Labor Days News and analysis from Kelley Drye’s labor and employment practice Wed, 03 Jul 2024 19:45:19 -0400 60 hourly 1 Notice for New York Employers: State Issues Updated Guidance on Sex Harassment Wed, 03 May 2023 11:52:13 -0400 For New York employers, the standards for sexual harassment may be shifting. The state requires all employers to adopt its model sex harassment policy or craft one that equals or exceeds minimum standards. Recently, the New York State Department of Labor released a new model policy developed in conjunction with the New York State Division of Human Rights.

This guidance sheds fresh light on how state enforcers are thinking about sexual harassment and employer responsibilities. New York employers beware - while not a statute, the guidance signals a clear and continued shift towards employees. To emphasize the new model, the guidance provides a host of concrete examples to guide employees, companies, and courts alike in deciding when conduct crosses the line into harassment. However, whether or not the judges will adopt the same expansive views as the agencies have, remains to be seen.

Here’s what you need to know:

The Model Policy Reflects the Law’s Lowered Bar for Wrongdoing

Back in 2019, lawmakers drastically upended the standard for what constitutes sexual harassment by removing the long-standard “severe and pervasive” requirement for conduct to be considered illegal. We’ve covered this in-depth.

Now, the state makes clear that “any harassing behavior that rises above petty slights or trivial inconveniences” can be considered sexual harassment. The policy explains that “there is no single boundary” to determine whether challenged conduct is illegal and the law views wrongfulness based on the standpoint of a reasonable victim with the same protected characteristics. Even more, it instructs that generally “any behavior” where an individual is treated worse because of their actual or perceived gender, sexual orientation, or general expression is a violation. This can include actions that interfere with an individual’s work performance (regardless of intent) and employment decisions including shifts, hours, and project assignments.

Notably, the policy also states that any conduct – even one single instance – can give rise to harassment. In all, this is a much more sweeping approach than in the past.

Examples, Examples, Examples

The policy lists several examples of harassment, which include straight-forward conduct that anyone would recognize as sexual harassment (such as touching, assault, etc.), as well as examples of less overt conduct that would constitute harassment. This includes:

  • Remarks about an individual’s gender expression, including remarks about wearing clothing typically associated with a different gender identity or intentionally misusing an individual’s preferred pronouns
  • Asking employees to take on traditionally gendered roles, such as asking a woman to serve refreshments at a meeting
  • Remarks, jokes, questions, and comments about a person’s sexuality, romantic history, or sexual experience

The policy also lists examples specifically targeting remote and hybrid workplaces, including:

  • Displaying pictures, posters, reading materials, and similar items that are sexually demeaning or pornographic, including during virtual meetings
  • Making comments over virtual platforms and messaging apps

A Spotlight on Gender Diversity

The new policy also signals a shift in focus to gender diversity, stating that understanding it is “essential to recognizing sexual harassment.” It states that the “gender spectrum is nuanced” and defines the most common gender identities as cisgender, transgender, and non-binary. Throughout the policy, the NYSDOL makes clear that enforcers will take harassment based on a person’s gender expression seriously.

Revamped Retaliation Standards

The new policy ramps up the retaliation section, signaling that enforcers may be eyeing these claims with more scrutiny and broadening the type of conduct employees should consider retaliatory. It lists several examples of retaliation, including reducing hours, assigning less desirable shifts, publicly releasing personnel files, labeling an employee as “difficult” and excluding them to avoid “drama,” and moving an individual’s desk to a less desirable location. It also addresses conduct that takes place outside of work hours, including disparaging comments on social media.

Focus on Bystander Intervention

One of the most substantive additions is a new section on bystander intervention. It requires supervisors and managers to report harassment when they see it, and encourages other employees to do so as well.

Notably, the policy advises that bystanders interrupt harassment by engaging the individual being harassed, ask a third party to intervene, record or take notes on the incident for future investigation, check-in with the person who has been harassed after an incident, or confront the harassers and identify the behavior as inappropriate.

Expanded References to Other Forms of Discrimination

In a similar vein, the policy also directly addresses discrimination based on all protected categories (including race, religion, immigration status, and disability). It states that the same reporting and investigation procedures outlined in the sexual harassment policy will apply to any type of discrimination.

Next Steps for Employers

This new guidance does not change the law. But, it does set forth clear examples of conduct that will no longer be tolerated. For some employers, this new guidance may mean updating company handbooks and policies. But for all, it should mean taking a close look at current training programs (particularly for managers) and protocols for dealing with sexual harassment.

Managers of New York based employees, regardless of level and or location, are now expected to know, understand, and abide by these new guidelines in the workplace.

If you have any questions about compliance with this new guidance, or any other Labor or Employment laws, please contact your Kelley Drye relationship attorney, or any partner in our L&E group.

The Fall of the NDA: Compliance and Litigation Following the Speak Out Act Fri, 16 Dec 2022 10:09:58 -0500 In a notable victory for the #MeToo movement, President Biden recently signed the “Speak Out Act” into law. It became effective December 7, 2022.

This bipartisan legislation targets and effectively prohibits the use of pre-dispute nondisclosure agreements, which would cover claims of sexual harassment or assault in the workplace. The law only prohibits enforcement of pre-dispute agreements, which means employers can still utilize NDAs in post-dispute agreements, such as settlements.

Many states, like New York, have already passed laws restricting the use of NDA’s in settlement agreements, so depending on the state where you are located, this may not be a major change. But for employment attorneys and HR professionals, this should be a signal to review all new employment contracts. In a broader sense, you may have to revisit how your company responds to workplace sexual harassment and assault allegations now that it has become more difficult to quietly resolve.

Here’s what you need to know:

What does the Speak Out Act do, exactly?

Under the Act:

  • Any agreement to keep the details of any future sexual harassment or assault dispute confidential is unenforceable. This applies to all employment contracts: past, present, or future.
  • Any prospective nondisparagement clause that purports to limit an employee’s ability to speak out about sexual harassment or assault is also unenforceable.
  • Trade secrets and proprietary information are explicitly protected under the law and employers may use NDAs to safeguard this information.
  • States may continue to enforce laws that are more protective of an employee’s right to speak publicly about sexual assault and harassment.

Throughout the #MeToo era, NDAs have come under fire for preventing victims from speaking publicly but remain commonly used in hiring, promotion, and severance contracts. In fact, approximately one third of workers have signed broader agreements not to disparage their employers or disclose details of their employment.

Despite its seemingly clear purpose, the Act’s ambiguities are likely fodder for future court challenges. For instance, the law targets only “pre-dispute” agreements but does not define the term. This means courts may interpret a “dispute” to include a narrow set of actions (such as a formal complaint or even litigation) or broader swath (say an informal HR complaint).

Also, the law does not specify what a company must do to address existing employment agreements which may contain clauses that violate the new law. We would advise leaving those agreements in place, as trying to get new agreements signed again could be impossible. Just be aware that a requirement of an NDA could be unenforceable.

The Act also looks to other federal, tribal, or state law in defining the terms “sexual assault” and “sexual harassment. ” Notably, in 2020, the Supreme Court interpreted Title VII’s sex protections to include protection against discrimination based sexual orientation and gender identity. The scope of these definitions may be contended. And while the law does not prohibit the use of NDAs in other contexts, such racial bias or disability, discrimination claims are often intersectional and contain several allegations. For now, employers may be wise to interpret the Act broadly.

How does this compare to state law trends?

The federal law creates a floor, not a ceiling. More than a dozen states have already passed legislation limiting employee NDAs, including California and New York.

California: California has severely limited NDA enforcement for all forms of workplace harassment and discrimination. The state prohibits confidentiality agreements as a condition of employment that prevent an employee from disclosing most unlawful workplace conduct. And unlike the federal law, California’s law also bans confidentiality provisions in settlement agreements that prohibit an employee from discussing the underlying facts of the case. Agreements to protect the worker’s identity or safeguard the amount paid are permitted. Again, California law applies to all forms of harassment and discrimination, including sex, religion, color, national origin, disability, familial status, gender, age and others.

New York: The Empire State has similarly outlawed agreements that prevent the employee from disclosing the underlying facts and circumstances related to an employment discrimination claim. Like California, the legislation originally applied only to sex discrimination, but was expanded in subsequent iterations. New York lawmakers have also introduced legislation that would ban most NDA and nondisparagement clauses that prevent disclosure of harassment or discrimination in employment contracts.

What should employers do now?

The Speak Out Act is hardly the first of its kind. Last March, Congress passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, prohibiting enforcement of any pre-dispute arbitration agreement in these types of cases. With these trends in federal and state law, employers must take action:

  • Update your new employment contracts. While the law does not prohibit broad agreements full-stop, HR departments should review new agreements and ‘form’ agreements, to ensure they will withstand legal scrutiny. You do not need to change or try to get existing agreements signed anew. Just be aware that a requirement of an NDA is likely not enforceable.
  • Refresh your training materials and HR response policies. Ensure your company’s response is in compliance with federal and state laws. This includes training supervisors and updating company policies.
  • Consult counsel. Speak with an attorney if you have any questions about this new federal law or your obligations under state law.

We’re monitoring employment law trends on Capitol Hill and across the nation. Subscribe to stay up-to-date with the legal developments that will most impact your company in the months to come.

Reminder – Be Careful When Settling A Wage Claim Wed, 26 Aug 2015 17:56:26 -0400 Addressing an issue that the Second Circuit had not explicitly touched before, the court just held that parties cannot privately resolve and/or discontinue an FLSA claim, without the supervision of the DOL or court approval. Cheeks v. Freeport Pancake House, Inc., 2015 WL 466 4283 (2d Cir. 2015)

In rejecting a stipulation presented by two parties, who had agreed to discontinue a FLSA action, the court held that “the FLSA is distinct from all other employment statutes…” and even if represented by counsel,…. “plaintiffs face extenuating economic and social circumstances and lack equal bargaining power…”

Hence, the court held that any stipulated dismissal of an FLSA claim requires approval of a court or the DOL to be effective.

The court also noted that these are certain types of provisions which a court may object to, such as:

  • “highly restrictive confidentiality provisions; or
  • a “pledge by plaintiff’s attorney not to represent any person bringing suit or class action against Defendant…”
Where does that leave employers?
  • This decision confirms that you generally cannot just “settle” an FLSA claim, or a claim for unpaid wages or overtime, directly with an employee, or recognize that if you do, the settlement may not be enforceable, in that it may not preclude a later lawsuit.
  • Such a settlement will be a particularly suspect if the employee does not have an attorney.
  • Much to the frustration of many of our clients, the decision further confirms that an employer cannot, in a settlement agreement, bar plaintiff’s counsel from suing you again. So, yes, the same lawyer can settle one claim and then seek new “plaintiffs” among your employees, and go after you once more!
  • Any time you resolve a wage complaint, you should attempt to be “fair” in the settlement. In other words, calculate the wages owed and settle for an amount which comes close to (or goes over) what you believe the real liability is. So, if that same employee attacks the settlement later, you can prove it was a “fair” resolution of the claim.
  • Finally, whether it is a legal document or a simple agreement, make sure that the “settlement” document includes a statement affirming that this represents payment for “all hours worked” by the employee. That will be helpful if there is later litigation.

Sirius XM Settles Wage & Hour Class Action With Unpaid Interns Fri, 21 Aug 2015 12:21:24 -0400 internEarlier this month Sirius XM Radio Inc. settled a wage & hour class action with a class of 1,852 unpaid interns that claimed the company violated federal and state labor laws by failing to compensate them for the work they performed during their internships. The reported settlement amount – $1.3 million – demonstrates that the class action lawsuits brought by unpaid interns can prove costly for companies that do not properly structure their internship programs.

The plaintiffs in the case, Tierney v. Sirius XM Radio Inc., No. 14-cv-02926 (S.D.N.Y), were “interns” that received no compensation for the hours they worked during their internships. The suit alleged that they were in fact “employees” entitled to minimum wage and overtime compensation. To support this claim, the plaintiffs asserted that they performed tasks necessary to Sirius XM’s operations, such as running errands, placing orders, obtaining breakfast items for Sirius XM employees, and compiling data. Furthermore, the plaintiffs asserted, Sirius XM did not provide them with any academic or vocational training during their internships. The plaintiffs sought compensation for unpaid wages, interest, liquidated damages, attorneys’ fees, and costs under the Fair Labor Standards Act and New York Labor Law.

This settlement comes in the shadow of the guidance provided by the Second Circuit in Glatt v. Fox Searchlight Pictures, Inc. et al., Nos. 13-4478 & 13‐4481 (2d Cir. 2015) and Wang v. Hearst Corp., No. 13‐4480‐cv (2d Cir. 2015). Plaintiffs in those cases were also unpaid interns claiming they worked for many hours during their internships for which they should have been paid. The Second Circuit made it harder to certify a class of interns, holding that the question of intern classification is a “highly specialized inquiry.” Although it may be harder for putative plaintiff interns to bring their claims on a class-wide basis, class certification of interns is still possible under the proper circumstances. Importantly, the Second Circuit provided employers with guidance on how they can design and maintain a legal unpaid internship program: in determining whether or not an “intern” is actually an “employee” subject to minimum wage and overtime laws, the question to be asked is “whether the intern or the employer is the primary beneficiary of the relationship.” While unpaid interns may gain exposure, contacts, and experience during their internships, the bottom line is that, in order for an unpaid internship program to pass muster, the interns must be educated during the internship.

The Sirius XM settlement should serve as another warning to employers that use unpaid interns, as these positions continue to be in the “eye” of the plaintiffs class action bar. The settlement figure in the Sirius XM case show why these claims are popular. Assuming that the settlement passes the scrutiny of a fairness hearing, the plaintiffs’ attorneys will collect fees of approximately $300,000, while the 1,853 class members will be paid an average of slightly less than $538 each, paid proportionally based upon the number of “internship sessions” that the person participated in between 2008 and 2015.

What to take away – Remember that Employers who teach their interns and provide them with real training will continue to be able to maintain unpaid internship programs.

On the other hand, if interns are treated as free labor and do not receive any real training or education, they may be found to actually be an employee entitled to minimum wage and overtime compensation.

Tide of Circuit Courts Finding Paid Suspension Is Not An Adverse Employment Action Grows Tue, 18 Aug 2015 10:49:33 -0400 In an issue of first impression, the Third Circuit Court of Appeals ruled Wednesday, August 12, that a paid suspension does not constitute an adverse employment action under Title VII, joining the unanimous opinion of the six other Courts of Appeal that have considered the issue (the Second, Fourth, Fifth, Sixth, Eighth and Ninth Circuits).

The Plaintiff-Appellant in Jones v. Southeastern Penn. Transp. Auth. et al. was terminated in 2011 by her employer for submitting falsified time sheets, and alleged that her termination was the “culmination of years of unlawful sexual harassment, gender discrimination, and retaliation.” In December 2010, Plaintiff’s supervisor suspended her with pay after discovering apparent fraud in her timesheets. Jones immediately filed an EEO charge following her suspension with pay. Later, after investigation by SEPTA’s Inspector General’s Office confirmed that Jones had committed fraud, she was suspended without pay in February 2011 and formally terminated in April 2011. The District Court summarily dismissed all of Plaintiff’s claims, specifically finding that a suspension with pay is not an adverse employment action.

The Third Circuit affirmed. Noting that an adverse employment action is one that is “serious and tangible enough to alter an employee’s compensation, terms, conditions, or privileges of employment,” the Court found that a paid suspension does not meet this standard. “[B]y design” a paid suspension does not affect compensation, “[n]or does it effect a ‘serious and tangible’ alteration of the ‘terms, conditions, or privileges of employment’ . . . because ‘the terms and conditions of employment ordinarily include the possibility that an employee will be subject to an employer’s disciplinary policies in appropriate circumstances.’”

Suspending an employee with pay pending an investigation into misconduct is an important tool for employers to separate a possible offender from the workplace with minimal conflict while an appropriate review may take place. Employers can add the Third Circuit to the list of jurisdictions where they may act confidently and without distress when utilizing this tool. While a number of other Circuit Courts have not yet considered the issue, the growing tide of those that have presents additional compelling arguments in favor of the adoption of this bright-line rule nationwide.

Fourth Circuit Rejects “Manager Rule” in Title VII Claims Mon, 17 Aug 2015 10:56:08 -0400 On Monday, August 10, the Fourth Circuit rejected the application of the “manager rule” in the Title VII context, finding it “would discourage . . . employees from voicing concerns about workplace discrimination.”

The so-called “manager rule” is a doctrine developed in federal anti-retaliation cases that finds that a manager’s disagreement with an employer’s actions, expressed in the course of performing his or her regular job duties, is not a protected activity under Title VII or the Fair Labor Standards Act. Applied in a limited number of Circuits, the rule purports to address a concern that, if counseling and communicating complaints are part of a manager’s regular duties, then nearly every activity in the normal course of a manager’s job would potentially be protected activity, thus turning every managerial termination into a “litigation minefield.”

The Plaintiff in DeMasters v. Carilion Clinic et al. was an “employee assistance program consultant” for a behavioral health unit of Carilion clinic, and was allegedly terminated for acting “contrary to his employer’s best interest” and failing to take the “pro-employer side” when he helped file an internal complaint on behalf of a Carilion employee who told Demaster that her supervisor had engaged in inappropriate sexual conduct in her presence. The Plaintiff allegedly criticized the employer’s handling of the investigation and the hostility it generated amongst coworkers. The District Court dismissed Demasters’ Complaint, finding that “no individual activity in which [Plaintiff] engaged by itself constituted protected oppositional conduct and that the so-called ‘manager rule,’ in any event, prevented an employee whose job responsibilities included reporting discrimination claims from seeking protection under Title VII’s anti-retaliation provision.”

The Fourth Circuit reversed. While the Fourth Circuit made no findings with respect to the manager rule’s application to the FLSA, it found “[n]othing in the language of Title VII indicates that the statutory protection accorded an employee’s opposition conduct turns on the employee’s job description or that Congress intended to excise a large category of workers from its anti-retaliation protections.” The Fourth Circuit also found support in Supreme Court precedent favoring broad protection from retaliation and the encouragement of employee communication regarding discrimination.

While this may sound like bad news for employers in the Fourth Circuit, it should not change the normal operating procedure – employers should always ensure that termination and other adverse employment actions are supported by legitimate, non-discriminatory business reasons.

Recent Ruling in LGBT Case Another Reminder That Religion Cannot Justify Discrimination Wed, 12 Aug 2015 17:34:51 -0400 We predicted in blog posts on July 24th and July 7th that we would be seeing more in the way of LGBT litigation. I also recommended that managers be given extra training or reminders that in states where LGBT discrimination is unlawful it will not be tolerated. Further, managers cannot allow their personal or religious beliefs about anything to invade the workplace, or to affect how they treat LGBT employees.

Both predictions now ring true.

In a decision issued last week, Judge Weinstein of the US District Court for the Eastern District of New York affirmed a jury verdict against UPS, based on claims of harassment and discrimination of a lesbian employee by a male manager. Roberts v. United Parcel Service, 13 – cv-6161.

The judge started the decision by stating “[a]s the nation’s understanding and acceptance of sexual orientation evolve, so does the law’s definition of appropriate behavior in the workplace ... The jury found improper under the law repeated ‘advice’ from plaintiff’s supervisor that her sexual orientation as a lesbian was evil and needed to be changed in accordance with religious dictates. Appeals to the bible, or theology generally, cannot justify management’s condoning the harassing of a lesbian in the workplace. Defendant’s central administration failed to protect plaintiff from such abuse.”

According to the decision, the plaintiff, Tameeka Roberts, a lesbian who was married and had 3 children, was assigned to work under “Bob W,” a manager. Over the course of several years, Bob repeatedly told Ms. Roberts that she was “evil” and the bible prohibited her lifestyle. He also made comments to the effect that her behavior was “not natural” and she was “going to hell.” She complained to her union, to HR and other UPS managers. After several complaints, senior management and HR did investigate, but concluded that Bob’s behavior was not a violation of the UPS harassment policy. At trial, several UPS executives testified that they did reach that conclusion. Thus, Bob was never formally disciplined. Ms. Roberts claimed that Bob then retaliated by changing her time card and hitting her with packages. She eventually quit the job and claimed constructive discharge.

The District Court, in affirming the jury’s verdict, went to great lengths to set forth the history of LGBT legal protections, and explore the debate in the law as to whether Title VII prohibited discrimination based on sexual orientation. The Judge noted that the EEOC had just recently concluded that this was a prohibited form of discrimination under federal law, and that a number of states had enacted laws which prohibited such discrimination.

He then went on to note that New York State and City law specifically prohibit this discrimination and that Ms. Roberts’ allegations of “discriminatory comments about plaintiff’s sexual orientation made over a number of years, show adverse differential treatment. So too do the significant failures of supervisors to protect plaintiff against discrimination.” Based on the record, he affirmed the verdict of compensatory and punitive damages for the plaintiff.

What lessons can employers take from this case?

  • You cannot turn a blind eye (or ear) to claims that a supervisor is making negative comments about gay, lesbian or transgender employees. This is especially true if you are in a state like New York, where such conduct is explicitly prohibited.
  • You must make sure that all of your Human Resource staff understand the importance of your harassment and discrimination policies, and that they should be a resource that employees can turn to for help if they do perceive that behavior occurring in the workplace. We often find that if a company can address a complaint internally, it is far better than fighting it out with a former employee in court.
  • As society changes the workplace must evolve also. Don’t let your workplace be caught behind the times. The time you spend now educating your employees and ensuring that LGBT harassment does not occur will pay for itself if you avoid even one lawsuit.

The Unpaid Internship: Who “Really” Benefits from This Arrangement? Fri, 10 Jul 2015 16:14:22 -0400 Many of us spent summers working as interns, getting access to the industry of our choice, making contacts, learning – and yes running errands and filing and stuffing envelopes and doing other “grunt” work. Most young people value this experience, not for the money, but for the exposure, the contacts and the experience.

The world of internships has not been so rosy over the past several years, as the plaintiffs’ employment bar seized the gauntlet, and launched an avalanche of class actions accusing many employers of unlawfully failing to pay their interns. Suddenly the young people who once seemed grateful for the experience, and who accepted internships at prestigious companies, suddenly decided that they should have been classified as “employees” and looked for hefty payouts. Many of these cases have resulted in multi –million dollar settlements. At the forefront of this intern tsunami were two class actions which were both on appeal to the Second Circuit in New York - - Glatt et al. v. Fox Searchlight Pictures Inc., No. 13 - 4478 (2d Cir.) and Wang et al. v. The Hearst Corp., No. 13-4480 (2d Cir.).

In a holiday gift to employers, on July 2 the Second Circuit issued decisions in Glatt and Wang, refusing to certify the classes and finding that the interns were not employees under the law. These decisions have dealt a significant blow to this budding industry of intern class actions, instead adopting a common sense test for whether interns should be treated as “employees,” which many plaintiffs lawyers are likely bemoaning. Rejecting the Department of Labor’s (“DOL”) rigid approach to defining an unpaid internship, the Court adopted the more “nuanced” “primary beneficiary” test , which focuses more on whether the intern is receiving some real educational benefit from the experience. The decisions also provide employers with some valuable guidance as to how they can design and maintain a legal unpaid internship program.

The good news is these decisions should slow the juggernaut of class actions. The better news is they give employers some real practical guidance as to how they can design an internship program, without a fear that the intern today will become the plaintiff of tomorrow. We think the best news is for the interns – as now young people who truly crave the experience of an internship are not looking at a future where companies who cannot afford to pay simply throw up their hands and decide that they will not bother to sponsor such programs. So, putting aside the plaintiffs’ lawyers, there are winners on all sides as the result of these decisions.


The Glatt and Wang cases both arose out of the same basic set of facts, interns who claimed they toiled for many hours over weeks and/or months, and were never paid. In each instance, the claim was that claims on behalf of all interns for the two companies should be certified as class actions. Interestingly, the two judges at the district court had each reached the opposite conclusions on the claims. First, in May 2013, Judge Harold Baer denied the plaintiff’s motion to certify a class of unpaid interns in the Wang case. Wang v. Hearst Corp., No. 12 CV 793 (HB) (S.D.N.Y. May 8, 2013). A month later, in June 2013, District Judge William Pauley in the Glatt case, relying on the DOL’s six-factor test, ruled that Fox Searchlight Pictures violated minimum wage and hour laws by failing to compensate interns for their work on the set of “Black Swan.” Glatt v. Fox Searchlight Pictures, Inc., No. 11. Civ. 6784 (WHP) (S.D.N.Y. June 11, 2013). Judge Pauley found that Fox made no effort to educate or train the interns and had them perform routine tasks that would otherwise have been performed by regular employees.

The issue that was presented at the Second Circuit was whether the Court should require employers to satisfy all six of the DOL factors to establish a valid unpaid internship – the approach the plaintiffs’ bar favored. The defense asked the Court to apply the more flexible “primary beneficiary” test, which looks at all of the facts and determines who benefits most from the internship, the employer or the intern. Those who observed the oral arguments at the Second Circuit reported that several judges were critical of the DOL’s six-factor test, finding it to be overly rigid, and thus seemed to be leaning toward the “primary beneficiary” test, which allows the court to consider the “totality of the circumstance” in deciding whether or not an internship qualified for compensation.

The Decisions

In keeping with the predictions from oral argument, the Second Circuit rejected the DOL’s six factor test and ruled that the “proper question” to ask in determining whether an intern was an employee is “whether the intern or the employer is the primary beneficiary of the relationship.” It noted that the test had two salient features: what the intern receives in exchange for the work, and the “flexibility to examine the economic reality” of the arrangement. The court instructed that courts would have to “weigh the diverse set of benefits to the intern against an equally diverse set of benefits received by the employer.”

The overall theme of the decisions was that interns need to be educated in order for an internship program to pass muster. The Court explained: “The purpose of a bona fide internship is to integrate classroom learning with practical skill development in a real-world setting… By focusing on the educational aspects of the internship our approach better reflects the role of internships in today’s economy than the DOL’s six factors.”

The Court then laid out seven “non-exhaustive” factors to consider in evaluating whether an intern should be viewed as an employee. It seems no coincidence that 4 of those 7 factors focused on the educational aspects of the experience, including:

  • the internship provides training that would be similar to that given in an educational setting;
  • the internship is tied to the intern’s formal educational program by integrated coursework or the intern is receiving educational credit;
  • the internship accommodates the intern’s academic commitments by corresponding with the academic calendar;
  • the internship duration is limited to the period in which the internship provides the intern with beneficial learning.
The Court also made clear that it will be harder to certify a class of interns, holding that the question of intern classification is a “highly specialized inquiry” and that the classification issues in the Fox and Hearst cases were not properly certified as class actions.

The overriding message one gets from these decisions is the Court’s view of the importance of the educational aspect of internships. As such, if employers truly teach their interns and provide them with some real training – they should not have to pay them. In contrast, if the interns are treated as just free labor, and are not getting any real training or are not part of a program where they receive educational credit, then the intern may in reality be an employee.

Employers should not be lulled into thinking that this intern issue is going away. In fact, due to all of the publicity of these cases, the interns of today are much more attuned to their rights than were those of just a few years ago. These decisions should be a guidepost for employers. Look at your interns and ask yourself the hard question: are they really the “primary beneficiary” of this relationship? It is not as if they cannot perform any services for the company, but is the program tied to an educational program or institution? Do you offer the interns the opportunity for course credit? Are you really providing them with training and skills that they can use in their field? Does the work schedule respect their academic schedule? If you can answer yes to these types of questions, you should be able to establish that it is a bona fide internship.

A Cautionary FMLA Tale: “Let Them Fix It Before Firing” Must Employees Now Be Allowed to Cure Deficient Medical Certifications? Fri, 26 Jun 2015 13:55:54 -0400 Compliance with the Family Medical Leave Act (“FMLA”) is a daily challenge for employers, as more and more employees seem to take advantage of the right to full and intermittent leave. I often see clients jump to hasty conclusions about FMLA entitlement, or deny leave or terminate employees, without fully analyzing whether they have complied with all of the FMLA’s requirements or done a full review of whether the employee was entitled to leave. A recent decision by the Third Circuit just made that compliance more challenging, allowing an employee who seemingly did not even have a diagnosis of a covered FMLA medical condition get to a jury on an FMLA “interference” claim.

On June 22, 2015, the Third Circuit reversed summary judgment for the defendant in Hansler v. Lehigh Valley Health Network, 2015 U.S. Dist. LEXIS 10444, (3d Cir. Pa. June 22, 2015). Deborah Hansler had requested FMLA leave by submitting a medical certification that did not identify her “serious health condition” or its duration. The employer denied the FMLA leave, without giving her a chance to cure the defects in the certification. She missed several days of work and was later fired. Notably, Ms. Hansler wasn’t even diagnosed with an illness (diabetes and high blood pressure) until after she was fired.

Ms. Hansler sued for FMLA interference and lost at the District Court level. The Third Circuit reversed the dismissal, and held that because the employer failed to give her an opportunity to cure the insufficient certification, she had viable FMLA interference and retaliation claims. Clearly, this was not a good result for that employer. More importantly, it suggests that employers must offer employees this opportunity to cure a deficient certification, before they deny leave or terminate – even when it is unclear that the employee has a qualifying FMLA-covered illness.

The FMLA was passed by Congress to “balance the demands of the workplace with the needs of families,” and provides that eligible employees are entitled to 12 work weeks of leave during any 12-month period if the employee has a “serious health condition” rendering the employee unable to perform her work duties. Before taking leave, an employee must give her employer notice of the leave request, and provide a medical certification containing several key pieces of information, including relevant medical facts, dates and duration of any planned medical treatment, and the expected duration of the intermittent leave.

There are several troubling aspects to this ruling. First, there was no dispute that Hansler’s initial certification was deficient. For one, it did not identify her “serious health condition.” Then again, how could it? Hansler wasn’t diagnosed when she submitted the leave request. In her complaint, however, Hansler claimed that Lehigh Valley interfered with her rights by firing her, without giving her a chance to cure those deficiencies. Under 29 U.S.C. §2615(a)(1), employers are prohibited from “interfere[ing] with, restrain[ing], or deny[ing] the exercise of or attempt to exercise” rights granted under the Act. In asserting a viable interference claim, the employee must demonstrate that she was denied benefits under the Act. While the District Court reasoned that Hansler’s certification was “negative,” it indicated that she lacked a chronic serious health condition. The Court of Appeals found that while the certification was insufficient, she was entitled to a cure before her termination.

The distinction between “negative” and “insufficient” was important, as a “negative” certification gives you no FMLA rights while an “insufficient” certification notifies the employer of a need for leave, but may just need to be corrected. In reaching its conclusion, the Court found that cases addressing negative certifications were not persuasive, given that case law on negative certifications largely involves certifications containing affirmative statements by physicians that the employees would not miss work on account of their medical conditions. In contrast, Hansler’s certification contained no such statement, but instead was ambiguous by failing to specify whether the “one-month” period mentioned in the certification referred only to the length of her leave request or to the duration of her condition. Thus, her certification was “insufficient” rather than “negative,” entitling her to a cure period that she never received.

The Court also rejected Lehigh Valley’s argument that it had no reason to know Hansler had a serious health condition when she applied for the leave. The Court held that while FMLA does not require the employer to be “clairvoyant” about the duration or trajectory of its employees’ illnesses; the question at hand was simply whether the certification was insufficient or incomplete at the time of the leave request. Notably, the Court also found Lehigh Valley’s point that Hansler was diagnosed with her illnesses after she was fired irrelevant to the issue of whether her medical certification was insufficient.

As the dissent noted, the majority opinion now puts any employer who denies a leave request based on an insufficient certification at risk of a FMLA interference claim. So what should you do? There are some simple steps to take:

• First, do not grant a FMLA leave unless you are given a sufficient certification and are satisfied that the employee has a serious health condition. Remember, once leave is granted it is very difficult to ‘undo’, even if you later doubt the legitimacy of the request or believe the original certification was faulty.

• If you receive an insufficient certification, give the employee the opportunity to cure, by stating in writing what additional information is needed to make the certification sufficient. FMLA provides for 7 days. This period of ‘certification’ is again your only opportunity to challenge insufficient documentation. Once the leave is granted, that opportunity is lost or severely limited.

• If the deficiency is not cured, then you may deny leave on the basis of an inadequate certification.

• While employees are on FMLA leave, monitor the leaves and be aware of your right to request re-certification, if the absences don’t match the prediction in the original certification. Be sure to check FMLA regulations and be aware of when and how often you can request re-certification.

• Before you terminate an employee for attendance issues who has been denied FMLA leave – BE CAREFUL. Review the employee history with a lawyer who understands FMLA and make sure there have been no missteps.

• Last, make sure your HR and leave professionals are well trained on FMLA. FMLA is a challenging statute. However, with proper training and monitoring, employers can both manage their workforce, comply with the law, and avoid a bad result like the Hansler decision.

Veronica Montalvo, a law clerk with Kelley Drye & Warren LLP, assisted in the drafting of this post.

It’s Not All “High” in the Rockies – Colorado Supreme Court Finds That Employees Can Be Fired For Use of Medical Marijuana Mon, 22 Jun 2015 10:03:23 -0400 iStock_000058987054SmallAs more states legalize medical marijuana and consider legalization of “recreational” marijuana, many employers have wrestled with the question of whether they can still maintain a drug free workplace or must allow employees to use marijuana at work. The Colorado Supreme Court just provided the common sense answer we’ve been waiting for: YES, employers can prohibit use of marijuana at work (even medical marijuana) and can fire employees who break that rule. This was clearly the right result - - just because conduct is “legal” it does not mean that employees can engage in that conduct at work. Thus, employers can now “breathe easy,” as they may enforce rules which prohibit marijuana use at work, even by those who have a medical marijuana prescription.

First, even as many states enact new laws regulating marijuana, marijuana remains an illegal controlled substance under Schedule I of the federal Controlled Substance Act (“CSA”). However, there was still a dilemma for employers in the states which have legalized medical marijuana as to what action they could take if one of their employees tests positive for the drug. Which scheme of law wins out in such a situation - state, or federal?

The Colorado Supreme Court just clarified the answer for Colorado employers, and provided valuable guidance for employers in other states in Coats v. Dish Network, 2015 CO 44. The plaintiff, Brandon Coats, was employed by Dish Network (“Dish”) as a telephone customer service representative. Mr. Coats was registered and licensed by Colorado to use medical marijuana. Dish, like many companies, had a drug free workplace policy and, in May 2010, Coats tested positive for marijuana use and was terminated. He then sued Dish.

Coats’ theory was that Colorado, like many states, has a statute which prohibits employers from terminating an employee based on any “lawful activities” outside of work. Section 24-34-402.5, C.R.S. (2014) (“Lawful Activities Statute”). Mr. Coats claimed that his use of medical marijuana was a “lawful activity,” and that his termination violated the Lawful Activities Statute.

The Colorado Supreme Court disagreed, and held that the use of medical marijuana at work was not covered by the Lawful Activities Statute. First, the court rejected Mr. Coats’s argument that the term “lawful” was restricted to what is lawful under state law. To the contrary, the Court interpreted the term “lawful” as having its “commonly accepted meaning” of “that which complies with applicable law, including state and federal law.” The Court noted that marijuana is a Schedule I substance under the CSA and that its use, possession, or manufacture is a federal criminal offense. The Court also relied, in part, on the United States Supreme Court’s application of the Supremacy Clause to the marijuana issue, noting that the U.S. Supreme Court had stated that the clause “unambiguously provides that if there is any conflict between federal and state law, federal law shall prevail” even in the area of marijuana regulation. Gonzalez v. Raich, 545 U.S. 1, 29 (2005). The Colorado Supreme Court therefore held that, because Coats’s use of medical marijuana was unlawful under federal law, it was not protected by the Lawful Activities Statute.

The Court’s ruling should come as welcome relief for employers in Colorado, as well as in other states where marijuana use has been made lawful under state law. Prior to the ruling, it was unclear whether an employer could incur liability for terminating an employee for lawfully using marijuana under state law, when it remained unlawful under the federal CSA. Now, the Coats decision shows that, it is fairly likely (although not guaranteed) that courts will come down on the side of employers who rely on the drug’s illegality under federal law to uphold a termination decision.

Employers should continue to be mindful that the fight over marijuana legalization is likely not over, as twenty-three states and the District of Columbia have legalized the use of medical marijuana and several other states have legislation pending that would legalize it as well. Further, in the past three years, Alaska, Colorado, Oregon, and Washington legalized the use of marijuana for recreational purposes. Litigation in response to this movement is ongoing as well, as Colorado’s neighboring states of Nebraska and Oklahoma have filed suit against Colorado in the United States Supreme Court, claiming that the state is violating federal law and causing a burden on them as bordering states. Indeed, there is no sign that the legalization movement, or the pushback thereto, is slowing down, and employers should continue monitoring for additional developments in the near future.

Barbara Hoey Comments on Pao/Kleiner Perkins Lawsuit on Bloomberg West Fri, 19 Jun 2015 13:44:24 -0400 Labor Days co-editor Barbara Hoey was interviewed on Bloomberg Television’s Bloomberg West regarding interim Reddit CEO Ellen Pao’s gender discrimination lawsuit against her former employer, venture capital firm Kleiner Perkins Caufield & Byers, LLC. Ms. Pao claimed that Kleiner Perkins paid and promoted men more than women and engaged in workplace retaliation by terminating her after she ended a personal relationship with a male junior partner.

Joined by Mar Hershenson, managing partner at Pejman Mar Ventures, Ms. Hoey and Ms. Hershenson talked about the lawsuit and a Bloomberg West interview with Kleiner Perkins partner John Doerr in which he said he was unable to settle the case outside of court and that the venture capital industry has publicly been cast as treating women unequally, despite the fact that the firm was found not liable.

With respect to the recent ruling awarding Kleiner Perkins $276,000 in attorney's fees, Ms. Hoey said, "I think [the judge is] trying to send a message: end this, this should be over, the verdict is final and both sides should respect the verdict and move on.”

To see the entire interview, click here.

New York Rejects Florida Non-Competition Law As Against Public Policy Thu, 18 Jun 2015 11:20:55 -0400 In a blow to New York employers who wish to enforce restrictive covenants under other state law, the New York Court of Appeals recently held that the Florida choice of law provision in an employment agreement was unenforceable. Brown & Brown, Inc. v. Johnson, No. CA 13-00340, 2015 WL 3616181 (N.Y. Ct. App., June 11, 2015). The differences between the requirements for restrictive covenants under New York and Florida law proved to be too great, and the Court held that applying Florida law would be against the public policy of New York State.

The employment agreement at issue in Brown & Brown provided that all disputes would be governed by Florida law. The Court of Appeals then analyzed the differences between Florida and New York law and found several specific disparities. The Court first noted that New York law requires that restraints under restrictive covenant be reasonable under a three prong test. A restraint must: (1) be no greater than required for the protection of the legitimate interest of the employer; (2) not impose undue hardship on the employee; and (3) must not be injurious to the public. Once shown to be reasonable under each of the 3 prongs, the burden shifts to the employee to show that the restraint is overbroad and unnecessary.

Florida law, on the other hand, only requires an employer to show that a restraint is necessary to protect a legitimate business interest before the burden shifts. Moreover, Florida law expressly prohibits courts from considering the harm or hardship to the former employee from a restraint. Additionally, courts in Florida are required to construe restrictive covenants in favor of protecting the employer’s interests and are not allowed to use any rules of contract interpretation that would require the construction of a restrictive covenant narrowly, against the restraint, or against the drafter.

The Court reasoned that these differences in Florida’s law constituted a “nearly exclusive focus on the employer’s interests, [a] prohibition against narrowly construing restrictive covenants, and [a] refusal to consider the harm to the employee.” Id. When compared with New York’s requirement that restrictive covenants be “strictly construed” and that courts balance the interest of the employer, employee, and the public, the Court held that application of Florida law in the case would be “offensive to the fundamental public policy of the State.”

In light of Brown & Brown, New York employers should consider not including a Florida choice of law provision in their employment agreements because it will probably not be enforced, at least with regard to restrictive covenants. To the extent New York employers have Florida choice of law provisions in their employment agreements, they should work with employment counsel to structure the terms of any restrictive covenant in accordance with New York law to ensure it will be enforced by New York courts.

Fourth Circuit Affirms Continued Validity of McDonnell-Douglas Test Following Supreme Court Decision Tue, 09 Jun 2015 12:48:48 -0400 In Foster v. University of Maryland-Eastern Shore, the Fourth Circuit recently made clear that the McDonnell-Douglas test is alive and well, rejecting a District Court’s decision which had attempted to back away from the traditional test in evaluating a plaintiff’s burden of proof in a Title VII case.

Foster, a university police officer, alleged that she was terminated just weeks after she complained that a fellow employee spied on her while she tried on her uniform, made lewd and sexual comments, and made physical advances towards her. The university conducted an investigation and took action in response to Foster’s complaints. The university contended that despite the temporal link to those complaints, plaintiff was terminated because she was inflexible about work hours, was not a “team player,” and abused her paid time off. During a deposition, one of her supervisors said she was terminated because she was not capable of moving past the sexual harassment incident, and because of this, she was not a good fit for the department.

The lower court initially denied the university’s summary judgment based upon these facts. However, after a motion for reconsideration in light of the intervening Supreme Court decision in University of Texas Southwestern Medical Center v. Nassar, the District Court reversed and granted summary judgment in favor of the defendant.

In Nasser, the Supreme Court eschewed the lessened causation test stated in Title VII, and found that a Title VII plaintiff must prove her case by the traditional principles of but-for causation – namely, that the “unlawful retaliation would not have occurred in the absence of the alleged wrongful action or actions of the employer.” The lower court found that this altered the fundamental three-step burden shifting analysis enunciated in the seminal McDonnell Douglas v. Green decision:

  1. A plaintiff must first establish a prima facie case by a preponderance of the evidence, i.e. allege facts that are adequate to support a legal claim.
  2. Then the burden of production shifts to the employer, to rebut this prima facie case by "articulat[ing] some legitimate, nondiscriminatory reason for the employee’s rejection.”
  3. Then the employee may prevail only if he can show that the employer’s response is merely a pretext for behavior actually motivated by discrimination.
Finding that the Nasser decision changed this analysis, the lower court in Foster held that the plaintiff did not have sufficient evidence to prove her claim that her employer violated Title VII. However, the Fourth Circuit found that Nasser did not alter the McDonnell-Douglas framework. Importantly, the Fourth Circuit found that if the Supreme Court “intended to retire McDonnell Douglas and set aside 40 years of precedent, it would have spoken plainly and cleanly to that effect.” Specifically, the court found that despite the Nasser court’s alteration of the burden of proof, “the McDonnell Douglas framework, which already incorporates a but-for causation analysis, provides the appropriate standard for reviewing Foster's claim.” The case was remanded to the lower court for further consideration, in line with the Fourth Circuit’s opinion, and the Supreme Court’s long-standing McDonnell Douglas test.

Update on EEOC Transgender Litigation Mon, 18 May 2015 17:32:17 -0400 The Equal Employment Opportunity Commission (“EEOC”) has continued its push for increased focus on LGBT discrimination issues, with two cases in federal courts in Florida and Michigan pushing its position that gender stereotypes violate civil rights afforded under Title VII. One case, EEOC v. Lakeland Eye Clinic, in which the EEOC alleged the Clinic fired an employee after she informed them that she was transgender and intended to start presenting as a woman, settled last month for $150,000. Meanwhile, the remaining case, EEOC v. R.G. & G.R. Harris Funeral Homes, Inc. continues to move forward.

In its complaint, the EEOC accuses Detroit-based R.G. & G.R Harris Funeral Homes, Inc., of having discriminated against a transgender funeral director and embalmer because she is transgender, was transitioning from male to female, and/or because she did not conform to the employer’s gender-based expectations, preferences, or stereotypes.

The name plaintiff in the suit, Stephens, had been employed by Harris since October 2007 and had adequately performed the duties of her position during her employment. In 2013, Stephens gave Harris a letter explaining that she was undergoing a gender transition from male to female and would soon begin presenting to work in proper business attire consistent with her gender identity as a woman. She was fired two weeks later, her employer telling her that what she was “proposing to do” was unacceptable. In its complaint, the EEOC also takes issue with Harris’ provision of a clothing allowance for male employees but not female employees.

The funeral home moved to dismiss the complaint, arguing, among other things, (1) that “gender identity disorder” is not protected by Title VII, (2) the unsuccessful legislative efforts of the Employment Non-Discrimination Act (“EDNA”), infra, necessarily acknowledges these characteristics are not protected by Title VII, and (3) the EEOC’s contention that a transgender claimant is being punished for not conforming to his sex defeats its own premise, as presumably the transgender individual is being punished “precisely because he is conforming to his true sex.”

On April 21, 2015, U.S. District Court Judge Sean F. Cox denied Harris’ motion to dismiss for failure to state a claim, thereby allowing the case to proceed to discovery. The Court noted that “had the EEOC alleged that the Funeral Home fired Stephens based solely on Stephens’ status as a transgendered person” it would have been inclined to grant the motion to dismiss the complaint. The EEOC, however, also asserted that the Harris fired Stephens because she did not conform to the funeral home’s sex or gender-based preferences, expectation, or stereotypes. The Court, therefore, found that the EEOC had sufficiently pled a sex-stereotyping gender-discrimination claim under Title VII. Indeed, the Court also acknowledged that “even though transgendered/transsexual status is currently not a protected class under Title VII, Title VII nevertheless ‘protects transsexuals from discrimination for failing to act in accordance and/or identify with their perceived sex or gender.’”

While the Court did note that “there is no Sixth Circuit or Supreme Court authority to support the EEOC’s position that transgendered status is a protected class under Title VII,” Judge Cox’s decision certainly strengthens the EEOC’s position that Title VII might nevertheless protect the rights of transgendered workers discriminated against on the basis of their sex and or gender.

The EEOC has also filed an amici brief in a number of transgender discrimination cases across the country. Kelley Drye will continue to follow this case and update you on any developments in the ever changing landscape of LGBT discrimination.

Federal Courts Now Have the Authority to Review Whether the EEOC has Satisfied its Duty to Attempt Presuit Conciliation Mon, 11 May 2015 12:25:04 -0400 Under Title VII of the Civil Rights Act of 1964 (“Title VII”), the Equal Employment Opportunity Commission ("EEOC") is obligated to investigate charges of discrimination and retaliation in the workplace filed by a “person claiming to be aggrieved.” If the EEOC finds “reasonable cause” to believe that the allegations have merit, it must attempt to resolve the matter before filing a lawsuit on behalf of the complainant by “informal methods of conference, conciliation, and persuasion.” The statute does not describe the extent to which the EEOC must engage in conciliation and Title VII is silent as to whether an employer can seek judicial review of whether the EEOC satisfied its statutory obligation in pursuing these informal methods.

Until recently, federal courts routinely ruled that they had no authority to review the EEOC’s conciliation efforts. In a recent unanimous decision, Mach Mining, LLC v. EEOC, No. 13-1019 (April 29, 2015), the Supreme Court vacated a Seventh Circuit ruling that courts could not review the EEOC’s Title VII-mandated efforts to conciliate with companies accused of discrimination before filing a suit in federal court. The Supreme Court disagreed with the Seventh Circuit and held that “a court may review whether the EEOC satisfied its statutory obligation to attempt conciliation before filing suit, [b]ut . . . the scope of that review is narrow, thus recognizing the EEOC’s extensive discretion to determine the kind and amount of communication with an employer appropriate in any given case.”

The Court’s ruling sought to strike a balance between the discretion Title VII gives the EEOC and the need to ensure the EEOC follows the law. Now, the EEOC must inform an employer of the specific allegation against them, and try to engage that employer in some type of written or oral discussion to give them a chance to remedy the allegedly discriminatory practice.

Employers should view the Court’s decision as good news. First, even though the Court only endorsed “narrow” and “bare-bones” review, the Supreme Court’s ruling makes it clear that the EEOC is not above judicial review. Second, the Court left the door open for challenges to the sufficiency of the EEOC’s conciliation efforts. Thus, lawyers representing employers can continue to bring the failure to conciliate defense. If the employer wins that fight, the court can order the EEOC to undertake the mandated efforts to attempt to secure voluntary compliance. While employers may prefer a dismissal to a stay, in some cases, a delay in litigation can be advantageous.

Moving forward, employers should be aware of the EEOC’s obligations to conciliate in cases where the EEOC finds reasonable cause to proceed. Employers should also demand that the EEOC provide information about the claims because this information will allow employers to better assess entering into an early settlement versus moving forward with litigation. Finally, the employer’s counsel should document any conciliation efforts (or lack thereof) so that, if necessary, the employer can produce evidence that the EEOC failed to provide the requisite information about the charge and/or failed to attempt to engage in a conciliation discussion.

FLSA Trends: A Mixed Bag with a Silver Lining Wed, 06 May 2015 10:37:37 -0400 It came as no surprise, as reported in a Law360 analysis on May 2, that cases brought under the Fair Labor Standards Act (FLSA) continue to trend upward. The FLSA was for many years a sleepy, antiquated, Depression-era statute the that saw only moderate litigation. But the plaintiffs’ bar woke up to the complexity – some would say the counterintuitive, insane complexity – of the law and its implementing regulations a couple of decades ago. Since that time, the number of FLSA cases has continued to steadily climb, year on year. In fact, as reported in Law 360, in 2014 the total number of FLSA cases filed rose more than 3% from 2013, to a total of 7,964 cases. That’s a lot of expensive litigation.

From what we see in our practice, the reason for the grim popularity of FLSA litigation is the trickiness of the law and regulations themselves. What’s the proper way to determine whether commissioned salespersons are being paid appropriate overtime? The answer lies in a formula that doesn’t necessarily appeal to common sense. Want to deduct pay from a nonexempt employee for time not worked? Fine, but don’t subdivide the time into increments that are too small, otherwise the employee will lose her exempt status. It’s not that FLSA concepts are intellectually unachievable – it’s just that so many of them have to be applied more like a complex tax code with few intuitive rules than a legislative scheme designed to make sure workers are paid minimum wage and overtime.

Against the background of that complexity, imagine that you’re an HR professional or a payroll manager, not someone who thinks like an FLSA litigator. Therein lies the reason for the boom in litigation: the FLSA is a law that has turned out to be exceptionally hard to apply, and exceptionally easy to screw up.

The trends have a bit of a silver lining, however. Even though the overall number of FLSA cases has reached an all-time high, the rate of the increase has started to slow. The sheer cost and liability of FLSA litigation, with costs to employers estimated literally in billions of dollars over the years, has made understanding and complying with the FLSA a major priority in most businesses. Armed with that healthy dose of fear and the sheer downside risks of litigation, the employers we counsel every day have become much more aware of the risks and much more sophisticated in their approach to FLSA compliance.

It used to be that some of our clients would express shock and outrage at some of the more byzantine requirements of the FLSA. Now, they know how to issue-spot themselves and will often reach out to us proactively with a question like, “our payroll system has a way of calculating on-call pay that seems funky to me. Can you take a look?” That wasn’t something we necessarily would have heard ten years ago.

With the FLSA, there is no question that an ounce of prevention is worth a pound of cure, and we work with our clients every day to identify risk and proactively avoid the next FLSA lawsuit. With businesses wising up, we’ll see if that trend continues.

The Seventh Circuit Further Clarifies FLSA Overtime Exceptions…For Window Washers Tue, 07 Apr 2015 15:12:48 -0400 A recent Seventh Circuit decision may provide ammunition for employers defending FLSA claims brought by commission-based employees or employees who work irregular hours.

In Ramon Alvarado, et al. v. Corporate Cleaning Services, Inc., et al., No. 13-3818 (7th Cir. April 1, 2015), the plaintiffs were 24 window washers employed currently or formerly by Corporate Cleaning Services (“CCS”), one of Chicago’s largest providers of window-washing services to high-rises. They filed a lawsuit against CCS for failure to pay overtime wages under the FLSA, alleging they worked in excess of 40 hours in individual work weeks for CCS but were not paid at a rate of one and a half times their regular hourly rate of pay for all the time they worked in excess of 40 hours per week.

There is a commission-related exception to the FLSA that requires satisfaction of three conditions: (i) the worker’s regular pay exceeds one and a half times the federal minimum wage; (ii) more than half of the worker’s compensation represents commissions on goods or services; and (iii) the worker must be employed by a retail or service establishment. See 29 U.S.C. § 207(i). CCS conceded that it did not pay the window washers for work in excess of 40 hours a week; and the window washers conceded that their regular pay exceeds one and a half times the federal minimum wage (under the exception’s first required condition).

Examining the “commission” issue, Circuit Judge Richard Posner reviewed certain facts, including CCS’s assignment of “points” to jobs based on complexity and the number of hours that the window washers took to complete the job, as well as how each worker usually received the same amount of points allocated to the job. CCS then used the number of points assigned to the job to determine the amount it charged the customer and often made price adjustments for the costs of permits, equipment rentals, competition, or the desire to maintain good relations with customers. Because the plaintiffs’ compensation was based on the points assigned to each job on which they worked, their compensation would vary from job to job.

Posner analyzed the differences between two compensation systems - commission based and piecework based compensation. In a piece-rate system the worker is paid by the item produced by him; but in a commission system, a worker is paid by the sale. Varying compensation does not invalidate the compensation system as a commission system. See Yi v. Sterling Collision Centers, Inc., 480 F.3d 505, 509-10 (7th Cir. 2007). Another important consideration is that commission-compensated work involves irregular hours of work. See Id. at 510. Furthermore, if sales are made at a uniform rate, so that the hours worked-to-pay ratio is constant, then an employee who is paid by the sale is not a commission worker. Piece-rate workers are not within the FLSA commission exception because they keep producing even when no sale is imminent – the hours-to-output tend to be constant.

Here, however, the plaintiffs could only work when CCS was hired (or sold its services), and therefore, their employment was irregular because of the peculiar conditions of the window-washing business. In addition, Posner listed other reasons why their work was irregular, such as: weather, unable to amass an inventory, delays due to other work being done on the buildings or failure to notify residents, slowdown in demand, and, oddly enough, peregrine falcon attacks. Posner concluded that the plaintiffs’ compensation represented commission because they were paid only if there had been a sale of window washing services.

With respect to whether CCS was a “retail or service” establishment, Posner stated that the terms are not defined in the statute, and concluded that the CCS met the “retail or service establishment” requirement under the FLSA (section 207(i)), and was probably best described as a “retail services establishment.” The Court found that CCS was a retailer as opposed to a wholesaler, and that it sold its services by the building – which is a unit of sale recognized in the industry. Posner then discredited the plaintiffs’ and The Department of Labor’s (which filed an amicus curiae brief), attempts to establish that CCS “lacks a retail concept” and that the building managers “resell” CCS’s services to the occupants. According to the Department of Labor regulation, 29 C.F.R. § 779.317, although it is impossible to give a complete list of the types of establishments that have no “retail concept,” it is possible to give a partial list of establishments to which the retail concept does not apply. The partial list does not reference window washers. Moreover, The Department of Labor cited to definitions from regulations that come from a section of the statute that pertains to the intrastate business exemption – which has no connection to this case.

This opinion is a management-side victory and will likely be cited by FLSA defendants in industries whose business models are substantially similar to CCS’s, including those with commission-based compensation systems and employees who work irregular hours. Companies and their counsel, however, are well advised to carefully review the regulations listing the establishments to which the “retail concept” does not apply.

A Victory for Kleiner Perkins Should Still be a Red Flag for All Employers – “It’s All About Your Culture” Mon, 30 Mar 2015 14:41:05 -0400 As was discussed on Fox Business News’s Willis Report, Friday’s jury’s verdict in California rejecting Ellen Pao’s claims of gender discrimination and retaliation was undoubtedly a huge victory for the venture capital firm Kleiner Perkins. However, before employers start popping champagne corks, all companies should consider the lessons learned from this case.

A brief background: Ellen Pao, a junior partner at Kleiner, claimed that she had been harassed and discriminated against while employed there because she is a woman. Ultimately, she alleged that after she complained about this perceived discrimination, she was then terminated. She sought many millions of dollars in damages – and potentially multiples of that in punitive damages.

Some of the 24 days of testimony included tales of workplace romances, alleged sexual advances on business trips, and firm events which excluded women, like a high-end ski trip that was “men only.” The jury, however, also heard from other witnesses, including women at Kleiner, who said that the firm was a fair place to work, that it was a competitive atmosphere for women and men alike, and that Ms. Pao was the cause of her own difficulties . Clearly, the jury believed Kleiner’ s version of events, rejecting out of hand all of Ms. Pao’s claims.

Looking at it from afar, many are already saying that – even with a loss – the Pao case has sent some powerful messages through the high tech industry in Silicon Valley.

But, if you are not in the high tech world, you are probably asking, “What does this case have to do with my company?” The answer is: a great deal.

First, any time there is a high profile harassment, case – whether it results in a plaintiff’s verdict or not – it brings sexual harassment back into the media and the spotlight, raising the specter of a spike in new claims. Some women may see and hear about this case and be tempted to become the next Pao. Although a jury found that Pao could not connect the industry’s male-dominated culture to Kleiner’s failure to promote her or to fire her, the case underscores how a work environment can provide fodder for discrimination claims and shine a spotlight on your culture.

Second, all employers should remember that any victory like this comes at a huge cost for the defendant/employer. There are first the direct costs of hundreds of thousands (maybe millions) of dollars in legal fees. There are also indirect costs, like the time taken away from the business by senior management because of the ligation, and then the public “airing” of the company’s dirty laundry in court and in the newspapers. No company wants either, and depending on your business the reputational harm from a case like this - win or lose- may be substantial. In fact, that’s what much of the post-trial press has been about: Pao lost in court, but her former employer may have lost in reputational terms.

Thus, the real win for a company is to avoid being the next Kleiner Perkins. But how can you do that?

All companies have harassment policies, so you do not need another lawyer telling you to review your policy – we talked about this in our March 12th blog post - you should review the policy and make sure that it is strong, and well publicized. You should also consider periodic training of all managers, including your most senior executives.

However, the harsh reality is that the majority of these cases happen in companies that have good policies, and thus do not turn on the strength or weakness of a policy. In fact, many executives will tell you that they know harassment is against company policy – but they do it anyway. No company can stop every bad act or prevent every “off color” joke, drunken escapade or office romance. People are people and these things will happen.

A company can minimize these episodes of “bad” behavior, however, especially within the office and at company events. It can minimize bad behavior – not with the words in a policy – but by the actions of its most senior management. Senior management must lead by example, and not condone, let alone participate in, the kinds of behavior that Pao complained about. Senior management can still have fun, but they should always be mindful that they are representing the company, and that their behavior sends a message to the more junior staff.

A company can also foster a culture where all employees are treated with respect, and efforts are made to ensure that there is parity among employees at the same level. For instance, if there is a women’s “spa day” for female employees and clients, then the male employees should be permitted to do a “guys” event of their choosing.

If there is an important dinner with senior management or an important customer, efforts should be made to invite a diverse group of employees, not just the most senior group, but some of the more junior people who worked on the project.

Finally, a company can control how it responds to allegations once they are reported. It goes without saying that claims of harassment or discrimination, whether by men or women, should be taken seriously and investigated promptly.

Investigation is not enough, however – a company that really wants to create the right culture must act when it does uncover any incidents of harassment or discrimination. This is not always easy, especially if the alleged bad actor is a member of senior management. However, if the incident is confirmed some action must be taken to address it. As always, actions speak louder than words, and other employees will see that swift action, and take heed as to how they behave in the future.

In short, whatever business you are in, as women rise higher in a company, senior management needs to be aware of how they are treated, be mindful of how all executives behave, and promote a culture which will not foster litigation like the Pao case.

The real victory of this verdict will be in the message it sends to all employers, to foster an atmosphere where all employees – male and female alike – can work and socialize in a way that fosters respect for one another.

What’s Good for the Goose Is Good for the Gander: The Supreme Court’s Decision in Young v. UPS Wed, 25 Mar 2015 17:32:37 -0400 Does an employer have to offer a pregnant employee exactly the same physical accommodations as it does to “other” employees? Which “other” employees? And how many “other” employees? In a case involving the Pregnancy Discrimination Act, the U.S. Supreme Court’s 6-3 decision today in Young v. United Parcel Service, Inc., No. 12–1226, 575 U. S. ___ (2015) raises these questions without really answering them – leaving a lot of work for the lower courts, and parties in litigation, to do. The Court’s decision today, however, makes clear that an employer who grants accommodations to non-pregnant employees should think twice before denying them to pregnant employees. According to the Supreme Court, that denial may amount to evidence of intentional (and unlawful) discrimination.

Peggy Young, a UPS driver, became pregnant in 2006. Her doctor told her that she should not lift packages weighing more than 20 pounds during her first 20 weeks of pregnancy and not more than 10 pounds after that. UPS allowed light-duty assignments for certain employees, including drivers who had become disabled on the job, drivers who had lost their Department of Transportation (“DOT”) certifications, and employees who had disabilities covered by the Americans with Disabilities Act. But not for anyone else, including Peggy Young.

Young asked for the same light duty. UPS’s occupational health manager told her that she would not be allowed to work during her pregnancy because she couldn’t satisfy the lifting requirements (sometimes of packages weighing up to 70 pounds). Another manager confirmed that she was “too much of a liability.”

So Young stayed home for the remainder of her pregnancy. She also promptly sued UPS, alleging that UPS’s refusal to give her light duty was intentional discrimination. Her theory was that UPS gave light duty to certain other employees, but not pregnant employees. That, she claimed, violated the Pregnancy Discrimination Act (“PDA”), a 1978 law amending Title VII of the Civil Rights Act of 1964, which prohibits intentional sex discrimination. The PDA contains these magic words: “women affected by pregnancy, childbirth, or related medical conditions shall be treated the same for all employment-related purposes . . . as other persons not so affected but similar in their ability or inability to work[.]”

In court, Young argued that UPS’s refusal to give her light duty meant that she was not “treated the same” as “other persons” (like disabled employees, or those who had lost DOT certifications) who were “similar in their . . . inability to work.” UPS said that, since Young was not in the categories of employees for whom UPS gave light duty, UPS hadn’t discriminated against her at all – it had simply treated her like any other “relevant” person who didn’t fall within a covered category. UPS’s argument convinced the trial court, which granted summary judgment, and the Fourth Circuit Court of Appeals, which affirmed the lower court’s decision.

But today, the Supreme Court disagreed. Justice Stephen Breyer’s majority opinion was, in some sense, critical of the positions of both Young and UPS. Young’s argument that as long as an employer accommodates only a subset of workers, pregnant workers must receive the same treatment “proves too much”: according to the Court, the fact that the PDA requires an employer to treat pregnant workers the same as “other persons” doesn’t mean it must treat a pregnant worker the same as “any other person.” That means that if an employer grants an accommodation or benefit to a single employee, the law doesn’t require an employer to automatically give pregnant employees the same thing.

But the real impact of the Court’s decision was its rejection of UPS’s position. The Court held that if an employer accommodates a “large percentage” of non-pregnant workers but refuses to offer the same to pregnant workers, that refusal may amount to evidence of intentional discrimination – at least enough evidence to survive summary judgment and create an issue for trial. In this case, Justice Breyer wrote, UPS granted light duty to “numerous” employees who could not drive or lift packages, but not for pregnant employees.

So it’s clear that Peggy Young is back in the game and is heading back to the trial court, thanks to the Supreme Court. What is much less clear is the standard an employer is supposed to use in determining when it must offer a pregnant employee the same accommodations as non-pregnant employees. The Court found that the fact that “numerous” “other employees” got light duty was potential evidence of intentional pregnancy discrimination. How many employees are “numerous,” and which “other employees” an employer should take a look at, will be resolved only through more litigation in the lower courts. As a practical matter, employers should eye any policy treating pregnant workers differently from significant groups of other employees with suspicion.

The Day of the Woman – Maybe Not at Kleiner Perkins Thu, 12 Mar 2015 12:48:13 -0400 On Monday, March 9, one day after we all celebrated International Women’s Day, Ellen Pao, a Harvard-trained lawyer, took the stand in her sexual harassment trial against venture capital firm Kleiner Perkins in California. There are always two sides to every case, and Kleiner has just begun to cross examine Ms. Pao and offer its defense to her claims, so I do not profess to offer my views on which side is telling the truth. However, even before she testified, the evidence thus far has depicted an environment that – at least from what has been presented – was far from the model of the professional workplace.

First, there were alleged “slights” in the treatment of women at Kleiner. For example, women partners were not invited to an important client dinner with Vice President Al Gore and then were excluded from a company ski trip. One male partner asked two female junior partners to take notes at a meeting. The firm has explanations for all of these incidents, but women felt that they were being treated as second-class citizens.

Then there are the more significant “events” and incidents. It is undisputed that Ms. Pao had a consensual affair with a married partner. When that ended, the same partner appeared at the door of yet another female partner’s hotel room in a bathrobe carrying a wine bottle. When that woman complained, a partner suggested she “did not want to go public” and that she should be “flattered” by his attention. When Ms. Pao tried to complain about the partner, senior partner John Doerr laughed it off, claiming the partner was a “sex addict.”

Beyond these lurid incidents, the testimony also reveals a deeper possible double standard that the women like Ms. Pao had to endure. Ms. Pao’s evaluations revealed sometimes contradictory advice and criticism. In some situations they were told to “speak up,” while at other times they were told to be quiet.

When outside counsel (a male law firm partner) was finally brought in to investigate Ms. Pao’s complaint, it is alleged that no one could locate a copy of the firm’s harassment policy. When asked about Ms. Pao, Mr. Doerr told the investigator she had a “female chip on her shoulder.” Once he made his report, Mr. Doerr did not have time to read it, so it was merely “summarized” for him. There are also now allegations from Ms. Pao that the outside counsel was biased, as he was trying to get hired by Kleiner for an in-house position.

Ultimately, Ms. Pao claims that she was terminated in retaliation for reporting this alleged harassment.

Again, the trial continues and the defense is now cross-examining Ms. Pao and putting some holes in her story, but many of the facts which have come out at the trial are disturbing.

So you may ask yourself what does this case have to do with my company?

While the incidents which are alleged in the Pao case may not happen in every workplace, they do bear a strange similarity to some of the allegations in the recent Faruqi harassment lawsuit in New York, so patterns emerge which all employers should take note of:

  • It’s Not Just About a Policy - Remember that your harassment policy should be a living, breathing thing – which everyone not only knows about, but follows. It should be more than a piece of paper; it should be part of your culture. It never hurts to have an annual reminder or training for management on respectful behavior in the workplace. Make sure all of your employees also know the policy and know how to complain if needed. Also, respectful behavior starts at the top, so if senior executives treat women and all employees with respect, then that attitude will trickle down to the rest of the staff.
  • Love (At Work) Is not a “Many Splendored Thing” – Affairs, even totally consensual affairs, between and among employees, and especially where a more senior executive is having an affair with someone at a more junior level, rarely are a good thing for the employer. As we see in these cases, these relationships may end badly and then the “he said/ she said” battle begins. The company will rarely be able to sort this out. Also, they can stir resentment and bad feelings among other staff. Senior executives should be reminded that affairs with those junior to them are frowned upon.
  • The workplace does not end at your office door - The Pao and Faruqi lawsuits both included allegations of “bad” behavior on business trips and at firm social functions, most of which included some over-use of alcohol. Again, remind your executives especially that they are always representing the company, and that their behavior – whether on a business trip or holiday party – MUST be professional at all times. The reality is that the company can be liable for the behavior of a senior executive at these events, and executives need to be aware of that.
Finally, no matter who “wins” the Pao lawsuit, the defendant in such a case is often losing a great deal. There is the tremendous cost, in terms of dollars in legal fees and executive time. There is also the cost in damage to the reputation of the company, and possible damage to its ability to recruit female talent. It is also possible that potential clients will turn away from a firm which they perceive to be unwelcome to women.