Category Archives: Nevada

April 20, 2015

You’ve Received a Discrimination Charge from NERC or the EEOC – Don’t Throw It in the Trash!

When asked about a discrimination charge sent to them months ago, a client once answered “I did not know what to do with it, so I threw it in the trash.” Needless to say, that was a bad idea. Unfortunately, many employers do not understand their obligations when faced with a discrimination charge and that can backfire if the charge is not informally resolved.

What is a discrimination charge?

Ordinarily, before an employee can bring a harassment, discrimination, or retaliation lawsuit in court, the employee must “exhaust their administrative remedies.” In plain English, they have to file a complaint (called a “charge”) with one of the administrative agencies responsible for enforcement of the respective employment laws before they sue the employer in court.

In Nevada, a charge may be filed with either the Nevada Equal Rights Commission (NERC) (state administrative agency) or the Equal Employment Opportunity Commission (EEOC) (federal administrative agency). Because of a work-sharing agreement between the two agencies, a charge filed with NERC is also deemed filed with the EEOC (though the opposite is not true). A charge ordinarily includes the name of the employee who submitted it, a brief summary of the employee’s allegations, and certain applicable deadlines. Where the charge is filed matters because different requirements for responding to it apply.

What are the differences between responding to a NERC charge versus an EEOC charge?

An employer should respond to any discrimination charge, regardless of the agency in which it was filed, or risk an adverse determination based only on the employee’s evidence. However, there are differences in the type of information you must provide and the timing of your response, depending on which agency sends you the charge.

EEOC charge notifications are usually accompanied by Requests for Documents/Information. These requests must be answered and submitted along with a position statement addressing the allegations in the charge. The requests are frequently quite sweeping, requiring a lot of time and attention. NERC does not usually include Requests for Documents/Information in its charge notification packets. Rather, such requests may be sent – on a case-by-case basis – as part of the investigation process. (Of course, the EEOC may also request additional information during the course of its investigation.)

Another difference is the timing of submitting a position statement if the charge proceeds to mediation (called “Informal Settlement Conference” by NERC). If you receive a charge notification from NERC, the notification comes in a packet, which also usually contains an Election of Response form. That form lets you choose whether or not you wish to participate in an Informal Settlement Conference, which is automatically scheduled on a certain date. If you do not respond by the election deadline or you decline the conference, the charge is ordinarily placed into investigation.

Even if you choose to participate in the Informal Settlement Conference before NERC, however, you still must submit a position statement approximately a week before the conference. A potential cost-saving measure is to provide a brief, summary position statement first, in anticipation that the matter will resolve at the Informal Settlement Conference, and reserve the right to supplement at a later date in the event it does not.

By contrast, with EEOC charges proceeding to mediation, you are only required to submit a position statement if the case does not settle during mediation. That said, in some cases, it may be useful to give the mediator a brief factual background offering your company’s perspective prior to the mediation.

What if I did not get notice that I can mediate or participate in an Informal Settlement Conference?

If you receive a NERC charge notification without an Election of Response form, you might consider contacting NERC to ask for one. NERC schedules Informal Settlement Conferences as a matter of course, and it is highly unusual not to be invited to one. Sometimes lack of invitation has resulted from inadvertent administrative oversight so if you want to pursue early settlement, ask for a conference.

If you receive an EEOC charge notification that does not allow for mediation, it may stem from various reasons, which may or may not be a cause for concern. For example, there might have been an unintentional failure to check the “Mediation” box. Or, it is possible that the complaining party was not interested in mediation. Or, in the worst case scenario, the charge was not eligible for mediation because it was characterized as a “Category A” charge. “Category A” charges involve matters considered priorities by the EEOC, allegations of widespread legal violations by the employer, or other matters where the EEOC has concluded that further investigation would probably result in a cause finding (i.e., determination against the employer).

If you are interested in mediating an EEOC charge, consider contacting the EEOC to inquire whether mediation would be available, even if the mediation box is not checked, as the EEOC’s response may offer some information as to the basis for the initial mediation unavailability. And, while the EEOC would rarely admit that the charge is “Category A,” that information might enable you to prepare for the EEOC’s upcoming investigation.

What should I do when I get the charge?

First and foremost, you should immediately preserve all relevant documents and information, in both paper and electronic format. You should also suspend all automatic electronic deletion policies and direct your employees not to destroy anything related to the allegations in the charge. In some cases, it may be appropriate to make forensic images of computer hard drives to preserve the integrity of metadata and other electronic information.

Second, if an internal investigation has not already been conducted, you should investigate the complaining party’s allegations and begin gathering relevant information to prepare for defending the charge. Sometimes that includes collecting employee statements which can later be used to support your response to the charge.

Finally, take your obligation to provide a position statement seriously. Position statements should be prepared by – at a minimum – an experienced human resources professional. Better yet, contact your employment counsel. Position statements not only shape the administrative agencies’ investigations and conclusions, but they are also discoverable in litigation. So, even though employment disputes are not criminal in nature, it is wise to heed the Miranda warning that “anything you say will be used against you” in court.

Bottom Line: Responsibilities Flow From Receipt of a Charge

As tempting as it may be to ignore or dismiss an EEOC or NERC charge, resist the temptation and take steps to protect your organization from potential liability. Deadlines are triggered from the charge notification. Failure to preserve all relevant evidence can result in severe sanctions, including ruling against your organization on the ultimate discrimination, harassment, or retaliation issue. Failing to conduct an internal investigation can limit your ability to properly defend against the employee’s claims and to determine your possible liability. In short, no good can come from ignoring a charge. Instead, follow the steps outlined above to put you in the best position to handle the allegations and minimize liability to your organization.

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April 8, 2015

Steps to Prevent Workplace Bullying

By Anthony Hall

This year, employers in California must include anti-bullying training for company supervisors as part of their required biannual sexual harassment training. Even though other states, such as Nevada, have not yet mandated such training, employers should take notice of potential liability that may arise from workplace bullying and take steps to prevent it.

Workplace Bullying Statistics

According to a 2011 survey by the Society for Human Resource Management (SHRM), 51% of responding organizations reported incidences of bullying in their workplaces. Twenty-seven percent of employees surveyed by the Workplace Bullying Institute in 2014 reported a current or past direct experience with abusive conduct at work. An earlier study of U.S. workers found that 41.4% of respondents reported experiencing psychological aggression at work in the past year (Schat, Frone & Kelloway, 2006). These numbers are significant, indicating that workplace bullying is alive and well in U.S. companies.

Effects of Bullying on the Workplace

Effects of workplace bullying are felt not just by the victims of the bullying but also by the organization itself. Some potential effects on your company may include:

High employee turnover, resulting in increased recruiting, hiring and training costs
Low productivity, as workers lose motivation and take more breaks or sick time
Drain on HR staff and supervisors having to deal with bullying incidents and lost productivity
Bad publicity and damage to reputation as word gets out that bullying takes place at your organization

The negative effects of bullying result in a significant drain on an organization’s time, resources and finances. But because it hasn’t been explicitly “illegal,” companies have been slow to address it.

Potential Claims Based on Bullying

Despite the lack of explicit federal or state laws prohibiting abusive workplace conduct that is not based on a protected characteristic, employers should be aware that other types of claims could be raised as a result of bullying. To the extent that an employee suffers a physical or mental injury or illness as a result of bullying at work, it could result in a workers’ compensation claim. In addition, depending on the nature of the bullying and the position/title of the bully, abusive conduct could support claims such as intentional infliction of emotional distress, intentional interference with employment contract, negligent hiring, retention or supervision, battery or assault.

Tips to Prevent Workplace Bullying

Despite the lack of laws prohibiting workplace bullying, it is a sound employment practice to take steps to prevent and address abusive conduct in your organization. Get beyond labeling behavior as legal or illegal, harassment or bullying. If there is unprofessional, potentially harmful behavior occurring at your place of business, you need to ask questions, conduct a thorough and timely investigation and take steps to stop any misconduct.

To help your organization be proactive in preventing bullying, consider the following steps:

Implement a standalone anti-bullying policy or incorporate the subject of bullying into your anti-harassment policy or code-of-conduct policy;
Train all employees on your policy, including your zero tolerance for workplace bullying;
Train supervisors and managers on recognizing bullying and what to do if it occurs;
Offer employees numerous avenues for reporting bullying and ways to get help, both internally and through an employee assistance program or outreach agency;
Be inclusive so that all employees feel comfortable speaking up and participating in company projects and activities; and
Treat complaints of bullying behavior seriously and launch a workplace investigation.

Workplace bullying is an ongoing problem that can affect your reputation and bottom line so don’t wait for legislation or a lawsuit before enacting these proactive measures.

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April 3, 2015

Presidential Veto Quashes Congressional Attempt to Overturn NLRB “Quickie” Election Rules

By John Husband and Brad Williams

On March 31, 2015, President Obama vetoed a joint resolution passed by both houses of Congress that sought to overturn the National Labor Relations Board’s (NLRB’s) rules designed to speed up the union election process. Scheduled to go into effect on April 14, 2015, these so-called “quickie” or “ambush” election rules significantly shorten the period of time between a petition for a union election and a vote.

History of “Quickie” Election Rules

The “quickie” election rules have a tortured history. First proposed in June 2011, the rules faced immediate and severe criticism that led to a watered-down version of the rules being adopted in December 2011. These watered-down rules went briefly into effect in April 2012, but were quickly invalidated by a federal court just two weeks later. The court ruled that the Board had lacked a statutorily mandated quorum when it voted to adopt the rules.

Notably, the federal court also stated that nothing prevented a properly constituted quorum of the Board from voting to re-adopt the rules in the future. That is exactly what the Board did in February 2014. It re-proposed its original rules, and subsequently adopted the rules in December 2014. The new rules are slated to become effective on April 14th.

Legal Challenges Continue

Despite Congress’s ill-fated attempt to block the rules under the Congressional Review Act, the rules still face potential hurdles. For instance, the U.S. Chamber of Commerce filed a lawsuit in the District of Columbia in January 2015 seeking to vacate the rules and enjoin their enforcement. Business groups in Texas filed a similar lawsuit in January 2015. These lawsuits allege numerous reasons why the rules should be invalidated, including alleged violations of the National Labor Relations Act and Congressional intent, alleged violations of the First Amendment and due process protections, and arbitrary and capricious rulemaking under the Administrative Procedure Act. However, the lawsuits will take time to wind through the courts, and their chances of success are uncertain.

Anticipated Effects of Rules

Barring any unexpected injunction before April 14th, employers should anticipate big changes from the new rules. The rules will shorten the period of time between a petition for a union election and a vote to perhaps fifteen or fewer days (as opposed to the five or more weeks under current practice). The rules are expected to boost organizing activity as unions attempt to increase their membership – and dues-generated revenue – through “ambush” elections. The compressed timeline between a petition and vote will limit employers’ ability to fully explain the pros and cons of union representation before an election, and limit employees’ ability to cast an informed vote. To retain flexibility in dealing directly with their employees, employers should be ready at the first hint of union organizing to educate their employees about the desirability of union representation. Advance preparation, and a properly orchestrated counter-organizational campaign, will be key.

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March 30, 2015

Drafting Employee Handbook Policies That Pass NLRB Muster

By Brian Mumaugh

All employers, union and non-union alike, should think about making a thorough review of their employee handbook and policies in light of a recent report on employer workplace rules by the National Labor Relations Board’s (NLRB’s) General Counsel, Richard Griffin. In his report, Griffin describes a variety of employment policies that the Board has found unlawful and offers the Board’s reasoning as to why. He also points out acceptable policies and explains what wording or context made that policy lawful. The bottom line: a single word or phrase can, in this Board’s view, make the difference between an acceptable policy or one that violates the National Labor Relations Act (NLRA).

Overly Broad Handbook Policies Can Chill Employees’ Rights

The Board has long taken the position that even neutrally worded employment policies can violate the NLRA if they have a chilling effect on the right of employees to engage in protected concerted activities. These activities, referred to as Section 7 activities, include discussing wages, benefits, and other terms and conditions of employment with other employees and with outside parties, such as government agencies, union representatives and the news media.

In his March 18th Report, GC Griffin explains that the majority of policies found by the Board to violate the NLRA, were unlawful because employees could reasonably construe the language of the rule as prohibiting or infringing on Section 7 activities. Consequently, many well-intentioned, seemingly common-sense policies prove problematic for employers due to their possible interpretation as limiting an employee’s right to discuss their pay or working conditions with others.

Handbook Policies That Result in Violations

The report sets out eight categories of work rules that frequently violate the NLRA and then distinguishes between unacceptable and acceptable language for such rules. The categories and the unlawful aspects of each may be summarized as follows:

Confidentiality Policies: may not prohibit employees from discussing their wages, hours, workplace complaints or other personal information; prohibiting the disclosure of the company’s confidential information may be acceptable;
Employee Conduct Toward the Company and Supervisors: may not prohibit employees from engaging in negative, disrespectful or rude behavior or other conduct that may harm the company’s business or reputation; prohibiting employees from disparaging the company’s products, or requiring employees to be respectful to customers, vendors and competitors will typically be acceptable;
Conduct Toward Fellow Employees: may not prohibit “all” negative, derogatory, insulting or inappropriate comments between employees as that may interfere with the employees’ right to argue and debate with each other about management, unions and the terms and conditions of their employment; requiring employees to treat each other professionally and with respect as well as banning harassing and discriminatory conduct will typically be lawful;
Interactions with Third Parties: may not completely ban employees from talking to the media or government agencies; a policy noting that employees are not authorized to speak on behalf of the company without authorization may be considered lawful;
Restricting the Use of Company Logos, Copyrights and Trademarks: may not prohibit all use of company logos and intellectual property because the NLRB upholds employees’ right to use company names, logos and trademarks on picket signs, leaflets and other protest materials; policies that require employees to respect all copyright and intellectual property laws is acceptable;
Restricting Photos and Recordings: may not ban employees from taking pictures or making recordings on company property; a policy may limit the scope of such a prohibition depending on a competing protective right (such as a healthcare facility protecting patient privacy by limiting photos of patients);
Restrictions on Leaving Work: because employees have the right to go on strike, a policy that prohibits employees from “walking off the job” will be unlawful; policies stating that failure to report for a scheduled shift or leaving early without permission as grounds for discipline may be acceptable; and
Conflict-of-Interest Policies: policy may not ban any activity “that is not in the company’s best interest;” policies that give examples of what constitutes a conflict-of-interest, such as having a financial or ownership interest in a customer, supplier or competitor, or exploiting one’s position for personal gain will likely be lawful.

Few Bright Lines for Lawful Policies

The report goes on to offer analysis of additional policies dealing with topics such as handbook disclosure, social media and employee conduct related to a particular employer who agreed to revise their policies as part of a settlement agreement with the NLRB. You may have similar policies in your handbook, making it worthwhile to read what policy language the Board considers problematic and what may pass muster. The takeaway, however, is that the lawfulness of many policies may turn on a single word or phrase. At the present time, it is unclear whether GC Griffin’s report will withstand legal challenge. The best advice is that given the report and its contents, it is important to take time to review your handbook and compare your wording to the examples provided in the report. Although the report is not a legally binding interpretation of the NLRA, it can help you make an informed decision about the risks involved in including certain provisions in your employee handbook.

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March 26, 2015

Supreme Court: Pregnant Worker With Lifting Restrictions May Continue Lawsuit

By Jude Biggs

In a divided decision, on March 25, 2015, the U.S. Supreme Court released a long-awaited ruling involving a pregnant worker’s claim under the Pregnancy Discrimination Act (PDA). In its ruling, the Court held that the worker could proceed with her lawsuit, because disputes remain as to whether her employer treated more favorably at least some non-pregnant employees whose situation could not reasonably be distinguished from hers.

The majority of the Court forcefully rejected the 2014 guidance of the Equal Employment Opportunity Commission (EEOC) concerning the application of Title VII and the Americans with Disabilities Act (ADA) to the PDA, as it fell short on a number of fronts needed to “give it power to persuade.” Without ruling for either party, the Court adopted a new standard for courts to use when deciding PDA cases brought under a disparate treatment theory. Young v. UPS, 575 U.S. ___ (2015).

Despite the Court’s guidance, employers still will face many questions on what accommodations will be required in the future. The standards for “disparate treatment” and “disparate impact” cases may be more confusing in the future for employers who need to make decisions regarding whether and how to accommodate pregnant employees. As a result, employers are wise to respond carefully to accommodation requests by pregnant workers. Employers should review any policies that might have a disproportionate effect on pregnant workers, such as rules limiting job accommodations. In addition, employers should be careful to review restrictions on use of sick pay/sick time, leave eligibility outside of FMLA, lifting restrictions, and light duty assignments to determine: (1) if they disparately affect pregnant employees while accommodating others; and (2) what “strong” business rationale you can offer to defend the distinction.

For additional analysis of the Court's opinion and what it means for employers, please see our full article here.

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March 23, 2015

FMLA and FLSA Lawsuits Are Increasing

By Mark Wiletsky

The U.S. federal courts saw a whopping 26.3 percent increase in the number of Family and Medical Leave Act (FMLA) lawsuits filed last year over the prior fiscal year, according to statistics recently released by the Administrative Office of the U.S. Courts. Wage and hour lawsuits alleging a violation of the Fair Labor Standards Act (FLSA) were up a significant 8.8 percent. These filings are the highest they’ve been in the past 20 years of annual statistics reported by the courts.

The increasing numbers of lawsuits brought under those two employment laws may reflect how difficult it is to understand and administer wage and hour and leave laws. The increase also may be due to the heightened awareness by workers of their rights and benefits under these laws. Regardless of the cause of the increase, the numbers suggest that it is worthwhile for employers to focus their compliance efforts in these two areas.

Self-Audit Your Pay and Leave Practices

Before you find yourself defending a lawsuit, take the time to review your payroll and FMLA policies and practices, including these often tricky issues:

Classifying workers as exempt versus non-exempt from minimum wage and overtime pay requirements
Calculating each non-exempt employee’s regular rate of pay and overtime rate
Rounding time at the beginning and end of shifts
Automatic deductions for meal periods
Treating workers as independent contractors rather than employees
Tracking time worked remotely or “off-the-clock”
Providing FMLA notices within required time period
Calculating FMLA leave for workers with irregular schedules
Administering intermittent FMLA leave
Not penalizing employees who have taken FMLA leave

If your self-audit reveals any irregularities, take steps to revise your policies and practices to bring them into compliance with the applicable laws. Don’t forget state and local laws that may impose additional requirements related to pay and leave administration. If in doubt, don’t hesitate to consult with your legal counsel so that you don’t become one of next year’s statistics.

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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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February 23, 2015

Exempt Employee Salary Deductions for a Reduced Schedule

By Brad Cave

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

FLSA Salary Basis

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

FMLA Leave Can Result in Pay Deduction

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

PTO, Sick Leave or Other Paid Leaves

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

Saved Wages Vs. Loss of Exempt Status

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

October 28, 2014

Defeating Micro-Units: Employer Strategies to Challenge Smaller Bargaining Units

By Brian Mumaugh

Unions are organizing smaller segments of an entire workforce in order to get their foot in the door and keep organizing efforts alive. The National Labor Relations Board (NLRB or Board) has approved so-called micro-units, setting employers up for difficult battles over appropriate bargaining units in the future. Employers should think about the possibility of seeing a micro-unit proposed in their workforce—and how to avoid them.

Unions Can More Easily Win Representation For Smaller Groups

As unions press to increase their membership in the United States, unions are looking for new ways to organize workers and remain relevant. Organizing large workforces requires unions to expend significant resources – money, personnel and time – to collect signatures from at least 30% of the proposed bargaining unit to trigger an election (some unions want to see upwards of 70% signing authorization cards before petitioning for an election). Then additional resources are needed to get out the vote to ensure a majority of votes cast are in favor of the union. Large organizing campaigns also give the company time to mount an anti-union campaign.

Organizing micro-units, however, can be done relatively quickly, cheaply and often without much response from the company. Think about it – organizing a unit of 30 workers in a single department may need only one or two union organizers to persuade the 15 to 20 employees needed to win the organizing campaign. Before you know it, you’ve got a segment of your workforce represented by a third party with whom you must collectively bargain. This can lead to multiple micro-units at your company represented by different unions and the headaches multiply.

Parameters For Micro-Units Are Evolving

The NLRB has discretion in representation cases to determine the appropriate bargaining unit, whether an employer unit, craft unit, plant unit or subdivision thereof, pursuant to section 9(b) of the NLRA. Although decided on a case-by-case basis, the main, long-standing factor for determining an appropriate unit was the “community of interest” of the employees involved. In 2011, however, the Board significantly changed that analysis in a case called Specialty Healthcare, allowing the unit petitioned-for by the union to govern except in those situations where the employer can establish by “overwhelming evidence” that the requested unit is inappropriate. This new approach places a high burden on employers who wish to challenge the make-up of the unit proposed by the union.

In recent months, the Board has decided a couple of micro-unit cases that offer some guidance on what it takes to challenge a micro-unit. In a case involving a Macy’s Department store in Massachusetts, the Board deemed appropriate a micro-unit made up of only cosmetics and fragrances employees at the store. Macy’s Inc., 361 NLRB No. 4 (July 22, 2014). The store argued that the unit was too narrow and that the appropriate unit in a retail store context is a “wall-to-wall unit” or, alternatively, all selling employees at the store. The Board did not agree. It concluded that the cosmetics and fragrances employees were a readily identifiable group that shared a community of interest not shared by other store employees. Factors weighing in favor of the micro-unit included the fact that the cosmetics and fragrances employees were in the same department and were supervised by the same managers. In addition, there was little regular contact between the cosmetics and fragrances employees and other store employees. The NLRB found that Macy’s had not met the high burden of showing that other employees should be included in the unit because they did not share an “overwhelming community of interest.”

Coming to the opposite conclusion, however, the Board rejected a micro-unit of sales associates who sold shoes at the Manhattan Bergdorf Goodman store. The union had petitioned for the unit to be made up of 35 women’s shoes sales associates in the Salon shoes department (high end designer shoes) and 11 women’s Contemporary shoes sales associates in the Contemporary Sportswear department (modestly priced shoes). The Board concluded the proposed unit was inappropriate because the two shoe departments were located on separate floors, did not share the same supervisors and managers, did not have any cross-over or interchange between employees and did not have much contact with employees in other departments storewide. The Neiman Marcus Group, Inc. d/b/a Bergdorf Goodman, 361 NLRB No. 11 (July 28, 2014).

Strategies for Attacking Micro-Units

The Macy’s and Bergdorf Goodman cases offer some guidance to help employers avoid union organizing of micro-units. Strategies to consider now, before a union organizing campaign begins, include:

Combining departments or job classifications that share skills or tasks
Cross-training and cross-utilizing workers across departments, classifications or locations
Allowing for promotional and transfer opportunities across department and organizational lines
Revising supervisory and managerial structures so that more employees report to the same managers
Maintaining pay and bonus structures common to all employees or for all in a larger unit.

Micro-units can be a game-changer when it comes to union organizing so employers have to change their own tactics to combat such bargaining units. Taking time now to change organizational and reporting structures can go a long way in overcoming a proposed micro-unit in the future.

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September 9, 2014

Employee Equity Purchase Programs: Ensuring a Great Idea Remains a Good Idea

By Bret Busacker

With the return of some prosperity in the economy, we have seen an uptick in employers granting or selling equity (stock or partnership interests) in their businesses to their employees. In some cases, these grants are part of a broad-based employee stock purchase program. In other cases, employers use equity to reward and incentivize key players in their business. In all cases, these programs can be very successful in creating loyalty and incentivizing employees. However, these arrangements are subject to a variety of regulatory requirements. A few insights on some common issues that arise with respect to these arrangements:

Sale of Equity to an Employee May be Compensation. The transfer of equity to an employee (or other service provider) in connection with the performance of service to the employer is a compensatory transaction under Internal Revenue Code Section 83. The amount of the compensation income to the employee is the difference between the fair market value of the equity at the time of grant and the amount the employee pays for the equity. Depending on the situation, an independent valuation of the business may be necessary to establish the fair market value of the equity granted. In all cases, the employer should document that a reasonable valuation method was followed in establishing the fair market value of the equity.

Employees May Elect Early Taxation of Unvested Equity. If an equity award requires the employee to continue to provide services after the date of grant in order for the employee to retain the right to the equity, the equity may be unvested. Unvested equity is not taxable to the employee at the time of grant, but becomes taxable to the employee once the equity vests. An employee who believes an equity award will increase in value and generate a larger tax hit on the vesting date rather than the grant date may elect to accelerate the taxation of the equity to the date of grant (and thus pay taxes when the equity is worth less). This election is commonly referred to as an 83(b) election. Employers should ensure that employees are aware of the 83(b) election option.

Unvested Equity May Not Create Ownership. The Internal Revenue Code provides that an employee is not treated as the owner of the equity granted to an employee unless the equity is fully vested or the employee files an 83(b) election with the IRS. Further, employment agreements, operating agreements and shareholder agreements often contain provisions that create ambiguity as to whether an equity award is vested or unvested. Accordingly, if the parties want to ensure that an employee receiving an equity grant is treated as an owner for tax purposes, including allocations, distributions and dividends, a protective Section 83(b) election could be filed to ensure the employee is treated as the owner of the equity.

Equity Grants May Impact Employee Benefits. Equity grants of partnership interests or stock in an S corporation may have a significant impact on the medical and fringe benefits of employees receiving those grants. If the equity is vested or the employee files an 83(b) election, the employee may be treated as an owner for benefits purposes. Partners in a partnership and owners of more than 2% of the stock of an S corporation are generally not eligible to participate on a pre-tax basis in the medical benefits and other fringe benefit programs otherwise available to employees. In addition, employers should review their retirement plans when granting equity awards to employees to ensure that the compensatory value of the equity awards are accounted for in accordance with the terms of the plan document.

Equity Grants Should Be Accomplished Through a Compensatory Plan. In general, unless securities exemptions exists at both the state and federal levels, the grant or sale of employer stock or partnership interests to employees must be registered under the Securities Act of 1933. This rule applies to private non-publicly traded companies as well as publicly traded companies. Many private companies may take advantage of a special federal securities exemption from the registration requirement by satisfying what is referred to as Rule 701. However, Rule 701 and many state securities laws may only be relied upon if the grants were made pursuant to a written compensation contract or compensatory benefit plan for employees, consultants and/or directors. Further, in some cases it may be required, but it is always a good practice, to provide the award recipients a summary of the material terms of the equity award, a risk of investment statement, and annual financial statements to minimize misunderstanding and the risk of legal claims.

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