Author Archives: Holland & Hart

July 19, 2018

FAQs About Implementing Arbitration Agreements and Class Action Waivers

Bryan Benard

In late May, the U.S. Supreme Court ruled that arbitration agreements between an employer and an employee to resolve employment disputes through one-on-one arbitration do not violate the National Labor Relations Act (NLRA). In a huge win for businesses, the Epic Systems Corp. v. Lewis decision means that employers may use arbitration agreements to prohibit employees from filing and joining class or collective action lawsuits in employment-related matters.

In the weeks since SCOTUS’s decision, organizations have asked important and thoughtful questions on how to implement and use arbitration agreements and class action waivers with their employees. Although no guidance is “one-size-fits-all,” these FAQs may help answer common issues that come up.

Why Should We Use an Arbitration Agreement?

By requiring that employees resolve employment disputes through arbitration instead of filing a lawsuit in court, employers may benefit from numerous differences in both procedure and exposure. First, proceedings before a neutral arbitrator (or panel of arbitrators) are handled in private whereas lawsuits filed in a state or federal court are available to the public. In other words, unless documents are filed under seal, most court documents, hearings, and trials will be open to anyone, including reporters, competitors, other employees, etc. Consequently, requiring arbitration keeps publicity related to employment disputes at a minimum.

Second, procedures and evidentiary rules differ between arbitration and court proceedings. An employer may set forth in the arbitration agreement which arbitration rules will govern employment-related disputes. In addition, the employer and employee (and their attorneys) mutually select an arbitrator whereas the parties to a court action do not have input into the judge assigned to their lawsuit. In addition, an arbitrator has broad discretion over discovery and need not follow formal discovery and civil procedure rules that govern the courts (which may or may not be desirable in a given context). Finally, although there are some grounds for judicial review, arbitration awards generally cannot be appealed, meaning that disputes can get to a final resolution quicker.

What are the Benefits of a Class Action Waiver?

A class action waiver is typically one provision within an arbitration agreement stating that the employee agrees to resolve employment disputes on an individual basis and agrees to refrain from pursuing or joining any class or collective actions in conjunction with his or her fellow employees. By having employees waive class actions, businesses may avoid lengthy and expensive class action lawsuits that often involve hundreds, even thousands, of current and/or former employees nationwide. In addition, attorneys who represent employees are unlikely to receive the millions in attorneys’ fees that can be awarded as class counsel when forced to represent employees on an individual basis.

Are There Any Downsides to Using an Arbitration Agreement and/or Class Action Waiver?

Sure, it is possible that mandatory arbitration agreements and class action waivers may not be a good fit for every employer or for use with every employee. Although generally viewed as a benefit to employers, private arbitration can mean that resolution of an issue with one employee does not bind or even influence the resolution of that same issue with other employees. Accordingly, some employers may want to have a court rule on the lawfulness of a particular policy or practice so that it has more certainty for future enforcement. Also, smaller companies may not see the benefit in separately litigating each employee’s dispute in a separate proceeding if the company only has a handful of employees—meaning that in some situations, addressing multi-plaintiff cases could be less expensive if the pool of employees is relatively small.

In addition, arbitration is not always less expensive than court litigation since the employer is generally required to pay its own attorneys’ fees as well as most of the arbitration and arbitrator fees. There is also criticism and skepticism leveled at arbitration, on the theory that arbitrators will not grant motions to dismiss or summary judgment motions, or may attempt to “split the baby” rather than making tough decisions in favor of employers. Finally, a remote but possible scenario in a tight labor market is that key employees may refuse to agree to these mandatory agreements resulting in the loss of good talent or skilled, experienced workers.

May We Make New Employees Sign a Class Action Waiver as a Condition of Employment?

Generally, yes. You may make it a condition of employment that new hires sign a mandatory arbitration agreement with a class action waiver. Read more >>

July 17, 2018

New Colorado Data Privacy Requirements Apply to Employers

Dustin Berger

By Dustin D. Berger

Organizations that employ workers in Colorado will soon face more stringent data privacy requirements, thanks to new legislation signed into law by Governor Hickenlooper at the end of May. This new law, HB 18-1128, imposes new obligations on all covered entities in the state that maintain documents that contain personal identifying information of Colorado residents. These obligations go into effect on September 1, 2018. Here are the highlights of the new requirements and steps employers should take to comply.

Practically All Employers Will Be Affected by the New Law

The new law applies to a “covered entity,” which is essentially defined as any individual or entity “that maintains, owns, or licenses personal identifying information”—regardless of how much business the covered entity does within Colorado. The statute defines “personal identifying information” as “a social security number; a personal identification number; a password; a pass code; an official state or government-issued driver’s license or identification card number; a government passport number; biometric data; an employer, student, or military identification number; or a financial transaction device.”

Because virtually all employers maintain information on their employees that is considered personal identifying information, such as social security numbers, employer identification numbers, passport numbers, or driver’s license numbers, employers with Colorado employees will be subject to the requirements of the new law.

The key provisions in the new law are its requirements that covered entities: (1) maintain reasonable security procedures and practices; (2) establish and follow a written policy for the destruction of personal information when it is no longer needed; (3) ensure that third-party service providers handling their personal information have implemented and maintained reasonable security procedures and practices; and (4) follow the law’s notification procedures when it becomes aware that a security breach “may have” occurred.

1. Reasonable Security Procedures and Practices

HB 18-1128 creates a new statutory section, C.R.S. § 6-1-713.5, that requires covered entities to implement and maintain reasonable security procedures and practices to protect personal identifying information from unauthorized access, use, modification, disclosure, or destruction. While not specifying exactly what type of security procedures are required, the new provision states that such procedures must be appropriate to the nature of the personal identifying information and the nature and size of the business and its operations.

If a covered entity discloses personal identifying information to a third-party service provider, it must require that the service provider implement and maintain reasonable security procedures and practices, as outlined in number 3 below.

2. Disposal of Documents Containing Personal Identifying Information

Colorado has had a statute governing the disposal of documents containing personal identifying information since 2004, but the new legislation amends C.R.S. § 6-1-713 to expand covered entities’ responsibilities with respect to personal identifying information. Now, the disposal requirements apply to documents that are kept electronically as well as those kept in paper form. The new law also requires that covered entities implement a written policy specifying that the entity shall destroy (or arrange for destruction of) the documents by making the information unreadable or completely indecipherable.

3. Ensure Third-Party Service Providers Have Reasonable Security Procedures

If a covered entity discloses personal identifying information to a third-party service provider, the covered entity must now require the service provider implement and maintain reasonable security procedures and practices that are reasonably designed to help protect the information from unauthorized access, use, modification, disclosure, or destruction, as appropriate to the nature of the information disclosed to the service provider. A third-party service provider is defined as an entity that has been contracted to maintain, store, or process personal identifying information on behalf of a covered entity.

4. Security Breach Notification Requirements Enhanced

The new law significantly amends Colorado’s statute governing notifications of a security breach, C.R.S. § 6-1-716. A “security breach” is defined, in relevant part, as the unauthorized acquisition of unencrypted computerized data that compromises the security, confidentiality, or integrity of personal information maintained by a covered entity.

Under the new provisions, a covered entity has no more than 30 days to provide notice of a security breach. Notice must be made to affected Colorado residents in a very specific manner including notice by mail, telephone, electronically, or by substitute notice, and must contain a myriad of information regarding the breach and options that are available to the affected person. If a breach is reasonably believed to have affected 500 Colorado residents or more, the entity also must provide notice of the breach to the Colorado Attorney General.

And, unlike the previous law, the 30-day period begins to run when the covered entity becomes aware that a “security breach may have occurred.” In the prior version of the law, the 30-day period did not begin to run until the covered entity became aware of a breach. This change is likely to increase the pressure on covered entities to timely respond to indicators and predictors of a security breach.

Sanctions

Employers who violate the law can face enforcement proceedings from the Colorado Attorney General or the district attorneys of the state. These proceedings can result in civil penalties of up to $2,000 per affected person, up to a maximum of $500,000 per incident. They also can be liable directly to affected persons who are harmed by the violation.

Steps for Employers to Take

The new data security requirements go into effect on September 1, 2018, so employers who maintain personal identifying information on Colorado residents have little time to prepare to comply. Steps to take include:

Develop and implement reasonable practices designed to protect personal identifying information from unauthorized access, use, or disclosure (e.g., password-protection, encryption, etc.) that are commensurate with the sensitivity of the personal identifying information.
Create a written policy regarding the destruction and disposal of paper and electronic documents containing personal identifying information.
Review agreements with third-party service providers to ensure that service providers have reasonable procedures to protect the security of personal identifying information provided to them.
If you have a security incident response plan, update it to reflect the changes in the law.
If you do not have a security incident response plan, prepare one to ensure that you can meet the new law’s notification requirements.

July 3, 2018

California Supreme Court Changes Test for Independent Contractor Status

Bryan Benard

by Bryan Benard

For purposes of compliance with California wage orders, a company seeking to establish that a worker is an independent contractor rather than an employee now must meet a three-part test, according to a recent opinion by California’s highest court. This new test is a significant departure from the previous multi-factor test that has been the standard in California since 1989.

The New “ABC” Test

The Industrial Welfare Commission (IWC) regulates wages, hours, and working conditions in California, and issues wage orders that specify required minimum wages, meals and lodging credits, exemptions, meal and rest periods, seating and temperature requirements, and other work-related requirements in the state. These wage orders apply to employees, not to independent contractors, so the IWC’s definition of what it means to “employ” an individual is key in determining proper classification. Under the IWC’s wage orders, “employ” means “to engage, suffer or permit to work.”

In its recent decision, the California Supreme Court stated, “[i]n determining whether, under the suffer or permit to work definition, a worker is properly considered the type of independent contractor to whom the wage order does not apply, it is appropriate to look to a standard, commonly referred to as the “ABC” test, that is utilized in other jurisdictions in a variety of contexts to distinguish employees from independent contractors.” Dynamex Operations West, Inc., v. Superior Court, S222732 (Cal. Apr. 30, 2018). Under the ABC test, a hiring company must establish the following three factors in order to show that a particular worker (or group of workers) should be considered an independent contractor rather than an employee:

A. that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;

B. that the worker performs work that is outside the usual course of the hiring entity’s business; and

C. that the worker is customarily engaged in an independently established trade, occupation, or business.

If the hiring company is unable to prove any one of these three parts of the test, the worker will be considered an included employee for purposes of the California wage order, not an independent contractor.

Previous Borello Test Abandoned

By setting forth the ABC test for independent contractor status under the wage orders, the Court rejected the previously accepted test which had been in place since 1989. The so-called Borello test was established by the California Supreme Court in the case of S.G. Borello & Sons Inc. v. Dep’t of Industrial Relations, and it set forth a multi-factor test for determining independent contractor status, relying primarily on the principal factor of whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired. The Borello test also included nine additional factors that were not to be considered separate tests, but instead were intertwined and whose weight would often depend on the particular circumstances of employment/engagement.

In establishing the new three-part ABC test, the Court stated that its “interpretation of the suffer or permit to work standard is faithful to its history and to the fundamental purpose of the wage orders and will provide greater clarity and consistency, and less opportunity for manipulation, than a test or standard that invariably requires the consideration and weighing of a significant number of disparate factors on a case-by-case basis.”

Consequently, going forward the ABC test now replaces the Borello test for determining independent contractor status for purposes of the California wage orders. An open question is whether the new test will apply retroactively to existing and/or past worker relationships or prospectively only. Reports state that the California Employment Law Council has filed an amicus request to ask the Court to clarify whether the new test is prospective only.

Wage-and-Hour Class Certification at Issue

The new ABC test arose out of a delivery company’s challenge to class certification of a class of delivery drivers whom the company treated as independent contractors. The drivers alleged that they had been misclassified and were instead employees, entitled to the wages and protections afforded by the relevant wage order.

Applying the new ABC test to the delivery drivers in the case, the Court concluded that there was a sufficient commonality of interest to support the certification of the proposed class. In particular, the Court wrote that there is sufficient commonality of interest under part B of the test as the hiring entity is a delivery company and the work performed by the proposed class is as delivery drivers. This means that in this case, deciding whether the certified class performed work within or outside the company’s usual course of business would be determinable on a class basis. Similarly, with regard to part C of the test, the Court found that there would be sufficient commonality on whether the drivers engaged in an independently established trade, occupation, or business, as the class was limited to drivers who performed delivery services only for Dynamex. As a result, the Court upheld the class certification.

California Employers Should Re-examine Independent Contractor Status

The new ABC test will apply to the IWC’s wage orders, meaning that California employers who classify any workers as independent contractors should review whether they meet the new ABC test. If they do not meet all three prongs of the new test, they should be reclassified and treated as employees under the applicable wage orders. At present, this ruling will not change the test for independent contractor status for any purposes other than the wage orders, such as for unemployment or workers’ compensation purposes.

June 27, 2018

SCOTUS Deals Huge Blow to Government Unions

Steven Gutierrez

By Steve Gutierrez

In a 5-to-4 decision, the U.S. Supreme Court ruled that government employees who choose not to join a union cannot be forced to pay agency fees to the union. In so ruling, the Court overturns its 1977 ruling in Abood v. Detroit Board of Education which has permitted public sector unions to charge non-members a fee equivalent to union dues to cover the costs of collective bargaining, contract administration, and grievances. Janus v. AFSCME, 585 U.S. ___ (2018).

Free Speech Violated

Illinois state employee Mark Janus challenged paying agency fees to the union that represents the Illinois government employees. He alleged that he opposes many of the positions taken by the union, including positions advanced through collective bargaining. Janus argued that being forced to pay agency fees, which was authorized by Illinois law and consistent with Abood, violated his First Amendment right to free speech.

Five members of the high court agreed. In a decision written by Justice Alito, the majority ruled that “[t]he State’s extraction of agency fees from nonconsenting public-sector employees violates the First Amendment.” The Court overturned Abood, stating that neither of the two justifications for agency fees can survive First Amendment scrutiny.

First, the Court stated that the justification that agency fees promote labor peace does not pass muster. The majority pointed to the Federal Government and 28 states with laws that prohibit agency fees as evidence that conflict and disruption in represented government workforces is unfounded and “labor peace” can be achieved through less restrictive means than the assessment of agency fees.

Second, the majority dismissed the “free rider” argument that previously supported Abood. Specifically, unions argued, and the Abood Court agreed, employees who choose not to join the union without paying fees become “free riders” because as the exclusive representative for that group of employees, the union is required to represent even the non-members in collective bargaining and enforcing the terms of the collective bargaining agreement. In Janus, the Court stated that the “free rider” concern could not overcome the First Amendment issues. It again pointed to jurisdictions where agency fees are outlawed to state that unions continue to be willing to represent government employees there, despite the lack of agency fees being charged to non-members. The Court concluded that “Abood was wrongly decided and is now overruled.”

Strong Dissent

Justice Kagan wrote a strongly worded dissent, which was joined by Justices Ginsburg, Breyer, and Sotomayor. She wrote that “judicial disruption does not get any greater than what the Court does today.” The dissenting Justices see no justification for reversing Abood and its 41 years of precedent, finding that it has proved workable and is relied upon in at least 20 states that have created statutory schemes built upon its holding. The dissent stated that Abood struck an appropriate balance between public employees’ First Amendment rights and government entities’ interests in operating their workplaces with public employees paying their fair share of the cost of their union negotiating over the terms of their employment.

Practical Effect of Janus Ruling

The Court held that states and public-sector unions may no longer charge agency fees to non-member employees. In addition, it ruled that “neither an agency fee nor any other form of payment to a public-sector union may be deducted from an employee, nor may any other attempt be made to collect such a payment, unless the employee affirmatively consents to pay.” The Court stated that by agreeing to pay through an opt-in, nonmembers are waiving their First Amendment rights and “such a waiver cannot be presumed.” This is a big change in practical terms as it requires that employees who are union members must opt-in to having union fees deducted from their pay, instead of the previously acceptable opt-out option.

The loss of revenue from existing non-members and the potential loss of members who no longer want to pay is a huge blow to public-sector unions. By law, unions must provide fair representation to everyone in a bargaining unit, whether union members or not. Unions now will have to convince employees in their bargaining unit to pay union dues or agency fees voluntarily. The change is sure to affect the resources and viability of public-sector unions in this country.

Private Sector Unions Not Affected – Yet

Because free speech rights under the First Amendment exist to protect citizens from government actions, the Janus decision applies only to public-section unions and non-member employees. Unions representing employees in the private sector will not be subject to this ruling. That said, opponents of unions and mandatory agency fees will likely look for arguments to attack private sector unions in the future. The Court’s positions may be used to promote enactment of right-to-work laws in those states that do not currently have such laws.

May 21, 2018

Arbitration Agreements Waiving Class Actions Do Not Violate the NLRA, Rules Supreme Court

By Dora Lane and Emily Hobbs-Wright

Dora Lane

The U.S. Supreme Court ruled today that arbitration agreements requiring that an employer and an employee resolve any employment disputes through one-on-one arbitration do not violate the National Labor Relations Act (NLRA). In an opinion authored by Justice Neil Gorsuch, the Court ruled 5-to-4 that the Federal Arbitration Act (FAA) dictates that arbitration agreements be enforced, and nothing in the NLRA overrides that policy to permit employees to bring class or collective actions when employees have agreed otherwise. Epic Systems Corp. v. Lewis, 584 U.S. ___, (2018).

NLRA Does Not Protect Class and Collective Lawsuits

Emily Hobbs-Wright

In three cases consolidated before the Court, employees alleging wage claims sought to pursue collective lawsuits, joining with other allegedly harmed employees, under the Fair Labor Standards Act (FLSA) and applicable state wage laws. In each case, the employer sought to dismiss the collective lawsuits and instead resolve each employees’ allegations through individual arbitration as provided in arbitration agreements signed by the employees. The employees argued that the class-action waivers in the arbitration agreements were unlawful, violating their rights to engage in concerted activities for their mutual aid and protection under §7 of the NLRA. The employers asserted that the FAA demands that the individual arbitration agreements be enforced, as the NLRA does not override the FAA’s enforcement provision.

The Court ruled that the FAA requires courts to enforce arbitration agreements on the terms that the parties select, subject to courts’ refusal to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract” (e.g., fraud, duress, unconscionability – not arbitration-specific defenses). In the majority opinion, the Court stated that the NLRA does not override the FAA, and that §7 focuses on the right of employees to organize unions and bargain collectively, not on the right to pursue class or collective actions. The Court concluded that neither the NLRA nor the FAA’s savings clause protected the employees’ ability to resolve employment disputes through collective or class action when the employees have agreed to arbitrate their disputes with their employers on a one-on-one basis.

Dissent Focuses On Employee Rights

Justice Ruth Bader Ginsburg wrote a scathing dissent, that was joined by Justices Breyer, Sotomayor, and Kagan. The dissenting opinion notes that an individual employee’s claim against his or her employer for unpaid wages, or a similar employment law violation, may be relatively small and not worth the expense and effort of pursuing, when going it alone. But by seeking redress for commonly experienced wage losses on a collective basis, banding together to confront an employer, employees are placed on a more equal footing with employers and may better safeguard employee rights.

Justice Ginsburg writes that the majority’s decision “is egregiously wrong.” The dissent states that lawsuits to enforce workplace rights fit within the NLRA umbrella of “concerted activities for the purpose of . . . mutual aid or protection.” The dissent points to over 75 years of Board rulings that have held that the NLRA safeguards employees from employer interference when they pursue joint, collective, and class suits related to the terms and conditions of their employment. The dissent further states, “Forced to face their employers without company, employees ordinarily are no match for the enterprise that hires them. Employees gain strength, however, if they can deal with their employers in numbers.” The dissenting justices believe that NLRA §7 rights include the right to use class or collective litigation to resolve disputes over wages and hours, and would hold that class-action waivers in arbitration agreements are unlawful.

Big Win For Employers

In this not-unexpected result, the more conservative members of the Court have sanctioned the use of arbitration agreements by employers to help avoid class actions in the employment context. By using arbitration agreements with their employees, employers are able to resolve employment disputes in front of a neutral arbitrator rather than in the more public setting of a state or federal court. By requiring that disputes be arbitrated on an individual, rather than a class or collective basis, employers avoid lengthy and expensive class action lawsuits that often involve hundreds, if not thousands, of current and/or former employees who allege they have similar claims against the employer. The Supreme Court’s decision is a clear win for employers who now may use individual arbitration agreements to better control the cost, publicity, and liability exposure related to alleged violations of employment laws.

May 15, 2018

IRS Is Sending ACA Penalty Notices to Employers

Bret Busacker

By Bret Busacker

If you believe your company was subject to the Affordable Care Act (ACA) coverage requirements in 2015 (generally, all employers with 50 full-time or full-time equivalent employees), please take note that the Internal Revenue Service (IRS) is beginning to send out notices of ACA penalties due from employers who failed to satisfy ACA health coverage requirements. Specifically, the IRS is mailing Employer Shared Responsibility Payment (ESRP) notices to employers that it believes failed to comply with the ACA coverage requirements in 2015. Some employers receiving these notices may have actually complied with the ACA requirements in 2015, but the IRS received inaccurate or incomplete information and consequently has incorrectly identified the employer as failing to satisfy the ACA coverage requirements.

Limited Time To Respond To IRS Notice

If an employer receives an ESRP notice, it must dispute the IRS penalty within 30 days of the date of the notice. We have seen employers receiving very large fines for periods in which the employer actually complied with the ACA coverage requirements.

Employers who were subject to the ACA coverage requirements in 2015 should review their 2015 ACA filings (on Form 1094-C) to: (1) determine who at the company will receive the ESRP notice from the IRS, if one should arrive; and (2) make sure the contact address is correct (See Part 1; Lines 1 thru 8 of Form 1094-C). If any of the contact information on the Form 1094-C is inaccurate or if the contact person is no longer employed by the company, the employer should consider updating its contact information with the IRS. Employers with questions about responding to an ESRP notice should contact their legal counsel promptly.

May 14, 2018

DOL Launches “PAID” Program To Resolve Wage Violations

Brad Cave

By Brad Cave

Workers want to get paid, and the U.S. Department of Labor (DOL) is offering a new way to help make sure they do. The DOL’s Wage and Hour Division (WHD) recently launched the Payroll Audit Independent Determination (PAID) program to help resolve potential minimum wage and overtime disputes without litigation. With a healthy bit of skepticism, employers and their counsel may want to explore this new avenue to resolve inadvertent wage violations.

Wage and hour claims are difficult to resolve because the Fair Labor Standards Act (FLSA) states that an employee cannot waive or release his FLSA rights to minimum wages or overtime through an agreement with the employer, unless it is part of a court-approved or DOL-supervised settlement. Most employers are understandably reluctant to involve the DOL in resolving wage and hour errors because the agency may decide to take other enforcement actions, and nobody wants to be sued for trying to informally resolve the problem directly with your employees, only to have them reject your offer and hire a lawyer. The PAID program may give employers a viable third option for getting into compliance and resolving any outstanding liability to employees.

Here’s a look at the pilot program and its potential benefits and pitfalls.

FLSA-Covered Employers May Participate

The PAID program is open to all employers covered by the FLSA that want to attempt to resolve wage issues quickly and without having to defend claims in court. To participate, an employer must review WHD’s compliance materials (available on its website) and conduct a self-audit of its compensation practices. If the employer discovers any issues, it must specify the potential violations to WHD, identify affected employees and the time periods involved, and calculate the amount of back wages it would owe each employee.

The WHD will evaluate the information provided, contact the employer to seek any additional information needed, and confirm any back wages that are due. The agency then will issue a summary of unpaid wages. It also will provide forms describing settlement terms for each affected employee.

The settlement forms will include a release of claims, limited to the potential violations for which the employer will pay back wages. Each employee must sign a settlement form in order to receive any back pay owed. The employer then will pay the back wages directly to each employee no later than the end of the next full pay period after it receives the summary of unpaid wages. The employer must send proof of payment to the WHD.

Wage Violations Covered By PAID Program

The WHD intends that the PAID program will be used to resolve potential FLSA violations related to overtime and minimum wages. For example, the agency suggests that failure to pay overtime at one-and-one-half times the regular rate of pay, “off-the-clock” work, and misclassification of exempt employees may be appropriate topics for resolution through the program.

Importantly, the PAID program cannot be used if an employer is already facing a WHD investigation for payroll practices, the employer has already been sued, or an attorney or union acting on behalf of employees has threatened a lawsuit or demanded a settlement.

Potential Benefits and Pitfalls of Program

The PAID program will require employers with identified wage violations to pay all back wages due, but the WHD will not assess liquidated damages or civil monetary penalties. As a result, the process can help employers avoid costly litigation. The lack of penalties and litigation fees can be a substantial incentive to take advantage of the pilot program.

On the other hand, settlements with employees who are owed back wages will be limited to the wage issues resolved through the PAID program. That suggests that employees are free to assert additional FLSA violations not addressed through the program as well as state-level wage and hour issues at a later date or in a different forum.

In addition, the program requires participating employers to agree to correct their problematic pay practices at issue going forward. That leaves the door open to potential follow-up by the WHD down the road. Moreover, there do not appear to be any assurances that the WHD will not investigate wider payroll issues at participating companies once it has been alerted to potential self-identified noncompliance. That means the wage violations resolved through the PAID program may be used against an employer should any future FLSA violations be discovered or litigated, resulting in potential willful violations.

Approach Program With Caution

The pilot program will be implemented for approximately six months. The WHD then will evaluate the program and consider future options. For most employers, conducting a self-audit of payroll practices can be worthwhile and may help eliminate potential liability for violations going forward. However, because troublesome details of the program remain unknown, employers should use caution when deciding to utilize this WHD-facilitated resolution process.

April 12, 2018

Salary History Cannot Justify Unequal Pay Between Men and Women, According to Ninth Circuit

Dora Lane

by Dora Lane

The Ninth Circuit Court of Appeals ruled this week that an employer cannot justify a pay difference between male and female employees performing equal work based on prior salary. Rizo v. Yovino. This is a significant decision that could increase potential liability for Equal Pay Act (EPA) claims for employers with workers in states covered by the Ninth Circuit, namely California, Nevada, Idaho, Montana, Arizona, Oregon, Washington, Alaska, and Hawaii.

Equal Pay Act Requirements

The EPA was enacted in 1963, amending the Fair Labor Standards Act, to prohibit wage disparities based on sex. In short, it requires that men and women be paid equal pay for equal work regardless of sex. Specifically, the law provides that no employer shall discriminate on the basis of sex in paying wages for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions. Exceptions are permitted when wages are made pursuant to a seniority system, a merit system, a system measuring earnings by quantity or quality of production, or a differential based on any other factor other than sex.

Employer’s Pay Policy Added Five Percent to New Hires’ Prior Salary

In the case before the court, Aileen Rizo was hired as a math consultant by the Fresno County Office of Education. Her salary was set according to the County’s Standard Operating Procedure under which a new hire would be paid five percent over his or her prior salary, and placed on a corresponding step of the County’s ten-step salary schedule. Based on Rizo’s prior salary in Arizona, she was placed at step 1 of level 1 on the County’s hiring schedule.

A few years into her employment, Rizo was having lunch with her colleagues and learned that her male counterparts had been subsequently hired as math consultants at higher salary steps. Rizo filed a pay disparity complaint with the County which replied that her pay was set in accordance with its Standard Operating Procedure. Rizo filed a federal lawsuit alleging a violation of the EPA, sex discrimination under Title VII, and related state law claims.

Prior Pay Not A “Factor Other Than Sex”

The County did not dispute that it paid Rizo less than comparable male employees for the same work. Instead, it argued that considering each employee’s prior salary to set wages was a permissible “factor other than sex,” so any resulting wage differential was not in violation of the EPA.

The Ninth Circuit ruled that an employer was not permitted to consider an employee’s prior salary, either by itself or in combination with other factors, when establishing the employee’s wages. The Court specifically stated that “prior salary alone or in combination with other factors cannot justify a wage differential” because prior salary history does not constitute a “factor other than sex” under the EPA’s statutory “catchall” exception. The Court wrote that prior salary is not a legitimate measure of work experience, ability, performance, or any other job-related quality, and that employers must look directly to those underlying factors rather than prior salary when justifying a wage differential between male and female employees doing equal work. Writing for the majority, Judge Reinhardt stated, “To hold otherwise – to allow employers to capitalize on the persistence of the wage gap and perpetuate that gap ad infinitum – would be contrary to the text and history of the Equal Pay Act, and would vitiate the very purpose for which the Act stands.” Read more >>

April 10, 2018

Colorado Non-compete Law for Physicians Amended To Allow Continuing Treatment For Rare Disorders

Mark Wiletsky

by Mark Wiletsky

The Colorado legislature recently added a paragraph to the state statute that governs non-compete agreements to permit physicians to continue to treat patients with rare disorders without liability. Signed into law by Governor Hickenlooper on April 2, 2018, Senate Bill 18-082 allows physicians to disclose their continuing practice and new professional contact information to any patient with a rare disorder to whom the physician was providing consultation or treatment before termination of their relationship with the organization.

Physician Non-competes Only Allow Damages

Under Colorado Revised Statute 8-2-113, non-compete provisions in an employment, partnership, or corporate agreement with a physician that restrict the physician’s right to practice medicine when the agreement terminates is void and unenforceable. However, the law does permit such an agreement to require the physician to pay damages in an amount that is reasonably related to the injury suffered because of competition. In other words, if a physician in Colorado leaves a group practice or other employer, he or she may practice anywhere but may be compelled to pay damages if he or she practices within an area that is directly competitive with his or her former employer.

New Provision Creates Exception to Damages Remedy

Under the newly passed amendment, physicians and their new employers are shielded from damages for providing information and care to patients with a rare disorder, as defined in accordance with the criteria developed by the National Organization For Rare Disorders, Inc., or any successor organization. Specifically, a non-compete agreement cannot prohibit physicians from disclosing their continuing practice of medicine and new professional contact information to any patient with a rare disorder. Similarly, physicians may continue to provide care to such patients.

Next Steps for Healthcare Employers

Hospitals, physician groups, and other healthcare employers should consider the extent to which this new exception to non-compete damages will apply to the doctors in their group. It is possible that very prominent, renown physicians who may cause the hospital or group to suffer the most in monetary damages when they leave the group will be the same physicians who treat multiple patients for rare disorders. But because the new exception applies only to those patients with rare disorders, the physician may still be held liable for damages for continuing treatment of patients without rare disorders. If in doubt about how to structure and enforce these types of non-compete agreements with physicians, please consult with experienced counsel.

April 9, 2018

Idaho Legislature Repeals 2016 Changes to Non-Compete Law

Nicole Snyder

by Nicole Snyder and A. Dean Bennett

When a new business comes to town, when an existing business seeks to expand, or when a startup is making its way off the ground, it may want (or need) to recruit key employees from existing companies. That can be especially true in the technology field where experienced developers, analysts, and executives are hard to come by.

In 2016, the Idaho legislature made it more difficult for key employees and independent contractors across all industries to change jobs when they were covered by a post-employment non-compete agreement. Recently, the Idaho legislature repealed that 2016 provision in a move seen as correcting an imbalance in the playing field between employers and their key employees when it comes to non-compete restrictions.

A. Dean Bennett

2016 Non-Compete Presumption Burdened Key Employees

When enacted in 2016, the recently repealed non-compete law was touted as business-friendly, as it strengthened an employer’s ability to enforce a non-compete agreement with its key employees. The 2016 law provided that if a court found a key employee or key independent contractor breached a non-compete agreement, the employee or independent contractor then had the burden of overcoming a presumption that their breach of the non-compete caused irreparable harm to the employer. Essentially, the employee was forced to prove a negative, namely that he or she could not adversely affect the employer’s legitimate business interests.

However, the perceived effect of the 2016 non-compete law was that it made it tougher for key employees and independent contractors to change jobs, seek more responsibility or pay at another company, or even start up their own business. Idaho’s non-compete laws have received national attention at the same time Idaho is recognized as the fastest growing state with the fastest growing pay rate.

Repeal Restores Pre-2016 Standard of Proof For Non-Competes

Senate Bill 1287 strikes the language added in 2016 that shifted the burden to key employees and independent contractors to prove that they have no ability to adversely affect the employer’s legitimate business interests as a result of their competitive employment. Consequently, when a breach of a non-compete is litigated in court, the burden will be back on the employer to prove its former employee’s competitive actions harmed the employer’s legitimate business interests.

Governor Otter allowed this repeal bill to become law without his signature. He wrote, “There is no consensus within the business community, or even within the community of technology-driven businesses, for this second change within two years to Idaho Code regarding non-compete agreements between employers and key employees or key independent contractors.” The governor further wrote that the issue can vary depending on the nature of each company’s business plan and whether management considers a “dynamic” workforce, with regular turnover, a positive or detrimental aspect of their business. The governor suggested that he saw little risk in removing the 2016 language as it had not yet been tested in Idaho courts. He also urged the Idaho legislature to take up the issue again in 2019, suggesting that perhaps the creation of a different less onerous standard on employees may be a good middle ground.

Effect on Idaho Employers

Whether you think this repeal is a good or bad development may rest largely on whether you seek to retain your key employees and contractors by limiting their mobility through non-compete agreements, or whether you need to expand and recruit talent within your industry without your recruits being subject to post-employment restrictions. Regardless of what side of that debate you are on, the repeal of the 2016 rebuttable presumption means that Idaho employers seeking to enforce a non-compete in court will need to show that the employee or contractor harmed its legitimate business interests when leaving to work for a competitor in violation of a restrictive covenant. Consequently, this is a good time to revisit your non-compete agreements, giving thought to what business assets and interests you are seeking to protect. In addition, be sure to review the geographic, time, and scope limitations of your non-compete restrictions as only reasonable provisions will be enforceable. As always, check with your attorney to resolve any questions.