Author Archives: Holland & Hart

December 26, 2017

The New Tax Bill & Employee Benefits: What is Changing? What is Not?

By Molly Hobbs and Brenda Berg

On December 22, 2017, the President signed into law the Republican tax bill that was passed by Congress just days earlier. Beyond cutting individual tax rates temporarily and slashing corporate taxes to 21 percent permanently, the tax bill includes some important changes to the taxation of certain employee benefits.

Listed below are the major changes to employer-provided benefits under the final tax bill:

  • Revised: Time to repay “offset” employer-sponsored retirement plan loans.
    • Currently, retirement plan loans are generally accelerated (i.e., immediately due and payable) when the plan terminates or the participant terminates employment. If the loan is not repaid, the plan will “offset” the loan against the participant’s account. This loan offset may be rolled over by making an equivalent contribution to an IRA or another qualified plan, but this must be done within 60 days of the date of the offset.
    • Beginning in 2018, the period to roll over a loan offset is extended to the individual’s due date for the tax return for the year in which the offset occurred (including extensions).
  • Repealed: Employer deduction for qualified transportation fringe benefits, including commuting expenses.
    • Currently, an employer can deduct the cost of certain transportation fringe benefit provided to employees (i.e., parking, transit passes, and vanpool benefits), even though such benefits are excluded from the employee’s income.
    • Beginning in 2018, the employer deduction for qualified transportation fringe benefits is fully disallowed. In addition, except as necessary for ensuring the safety of an employee, the employer deduction for providing transportation or any payment or reimbursement for commuting to work is disallowed.
    • These changes do not appear to prevent employers from sponsoring a qualified transportation plan to allow employees to elect to have certain transportation costs paid on a pre-tax basis.
  • Repealed: Employee exclusion of bicycle commuting reimbursements.
    • Currently, an employee can exclude from income qualified bicycle commuting reimbursements of up to $20 per qualifying bicycle commuting month. These amounts are also excluded from wages for employment tax purposes.
    • Beginning in 2018, the qualified bicycle commuting reimbursement exclusion is fully disallowed.
    • Going forward, employers can still maintain a program for bicycle commuting, however, reimbursements under such program will be taxable to the employee.
  • Repealed: Employer deduction for entertainment, amusement and recreation provided to employees.
    • Currently, an employer can fully deduct expenses for recreational, social, or similar activities primarily for the benefit of non-highly compensated employees, provided such activities directly relate to the active conduct of the employer’s business.
    • Beginning in 2018, this deduction is fully disallowed. The employee exclusion remains unchanged.
  • Partially Repealed: Employer deduction for meals, food and beverages provided to employees.
    • Currently, an employer can fully deduct any food and beverage expense that can be excluded from an employee’s income as a de minimis fringe benefit.
    • Beginning in 2018, there will be a 50% limitation on the deduction for food and beverages that can be excluded from an employee’s income as a de minimis fringe benefit, including expenses for the operation of an employee cafeteria located on or near the employer’s premises. The employee exclusion remains unchanged.
  • Partially Repealed: Employee exclusion of value of certain types of employee achievement awards and the employer’s related deduction.
    • Currently, an employer can deduct up to $400 (or up to $1,600 in the case of certain written nondiscriminatory achievement plans) of the value of certain employee achievement awards for length of service or safety. The employee receiving such award can exclude the award from income to the extent that the value of the award does not exceed the employer’s deduction.
    • Beginning in 2018, the employee’s exclusion and employer’s deduction for employee achievement awards will not apply to cash, gift coupons/certificates, vacations, meals, lodging, tickets to sporting or theater events, securities, and “other similar items.” However, an employee can still exclude (and an employer can still deduct) the value of other tangible property and gift certificates that allow the recipient to select tangible property from a limited range of items pre-selected by the employer.
  • Repealed: Employee exclusion from income of employer-provided qualified moving expense reimbursements.
    • Currently, an employee can exclude qualified moving expense reimbursements paid by his or her employer for the reasonable expenses of moving. These amounts are also excluded from wages for employment tax purposes.
    • Beginning in 2018, the qualifying moving expense reimbursement is fully taxable to the employee, except for members of the Armed Forces on active duty who move pursuant to a military order.
  • Enacted: Employer tax credit for employers providing paid family and medical leave.
    • Beginning in 2018, an employer that offers at least two weeks of annual paid family and medical leave, as described by the Family and Medical Leave Act (FMLA), to all “qualifying” full-time employees (and a proportionate amount of leave for non-full-time employees) will be entitled to a tax credit. The paid leave must provide for at least 50% of the wages normally paid to the employee. “Family and medical leave” does not include leave provided as vacation, personal leave, or other medical or sick leave.
    • A “qualifying employee” is an employee who has been employed by the employer for at least one year, and whose compensation for the preceding year did not exceed 60% of the compensation threshold for highly compensated employees (i.e., compensation did not exceed $72,000).
    • The credit will be equal to 12.5% of the amount of wages paid to a qualifying employee during such employee’s leave, increased by .25% for each percentage point the employee’s rate of pay on leave exceeds 50% of the wages normally paid to the employee (but not to exceed 25% of the wages paid).

In addition, employers should be aware that the tax bill eliminates the Affordable Care Act’s (“ACA”) individual mandate penalty starting in 2019. The individual mandate requires most individuals (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage. Currently, individuals who do not enroll in health coverage can incur a tax penalty. Beginning in 2019, individuals will still technically be required to carry health coverage, but will no longer be penalized for failing to do so. This change to the ACA’s individual mandate could indirectly impact employers. For example, if fewer employees avail themselves of Exchange coverage and the related subsidies, an employer’s penalty risk under the ACA’s employer mandate will decrease. The lack of individual penalty could also destabilize the Exchange, resulting in more individuals looking to their employers for coverage.

Although earlier drafts of the tax bill called for repeal or modification, the following benefit provisions remain unchanged by the final tax bill:

  • The hardship distribution safe harbor rules incorporated into many retirement plans (proposals would have eased hardship rules);
  • The employer-provided child care credit;
  • Dependent Care Assistance Programs (DCAPs);
  • Adoption assistance programs;
  • Employer-provided housing; and
  • Educational assistance programs.

Takeaways for Employers:

In light of changes to employer-provided benefits under the final tax bill, employers should take the following actions:

  • Determine whether any changes are needed to retirement plan loan distribution paperwork regarding tax and rollover consequences.
  • Review qualified transportation plan(s) in light of the changes to qualified transportation fringe benefits and bicycle commuting reimbursements.
  • Review any company policies that involve recreational, social, or similar activities for employees, employee meals, employee achievement awards, and/or employee moving expenses.
  • Adjust payroll reporting as necessary and determine whether any taxable amounts are now eligible compensation for retirement plan deferrals and employer contributions.
  • Consider utilizing the new tax credit for paid family and medical leave.

December 14, 2017

NLRB Overturns Controversial Standards on Joint-Employer Status and Neutral Employment Policies; Questions Quickie Election Rule

By Steve Gutierrez 

In a series of decisions that affect both union and non-union employers, the National Labor Relations Board (NLRB or Board) has overruled numerous controversial standards that had broadened the coverage of employee rights in recent years. On December 14, 2017, the Board returned the standard for determining joint-employer status to the pre-Browning-Ferris standard as well as walking back the standard for determining whether facially neutral employment policies infringe on employees’ section 7 right to engage in protected concerted activities. The return to more employer-friendly standards will help ease the risk of engaging in unfair labor practices under the National Labor Relations Act (NLRA). Here are the highlights of the new developments.

Joint-Employer Status Depends on Control

In its 2015 controversial decision in Browning-Ferris Industries, the NLRB significantly broadened the circumstances under which two entities could be deemed joint employers for NLRA purposes. In that case, the Board ruled 3-to-2 that Browning-Ferris Industries was a joint employer with a staffing company that provided workers to its facility for purposes of a union election because Browning-Ferris had indirect control and had reserved contractual authority over some essential terms and conditions of employment for the workers supplied by the staffing company.

Today, in a 3-2 decision, the now Republican-majority Board overruled Browning-Ferris, now requiring that two or more entities actually exercise control over essential employment terms of another entity’s employees and do so directly and immediately in a manner that is not limited and routine, in order to be deemed joint employers under the NLRA. This returns the joint-employer standard to the pre–Browning Ferris standard. Consequently, proof of indirect control, contractually-reserved control that has never been exercised, or control that is limited and routine, will no longer be sufficient to establish a joint-employer relationship.

This doesn’t mean that the Board will no longer find two or more entities to be joint employers under the NLRA. In fact, in the current case in which it overturned Browning-Ferris, it applied the tougher standard and still ruled that two construction companies were joint employers and therefore jointly and severally liable for the unlawful discharges of seven striking employees. Still, the requirement that entities have direct control that is exercised over the workers in question is a more workable and beneficial rule for employers.

New Standard For Facially Neutral Policies

In recent years, the NLRB has ruled that many types of standard employee policies unlawfully interfered with employees’ section 7 rights. That scrutiny went back to the 2004 decision in Lutheran Heritage Village-Livonia  which ruled that employer policies that could be “reasonably construed” by an employee to prohibit or chill the employees’ exercise of section 7 rights violated the NLRA, even if such policies did not explicitly prohibit protected activities or were not applied by the employer to restrict such activities. Consequently, a series of Board rulings deemed certain language in employer policies unlawful even when facially neutral on their face, including policies on confidentiality, non-disparagement, recording and video at work, use of social media and company logos, and other typical employment rules.

In its recent decision, the Board ruled 3-to-2 to overturn Lutheran Heritage Village-Livonia and its standard governing facially neutral workplace rules. The new standard for evaluating employer policies will consider: (1) the nature and extent of the potential impact on NLRA rights, and (2) legitimate justifications associated with the rule. To provide greater clarity for employers, employees, and unions, the Board announced that prospectively, it will categorize workplace rules into three categories depending on whether the rule is deemed lawful, unlawful, or warrants individualized scrutiny. This change should significantly relieve the uncertainty that has existed under the “reasonably construed” standard.

Quickie Elections Being Reconsidered

In another move to reverse recent Board rules, the Board published a Request for Information (RFI) asking for public input on the 2014 representation election rule that changed the process and timing of union elections. In particular, the Board seeks public input on whether the 2014 quickie election rules should be retained, changed, or rescinded. The deadline for submitting responses is February 12, 2018. This RFI signals that the quickie election rule could be on its way out.

Conclusion

We will continue to monitor these and other Board developments. If you have any questions or concerns about these changes and how they may affect your workplace, you should reach out to your labor counsel.

November 20, 2017

Draw Against Commissions: Keeping FLSA Minimum Wage and Overtime Violations At Bay

By Mark Wiletsky

Paying sales employees on a commission basis can achieve multiple goals. Salespersons have an incentive to increase sales to earn more money while the company sees higher revenues without being locked into a guaranteed pay structure for underperforming employees.

Although various types of commission structures may be used, a common one is a draw against commission. Typically, this type of pay structure means that a sales employee is paid solely on the basis of commissions, but may be advanced a certain amount of money known as a “draw” for weeks in which the employee fails to earn a certain level of commissions. Then, the draw is deducted from future commissions when the employee’s commissions exceed the expected level. It sounds easy, but such arrangements can be fraught with FLSA traps.

Illustrative Case

The Sixth Circuit Court of Appeals (whose decisions apply to Michigan, Ohio, Kentucky, and Tennessee) recently examined an employer’s draw-against-commissions policy to determine whether the policy violated the minimum wage and overtime requirements of the FLSA. In that case, current and former retail and sales employees of hhgregg, Inc. and Gregg Appliances filed a lawsuit claiming that hhgregg’s commission policy violated the FLSA and state law in numerous ways. Here is a summary of the policy at issue:

  • In pay periods when an employee’s earned commissions fell below the minimum wage, the employee would be paid a draw to meet the minimum-wage requirement
  • In a non-overtime week (i.e., the employee worked 40 or fewer hours), the draw equaled the difference between the minimum wage for each hour worked and the amount of commissions actually earned
  • In an overtime week (i.e., the employee worked more than 40 hours), the draw equaled the difference between one and one-half times the minimum wage for each hour worked and the amount of commissions actually earned
  • Draw payments were calculated on a weekly basis
  • The amount of the draw would be deducted from commissions earned in future weeks
  • An employee could be subject to discipline, including termination, if he or she received frequent draws or accumulated a high draw balance
  • Upon termination of employment, an employee with a draw balance was required to immediately pay the company any deficit.

Retail and Service Establishment Exemption

The FLSA exempts retail or service employees from the overtime pay requirement but only if (1) “the regular rate of pay of such employee is in excess of one and one-half times the minimum hourly rate applicable” under the FLSA, and (2) “more than half his compensation . . . represents commissions on goods or services.” This exemption does not relieve employers from meeting minimum wage obligations.

In the hhgregg case, the employer argued that the exemption applied. The Sixth Circuit disagreed, pointing to the allegation that the commission policy paid exactly the minimum hourly rate in a normal, nonovertime week, thereby failing to meet the exemption requirement that it be “in excess of one and one-half times the minimum hourly rate.” Because the exemption didn’t apply, hhgregg could not escape overtime pay obligations.

Deductions of Draws From Future Earnings Was Not An Illegal “Kick Back”

Under the FLSA, when an employee earns less in commissions than was advanced through a draw, the employer may deduct the excess amount from later commissions, if otherwise lawful. In the hhgregg case, the plaintiffs argued that the deductions were not “otherwise lawful” because the draws to meet the minimum wage were not delivered “free and clear,” as is required by DOL regulation. Plaintiffs argued that the draws were loans that the sales persons were expected to repay, functioning as an unlawful “kick back.”

The Sixth Circuit rejected the plaintiffs’ argument, finding that because the employees could keep the full amount of the draw at the time it was “delivered,” it was not an unlawful “kick back.” Thus, deducting the draw payments from future commissions did not violate the “free and clear” regulation.

Immediate Repayment Upon Termination

Plaintiffs alleged that making employees immediately pay the company any deficit in draws upon termination of employment violated the FLSA. On that claim, the Sixth Circuit agreed, at least to the extent of allowing the lawsuit to proceed. The Court looked to hhgregg’s written commission policy to find that the sales employees could reasonably believe that they would be liable to hhgregg for any unearned draw payments at the time of termination. Because that provision could violate the DOL regulation that minimum wage be provided “free and clear,” the Court held that plaintiffs alleged sufficient facts in their complaint to support their claim that the policy violated the FLSA.

Off-The-Clock Work

Plaintiffs further alleged that the company encouraged sales employees to attend required training and store meetings “off the clock” in violation of minimum wage and overtime requirements. Specifically, plaintiffs alleged that hhgregg managers approved of and sometimes encouraged sales persons to work “off the clock” to avoid incurring a higher draw.

hhgregg argued that any practice of off-the-clock work would not violate the FLSA because “by allegedly under-reporting working time in draw weeks and thereby lessening their draw payments, [plaintiffs] increased the amount of commission pay they subsequently received by the same amount.” Therefore, “the ‘off-the-clock’ work allegedly performed did not deprive them of pay; it simply shifted it to a different week.”

The Court rejected the company’s argument. Because the FLSA requires employers to pay the minimum wage for all hours worked on a week-by-week basis, an employer may not “shift” pay for hours worked to a future week. Therefore, the Court ruled that plaintiffs’ claim could continue.

Review Your Commission Policy

This recent draw-against-commission case highlights the FLSA issues that employers may face when implementing commission policies. If you use commission payments for any segment of your workforce, we recommend that you review your policy to confirm that it pays employees for all hours worked (e.g., no “off-the-clock” time). In addition, if you offer a draw against commissions, make certain that it meets your minimum wage and overtime pay obligations. Finally, if you rely on an FLSA exemption, such as the exemption for retail and service establishments, compare your commission policy to the exemption to ensure you meet the exemption test. Because this is a tricky area, consult with experienced counsel to resolve any questions or compliance concerns.

November 6, 2017

Take Note: Benefit Plan Deadlines Approaching

By Molly Hobbs

At this time of year, important deadlines are quickly approaching for 401(k) plans and health and welfare plans. Here is a non-exhaustive list of significant employee benefit plan deadlines for the remainder of 2017 and early 2018. These deadlines are generally for calendar year plans, unless otherwise specified.

Retirement Plan Deadlines:

December 2

  • Distribute the following notices, as applicable, by December 2, 2017:
    • Traditional 401(k) Safe Harbor Notice
    • Qualified Automatic Contribution Arrangement (QACA) Notice
    • Eligible Automatic Contribution Arrangement (EACA) Notice
    • Non Safe-Harbor Automatic Contribution Arrangement Notice
    • Qualified Default Investment Alternatives (QDIA) Notice
  • Determine when the annual participant fee disclosure was last provided and timely provide the disclosure. The annual participant fee disclosure is required every 14 months. Many employers provide this disclosure on or before the end of the year along with other year end notices.

December 16

  • Provide summary annual report (SAR) to participants if the 2016 Form 5500 was filed by extension on or before October 16, 2017. For non-calendar year plans, the SAR must be provided two months after the Form 5500 was filed, including by approved extension.

December 31

  • Adopt any discretionary amendments implemented during the plan year.
  • Ensure all required minimum distributions have been paid to applicable participants.

January 2018

  • Provide non-discrimination testing census data to the record keeper or Third Party Administrator (TPA).

March 15, 2018

  • Make sure TPA has completed non-discrimination testing, and distribute any excess contributions, in order to avoid excise taxes.

April 16, 2018

  • Distribute any excess contributions and related earnings from prior year.
  • Make any employer contributions to retirement plan(s) in order to receive tax deduction (plus extensions).

Health and Welfare Plan Deadlines:

November 1

  • If the plan’s open enrollment is approaching, fix the starting and ending dates for open enrollment and prepare and distribute enrollment materials such as the Summary of Benefits and Coverage.
  • Marketplace/Exchange open enrollment begins.

November 15

  • If the plan is a self-funded health plan, submit the Transitional Reinsurance Program (TRP) Annual Enrollment and Contributions Submission Form, reporting the annual enrollment count and selecting a payment schedule. If the Plan elected in 2016 to pay the TRP fee in two installments, the second payment is also due by November 15, 2017.

December 15

  • Open enrollment for the Marketplace/Exchange coverage ends.

December 16

  • Provide summary annual report (SAR) to participants if the 2016 Form 5500 was filed by extension on or before October 16, 2017. For non-calendar year plans the SAR must be provided two months after the Form 5500 was filed, including by approved extension.

December 31

  • Provide the following annual notices, as applicable, by December 31, 2017:
    • Children’s Health Insurance Program (CHIP)
    • Women’s Health and Cancer Rights Act (WHCRA)
    • HIPAA Notice of Privacy Practices (at least every three years)
  • Many plan sponsors provide these notices with the annual open enrollment materials.

January 31, 2018

  • If the employer is subject to the ACA employer mandate, provide full-time employees with an IRS Form 1095-C documenting 2017 health coverage.

February 28 (March 31, if filing electronically)

  • If the employer is subject to the ACA employer mandate, file Form 1094-C and Forms 1095-C with the IRS.
Keep this deadline checklist handy to ensure that your plans remain compliant and as always, consult with your employee benefits counsel for additional information.

October 12, 2017

Top Five Ongoing Challenges For Collective Bargaining and Organizing

By Steve Gutierrez

Most expect that the White House and federal agencies will take a more business-friendly approach than in recent years. Employers hope that will mean they can now look forward to a potential rollback of regulations and enforcement efforts that have stymied their business objectives. Yet when it comes to responding to union organizing campaigns and negotiating collective bargaining agreements, employers still face wide-ranging challenges. Here is my list of the top five ongoing challenges. 

1. Affordable Care Act (ACA) Cadillac Tax 

Many unions, such as the Teamsters, prioritize and bargain extensively over top quality, employer-paid health insurance. They often use it as a selling point to their members. Yet, the ACA’s 40 percent excise tax on workers with comprehensive insurance plans (the so-called “Cadillac tax”), set to be implemented in 2020, is seen by the unions as an affront to their hard-fought bargaining to obtain high quality health care for their membership.

In fact, reports show that unions, including the Teamsters, have actively lobbied members of Congress for a repeal of the Cadillac tax. Because health care reform has not yet passed, it may be unlikely that relief from the Cadillac tax is forthcoming anytime soon.

This opens the door for alternate bargaining tactics over health care plans and benefits. Economics can be based on the ultimate cost to the employees/members, when factoring in the tax. This issue remains a challenge for both employers and the union and can change the overall approach to structuring the economic package during contract negotiations. 

2.  Micro-units 

In 2011, the NLRB issued its Specialty Healthcare decision permitting unions to establish bargaining units that include only a small fraction of a workforce. For example, in 2014, the Board certified a micro-unit of cosmetic and fragrance salespersons working at a Macy’s department store rather than requiring all employees at the store (or even all salespersons at the store) to make up the bargaining unit. The Board authorized the micro-unit by finding that the cosmetics and fragrances salespersons were a readily identifiable group and shared a community of interest. The Board also found that other Macy’s employees did not share an overwhelming community of interest with the cosmetics and fragrances employees, and prior NLRB cases involving the retail industry did not require a wall-to-wall unit.

These micro-units can make union organizing easier as they do not require a majority of the historical “wall-to-wall” bargaining units to vote in favor of the union. For example, a unit of only nine employees needs just five to vote “yes” and the union has its foot in the door with that employer. And organizing on that micro level can more easily go unnoticed by employers. Micro-units can also result in an employer having to negotiate with multiple unions affecting small segments of its workforce, and the headaches involved with administering varying contracts.

Numerous efforts are underway in the current administration to do away with micro-units. Current NLRB Chairman Phillip Miscimarra disagrees with the Specialty Healthcare standard for determining an appropriate bargaining unit, raising chances that the Board will abandon the approval of micro-bargaining units. However, Miscimarra has announced that he will leave the Board when his term expires in December 2017. Despite his impending departure, it is possible that a majority-Republican Board will reverse course on micro-units.

In addition, this past Spring, Senate Republicans introduced (again) the Representation Fairness Restoration Act (S. 801) which would do away with micro-units. That bill has been assigned to the Senate Health, Education, Labor, and Pensions committee where it is one of 250 bills currently being considered by the committee.

Until the law or Board precedent is changed, micro-units remain a challenge for employers. But because a more employer-friendly Board might rule against a micro-unit, it becomes vastly important to challenge proposed bargaining units and any potential outlier unit members. Increased pressure on the Board on this issue should be a continued focus. 

3.  Transparency with Employees/Members 

Unions are becoming quite savvy in communicating with their members and potential members. Union leaders are increasingly focusing on being more transparent with their members during the bargaining process. They continue to build strong communications networks centered on social media and other online platforms, with development of mobile apps and company-specific websites, Facebook pages, and Twitter accounts.

To stay ahead of and counter union communications, employers facing a union organizing campaign or in the midst of negotiating a contract should institute and invest in more robust communication strategies with their employees as well. Social media and other online communications boards are essential in getting the company’s message out, especially to millennials and other employee demographics who will seek their information from such sources. But, be aware that in late 2014, the NLRB ruled that employees may presumptively use a company’s email system for statutorily protected communications as long as it takes place during nonworking time and does not interfere with productivity. That Board decision, Purple Communications, is on appeal in the Ninth Circuit Court of Appeals but remains a challenge for employers until such time it is reversed or overturned.

4.  New Technology in the Workplace 

As more technology comes into the workplace and robots threaten to replace workers, collective bargaining will likely face these issues head on. Just as outsourcing used to be (and in many cases, still is) a sore spot for unions, workplace automation is a similar threat to jobs and future expansion.

One example involves the Teamsters who recognize that autonomous driving vehicles are becoming a reality. The Teamsters are urging lawmakers to prioritize workers and safety when crafting legislation and rules regarding autonomous vehicles. Their concerns likely spill over into their contract negotiations as well.

As workplace technology accelerates, discussions of the use of such technology will likely become key in any bargaining where robots and automation are a possibility. Anticipating that topic, and the potential impact on workers, opens the door for employers to bargain for potential gains and/or trade-offs in their favor when the union opposes or seeks to limit autonomous technology.

5.  Favorability of Unions on the Rise 

According to a January 2017 Union Favorability Survey by the Pew Research Center (PRC), 60 percent of respondents viewed labor unions favorably while only 35 percent viewed unions unfavorably. This is the highest union favorability rating compiled by the PRC since March of 2001 and only the second rating at or above 60 percent since 1985.

Employers should be aware of this rising trend, especially when communicating with employees during an organizing or bargaining campaign. Opposing and criticizing unions too strongly could backfire so communications and strategies should be formulated to focus on issues, rather than the institution of unions and union membership itself.

Responding to organizing campaigns and preparing for collective bargaining is always a challenge but thinking ahead about these top five issues, and investing in some preventative training and education for managers, can help you manage the process and achieve a favorable outcome.

October 5, 2017

ADA Does Not Mandate Multi-month Leave of Absence As Accommodation, Says Seventh Circuit Court

By Mark Wiletsky

Rarely do we receive definitive guidance on reasonable accommodations. But the Seventh Circuit Court of Appeals came very close to providing that when it recently ruled that a multi-month leave of absence is beyond the scope of a reasonable accommodation under the Americans with Disabilities Act (ADA).

Back Condition Leads to FMLA Leave

In the recent Seventh Circuit case, Raymond Severson had long suffered from back myelopathy, a condition that caused degenerative changes in his back, neck, and spinal cord and impaired his functioning. Although he usually was able to perform his duties at Heartland Woodcraft, Inc., a fabricator of retail display fixtures, at times Severson experienced flare-ups that made it difficult for him to walk, bend, lift, sit, stand, or work.

Over the course of seven years of employment with Heartland Woodcraft, Severson rose from supervisor to shop superintendent and then to operations manager. The company, however, found that he performed poorly in the operations manager position and on June 5, 2013, notified Severson that it had demoted him to a second-shift lead position, which included performing manual labor in the production area.

That same morning, Severson had wrenched his back at home and he was visibly uncomfortable. He left work early and requested leave under the Family and Medical Leave Act (FMLA). He was granted FMLA leave, and his doctor provided certificates indicated that he had multiple herniated and bulging discs in his back which would make him unable to work until further notice.

Unable To Return To Work Following FMLA Leave

While out on FMLA leave, Severson’s doctor treated him with steroid injections, but they did not improve his condition. Severson scheduled disc decompression surgery for August 27, 2013, the same day that his 12 weeks of FMLA leave would expire.

About two weeks before his surgery, Severson requested an extension of his medical leave, explaining that typical recovery time for his surgery would be at least two months. The company contacted him on August 26, the day before his scheduled surgery, and informed him that his employment with Heartland would terminate on August 27 when his FMLA leave expired.  He was told he could reapply for employment after he was medically cleared to work.

On August 27, Severson had his scheduled surgery, and on October 17, his doctor gave him a partial clearance to return to work with a 20-pound lifting restriction. On December 5, Severson’s doctor released him to work without restriction.

Leave As A Reasonable Accommodation

Severson sued the company for an ADA violation alleging that it failed to accommodate his physical disability by refusing to provide a three-month leave of absence following expiration of his FMLA leave. The federal court in Wisconsin rejected the claim as a matter of law, entering summary judgment in favor of Heartland Woodcraft, and Severson appealed.

The Seventh Circuit (whose decisions are binding on federal courts in Illinois, Wisconsin, and Indiana) affirmed judgment in favor of the employer. The Court was very clear in ruling that a long-term medical leave is not a reasonable accommodation under the ADA. Judge Sykes, writing for the three-judge panel, stated, “The ADA is an antidiscrimination statute, not a medical-leave entitlement.” The Court stated that a reasonable accommodation is intended to make it possible for the employee to perform his or her job. But a medical leave that lasts multiple months does not allow the employee to work and that inability to work removes the person from the class of “qualified individuals” protected by the ADA.

The Court stated that brief periods of time off may be an appropriate accommodation in some circumstances. For example, the Court noted that intermittent time off or a short leave of absence may be appropriate for someone with arthritis or lupus when brief periods of inflammation make it too painful for the individual to work. But the Court ruled that a multi-month leave of absence “is beyond the scope of a reasonable accommodation under the ADA.” Read more >>

September 12, 2017

Employer May Keep Tips As Long As Employees Are Paid Minimum Wage, According To 10th Circuit

By Brad Cave

By invalidating a U.S. Department of Labor (DOL) regulation that states that tips are the property of employees, the 10th Circuit Court of Appeals (whose opinions apply to Wyoming, Colorado, Utah, Kansas, Oklahoma, and New Mexico) rejected an employee’s wage claim based on her employer’s practice of keeping all tips. But employers in states with an analogous state law governing ownership of tips, such as Wyoming, need to be aware that the 10th Circuit’s ruling may not change how they handle tips.

Caterer Kept Tips But Paid More Than Minimum Wage

Relish Catering regularly receives tips from its customers in the form of a gratuity added to their final catering bill at the end of an event. Relish retains those tips for itself rather than passing them along to its employees who work at the events. However, it pays its employees at or above the federal minimum wage of $7.25 per hour as well as time and a half for overtime and does not rely on any sort of tip credit to meet the minimum wage.

Bridgette Marlow believed Relish was required to turn over her share of the catering tips under the Fair Labor Standards Act (FLSA). Despite making $12 per hour (and $18 per hour for overtime), she sued Relish and Brett Tucker, a manager and part owner of the company, alleging they violated the minimum wage provisions of the FLSA by retaining the tips.

FLSA Restrictions Apply Only When Tip Credit Taken

Marlow argued that by retaining all of the tips, Relish was essentially paying employees below minimum wage. For example, she suggested that if she received her $12 hourly wage but Relish retained $11 in tips for each hour she worked, the result was the same as if Relish turned over all of the tips to her and paid her a $1 hourly wage. In essence, she argued that the company could be paying less than the required amount for tipped employees.

The 10th Circuit didn’t bite on Marlow’s rationale. The Court stated that it doesn’t matter where the money to pay wages comes from so long as the company paid at least the minimum wage required under the FLSA. The Court rejected Marlow’s argument that the FLSA’s tip-credit provision applied to her case because Relish doesn’t take a tip credit.

The FLSA tip-credit provision allows employers of “tipped employees” to pay a reduced hourly wage of $2.13 per hour so long as employees receive sufficient tips to raise their earnings to the $7.25 hourly minimum. But this provision applies only if the employer counts tips toward the minimum wage, said the Court. The tip-credit provision does not apply if the employer doesn’t count tips toward the minimum and instead pays the full hourly minimum wage.

The Court stated that the FLSA tip-credit provision does not require that employers turn over all tips to employee in all circumstances, as Marlow urged. Instead, when an employer doesn’t take the tip credit, the tip-credit provision imposes no restrictions on what it may do with tips as long as it pays an hourly wage above the $7.25.

DOL’s Tip-Ownership Regulation Invalid

Marlow relied extensively on a 2011 DOL regulation that provides:

Tips are the property of the employee whether or not the employer has

taken a tip credit under section 3(m) of the FLSA. The employer is

prohibited from using an employee’s tips, whether or not it has taken a tip

credit, for any reason other than that which is statutorily permitted in

section 3(m): As a credit against its minimum wage obligations to the

employee, or in furtherance of a valid tip pool.

From the language of that regulation, it would seem that Marlow had a valid claim. But the 10th Circuit said not so fast and looked at whether the DOL had the authority to implement the regulation in the first place.

Relying on U.S. Supreme Court precedent, the 10th Circuit pointed out that federal agencies may create rules only to fill “ambiguities” or “gaps” in statutes. In a “friend-of-the-court” brief, the federal government argued that the FLSA is silent on the issue of who “owns” tips when an employer does not take the tip credit, and therefore, the DOL had the authority to create a tip ownership rule to fill in that gap.

Despite the Ninth Circuit’s acceptance of that argument, the 10th Circuit disagreed with it, finding that nothing in the FLSA directs the DOL to regulate the ownership of tips when the employer doesn’t take the tip credit. Because the FLSA limits the tip restrictions to employers who take the tip credit, the DOL lacked the authority to regulate otherwise.

The Court invalidated the DOL’s tip-ownership regulation, finding it was beyond the DOL’s authority, and affirmed the lower court’s judgment in favor of the employer. Marlow v. The New Food Guy, Inc., No. 16-1134 (10th Cir. June 30, 2017). Read more >>

August 31, 2017

Court Invalidates Overtime Rule That Increased Exempt Salary Levels

By Mark Wiletsky 

The Department of Labor (DOL) exceeded its authority when it doubled the minimum salary levels for exempt executive, professional, and administrative employees under the Fair Labor Standards Act (FLSA), ruled federal judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas today. Granting summary judgment in favor of the states and business plaintiffs who challenged the new overtime rule last November, Judge Mazzant determined that the DOL’s new overtime rule “effectively eliminates a consideration of whether an employee performs ‘bona fide executive, administrative, or professional capacity’ duties.”

Exempt Duties Are Part Of The Analysis

Judge Mazzant wrote that although Congress delegated authority to the DOL to define and delimit the white-collar exemptions, Congress was clear when enacting the FLSA that the exemption determination needs to involve a consideration of an employee’s duties, rather than relying on salary alone. He stated that the Obama-era overtime rule that significantly increased the minimum salary levels would result in entire categories of previously exempt employees who perform “bona fide executive, administrative, or professional capacity” duties being denied exempt status simply because they didn’t meet the salary threshold. Consequently, the elimination of an analysis of duties for those who failed to meet the new high salary level was inconsistent with Congressional intent.

A Minimum Salary Level Still Acceptable

When issuing a preliminary injunction last November, Judge Mazzant’s ruling raised the question as to whether any salary threshold could be used as part of the white-collar exemption tests. In his summary judgment order, Judge Mazzant appears to leave the salary-level part of the test stand, writing “[t]he use of a minimum salary level in this manner is consistent with Congress’s intent because salary serves as a defining characteristic when determining who, in good faith, performs actual executive, administrative, or professional capacity duties.” He notes that even though the plain meaning of Section 213(a)(1) does not provide for a salary requirement, the DOL has used a permissible minimum salary level as a test for identifying categories of employees Congress intended to exempt. Citing to a report on the proposed regulations, Judge Mazzant seems to approve of setting that salary level at “somewhere near the lower end of the range of prevailing salaries for these employees.”

No Automatic Increase Mechanism

The ruling also strikes down the mechanism in the DOL’s overtime rule that provided for automatic updates to the exemption’s salary levels every three years. In a cursory paragraph, Judge Mazzant wrote that having found the rule unlawful, the automatic updating mechanism was similarly unlawful.

Back To Square One

Now that the existing, never-implemented rule has been invalidated, the DOL is starting over with revising and updating the overtime exemption rule. The DOL recently published a request for information seeking public input on what the new salary levels should be, how updates should be made, whether duties tests should be changed, and other issues affecting the white-collar exemptions. We will have to see what new proposals the DOL puts out in the months to come. But in the meantime, employers can abandon plans to address the doubled salary thresholds under the Final Rule.

On Another Note, No Pay Data To Be Collected With EEO-1 Reports

In another development, on August 29, 2017, the Office of Management and Budget (OMB) directed the Equal Employment Opportunity Commission (EEOC) to immediately stay the requirement that certain employers provide pay data as part of a new EEO-1 report. The controversial pay-data rule would have required companies with 100 or more employees (and federal contractors with 50 or more employees), to submit the wage and hour information for employees according to race, gender, and ethnicity, with the information being used by the EEOC to analyze pay discrepancies and identify possible Equal Pay Act violations. Because of the stay, covered employers should use the previous EEO-1 form, which still collects data on employee race, ethnicity, and gender by occupational categories. Despite the reprieve for employers on the pay-data rule, EEOC Acting Chair Victoria Lipnic states that her agency remains committed to strongly enforcing federal equal pay laws.

If you have any questions about these new developments, be sure to reach out to the employment counsel with whom you typically work.

August 14, 2017

Only Certain Types of Speech Are Protected In The Workplace

By Steve Gutierrez

This past week, talk abounds over Google’s firing of a software engineer after he posted a lengthy memo criticizing the company’s diversity policy and culture on the company’s internal website. Google says he crossed a line and violated its Code of Conduct. The engineer says he engaged in protected speech and filed an unfair labor practice charge against Google with the National Labor Relations Board (NLRB). The case will be interesting to follow, especially to the extent that it resolves the dispute between Google’s conduct policy and this employee’s criticisms of his former employer.

No Free Speech Guarantee

Some discussions about the Google memo have centered around the belief that employees should have free speech protections to say whatever they like, even about their employer. U.S. workers employed by private entities, however, do not have so-called free speech rights. The First Amendment to the U.S. Constitution prohibits Congress from making any laws that abridge the freedom of speech. But it applies only to government actions and does not prohibit private employers from limiting or taking employment actions based on what an employee says or does.

NLRA Concerted Activities Are Protected

The National Labor Relations Act (NLRA) guarantees employees the right to form and join unions. But it also gives employees the right to engage in other “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” These rights under Section 7 of the NLRA extend to protecting non-union employees who discuss and/or act together to try to improve the terms and conditions of their employment, such as their pay, benefits, policies, and workplace safety issues. Employers may not threaten, discipline, or fire employees who engage in such protected activities.

When it comes to employee memos and social media posts, content generally will be protected if it relates to or grows out of group action, such as when an individual employee solicits other employees to take action to fix work-related problems or seek improvements in the workplace. But mere griping by an individual employee will not be protected as a protected concerted activity. Additionally, even communications that would be deemed concerted activities can lose NLRA protection if they express egregiously offensive, abusive, or knowingly and malicious false statements.

When Company Policies Clash With Concerted Activities

When a company policy prohibits employees from engaging in certain conduct, such as prohibiting disparagement of the company or its managers, or restricting discussion among co-workers of confidential information, the NLRB may consider whether it restricts or “chills” employees’ Section 7 rights to engage in protected concerted activities. If the NLRB finds that a policy is overly broad and potentially restricts concerted activities, the company can be found to have violated the NLRA.

Before Discipline and Discharge

Anytime your organization seeks to discipline or terminate an employee for writing emails, posting on social media, or otherwise communicating about the company, consider the following:

  • Does the communication discuss with or seek to engage co-workers in relation to the terms and conditions of their employment?
  • Could the communication be seen as an effort to form a union or another form of group action related to the workplace?
  • Is the employee reaching out to a third party, such as the media or union organizers, on behalf of multiple employees?
  • If the basis for the discipline or discharge is a company policy, is the policy narrowly defined or is it too broad so that it interferes with employees’ Section 7 rights?

Employers have a great deal of authority to discipline or get rid of at-will employees based on inappropriate or undesired communications or actions. Just make sure to evaluate whether employees are engaging in protected concerted activities prior to imposing a detrimental employment decision so as not to violate the NLRA.

August 10, 2017

New Nevada Employment Laws – Part 2: Non-competes and Domestic Violence Leave

by Dora Lane

In addition to the pregnancy accommodation law and nursing mothers law we reported on here, the Nevada legislature recently enacted changes to Nevada’s non-compete law and created a new obligation for employers to provide domestic violence leave. Here are the specifics of these new laws that Nevada employers need to know.

Non-Compete Agreements – Changes To Enforceability (AB 276) – effective June 3, 2017

Governor Sandoval recently signed into law AB 276 which enacts some important changes to existing Nevada non-compete law, requiring careful review.

To begin, AB 276 amends NRS Chapter 613 to require that a non-compete covenant: (a) be supported by valuable consideration; (b) not impose any restraint that is greater than necessary for the protection of the employer for whose benefit the restraint is imposed; (c) not impose any undue hardship on the employee; and (d) impose restrictions that are appropriate in relation to the valuable consideration supporting the non-compete covenant.

Many questions are raised by the new requirement that the restrictions be in relation to the consideration offered to the employee to support the non-compete agreement. One key question is whether continued employment of an at-will employee will be sufficient consideration to support a non-compete. We will have to see how that language plays out in future enforcement actions.

Restructuring or Reductions In Force. The new amendments state that, if an employee’s termination is the result of a reduction in force, reorganization, or “similar restructuring,” a non-compete covenant is only enforceable during the period in which the employer is paying the employee’s “salary, benefits or equivalent compensation,” such as severance pay. This restriction may vastly reduce the ability of Nevada employers to use non-compete agreements when executives, managers, or other employees are let go due to downsizing or other restructuring.

Restrictions Related to Customers. These new amendments further provide that a non-compete covenant may not restrict a former employee from providing service to a former client or customer of the employer if: (a) the former employee did not solicit the former client or customer; (b) the client or customer voluntarily chose to leave and seek services from the former employee; and (c) the former employee is otherwise complying with the limitations in the covenant as to time, geographical area, and scope of activity to be restricted, other than any limitation on providing services to a former customer or client who seeks the services of the former employee without any contact instigated by the former employee.

Confidentiality and Non-Disclosure Agreements. AB 276 additionally states that it does not prohibit agreements to protect an employer’s confidential and trade secret information if the agreement is supported by valuable consideration and is otherwise reasonable in scope and duration.

Judicial Revision Required. Notably, the new provisions state that if, during a non-compete enforcement action, a court determines that the non-compete covenant is supported by valuable consideration, but otherwise contains limitations that are unreasonable, or impose greater restraint than necessary and create undue hardship on the employee, the court “shall revise the covenant to the extent necessary and enforce the covenant as revised.” Any judicial revisions must be made to cause the limitations contained in the non-compete agreement as to time, geographical area and scope of activity to be restrained to be reasonable and to impose a restraint that is not greater than is necessary for the protection of the employer for whose benefit the restraint is imposed.

Domestic Violence Leave (SB 361) – effective January 1, 2018

Beginning in 2018, Nevada employers must provide an employee who has been employed for least 90 days and who is a victim of domestic violence, or whose family or household member is a victim of domestic violence, up to 160 hours of leave in one 12-month period, assuming the employee is not the alleged perpetrator. A “family or household member” means a spouse, domestic partner, minor child, or parent or another adult who is related within the first degree of consanguinity or affinity to the employee, or other adult person who is or was actually residing with the employee at the time the act of domestic violence was committed.

The leave allowed under this new law may be paid or unpaid, and may be used intermittently or in a single block of time. The leave must be used within 12 months after the date when the act of domestic violence occurred. If used for FMLA-qualifying purposes, the domestic violence leave will run concurrently with FMLA leave and both leave balances will be reduced accordingly.

Reasons For Leave. Eligible employees may take domestic violence leave for the following reasons:

  1. For the diagnosis, care, or treatment of a health condition related to an act of domestic violence committed against the employee or the employee’s family or household member;
  2. To obtain counseling or assistance related to an act of domestic violence committed against the employee or the employee’s family or household member;
  3. To participate in court proceedings related to an act of domestic violence committed against the employee or the employee’s family or household member; or
  4. To establish a safety plan, including any action to increase the safety of the employee or the employee’s family or household member from a future act of domestic violence.

Notice Requirements. This new leave law requires an employee who has used any leave allowed under the bill to give his or her employer at least 48 hours notice if the employee needs to use additional leave for any of the purposes outlined above.

Reasonable Accommodations. Employers are obligated to make reasonable accommodations that will not create undue hardship for an employee who is a victim of domestic violence (or whose family or household member is such a victim). These accommodations may include: (a) a transfer or reassignment; (b) a modified schedule; (c) a new telephone number for work; or (d) any other reasonable accommodation which will not create an undue hardship deemed necessary to ensure the safety of the employee, the workplace, the employer, and other employees.

Documentation. Employers may require employees to present documentation substantiating the need for leave, such as a police report, a copy of an application for a protective order, an affidavit from an organization that provides assistance to victims of domestic violence, or documentation from a physician. Any substantiating documentation provided to the employer must be treated confidentially and must be retained in a manner consistent with the FMLA requirements. In addition, employers may require an employee to provide documentation that confirms or supports the need for a reasonable accommodation under this new law.

Recordkeeping. Employers are required to keep a record of the hours taken for domestic violence leave for a 2-year period following the entry of the information in the record and make these records available to inspection by the Nevada Labor Commissioner upon request. When producing records pursuant to an inspection request, employee names must be redacted, unless a request for a record is made for investigation purposes.

Notice. Pursuant to SB 361, the Nevada Labor Commissioner has provided a bulletin setting forth the rights conferred to employees under the domestic violence leave law, available on its website. Employers must post the bulletin in a conspicuous location in the employer’s workplace. The bulletin may be included in the posting already required by NRS 608.013.

Additional Protections. The domestic violence leave law states that an otherwise eligible employee may not be denied unemployment benefits if the employee left employment to protect himself or herself (or a family or household member) from an act of domestic violence, and the person actively engaged in an effort to preserve employment.

The new law also prohibits employers from denying an employee’s right to use domestic violence leave, requiring an employee to find a replacement as a condition to using this leave, or retaliating against an employee for using such leave. It is also unlawful for employers to discharge, discipline, discriminate in any manner or deny employment or promotion to, or threaten to take any such action against an employee because:

  1. The employee sought leave under SB 361;
  2. The employee participated as a witness or interested party in court proceedings related to domestic violence, which triggered the use of leave under SB 361;
  3. The employee requested an accommodation pursuant to SB 361; or
  4. The employee was subjected to an act of domestic violence at the workplace.

Update Your Policies and Practices

Take time now to review and update your employee handbook, supervisor manuals, and other personnel policies to reflect these new Nevada laws. If you use non-compete agreements, be sure to review future agreements for compliance with the amended statute. Also, be sure to train your managers, supervisors, team leads, and human resources personnel on the requirements and restrictions imposed on employers by these laws. As always, if you have questions or need assistance, contact your Nevada employment attorney.