January 2014

Key developments in the Employer Express January 2014 newsletter include:

Beware Use Of Background Checks
Heightened Scrutiny Of Independent Contractor Misclassification
Protection Of Intellectual Property
The NLRB Wants You, Union Or Not
Minimum Wage Increases
NYC Pregnancy Non-Discrimination Law Takes Effect January 31, 2014
NYC Earned Sick Time Act Takes Effect April 1, 2014
New York City Prohibits Discrimination Against Unemployed
More Permissible Payroll Deductions In New York
Severance Payments Offset NY Unemployment Insurance Benefits As Of January 1, 2014
Wage Theft Prevention Act Notices Due February 1, 2014
Beware Use Of Background Checks

Employers’ use of criminal history, credit, and other background checks in the hiring process is under vigorous attack from EEOC lawsuits and legislative initiatives. 

Some legislative efforts may result in an outright ban on the use of many or most background checks for employment-related purposes. For example, the New Jersey legislature is eyeing the so-called Opportunity to Compete Act, which bar employers with 15 or more employees from conducting criminal background checks on applicants prior to a conditional job offer and from asking candidates about criminal histories on job applications. Similar legislation has been proposed in New York State and New York City. Democratic leaders in the U.S. Senate are pursuing legislation that would altogether prohibit employers from using credit checks in the hiring process.

The U.S. Equal Employment Opportunity Commission has been increasingly active in filing lawsuits against employers that use background checks. Following April 2012 updated EEOC guidance on the use of arrest and conviction histories in employment decision-making, the EEOC has pursued high-profile suits against employers like Dallas-based corporate event planner Freeman, Dollar General Corp., automaker BMW Manufacturing Co., and clothing company Saavedra alleging that their use of criminal background checks in the hiring process had a disparate impact on blacks.

The law on employers’ use of background checks is rapidly evolving. Employers must not assume that the continued use of such checks is lawful and should consult counsel for the latest developments.

Heightened Scrutiny Of Independent Contractor Misclassification

2014 will not be the year in which employers find relief from continuing enforcement efforts by the federal and state governments to target alleged misclassification of employees for wage payment purposes – far from it.

In 2011, the United States Department of Labor (“U.S. DOL”) launched a Misclassification Initiative in order to combat the misclassification of employees as independent contractors, thereby enabling employers to avoid minimum wage and overtime obligations imposed by law. On November 18, 2013, New York State became the 15th state to enter into a memorandum of understanding with the U.S. DOL to assist in these enforcement efforts.

Over the past two years, the U.S. DOL has, through partnerships with state agencies, collected over $18 million in back wages for more than 19,000 workers in cases involving misclassification under the federal Fair Labor Standards Act.

In light of this new partnership, New York employers should expect heightened scrutiny from both federal and state agencies and aggressive enforcement of employee classification laws and regulations. In New York, the classification of workers as independent contractors is a highly fact-intensive analysis. Given this new enforcement partnership, employers would be well-advised to analyze independent contractor designations to ensure appropriate classification and seek legal advice in cases of uncertainty.

Protection Of Intellectual Property

The pace of change to mobile technology will continue to increase in 2014 – but has your protection of intellectual property evolved with it?

Employers need to take a close look at the restrictive covenants that protect their customer relationships and intellectual property – noncompetition, nondisclosure, and nonsolicitation agreements – to ensure that the agreements protect against the threats of a bring-your-own-device, cloud-computing workplace in which information is more than mobile: it is everywhere.

The enforceability of restrictive covenants is a matter of state law. Some states like California and Colorado reject true noncompetition agreements entirely. Most other states evaluate the enforceability of restrictive covenants based on whether the agreements are reasonable in geographic scope and duration. But the standard language used in most employee agreements – provides no protection at all with today’s evolving technology. An agreement that a former employee will “return all property” to her former employer may have made sense when most information had a tangible form, but what does it mean to “return” an electronic file that may have been downloaded and viewed on an iPhone?

Better-drafted agreements will permit an employer to require an employee to affirmatively identify all electronic devices on which an employee views or stores the employer’s information, will give a former employer the right to inspect those devices, and will allow an employer to get relief from a court when a former employee refuses to cooperate.

The NLRB Wants You, Union Or Not

The National Labor Relations Board has pursued an infamously activist agenda during the Obama administration, issuing hundreds of new rulings that regulate – and penalize – both unionized and non-union employers. With recent legal challenges to the NLRB’s authority to do so resolved in 2014, the pace of that agenda will quicken, affecting both unionized and non-union employers alike.

In Noel Canning v. NLRB, an employer successfully challenged President Obama’s 2012 recess appointments (that is, appointments made between Congressional sessions and without Congressional approval) to the NLRB, since without those appointments the NLRB lacked the quorum it needed to act.  (Noel Canning is now on appeal to the U.S.  Supreme Court.) Since that time, however, the President has duly appointed – without resort to the “recess appointment” process – a duly constituted NLRB. The new NLRB can be expected to re-issue decisions that might be invalidated on Noel Canning grounds, as well as to continue to pursue an activist agenda, including requiring employers to allow employees to use Company e-mail to discuss unionizing, implementing “quickie election” rules that deny employers a chance to communicate effectively with employees during union campaigns, and finding that the arbitration agreements and employment policies even of non-union employers violate the National Labor Relations Act. We can help you anticipate these developments as they unfold in 2014.

Minimum Wage Increases

As New York joins 13 other states that will see minimum wage rate increases take effect in 2014, employers must be aware of how these increases will affect not only hourly pay rates, but also other components of compensation.

Effective December 31, 2013, New York’s minimum wage increased from $7.25 to $8.00 per hour. By December 31, 2015, New York’s minimum wage will increase to $9.00 per hour. With the start of the year, New Jersey’s minimum wage rose to $8.25 per hour, and Connecticut’s to $8.70 per hour.

Pursuant to the wage and hour regulations established by the New York State Department of Labor (“NYSDOL”), any compensation requirement tied to the minimum wage, including split shift and spread of hours pay and call-in pay rates, will rise with the rate increase. Employers should also keep an eye out for the NYSDOL’s new industry-specific Minimum Wage Orders, which address how the increase affects meal and lodging credits, uniform maintenance rates, and cash wage and tip credits for employees working in various industries. It is crucial to note that New York has also increased the minimum weekly salary needed to qualify for the executive and administrative exemptions under state law. Beginning December 31, 2013, employees must earn at least $600 per week (exclusive of lodging and other allowances) to fall under these exemptions to state overtime requirements.

Updated minimum wage posters (which all employers are required to post), revised minimum wage orders, and summary wage schedules are available on the NYSDOL’s website. To the extent they have not already done so, employers should immediately audit their wage and payroll practices to ensure compliance with the new minimum wage rates.

NYC Pregnancy Non-Discrimination Law Takes Effect January 31, 2014

An amendment to the NYC Human Rights Law, which takes effect on January 30, 2014, requires that employers with four or more employees or independent contractors provide a potentially vast array of “reasonable accommodations” to pregnant women and those who suffer medical conditions related to pregnancy and childbirth.

Under the amended NYC law, examples of reasonable accommodations might include water breaks, bathroom breaks, periodic rest, and assistance with manual labor. Employers also may have to provide unpaid pre-natal leave or time off to recover from child birth. With no experience under the law to guide employers, it is difficult to know when and what accommodations must be provided. The legislative history of the new law does makes clear, though, that employers may not simply force pregnant employees to take unnecessary leave if simple job modifications would be enable them to work through pregnancy.

The NYC Commission on Human Rights has issued a Pregnancy and Employment Rights Notice detailing the new protections. After the law goes into effect, employers will be required to distribute the Notice (i) to new employees at the time of hire and (ii) to existing employees by May 30, 2014. The law encourages, but does not require, employers to post the Notice in the workplace.

Although the full extent of an employer’s obligations under the new law has yet to be tested, employers should review their policies and procedures and make any necessary changes in advance of January 31, 2014. Employers should update new hire materials and devise a plan for how to distribute the notice to current employees on or before May 30, 2014.

NYC Earned Sick Time Act Takes Effect April 1, 2014

New York City’s new Earned Sick Time Act (“ESTA”), one of the most significant mandatory changes to employers’ leave practices in years, takes effect on April 1, 2014.

Under the ESTA, most private NYC employers with 20 or more employees are required to provide eligible employees with up to 40 hours of paid leave each year to be used for the employee’s own medical condition or that of a family member. Eligible employees under the Act include any person employed within the city for more than 80 hours in a calendar year, whether on a full-time, part-time, or temporary basis.

Kelley Drye previously issued a Client Advisory providing a detailed analysis of the ESTA, including eligibility and usage requirements, accrual rates, an employer’s ability to impose restrictions on sick leave, and exceptions to the ESTA. After the ESTA goes into effect, employees must be provided with written notice of their rights under the law at the time of employment. The Department of Consumer Affairs, tasked with enforcing the ESTA, has been directed to prepare sample notices and make them available on its website, but has yet to do so.

As the requirements of the ESTA are fairly specific, employers with operations in NYC should review the law and determine whether revisions must be made to existing leave policies and procedures to ensure compliance come April 1. Employers should pay particular attention to part-time and temporary employees, who are frequently excluded from employer leave policies but may be entitled to leave under the new law.

New York City Prohibits Discrimination Against Unemployed

Under a 2013 amendment to the New York City Human Rights Law, the “unemployed” are now a protected class for purposes of the discrimination law.

Under the amended law, it is unlawful for an employer, employment agency, or agent thereof to (i) base an employment decision concerning hiring, compensation, or terms or conditions of employment on an applicant’s unemployment status and (ii) state in a job posting that current employment is a requirement for the position or that unemployed applicants will not be considered. New Jersey has a similar law, passed in 2011, that prohibits employers from stating in job postings that only currently employed individuals will be hired.

The law, however, does permit an employer to take an applicant’s unemployment into account under certain conditions, including when there is a “substantially job-related reason” for doing so or when the unemployment status may reflect on an employee’s qualifications for a job. Employers are also permitted to inquire “into the circumstances surrounding an applicant’s separation from prior employment” and to give hiring preference to their own current employees.

With the amendment, employers can expect to face an increase in discrimination claims challenging the hiring process. In light of the increased protections afforded to unemployment status, employers should review their hiring policies, guidelines, and postings to ensure compliance with the law. Employers should also ensure that human resources and other individuals involved in the hiring process are aware of what they can and cannot consider with respect to unemployed applicants.

More Permissible Payroll Deductions In New York

Employers who overpay their New York employees now have a limited option to recoup those overpayments from future wages – an advantage previously denied them under New York wage payment laws.

For many years, New York Labor Law Section 193 prohibited virtually all types of deductions from employee pay, even where an employee consented to the deduction, and even where the deduction was made to recoup a wage overpayment. In November 2012, Section 193 was amended to expand the circumstances under which employers can make deductions, permitting deductions in the event of wage advances or inadvertent wage overpayments due to mathematical or clerical error. Such deductions, however, are permitted only if made in compliance with regulations promulgated by the NYSDOL.

The NYSDOL’s October 2013 final regulations now provide guidance on when and how lawful deductions from employee pay may be made. The regulations set forth strict notice, timing, and procedural requirements that must be followed in order for an employer to make deductions for advancements and overpayments.

An employer that makes improper wage deductions will be liable not for only the amount of the unlawful deduction but also for liquidated damages equal to 100 percent of the deduction and attorneys’ fees.

Given the potential penalties for non-compliance, employers should audit their practices to ensure compliance with the new laws and regulations. This should include a review and revision of employee handbooks, manuals, and other policies that address wage deductions. Employers should also develop internal documents and forms to enable management and payroll staff in making lawful deductions, including required notices of intent and authorizations for deductions.

Severance Payments Offset NY Unemployment Insurance Benefits As Of January 1, 2014

In order to spare New York employers from shouldering the cost of $200 million in interest payments on a loan to fund the New York Unemployment Insurance Trust Fund, the legislature has enacted a number of major reforms to the state unemployment insurance regime.

Perhaps of most interest to employers, amendments that took effect on January 1, 2014, implemented a new offset to unemployment insurance benefits for severance pay. Under the amendment, an employee who receives severance pay within 30 days of dismissal will not be eligible for unemployment benefits for those weeks during which the weekly severance exceeds the applicable maximum weekly benefit (presently capped at $405). Where severance pay is made in a lump sum, the NYSDOL will allocate it on a weekly basis in order to apply the offset. Upon exhaustion of severance pay, the employee will be eligible to collect benefits for the remaining numbers of weeks that benefits are available under state law.

In light of this new offset, employers may, in appropriate circumstances, wish to revisit their standard severance agreements to provide for payment on or after the thirtieth day following termination so as not to impact an employee’s ability to collect unemployment insurance.

Wage Theft Prevention Act Notices Due February 1, 2014

It’s that time of year again. Most New York employers are now familiar with the Wage Theft Prevention Act (“WTPA”), now entering its third year.

The WTPA requires employers to provide notice to all employees of specific information about their rate, method, and timing of pay. The law requires that the notice be provided to employees:

  • at the time of hire;

  • annually before February 1 of each year of employment, even if the information has not changed; and

  • 7 days in advance of any pay rate change (with limited exceptions).

The NYSDOL provides template notices in various languages on its website. The notice must be provided in English and in the employee’s primary language (provided the NYSDOL provides a template in that language). Notice may be provided electronically so long as the employee can acknowledge receipt of the notice and print out a copy. Notices must be retained by the employer for 6 years and made available to the NYSDOL upon request. Penalties for non-compliance with the WTPA can add up quickly, so employers should ensure they are prepared to distribute the wage notices to employees on or before February 1, 2014.