a second event that triggers a special enrollment period, like having a child).
  • If you choose Marketplace coverage, but decide you should have taken advantage of COBRA, you are out of luck. Once you decline COBRA coverage, it’s gone.
  • Once your COBRA coverage ends, you get another 60-day special enrollment period in which to sign up for Obamacare.

Where Do Employers Get Sued the Most?

USAccording to a very interesting article in the Insurance Journal, employers are most likely to be sued by current or former employees in California, Illinois, Alabama, Mississippi, and the District of Columbia. I’m sure no one is surprised by that first entry on the list: Our great Golden State is famous for its employee-protective laws. The District of Columbia and Illinois both offer plenty of workplace protections as well. In fact, Illinois might be more progressive than California on this score. For example, it recently became the first state (I believe) to prohibit job discrimination against the homeless, by making it illegal for employers to make job decisions based on the fact that an employee does not have a permanent address or uses the address of a shelter or social service provider as a mailing address.

The article features quotes from some lawyers, who pointed to two reasons states made the list: state laws that are very protective of employees (and apply to smaller employers) and state laws that don’t cap damages available to employees (as federal discrimination laws do, for example). All well and good, and quite explanatory of California, Illinois, and DC. But what about Alabama and Mississippi? These states don’t have their own comprehensive discrimination laws (which leaves aggrieved employees to sue under federal law, under which those limits on damages apply). In case you were thinking employers there are facing big wage and hour class action cases, they might be. But only if employees are suing under the federal Fair Labor Standards Act, because Alabama and Mississippi also don’t have their own minimum wage or overtime laws. Or their own laws requiring meal and rest breaks. Or state laws requiring family and medical leave.

Of course, employees could be suing under federal laws governing these topics. But that’s true in all 50 states. The article doesn’t explain — and I have no easy answer for — why employees sue more often in Alabama and Mississippi. But if you’re wondering what grounds you might have for a lawsuit in your state, I’ve got an assist for you: Check out our 50-state (plus DC) set of articles over on www.wrongfulterminationlaws.com on state wrongful termination laws.

Supreme Court: Severance Pay is Subject to FICA Tax

supctLast week, the Supreme Court decided a case about how severance pay must be treated for tax purposes. The employer in the case (United States v. Quality Stores) had declared Chapter 11 bankruptcy. The employer provided severance pay in two programs: One paid employees who were terminated immediately, and the other paid employees who stayed with the company through its bankruptcy reorganization, until an agreed-upon termination date. Like most severance plans, the company’s program was based on length of employment and job grade.

The employer and the IRS agreed that the severance pay should be treated as income for purposes of income tax withholding. What they disagreed about was FICA taxes: the payroll taxes, split between employer and employee, that fund Social Security and Medicare. Although the employer initially paid it share of these taxes and withheld the employees’ share from their severance, it later asked the IRS for this money back, to the tune of more than a million dollars. The employer’s claim was that the severance payments didn’t count as “wages” under IRS rules.

The Supreme Court disagreed. In a unanimous decision, the Court found that severance pay is subject not only to income tax withholding, but to FICA tax withholding as well. (And, employers must pay their half of these taxes on severance.) The Court found that severance pay falls squarely within the definition of wages as “remuneration for employment,” especially where, as here, they are based on the employee’s tenure and role at the company. Not a big surprise, but at least employers can now blame the Supreme Court when terminated employees complain that their severance pay is less than they thought it would be.

Will Congress Change the Tip Credit?

waiterThe federal minimum wage law has a special exception for servers, bartenders, and other employees who receive tips: These tipped employees can be paid much less than the minimum wage per hour (in most states), as long as they earn enough in tips to bring their hourly total up to at least the full minimum. Right now, the federal minimum wage is $7.25 an hour. But federal law allows employers to pay tipped employees as little as $2.13 an hour!

This practice of paying tipped employees less is called taking a “tip credit,” meaning the employer gets to credit part of the employee’s tips against its minimum wage obligation. Not all states allow a tip credit: California, for example, requires employers to pay tipped employees the full state minimum wage. And some states allow a lower tip credit, requiring employers to pay more per hour than federal law would mandate. (The more protective law governs in wage and hour matters.)

That measly $2.13 took effect back when the minimum wage was $4.25 an hour. In other words, the tip credit was supposed to be half of the minimum wage. But as the minimum wage increased, the wage for tipped employees stayed the same, part of a compromise to get the wage hikes passed. Now, Congress is contemplating raising both the minimum wage and the amount tipped employees must be paid. According to an article in today’s New York Times (“Proposal to Raise Tip Wages Resisted“), Senator Tom Harkin has introduced a bill that would raise the minimum wage to $10.10 and the tipped employee wage by 95 cents per year until it reaches $7.10. Further increases would be tied to inflation.

As is perhaps evident from the title of the article, this proposal is facing plenty of pushback, primarily from restaurant owners. And of course, it’s unclear how Congress would agree on a minimum wage and tipped employees wage increase when they can’t pass a farm bill or extend unemployment benefits. But at least this problem has hit the radar of the U.S. Senate and the nation’s paper of record.

Want to know more about your state’s law on tips, including tip credits, tip pooling, and who gets to keep those mandatory service charges the house tacks on to the bill? We’ve got a set of articles — one for each state and the District of Columbia — on this very topic; select your state from the list at State Laws for Tipped Employees.

It’s Evaluation Season! Don’t Forget the Maternity Projection Chart

storkManagers, do you enjoy giving employee evaluations? Many managers  don’t: They find it difficult to give constructive criticism, fit employee accomplishments and areas for improvements into their company’s evaluation form, or make time to sort back through their documentation for the year, complete the form, and meet with employees about it. But imagine how you would feel if the company’s evaluation form also included questions about the employee’s “maternity plans.” And then you had to use that information to help generate a “maternity projection chart,” purporting to calculate the likelihood that a particular female employee would have a child soon based on her age, marital status, and maternal status.

According to a complaint filed in a federal district court in New York, that’s what happened at the Institute for Integrative Nutrition. (Hat tip to the Employment Law Daily; they have also posted a copy of the court’s decision in favor of the employees.) The employees alleged not only that the chart was created, and that it included information only on female employees, but also that the employer used it in making employment decisions.

This is one of the stranger allegations in the case, but by no means the only allegations the employees made about discrimination, retaliation, and violation of FMLA rights at the Institute. Each of the named plaintiffs (they are bringing a class action) had quite a tale to tell, including comments by the company’s owner that “women’s priorities shift when they become mothers,” that one expecting employee should speak to her partner about whether it was “worth it,” because he “had never met a new mom that didn’t underestimate the sleep, time, exhaustion from a new baby,” and that he wouldn’t consider another woman for a promotion because she was “getting married, and her head was in another place.” Once they revealed their pregnancies or went out on leave, the women claimed that they faced different treatment, demotion, and ultimately discharge.

No judge or jury has determined whether these allegations are correct, because the case came up on a motion to dismiss. In other words, the employer was arguing that some of the employees’ claims were so weak that it should not even have to respond to them, right out of the gates. In fairness, the court tossed one allegation by one employee. (Her retaliation claim was thrown out because she didn’t allege that she had complained of discrimination before being mistreated.)  Otherwise, though, the employees won. Based on the allegations, it’s no surprise. What surprised me is that the employer found it worth arguing about, given the strength of the allegations.

 

Senate May Finally Pass ENDA

prideflagToday, the Senate is expected to take up the Employment Nondiscrimination Act, known informally as ENDA. This bill would outlaw workplace discrimination on the basis of sexual orientation and gender identity, by adding those protected traits to Title VII.

Wikipedia tells us that the first Congressional effort to prohibit job discrimination against gay men and lesbians happened in 1974; In many Congressional sessions since, some version of ENDA has been introduced and gone nowhere. The House of Representatives managed to pass a version of the law in 2007, but the cost of passage was high for some: The version that finally passed had no protections based on gender identity. And no version of ENDA has ever passed the Senate.

This week, vote counters believe that will all change. According to New York Times reporting on the Senate vote, all 55 democratic senators are expected to vote for the bill, four more Republicans are on board, and only one more vote is required to invoke cloture (end the debate) and hold an up-or-down vote. When you consider that one of the official undecideds is Rob Portman, who announced his support for gay marriage because his son is gay, chances for passage look pretty good. (And in the nontraditional marriage department, Cindy McCain apparently sent her husband, Senator John McCain, a postcard urging him to vote for the bill; this prompted a strained formal response from the Senator’s office that he “enjoys and appreciates having discussions on the important issues of the day with all the members of his family.”)

What will happen in the House is anybody’s guess. But there are signs of trouble for opponents of the bill, who are having to reach deep into their bag of tricks to articulate reasons to oppose the law. Members of Congress told the Times that they are having to respond to arguments that the law would unfairly force Christian bookstores to hire drag performers and require schools to allow male teachers to wear dresses in the classroom. (A brief aside: What kid would not love this?) When the counterarguments reach this level, you know momentum in favor of the bill has reached critical mass.

 

Lost in the Congressional Debate: The Self-Employed and Obamacare

pillsIn case you haven’t heard (!), many members of Congress seem to believe that every single member of “the American People” stands vehemently opposed to the Affordable Care Act. Various Republican politicians have compared Obamacare to a disaster, a train wreck, and yes, slavery. But here’s an interesting dilemma for the GOP: The group with whom the Republicans want to identify so often — entrepreneurs and independent business people — will benefit significantly from the law.

According to a study on the Affordable Care Act and entrepreneurship conducted by several nonpartisan groups (including the Center on Health Insurance Reforms), Obamacare is expected to swell the ranks of the unemployed. The study predicts that more than 1.5 million people will go into business for themselves as a result of the law, a more than 10% increase. Why? Because they will no longer be stuck in jobs they would prefer to leave just to get health insurance.

There are legitimate debates as to whether the coverage offered through the new health care exchanges is truly affordable, and even the law’s most fervent supporters agree that the initial rollout of the online marketplaces has been a parade of technical glitches. However, no one can dispute that Obamacare makes it possible for many people to purchase health care who were previously priced out of the market or couldn’t even find a plan that would take them at any cost. Those who stayed in unsatisfying jobs to keep their benefits (a phenomenon known as “job lock”) will now be free to move on, purchase their own benefits on the exchange, and take the plunge to start their own businesses.

Employers who are planning to cut back on employee benefits might also see a lesson here. For companies that are planning to cut employee hours to less than 30 (to avoid having to provide benefits under Obamacare) or otherwise try to get around the law, there may well be an initial cost savings. But these strategies will also remove one of the strongest incentives for employees to stay at their jobs. And, the employees most likely to leave and start their own businesses are often the very employees the company would most like to keep: the self-motivated, self-directed, business-minded cohort.

 

 

California Law Affirms that Sexual Harassment Doesn’t Have to Be Sexy

In August, California amended its sexual harassment laws to add this sentence to the state’s Fair Employment and Housing Act:

“Sexually harassing conduct need not be motivated by sexual desire.”

The legislature was responding to a decision by a California appeals court in a same-sex harassment case. The plaintiff employee in that case, Patrick Kelley, alleged that his male supervisor called him a bitch and a punk, made crude comments about having sex with him, and laughed when another employee did the same. This behavior followed Kelley to other worksites after he asked to be transferred, as the story spread among his coworkers. The Court tossed Kelley’s claim because he couldn’t prove that his supervisor acted out of genuine sexual desire or interest. In other words, the case turned on whether Kelley’s supervisor actually, in his heart, wanted to have sex with Kelley (in ways he graphically described), or just said so in front of others in order to demean him.

If all sexual harassment cases turned on the question of sexual interest, you can imagine the problems of proof. How do you show that a harasser “really” felt desire toward his victim? Would the harasser’s sexual orientation be an issue in the case? Setting that aside, sexual interest shouldn’t matter. It’s just as illegal for a supervisor to make demeaning, sexist comments as to make unwanted sexual propositions (whether or not the harasser “genuinely” wanted to follow through on them). The reason why sexual harassment is illegal is that it limits job opportunities. When all is said and done, sexual harassment is about power, not desire.

In the context of opposite-sex harassment, there are certainly some ugly cases involving sexual come-ons, groping, and even assault. But some of the ugliest situations arise when women enter traditionally male fields. In these cases, there are no expressions of “desire” or “sexual interest.” Instead, women are threatened (with rape, assault, and more), endangered, and frightened. Their tools and vehicles are sabotaged; they are called horrible names; they are stranded without support. Although some courts had trouble seeing the harassment when it was so decidedly unsexy, most have now come around.

At least in opposite-sex cases. That the California case issued its decision in a same-sex case isn’t surprising. Courts have not known what to do with homophobic behavior on male-dominated worksites. Is it okay if none of the employees are actually gay? Or if the supervisor threatens to have sex with all the guys, not just those who are ridiculed in gendered ways? If there are no women present, is this behavior really “sex-based”? But the answer seems pretty simple. In this case, Kelley’s work environment was poisoned by a supervisor’s crude sexual comments and behavior. Those comments were sex-based, in that they were about Kelley’s masculinity and sexual orientation. The case shouldn’t have turned on whether the supervisor was sincere when he said he want to have sex with him.