Key developments in the Employer Express August 2014 newsletter include:
Franchisors Beware! NLRB “Joint Employer” Directive May Put You on the Hook for Franchisee Employees
The National Labor Relations Board (“NLRB”) General Counsel – in a directive that is sending shockwaves – recently announced that McDonald’s could face liability as a “joint employer” for unfair labor practices committed by its franchisees. The directive signals a huge expansion of the joint employer doctrine and foreshadows significant exposure to franchisors in many industries.
For decades, the NLRB and federal courts have recognized that two entities constitute a “joint employer” under the National Labor Relations Act (“NLRA”) only where they share some significant degree of control over the essential terms and conditions of the employee’s employment, such as hiring, firing, discipline, and supervision.
On July 29, 2014, however, the NLRB General Counsel announced that McDonald’s, as a franchisor, could be jointly liable for alleged labor violations committed by its franchisee. At first blush, the Board’s assertion of joint employer liability appears inconsistent with the franchisor-franchisee business model. In the typical franchise arrangement, franchisors (such as McDonald’s) lease their trademarks to franchisees, who can use that name to provide goods or services in exchange for a fee. While the franchisor establishes high-level standards to protect their trademarks and to maintain some degree of brand consistency, they generally maintain a hands-off approach to managing day-to-day operations of the workplace and making employee management decisions.
With the NLRB General Counsel’s directive to McDonald’s, and the Board’s request earlier this year for briefs on the joint employer standard, the Board seems primed to forego the current standard in favor of a more expansive doctrine that places less emphasis on control over day-to-day employment decisions and more emphasis on overall control exercised by the franchisor, including control over significant economic and financial decisions.
While a formal opinion on the General Counsel’s finding of joint liability has yet to be issued, the practical effects of its decision are potentially far-reaching. Elements of control reflected in policies, directives, training requirements, and other acts—even if unrelated to on-the-ground employment decisions concerning franchisee employees—may expose franchisors to joint employer liability. Similarly, there is no analytical reason that the Board could not extend its logic to bargaining obligations—imposing on franchisors and parent companies an obligation to collectively bargain with local unions, or even paving the way for nationwide bargaining units.
Kelley Drye’s Labor and Employment Group can help franchisors analyze and address their potential exposure for labor and employment-related liabilities and will continue to monitor developments in this area.
New York State: Amendment to State Law Protects Unpaid Interns from Discrimination and Harassment
Earlier this year we reported on a bill passed by the New York City Council that expanded the NYC Human Rights Laws to protect interns from discrimination and harassment. Last month, New York Governor Andrew Cuomo signed a bill extending similar protections to unpaid interns under New York State law.
On July 22, 2014, Governor Cuomo signed an amendment to the New York State Human Rights Law, which now protects unpaid interns from discrimination in hiring, discharge, and terms and conditions of employment on the basis of age, race, religion, national origin, sex, sexual orientation, disability, marital status, or military status. In addition, the law prohibits employers from subjecting unpaid interns to discriminatory harassment and sexual harassment, both in the form of quid pro quo and hostile environment harassment.
As defined by law, the increased protections extend only to unpaid interns who can prove that they, among other things, do “not displace regular employees” and perform work “under the close supervision of existing staff.”
The amendment went into effect immediately upon enactment.
With the new law, New York State joins New York City, Washington, D.C., and Oregon in expanding their civil rights laws to protect unpaid interns from discrimination and harassment at work. Otherwise, the employment protections of Title VII and state-law equivalents extend only to “employees,” at the exclusion of unpaid interns (and also independent contractors). Managers, supervisors, and other employees who have contact with interns should receive regular training on appropriate interactions with this newly protected class.
New Jersey: Governor Christie Signs Ban the Box Legislation
In the face of an expanding national movement to bar employers from asking prospective employees about their criminal histories on job applications, New Jersey becomes the newest state to adopt a so-called “Ban the Box” law.
On August 12, 2014, New Jersey Governor Chris Christie signed into law the Opportunity to Compete Act, which will take effect March 1, 2015. Under the Act, both private and public employers are prohibited from inquiring about a job applicant’s criminal history on job applications and during the “initial employment application process.”
However, after the initial interview has been conducted and an applicant is determined to be qualified and selected as the employer’s “first choice to fill the position,” questions about an applicant’s criminal convictions are permissible. Similarly, the Act does not limit an employer’s ability to run criminal background checks or refuse to hire individuals with certain criminal convictions after the initial application process has concluded. The Act also includes an exception for voluntary disclosures of criminal history.
The Act applies to employers with 15 or more employees and affords protection to external candidates, as well as current employees seeking an internal promotion or transfer.
Fortunately, the Act does not create a private right of action. However, it does subject an employer to civil penalties of between $1,000 and $10,000 per violation.
Before the law takes effect, New Jersey employers should review their employment applications and hiring procedures to make sure they are in compliance with the new law.
New York City: Paid Sick Leave Act Now In Full Effect
Over the past few months we have reported on New York City’s Earned Sick Time Act (“ESTA”). The Act, which requires that New York City employers provide their employees with up to five days of paid sick leave per year, is now fully operational.
Beginning July 30, 2014, and as advertised on billboards around the city, eligible employees can start using paid sick leave available under the Act. The Act states that employees may use the paid leave time for their own care and treatment, as well as for the care and treatment of family members. “Family member” is defined broadly to include a spouse, domestic partner, child, grandchild, parent, grandparent, sibling, and child or parent of a spouse or domestic partner.
Additional details on the ESTA are available here. And employers should remember to give the Notice of Employee Rights under the Act to all employees, if they have not done so already, and to new employees upon hire.
California, which already affords public and private workers with significant leave rights, has also seen the introduction of state-wide legislation that would guarantee employees in the state with three days of paid sick leave annually.
We will continue to keep you apprised as more states enact mandatory paid sick leave laws and can provide assistance to help employers navigate their compliance obligations under state and federal leave laws.
Federal Judge Rejects Apple and Google’s $324M Anti-Poaching Deal
A recent court ruling highlights that arrangements among competitors not to solicit each other’s workers violates federal antitrust laws.
On August 8, 2014, a California federal judge surprised the legal world by denying a request to approve a settlement deal in excess of $324 million, which would have ended a high-profile antitrust class action against Google, Apple, and other tech giants. The class action is based on allegations that these tech companies secretly conspired to refrain from recruiting software engineers employed by their rivals and agreed to cap pay packages in order to prevent bidding wars. According to plaintiffs and the Department of Justice, which uncovered the scheme in 2012, the companies’ practices had the effect of illegally suppressing compensation, job prospects, and employee mobility.
The district judge ruled that the proposed settlement was not reasonable and noted that at least $55 million more was needed for her to approve it. In so holding, she used settlement figures from deals struck last year by former co-defendants in the lawsuit as a baseline for how much the plaintiffs should receive from the remaining defendants. In addition, the judge noted that the discounted settlement rate proposed by Google and Apple was “troubling” given that she had just granted class certification—a huge victory for plaintiffs—and that there was substantial evidence showing that the companies entered into anti-poaching agreements.
The ruling demonstrates that judges are becoming more aggressive in their review and approval of class-wide settlement proposals. Rather than just rubber stamping a settlement agreement, judges are more likely to conduct a thorough review for fairness, especially when plaintiffs have already secured class certification and significant leverage in litigation.
More importantly, the ruling should remind all employers that arrangements between rivals in the same industry not to recruit or hire away one another’s employees and agreements to cap salaries at artificially low levels may be unlawful and subject you to significant liability.
MORE FROM THE NLRB
NLRB Ruling Paves Way for More “Micro Unions” in Retail Industry
In a 2011 decision known as Specialty Healthcare, the National Labor Relations Board (“NLRB”) announced a new standard for determining the appropriate bargaining unit in a non-acute healthcare facility and opened the door for so-called “micro” bargaining units. The NLRB has recently demonstrated its willingness to expand its recognition of micro union organizing to the retail industry.
On July 22, 2014, the Board issued a decision endorsing a bargaining unit of sales associates within the cosmetics and fragrance departments at a Macy’s store in Massachusetts. The bargaining unit consists of 41 sales associates, which represents less than a third of the employees at the store.
Macy’s objected to the bargaining unit as inappropriately small to the extent it excluded other associates performing nearly identical duties, but simply selling different products. The Board disagreed, holding that a unit consisting of only cosmetics and fragrance associates was proper as they are “readily identifiable as a group” and “share a community of interest.” Moreover, the Board held that Macy’s failed to demonstrate that other sales associates excluded from the micro unit shared an “overwhelming community of interest” with the cosmetics and fragrance employees.
In light of the Macy’s decision, retail employers can expect that unions will seek smaller bargaining units, including units consisting of a single department within a larger store. Having micro units makes it easier for unions to “cherry pick” only the most pro-union employee groups, thereby making it easier to petition and win an election. In addition, it leaves employers with the logistical difficulty of having to manage a fragmented workforce governed by multiple contracts.
Employers in the retail industry should consult with labor counsel to discuss strategies for minimizing the effects of the Macy’s decision on their facilities, including taking steps to reduce the likelihood that these micro unions will gain traction.
NLRB Ratifies All Administrative Actions Taken by the Board During “Noel Canning” Period
In June 2014, the United States Supreme Court held in NLRB v. Noel Canning that all actions taken by the NLRB between January 2012 and August 2013 were invalid. The decision left employers speculating about the impact of the ruling and whether any of the Board’s extremely pro-employee decisions would be overturned.
In the wake of the high Court’s decision in Noel Canning, the NLRB stated that it would have to revisit roughly 100 cases decided during the period when Board seats were improperly filled by recess appointments. Many welcomed this announcement as a sign that the NLRB’s pro-union and pro-employee agenda would, at the least, be temporarily slowed during this period of review.
On August 4, 2014, the NLRB issued a press release stating that it had unanimously ratified all “administrative, personnel, and procurement actions” previously taken by the unconstitutionally constructed Board in order to “remove any question concerning the validity of actions undertaken during that period.” The press release specifically references ratification of the Board’s appointment of three regional directors, selection of numerous administrative law judges, and restructuring of multiple field offices and departments within the agency.
Following the Board’s authorization, the three newly-ratified regional directors ratified all actions taken by them from the dates of their appointments through July 18, including “all personnel and administrative decisions, all actions in representation case matters, and all actions in unfair labor practice cases.”
It remains to be seen whether this “quick fix” will be as effective as the NLRB suggests. One can expect that there will be challenges to whether such after-the-fact ratification is proper and that a number of parties affected by the newly ratified cases will continue to litigate the earlier decisions. Moreover, the Board’s press release fails to address the status of the 100 decisions issued by the NLRB that were invalidated by Noel Canning and are under review by the current Board.
WAGE AND HOUR UPDATE
Federal Court Confirms Employers May Define Workweeks to Limit Overtime Pay
In a favorable ruling for management, the Fifth Circuit affirmed the principle that an employer need not follow their employees’ understanding of their own workweek. Rather, the employer may define the workweek in a way that is most employer-friendly for determining overtime obligations.
In Johnson v. Heckmann Water Resources (CVR), Inc., the plaintiffs worked 7 consecutive 12 hour shifts in every two week pay period, which ran from Thursday – Wednesday. The plaintiffs filed a lawsuit alleging that their employer violated the overtime requirements of the Fair Labor Standards Act by not calculating overtime compensation using a Thursday – Wednesday workweek. Under the plaintiff’s preferred approach, they would be entitled to over 40 hours of overtime each pay period. However, the employer calculated overtime on a Monday – Sunday basis, resulting in less than 10 hours of overtime for the plaintiffs each pay period.
The district court granted summary judgment for the employer, and the Fifth Circuit affirmed. In so holding, the court noted that regulations interpreting the FLSA only require that a “workweek” be “a fixed, regularly recurring period of 168 hours—seven consecutive 24-hour periods.” While the regulations require that the workweek remain fixed once established, they expressly state that the workweek “need not coincide with the calendar week but may begin on any date and at any hour of the day.” In rejecting the employees’ claims of overtime violations, the Fifth Circuit also relied upon a 2009 DOL Opinion Letter and a similar decision from the Eighth Circuit, both of which supported an employer’s right to choose a workweek under the FLSA.
This decision should serve as a reminder to employers to review their workweek policies to ensure that the workweek is not only clearly defined, but also defined in a way that is most economical to the company. Kelley Drye’s Labor and Employment Group can help you determine whether your pay policies comply with applicable wage and hour law and assist with proper documentation in the event that your practices are challenged.
DISCRIMINATION LAW UPDATE
Federal Court Holds that Dispute over Appropriate Accommodations Justifies Trial of ADA Claim
Under the Americans with Disabilities Act (“ADA”), an employer has an obligation to participate in the interactive process once an employee make known that he has a disability that may require accommodation. However, the employee himself must also cooperate in the process and cannot simply demand an accommodation of his choosing. A recent federal court decision sheds light on what does and does not satisfy those obligations and how disputes over what is an appropriate accommodation should be resolved.
Just last month, a New York federal court held that a federal employer may have violated the ADA when it flatly refused to consider a job relocation or telecommuting arrangement as an accommodation for an employee simply because the employee was a poor performer. The case is Goonan v. Federal Reserve Bank of New York (SDNY July 22, 2014).
The plaintiff in that case, Bruce Goonan, worked for the Fed for 25 years as a computer application developer—most years out of an office on Maiden Lane. Goonan suffered from severe post-traumatic stress disorder (“PTSD”) after 9/11, which got even worse after his department moved to a building overlooking the new World Trade Center site. As Goonan’s PTSD worsened, his performance drastically declined and he received unsatisfactory performance reviews.
In March 2011 Goonan requested permission to work from a different Fed building in the immediate vicinity but further from the WTC or, alternatively, to telecommute from home. His supervisor denied the request, saying telecommuting was a “privilege” and Goonan would have to improve his work performance to be eligible. The Fed later offered Goonan seven alternative accommodations, which previously had proven effective for another employee with 9/11-related PTSD. These accommodations included relocating Goonan’s cubicle away from the view of the WTC, allowing him to listen to music at work, special lighting fixtures, and additional supervision. However, Goonan’s own doctors thought the proposed accommodations would be ineffective, if not harmful, for Goonan.
In August 2011 after visiting multiple doctors and consulting with various levels of Fed management, including the Fed’s ombudsman, Goonan retired in the face of the Fed’s refusal to grant his accommodation requests. Thereafter, he filed a lawsuit in federal court alleging that the Fed failed to provide him with a reasonable accommodation in violation of the ADA, New York State Human Rights Law, and the NYC Human Rights Law.
The Fed moved for summary judgment, arguing that it legitimately refused the transfer request in light of Goonan’s poor performance and need for additional supervision. The court rejected this argument, holding that denial of an accommodation to a disabled employee because of performance deficiencies would turn the reasonable accommodation process “on its head.” Moreover, the court found the Fed’s explanation “troubling,” since other employees with performance issues were permitted to telecommute full time.
The court also rejected the Fed’s arguments that (i) Goonan himself caused the interactive process to break down by refusing the reasonable accommodations offered to him and (ii) had an obligation to try the offered accommodations. As the court noted, “The fact that such modifications may have worked for another employee under different circumstances does not show that they were suitable for Goonan as a matter of law, particularly in light of his doctors’ statement.”
The Fed’s argument that Goonan caused the interactive process to break down by voluntarily retiring fared no better. Noting that there is no “brittle last shot rule” for determining who caused breakdown, the court held that the record reflected that Goonan retired only after becoming frustrated with Fed management, which stated it “was not going to change its mind” about Goonan’s transfer request. Most notably, the court held that “when presented with conflicting facts about the provenance of a breakdown, courts must deny motions for summary judgment.”
Executive Order Prohibits Sexual Orientation and Gender Identity Discrimination in Employment by the Federal Government and by Federal Contractors
We have previously reported on Congress’s failed efforts to pass the Employment Non-Discrimination Act, which would prohibit discrimination in hiring and employment on the basis of sexual orientation or gender identity. President Obama took matters into his own hands and recently signed an executive order that prohibits the federal government and federal contractors from discriminating against employees on these traits.
On July 21, 2014, President Obama signed an executive order amending Executive Order 11246, which imposes equal employment opportunity obligations on federal contractors and subcontractors. Under the amended Executive Order, sexual orientation and gender identity are added to the list of protected classes upon which federal contractors may not discriminate. Protected classes under Executive Order 11246 previously included only race, color, religion, sex, and national origin.
Surprisingly, the amendment does not afford an exemption to religiously affiliated contractors or subcontractors, making them similarly prohibited from considering sexual orientation and gender identity when making employment decisions. However, an existing provision of Executive Order 11246 does allow religious organizations to favor individuals of a particular religion.
Obama’s executive order also amends Executive Order 11478, which addresses equal employment opportunity in federal hiring. As with federal contractors, federal agencies are prohibited from discriminating against federal workers in employment on the basis of gender identity. Federal agencies were already prohibited from discriminating on the basis of sexual orientation.
While the new non-discrimination requirements imposed on the federal government take place immediately, the provisions relating to federal contractors only apply to contracts entered into on or after the effective date of regulations implementing the amendment. The executive order directs the Secretary of Labor to prepare those regulations by mid-October 2014. We will keep you updated on advancements in this area. In the meantime, federal contractors and subcontractors should be prepared to add sexual orientation and gender identity to their non-discrimination policies, and include similar language in their contracts with vendors and suppliers.
Executive Order Requires Federal Contractors To Disclose Labor Violations and Prohibits Mandatory Arbitration Agreements
With little assistance from Congress in enacting workplace reforms, President Obama has more frequently been resorting to executive orders to push pro-employee legislation. Last month, he signed one of his most expansive employment orders to date.
On July 31, President Obama signed the Fair Pay and Safe Workplaces Executive Order. The Executive Order has three main parts that affect federal contractors and subcontractors: (i) mandatory disclosure of labor violations, (ii) paycheck transparency, and (iii) prohibition on mandatory arbitration agreements.
Disclosure of Labor Law Violations: Under the new order, entities bidding on certain federal contracts are required to disclose whether there have been any “administrative merits determination, arbitral award or decision, or civil judgment” rendered against the entity within the previous 3-year period for violations of specifically enumerated labor and employment laws. The covered laws include 14 federal statues and executive orders, as well as equivalent state laws, including the FLSA, OSHA, the NLRA, the Davis-Bacon Act, Executive Order 11246, the FMLA, Title VII, the ADA, and the ADEA. Notably, the Executive Order does not require disclosure of pending claims or voluntarily settled matters. The disclosure provisions apply only to entities bidding on new federal contracts where the estimated value of the supplies acquired and services required exceeds $500,000, as well as certain subcontractors.
In addition to the pre-award disclosure obligation, covered contractors and subcontractors must provide updated disclosures about labor violations every 6 months for the duration of the contract. If a labor violation has occurred, the executive order authorizes the government to take certain remedial action, including termination of the contract.
Payroll Transparency: The Executive Order also requires that a contractor provide FLSA-covered employees performing work under the contract with a document each pay period verifying the accuracy of their paychecks. The document must include information on the individual’s hours worked, overtime hours, pay, and additions to or deductions made from pay. Exempt employees and independent contractors must be provided with a document informing them of their status.
Prohibition on Pre-Dispute Mandatory Arbitration: Finally, and perhaps most notably, the Executive Order requires that entities with federal contracts in excess of $1 million are prohibited from requiring their employees or independent contractors to agree in advance to arbitrate claims under Title VII or “any tort related to or arising out of sexual assault or harassment.” Under the Executive Order, only voluntary post-dispute consents to arbitrate are valid as to such claims. The Executive Order does, however, provide an exception, for employees covered by a collective bargaining agreement and for employees or independent contractors who entered into a valid arbitration agreement prior to the contractor or subcontractor bidding on a contract covered by the Executive Order—unless the contract is renegotiated or replaced.
According to a Fact Sheet issued by the White House, the Executive Order will be implemented on new contracts in stages on a prioritized basis beginning in 2016. Various federal agencies, including the Department of Labor, have been directed to propose regulations to carry out the Executive Order.