Dear Client and Friends,
In these final months of 2009, I know that many of you are still waiting to exhale from what has been, and continues to be, a tumultuous and challenging year. As if coping with the worst economic crisis since the Great Depression were not enough, employers are simultaneously confronted with the concerted effort of a new Administration and Democratically controlled Congress to implement a sweeping, pro-labor agenda. The seemingly endless barrage of new laws, regulations and “guidelines” emanating from Congress and federal agencies — each imposing another burdensome obligation on employers or significantly curtailing management’s rights — truly is unprecedented.
In this environment, it is not surprising that the Secretary of Labor would ominously boast of being the “new sheriff in town,” or that the Equal Employment Opportunity Commission would describe its vastly expanding class action enforcement strategy as an attempt to get “more bang for the buck.”
It is hard to pursue business as usual in an environment so breathtakingly oblivious to the economic realities confronting the business community.
This is precisely why meeting the diverse and formidable challenges posed by 2009’s new economic and political realities was the theme of our annual client briefing in New York on September 24th — “Employers under Siege: Managing Your Workforce in Unprecedented Times.” Judging by the overwhelmingly positive feedback we have received, the program was squarely in sync with the issues of greatest concern to the more than 350 clients and friends in attendance.
For those of you who were unable to attend the program, we hope that you will take a few minutes to peruse the briefing “in a nutshell,” which is included in this e-Report.
In the days following the briefing, we heard back from many attendees wishing to share their thoughts and pose follow-up questions, especially those who participated in the wage and hour workshop. With the economy still struggling to recover, they, like so many other companies across the country, continue to face difficult financial challenges. But ensuring that cost-cutting measures meet both business needs and legal requirements often is a tricky endeavor, because of the complexity of wage and hour laws, the novelty of the approaches some innovative companies have implemented or are considering and, to an increasing extent, the unprecedented issues created by new technology, not the least of which is the following question: “What is the definition of ‘work’ in the age of the Blackberry?”
Having received the largest number of inquiries on the issue of furloughs, we decided to address some of those questions in this e-Report. We hope that you will find the article responsive to your questions and that you will continue to reach out to EBG with any other labor or employment issues which we may assist you with during these difficult and, yes, unprecedented times.
In a Nutshell: EBG’s “Employers under Siege: Managing Your Workforce in Unprecedented Times”
On September 24, 2009, Epstein Becker Green presented its 28th annual labor and employment law briefing in New York City entitled “Employers under Siege: Managing Your Workforce in Unprecedented Times.” The day-long program addressed a number of the toughest challenges employers are facing in the current economic and regulatory climate, as well as emerging legal trends that are likely to have a significant impact on the workplace.
Although more than 350 clients and friends of the firm attended the briefing, we know that many more of you were unable to join us. To ensure that all of our clients are kept abreast of the latest and most significant developments in labor and employment law, we offer the following “briefing in a nutshell.”
1. “Change Has Come to America”: The Obama Effect
Pierre Georges Bonnefil, Betsy Johnson, William J. Milani, Frank C. Morris, Jr. and Peter M. Stein
From the U.S. Department of Labor (DOL) and the Equal Employment Opportunity Commission (EEOC), to the National Labor Relations Board (NLRB) and the Department of Homeland Security (DHS), employers should be prepared for a dramatic, pro-labor shift in workplace laws, regulations and, especially, enforcement.
Each of the aforementioned agencies and departments is slated to receive a substantial budget increase in Fiscal Year 2010, largely targeted to expanding enforcement efforts. For example, the DOL’s Wage and Hour Division is expected to focus on two types of misclassification — exempt vs. non-exempt, and independent contractor vs. employee. The DOL’s Office of Federal Contract Compliance Programs (OFCCP) will likely broaden significantly its investigation of systemic compensation discrimination.
The EEOC, as well, can be counted on to target pay discrimination, particularly in light of the recently enacted Lilly Ledbetter Fair Pay Act. Also high on the agency’s list of priorities is disability discrimination (following its recently announced rules implementing the Americans with Disabilities Act Amendments Act of 2008 (ADAAA)), along with age and caregiver bias. Moreover, judging from the Obama EEOC’s approach so far this year, the agency, like the OFCCP, intends to focus on systemic discrimination, which potentially means a dramatic rise in all kinds of class actions, including, for example, disability discrimination.
In the labor arena, the controversial Employee Free Choice Act (EFCA) has been placed on the back burner as health care reform continues to consume Congress’ attention. However, as Mark Twain might say, reports of the EFCA’s demise are greatly exaggerated. Though the so-called “card check” provision does appear to be dead, it could be replaced with a significantly expedited election process that will severely hinder an employer’s ability to counter a union organizing campaign. The bill’s equally onerous mandatory arbitration provision may be softened somewhat to “last best offer” arbitration, but some form of binding arbitration is still very much in play. Further, even if the EFCA never is enacted, the new pro-union NLRB may assist Big Labor in achieving many of the goals it seeks to attain through the legislation.
Thus, the bottom line of “The Obama Effect” for employers is that diligent review and, where necessary, revision of current personnel policies and practices has never been more important. Topping the list should be a thorough audit of compensation practices and a careful evaluation of disability policies, especially the interactive process for determining whether an employee’s disability can be reasonably accommodated.
2. The H1N1 Influenza Pandemic: Preparing for the “Second Wave”
Jeffrey M. Landes and Maxine Neuhauser
As the nation anticipates the second, and possibly more serious, round of the H1N1 flu, the overarching message for employers is: BE PREPARED! By establishing a planning team and developing a contingency plan in advance of its need, employers can help ensure that they will:
- Meet operational needs. Planning for a contingent workforce includes, among other things, identifying essential positions, cross-training employees and ensuring that, if necessary, essential employees will be able to work from home or an alternative worksite.
- Protect employees, clients and others from unnecessary exposure to the virus. In this respect, policies that educate employees about flu prevention and encourage sick employees to stay home are key, along with a pre-tested, rapid response communications system.
- Meet their legal obligations under various workplace laws, including the Occupational Safety and Health Act (OSHA), the Americans with Disabilities Act (ADA) and Family and Medical Leave Act. For example, under OSHA, employees who believe that they are being exposed to imminent danger can lawfully refuse to come to work. Employers also have legal obligations with respect to protecting the confidentiality of employees’ medical information. Additionally, employers should review their paid-time-off policies, as well as understand their legal obligations with respect to workers’ compensation and temporary disability benefits.
3. Avoiding Wage and Hour Pitfalls during the Economic Downturn
Patrick G. Brady, Betsy Johnson, Michael S. Kun and Douglas Weiner
For many employers, layoffs are unavoidable during difficult economic times. Increasingly, though, companies are experimenting with less drastic cost-cutting measures, such as furloughs, compensation and hours reductions and re-hiring laid off workers as independent contractors. Employers, however, need to be aware of the legal risks inherent in a number of alternatives to a mass layoff. For example, a furlough may jeopardize a worker’s status as an exempt employee.
Employers also need to be aware that wage and hour claims, which, by some estimates, have risen more than 70 percent in the last decade, tend to increase during times of high unemployment and job insecurity. As noted earlier, the DOL is gearing up for a massive enforcement effort. Moreover, in these difficult economic times, plaintiffs’ lawyers are actively seeking out employee wage and hour claims that they can turn into high-stakes class actions.
In addition to the traditional wage and hour claims (e.g., misclassification and overtime pay), there is an array of new claims beginning to wend their way through the courts, including, most notably, class actions arising from the availability of high-tech devices that allow employees to “work” even when they are officially “off-duty” and away from any location. In some respects, this so-called “Blackberry problem” is uncharted waters for the DOL and the courts, but employers can help minimize their risks by ensuring that they have adequate policies in place to address the issues involved and that these policies are consistently enforced. For example, employers should not require or permit non-exempt employees to regularly respond to emails and text messages when they are off-duty, unless they are prepared to pay overtime for more than de minimis “work.” Further, because an employer generally must pay an employee even for unauthorized “work,” employers must be diligent in disciplining employees who violate company policy.
For more information on wage and hour issues, see the article below.
4. EFCA or Not: Complex New Challenges to Maintaining Union-Free Status Are Coming — Will You Be Ready?
Barry A. Guryan, Michael F. McGahan and Ana S. Salper
As noted above, EFCA currently has taken a back seat in Congress to health care reform, but employers should expect that it will eventually move to the forefront of legislative priorities. As also mentioned, EFCA aside, Big Labor has other weapons in its arsenal to achieve its goals — most importantly, the Obama NLRB.
On January 20, 2009, his first day in office, President Obama designated a sitting member of the NLRB, Wilma B. Liebman, to serve as the Board’s new chair.As one of two Democratic members of President Bush’s Labor Board, Liebman was a consistent and vociferous dissenter in many high-profile Board decisions. Liebman will not chair a five-member Board consisting of three Democrats and two Republicans, thereby giving the NLRB a pro-labor majority.
Led by the new Chair, the Democratically controlled NLRB is likely to reverse a number of significant 3-2 employer-friendly decisions issued by the Bush Board, in which Liebman was a dissenter. These decisions include:
- Oakwood Healthcare Inc., 348 NLRB 686(2006) (along with two other cases, known as the “Kentucky River” trilogy), in which a split NLRB liberalized the definition of “supervisor” under the National Labor Relations Act (NLRA). Since supervisors are not allowed to unionize under the NLRA, the rulings narrowed the pool of employees eligible to vote in a union election.
- Register -Guard, 351 NLRB 1110(2007), where a 3-2 Board held that an employer may lawfully implement a rule restricting employee use of the company’s e-mail system. The majority further held that an employer may permit employees to use the company’s e-mail system for charitable solicitations but ban such use for union-related activity, without running afoul of the NLRA. Prior to this ruling, an employer that allowed employees to use the company’s communications systems (e.g., telephones and bulletin boards) for any non-business purposes, including charitable solicitations, could not bar their use by employees for union-related purposes.
- IBM Corp., 341 NLRB 1288 (2004), in which a split Board held that nonunion workers do not have the right to have a co-worker present at an investigatory interview. The sharpness of the dissent issued in this case suggests that, if and when given the opportunity, the Liebman-led Board will reverse the IBM decision.
A pro-union NLRB, with its broad powers, can fulfill many of organized labor’s wishes in other ways as well. The NLRB’s job is to interpret and administer the NLRA and, in doing so, the NLRB exercises broad discretion. For example, the Board’s Regional Directors have substantial discretion to shorten the average 42-day period between the ordering and the holding of an election where a Regional Director believes that doing so would be in the best interests of the employees. In fact, if the NLRB decides that an employer has violated the NLRA and that those violations are so egregious that a fair election cannot be held, it can issue what is known as a Gissel bargaining order. Such an order forces the employer to recognize and bargain with the union, without the holding of a secret ballot election.
Thus, employers that want to preserve their union-free status should ensure that they are well-prepared to counter a union organizing effort long in advance of its occurrence. Proper preparation includes:
- Training supervisors and managers in detecting the early warning signs of union organizing and ensuring that they understand what they may, and may not, legally say and do in response.
- Reviewing, and where appropriate, revising no-solicitation and no-distribution rules and ensuring that they are consistently enforced.
- Assessing current communications and feedback policies to make certain that employees have effective avenues to air their complaints and concerns.
5. Trade Secrets, Technology, a Down Economy and Employees on the Move: Managing this Dangerous Mix
Steven R. Blackburn, James P. Flynn, Robert D. Goldstein, Lauri F. Rasnick and Peter A. Steinmeyer
According to a recent study, 88 percent of employee-respondents said that, if they were laid off tomorrow, they would take sensitive and valuable company data with them, including financial reports, customer databases and privileged passwords. Only 12 percent said that they would leave empty-handed! Such is the dangerous environment employers must cope with when mass layoffs and job insecurity mix with high technology.
There are, however, a variety of steps companies can take to help prevent the misappropriation of trade secrets and other confidential data by departing employees, including immediately ending an employee’s access to the company’s computer system, requiring the immediate return of company-issued laptops, Blackberries and other such devices and evaluating these devices and any others the employee had access to for evidence of misappropriation. If an employer finds such evidence, it may have recourse against the former employee under various federal and statute statutes.
Employers also may be able to prevent a departing employee from working for a competitor for a limited amount of time if, during the course of his or her employment, the employee signed a valid non-compete agreement. Many, but not all, states will enforce non-compete agreements, but even those that do impose numerous restrictions on their enforceability. For example, the agreement must be reasonable with respect to both its geographic scope and the duration of time an employee is prohibited from working for a competitor.
6. Immigration Issues under the Obama Administration: Comprehensive Immigration Reform and Managing Foreign National Employees in this Economy
Pierre Georges Bonnefil, Robert S. Groban, Jr. and Frederick Warren Strasser
Under the Obama Administration, focus on compliance with immigration law has noticeably shifted away from the undocumented worker and toward the employer. In recent months, the DHS’ Immigration and Customs Enforcement division (ICE) has significantly stepped up criminal prosecutions and asset forfeitures. The DHS, with the help of Congress, also has focused on upgrading and expanding the E-Verify program. Moreover, though the DHS recently rescinded the “safe harbor” rule with regard to No-Match letters (and will resume issuing such letters), ICE still regards No-Match letters as constructive knowledge of a potential problem with a worker’s immigration status.
Increased enforcement is considered a prerequisite to obtaining sufficient Congressional support for comprehensive immigration reform. Thus, employers should expect the DHS to expand its targeting of employers, at least for the foreseeable future. Accordingly, employers should:
- Carefully assess their legal exposure.
- Educate management on the legal risks which the company is vulnerable to.
- Develop and enforce consistent, robust compliance policies.
- Adopt HR practices that identify and help prevent fraud.
- Use the proper Form I-9.
- Prepare a crisis management plan in case the government comes knocking at your door.
7. The “Twittering” Workplace and Other New Digital Age Concerns
James P. Flynn and David Jacobs
With the advent and soaring popularity of social networks (Facebook, LinkedIn, MySpace, Twitter, LiveJournal and Flickr, to name a few), along with Blackberries, smartphones, Youtube and GPS, as well as the expansion of old stand-bys such as Google and Yahoo!, the high-tech landscape is vastly changed and considerably more complicated than it was just a few years ago. As social networking sites and the like invade the workplace, they are posing new and formidable challenges to employers, with respect to both business concerns and potential liability to employees and others. These risks include:
- Claims of discriminatory hiring practices. Increasingly, employers are using Facebook, LinkedIn and other social and business networking sites for recruitment and background checks. While, admittedly, such sites can be quite useful in finding and verifying job candidates, the process is fraught with legal peril. Among other things, an employer can learn much more about an applicant from his or her Facebook page than it would otherwise know, such as the applicant’s age, whether he or she has a disability, what his or her marital or parental status is, the applicant’s race and religion and so on. Though a recruiter may not consciously base an employment decision on any of this information, the fact that it was in the employer’s possession at the time the hiring decision was made may be enough fuel to support, at least preliminarily, a bias charge from a rejected applicant.
- “Textual” harassment claims. Remember how people used to think their emails were “private”? Well, for some reason, many individuals now feel the same (incorrect) way about the text messages they send. Unfortunately, some employers are already finding out that when supervisors or co-workers send inappropriate text messages to subordinates or co-workers, they can be potent evidence in support of a sexual harassment claim. Moreover, some plaintiffs’ attorneys readily admit that they encourage clients to engage an alleged harasser in texting as a way of building a case.
- Misappropriation of trade secrets and other confidential data. See discussion above under #5 and the accompanying link.
- Invasion of privacy claims. While an employer has the right to restrict the use of, as well as monitor, all company communications systems, including company-issued laptops and Blackberrys, some recent cases suggest that this right is not absolute. For instance, an employee may have a valid claim for invasion of privacy if the employer accesses the employee’s private, password-protected account on a social networking site without, at least, the employee’s implicit authorization.
- Damage to the company’s reputation. Numerous Web sites allow employees to “rate” their employers and supervisors and to provide information on salaries, benefits and other company practices. There also are so-called “rant” sites, where disgruntled workers can vent about their boss or colleagues. This phenomenon is developing so rapidly and spreading so quickly that a growing number of companies are hiring or devoting staff to the sole purpose of tracking what is being said about the company on the Internet.
The diversity, breadth and potential seriousness of the risks presented by social networking sites and other new media require that employers take an especially thoughtful approach with respect to developing policies that are legal, appropriate and workable for their company. This includes a realistic assessment of the company’s needs and its ability and commitment to enforce such policies. The potential impact of highly restrictive policies on employee morale is another important consideration. Further, the emerging case law suggests that all such policies should be both comprehensive and specific, spelling out in detail the precise conduct and equipment that they are intended to cover and the nature and scope of the company’s monitoring program. Finally, employers should proceed cautiously before taking action against an employee believed to have violated the company’s electronic communications policy, as this is largely unexplored terrain for which the courts are just beginning to write the rules of the high-tech road.
8. From the Supreme Court to State Courts: The Most Important Labor and Employment Law Decisions of 2009
Barry A. Guryan, Matthew T. Miklave and Robin Taylor Symons
The unfortunate reality is that, during an economic downturn, labor and employment litigation tends to increase significantly. One key indicator of this trend is the number of charges filed with the EEOC. In Fiscal Year 2008, which ended September 30, 2008 — before the economy went into freefall — charge filings increased more than 15 percent over Fiscal Year 2007 and set a record for the number of charges filed in a single year. The agency expects to break this record in 2009.
Thus, it is not surprising that the past year has produced an abundance of workplace rulings from both the federal and state courts. In addition to the significance of individual decisions — and there are many — certain trends are emerging, particularly from the Roberts Supreme Court, that either directly involve substantive changes to labor and employment law or affect how such lawsuits are conducted. In some cases, the latter “procedural” issues could be said to be “outcome determinative.”
a. “Who Are You Calling an ‘Activist’?” — The Court’s Emerging Love-Hate Relationship with Precedent
From the time of his confirmation hearings, Justice Roberts has consistently proclaimed his desire for the Court to issue the “narrowest” ruling possible in deciding a case. In the area of labor and employment law, the Court’s track record in this regard is a mixed bag. On a number of substantive matters, including this year’s Ricci” reverse discrimination” case, the Gross age bias/burden of proof decision and the 14 Penn Plaza arbitration/age bias ruling, a sharply split Court arguably changed the rules of the game. For example, in Ricci, the Court set forth a new standard for evaluating when an employer can intentionally discriminate against individuals in order to avoid unintentionally discriminating against a protected group. And in Gross, the Court’s “activism” was even more blatant: in a highly unusual move, the 5-4 majority decided an issue that was not even presented to the Court.
With respect to procedural issues, the Roberts Court also was quite “active.” For example, the Court strictly construed pleading requirements, tightened the employee’s burden of proof in certain age bias cases and refused to apply the Pregnancy Discrimination Act retroactively. The result of these rulings is to limit a plaintiff’s ability to get his or her claim before a jury.
b. The “Activist” Court vs. the “Activist” Congress
Another trend is the growing tension between the Supreme Court and Congress. For instance, in 2008, Congress passed the ADAAA with the specific purpose of overturning a series of Supreme Court decisions that had narrowly interpreted the original ADA. The lower courts have begun to grapple with applying the ADAAA and, undoubtedly, it will not be long before the Supreme Court gets the chance to weigh in on the new legislation. It remains to be seen how the Court will respond to Congress’ rebuke of its earlier rulings.
The Lilly Ledbetter Fair Pay Act of 2009 is another example of Congress taking action against a decision with which it disagreed. After the Court ruled in 2007 that Ms. Ledbetter had waited too long (19 years) to bring her pay discrimination claim against her former employer and that it was, therefore, time-barred, Congress nullified that ruling with the Fair Pay Act. The Act specifically mandates what the Court prohibited — a liberal interpretation of Title VII’s statute of limitations that will allow claims like Ledbetter’s to remain actionable long after the period that the Court found was permissible under the law. In fact, the language of the Fair Pay Act is so broad, and arguably so ambiguous, that the lower federal courts are already engaged in a vigorous debate over its proper interpretation.
Further, for the foreseeable future, this tension between Congress and the Courts is likely to continue, if not increase, in light of the fact that the Congress currently is controlled by the Democrats. Indeed, members of Congress have expressed their desire to take legislative action to overturn at least two decisions issued by the Court just this past term — the Ricci “reverse discrimination” case and the Gross age bias/burden of proof decision.
The current tension between the Court and Congress is one more example proving the axiom “elections have consequences.”
The bottom line for employers is that there is not as much predictability as one might assume with respect to how the Roberts Court will rule in any particular employment case. Moreover, decisions favorable to employers may be short-lived if they are distasteful to Congress. In light of this Court vs. Congress battle, as well as the current economic climate and the new EEOC’s invigorated focus on enforcement, employers are well-advised to regularly review their policies to determine if they conform to the latest developments in the law and to assess whether they will withstand the scrutiny of a more employee-friendly EEOC.
Implementing a Furlough To Reduce Costs While Maintaining the Required Salary Basis for Exempt Employees
By Patrick G. Brady, Betsy Johnson, Michael S. Kun and Douglas Weiner
The Fair Labor Standards Act (FLSA) generally requires the payment of overtime wages to employees who work over 40 hours a week. However, the FLSA provides exemptions from the requirement to pay overtime to certain employees who perform exempt duties and are paid on a “salary basis.” Assuming the duties test is met, the Executive and Administrative exemptions require, with a few exceptions not applicable to this discussion, the payment of a fixed, predetermined salary without deduction for the quality or quantity of work performed.
Below are questions asked by employers on the topic of furloughs and our answers.
Q — “How can we implement a furlough to save money if the employees’ salary has to remain constant?”
A — “The FLSA allows employers to impose a prospective salary reduction, as do most state laws. The primary strategy is to prospectively reduce the salary, rather than take deductions from the existing level of salary. A salary may be prospectively reduced without violating the ‘salary-basis’ test of the FLSA for exempt employees, including a reduction in pay proportionate to a reduction in the number of days worked. As with all such strategies, applicable state and local requirements need to be determined, as federal law defers to a state or local standard that provides a greater protection to the employee than federal law.”
Q — “May we reduce the number of days exempt employees are required to come to work, and reduce their salary proportionately?”
A — “Yes, as long as the employee’s salary is reduced first. The best practice is to take a big picture view of the furlough objective. How much in salary reduction is necessary to achieve the required financial objectives? Once you know your target, prospectively reduce the salaries of exempt employees by the percent reduction to achieve that target. Issue to employees advance written notice of the salary change to be sure you can prove the salary reduction was prospectively implemented. For morale purposes, you may want to advise employees that the furlough plan is necessary to allow the business to persevere during times of extreme economic distress and to save jobs. The most common alternative to implementing a furlough is a Reduction in Force, which can be devastating to those who lose their jobs.”
Q — “We pay a salary of $1,000 a week. We need to reduce payroll costs by 10 percent. May we tell our exempt employees they may take every other Friday off, and pay them $800 for the week they work only four days?”
A — “No. It is impermissible to take deductions from the fixed salary for work weeks where any work is performed. The FLSA permits the prospective reduction of salary from $1,000 a week to $900 a week. Once the salary level has been reduced to $900 a week, you realize the same financial benefits of a 10 percent reduction of payroll costs, and you are not taking improper deductions from the predetermined salary.”
Q — “May incentives for performance be offered to exempt employees that will have a varying effect on their weekly compensation?”
A — “Yes. The FLSA permits commission agreements or bonus compensation plans based on the quantity or quality of work that do not reduce the “predetermined amount” of the employee’s salary. Assuming the duties test for the exemption is satisfied, the predetermined salary could be as low as $455 per week, while the compensation the employee actually receives could be substantially higher and vary from week to week based upon sales commissions, incentives for meeting goals or bonuses for achieving other performance criteria. To preserve the salary basis of the exempt employee, the predetermined amount of salary has to be paid for workweeks in which any work is performed, even when sales are not made and production goals are not achieved.”
Careful strategic planning is required before implementing a furlough. Consider that:
- Salary adjustments may not be designed to circumvent the requirements of the FLSA.
- Salaries may be prospectively reduced as long as those adjustments are not so frequent that they appear designed to circumvent the requirements of the FLSA. Quarterly adjustments have been found by one appellate court to be in compliance with the FLSA, but salary adjustments more frequent than that may be questionable. Adjustments to salary should be implemented as infrequently as feasible so as not to raise an argument that the adjustments are merely a pretext to avoid compliance with the FLSA.
- Employees performing non-exempt duties must be paid for every hour of work. Tips for implementing an effective furlough strategy for non-exempt employees will be the subject of a future article.
In sum, properly implemented salary reductions will realize the necessary cost savings, and comply with the salary requirements of the FLSA.