Five Issues in Focus for Financial Services

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For this edition of the Take 5 for financial services, we focus on a number of very well-publicized issues. The tidal wave of sexual harassment allegations that followed the Harvey Weinstein revelations has drawn the attention of companies, their human resources departments, and employment lawyers. The rule on chief executive officer (“CEO”) pay ratio disclosure, which goes into effect in 2018, is a required focal point that garners significant interest in an industry that is all about money. The hyper-charged political climate has brought social activism and heated political discussions into the workplace with increasing frequency—and with potential employment law implications. A heightened legislative focus on eliminating at least one recognized source of the gender pay gap has resulted in new rules that prohibit very common inquiries about past compensation during the interview process. Finally, data leaks are a mounting threat and cybersecurity is a growing concern throughout an industry that is saturated with the highly sensitive, and sometimes personal, financial information of its clients.

We address these important issues and what financial services employers should know about them:

1. The Weinstein Effect: #MeToo Allegations in the Financial Services Industry
2. CEO Pay Ratio: It’s Not Too Late to Calculate!
3. Managing Employees’ Political and Social Activism in the Workplace
4. Equal Pay Update: The New York City and California Salary History Inquiry Bans
5. Insider Threats to Critical Financial Services Technologies and Trade Secrets Are Best Addressed Through a Formalized Vulnerability and Risk Assessment Process

For the latest employment, labor, and workforce management news and insights concerning the financial services industry, please visit and subscribe to Epstein Becker Green’s
Financial Services Employment Lawblog.

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By Nathaniel M. Glasser

Since news of the Harvey Weinstein scandal broke on October 5, 2017, Hollywood and the entertainment industry have been the focus of media attention about the prevalence of workplace harassment in the industry and how to deal with it. But financial services firms should be aware that sexual harassment is not an issue that is limited to Hollywood. As U.S. Equal Employment Opportunity Commission (“EEOC”) Acting Chair Victoria Lipnic recently said in an interview with Law360, “We see this everywhere. This happens to women in workplaces all over the place.”

Financial firms also have been forced to confront allegations of sexual harassment publicly. For example, Social Finance Inc. (“SoFi”), an online lending firm, has been sued by a former employee alleging that CEO Mike Cagney “fosters a sexually charged corporate culture that condones unlawful conduct.” While Mr. Cagney did the right thing in response by issuing a memorandum to SoFi employees announcing that an internal investigation would occur and promising “severe action” if the lawsuit’s allegations proved true, Mr. Cagney later resigned as questions over his own behavior mounted.

Over the last two months, Fidelity Investments has dismissed two portfolio managers—one manager was terminated following allegations that he made inappropriate sexual comments at work and another manager was fired after allegations surfaced that he sexually harassed a female junior employee. In response, Fidelity’s CEO, Abby Johnson, in a video speech delivered to the firm’s 40,000 employees, stated, “We have no tolerance at our company for any type of harassment. We simply will not, and do not, tolerate this type of behavior, from anyone.” Ms. Johnson echoed those remarks in a speech given to the Securities Industry and Financial Markets Association (known as “SIFMA”) the following day. She has responded to these matters in textbook fashion after they became public, first by taking prompt remedial action against the offenders and then by making it clear that sexual harassment will not be tolerated by the upper echelons of management.

It is clear by the recent outpouring of support for victims of sexual harassment and the creation of the #MeToo movement that this is an issue that cannot be ignored by companies and should be proactively addressed. Unfortunately, a recent study by theBoardlist and Qualtrics says that 77 percent of corporate boards “had not discussed accusations of sexually inappropriate behavior and/or sexism in the workplace.” Less than 20 percent of the 400+ people surveyed had reevaluated their company’s risks regarding sexual harassment or sexist behavior, even in light of the recent revelations in the media. (The survey was conducted over the summer, before the Weinstein allegations came to light).

Consequences for Failing to Adequately Respond to Harassment Allegations

There are significant consequences for failing to implement a plan for preventing sexual harassment in the workplace, and for failing to adequately respond once a complaint of sexual harassment has been filed. While sexual harassment claims may originate as internal complaints, they may result in a charge of discrimination filed with the EEOC or the corresponding state or local agency. Since fiscal year 2010, roughly 30 percent of the approximately 90,000 charges of discrimination received by the EEOC each year have alleged sex-based discrimination, and, during that same time period, the number of charges alleging sex-based harassment has gradually increased from just below 13 percent to just above 14 percent.

Sexual harassment claims may also lead to litigation, which can be expensive and time-consuming. In the Harvey Weinstein matter, for instance, Mr. Weinstein’s former company, The Weinstein Co., has been named in a $5 million civil suit alleging that executives of the company did nothing to protect women who did business with Mr. Weinstein, despite being aware of his inappropriate behavior. Additionally, the New York attorney general’s office is investigating The Weinstein Co. for potential civil rights violations in relation to its handling of claims of sexual harassment.

Aside from litigation, financial firms may face increased scrutiny from regulators. SoFi, for example, would like to expand its offerings to credit cards and checking accounts. But the allegations of sexual harassment, among other things, could negatively impact the opinions of the regulators that will decide whether SoFi is entitled to the state bank charter and federal deposit insurance needed to increase its offerings.

What Employers Should Do Now

The recent publicity regarding sexual harassment claims does not mean that financial service firms need to fear a return to the “boys club” atmosphere of the 1980s and 1990s. Financial services firms should take the following tangible actions to combat sexual harassment in the workplace:

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By Andrew E. Shapiro

It is now all but certain that for the 2018 proxy season, most U.S. public companies will be required to provide an additional disclosure regarding their CEO pay ratio. The new rule, which is contained in Item 402(u) of Securities and Exchange Commission (“SEC”) Regulation S-K, requires public companies to disclose the ratio between (i) the median of the annual total compensation of all employees (except the CEO) and (ii) the annual total compensation of the CEO (the “CEO Pay Ratio”). In addition, companies will be required to briefly describe the methodology and assumptions utilized to calculate their CEO Pay Ratio.

Contrary to many people’s expectations, recent survey data from the consulting firm Mercer suggests that CEO Pay Ratios (as calculated pursuant to the proscribed rules) are lowest among banking and financial firms and highest among retailers and wholesalers of consumer goods, which tend to employ more part-time workers with low wages. The survey data suggests that banking and financial firms have estimated their CEO Pay Ratio at mostly 200:1 or less, while retailers and wholesalers of consumer goods have estimated their CEO Pay Ratio at mostly 400:1 or more.

What Employers Should Do Now

As financial companies prepare to comply with this new CEO Pay Ratio disclosure rule, we offer the following practical guidance:

While the new rule goes into effect right around the corner, it is not too late to take the necessary steps to ensure that your company is prepared for the possible implications of the CEO Pay Ratio disclosure requirement.

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By Laura C. Monaco and Amanda M. Gómez

In this increasingly polarized and highly charged political environment, employers may face challenges in figuring out how to maintain a professional atmosphere and further their business interests without infringing on their employees’ rights to express their views on a wide range of political and social issues. This can be especially challenging in the financial services industry, where the workforce tends to be smart, well informed, and assertive. There are, however, some best practices that employers can follow in navigating the potential minefield of managing their employees’ political and social activism in the workplace.

Know—and Train Managers About—Applicable Laws

Employers should be aware that regulating their employees’ political speech and activity can implicate a variety of legal liability concerns, as well as reputational considerations among consumers and communities. As we have explained previously, the National Labor Relations Board’s General Counsel has issued a “Guidance Memorandum” concluding that employee action to “improve their lot as employees through channels outside the immediate employee-employer relationship” is protected concerted activity under Section 7 of the National Labor Relations Act, so long as it has a direct connection to the employees’ working conditions. In some circumstances, therefore, an employer could face an unfair labor practice charge if it punishes employees who skip work to attend a pro-immigration rally—but takes no action against other employees who call out on a sunny summer Friday to head to the beach.

Moreover, although there is no federal law that prohibits discrimination against private-sector employees based on their political activity or affiliation, many states (including California and New York) and the District of Columbia have such laws. Several states also have laws that protect employees from discrimination or harassment based upon their lawful off-duty conduct, which would extend to their off-duty political activity or social activism. In California, for example, an employer cannot discriminate or retaliate against employees because of their off-duty lawful political activities. Similar legal protections exist in several other states (including Colorado, Louisiana, and New York). Nevertheless, even if an employee’s political participation is a protected activity, employers may still regulate the activity through “lawful and neutrally applied work rules.”

Employers must therefore make supervisors and managers aware of what they can—and cannot—do when employees engage in political activity that may affect the workplace and ensure that such training addresses any applicable state-specific limitations and requirements.

Apply Work Rules in a Neutral, Consistent Manner

Employees’ political or social activism may be exhibited in a variety of ways that impact the financial services workplace, such as unexcused absences (so that an employee can attend a protest or rally), or violations of the cell phone use policy (by employees who use their phones to tweet in support of social causes while on the job). In the case of public-facing employees who may deal with bank customers, for example, dress code infractions (such as wearing a button or pin with a political message) may also present challenges. The best way for employers to manage these issues, and to remain legally compliant, is to apply work rules and policies consistently.

For example, if an employer regularly applies its attendance policies to discipline employees for unexcused absences, the employer need not refrain from disciplining an employee who skips work to attend a political rally. Similarly, an employer that consistently prohibits its employees from using their cell phones to access social media during their work shift does not have to allow those employees to tweet in support of a political cause on work time. If, however, that employer sometimes lets its employees off the hook for unexcused absences, or occasionally allows employees to use their cell phones to check Facebook while at work, it should be wary of applying its work rules to penalize employees who are absent or using their cell phones during work time to support a political or social cause.

The safest course for employers is to apply their work rules neutrally and avoid penalizing groups of employees based on the “message” of the political or social cause those employees choose to support. An employer that declines to discipline an employee for taking an unscheduled day off to attend a pro-choice rally, for example, may trigger a discrimination claim if it then disciplines a different employee for taking an unscheduled day to attend a pro-life event. Understanding that the line between political speech and protected comments related to the terms and conditions of employment may sometimes be hard to draw, employers can help ensure that employees’ discussions about politics do not become heated by neutrally enforcing work rules and policies that prohibit fighting, bullying, or harassment, and that prohibit employees from engaging in conduct that is loud or distracting or that otherwise impinges upon productivity.

What Employers Should Do Now

Our tumultuous political and social environment does not show any signs of cooling down in the near future. Therefore, an employer needs to be prepared to address and manage its employees’ political and social activism and to protect and further its business interests, while at the same time ensuring that its employees’ rights and morale do not suffer. Specifically, an employer should do the following:

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By Lauri F. Rasnick and Ann Knuckles Mahoney

Recently, there has been a tremendous focus on equal pay issues across many industries. Proponents of equal pay have focused, among other things, on the use of prior compensation to determine future compensation, believing that doing so maintains existing pay inequities. To prevent such results, the newest trend in equal pay has included salary history inquiry bans. Both New York City and California have recently enacted laws that prohibit employers from asking for a job applicant’s salary history and from relying upon that history unless it is voluntarily provided.[1] The New York City law became effective on October 31, 2017, and the California law becomes effective on January 1, 2018. With these new laws, and financial services being heavily represented in both regions, financial services firms should take a hard look at their current hiring and compensation practices to avoid unwittingly violating the law.

Both the New York City and California laws prohibit seeking salary and other compensation information directly from employees and from recruiters or other sources (such as Internet searches and the like). Thus, it is important for the compliance effort to encompass the appropriate individuals who may be involved in the process to make them aware of the new laws.

Key Differences Between the New York City and California Salary History Inquiry Bans

The New York City law expressly allows employers to initiate discussions regarding an applicant’s salary expectations and desires. Further, the New York City law allows employers to ask whether an applicant will have to forfeit deferred compensation or unvested equity as a result of the applicant’s resignation from his or her current employer. In addition, in New York City, employers may ask about employee production and experience, such as revenues, sales, deals, and contacts. These questions may be key for financial services employers hiring revenue producers and other front-line personnel. New York City employers may also ask about the value and structure of the deferred compensation or unvested equity, request documentation to verify the applicant’s representations, and consider such information in making the applicant an offer. The California law is silent on all these issues.

The California law requires that, upon reasonable request, employers provide a pay scale to applicants. The California law also reaffirms an aspect of California’s Equal Pay Act that prohibits employers from justifying a pay disparity on prior salary alone. Thus, while employers may consider voluntarily disclosed salary information, they may not rely on salary history alone to justify pay discrepancies between workers of different genders or ethnicities who are performing substantially similar work. The New York City law does not contain this same restriction. Further, to the extent that there is a voluntary disclosure in California, employers may not rely on the salary history information in deciding whether to hire the individual.

What Employers Should Do Now

To ensure compliance with the new bans on salary history inquiries, employers should take the following steps:

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By Brian G. Cesaratto and Robert J. Hudock

The pace of innovative financial services technology is accelerating. Firms are investing heavily to develop the next cutting-edge financial services applications that will drive future growth. Industry efforts have expanded the “attack surface” of these new technologies to dishonest employees and other malicious insiders. As the scope and criticality of these information systems increase, there is a corresponding increase in the number of employees and other individuals (e.g., a vendor’s workers) who have or may seek to gain access for a financial motive or other illegitimate purposes. Indeed, over this last year, in separate criminal matters, two computer engineers were arrested by federal authorities and charged with alleged attempted theft of trade secrets comprised of a proprietary computer code used to run the trading platforms of their respective financial services employers.

Financial services firms are, therefore, well served by utilizing a formalized vulnerability and risk assessment process to identify the insider threats to the confidentiality, integrity, and availability of their most critical technologies and systems and to address the risks. New York State registered or licensed financial services firms are required to conduct vulnerability assessments biannually and risk assessments on a periodic basis. FTC-regulated financial institutions are also required to conduct risk assessments relevant to safeguarding non-public customer information.

Firms should identify their critical information systems and the supporting hardware and interconnected communication systems. The job roles associated with those systems—i.e., any insider who by virtue of his or her job position will be granted access—should be identified. In particular, managerial and other roles that involve privileged access to the systems should be pinpointed (e.g., database or network administrators). A map, chart, or other representation of the systems, data, and insiders should be made so that the organization can thoroughly understand the interconnectivity of personnel and key systems.

The insider threats to these systems for all roles should be identified and evaluated—e.g., is there a greater threat from temporary workers or third-party contractors not presently subjected to background checks as compared with full-time employees who undergo pre-employment credit and criminal background checks? The current level and strength of existing physical, administrative, and technical controls should be identified. An essential task is to determine if the principle of least privilege is being followed and enforced—e.g., for each identified role, does the insider have only the level of access required to accomplish the job responsibilities and nothing more?

What Employers Should Do Now

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For additional information about the issues discussed above, please contact the Epstein Becker Green attorney who regularly handles your legal matters, or any of the authors of this Take 5:

*Not admitted to the practice of law.

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