Category Archives: Current Affairs

May 6, 2015

Colorado Legislators Fail to Pass New Employment Laws in 2015

The 2015 Colorado legislative session is ready to adjourn and few substantive bills related to labor and employment were passed by both chambers this session. Numerous bills on topics such as minimum wage, overtime and discrimination were introduced but with Republicans controlling the Colorado Senate and Democrats controlling the House of Representatives, it’s no surprise that little was enacted. Here's a look at employment-related bills that were considered this session.

Raise Colorado’s Minimum Wage – Concurrent resolutions in both the House and Senate sought to put Colorado’s minimum wage on the November 2016 ballot to allow voters to decide whether to amend the Colorado Constitution to increase the minimum wage to $9.50 an hour on January 1, 2017 with annual increases of $1.00 per hour until 2020, which would see a $12.50 minimum wage. In years thereafter, the minimum wage would be increased annually for inflation (which is the current adjustment provided in Colorado’s Constitution). Both bills failed. (HCR15-1001 and SCR15-003)

Overtime Fairness Act – This bill would have set a minimum salary requirement for administrative, executive, supervisor and professional exemptions at 120 times the state minimum hourly wage rate. At the current $8.23 minimum wage, the salary threshold would be $987.60 per week. This bill failed to pass. (HB15-1331)

Repeal of the Job Protection and Civil Rights Enforcement Act of 2013 – The 2013 law that established compensatory and punitive damage remedies for unfair employment practices under Colorado law was under attack in two bills. The Senate passed a bill that would have repealed all components of the 2013 law except for the expansion of age-based discrimination to individuals age 70 or older. (SB15-069) The House killed that bill. A separate bill introduced in the House sought to eliminate the punitive damage provision of the 2013 law. (HB15-1172) That bill never got out of the House.

Expand and Extend Parental Involvement in K-12 Education Act – The current Colorado law that entitles parents to take time off of work to attend their child’s academic activities is set to expire on September 1, 2015. This bill sought to extend the law indefinitely and to expand the types of academic activities for which parents could take this leave. The bill passed in the House but never got out of the Senate committee to which it was assigned. (HB15-1221)

Limit on Audits Performed by the Department of Labor and Employment – This bill sought to amend Colorado’s employment verification law by limiting audits by the Department of Labor and Employment (CDLE). Under this provision, the CDLE would be permitted to investigate only an employer’s compliance with the employment verification and examination requirements. This bill never got out of the House committee to which it was assigned. (HB15-1176)

Right of Private-Sector Employees to Inspect Their Personnel Files – This proposal would have created a right for employees and former employees to inspect or request copies of their personnel file within 30 days of a written request. This bill failed to pass the House. (HB15-1342)

Independent Contractor Determinations – Two bills sought to change the determination of independent contractor status under Colorado’s unemployment insurance law. The first sought to eliminate the requirement that the individual’s freedom from control and direction of the company must be shown “to the satisfaction of the division.” (SB15-107) This bill never got out of committee. The second bill before the Senate sought to create a bright-line test for whether an individual is an employee or an independent contractor. That bill proposed to establish a numerical standard so that an independent contractor relationship would be recognized if at least six of eleven factors listed in the proposed provision were found to exist. This bill, SB15-269, was introduced rather late in the session and at the time of writing (and with just one week before the session adjourns), was still in committee.

Additional bills were introduced that would have affected some Colorado employers, including a bill to require that youth sports organizations conduct criminal history checks on persons who work with children and a bill that would create an income tax credit for employers who assist employees in repaying their student loans for degrees in certain fields, such as science, technology and math. These bill also failed to make it to the Governor’s desk.

Wrap-Up: A Quiet Session for Colorado Employers

Colorado's legislative session adjourns for the year today, May 6th, and it concludes without Colorado employers having to learn new employment-related laws. Accordingly, on the state level, most of our labor laws are remaining status quo for another year. However, with so many recent changes related to federal employment laws, most Colorado employers will consider the lack of any new state employee protections good news.

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April 29, 2015

EEOC Conciliation Efforts Are Reviewable, Says Supreme Court

By Dustin Berger

Employers have a narrow right to seek judicial review of the Equal Employment Opportunity Commission’s (EEOC’s) statutory obligation to give an employer adequate notice of the charges against them, including the identity of the employees (or class of employees) claiming discrimination, and to engage in informal resolution of the charges. In a unanimous decision, the U.S. Supreme Court ruled that courts have the authority to review whether the EEOC has met its duty under Title VII to attempt informal resolution of alleged discriminatory practices prior to filing suit. Mach Mining, LLC v. EEOC, 575 U.S. ___ (2015).

While the scope of review is limited, it is good news for employers as it limits the EEOC’s ability to take high priority cases to court without first engaging in any discussion with the employer to remedy the alleged unlawful practices. Unfortunately, however, under the Supreme Court’s decision, the courts’ review of the EEOC’s conciliation efforts will be too limited to ensure that the EEOC makes a genuine and meaningful attempt to reach a voluntary resolution of a charge before the EEOC sues.

Title VII Mandates Informal Methods of Conciliation

Title VII, the primary federal law that prohibits employers from discriminating against individuals on the basis of race, color, sex, religion, or national origin, sets forth a procedure to be followed by the EEOC when handling a complaint of employment discrimination. In part, the law requires that when the EEOC finds reasonable cause to believe discrimination occurred, it must first attempt to eliminate the alleged unlawful practice through “informal methods of conference, conciliation, and persuasion.” The EEOC may choose which informal method it chooses to attempt resolution of the charge, and the agency ultimately retains the right to accept any proposed settlement or to sue the employer.

Letter From EEOC Without Follow-Up Was Insufficient Conciliation Effort

In the case before the Court, a female applicant filed a charge alleging that Mach Mining, LLC had refused to hire her as a coal miner because of her sex. The EEOC investigated her charge and found reasonable cause to believe that Mach Mining had discriminated against not only that applicant, but also a class of women who had similarly applied for mining jobs.

The EEOC sent Mach Mining a letter inviting both the company and the female applicant to participate in informal conciliation and stated that an EEOC representative would contact them soon. That never happened. Instead, about a year later, the EEOC sent Mach Mining a second letter stating that “such conciliation efforts as are required by law have occurred and have been unsuccessful” and further stated that any further efforts would be “futile.” The EEOC proceeded to sue Mach Mining in federal court alleging sex discrimination in hiring.

Mach Mining asserted that the EEOC had failed to conciliate in good faith prior to filing suit, as was required by Title VII. Although the federal district court agreed with Mach Mining that it should review whether the EEOC had met its conciliation duty, the Seventh Circuit Court of Appeals overruled that decision and held that a party could not assert as a defense that the EEOC had failed to conciliate the claim as Title VII required. The Seventh Circuit explained that conciliation was solely within the EEOC’s expert judgment and that there was no workable standard that would allow judges to review that process. Furthermore, the Seventh Circuit believed that court review of conciliation would complicate Title VII lawsuits by allowing the focus of the litigation to drift from the merits of the Title VII claim to the sufficiency of the EEOC’s conciliation effort.

Although other federal appellate courts, however, have held that Title VII does allow a court to review the EEOC’s conciliation effort, there was no uniformity among the other appellate courts in what that review should entail. The Supreme Court agreed to take the Mach Mining case to resolve whether and to what extent courts may review the EEOC’s conciliation attempts.

Notice to Employer and Discussion Required

Justice Kagan, writing for a unanimous Court, first explained that courts routinely enforce compulsory prerequisites to suit in Title VII cases. Although Congress had given the EEOC wide latitude over the conciliation process, the Court refused to allow the EEOC to police itself on whether it had complied with its conciliation duty. Accordingly, it overruled the Seventh Circuit’s decision and held that courts have the authority to review whether the EEOC has fulfilled its Title VII duty to attempt conciliation of discrimination charges.

The Court then turned to the proper standard of judicial review. In other words, it considered what the EEOC must show in order to meet its conciliation duty as a precondition to filing suit. The agency argued for minimal review, suggesting that its letters to Mach Mining were a sufficient attempt at conciliation. Mach Mining argued for a much deeper review, urging that the Court adopt a standard from the National Labor Relations Act that would require a negotiation in good faith over discrimination claims. The Court rejected both approaches and took a middle line.

The Court explained that judicial review was available but was limited to ensuring that the EEOC provided the employer with notice and an opportunity to discuss the matter tailored to achieving voluntary compliance. The Court stated that the EEOC must inform the employer not only about the specific allegations of discrimination, but also about which employees (or what class of employees) have suffered as a result. Ordinarily, the Court noted, the EEOC’s “reasonable cause” letter will provide this notice. Then, the EEOC must attempt to engage in some form of discussion with the employer to give the employer a chance to remedy the allegedly discriminatory practices prior to being sued. That discussion may be in written or oral form and the EEOC will retain a great deal of discretion about how to conduct its conciliation efforts and when to end them.

Evidence of the conciliation efforts may be supported or challenged through written affidavits. Ordinarily, the EEOC’s affidavit will show it has met its conciliation duty, but employers may create a factual issue through affidavits or other credible evidence that indicates that the EEOC did not provide the requisite information about the charge or attempt to engage the employer in discussion prior to filing suit. If a reviewing court finds in the employer’s favor on such a challenge, the appropriate remedy is for the court to order the EEOC to engage in conciliation.

Confidentiality of Conciliation

In reaching its decision, the Court focused in part on Title VII’s non-disclosure provision. This provision states that “[n]othing said or done during and as a part of such informal endeavors may be made public by the [EEOC], its officers or employees, or used as evidence in a subsequent proceeding without the written consent of the persons concerned.” Mach Mining argued that this confidentiality provision meant only that the actions taken and statements made taken during conciliation could not be used as evidence of the merits of the claim. The Court rejected that argument and reiterated that the non-disclosure provision protects actions and statements made during conciliation from disclosure for any evidentiary purpose. And, the Court explained, the non-disclosure provision alone precluded the courts from engaging in any deeper inquiry into the EEOC’s actions during conciliation.

What This Means For You

As the EEOC has been aggressively pursuing employers on novel theories of discrimination, it is beneficial to have the ability to ask a court to review whether the EEOC provided proper notice of the allegedly discriminatory practice and the employees allegedly affected by it and offered the employer an effort to discuss the matter for the purpose of achieving voluntary compliance. Although this review is narrow, it is an improvement over the Seventh Circuit’s view because it gives employers a limited opportunity to hold the EEOC accountable for satisfying its statutory obligation to conciliate claims. If your organization receives a “reasonable cause” finding, be sure to track what efforts the EEOC makes to engage you in discussions to pursue voluntary compliance. If those efforts do not meet the standard announced by the Court, you can seek to compel the EEOC to make an effort compliant with its statutory obligations before it proceeds with its suit.

What the Mach Mining decision will not do, however, is allow an employer to seek the aid of a court in requiring the EEOC to make a genuine effort to achieve a voluntary resolution of a charge. For instance, the Mach Mining decision does not require the EEOC to negotiate in good faith, apprise an employer of “the smallest remedial award the EEOC would accept,” lay out the legal and factual basis for its position or any request for a remedial award, refrain from “take-it-or-leave-it” offers, or provide any particular amount of time for an employer to consider and respond to the EEOC’s position or offers. Accordingly, you are well advised to set expectations of the conciliation process at a low threshold and, to the extent you believe voluntary resolution is desirable, take the initiative in working with the EEOC after receiving a reasonable cause determination letter.

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March 9, 2015

DOL May Issue Interpretations of FLSA Exemptions Without Notice-and-Comment Process

By Mark Wiletsky

Today the Supreme Court sided with the U.S. Department of Labor (DOL), holding that a federal agency’s interpretive rules are exempt from notice-and-comment rulemaking procedures. Perez v. Mortgage Bankers Ass’n, 575 U.S. ___ (2015). The Court’s decision means that the DOL (and other federal agencies) may issue initial and amended interpretive rules without advance notice and without considering input from interested parties.

DOL “Flip-Flopped” on Interpretive FLSA Rule

In this case, the Mortgage Bankers Association (MBA) challenged the DOL’s most recent interpretation on whether loan officers fell within the Fair Labor Standards Act (FLSA) administrative exemption following a series of “flip-flops” in the DOL’s interpretation. In 1999 and 2001, the DOL issued opinion letters stating that mortgage-loan officers do not qualify for the administrative exemption to overtime pay requirements. After new regulations regarding the exemption were issued in 2004, the MBA requested a new interpretation under the revised regulations. In 2006, the DOL issued an opinion letter in which it changed its position, deciding that mortgage-loan officers do qualify for the administrative exemption. In 2010, however, the DOL changed its interpretation again when it withdrew the 2006 opinion letter and issued an Administrator’s Interpretation without notice or comment stating that loan officers once again do not fall within the administrative exemption.

The MBA sued the DOL, claiming that the DOL needed to use the notice-and-comment process established by the Administrative Procedure Act (APA) when it planned to issue a new interpretation of a regulation that differs significantly from its prior interpretation.

Distinction Between Legislative Rules and Interpretive Rules

In a unanimous decision, the U.S. Supreme Court ruled that the text of the APA specifically excludes interpretive rules from the notice-and-comment process, so the DOL was free to change its interpretation on loan officers qualifying for the administrative exemption without providing advance notice or seeking public comment first. The Court pointed to the difference between “legislative rules” that have the force and effect of law, which must go through the notice-and-comment period, and “interpretive rules” that do not have the force and effect of law and, therefore, are not subject to the notice-and-comment obligation.

Finding that the clear text of the APA exempted interpretive rules from the notice-and-comment process, the Court overruled prior precedent in a line of cases that has come to be known as the Paralyzed Veterans doctrine. Under that doctrine, if an agency had given its regulation a definitive interpretation, the agency needed to use the APA’s notice-and-comment process before issuing a significantly revised interpretation. The Court’s ruling today specifies that no notice or comment process is needed for interpretive rules, whether it is an initial interpretation or a subsequently revised one.

Implications of Court’s Decision

Today’s ruling means that the DOL’s interpretation excluding mortgage-loan officers from the administrative exemption stands. More broadly, it means that federal agencies, such as the DOL, are permitted to issue and amend interpretations of their regulations that will take effect immediately without any advance notice to the regulated parties. Accordingly, employers should stay on top of new developments so as not to miss any new regulatory interpretations that may impact their employment practices.

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December 23, 2014

National Labor Relations Board continues down a controversial path!

By Steven M. Gutierrez

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

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

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

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

September 2, 2014

Benefit Plans: Upcoming Compliance Deadlines and End of Year Planning

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

Now that fall is in the air and school has started, we thought this would be a good time to summarize some of the key health and welfare benefit deadlines that are approaching this fall:

September 22

Updated Business Associate Agreements. New HIPAA privacy and security rules adopted last year require revisions to most HIPAA business associate agreements by September 22, 2014. Employer-sponsored health plans that are subject to HIPAA (generally including self-insured health plans and all health flexible spending arrangements (FSAs)) are required to have agreements with business associates, service providers dealing with participant health information on behalf of the plan, that require business associates to comply with the HIPAA privacy and security rules. Your business associates may have already contacted you about revising your agreements. However, employers are ultimately responsible to identify all business associates and ensure that compliant business associate agreements are in place before the deadline.

September 30

Summary Annual Report for Calendar Year Plans. Plans (including retirement plans and welfare plans) that filed the 2013 Form 5500 by July 31, 2014 must provide the Summary Annual Report for the 2013 calendar year to plan participants no later than September 30, 2014. Plans that file the 2013 Form 5500 extension to file by October 15, 2014 must provide the Summary Annual Report by December 15, 2014.

October 14

Medicare Part D Notice of Creditable Coverage. Employers who offer prescription drug coverage to employees and retirees should provide a notice to plan participants and beneficiaries who are eligible for Medicare Part D (or to all participants) by October 14, 2014 stating whether the employer prescription drug coverage is creditable coverage.

November 5

Deadline to Obtain Health Plan Identifier. All self-insured larger group health plans (those with annual costs of $5 million or more) must obtain a unique group health plan identification number (HPID) from CMS by November 5, 2014. The HPID will be used in electronic communications involving plan-related health information. For this reason, third party administrators of self-insured plans will either obtain the HPID or will coordinate with the plan sponsor in obtaining the HPID. Employers should confirm with their TPA that the plan will have an HPID by the deadline. Please note that employers should obtain an HPID for each group health plan they maintain. Accordingly, employers who have established a single wrap-around group health plan that incorporates all of the group health plans of the employer may only need to obtain a single HPID. However, employers who maintain separate HRA, FSA, and/or medical/dental/vision plans may be required to obtain one HPID for each such group health plan. Smaller group health plans have until November 5, 2015 to obtain an HPID. Please go to this website for more information.

November 15

Transitional Reinsurance Fee Enrollment Information Due. Self-insured health plans must submit their enrollment information to HHS by November 15, 2014 for purposes of calculating the 2014 Transitional Reinsurance fee for 2014. Self-insured health plans that are self-administered are exempt from the Transitional Reinsurance Fee in 2015 and 2016, but must pay the fee for 2014. Based on the enrollment information provided to HHS in 2014, self-insured plans will pay the fee beginning in January 2015.

General Fall Planning (no specific deadline)

ACA Shared Responsibility Planning. The Affordable Care Act employer shared responsibility penalties will begin to be imposed on employers with 100 or more full-time or full-time equivalent employees beginning January 1, 2015. Employers should start now to establish a policy for purposes of determining whether the employer will be subject to the ACA employer shared responsibility penalties and whether the employer is covering those full-time employees that must be offered coverage in order to avoid the shared responsibility penalty.

Summary of Benefits and Coverage, Women’s Health and Cancer Rights Act Notice, Medicaid/CHIP Premium Assistance Notice, HIPPA Notice of Privacy Practices, and Exchange Notice. Employers should confirm that these notices are included with the enrollment materials provided to participants during open enrollment and to participants at the time of any mid-year enrollment due to becoming newly eligible for the plan. If these notices are not included with enrollment materials prepared by your provider, consider supplementing the enrollment materials with these notices. Employers should also confirm that their COBRA notices have been updated to reflect recent changes to the model COBRA notice to reflect the establishment of the Health Marketplace Exchanges.

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June 27, 2014

U.S. Supreme Court Eliminates Fiduciary Protection for Employer Stock Investment

By Brenda Berg

On June 25, 2014, the U.S. Supreme Court issued its unanimous opinion that retirement plan fiduciaries are not entitled to a presumption of prudence with respect to the plan's investment in employer stock. Fifth Third Bancorp v. Dudenhoeffer, U.S., No. 12-751, 6/25/14. Instead, the fiduciaries are subject to the same duty of prudence that applies to all investment decisions made by ERISA fiduciaries. The rejection of the presumption of prudence might result in an increase in litigation involving employer stock. However, the Court also ruled that the ERISA duty of prudence does not require violating securities laws by disclosing insider information or otherwise taking action that could be in violation of securities laws, and the Court articulated a high pleadings standard for overcoming a motion to dismiss on that point.

Presumption of Prudence

Retirement plan fiduciaries have a duty to act prudently: with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity would act. Many federal circuit courts had adopted a rule that if the governing plan document requires an employer stock investment option, especially where such portion of the plan is designated as an ESOP, then there is a presumption that the fiduciary duty of prudence is met. This presumption is often referred to as the Moench presumption, after the case that first articulated it.

Fiduciaries also have a duty to follow the terms of the plan documents, unless doing so would be contrary to ERISA. The Moench presumption of prudence was an attempt to balance the duty or prudence with the duty to follow plan documents, considering Congress's intent to encourage employee ownership through ESOPs. Under the presumption, fiduciaries have a duty to follow plan documents that require an employer stock investment option, unless the employer is in such "dire" circumstances, such as an employer's bankruptcy, that would likely make the employer go out of business.

In the Dudenhoeffer case, the plaintiffs, who were participants in the plan, alleged that the fiduciaries had violated the duty of prudence by permitting participants to invest in employer stock, and that in July 2007, the fiduciaries knew or should have known that the stock was overvalued. From July 2007 to September 2009, when the complaint was filed, the Fifth Third stock price fell 74%. Although the District Court had dismissed the case based on the presumption of prudence, the Sixth Circuit Court of Appeals reversed and held that the presumption of prudence did not apply at the pleading stage, but only at the evidentiary stage. The U.S. Supreme Court rejected that as well, since the Court held the presumption of prudence does not apply at all. The Court found the presumption was not supported by the statutory language, which provides an ESOP exception from ERISA's duty to diversify but not from the duty of prudence – and Congress's intent to encourage ESOP investments does not override that. In addition, even where the plan document requires an employer stock investment, the regular duty of prudence applies rather than a requirement that only "dire" circumstances can override the plan language.

Conflict with Insider Trading Laws

The Court acknowledged that potential for conflict with the insider trading laws is a legitimate concern. In publicly traded companies, plan fiduciaries are often corporate insiders as well. However, the Court held that a presumption of prudence "is an ill-fitting means" of addressing the concern. The Court also recognized that lack of a presumption may put the fiduciary between a rock and a hard place, in that the fiduciary could be sued for failing to divest the stock, or could be sued for failing to allow the stock as an investment option where the plan documents require it. Again, though, the Court held that the presumption of prudence is not the proper way to address this concern; rather, a motion to dismiss for failure to state a claim is the proper mechanism.

Ultimately, the Court vacated the judgment of the Court of Appeals and remanded the case to consider whether the pleadings were sufficient to overcome a motion to dismiss. The Court referred to its previous guidance of considerations on the insider trading issue. As a general rule, where a stock is publicly traded, it would not be sufficient to claim that the fiduciary should have recognized the stock was overvalued based on publicly available information unless the plaintiffs could point to special circumstances affecting the reliability of the market price. With respect to nonpublic information available to the fiduciaries as company insiders, the Court said the plaintiffs must allege an alternative action that the fiduciaries could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund (for example, by driving the price down in a sell-off) than to help it.

Note that the case involved publicly traded employer stock, and does not provide much guidance for fiduciaries of ESOPs with non-publicly traded stock.

Next Steps for Plan Fiduciaries

In light of the Court's Dudenhoeffer decision, fiduciaries of retirement plans that allow investments in employer stock should reevaluate whether employer stock is a prudent plan investment. Fiduciaries can no longer rely on the Moench presumption that the investment would be prudent as long as the documents required the employer stock and the employer was not experiencing "dire" or other extreme circumstances. Instead, fiduciaries must evaluate all of the circumstances of the employer, within the confines of securities laws, and determine on that basis whether employer stock is a prudent investment under the plan. In other words, fiduciaries must treat an employer stock investment just like every other investment offered under the plan. If the fiduciaries determine that employer stock should no longer be offered under the plan, the removal of the stock should be undertaken carefully in order to best protect fiduciaries from participant claims for the removal of the stock.

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June 26, 2014

Recess Appointments to NLRB Invalid, Rules U.S. Supreme Court in Noel Canning Opinion

By Brian Mumaugh

In a unanimous decision, the U.S. Supreme Court ruled today that President Obama lacked the authority to make three recess appointments to the National Labor Relations Board (NLRB) while the Senate was in pro forma session in early January 2012. While affirming the decision of the D.C. Circuit that the appointments fell outside the scope of the Recess Appointments Clause, the Supreme Court came to that conclusion on different grounds. NLRB v. Noel Canning, No. 12-1281 (June 26, 2014). The decision effectively invalidates the rulings made by the three NLRB members who were improperly appointed via recess appointment.

Recess Appointments Clause

The Recess Appointments Clause gives the President the power “to fill up all Vacancies that may happen during the Recess of the Senate.” This power essentially allows the President to fill vacant federal positions without obtaining Senate confirmation of the appointments and is intended to ensure the continued functioning of the government at those times when the Senate is not in session.

At issue in the Noel Canning case was whether President Obama’s appointment of three members of the NLRB while the Senate was on a three-day intra-session break in which the Senate was in pro forma session fell within his authority under the Recess Appointments Clause. The Supreme Court said no.

Vacancies May Be Filled During Intra-Session and Inter-Session Recesses

Unlike the D.C. Circuit, the Supreme Court ruled that the Recess Appointments Clause applies during intra-session recesses (breaks in the midst of a formal Senate session) as well as during inter-session recesses (breaks between formal sessions of the Senate). The Court stated that the Senate is equally away and unavailable to conduct business during both types of breaks. The Court also looked carefully at the history of recess appointments and found that Presidents have made intra-session recess appointments going all the way back to President Andrew Johnson in 1867. During that time, the Senate has never taken any formal action to deny the validity of intra-session recess appointments. Accordingly, the Court gave great weight to the long-standing practice of allowing recess appointments during both intra- and inter-session recesses.

Recess Must Be Of Sufficient Length

Although the Recess Appointments Clause does not establish how long a recess must be in order to trigger the President’s recess appointment power, the Court held that the Senate’s recess must be of sufficient duration as to be a significant interruption of legislative business. Noting that the government’s attorney conceded that a three-day recess would be too short and that throughout history, no recess appointments had been made during an intra-session recess of less than ten days, the Court wrote that a recess of more than three days but less than ten days is presumptively too short to fall within the Clause.

Vacancies Filled As Recess Appointments Need Not Arise During the Recess

The Court interpreted the Recess Appointments Clause to allow the President to fill vacancies that existed prior to the start of the Senate’s recess. The D.C. Circuit had interpreted the Clause differently, applying only to vacancies that first come into existence during a recess. The Supreme Court chose a broader interpretation to ensure that offices that need to be filled can be filled, even if the vacancy arose before the Senate went into recess. Again, the Court looked at historical practices and found that nearly every President since James Buchanan (term: 1857-1861) has made recess appointments to pre-existing vacancies. Unwilling to counter this long-accepted practice, the Court ruled that any vacancy, whether pre-existing or one that arises during the recess, may be filled under the Recess Appointments Clause.

Applying the Clause to the 2012 NLRB Recess Appointments

The Court ruled that the President lacked the authority to appoint the three members of the NLRB in early 2012 because the Senate was still in session during that time. Although the Senate was meeting just every three days in pro forma sessions, it retained the power to conduct business. Consequently, because the Senate was in session and the three-days between its pro forma sessions was too short of a break to bring it within the scope of the Recess Appointments Clause, the President lacked the authority to make the three NLRB member appointments in January of 2012.

Big Picture – Effect of Noel Canning

There are two primary effects that will come out of today’s Noel Canning decision. First, the NLRB rulings that were made by the improperly appointed members will need to be revisited. Numerous challenges have already been made in some of the affected cases and the current NLRB, which now has five Senate-confirmed members, may need to revisit those rulings.

Second, the future of Presidential recess appointments will hinge on the length of a Senate recess. Political analysts are already stating that both the House and Senate have mechanisms to force the Senate out of a recess into a pro forma session so if those mechanisms are exercised, Congress could limit or block a President’s ability to make recess appointments. We will likely learn a great deal about the scheduling powers of Congress in the days to come.

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June 16, 2014

Sexual Orientation Discrimination By Federal Contractors To Be Prohibited, According to News Reports

By Brad Cave

Major news sources are reporting that President Barack Obama plans to issue an executive order prohibiting federal contractors from discriminating against employees based on sexual orientation and gender identity. The specific details of the executive order have not been finalized and the signing date is not yet known. The planned order was revealed by administration officials on Monday, June 16, 2014, just before the President attends a lesbian, gay, bisexual and transgender (LGBT) event sponsored by the Democratic National Committee in New York City on Tuesday.

For twenty years, various federal lawmakers have introduced and tried to pass ENDA, the Employment Non-Discrimination Act, which would prohibit employment discrimination on the basis of sexual orientation by all employers with 15 or more employees. The most recent ENDA bill passed in the Senate but is dead in the House, as House Speaker John Boehner reportedly has said he will not allow the bill to come to a vote. Like it has done with its minimum wage and other pay initiatives that stalled in Congress, the White House is furthering its goals for U.S. workers outside the legislative process by issuing an executive order. Although the executive order applies only to federal contractors, many of whom already have policies prohibiting discrimination based on sexual orientation, the prohibition for contractors on this basis is seen as a step toward protection for LGBT workers in all work contexts.

Hearing word of the impending executive order, lawmakers and various groups appear to be urging the administration to include an exemption for religious reasons. That is unlikely to happen with the executive order but until we see the final order, it is unclear if any federal contractors and subcontractors will be exempt. We will keep you posted as this unfolds.

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June 13, 2014

Forced “Onionhead” Practices At Work Result in EEOC Religious Discrimination Lawsuit

By Brad Cave

“I love you, man.” Appropriate for beer commercials but perhaps not for the workplace. A New York employer who allegedly required employees to participate in prayer circles, thank God for their job and say “I love you” to managers and co-workers faces a religious discrimination lawsuit filed recently by the Equal Employment Opportunity Commission (EEOC). The EEOC seeks compensatory and punitive damages on behalf of three employees who were fired, allegedly for opposing the required “Onionhead” practices, and a class of similarly harmed individuals. EEOC v. United Health Programs of America, No. 14-cv-3673 (E.D.N.Y. filed June 11, 2014).

Company Required “Harnessing Happiness” or “Onionhead” Practices

According to the EEOC complaint, three former employees of United Health Programs of America filed charges alleging religious discrimination in violation of Title VII because the company required employees to engage in practices under a belief system called “Harnessing Happiness” or “Onionhead.” According to the Harnessing Happiness website, Onionhead is an “incredibly pure, wise and adorable character” who “wants everyone to know how they feel and then know what to do with those feelings.” The three women claim that the company required them to participate in various Onionhead-related activities on a daily and weekly basis, including praying, reading spiritual texts, burning candles, keeping lights at work very dim, thanking God for their employment and saying “I love you” to colleagues and managers. They assert that every day, employees were asked to select Onionhead-related cards to keep next to their computers and to wear Onionhead-related pins. In addition, one of the company’s upper managers and the aunt of the company owner, “Denali,” was the leader of the Onionhead practices and allegedly would require employees to attend one-on-one sessions with her in order to read and discuss books about “divine plans,” “moral codes” and “enlightenment.”

Fired – Allegedly for Opposing Onionhead Practices

Each of the three Charging Parties, Elizabeth Ontaneda, Francine Pennisi and Faith Pabon, were allegedly fired for objecting to the Onionhead practices. Pennisi, an Account Manager and IT Project Manager, spoke up at a managers’ meeting in July 2010, stating that she was Catholic and did not want to participate in the Onionhead activities. Ontaneda, a Senior Accounting Manager for Customer Service, also spoke up at the meeting, saying she felt the same way. A few weeks later, both women were relocated to work in an open area on the customer service floor, rather than in their offices, and their duties were changed to require answering phones. Denali placed a large statue of Buddha in Pennisi’s empty office. Denali also spoke of “demons” in connection with Ontaneda’s and Pennisi’s resistance to Onionhead practices. The day after losing their offices, the women called in sick and were terminated by the company owner by phone and voicemail.

Pabon, a Customer Care Consultant, attended a spa weekend in Connecticut with Denali and about 20 other customer service employees. Pabon alleges that Denali stated that the purpose of the trip was spiritual enlightenment and that they were to be together at all times, holding hands, praying and chanting. Pabon refused to participate in some of the group activities and on Monday following the spa weekend, Denali fired Pabon for “insubordination.”

Hostile Work Environment, Failure to Accommodate and Retaliation

The EEOC asserts numerous religious discrimination claims against the company, including creating a hostile work environment based on religion, failure to accommodate the employees’ own religious beliefs or lack thereof, terminating employees based on religion and retaliating against employees for opposing the required Onionhead practices in the workplace. The EEOC also alleges that some employees were constructively discharged when they felt compelled to leave the company to avoid participating in the required Onionhead activities.

Reports suggest that the company denies any merit to the lawsuit and that they expect it to be dismissed. We don’t yet know the basis of their defense and must remember that at present, the allegations are unproven. It will be an interesting case to follow. We will keep you posted as it proceeds through the court

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May 13, 2014

Independent Contractor Status — Colorado Supreme Court Sets Forth Applicable Test

By Bradford J. Williams

Yesterday we posted an article describing the unsettled test for independent contractor status under Colorado’s unemployment insurance benefits laws after the Colorado Court of Appeals issued a new decision last week. Now, that test has been settled as the Colorado Supreme Court issued its decision in the Softrock and Western Logistics cases.

The Colorado Supreme Court ruled yesterday that determining whether a worker is “customarily engaged in an independent trade, occupation, profession, or business” in order to be deemed an “independent contractor” under Colorado’s unemployment insurance benefits laws requires an evaluation of the totality of the circumstances surrounding the relationship between the worker and the putative employer. In two companion cases, the Court rejected a stringent, single-factor test for determining whether a worker is an employee or independent contractor for purposes of unemployment insurance tax liability and benefits. Reversing decades of case law, the Court ruled that no single factor is dispositive of an employer-employee relationship. Instead, courts and agencies may consider nine factors enumerated in a statute pertaining to independent contractor agreements, as well as “any other information relevant to the nature of the work and the relationship between the employer and the individual.” ICAO v. Softrock Geological Servs., 2014 CO 30; Western Logistics, Inc. v. ICAO, 2014 CO 31.

Putative Employer Must Prove Independent Contractor Status

Under the Colorado Employment Security Act (CESA), employers must pay unemployment taxes on wages paid to employees, but not on compensation paid to independent contractors. Similarly, employees are entitled to collect unemployment insurance benefits under the CESA whereas independent contractors are not. Putative employers bear the burden of proving that workers are independent contractors, not employees, for purposes of the CESA.

In order to establish that a worker is an independent contractor, a putative employer must prove that the individual (i) is free from control and direction in the performance of his or her service, and (ii) is customarily engaged in an independent trade, occupation, profession, or business related to the service performed. C.R.S. § 8-70-115(1)(b). The CESA does not define what must be shown to satisfy the second part of this test.

2012 Court of Appeals Decisions on the Single-Factor Test

For years, the Colorado Division of Employment and Training and most courts have applied a single-factor test, rejecting claims that workers are independent contractors, and thus ineligible for unemployment insurance benefits, where they do not provide similar services to others while working for the putative employer. It has not mattered, for instance, whether the workers were directed or controlled by the putative employer, whether they maintained separate business entities, whether they set their own hours, whether they were trained by the putative employer, whether they were paid an hourly or fixed rate, whether they provided their own equipment, whether they had their own offices, or whether they advertised their own businesses. If they did not provide similar services to others while working for the putative employer, they were almost always deemed to be employees for purposes of receiving unemployment insurance benefits.

In 2012, one division of the Colorado Court of Appeals reaffirmed this decades-old case law effectively mandating a single-factor test. Western Logistics, Inc. v. ICAO, 2012 COA 186. Another division of the Court of Appeals, however, rejected the stringent, single-factor test, holding for the first time that agencies and courts must instead apply a multi-factor test to determine whether an individual “is customarily engaged in an independent trade, occupation, or business related to the service performed.” Softrock Geological Servs. v. ICAO, 2012 COA 97. In Softrock, the Court of Appealsstated that the factors to be considered in the “customarily engaged” inquiry are the nine factors set forth in statutory section 8-70-115(1)(c), which defines evidence that must be included in an independent contractor agreement to create a presumption that a worker is an independent contractor rather than an employee. In March 2013, the Colorado Supreme Court agreed to hear the appeals in both the Western Logistics and Softrock cases in order to finally determine the appropriate test for deciding whether a worker is customarily engaged in an independent business for purposes of the CESA.

Single-Factor Test No Longer Dispositive

In its decision yesterday, the Supreme Court concluded that the appropriate test for courts and agencies to apply is a totality of the circumstances test that looks at all the relevant factors bearing upon the relationship between a worker and his or her putative employer. The Court rejected the stringent, single-factor test used in Western Logistics and numerous other cases, finding that relying on a single factor – i.e., whether a worker provides similar services to others at the same time he or she works for the putative employer – is unfair to putative employers because it leaves the independent contractor determination up to the unpredictable decisions of workers. For instance, it ignores the putative employer’s own intent regarding the working relationship, and also ignores whether workers even desire to find other work in the same field.

In its decision, the Court broadly adopted the Court of Appeal’s approach in Softrock, concluding that the statutory factors should be considered in determining whether a worker is engaged in an independent business under the CESA. However, the Supreme Court went even further, holding that other factors may also be relevant to this determination. The Court rejected “a rigid check-box type inspection,” and opted instead for a fact-specific inquiry into the nature of the working relationship between a worker and his or her putative employer where no single factor is dispositive of the worker’s status.

Interestingly, just last week, yet another division of the Colorado Court of Appeals anticipated the Supreme Court’s ruling in these two cases, concluding that virtually any relevant circumstances may be considered in weighing independent contractor status. The decision rejected both the Western Logistics single-factor test and the Softrock multi-factor test that limited the determination to just those factors specifically delineated in statute. See Visible Voices, Inc. v. ICAO, 2014 COA 63.

Many Factors May Determine Independent Contractor Status

The Supreme Court’s new totality of the circumstances test is very helpful to putative employers because it allows them to prove independent contractor status based on the entire working relationship between the worker and the putative employer. A putative employer seeking to prove that a worker is an independent contractor engaged in an independent business or trade may now produce evidence bearing upon the nine factors set forth in statute, showing that the putative employer did not:

Require the worker to work exclusively for the putative employer; except that the worker may choose to work exclusively for that business for a finite period of time specified in the independent contractor agreement;
Establish a quality standard for the worker; except that the putative employer can provide plans and specifications regarding the work but cannot oversee the actual work or instruct the worker as to how the work will be performed;
Pay a salary or hourly rate but rather a fixed or contract rate;
Terminate the worker during the contract period unless the worker violates the terms of the contract or fails to produce a result that meets the specifications of the contract;
Provide more than minimal training for the worker;
Provide tools or benefits to the worker; except that materials and equipment may be supplied;
Dictate the time of performance; except that a completion schedule and a range of mutually agreeable work hours may be established;
Pay the worker personally but rather makes checks payable to the trade or business name of the worker; and
Combine the putative employer’s business operations in any way with the worker’s business, but instead maintains such operations as separate and distinct.

The putative employer may also invoke other evidence not set forth in the statute, but nonetheless relevant to whether the worker maintains an independent trade or business. As suggested in recent cases, these factors include, but are not limited to, whether the worker:

Maintains an independent business card, listing, address, or telephone;
Has a financial investment in the project or risks suffering a loss;
Uses his or her own equipment on the project;
Sets the price for performing the project;
Employs others to complete the project; or
Carries liability insurance.

Although we have yet to see how the courts and agencies will apply this new totality of the circumstances test, putative employer should try to satisfy as many of these factors as possible in order to establish that workers are independent contractors, not employees. Putative employers should also continue to use independent contractor agreements that satisfy all the statutory factors needed to create a presumption that workers are independent contractors. However, there is now no limit to the types of evidence putative employers may invoke to establish independent contractor status, and putative employers are no longer bound by the outdated rule that workers must always offer their services to others at the same time the work for the putative employer in order to be considered independent contractors.

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