Author Archives: Holland & Hart

March 2, 2015

EEOC Strategic Enforcement Priorities: Insight from Denver’s Director (Part One)

Knowing the Equal Employment Opportunity Commission’s (EEOC’s) top priorities can help you direct your risk management efforts and avoid enhanced scrutiny. John Lowrie, the new director of the EEOC’s Denver Field Office, recently spoke to the Labor and Employment Section of the Colorado Bar Association about the agency’s national Strategic Enforcement Plan (SEP) and how his office will approach those enforcement goals. This article is the first in a series that will share Mr. Lowrie’s insight into how EEOC investigators and attorneys in the Denver Field Office work toward fulfilling the national enforcement priorities.

Certain EEOC Charges Get Immediate Attention

The Denver field office currently has 12.5 investigators, 7 attorneys, 3 mediators and 1 administrative law judge. With the volume of charges received by the Denver office remaining steady at between 1,800 to 2,000 charges each year, charges alleging certain types of claims get enhanced attention which can include immediate review by the legal staff, up to and including the director himself.

Which charges receive this immediate attention? Any charge that touches on one of the EEOC’s six national strategic enforcement priorities. Here we discuss the first two priorities in the national SEP, including Mr. Lowrie’s perspective from the Denver Field Office.

Priority #1 – Remove Barriers to Employment

According to Field Director Lowrie, there are two main components to the EEOC’s first enforcement priority of removing barriers to employment: (1) arrest and conviction records, and (2) medical screening questions and procedures. If a charge alleges discriminatory use of criminal background checks in hiring or the inappropriate timing or use of medical questions or exams, the EEOC will escalate that charge for immediate review.

The EEOC has brought several high-profile lawsuits in the past few years alleging that blanket “no hire” policies that prohibit hiring an applicant with a criminal record have a discriminatory impact on African Americans and other protected classes in violation of Title VII. In the Peoplemark case, however, the EEOC was ordered to pay the prevailing employer over $750,000 in attorneys’ and expert witness fees when the court ruled that no company-wide criminal background check policy existed, an allegation that was essential to the EEOC’s case. Similarly, in the Freeman case, a federal appeals court recently upheld the dismissal of the EEOC’s case, calling its expert’s analysis “utterly unreliable.” Despite its losses, the EEOC is pursuing claims based on criminal background checks, with lawsuits against BMW, Dollar General and other companies still ongoing.

Priority #2 – Vulnerable Workers

The second strategic enforcement priority is the protection of vulnerable workers. Field Director Lowrie explained that this includes agricultural workers, immigrant and migrant workers and mentally disabled workers.

When discussing immigrant and migrant workers, Mr. Lowrie noted the EEOC does not look at whether the workers are authorized to work in the U.S. or if they are in the country illegally, commenting that the EEOC is not ICE or Homeland Security. Instead, the EEOC looks to enforce the anti-discrimination laws under its jurisdiction so that employers do not escape enforcement just because they use unauthorized workers.

As for protecting mentally disabled workers, Mr. Lowrie specifically mentioned the EEOC’s win in a case against a turkey farm in the Midwest in which over thirty men with intellectual disabilities were housed in substandard facilities, denied medical care and harassed both verbally and physically for years.

Stay Tuned for Insight into Other Top EEOC Priorities

In the next few weeks, we will explore the EEOC’s remaining strategic priorities. In the meantime, review your background check policy to ensure you do not have a blanket “no hire” criminal record exclusion. Check that your employment application does not state that applicants will be automatically excluded if they have a criminal record. Make sure that you do not ask for medical information, such as family medical history, or send applicants for a medical exam until after a conditional job offer has been made. Be careful with wellness programs, ensuring they are voluntary. And if you employ vulnerable workers, make certain that your policies and practices do not single them out for disparate treatment in pay, job assignments or other conditions of employment.

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February 23, 2015

Exempt Employee Salary Deductions for a Reduced Schedule

By Brad Cave

Classifying an employee as exempt under the Fair Labor Standards Act (FLSA) comes with a trade-off. Most employers know that exempt employees are not entitled to overtime. But, in exchange for that benefit, the FLSA limits employers’ ability to reduce the exempt employee’s salary, even when they are not coming to work. However, exempt employees are not immune from needing time off of work to recover from a medical condition, to settle an aging parent into an assisting living arrangement or to handle a long-term behavioral issue with a child. If an employee seeks some time off each week to take care of such matters, you may agree to allow the employee to work a reduced work schedule for a period of time. But when payday rolls around, must you pay the employee his or her full weekly salary or can you deduct pay to reflect the reduced work schedule? Missing this answer can have significant ramifications for the employee’s exempt status.

FLSA Salary Basis

Under the Fair Labor Standards Act, exempt employees’ pay must meet the salary basis test, which means that the employee must receive a predetermined amount of salary for each workweek, without reductions because of variations in the quality or quantity of work during the week. Thus, deductions from salary for reduced working hours is generally not permitted under the salary basis test. Deducting pay for the missed time could result in the loss of the employee’s exempt status. However, two exceptions may apply to your employee.

FMLA Leave Can Result in Pay Deduction

If the employee’s reduced schedule constitutes unpaid leave under the Family and Medical Leave Act (FMLA), the FLSA regulations permit employers to “pay a proportionate part of the full salary for time actually worked” without risk to the exempt status. This means that if your employee is missing work for an FMLA-qualifying reason, you may deduct pay from their weekly salary to reflect the unpaid FMLA leave time.

PTO, Sick Leave or Other Paid Leaves

If the employee has accrued PTO, sick leave or another type of company-provided paid leave, you can require that the employee use such paid leave to cover the partial day absences, as long as the employee continues to receive the full amount of their weekly salary. And, once the employee uses up all of their accrued paid leave, you can make salary deductions for full-day, but not partial-day, absences.

Saved Wages Vs. Loss of Exempt Status

Deductions from an exempt employee’s salary should be made only after careful consideration of the potential consequences. After all, the salary you save now for missed time may seem trivial if you lose the exempt status of this and all similarly-situated employees and owe them overtime for the past two years.

February 16, 2015

Lessons From a $15M Discrimination Verdict

By Mark Wiletsky

A Colorado federal jury reportedly awarded $15 million last week to 11 workers who claimed they had been subject to workplace harassment, discrimination and retaliation because of their race and national origin. Ten of the 11 current and former workers who sued their employer, a trucking and mail-sorting company at Denver International Airport, were black men. Three had been born in the United States and the remaining seven were from Mali, Guinea and Brazil. Their allegations included that racist comments pervaded the workplace, that they were discriminated in work assignments, layoffs and pay and were segregated into certain unfavorable job categories and shifts, and that they faced retaliation after complaining about the harassment and discrimination.

Although we do not know exactly which facts or claims persuaded the jury to award this large sum, the fact that the jury awarded $13 million dollars for punitive damages suggests that it believed the company’s actions (or inactions) were particularly bad.

What can you learn from this significant discrimination verdict? Even if the verdict is later reversed or reduced, you can learn what not to do when managing a racially and ethnically diverse workforce.

Ignoring Complaints and Promoting the Harassers

The workers in this case alleged that they complained internally about racist comments and slurs made by supervisors, leads and co-workers and that nothing was done. Examples of some supposed comments directed toward the workers were “lazy, stupid Africans,” “go back to your f***ing country,” “they need to fire all the n***ers here” as well as regular use of the N-word. Instead of stopping the comments, management supposedly turned a deaf ear and even promoted some of those who made the slurs.

Don’t ignore inappropriate comments when you hear them. It is up to you to stop racial and ethnic slurs immediately and take action to ensure they are not pervasive in your workplace. If an employee complains about discriminatory name-calling and threats, you need to investigate the report and take appropriate action. Be sure to confirm—in writing—that you met with the accuser(s) to discuss the results of your investigation, and ensure there is no retaliation. Then follow-up again to ensure things have improved. Doing so will demonstrate your commitment to a workplace free from discrimination and harassment – so long as you are prepared to take action against those who violate your policies.

Failing to Enforce EEO and Harassment Policies

You likely have an Equal Employment Opportunity and a Harassment policy in your employee handbook, but they do no good if you fail to enforce them. Review your policies, train your supervisors on them and enforce them uniformly and consistently.

Retaliating Against Those Who Complain or Their Supporters

The eleventh worker who sued the trucking company in this case was a white man who offered support for the African workers and provided evidence supporting their allegations. After being terminated from his job, he alleged his firing was in retaliation for his support.

Retaliation is within company control and in many cases, is preventable. Train your supervisors not to treat an employee who has complained of discrimination or harassment, or who has participated in a charge or lawsuit, differently than other employees are treated. Carefully analyze any adverse decision that would affect such an employee and make sure your decision is based on legitimate business reasons and is well-documented, in case you have to defend a retaliation complaint.

Fifteen Million Reasons To Do It Right

You don’t want to end up in front of a jury defending your employment practices, but if you find yourself in that position, you want to be able to show a jury you did everything you could to prevent discrimination and harassment in your workplace. If you don’t take those actions, a jury may very well punish you for it.

January 14, 2015

How a Health Benefit Can Be a Wolf in Sheep’s Clothing

by Bret Busacker and Bret Clark (formerly of Holland & Hart)

Group health plans provided by employers to employees are subject to 40 years of federal regulation from ERISA, to COBRA, to HIPAA, to ACA. What many employers don’t realize is that the definition of group health plan is not limited to traditional major medical plans. These federal laws generally apply to any arrangement sponsored by an employer that directly or indirectly provides health-related benefits to employees.

In an effort to control health insurance costs, we have observed employers looking at unique ways to provide their employees with medical benefits outside of the standard group health plan structure. However, employers should be aware that virtually any arrangement that provides employees with medical benefits is subject to the often burdensome federal laws that regulate employer provided medical benefits.

Employers may be surprised to know that the arrangements described below are generally subject to a variety of restrictive federal benefits laws.

Account-Based Arrangements

Some employers (including many small businesses) would like to assist employees in purchasing health insurance but because of cost, risk and other factors cannot sponsor a traditional major medical plan. In the past, some of these employers provided employees an allowance that employees could use to purchase individual health insurance (in some cases, on a pre-tax basis). These types of arrangements are especially attractive now that the healthcare exchanges under the ACA have been established (where employees can sometimes get subsidized health insurance).

However, the ACA prohibits an employer from establishing an arrangement through which employees may purchase health insurance on an ACA exchange. Even employer-sponsored arrangements that help employees purchase non-exchange individual health insurance policies may run afoul of federal benefits laws. Employers may increase an employee’s taxable wages to help the employee purchase health insurance, but if the increase is conditioned on the employee purchasing health insurance, the arrangement may become subject to federal benefits laws.

Employers may continue to use traditional account-based arrangements to supplement employer-provided health insurance, such a Health Flexible Spending Account, Health Reimbursement Arrangement, or Health Savings Account. However, employers should examine closely any arrangement that permits (or requires) employees to purchase individual health insurance.

Discount Arrangements

We have also encountered employers that provide discounts to employees for medical services. These programs generally involve employers that are healthcare providers. They generally provide employee discounts or allowances that may be used for in-house healthcare services. These programs can also involve discounts negotiated between an employer and a third-party healthcare provider.

Because these employer-sponsored arrangements provide health-related benefits to employees, they are generally group health plans subject to federal regulation, including the ACA. To the extent such a program is offered to employees who are not concurrently enrolled in the employer’s group health plan, the programs must separately satisfy ERISA, COBRA, HIPAA and the ACA.

It some cases, these programs violate the ACA because they do not satisfy the ACA prohibition on annual and life-time limits, among other requirements. In other cases, it may be possible to structure these arrangements to comply with the ACA, but employers should be aware that the notice, disclosure and plan document requirements generally applicable to group health plans also apply to these arrangements.

Skinny Plans

Under the ACA, certain large employers must offer health coverage to their full-time employees or pay a penalty. The coverage must pay 60% or more of a participant’s healthcare expenses, determined on an actuarial basis (referred to as “minimum value”).

Employers and service providers have closely analyzed plan structures to determine how to minimize the cost of a plan and still provide minimum value. Service providers discovered that a plan may be structured to exclude in-patient hospitalization and/or physician services and still satisfy the minimum value requirement. Such plans are known as Skinny Plans.

Many employers found that excluding in-patient hospitalization and/or physician services significantly reduced the cost of coverage, and took significant steps to implement Skinny Plans for 2015. However, once the IRS became aware of this practice, it moved very quickly to prohibit it, and left many employers that were planning on offering Skinny Plans scrambling to find alternative coverage.

Skinny Plans are clearly group health plans and are designed to satisfy applicable federal regulations. However, they highlight the risk an employer takes on in exploring non-traditional coverage in this highly regulated area.

Conclusion

Employers and service providers have become creative in structuring benefit plans in order to minimize costs. In some cases, employers inadvertently provide benefits that do not fully comply with applicable requirements. In other cases, employers push the boundaries of current guidance and risk the IRS invalidating the arrangement with subsequent guidance. In either case, the employer may face significant penalties for noncompliance with applicable law. Accordingly, employers should ensure that their non-traditional health benefit arrangements fully comply with applicable federal requirements.

Bret Busacker and Bret Clark are attorneys in Holland & Hart’s Boise office, where they provide legal services to the firm’s employee-benefits and executive-compensation clients. Bret Busacker can be reached at bfbusacker@hollandhart.com; Bret Clark can be reached at sbclark@hollandhart.com

December 23, 2014

National Labor Relations Board continues down a controversial path!

By Steven M. Gutierrez

In recent years, the National Labor Relations Board (“NLRB”) has issued some notable decisions that impact both union and non-union employers nationwide. In the past month, two important pronouncements have been made by the NLRB. Both are controversial; however, anyone that has been following the last several years’ NLRB activity, neither was unexpected.

The first pronouncement is found in a holding of the NLRB issued on December 11, 2014 in Purple Communications, Inc., 361 NLRB No. 126. In this matter, Purple Communication’s electronic communications policy, which prohibited employees of Purple Communications from using the company’s email and communication systems in activities on behalf of organizations that had no professional or business affiliation with the company, was found unlawful. In holding that the policy was unlawful, the NLRB overruled Register Guard. Under Register Guard, employers could prohibit employees from using the employer’s email system, provided that the ban was not applied discriminatorily. Under the new Purple Communications standard, there is now a presumption that employees who have been given access to the employer’s communication system are entitled to use that system to engage in concerted protected activity during their non-working time. Employers who can show special circumstances can justify a ban on this kind of communication, but the burden will be high and the ban must be supported by evidence that there is a specific business interest at issue.

The second pronouncement comes from the issuance of a final rule, on December 12, 2014, when the NLRB amended representation election procedures. The new rules become effective on April 14, 2015. Pursuant to the final rule, the time period between filing of a union election petition and the date of the election is reduced and expedited. What normally would have taken six to seven weeks, will now be accomplished in 10-21 days. Further, issues related to voter eligibility and bargaining unit inclusion are resolved after the election. Notably, an employer will now be required to submit a “Statement of Position” prior to the pre-election hearing, and will be found to waive arguments concerning the election that are not raised in the Statement of Position. This new rule will most certainly make it easier for unions to organize and reduce the time an employer previously had to communicate with its employees in advance of a union petition requesting a vote.

Based upon these two developments and others in the past year, you can be virtually certain that the NLRB will continue with its controversial ways in the coming year. It is clear to this author, the NLRB would like to make it easy for unions to assert greater influence and stem the tide of the continued decline in membership.

December 15, 2014

Are Your Employee Handbooks and Policies Up-to-Date?

By Mark Wiletsky

As 2014 comes to a close, employers should consider reviewing and, if necessary, updating handbooks, policies, and employment agreements. Organizations sometimes devote significant resources to developing policies or handbooks, but if they are not regularly updated or revised, the policies and handbooks may not be particularly useful. In fact, an outdated policy may end up causing confusion among employees and managers, or create issues for the organization if a dispute arises. To avoid these issues, consider (among other things):

Changing your handbook to eliminate old or outdated policies, and ensure the current policies accurately reflect current practices;
Reminding employees about key policies, such as anti-discrimination/harassment and nondisclosure policies; and
Revising or updating nondisclosure, noncompetition, and/or nonsolicitation agreements. In Colorado, continued employment is generally sufficient consideration for such agreements, but in other states or jurisdictions, that might not be the case, so tying an update to a year-end bonus, raise, or promotion may be a good way to ensure adequate consideration exists for new or revised agreements.

Rolling out new or updated policies in the first quarter of 2015 may be a good way to introduce new and existing employees to the changes or updates. In addition, if you do not already do so, consider highlighting key policies, such as anti-discrimination and anti-harassment, or conducting an annual training on critical policies. Doing so may limit potential claims, or at least put you in a better position to defend against a claim down the road.

December 12, 2014

Supreme Court Says No Pay For Security Screening Time

Supreme Court Says No Pay For Security Screening Time

By Brad Williams

Should employers pay employees for time spent in mandatory, post-shift security screenings designed to deter theft? Not according to a recent Supreme Court decision.

On December 9, 2014, the Supreme Court unanimously held in Integrity Staffing Solutions, Inc. v. Busk, No. 13-433 (2014), that post-shift, anti-theft security screenings are not compensable work time under the Fair Labor Standards Act (FLSA). The decision reversed a Ninth Circuit decision holding that workers in two Amazon.com warehouses were entitled to pay for periods spent waiting for, and being screened at, security checkpoints after their shifts had ended. The workers claimed that they spent roughly twenty-five minutes per day in such screenings, which included removal of their wallets, keys, and belts.

Splitting from other courts to have considered the issue, the Ninth Circuit held that such time was compensable because the workers’ post-shift screening activities were necessary to their principal work activities, and were performed for the benefit of their employer. However, the Ninth Circuit’s understanding of compensable work time under the FLSA echoed that in earlier judicial decisions that had been expressly overruled by Congress.

Specifically, in response to a flood of litigation caused by the earlier decisions, Congress had passed the Portal-To-Portal Act in 1947 to clarify that employers are not obligated to pay employees for activities which are “preliminary” or “postliminary” to the principal activities they are employed to perform. As such, time spent before or after a worker’s “principal activities” is not compensable unless it is spent on activities that are themselves “integral and indispensable” to the worker’s principal activities. Regulations interpreting the Portal-To-Portal Act had long held that activities like checking into and out of work, or waiting in line to receive paychecks, is not compensable work time.

In its December 9th ruling, the Supreme Court reaffirmed that just because an activity may be required by, or may benefit, an employer, does not mean that it is a compensable “principal activity,” or is “integral and indispensable” to a principal activity. The warehouse workers’ employer did not employ the workers to undergo security screenings; it employed them to retrieve products from warehouse shelves and to package the products for shipment to customers. The security screenings were also not “integral and indispensable” to the warehouse workers’ principal activities because their employer could have eliminated the screening requirement altogether without impairing the workers’ ability to perform their jobs.

In reaching its decision, the Supreme Court stated a new definition of “integral and indispensable” activities to guide lower courts. An activity is now “integral and indispensable” to an employee’s principal work activities if it is an “intrinsic element of those activities and one with which the employee cannot dispense if he is to perform his principal activities.” Examples include time spent by battery-plant employees showering and changing clothes because chemicals in the plant are toxic to humans. It also includes time spent by meatpacker employees sharpening knives because dull knives cause inefficiency and other problems on the production line.

The Supreme Court’s decision gives employers much-needed certainty regarding the compensability of certain “preliminary” or “postliminary ” activities. It clarifies that most employers may continue performing uncompensated pre- and post-shift security or anti-theft screenings without fear of successful FLSA collective actions. The decision is particularly relevant to employers in the retail industry, who regularly conduct anti-theft screenings, and to other employers who are increasingly performing security screenings in an era of heightened concerns over terrorism.

Because the FLSA sets minimum standards for wage and overtime payments, states may set higher standards for compensable work time, including with respect to “preliminary” or “postliminary” activities. Unions may also bargain with employers to make such activities compensable. But the Supreme Court’s recent decision helps push back on the tide of FLSA collective actions filed by employees claiming that certain activities are compensable because they are essential to their jobs. The decision also follows a similar Supreme Court decision in January 2014, Sandifer v. U.S. Steel Corp., No. 12-417 (2014), in which the Court held that time spent by union-employees donning and doffing personal protective equipment was not compensable. Taken together, these decisions suggest a concerted judicial effort to address the explosion of FLSA collective actions.

December 1, 2014

Colorado’s 2015 Minimum Wage Hike

By Jude Biggs

Amid legislative efforts to raise the federal minimum wage, the Colorado minimum wage is set to go up by 23 cents to $8.23 per hour automatically on January 1, 2015. The state minimum wage is adjusted annually for inflation, as required by Article XVIII, Section 15, of the Colorado Constitution. The minimum wage for tipped employees will be $5.21 per hour.

Employees Subject to the Colorado Minimum Wage

Colorado employees are entitled to the state minimum wage in two situations, namely if covered by (1) Colorado Minimum Wage Order Number 31 (Minimum Wage Order); or (2) the minimum wage provisions of the federal Fair Labor Standards Act (FLSA). The Minimum Wage Order applies to certain employers/employees for work performed within the state of Colorado in the following four industries:

Retail and Service
Commercial Support Service
Food and Beverage
Health and Medical

Each industry is defined within the Minimum Wage Order. Employers covered by the Minimum Wage Order must comply with not only the minimum pay requirements, but also obligations related to meal and rest periods, overtime pay, uniforms, recordkeeping and other labor standards.

Employees subject to the minimum wage provisions of the FLSA (and therefore, also entitled to the Colorado minimum wage) include those non-exempt workers performing work involved in interstate commerce and those working for a business or organization that has two or more employees and has an annual dollar volume of business of at least $500,000 or a hospital, school, government agency or residential medical or nursing facility, regardless of annual sales.

If an employee is subject to both the state and federal minimum wage laws, they are entitled to be paid the higher of the two hourly minimum rates of pay. At present rates, the $8.23 Colorado minimum wage trumps the federal $7.25 minimum hourly rate so employers must pay their non-exempt employees working in Colorado at the higher Colorado rate.

Inflation Adjustment Based on Consumer Price Index

The Constitutionally required annual adjustment in the Colorado minimum wage is measured by the Consumer Price Index (CPI) for Colorado. According to the federal Bureau of Labor Statistics, the CPI for the Denver-Boulder-Greeley metropolitan area of Colorado increased 2.9 percent from the first half of 2013 to the first half of 2014. The overall increase was driven by a nearly 5.0 percent increase in costs for housing as well as a 3.9 percent increase in energy costs and a 2.0 percent increase in food prices. The 2.9 percent raise in the CPI for Colorado was then applied to the 2014 state minimum wage of $8.00 per hour, resulting in a 23 cent per hour increase in the minimum wage for 2015.

Plan Now for the January 1st Wage Increase

Businesses and organizations with employees who are subject to Colorado’s minimum wage should take steps now to update their payroll systems and practices in order to implement the new minimum wage on January 1, 2015. Employers that use an outside payroll vendor should confirm that the payroll provider has programmed the new Colorado minimum wage in their systems to take effect on January 1. Note, too, that employers subject to the Colorado Minimum Wage Order must post a copy of the new Minimum Wage Order in their workplace in an area frequented by employees where it may be easily read during the workday. The Colorado Department of Labor and Employment, Division of Labor, provides a copy of Minimum Wage Order Number 31 at https://www.colorado.gov/pacific/sites/default/files/Proposed%20Wage%20Order%2031%20Rules%209-30-14.pdf.

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November 17, 2014

When Key Employees Go To A Competitor

By Mark Wiletsky

Your executives and top salespeople have access to your most valuable business strategies, sales contacts, growth plans and innovations. What do you do when one (or more) of your key employees leaves to work for a competitor? Without the correct agreements in place to protect your proprietary information, you may have little recourse.

Don’t Rely on a Court to Protect Your Business Information

When a key employee leaves to go to a competitor, the former employer often scrambles to seek a court injunction to prevent the employee from working for the competitor and to stop the employee from disclosing or using trade secrets and confidential information. But courts are not always willing to prevent an employee from moving on, especially if the company does not have a reasonable and otherwise enforceable non-compete agreement in place.

In a recent case in Colorado, a high level executive used his company-issued laptop to send an email containing his business contacts to his personal email address as he began negotiating to work for a competitor. He also downloaded some business information onto a personal external hard drive and thumb drive and kept physical copies of certain business documents in a box in his car. About three weeks later, the competitor hired the executive.

There was no evidence that the competitor requested or obtained from the executive any confidential information, the executive had signed only a nondisclosure agreement with his former employer, and the executive agreed to an injunction preventing him from using his former employers confidential information or trade secrets. Nevertheless, the former employer asked the federal court in Colorado to prevent the executive from working as the competitor’s President for one year, arguing that he had threatened or would inevitably disclose its trade secrets in his new job. Despite the executive’s decision to transfer information to his personal devices just before leaving the company, the court denied the company’s request, citing a lack of evidence that the executive had or would use his former company’s trade secrets to its competitive disadvantage. Cargill Inc. v. Kuan, No. 14-cv-2325 (D.Colo. Oct. 20, 2014). The judge noted that enjoining the executive from working for the competitor would, in effect, afford his former employer something it could have obtained or bargained for: a covenant not-to-compete.

Employment-Related Agreements to Consider

Keeping proprietary information confidential can be key to the future prosperity and competitiveness of your business. You can help protect that information from walking out the door by having key employees sign one or more of the following agreements:

Non-compete agreement: the restriction on working for a competitor must be reasonable in time and geographic scope, and comply with other applicable state law requirements;
Confidentiality agreement: requires employees to keep secret your company’s trade secrets and other proprietary information;
Non-solicitation agreement: restricts an employee from soliciting customers (who must be defined in the agreement) or from soliciting other employees to go to work elsewhere; and
Assignment of inventions: any products, inventions, innovations and other developments created during the worker’s employment are assigned to and owned by the company.

Depending on the circumstances, you may want to incorporate some or all of these provisions into a single agreement, and you may need to address varying state law requirements (or choice of law and venue issues) depending on where your employees are located. However, be careful to tailor your agreements to each type of key employee. For example, the non-compete for your CEO or general manager may need different restrictions than a similar agreement for your Regional Sales Manager. And be sure not to use a non-compete with all employees—including lower level ones who have no need for such post-employment restrictions—because it will diminish your justification for asking a higher-level employee to sign the same or similar agreement.

The bottom line is that you need to be proactive in protecting your vital assets, including your confidential information and your key employees. Taking steps now to implement proper agreements will go a long way in protecting your business down the road when key employees decide to depart.

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November 10, 2014

NLRB Unwilling to Give Up on Workers’ Right to Class Actions

By Brian Mumaugh

Reaffirming its controversial D.R. Horton decision, the National Labor Relations Board (NLRB or Board) recently ruled that an employer who required its employees to agree to resolve all employment-related claims through individual arbitration, waiving their right to pursue class actions, violated the National Labor Relations Act (NLRA). Though two members of the Board dissented, the three member majority pointed to the core objective of the NLRA, namely the protection of workers acting in concert, to find that mandatory arbitration agreements waiving an employee’s right to file a class or collective action is unlawful. Murphy Oil USA, Inc., 361 NLRB No. 72 (Oct. 28, 2014).

Employees Filed FLSA Collective Action

Four employees of Murphy Oil USA, Inc., which operates over 1,000 retail fueling stations across 21 states, filed a lawsuit in federal court in Alabama alleging that the company violated the Fair Labor Standards Act (FLSA) by failing to pay overtime and requiring employees to perform work-related activities off-the-clock. They brought the case as a collective action under the FLSA which allows them to sue on behalf of themselves and all other similarly situated Murphy Oil employees. The company asked the court to dismiss the collective action, seeking to enforce arbitration agreements signed by the employees that require that all claims be arbitrated on an individual basis. One of the plaintiff-employees then filed an unfair labor charge with the NLRB alleging that the company was violating Section 8(a)(1) of the NLRA by using and enforcing mandatory arbitration agreements that prohibited employees from engaging in protected, concerted activities.

Board Asserts D.R. Horton Was Correctly Decided

In deciding this NLRA violation issue, the Board believes the rationale articulated in its 2012 D.R. Horton case is correct, asserting that “[m]andatory arbitration agreements that bar employees from bringing joint, class, or collective workplace claims in any forum restrict the exercise of the substantive right to act concertedly for mutual aid or protection that is central to the National Labor Relations Act.” The Board states that the basic premise of federal labor law – protecting the right of workers to engage in collective action – makes the NLRA different from other labor and employment statutes. The Board points to earlier Supreme Court decisions that made clear that the NLRA protects employees “when they seek to improve working conditions through resort to administrative and judicial forums . . .” Other court decisions cited by the Board held that individual agreements between employees and an employer (as opposed to collective bargaining agreements) cannot restrict employees’ Section 7 rights. Relying on these cases and the majority’s interpretation of the core objective of federal labor law, the Board adheres to its position that protecting workers’ right to pursue collective actions to improve working conditions is a substantive right under the NLRA that cannot be waived by employees through a mandatory arbitration agreement.

Fifth Circuit Got D.R. Horton Decision Wrong, According to the Majority Opinion of Board

In December 2013, a divided Fifth Circuit Court of Appeals held that the NLRA did not override the Federal Arbitration Act (FAA), thereby allowing an employer’s arbitration agreement to be enforced according to its terms, including the agreement’s waiver of class claims. D.R. Horton, Inc. v. NLRB, ___ F.3d ___, 2013 WL 6231617 (5th Cir. Dec. 3, 2013). Rather than settling the issue for the NLRB and employers nationwide, the Fifth Circuit’s decision did little to quell the NLRB’s belief that class action waivers violate the NLRA. In the Murphy Oil case, the Board attempts to explain why it believes the Fifth Circuit got it wrong.

First, the Board asserts that the Fifth Circuit simply followed other FAA cases that did not involve a substantive right under Section 7 of the NLRA. The Board argues that both the NLRA and the FAA must be accommodated and the Fifth Circuit’s decision gave too little weight to the NLRA and its underlying labor policy. Second, the Board states that the Fifth Circuit’s decision forces workers into more costly and disruptive forms of concerted activity than bringing a collective action in court. The Board believes that there is no basis for carving out concerted legal activity as entitled to less protection than other concerted activities, such as picketing, strikes and boycotts. Third, the Board notes that the Supreme Court, while favoring arbitration, prohibits a prospective waiver of a party’s right to pursue statutory remedies and an arbitration agreement that precludes employees from filing joint, class or collective claims regarding working conditions in any forum amounts to a prospective waiver of a right guaranteed by the NLRA.

Analysis By Other Circuits Rejected by Board

The Board pays little attention to and dismisses decisions by three other circuit courts of appeal that rejected the Board’s D.R. Horton rationale. In essence, the Board states that the Second and Eighth Circuits purportedly did not conduct a thorough analysis of the legal issues and the Ninth Circuit amended its decision to refrain from deciding the issue. Consequently, the Board found those decisions to be unpersuasive.

Two Board Members Dissent

Two of the five board members dissented, rejecting the majority’s D.R. Horton rationale. Member Miscimarra stated that the NLRA “cannot reasonably be interpreted as giving employees a broad-based right to “class” treatment under other Federal, State, and local laws.” Member Johnson stated that the Board’s “interpretation of the FAA – which otherwise requires an agreement to be enforced exactly according to its terms – would allow Section 7 to swallow up the FAA itself.” The dissenters also noted that the majority essentially ignored numerous clear decisions of the Supreme Court. In citing the Supreme Court’s 2011 AT&T Mobility, LLC v. Concepcion case, member Johnson stated “Notably, the Court forbade [the majority’s] interpretation [of the FAA] when it decided that the FAA’s savings clause could not be construed to include a right that would be “absolutely inconsistent” with the FAA’s provisions.” He went on to write:

The governing law could not be plainer. Provisions in arbitration agreements precluding class actions may not be condemned simply because they restrict an employee’s ability to use litigation procedures established under other statutes in litigating those employment-related claims. This is especially so where the governing statutes clearly describe the litigation procedures as procedural rights.

The dissenting members believe that employees and employers may enter into agreements that waive class procedures in litigation or arbitration.

What’s Next For Arbitration Agreements That Waive Class Actions?

The current majority of the Board appears unpersuaded by federal court decisions—not to mention the Supreme Court of the United States–holding that its position in D.R. Horton is simply wrong. It appears that, absent a further Supreme Court decision on the issue, the NLRB General Counsel likely will continue to issue complaints against employers who require employees to sign arbitration agreements that include a waiver of joint, class and collective actions. If and when the makeup of the Board changes, the dissenting opinion may become the majority opinion for future cases. In the meantime, employers who mandate such agreements should continue to enforce them. In other words, if faced with a class or collective action by an employee or employees who signed an agreement waiving class claims, the employer should ask the court to compel individual arbitration, dismissing the class/collective action. Despite the Board’s current position, a court is likely to grant that request. Employers should review their arbitration agreements, however, to ensure that any disputes arising under the NLRA are not subject to the mandatory arbitration provision and that employees are not prohibited from participating in proceedings before the Board.

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