Author Archives: Holland & Hart

April 2, 2018

Service Advisors Exempt From Overtime, Says Supreme Court

Brian Mumaugh

In a 5-to-4 decision, the Supreme Court ruled that service advisors at car dealerships are exempt from overtime pay under the Fair Labor Standards Act (FLSA). In an opinion written by Justice Thomas, and joined by Justices Roberts, Kennedy, Alito and Gorsuch, the Court determined that service advisors are salesmen who are primarily engaged in servicing automobiles, putting them within the FLSA exemption language. Encino Motorcars, LLC v. Navarro.

Service Advisors Challenged Exempt Status

In 1961, Congress amended the FLSA to exempt all employees at car dealerships from overtime pay. A few years later in 1966, however, Congress narrowed the car dealership exemption so that it no longer exempted all dealership employees but instead applies only to “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, truck, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers” (as currently written). Until 2011, federal courts and the Department of Labor (DOL) interpreted that exemption to apply to service advisors.

In 2011, however, the DOL issued a new rule stating that a service advisor was not a “salesman” under the FLSA exemption. This new interpretation ran contrary to 50-years of precedent and threw auto dealerships a curve ball. In 2012, service advisors at a Mercedes-Benz dealership in Los Angeles sued their employer, alleging that their regular work hours were 7 a.m. to 6 p.m. resulting in a minimum of 55 hours per week for which they were owed overtime pay for all hours over 40 in a work week.

The Mercedes-Benz dealership moved to dismiss the complaint, arguing that service advisors were exempt under the FLSA language, despite the new DOL interpretation. The district court agreed and dismissed the lawsuit. The service advisors appealed and the Ninth Circuit Court of Appeals reversed, relying on the DOL’s 2011 rule. The dealership appealed to the Supreme Court who decided that the DOL’s rule could not be given deference as it was procedurally defective. On remand, the Ninth Circuit again ruled in favor of the service advisors, determining that Congress did not intend to exempt service advisors from overtime, in part because FLSA exemptions should be narrowly construed and the legislative history did not specifically mention service advisors. The case went up to the Supreme Court a second time.

Service Advisors Are Salesmen Engaged in Servicing Automobiles

The Supreme Court looked to the plain meaning of “salesman” as someone who sells goods and services. Because service advisors sell customers services for their vehicles, the Court stated that a service advisor “is obviously a ‘salesman.’”

The Court also decided that service advisors are primarily engaged in servicing automobiles because they are “integral to the servicing process.” The Court acknowledged that service advisors do not physically repair cars, but the justices decided that the phrase “primarily engaged in servicing automobiles” necessarily included individuals who do not physically repair automobiles, including service advisors.

In an interesting passage of the opinion, the Court rejected the Ninth Circuit’s statement that FLSA exemptions should be narrowly construed. Justice Thomas quoted his friend and former colleague, deceased Justice Antonin Scalia, “Because the FLSA gives no ‘textual indication’ that its exemptions should be construed narrowly, ‘there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.’” A fair reading of the FLSA, the majority concluded, focuses not only on the overall objective of the law but also on the stated exemptions. And the Court concluded that a fair reading of the automobile salesmen, partsmen, and servicemen exemption is that it covers service advisors.

Dissent Says Overtime Required, Unless Commission Exemption Applies

Justice Ginsburg wrote a dissent with which Justices Breyer, Sotomayor, and Kagan joined, stating that because service advisors neither sell nor repair automobiles, they should not be covered by the auto dealership salesman, partsman, and serviceman exemption. The dissent notes that many positions at dealerships are not covered by the exemption, including painters, upholsterers, bookkeepers, cashiers, purchasing agents, janitors, and shipping and receiving clerks. Consequently, the dissent stated that there are no grounds to add service advisors as a fourth category of dealership workers that are exempt, adding to the three positions explicitly enumerated in the FLSA exemption.

The dissent notes that many dealerships, including the Mercedes-Benz dealership in this case, compensate their service advisors on a primarily sales commission basis. According to the dissent, such commission-based positions could fall within the FLSA overtime exemption that applies to retail and service establishments where employees who receive more than half of their pay through commission are exempt from overtime pay, so long as each employee’s regular rate of pay is more than one-and-one-half times the minimum wage. The dissent concludes that even without the auto salesman, partsman, serviceman exemption at issue, many service advisors compensated on a commission basis would remain ineligible for overtime premium pay under the commission exemption.

Dealerships May Treat Service Advisors As Exempt

As a result of the Court’s ruling, car dealerships may continue to treat their service advisors as exempt from overtime under the FLSA. Dealerships should still review applicable state laws to ensure that the exemption applies under state wage law. It is also a good time to review written job descriptions to include service advisor duties that support their exempt status under this decision.

March 20, 2018

Settlements Reached in Joint-Employer Case That Could Have Affected Franchisors Nationwide

Steven Gutierrez

By Steve Gutierrez

Franchisor McDonald’s USA LLC has agreed to settle the high-profile labor disputes over whether it is a joint employer with its franchisees. Although the settlement still needs to be approved by the administrative law judge overseeing the litigation, McDonald’s and its franchisees negotiated settlement agreements with the National Labor Relations Board (NLRB) to settle allegations of unfair labor practice charges without admitting liability or wrongdoing. In doing so, McDonald’s avoids prolonged litigation and a potentially adverse decision that would have had sweeping ramifications for franchisors and their franchisees nationwide.

Protracted Litigation Over Joint-Employer Status

In 2012, multiple McDonald’s employees filed unfair labor practice charges against their employer, seeking to improve their working conditions. In 2014, former NLRB General Counsel, Richard Griffin, approved filing dozens of unfair labor practice complaints against the larger franchisor, McDonald’s USA, under a theory that McDonald’s USA is a joint employer of the employees of McDonald’s franchises. By pursing the franchisor, the 2014 NLRB signaled that it was attempting to hold the larger, nationwide entity responsible for treatment of its franchisees’ employees.

McDonald’s USA, along with many restaurant, industry, and employer groups, vigorously objected, arguing that a franchisor is not a joint employer with its franchisees and therefore, cannot be held liable for any labor law violations made by a franchisee. The joint-employer test at the time was based on whether the putative employer exercises direct control over the employees and McDonald’s USA argued that it did not exercise such control over its franchisees’ employees.

In 2015, the NLRB issued its controversial decision in Browning-Ferris Industries that significantly broadened the joint-employer test so that an entity could be deemed a joint employer if it reserved contractual authority over some essential terms and conditions of employment, allowing it to have indirect control over the employees. (See our post here.) Under that expanded test, McDonald’s USA faced higher scrutiny from the NLRB as to whether it was a joint employer and whether it retained some indirect control over the employees of its franchisees.

Due to changes in the makeup of the NLRB under the Trump Administration, as well as a new NLRB General Counsel, the NLRB has sought to reverse Browning-Ferris Industries and return to the former joint-employer test that required direct and immediate control. In December 2017, the NLRB overturned Browning-Ferris in its Hy-Brand decision, only to have to vacate Hy-Brand in February 2018 because new Board member William Emanuel should not have participated in that decision. As a result, the 2015 Browning-Ferris joint-employer test is still the standard used to determine joint-employer status under the National Labor Relations Act.

Leaving The Status Quo on Joint-Employer Status – For Now

By settling these cases, both McDonald’s USA and the current NLRB avoid having to litigate and have a judge rule on whether franchisors like McDonald’s can be deemed a joint employer under the current Browning-Ferris test. Although the Board (and Congress) continue to seek to overturn Browning-Ferris, the McDonald’s settlement will push the issue down the road to another day.

According to the NLRB’s March 20, 2018 announcement, the settlement will provide a full remedy for the employees who filed charges against McDonald’s, including 100% of backpay for the alleged discriminatees. The settlement also will avoid years of potential additional litigation.

Take Aways

Franchisors, staffing companies, and other entities who have some contractual authority or obligations related to employees of a second entity need to use caution to ensure that the second entity complies with all applicable labor laws. With the broad Browning-Ferris test in place, entities with reserved contractual control or indirect control of another entity’s employees may be found to be a joint employer under the NLRA. This could open the door to liability for labor law violations as well as union organization and collective bargaining obligations related to joint employees. If in doubt about your exposure, consult with an experienced labor attorney.

Photo credit: AP2013/Jon Elswick

March 13, 2018

Physician’s Noncompete Unenforceable After He Dissents To Merger

By Mark Wiletsky

Are physician noncompete agreements enforceable? They can be, depending on the circumstances, though there are few reported decisions in Colorado analyzing such agreements. In one recent case, the Colorado Court of Appeals concluded that, following a merger, the surviving physicians entity could not enforce a noncompete provision against a dissenting shareholder-physician. The Court also concluded that an amount of damages calculated under a liquidated damages clause in the agreement must be reasonably related to an actual injury suffered by the entity as a result of the physician’s departure and competition, not simply a prospective injury estimated at the time the contract was created. Crocker v. Greater Colorado Anesthesia, P.C., 2018 COA 33.

Noncompete and Liquidated Damages Provision

Anesthesiologist Michael Crocker was a shareholder in, and employee of, Greater Colorado Anesthesia, P.C. (Old GCA). In April 2013, Dr. Crocker signed a shareholder employment agreement with Old GCA that contained a noncompete provision. In relevant part, the noncompete stated that if Dr. Crocker competed with Old GCA by participating in the practice of anesthesia within fifteen miles of a hospital serviced by Old GCA in the two years following termination of the agreement, he would be liable for liquidated damages as calculated by a stated formula. The restricted geographic area included nearly all of the Denver metro area, from Broomfield on the north to Castle Rock on the south. The agreement further stated that the liquidated damages provision would survive termination of the agreement for a period of two years, or until all amounts due by the employee to the company were paid in full.

Physician Objects To Merger

In January 2015, the shareholder-physicians of Old GCA faced a vote on whether to approve a merger that would result in a 90-doctor corporation. In exchange for accepting a 21.3% reduction in pay and making a five-year employment commitment, the shareholder-physicians would receive a substantial lump sum of cash plus stock. Dr. Crocker voted against the merger and provided notice under Colorado law that he would demand payment for his share of Old GCA in exercise of his dissenter’s rights. The other shareholder-physicians approved the merger resulting in a new corporation (New GCA).

Dr. Crocker never worked at New GCA. In March 2015, he signed an employment agreement with a different anesthesia group that included providing services at Parker Adventist Hospital, which was within GCA’s noncompete restricted area. Old GCA sent him $100 for his share in the group, which he refused. New GCA sought to enforce Dr. Crocker’s noncompete provision, seeking liquidated damages under the stated formula, while Dr. Crocker sought a higher valuation of his share in Old GCA.

Physician’s Shareholder Rights Were Intertwined With Employee Rights

The Colorado Court of Appeals noted that generally, a noncompete provision will survive a merger, allowing the surviving entity to enforce the noncompete restrictions. But it drew a line in Dr. Crocker’s scenario, finding that his shareholder rights were wed to his rights as an employee. He could not be an employee without being a shareholder, and he could not be a shareholder without being an employee. Consequently, when he exercised his dissenter’s rights in opposing the merger and sought payment for his share in Old GCA, Dr. Crocker was forced to quit his employment with GCA. Therefore, the Court stated that it could not construe the enforceability of the noncompete provision without consideration of Dr. Crocker’s rights as a dissenter. Finding no prior authority evaluating a noncompete under such circumstances, the Court decided that it could only enforce the noncompete if it is reasonable, and to be reasonable, it must not impose hardship on the employee.

Noncompete Unreasonable Due to Hardship on Employee

Because an anesthesiologist must live within approximately 30 minutes of where he or she works, enforcement of the Old GCA noncompete provision against Dr. Crocker would require that he either move outside of the restricted geographic area or pay liquidated damages to GCA. The Court stated that enforcement in that circumstance would “further penalize [Dr.] Crocker’s exercise of his right to dissent, rather than protect him from the conduct of the majority.” The Court ruled that the noncompete provision imposed a hardship on Dr. Crocker and therefore was unreasonable. Read more >>

March 7, 2018

Federal Appeals Court Rules Sexual Orientation Discrimination Violates Title VII

By Cecilia Romero

Overturning prior precedent, the full panel of the Second Circuit Court of Appeals recently ruled that sexual orientation discrimination is a form of sex discrimination that violates Title VII. Zarda v. Altitude Express, Inc.. With this landmark ruling, the Second Circuit joins the Seventh Circuit in extending Title VII sex discrimination protection to employment discrimination based on sexual orientation. However, this opinion further highlights a split in circuits over this issue—the Eleventh Circuit which holds the opposite. The EEOC has taken the position consistent with the Second Circuit.

Facts of Case

Donald Zarda, who worked for Altitude Express as a skydiving instructor in New York, was gay. To preempt any discomfort his female students might feel being strapped to an unfamiliar man, Zarda often disclosed he was gay. Before one particular tandem jump with a female student, Zarda told her that he was gay and had an ex-husband to prove it. After the successful skydive, the student told her boyfriend that Zarda had inappropriately touched her and disclosed his sexual orientation to excuse his behavior. The woman’s boyfriend told Zarda’s boss, who fired Zarda shortly thereafter. Zarda denied touching the student inappropriately and believed that he was fired solely because of his reference to his sexual orientation.

After filing with the EEOC, Zarda filed a lawsuit against his former employer in federal court asserting, among other claims, that his firing violated Title VII under a sex stereotyping theory as well as violating New York law (which prohibits sexual orientation discrimination). In March 2014, the district court granted summary judgment to Altitude Express on his Title VII claim, stating that he failed to establish a prima facie case of gender stereotyping discrimination.

Zarda appealed, pointing to a 2015 EEOC decision that held that allegations of sexual orientation discrimination state a claim of discrimination on the basis of sex and therefore, violate Title VII. In April 2017, a three-judge panel of the Second Circuit refused to reverse the lower court’s ruling on Zarda’s Title VII claim because it was bound by the Circuit’s prior precedent in which the court had ruled that discrimination based on “sex” did not encompass discrimination based on sexual orientation. The three-judge panel noted, however, that the full court sitting en banc could overturn its earlier precedent and subsequently ordered a rehearing so that the full court could determine whether to sexual orientation was prohibited under Title VII.

Sexual Orientation Discrimination Recognized as Sex Discrimination Claim

In deciding whether Title VII prohibits sexual orientation discrimination, the full Second Circuit Court of Appeals examined the phrase “because of . . . sex” as used in Title VII. The Court stated that Congress had intended to make sex irrelevant to employment decisions, leading the U.S. Supreme Court subsequently to prohibit discrimination based not only on sex itself, but also on traits that are a function of sex, such as non-conformity with gender norms. The Second Circuit concluded that sexual orientation is a function of sex, because one cannot fully define a person’s sexual orientation without identifying his or her sex. The Court wrote, “Logically, because sexual orientation is a function of sex and sex is a protected characteristic under Title VII, it follows that sexual orientation is also protected.”

The Court also concluded that sexual orientation discrimination is a subset of sex discrimination by considering associational discrimination. Pointing to decisions where courts have held that an employer may violate Title VII if it takes action against an employee because of the employee’s association with a person of another race, the Court extended that prohibition to address when an adverse action is taken against an employee because his or her romantic association with a person of the same sex.

Some judges on the Second Circuit dissented, writing that the drafters of Title VII included “sex” in the civil rights law in order to “secure the rights of women to equal protection in employment” with no intention of prohibiting discrimination on the basis of sexual orientation. The majority of the judges respectfully disagreed.

What Employers Need to Know

Because the Eleventh Circuit (which includes Florida, Georgia, and Alabama) refused to recognize a Title VII claim for sexual orientation discrimination in 2017, the split in the circuit courts make this issue ripe for consideration by the U.S. Supreme Court. However, until the Supreme Court is presented with, and agrees to hear, a case raising this issue, we are left with varying protections in different jurisdictions.

Employers with operations located in the Second and Seventh Circuits, which have recognized sexual orientation discrimination as prohibited by Title VII, should update their policies and practices to reflect that protected category. That means, employees located in New York, Vermont, Connecticut, Illinois, Wisconsin, and Indiana are protected against harassment, discrimination, and retaliation on the basis of sexual orientation under federal law.

Employers also need to comply with state and local laws that may prohibit employment discrimination on the basis of sexual orientation. At present, approximately 20 states plus the District of Columbia have laws banning private employers from engaging in sexual orientation discrimination. Additional states ban such discrimination by government employers. And more and more cities and counties are enacting ordinances to prohibit sexual orientation discrimination. To ensure compliance, employers may wish to implement policies prohibiting such discrimination regardless of jurisdiction. Otherwise, employers are forced to examine the laws applicable to each of their locations and alter their policies accordingly.

February 27, 2018

Colorado General Assembly To Consider Immigration, Paid FMLA, and Other Employment Bills

Emily Hobbs-Wright

By Emily Hobbs-Wright

The Colorado General Assembly convened on January 10, 2018 for its regular session. Between now and its scheduled May 9, 2018 adjournment date, the House and Senate will consider numerous employment-related bills. Although some may not get out of committee, and others may not get enough votes to pass, the bills highlighted here provide a glimpse into what our legislature may be considering for our state’s employers.

Immigrant Work-Status Bill

Introduced on February 5, 2018, House Bill18-1230 would create a purple card program that would allow certain persons who came to the United States without legal documentation to work legally in Colorado. To be eligible for the program, a person must have no felony convictions for the three years immediately prior to their application, and they must either have been brought to the U.S. as a minor, or paid state income taxes for the two years immediately prior to their application to the program. Sponsored by Representative Dan Pabon (D-Denver), the bill has been assigned to the House Judiciary Committee.

FAMLI Family and Medical Leave Insurance Program

House Bill18-1001 would create the family and medical leave insurance program (FAMLI) within the Colorado Department of Labor and Employment. The program would offer partial wage-replacement benefits to eligible employees who need to take leave from work because they are unable to work due to a serious health condition or need to care for a new child or a family member with a serious health condition.

The program would be funded through employee contributions, based on a percentage of the employee’s annual wages, not to initially exceed 0.99%. The premiums would be deposited into the FAMLI fund to be paid out to eligible individuals. As introduced, the bill would apply to all employers in the state engaged in activities affecting commerce and only requires that the employer have at least one employee to be covered. The maximum number of weeks of FAMLI benefits payable to an eligible individual would be 12 weeks in any year. The bill has been assigned to the Finance Committee. Although the bill has a decent chance of passing the House, it will likely face opposition in the Republican-controlled Senate.

Non-Compete Exemption for Physician To Provide Continuing Care For Rare Disorders

Colorado’s statute that governs non-compete agreements specifically addresses non-competes for physicians. C.R.S. §8-2-113. Although covenants not to compete that restrict a physician’s post-employment ability to practice medicine are void, agreements may require a physician to pay damages in an amount reasonably related to the injury suffered by reason of the termination of the agreement are enforceable. Senate Bill18-082 would create an exemption allowing a physician, after termination of an agreement, to continue to care for any patient with a rare disorder without liability for damages. As of the time of this writing, the bill has passed the Second Reading in the Senate. It needs to pass on Third Reading before heading to the House.

Minimum Wage Waiver

House Bill18-1106, introduced by Representative Dave Williams (R-El Paso), would allow an applicant for employment, or a current employee to negotiate a different minimum wage than what is required under the Colorado Constitution. The bill would require employers to post a notice informing employees of the right to negotiate wages. Unsurprisingly, this bill already failed in committee. (Employers should remember that neither an employer nor an employee has the authority to waive minimum wage and overtime pay under federal or state wage law.)

Right-to-Work Bill

Although dead on arrival, Representative Justin Everett (R-Jefferson) introduced a right-to-work bill, House Bill 19-1030, that would prohibit employees from being required to join, remain in, or pay dues to a union as a condition of employment. Similar bills have been introduced almost every session, and like those before it, this one was shot down. The bill was rejected in committee and will not make it to the House floor for a vote. With Democrats controlling the Colorado House, there is virtually no chance that a right-to-work bill would see the light of day.

More To Come

We will continue to monitor labor and employment developments at the Colorado legislature and will report back in future posts.

February 21, 2018

Dodd-Frank Whistleblower Protection Extends Only to Employees Who Report to SEC

By Brian Neil Hoffman and Jeremy Ben Merkelson

Brian Neil Hoffman

The United States Supreme Court today narrowed the universe of plaintiffs who can claim protection under the whistleblower anti-retaliation provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). In a unanimous decision, the Court held that employees are not protected under Dodd-Frank unless they report information relating to a violation of the securities laws to the Securities and Exchange Commission (SEC). Employees who only report violations internally within their company, therefore, are not protected by Dodd-Frank’s anti-retaliation provisions.

Statutory Whistleblower Definition Applies

Dodd-Frank defines a “whistleblower” as someone who provides pertinent information “to the Commission” (SEC). Yet this clear language becomes less certain because Dodd-Frank protects “whistleblowers” for engaging in certain specified conduct, including making reports to non-SEC individuals, such as a company supervisor.

In today’s decision in Digital Realty Trust, Inc. v. Somers, the Court concluded that Dodd-Frank’s anti-retaliation provision applies only to employees who fall within the definition of a whistleblower and have engaged in one of the specified types of conduct. As a result, individuals who have not reported to the SEC are, by definition, not Dodd-Frank whistleblowers protected under the act’s anti-retaliation provision. Stated differently, an employee who makes an internal report of securities violations, or an external report to any entity other than the SEC, is not a whistleblower under Dodd-Frank.

Internal Reports of Securities Violations Not Protected

In the case before the Supreme Court, employee Paul Somers reported to senior management at his employer, Digital Realty Trust, Inc., that he suspected violations of securities laws being made by the company. He did not report his suspicions to the SEC. Shortly thereafter, Digital Realty terminated his employment. Somers sued Digital Realty alleging that he was protected from retaliation under the whistleblower protections of Dodd-Frank.

Digital Realty argued that Somers was not a whistleblower under Dodd-Frank because he failed to report to the SEC prior to his termination. A federal district court judge in San Francisco and a divided panel in the Ninth Circuit disagreed with Digital Realty and denied dismissal of Somers’ claim. Judge Ginsburg’s opinion for the Supreme Court, siding with Digital Realty, settles this issue after courts addressing this same issue in other cases reached differing results from Texas to New York to California. It is now clear that a plaintiff cannot claim whistleblower retaliation under Dodd-Frank without having reported to the SEC before suffering adverse conduct by an employer.

Employer Takeaways

This decision presents a mixed bag for employers. On the one hand, the decision is good news for employers because the ruling narrows the scope of protections available under Dodd-Frank’s anti-retaliation provisions. Dodd-Frank contains multiple plaintiff-friendly provisions – including immediate access to federal court, a generous statute of limitations (at least six years), and the opportunity to recover double back pay. Yet these benefits are now only available to a, presumably, smaller number of potential plaintiffs who actually report to the SEC.

On other hand, there are many reasons for employers to be wary of the ruling. Rather than incentivize employees to report their suspected concerns internally, today’s decision heavily encourages potential whistleblowers to report their concerns directly to the SEC – before any adverse action occurs, but also before employers have had the chance to hear, investigate, and address their potential concerns. Indeed, when an internal report does arrive, it may be safest for employers to assume that the SEC already has that same report. Notably, individuals who report their concerns internally may still assert retaliation claims under Sarbanes-Oxley Act (SOX), which itself provides significant monetary recovery in the form of back pay with interest, reinstatement, and other costs.

As a result, employers should remain vigilant about avoiding retaliation when reports about potential concerns arise. Employers should also consider engaging in a timely and proactive response to potential concerns, often in consultation with outside counsel and which may include an appropriate and comprehensive investigation and remediation of the matter.

January 11, 2018

EEOC Reveals Its Strategy For Upcoming Years; Will Review Public Comments

Little V. West

By Little V. West

The U.S. Equal Employment Opportunity Commission (EEOC) recently issued its draft strategic plan for fiscal years (FY) 2018-2022. Because the strategic plan outlines the agency’s priorities for enforcing anti-discrimination laws in the upcoming years, employers can learn a great deal about the types of discrimination and class actions the EEOC will pursue and litigate to further its agenda. Let’s look at highlights of the draft plan to see where the EEOC intends to focus its resources.

Substantive Area Priorities

In its draft strategic plan for upcoming years, the EEOC makes some changes to the substantive areas of law that encompasses its priorities for enforcement efforts. First, it adds two new priorities under the Emerging and Developing Issues area. The agency will look to address discriminatory practices against those who are Muslim or Sikh, or persons of Arab, Middle Eastern, or South Asia descent, particularly protecting members of these groups from backlash following tragic events in the U.S. and the rest of the world. The agency also will look to clarify the employment relationship and the application of anti-discrimination laws to the evolving employment relationships related to temporary workers, staffing agencies, independent contractors, and the on-demand economy (e.g., Uber, Airbnb, freelancers, and other economic models that do not have a traditional employment relationship).

Second, the priorities under the Americans with Disabilities Act will be narrowed to focus on qualification standards and inflexible leave policies that discriminate against individuals with disabilities.

Third, in the area of Immigrant, Migrant, and Other Vulnerable Workers, the EEOC will look to its district offices and the agency’s federal sector program to identify vulnerable workers and underserved communities in their area. For example, the EEOC states that some district offices may focus on employment discrimination against members of Native American tribes, where those groups have local issues of concern.

Fourth, the EEOC proposes to expand its priority on equal pay to go beyond discrimination based on sex, but to address compensation systems and practices that discrimination based on race, ethnicity, age, individuals with disabilities, and other protected groups. Consequently, addressing and remedying pay discrimination is intended to reach all workers, not just those paid differently because of their gender.

Fifth, the agency will focus on preserving access to the legal system and challenging practices that limit workers’ substantive rights or impede the EEOC’s investigative or enforcement efforts. In particular, the EEOC intends to focus on overly broad waivers and releases of claims. It will also target overly broad mandatory arbitration provisions. In addition, the agency looks to focus on significant retaliatory practices that dissuade other employees from exercising their rights.

Finally, the EEOC will continue to make it a priority to prevent systematic workplace harassment. Given the current environment that has shed new light on sexual harassment, the EEOC will look specifically to claims that raise a policy, practice, or pattern of harassment.

Strategy Leads to Priority Handling and Litigation

Because of limited resources, the EEOC will use its strategic priorities to guide its charge handling, investigations, and litigation. If a charge raises a substantive area priority, it will be given priority in charge handling. Cases with strong evidence in substantive priority areas will be given precedence in the selection of cases for litigation. In general, the agency looks to its strategic plan to offer a more targeted approach to its enforcement efforts.

Integrating EEOC Efforts Across The Agency

In addition to the substantive priority areas, the EEOC states that it is committed to using an integrated approach to consider ideas, strategies and best practices across the agency. It looks to reinforce consultation and collaboration between the investigative staff and the EEOC’s lawyers who litigate the cases. It also looks to increase the collaborative efforts between the federal and private sector staff, especially with respect to protecting LGBT workers. It also looks to enhance a coordinated and consistent nation message when it comes to education and outreach activities.

Next Steps

The EEOC accepted comments from interested parties on its draft strategic plan through January 8, 2018. The agency is expected to review submissions and approve its final version of the plan in the coming months.

January 8, 2018

Confidential Sexual Harassment Settlements No Longer Tax Deductible

Steven Gutierrez

By Steve Gutierrez

The recently enacted tax reform bill contains a short provision that could significantly affect whether and how employers settle sexual harassment claims. Section 13307 of the Tax Cuts and Jobs Act states that no deduction is allowed for any settlement or payment related to sexual harassment or sexual abuse if the settlement or payment is subject to a nondisclosure agreement. The new provision also prohibits a tax deduction for attorney’s fees related to confidential sexual harassment settlements or payments.

Deductibility Hinges On Confidentiality of Settlement

The new tax provision eliminates a tax deduction for sexual harassment-related settlements only if the settlement or payment is subject to a nondisclosure agreement. In other words, if an employer requires the alleged victim of sexual harassment or abuse to keep the settlement (and presumably the underlying claim) confidential, then the amount of the payment and any attendant attorney’s fees are not tax deductible. Sexual harassment/abuse settlements and related attorney’s fees remain tax deductible if they are not subject to a nondisclosure agreement.

The policy behind this provision appears to be in response to the recent spate of sexual harassment and abuse claims coming to light. The “#MeToo” campaign has raised significant concerns about companies and their high-level employees hiding behind nondisclosure agreements to avoid public scrutiny about unlawful sexual conduct in the workplace. Repeat offenders often keep their jobs when their employers pay off the victims in secret. By eliminating the tax deduction for confidential settlements and related attorney’s fees, companies will be forced to weigh confidentiality against tax deductibility when deciding whether to settle each claim.

What If Sexual Harassment/Abuse Is Only One of Multiple Claims Being Settled?

One of the questions left unanswered in this new tax reform provision is what happens to the tax deduction for payments that settle more than one kind of employment claim. In many cases, the victim of sexual harassment or sexual abuse brings other claims against his or her employer, such as retaliation, gender discrimination, violation of the Equal Pay Act, or defamation. The language of the provision is unclear as to what is meant by any settlement or payment related to sexual harassment or sexual abuse. One could argue that a retaliation claim that arose from an adverse action following a complaint of sexual misconduct would be related to the sexual harassment claim. But what about an Equal Pay Act claim? Is that related to sexual harassment or sexual abuse?

It is unclear whether confidential settlement payments related to these other types of employment claims will remain tax deductible when lumped in with a sexual harassment settlement. This open question will likely lead employers to separate settlement agreements and payments for non-sexual harassment claims in order to keep the settlement of these other types of claims confidential and tax deductible. It also could lead employers (on likely advice from their attorneys) to structure settlements of multiple claims with an allocation of only a small amount, say $100, to the settlement of the sexual harassment claim, with the remainder of any settlement payment attributed to other types of claims alleged by the victim. Absent any clarification on this issue, we expect this will be the subject of much litigation down the road. In the meantime, companies and their attorneys likely will use creative drafting of settlements to try to separate unrelated claims in order to keep the settlement of non-sexual-harassment claims confidential and retain the deductibility of payments and attorney’s fees incurred for non-harassment matters.

Deductibility of Victim’s Attorney’s Fees

Another open question is whether the denial of deductibility applies only to the companies making settlement payments and their own attorney’s fees related to such settlements, or if it applies to the attorney’s fees incurred by the victim as well. The new provision denying deductibility for settlements subject to nondisclosure agreements amends section 162 of the Internal Revenue Code (IRC) which is the section that allows deductions for ordinary and necessary trade or business expenses paid or incurred during the course of a taxable year. Generally, an individual would not be able to take a business deduction under IRC Section 162. However, the language in the new provision does not make it clear that it applies only to the business’s own attorney’s fees, thus leaving open an interpretation that it also prohibits the victim of sexual harassment or sexual abuse from deducting his or her attorney’s fees related to settlements of such claims. It also could be interpreted to deny the deduction to a business that pays the victim’s attorney’s fees as part of a confidential settlement.

This could hit victims hard as those who sign nondisclosure agreements may have to pay taxes on the entire settlement, including any amounts paid to cover his or her attorney’s fees. Or, it could lead victims to reject any settlement containing a nondisclosure provision in order to avoid paying taxes on the attorney’s fee portion of the settlement payment. It also may make employers less likely to agree to pay the victim’s attorney’s fees as part of a confidential settlement because the total amount of fees paid to attorneys on both sides would not be deductible as a business expense. It is unclear whether Congress meant to hamstring victims in this way, or if it was the result of inarticulate drafting. We will have to see whether a correction or guidance is issued to clarify how the new denial of deductibility provision affects a victim’s ability to deduct attorney’s fees.

Get Advice Before Settling

The denial of deductibility provision affects any amounts paid or incurred after December 22, 2017 (when the tax reform act became effective). This makes one thing about this new tax deduction provision clear – employers should get advice from competent counsel and tax professionals before settling any sexual harassment or sexual abuse claims. Employers will need to evaluate each case individually to decide whether confidentiality trumps deductibility. Then, after the employer decides whether to impose a nondisclosure requirement on the alleged victim of sexual harassment/abuse, the settlement agreement must be drafted carefully in light of this new provision. If the victim asserts multiple claims, employers may be able to keep the settlement of non-harassment claims both confidential and deductible, if the settlement agreement is drafted correctly.

The bottom line is seek advice early and don’t use boilerplate settlement agreements without considering the tax deductibility consequences of nondisclosure provisions.

January 2, 2018

Sexual Harassment – Employers Should Act Now

By Mark Wiletsky

Roger Ailes, Bill O’Reilly, Harvey Weinstein, Kevin Spacey, Charlie Rose, Matt Lauer, politicians from both sides of the aisle – the list of prominent individuals accused of sexual harassment and assault continues to grow. And as sexual harassment dominates the headlines, workers are coming forward in increasing numbers to describe inappropriate sexual conduct in the workplace.

This heightened awareness by both the public and employees should make every employer pause to consider if it is doing enough to keep employees safe and free from harassment. Here are our recommendations for steps you should take right now to help prevent your organization from appearing in the headlines.

Have a Strong Anti-Harassment Policy

Every employer should have a written policy that prohibits sexual harassment in the workplace. If you do not have one, you should strongly consider implementing one to ensure your employees know that sexual harassment is absolutely prohibited. If you already have one, review it to ensure that it includes the following provisions:

zero tolerance for unlawful harassment and inappropriate sexual conduct in the workplace
examples of unacceptable physical conduct, such as unwelcome touching, hugging, kissing, groping, and gestures, as well as inappropriate verbal or visual conduct, such as sexual jokes, emails, cartoons, pictures, and propositions
requests for sexual favors or demands to engage in intimate relationships will not tolerated
policy applies to inappropriate conduct by managers, co-workers, vendors, customers, and others who come into contact with your employees
every employee is expected to report any harassment that he or she experiences or witnesses
reporting mechanism that offers two or more reporting channels (such as a supervisor and the human resources manager)
commitment to take complaints seriously through timely and thorough investigation
no retaliation or adverse consequences will occur to those who report sexual harassment or cooperate in any investigation or proceeding
employees found to have engaged in sexual harassment or other inappropriate conduct will be subject to discipline, up to and including termination.

Train Both Managers and Employees

A policy does little good if your employees are not aware of it. Take this opportunity to conduct sexual harassment training for your entire workforce. Live in-person presentations may be the best way to train your employees, allowing you to take questions and emphasize your organization’s commitment to preventing and resolving any harassment issues. If live training sessions are impossible, offer video or recorded training. Provide specialized training to your executives, managers, and supervisors so that you can stress their input in creating a culture that is free of harassment, and to help them recognize and learn how to handle harassment scenarios.

Encourage Reporting of Inappropriate Conduct

Employees won’t report harassment to you if they feel their complaint will fall on deaf ears.
They may, instead, talk to the media or an attorney. Consequently, management and human resources professionals need to encourage reporting of workplace improprieties, no matter who it involves or how sensitive the accusation. If you do not welcome complaints, you will not have an opportunity to nip inappropriate conduct in the bud or resolve situations that could prove highly detrimental to your company.

Investigate Every Complaint

You must treat every report of sexual misconduct or harassment seriously and conduct a timely, thorough investigation to determine whether the alleged conduct occurred. If the complaint is against your company president or another high-ranking individual, you still must investigate it in the same vigorous manner you would for any other employee accused of the misconduct. Consider whether you need to hire outside counsel or a third-party investigator to preserve privilege and to avoid allegations that the investigator was biased because he or she reports to the person accused of misconduct. Take time now to make sure you have an investigation process in place so that when a report of harassment comes in, you don’t waste time determining who does what.

Take Prompt, Appropriate Action

As you receive a sexual harassment complaint and begin an investigation, you need to determine what action, if any, should be taken pending the investigation’s outcome. You may need to place the alleged harasser on leave, or you may need to separate workers so that they work on separate shifts or in different locations. Your duty is to stop any harassment from occurring, so take whatever steps may be necessary to do that. Then, when you have sufficient facts about the alleged harassment, determine what action is warranted to resolve it. If you conclude that harassment likely occurred, you need to impose consequences. Depending on the severity, that could mean immediate termination of employment. Remember, zero tolerance means no unlawful harassment goes unpunished.

Preventing and Resolving Sexual Harassment Should Help Keep You Out of the News

Because the topic of sexual harassment is so hot right now, take the time to recommit your organization to preventing and resolving workplace harassment by following the steps above. Your efforts now will go a long way in avoiding surprise allegations in the future.

December 28, 2017

Colorado Minimum Wage Goes Up To $10.20 Per Hour On January 1

By Emily Hobbs-Wright

Minimum wage employees in Colorado will get a raise in the new year. The state minimum wage goes up by ninety cents per hour, from the current $9.30 to $10.20, beginning January 1, 2018.

Annual Increases Approved By Voters In 2016

The upcoming minimum wage increase is the result of a ballot effort last year to increase Colorado’s minimum wage to $12 per hour by 2020. In the November 2016 election, Colorado voters approved Amendment 70 which raises the state’s hourly minimum wage by 90 cents per hour each year, as follows:

$10.20 effective 1/1/18
$11.10 effective 1/1/19
$12.00 effective 1/1/20

After 2020, annual cost-of-living increases will be made to the mandatory minimum wage.

Tipped Employees

Under Colorado law, employers may take a tip credit of $3.02 off the full minimum wage for employees who regularly receive tips. Consequently, the minimum wage that must be paid to tipped workers will go up by 90 cents on January 1, 2018 as well. The applicable minimum wage for tipped workers for upcoming years is as follows:

$7.18 effective 1/1/18
$8.08 effective 1/1/19
$8.98 effective 1/1/20

Remember that if tips combined with wages does not equal the state minimum wage, the employer must make up the difference in cash wages.

Take steps now to ensure that your payroll system is ready to comply with the increased minimum wage beginning January 1.