Labor & Employment e-Report – Third EditionFebruary 28, 2009
Dear Clients and Friends,
Welcome to the third issue of the Labor and Employment eReport. Since our last publication, the United States Government has undergone a major transformation: Barack Obama has become our first African-American president and the Democrats have strengthened their grip on Congress. Because of this shift in power to leadership that stands firmly with workers and unions, employers should expect significant changes in labor and employment laws.
The impact of these changes was on the minds of all who attended Epstein Becker Green's "Post-Inauguration Briefing: The Future of Labor and Employment Law in an Obama Administration." The Washington, DC briefing, which took place only one week and one mile from President Obama's historic inauguration, was a big success. Over 220 attendees braved a winter snowfall to hear seven panelists of Epstein Becker Green attorneys discuss current workplace legislation and how employers should prepare, react, and protect themselves, if that legislation becomes law. Eugene Robinson, a syndicated columnist of The Washington Post, a MSNBC analyst, and a Meet The Press panelist, was our guest luncheon speaker. I was pleased to provide introductory remarks and serve as a panelist.
Our briefing couldn't have been more timely. Two days later, the Lilly Ledbetter Fair Pay Act of 2009, which our Equal Employment Opportunity panel discussed in detail, was signed into law.
Thus far, feedback on the briefing by attendees has been excellent. Other offices will be hosting post-inauguration programs, and I expect that they will likewise achieve a big turnout and glowing reviews.
This issue of the Labor and Employment eReport will provide both highlights of the Washington, DC briefing and a related feature article by Susan Gross Sholinsky, Pierre Georges Bonnefil and Michael F. McGahan on the steps that employers should take to mitigate their exposure to employee lawsuits.
Watch out for future issues of the Labor and Employment eReport in order to stay on top of pending workplace legislation and how it will affect your company.
Post-Inauguration Briefing Highlights
Excitement filled the air of the "Post-Inauguration Briefing: The Future of Labor and Employment Law in an Obama Administration" at the National Press Club in Washington, DC, on Jan. 27, 2009. The tone of the eight-hour briefing, which attracted employer representatives from around the nation, was somber. As the opening remarks by Jay Krupin indicated, enormous changes in labor relations lay ahead. Below are some highlights of the briefing.
The Equal Employment Opportunity panel began with a discussion of The Lilly Ledbetter Fair Pay Act of 2009 and warned that the Act could lead to more discriminatory pay lawsuits if signed into law. (The Act became law two days later.) Panelist Carmine Iannaccone advised employers to take proactive steps to reduce the occurrence of discrimination suits, such as: conducting frequent internal audits to identify and correct pay problems; training management on how to properly evaluate employees; maintaining detailed employee records; creating an internal complaint procedure to resolve issues; and ensuring job descriptions list essential functions (see also President Obama Signs The Lilly Ledbetter Fair Pay Act Into Law). Following those steps also could help reduce exposure to damages, if the employer were sued. Other panels echoed this advice. When faced with a discrimination suit, Mr. Iannaccone recommended taking the case to trial, rather than settling, since settlement amounts are going up and settling demoralizes management.
Similarly, the Wage Hour panel foresaw an increasing number of collective actions on the horizon. Betsy Johnson noted that 30% of workers classified as "independent contractors" are actually employees; in California, an independent contractor action is the "lawsuit du jour." To avoid penalties for misclassifications, she advised employers to audit contractor classifications, sign an independent contractor agreement, and not treat contractors as employees. Michael Kun alerted employers to proposed legislation that would amend the Fair Labor Standards Act ("FSLA") to allow for "opt-out" collective actions, thus increasing the number of class members in a collective action. The FSLA currently follows an "opt-in" policy, whereby individuals must elect to join a collective action to receive recovery. Under an opt-out policy, an individual automatically becomes a member of a collective action unless he/she elects to opt out. Mr. Kun also expects a "breathtaking increase" in collective actions under the Equal Pay Act, if current legislation were passed. To dissuade employees from starting collective actions, he recommended that employers conduct internal audits and create internal complaint mechanisms.
The Labor Relations panel addressed concerns with the proposed Employee Free Choice Act ("EFCA"), which would make unionization and forming labor organizations easier for employees. Mr. Krupin discussed a compromise "70/50/30 plan": That is, if a union gets authorization cards from 70% of employees in a unit, union recognition would be automatic. Authorization cards from only 50% of employees in a unit would result in a secret ballot election to be held within 15 days. Authorization cards from only 30% of employees in a unit wouldn't result in recognition or an election, but the union would get access to the employer's property to communicate its message to employees. The panel recommended that employers train supervisors on how to deal with employees so that employees don't become dissatisfied and want to join a union (see Litigation to Rise With New NLRB Rules, Employee Free Choice Act).
The Immigration panel warned that the Obama Administration will target employers who violate immigration laws, and that laid-off employees will look for ways—including finding immigration violations—to retaliate against employers. Thus, Robert Groban advised employers to protect themselves by finding out who is in their workforce, including their vendors, and complying with immigration laws. He added that employers need a good internal compliance system, which includes immigration audits, a compliance checklist, and an efficient document retention policy. Panelists Hector A. Chichoni and Pierre Georges Bonnefil also addressed safe harbor policies under "No-Match Letter" cases (see DHS Issues Supplemental 'Safe Harbor' Rule to Guide Employers Who Receive Social Security 'No-Match' Letters), and added that, starting February 20, 2009, federal agencies must require federal contractors and subcontractors to use the "E-Verify system" to verify the employment eligibility of employees (see Final Rule Requires Certain Federal Government Contractors to Use The E-Verify System).
At the luncheon, guest speaker and Meet the Press panelist Eugene Robinson gave the crowd his impressions of the Republican party ("it's stuck in the wilderness") and his observations of the Obama campaign (Obama's greatest challenge on the campaign trail was not beating John McCain, but defeating the powerful and skilled "Clinton dynasty"). When queried on labor unions' impact on the economic recovery, Mr. Robinson responded that people he knows at the AFL-CIO are cognizant that if there isn't any industry, there won't be any jobs. Hence, labor will not become obstructionists as the economic rescue takes place.
After lunch, Lynn Snyder, who is celebrating her 30th anniversary with EBG, began the Healthcare panel with an audience survey of experiences with health insurance, COBRA, Medicare, and Medicaid. The panel then noted that health reform is a key issue for the Obama Administration, as one in six Americans are not covered by health insurance. President Obama wants to reduce the cost of health care to increase access to it, but his plan is not seeking to completely eliminate the number of uninsureds. Ms. Snyder noted that one-third of uninsureds are young people, while many others are individuals between ages 55 and 65, who leave work before Medicare kicks in. The panel added that President Obama's health plan will likely enter the Senate through a bill sponsored by Ted Kennedy or Max Baucus.
The ADA and Disability Law panel discussed the new ADA Amendments Act ("ADAAA") and upcoming final regulations. Under the Americans with Disabilities Act, employers must make reasonable accommodations necessary to allow persons with disabilities perform essential job functions, unless the accommodation would pose an undue hardship. Because courts are now free to interpret "disability" under the ADAAA without regard to mitigating measures, the ADA will protect more employees. As a result, employers should expect more ADA-related lawsuits (see President Bush Signs the ADA Amendments Act, Dramatically Expanding the Americans with Disabilities Act). Panelists urged employers to have a written ADA policy in place; train supervisors so that they understand the process of providing reasonable accommodations; and review job descriptions to ensure that they list essential job functions. The panel also discussed changes to the Family Medical Leave Act ("FMLA"), and noted that multi-state employers must ensure their FMLA policies contain riders that conform to their applicable states' leave acts (see also Department of Labor Issues New FMLA Regulations).
Stuart Gerson of the Supreme Court panel noted that while President Obama will likely replace two liberal Justices of the U.S. Supreme Court, those picks won't affect the conservative slant of the court. However, President Obama will make a bigger impact through appointees to lower federal courts. The panel discussed various Supreme Court decisions, including the federal civil procedure case of Bell Atlantic Corp. v. Twombly, 127 S.Ct. 195 (2007), which required that pleading minimums (a "plausibility" standard) must be reached for a plaintiff to bring a case.
During the Q&A session, attendees queried panelists on topics concerning the FMLA, EFCA, Ledbetter Act, and wage hour and immigration policies. Someone asked if there would be pitfalls to cutting a manager's work week from four to five days. Mr. Kun answered that if the manager is an exempt employee, there won't be any repercussions unless the employer also cuts the manager's pay. While it's not illegal to cut pay, the manager may become unhappy and consult a lawyer. The lawyer, in turn, may try to fish around for other potential claims against the employer. As a related matter, it would be problematic if an employer lays off non-exempt employees and asks the exempt employees to take over their duties. In California, as Mr. Kun noted, that employer may end up turning its exempt employees into non-exempt employees and becoming responsible for paying those employees for work performed beyond a 40-hour work week. Additionally, an employer might inadvertently convert a supervisory position into a non-supervisory position by giving a manager non-exempt employee duties.
This extremely informative briefing concluded with a cocktail reception, whereby Epstein Becker Green attorneys mingled with attendees, including general counsel and human resource directors.
Audits - Proactive Steps to Reduce Employee Lawsuits
One of the many challenges facing employers today is ensuring that company policies, practices, and procedures remain current. In light of recent changes in the political and economic climates, as well as changes that can reasonably be anticipated during the Obama Administration, now may be a good time for employers to "take a step back" and review policies, practices, and procedures to ensure compliance with applicable law. Now is also the time to ensure that managers and human resources personnel are familiar with the ever-changing rules, requirements, and definitions associated with those laws. Whether addressing these issues piecemeal, or performing an overarching audit, this article identifies employment practices which may be the subject of review, based on new or pending legislation, regulations, and political appointments.
Equal Pay — Review Pay Practices
The Lilly Ledbetter Fair Pay Act, signed into law on January 29, 2009, amends Title VII, the ADEA, the ADA, and the Rehabilitation Act to "clarify" that an unlawful employment practice not only occurs when a discriminatory compensation decision or other practice is adopted, but also "when an individual is affected by application of a discriminatory compensation decision or other practice." This includes each and every paycheck, so long as the compensation paid in that paycheck resulted (in whole or in part) from the alleged discriminatory decision or practice. Thus, the Act would allow pay discrimination claims to be filed within 180 days (or 300 days, as applicable, depending on the forum) of the issuance of any allegedly discriminatory paycheck — regardless of how long ago the actual compensation decision was made. As a result, companies should ensure that their employee compensation practices are fair, and all differences in pay levels are based on legitimate business purposes. Furthermore, records and notes pertaining to decisions regarding pay rates, or any other document that would be relevant to an equal pay claim, should be maintained by companies throughout the entire period of employees' employment, as well as following the employee's final paycheck for a period in excess of the applicable federal, state, or local limitations period.
Discrimination Avoidance — Get Your Paperwork in Order and Train Your Managers
Many of the pending (as well as recently-enacted) changes to various civil rights laws would serve to strengthen employee protections. Existing and proposed changes in the law would, for example, provide greater damages to successful plaintiffs, add "protected classes" to existing anti-discrimination law, and modify class action rules. Thus, as always, employers should ensure discrimination is not occurring in their workplaces.
In addition, employers should ensure that the legitimate business decisions they make, such as those made in connection with individual or group terminations, are well-documented. Such documentation becomes important when proof of the fairness of such decisions is required in a court of law. In this regard, employers should train human resources personnel and managers in proper documentation procedures, including how to properly assemble and distribute disciplinary memoranda, and how to complete accurate performance evaluations. Managers should be reminded that performance concerns must be timely and clearly documented. Employers should also ensure that managers enforce company policies consistently. Finally, companies should ensure that their practices regarding references for existing and former employees comply with the law, and are being enforced.
Religious/Disability Accommodation — Engaging in the Interactive Process
Among other things, the recently-enacted Americans with Disabilities Act Amendments Act ("ADAAA") broadens the definition of "disability." As a result, more employees will now be considered qualified individuals with a disability under the law. Similarly, proposed changes to laws prohibiting religious discrimination (such as the Workplace Religious Freedom Act) would give employees greater rights to accommodation of their religious practices in the workplace. Therefore, it is more important than ever that employers know what it means to properly engage in the "interactive process" with employees — that is, appropriately assessing whether proposed accommodations will be deemed "reasonable" or if those accommodations proposed by the employee would place an "undue hardship" on the employer. Furthermore, the broadened definition of the term "major life function" — which now includes the mental processes of concentrating and thinking — may require employers to provide accommodations to employees whose disabilities impair their abilities to engage in these functions. As a result of these changes, supervisors and human resources personnel should be trained to identify when an employee has taken action that may trigger the employer's obligation to engage in the interactive process. In addition, company job descriptions should be reviewed and potentially revised to ensure "essential functions" of the job are clearly and accurately depicted. This becomes most important when addressing requests for accommodations by employees who are limited in their ability to communicate, remember, think, or concentrate.
Independent Contractors — Are they Really Employees?
The Independent Contractor Proper Classification Act of 2007 ("ICPC") was introduced by then-Senator Obama. This law would, among other things, allow the IRS to develop a process for workers to ask for an evaluation of their proper classification. As we have seen in connection with prior litigation, misclassification — that is, classifying employees as independent contractors (who are not eligible for employee benefits, and do not pay employment taxes) — can be a costly mistake for employers. Aside from the damages available in these cases, the proposed legislation would specifically require employers to pay a misclassified employee's attorney's fees and expert witness fees. Although the proposed legislation is aimed at the recovery of tax revenue, if passed, it will impose certain obligations on the US Department of Labor ("DOL") and, thus, might ultimately affect the classification of employees as independent contractors under federal wage and hour laws as well. Furthermore, if passed, another proposed law, the Employee Misclassification Prevention Act ("EMPA"), which was introduced by Sen. Kennedy (D-MA) and co-sponsored by then-Senator Obama, would specifically amend the Fair Labor Standards Act "to require employers to keep records of non-employees who perform labor or services for remuneration and to provide a special penalty [double liquidated damages and a fine of up to $10,000.00 for each violation] for employers who misclassify employees as non-employees, and for other purposes." As with the ICPC, the EMPA would require employers to inform workers of their right to challenge their classification and would require the DOL to ensure that at least 25 percent of the audits of employers conducted by the DOL's Wage and Hour Division are focused on potential misclassifications of workers as independent contractors. Aside from the federal ICPC and EMPA, many states, including New York, New Jersey, Connecticut, Massachusetts, Illinois, Michigan, Idaho, Missouri, and Utah, have taken actions to reduce misclassification.
So, what can an employer do to reduce the chances of being subjected to such penalties? Employers can audit their practices when it comes to utilizing independent contractors, and ensure that those workers are, indeed, contractors (and not employees). In undertaking such a review, emphasis should be placed on the degree of supervision, direction, and control exercised over the worker, not only as to the results, but as to the means, manner, and methods of the services provided. The courts have found that no single factor or group of factors conclusively defines the employee or independent contractor relationship. All factors must be examined to determine the degree of supervision, direction, and control. Indicia of control include determining when, where, and how the services will be performed and whether the worker's services are exclusive to the "employer," among several other factors. Legitimate independent contractors often carry their own insurance, pay for their own expenses, and determine their own schedule, among other things. An in-depth review of all "contractors" on a company's payroll is a good idea in light of the increasing spotlight on this issue.
FMLA Revisions — Is Your Company in Compliance?
The federal Family and Medical Leave Act ("FMLA") has recently been amended so as to, among other things, add protections for military service member care and employees with military-related exigencies. Furthermore, new regulations have been promulgated to aid in the enforcement of the FMLA, for example, to improve communications between employers, employees, and health care providers. In light of the changes to the law, employers should ensure that their handbook policies are up-to-date. Employers should also ensure that their practices pertaining to leaves of absence covered by the FMLA comply with the modified law, which includes changes in the rights of an employer to contact an employee's health care provider, eligibility requirements for employees with breaks in service with the employer, and payment of bonuses to employees on leave for a portion of the applicable leave year. Finally, companies should ensure that their FMLA documentation is updated — the DOL has issued new certification and notice forms, which should replace prior DOL forms.
Immigration Enforcement — Compliance is the Best Defense!
With the appointment of Janet Napolitano for the post of Secretary of the Department of Homeland Security, President Obama made a bold statement that enforcement and compliance will be in forefront of the immigration system — a system which he and Secretary Napolitano have stated on numerous occasions is broken down, and is in dire need of repair. During the George W. Bush Administration, we saw an increase in the numbers of raids by the Immigration and Customs and Enforcement. We also saw a dramatic increase in the arrests and criminal convictions of senior management and successful forfeiture actions. The Obama Administration promises more of the same, but in a much smarter fashion, with a more focused and targeted application of the law. What is important to remember is that compliance is still the best defense. In our best business practices, we urge companies to develop and implement Form I-9 policies, which may include use of the E-Verify Program (formerly, Basic Pilot). Such policies should incorporate I-9 document retention provisions, which will help to prevent inadvertent or reckless violations. Employers should limit and train those who handle the Form I-9 process, review their work, and perform periodic audits of the I-9 paperwork maintained in company files. Finally, employers should strive to provide defined methodology addressing troublesome issues (e.g., "No-Match" letters).
Union Issues — Be Aware of (and Ready for) Big Changes to Come!
Currently, the National Labor Relations Board ("Board") is operating with only two members out of the five established by law. The Obama Administration will have the power to appoint a majority of the new Board, which will likely be pro-labor. The new majority is likely to revisit and reverse many of the decisions reached by the Board over the last eight years that are perceived by organized labor to be against its interests.
On the legislative front, employers should be aware that passage of the Employee Free Choice Act ("EFCA") is organized labor's top priority. This law would drastically change the way unions become the bargaining representative for a company's employees. President Obama was a supporter of EFCA as a Senator, and with Democratic majorities in both houses of Congress, passage of this legislation is more likely. The current law provides for a secret ballot election in which employees vote on whether or not they want union representation, after both the union and employer campaign on the pros and cons of union representation. If enacted in its latest form, EFCA would replace the secret ballot with a card-check system that allows a union to campaign and organize employees virtually in secret. EFCA also provides for imposing a two-year contract through mandatory arbitration if the union and employer cannot reach agreement on a first contract within 90 days. Finally, EFCA provides for new, steeper penalties for employer unfair labor practices, including punitive damages in addition to back pay and civil penalties in certain cases.
Also on the agenda for organized labor is passage of the Re-Empowerment of Skilled and Professional Employees and Construction Tradesworkers Act ("RESPECT"), which would narrow the definition of "supervisor" in the National Labor Relations Act ("NLRA"). This change would require that to be exempt from coverage under the NLRA, supervisors must have authority over other employees for a majority of the supervisor's work time. The change would also remove from the definition the authority to assign work or to responsibly direct employees. If this change is enacted, many employees now considered supervisors (and who are therefore exempt from coverage under the NLRA) would become eligible to join a union, or sign a union designation card in favor of representation and vote if secret ballot elections are continued.
Employers will need to pay close attention to the progress of these changes in legislation and Board decision-making, and begin preparations to educate managers and supervisors in contending with a new wave of union organizing that will be very different from union campaigns of the past.
An employer cannot eliminate the potential for employment-related claims, attempts at the organization of its workforce, or governmental audits, all of which will likely be on the rise during this new administration. Positive steps, however, can be taken to decrease the chances that these events will occur — or if they do occur, to limit the adverse consequences. Understanding and complying with the new administration's existing and proposed legislation is imperative. Not only should employers understand these changes, but they should take affirmative steps, such as auditing policies and procedures, creating new employment practices, and training human resources personnel and managers. If you have any questions about these recommendations, or require specific guidance, please feel free, as always, to contact us.