Employer Express April 2014 Newsletter
April 2014

Key developments in the Employer Express April 2014 newsletter include:

Intern Season is Upon Us – Be Careful
Attention NYC Employers: Revised NYC Sick Time Act Effective on April 1, 2014
Obama Administration Directs DOL to Broaden Overtime Protections
New Proposed Pay Equity Rules for Federal Contractors
Second Circuit Finds EEOC Charges Do Not Toll State-Law Tort Claims
Slightly Relaxed Obligations for Employers under Final ACA Regulations
FTC & EEOC Issue Joint Informal Guidance on Employer Use of Background Checks
OSHA Issues Rules for Implementing Protection of Whistleblowers
Supreme Court Denies Review of Individual Liability Supermarket Chain Owner
Finding Insufficient Presuit Investigation Federal Court Dismisses EEOC Claims
NLRB Finds Policy Banning “Negativity” Unlawful
Eleventh Circuit Finds that Depression Does Not Qualify Worker for FMLA Leave
Federal Judge Refuses to Dismiss LGBT Worker’s Title VII Claims
NLRB Continues to Eschew Wave of Decisions Approving Employee Arbitration Agreements with Class Action Waivers
Intern Season is Upon Us – Be Careful

On March 26, 2014, the New York City Council unanimously passed a bill to expand the New York City Human Rights law to prohibit employment discrimination against interns. New York employers are advised to become familiar with the new legislation, which is likely to be signed by New York City Mayor Bill de Blasio. If enacted into law in its current iteration, it will take effect within 60 days, just in time for the summer internship season.

The bill was passed in response to an October 2013 federal court lawsuit, Wang v. Phoenix Satellite Television, in which an unpaid intern alleged that her supervisor sexually harassed her. The court dismissed most of the complaint, holding that the City’s anti-discrimination law applies to “employees” but not unpaid interns. The new legislation aims to now extend such protections to interns, whether paid or unpaid, prohibiting employers from discriminating against them on the basis of actual or perceived age, race, creed, color, national origin, gender, disability, marital status, partnership status, sexual orientation, alienage or citizenship status, or status as a victim of domestic violence, sex offenses or stalking.

This new law is not the only intern issue to be aware of. If your company is hiring summer help and you want to treat them as unpaid interns, be aware of the six Department of Labor (“DOL”) criteria which must be met in order for your program to qualify as an internship:

  • the internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment
  • the internship experience is for the benefit of the intern
  • the intern does not displace regular employees, but works under close supervision of existing staff
  • the employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded
  • the intern is not necessarily entitled to a job at the conclusion of the internship, and
  • the employer and intern understand that the intern is not entitled to wages for the time spent in the internship program.

The safest course, frankly, is to pay your summer interns.

As a general matter, employers should anticipate interns to essentially be entitled to the same protections available to regular employees, and review their discrimination and retaliation policies to reflect this new protected class.

Attention NYC Employers: Revised NYC Sick Time Act Effective on April 1, 2014

A reminder that New York City’s new Earned Sick Time Act (“ESTA”), one of the most significant mandatory changes to employers’ leave practices in years, took effect on April 1, 2014. New York City employers with five or more employees are now required to provide up to five days of paid sick leave to employees.

Any employee who has worked at least 30 hours in a year is entitled to pro rata paid sick time. The revised measure also broadens the definition of "family member" under the existing law, requiring employers to grant employees sick time to also care for sick siblings, grandchildren and grandparents.

Employers are required to maintain records substantiating compliance for three years rather than the two years required under the previous law.

To ensure compliance employers should review their policies and procedures, particularly those excluding part-time and temporary employees who may now be entitled to leave. Employers should also ensure timely distribution of a required written notice to new hires informing them of their legal rights to sick time. Under the law, such notices must be provided to current employees by May 1, 2014, and to new employees upon hire. An English-language model notice was recently issued by the NYC Department of Consumer Affairs, though translated versions are still pending.

In the meantime, Kelley Drye will continue to monitor the implementation of the amended law and keep you updated with any new developments. Please contact our Labor and Employment Law group should you have any questions about or require compliance assistance in connection with the ESTA requirements.

Obama Administration Directs DOL to Broaden Overtime Protections

In a March 13 Presidential Memorandum, President Obama directed the DOL to “modernize” overtime regulations under the Fair Labor Standards Act, which will likely lead to required overtime pay for millions of employees currently exempt from FLSA overtime requirements under the executive, administrative, and professional exemptions.

While the direction to Secretary of Labor Thomas Perez does not have any immediate effect on employers’ obligations to pay overtime, the President’s Memorandum gives a hint at what proposed changes to existing rules may come. Specifically, the President directed changes to the executive, administrative and professional exemptions, upon a finding that they “had not kept up with our modern economy. Because these regulations are outdated, millions of Americans lack the protections of overtime and even the right to the minimum wage.”

Currently, the rules at issue, known collectively as the “white collar” exemptions, exempt employers from paying overtime to millions of employees nationwide. Under current law, the exemptions apply to employees who receive a salary of at least $455/week and perform certain job duties. The expected changes will raise the “salary basis” to what some have speculated to be $1000/week, and change how key terms are defined under the “job duties” analysis. These changes will affect millions of employees, and certain employers – particularly restaurants and retailers – may be hit hardest.

Employers will have time to prepare for, and fight to narrow, these vast expected changes and the President’s Memorandum does not have any immediate effect on the legal requirements currently applicable to employers, and proposed revisions must go through a notice and comment period and the normal rulemaking process. The rulemaking process will be a legal and political battle that employers should closely watch, and should consider engaging counsel and bargaining units to participate.

Many fear this directive is just the tip of the iceberg in a wave of worker-friendly regulatory activity from the DOL and other agencies as President Obama’s last term in office winds down.

New Proposed Pay Equity Rules for Federal Contractors

On National Equal Pay Day, April 8, 2014, President Obama directed the DOL to propose a rule requiring federal contractors to provide summary data on employee compensation, including data by sex and race, in the hopes of furthering the mission to advance pay equality.

In a presidential memorandum to the Secretary of Labor, Thomas E. Perez, the President shared the administration’s concern that federal law advancing equal pay has been “impeded by a lack of sufficiently robust and reliable data on employee compensation.” The memorandum directs the DOL to propose a rule in the next 120 days, by August 6, requiring such summary compensation information be submitted to the DOL by federal contractors. The  goal is to use the collected data to encourage greater voluntary compliance by employers with federal pay laws and to identify and analyze industry trends.

The memorandum instructs the DOL to focus on maximizing efficiency and effectiveness in developing the new rule. The agency is to avoid creating new record-keeping requirements and, instead, rely on existing reporting frameworks to collect the summary data and take into account independent studies regarding the collection of compensation data, so as to minimize the administrative burdens on contractors. However, pending the drafting and publishing of implementing regulations,  it is not clear how much of an administrative burden the new rule will place on federal contractors. It also awaits to be seen if, and/or how, the regulations will allow for distinguishing apparent disparities - attributable to innocuous factors influencing compensation, such as schooling, experience, seniority - and actual unlawful inequalities warranting the agency’s enforcement.

Relatedly, President Obama also issued an executive order, entitled “Non-Retaliation for Disclosure of Compensation Information,” prohibiting retaliation against employees and applicants who discuss compensation information. The DOL is slated to propose implementing regulations to this effect by September 15, 2014.

We will continue to monitor and update you on any developments in this area. In the interim, employers contracting with the federal government and their subcontractors should review their compensation practices. Identify pay disparities, address exposed inequities and make sure any remaining disparities that may suggest unfairness at first glance can be justified.

Second Circuit Finds EEOC Charges Do Not Toll State-Law Tort Claims

In a case of first impression, the Second Circuit found that an employee charge with the Equal Employment Opportunity Commission (“EEOC”) does not toll the statute of limitations on state-law tort claims, even those that arise under the same course of conduct.

The Second Circuit decision in Castagna et al. v. Luceno et al. – issued by a three-judge panel early this March – dismissed the plaintiff’s state-law tort claims for intentional infliction of emotional distress in a sex discrimination suit as barred by New York’s one-year statute of limitations. Castagna quit in July 2008, and alleged that her company and former boss subjected her and other female employees to a hostile work environment. She timely filed a charge of discrimination with the EEOC after she quit, but did not receive a right-to-sue letter from the EEOC until August 2009 – one month outside of New York’s limitations period. 

In rejecting the plaintiff’s attempt to salvage her state law claims, the Second Circuit panel found that “[t]here is no basis for concluding that congress intended that a civil rights claimant should be entitled to delay filing any state tort claims during the EEOC’s consideration of charge of discrimination.”

This decision is in accord with two decisions from the Seventh and Ninth circuits (the only others to have considered the issue). This offers clear guidance for employers facing pendant state claims in discrimination cases, and will often force plaintiffs to choose between instituting two (separate and costly) actions and allowing their state claims to expire.

Slightly Relaxed Obligations for Employers under Final ACA Regulations

On March 10, 2014, the U.S. Department of Treasury issued final regulations for two separate reporting requirements under the ACA’s employer mandate, requiring businesses with 50 or more full-time employees to offer qualifying health coverage or face penalties.

Both requirements require certain employers to file information returns with the Internal Revenue Service (IRS) to furnish statements to certain employees or other individuals. The default reporting method, requiring employers to identify each full-time employee and provide details about the health coverage offered to that employee and his or her spouse and dependents on a month-by-month basis, presents a significant administrative burden to applicable employers.

The regulations now offer employers subject to these overlapping obligations some leeway, creating three alternative reporting methods that will reduce the reporting burden for employers that meet certain conditions. The regulations provided for reduced reporting obligations for employers that (1) provide health insurance premiums for employee-only coverage of 9.5% percent of the poverty line, that is $1,100 annually, or lower; (2) make qualifying offers to 95% or more of its full-time employees, or (3) offer affordable coverage to at least 98% of their workforce.

The final regulations now allow for completion of a single form for compliance with both data-reporting requirements. While the opportunity for combined reporting somewhat mitigates the administrative burden of compliance, employers are still required to provide employees with hard copy statements of their health benefits. Despite lobbying efforts to the contrary, the Obama administration has made clear electronic statements are only allowed in instances where an employee has expressly agreed to forego a hard copy statement.

Relatedly, the House of Representatives recently approved legislation that, if enacted into law in its current iteration, would change the definition of “full-time employee” under the ACA, from requiring 30 or more hours per week to 40 hours of service per week. While the legislation, entitled the Save American Workers Act (H.R. 2575), is unlikely to move forward in the senate this year, the House vote is symbolic of growing partisan tensions over the ACA.

We will continue to monitor this area as the IRS works to finalize the requisite forms for compliance with the final regulations and will update you with any developments. As the Employer Express previously reported in our March issue, key provisions of the employer shared responsibility under the Patient Protection and Affordable Care Act (PPACA) were delayed to January 2015, with added transitional relief extending to 2016 for some employers. While the mandate does not take effect until 2015 and 2016, depending on business size, employers should access their current capabilities in preparation for the significant administrative challenges of compliance with the ACA.

FTC & EEOC Issue Joint Informal Guidance on Employer Use of Background Checks

On March 10, the Equal Employment Opportunity Commission (“EEOC”) and the Federal Trade Commission (“FTC”) published joint guidance, informally synthesizing the two agencies’ rules on employee background checks.

The new joint guidance is two-fold, with one addressed to employers, “Background Checks: What Employers Should Know,” and another addressed to current employees and job applicants, “Background Checks: What Job Applicants and Employees Need to Know.” The employer guidance makes clear that employers must treat all applicants and employees equally, and are prohibited from running background checks on only certain applicants or employees on account of their protected characteristics. An employer’s inquiry is further limited, with existing law prohibiting inquiries into an employee’s medical or genetic information. Employers must also abide by all applicable recordkeeping requirements while handling and disposing of background information.

While employers still have wide latitude to conduct background checks, the EEOC’s continued and expanding scrutiny to prevent unlawful discrimination in addition to the FTC’s enforcement of the Fair Credit Reporting Act (“FCRA”) have given rise to important restrictions on employers' efforts to obtain and use individual background information. Under the FCRA, employers must inform applicants and employees in writing that it might use the information for decisions about his or her employment and obtain the employee’s written permission to do the background check. The FTC further emphasized that employers must provide applicants with information both before and after making an employment decision based on a background check so as to allow them an opportunity to explain the results, pursue their rights to challenge the accuracy of the information, and/or obtain an additional report.

While the joint guidance only reiterates existing law, the increased focus on employers' background check practices is significant. Employers using criminal history, credit, and other background checks to make an employment decision should remain mindful to comply with both technical and substantive requirements.  Employers should review policies and practices to make sure they are in compliance with the technical pieces of the FCRA in addition to other federal, state and local laws. See the January and February issues of the Employer Express for additional details on the EEOC’s increased enforcement, as well as expanding state and local legislative efforts in this area.

For assistance in complying with the myriad of regulations governing an employer’s use of background checks, reach out to our Labor and Employment Department.

OSHA Issues Rules for Implementing Protection of Whistleblowers

The U.S. Occupational Safety and Health Administration (“OSHA”), charged with overseeing and enforcing the whistleblower provisions of 22 separate statutes, released an interim final rule governing its procedures for retaliation complaints under the whistleblower provisions of the Consumer Financial Protection Act of 2010 (“CFPA”), a portion of the Dodd-Frank Act which protects workers involved in offering or providing consumer financial products or services.

The whistleblower protections under the CFPA extend to workers who report violations of financial consumer protection laws to their employer, the bureau, or any other federal, state, or local authority. The CFPA also protects individuals who object to, or refuse to participate in, any activity, policy, practice, or assigned task that the employee (or other such person) reasonably believes to be in violation of any law, rule, order, standard, or prohibition, subject to the jurisdiction of, or enforcement by, the Consumer Financial Protection Board (“CFPB”).

Under the CFPA, a complainant must file a CFPA whistleblower claim with the CFPB within 180 days of the alleged violation and make an initial showing that the protected activity or disclosure was a “contributing factor” in the adverse employment action. The interim final rule outlines the steps and procedures OSHA investigators and administrative law judges will take in evaluating and processing whistleblower complaints under this statute. The rule establishes procedures and time frames for employee complaints to and investigations by OSHA, appeals of OSHA determinations to an administrative law judge (ALJ), hearings by ALJs, review of ALJ decisions by the Administrative Review Board (acting on behalf of the U.S. Secretary of Labor), and judicial review of the Secretary’s final decision.

OSHA is currently requesting comments on these interim regulations. Following up on last month’s discussion of the new limitations on whistleblower protections established in the Villanueva v. U.S. Department of Labor decision, we will continue to monitor these judicial and regulatory developments. In the meantime, employers are encourage to familiarize themselves with the requirements imposed by these rules and continue to pay close attention to the increasing focus in this area.

Supreme Court Denies Review of Individual Liability Supermarket Chain Owner

In yet another reminder of the dangers of personal liability in FLSA cases, the Supreme Court declined to hear an appeal by the owner of Gristede’s Food Inc. that sought reversal of a Second Circuit ruling that he was liable as an “employer” in a $3.5 million settlement.

The Supreme Court denied review of the Second Circuit’s finding that John Catsimatidis – owner of the grocery chain Gristede’s – may be held personally liable for his corporation’s violation of the FLSA merely because he had general control over corporate affairs. While Catsimatidis had stopped by stores, changed promotional displays, and checked on operations, he hadn’t overseen hiring and firing, made payroll decisions, or directly negotiated with worker’s unions in over 10 years. However, the Second Circuit found that he exercised enough control over the chain and personally profited from the violations alleged in the suit to be considered an “employer” under the FLSA.

Even more notable is that this personal liability arose out of a settlement that never considered individual liability. The parties agreed on a settlement shortly before trial in June 2009. The corporation made the initial lump sum payment, and continued to make monthly payments as outlined in the settlement agreement. However, when the company failed to make payments, Catsimatidis was ordered to make up the difference.

Finding Insufficient Presuit Investigation Federal Court Dismisses EEOC Claims

In an encouraging decision for employers, a New York federal judge dismissed an EEOC claim of nationwide sex discrimination, adopting a magistrate’s recommendation that the EEOC’s presuit investigation was not “national in scope.” This adds to a rash of decisions that could have significant (negative) implications for the EEOC in large cases.

In EEOC v. Sterling Jewelers Inc., the Western District of New York granted partial summary judgment and tossed the EEOC’s allegation of a nationwide pattern or practice of gender discrimination. Before directly bringing suit, the EEOC must conduct an investigation, make a determination of reasonable cause, and attempt to resolve the matter by informal methods of conference, conciliation, and persuasion. Courts have agreed that, at the very least, a conciliation attempt is a condition precedent to suit. In Sterling, the EEOC argued that it had more than satisfied its presuit investigation requirements, and that its investigation was not judicially reviewable.

The EEOC claimed that it received anecdotal information about gender discrimination in stores across 19 states, in addition to a nationwide analysis of pay and promotions conducted by a third party. The adopted magistrate’s report and recommendation rejected the EEOC’s arguments, finding that even though courts were not entitled to review the adequacy of an EEOC investigation, they were allowed to determine whether such an investigation actually occurred. It further found that “[t]he mere gathering of information from others does not constitute an ‘investigation’ nor does the parroting of that information without independent analysis.”

This is just the latest in a growing swell of decisions over the EEOC’s tactics in presuit investigations in large-scale cases that will likely merit Supreme Court review. More and more courts are requiring the EEOC to show precisely what it has done, and a factual basis for its findings, before filing a lawsuit. Sterling adds yet another case to the series of rulings that have dismissed claims because of an alleged failure by the EEOC to fulfill its obligations.

NLRB Finds Policy Banning “Negativity” Unlawful

In yet another decision in the NLRB’s recent aggressive efforts to police employer’s internal policies in the name of “protected concerted activity,” the labor board found a hospital’s policy requiring employees to represent their employer “in the community in a positive and professional manner” ran afoul of federal law.

The NLRB has turned increasing efforts toward review of employers’ internal policies and employee handbooks in efforts to identify those which they consider overbroad and in violation of law. Section 7 of the National Labor Relations Act provides employees the right to act together to try to improve their pay and working conditions, and applies equally to union and non-union employees. This is known as “protected concerted activity.”

In this instance, Hill and Dales General Hospital’s values and standards of behavior policy had  a common requirement that many employers overlook (or never question) – that its employees portray the company in a positive and professional light in public.

Hill and Dales’ “positive” policy may not have been found illegal had it not been viewed in light of other portions prohibiting “negative comments about . . fellow team members” and “engage[ment] in . . . negativity or gossip.” The NLRB concluded these parts were clearly illegal as impermissibly overbroad and potentially chilling of protected speech. The Board further found that portions of the policy that required employees to represent the hospital in a positive light was “just as overbroad and ambiguous as the proscription on ‘negativity.’” The Board rejected Hill and Dales argument that employee involvement in the drafting of the rules removed any potentially impermissible ambiguity in the rules.

This decision, and the avalanche of decisions in recent years questioning these policies, is a cautionary note to all employers to revisit their employee handbooks and policies. Employers should also be aware of the NLRB’s increasing efforts to police terminations of employees who speak negatively (and in some cases, crudely) about their employers in public and on social media platforms.

Eleventh Circuit Finds that Depression Does Not Qualify Worker for FMLA Leave

In a practical decision for employers, the Eleventh Circuit vacated a $1 million judgment for a former executive who alleged he was terminated because he sought Family Medical Leave Act (“FMLA”) leave to help alleviate his depression, providing sensible guidance for employers to decide when leave is covered.

The FMLA generally requires employers to provide up to 12-weeks of protected, unpaid, leave and job restoration to employees in any 12-month period for reasons including the employee’s own “serious health condition.” In Hurley v. Kent of Naples Inc., Hurley requested that his employer provide eleven weeks of vacation over the following two years. When this request was rejected, the plaintiff stated that his health professionals had told him that vacation time was required to alleviate his depression, in addition to making other complaints about his treatment at work. He was terminated the next day for insubordinate behavior.  Hurley’s doctor wrote on an FMLA form that he suffered from depression and that any duration or frequency of incapacity was not determinable. Hurley later brought suit claiming that his employer terminated him for seeking leave under the FMLA.

The suit survived motions for summary judgment from both parties and went to a jury trial. The jury found that Hurley suffered from a serious health condition, was eligible for FMLA leave, and gave proper notice under the act.  The District Court judge denied a renewed motion for judgment as a matter of law by the defendant employer. 

The Eleventh Circuit vacated the judgment, finding that depression can never be a serious health condition under the FMLA. In so finding, the court rejected Hurley’s assertion that based upon the plain language of the statute he only needed to potentially qualify for FMLA leave in order to bring his claims. It went on to find that the FMLA does not extend protection to any leave that is medically beneficial – Hurley had admitted that he did not request leave because he was incapacitated, a requirement for an employee to qualify as having a “serious health condition” under the FMLA. 

This decision should offer guidance and confidence to employers when assessing the merit of requests for FMLA leave by employees with depression and other conditions that are clearly not “incapacitating.” If you have any questions or concerns regarding an employee’s FMLA requests, and your rights under the law to request additional information, contact our Labor and Employment Group.

Federal Judge Refuses to Dismiss LGBT Worker’s Title VII Claims

While the federal Employment Non-Discrimination Act (ENDA) that would add sexual orientation or gender preference to the list of protected classes under federal law has stalled in Congress, at least one recent decision should serve as notice to employers LGBT individuals may still successfully assert Title VII discrimination claims under current law.

In Terveer v. Billington, No 1:12-cv-01290, the plaintiff alleged that he suffered harassment and hostile behavior from his immediate supervisor because his sexual orientation did not fit his “fundamentalist Christian” boss’s perception of acceptable gender roles. 

Although the U.S. District Court for the District of Columbia dismissed a number of the plaintiff’s claims, it refused to dismiss claims for sex discrimination, religious discrimination and retaliation. The employer argued that the plaintiff failed to sufficiently allege “sex stereotyping,” a form of discrimination recognized under Title VII, and could not show how the supervisor took issue with the employee’s religious beliefs.

In rejecting these arguments, the Court found that the plaintiff had sufficiently pled his claim by stating that “his orientation as homosexual had removed him from [his supervisor’s] preconceived definition of male,” and that Title VII protects employees from adverse treatment because they do not hold or follow their employer’s religious beliefs. Other courts have previously found that an employee’s actions that do not conform with an employer’s religious beliefs – such as divorce – sufficiently plead a prima facie case of religious discrimination under Title VII. 

Many employers operate in jurisdictions where state or local law prohibits discrimination against LGBT employees. Even in states that do not have such laws, however, possible federal claims and costly litigation suggests that all employers should ensure that management is trained to be sensitive to their employee’s sexual orientation or gender identity. Nondiscrimination policies should address these categories of persons even where it may not be strictly prohibited by state or local law.

NLRB Continues to Eschew Wave of Decisions Approving Employee Arbitration Agreements with Class Action Waivers

In yet another troubling decision for employers seeking a sure bet with their arbitration agreements, relying on the Board’s ill-received D.R. Horton decision, an NLRB Administrative Law Judge found that a large employer’s arbitration agreement containing a class waiver violates federal labor law, despite the overwhelming support for such waivers in federal circuit courts.

In Domino’s Pizza LLC, No. 29-CA-103180, ALJ Mindy E. Landow found that the pizza chain’s arbitration agreement could not stand under NLRB precedent, which finds such provisions to run afoul of employees’ rights to engage in protected concerted activity under Section 7 of the National Labor Relations Act. Counsel for the employer attempted to distinguish Domino’s agreement from the one at issue in the NLRB’s prior decision because it contained an opt-out clause, allowing employees to send an e-mail or letter within 30 days rejecting the class waiver. In rejecting this argument, the ALJ found that requiring employees to affirmatively act (in this case, to opt-out) to exercise their legally protected rights under the NLRA voided the waiver. Those who do not opt-out are “limited” in their options to engage in protected conduct under the NLRA.

D.R. Horton, the underlying decision upon which she relied, has been summarily rejected by almost every federal court that has considered it. The Board has not yet directly ruled on whether an opt-out clause can save an arbitration agreement from being considered a condition of employment under its prior precedent.

Employers should take solace in the fact that most other courts, and every Court of Appeals to consider the issue, have found that arbitration agreements with class waivers should be enforced in the employment context. The Eleventh Circuit is the latest appeals court to reject arguments against enforcement, in its Walthour, et al. v. Chipio Windshield Repair LLC et al. decision in March.