Category Archives: Utah

August 18, 2015

NLRB Unanimously Declines Jurisdiction Over Northwestern University Football Player Union Petition

The National Labor Relations Board (NLRB or Board) declined to assert jurisdiction over the petition filed by a union seeking to represent Northwestern University’s scholarship football players. In 2014, the Regional Director for the Region covering Northwestern University found that Northwestern’s football players who received grant-in-aid scholarships were employees within the meaning of the National Labor Relations Act (NLRA or Act) and were entitled to petition for union representation. In its unanimous decision announced yesterday, the Board dismissed that union petition, deciding that it would not assert jurisdiction over these specific college athletes as doing so would not promote stability in labor relations or further the purposes of the Act.

Board Refuses to Decide Whether College Athletes Are Statutory Employees

After considering the positions of the union seeking to represent Northwestern’s football players, the University, who contended that its scholarship players were not statutory employees, and the many interested parties who submitted briefs, the Board refused to decide the controversial issue raised by the Regional Director’s 2014 decision, namely whether Northwestern’s grant-in aid scholarship football players are employees under the NLRA. Instead, by refusing to assert jurisdiction, the Board dismissed the union’s petition to represent this group of college athletes, effectively nullifying the impounded ballots that had been cast in the union election in April 2014.

Single Team Athletes Unlike Other Covered Cases

The Board distinguished this group of athletes from other types of students and athletes for which the Board has asserted jurisdiction. First, the Board focused on the nature of the college sports leagues and structure of college football bowl divisions. It noted that the National Collegiate Athletic Association (NCAA) and the Big Ten Conference (to which Northwestern University belongs) dictate eligibility requirements, minimum academic standards, scholarship terms, amateur status, mandatory practice hours and other rules under which the scholarship athletes may compete. The Board saw these rules as distinguishing the scholarship players from graduate student assistants or student janitors and cafeteria workers whose employee status the Board had considered in other cases.

The Board then distinguished Northwestern’s scholarship players from professional sports leagues, which are covered by union contracts. Previous Board cases involving professional sports have involved leaguewide bargaining units that cover all players across the league. Here, the union sought to represent players from a single team. The Board cannot assert jurisdiction over the majority of colleges and universities that make up the college football divisions as the vast majority are public institutions which are not employers under the Act. Consequently, the Board could not assert jurisdiction over most of Northwestern’s primary competitors. The Board found that asserting jurisdiction over a single team, rather than across an entire league, would not promote stability in labor relations.

Rare Limit On Board’s Reach

In recent years, the Board has extended its reach, offering NLRA protections in expansive ways and revising rules to make it easier for unions to win elections. Today’s ruling is a rare exception to that expansive trend, curtailing the reach of the NLRA to the scholarship football players at a private university. The Board did, however, express the limited nature of this decision, noting that changed circumstances may prompt a reconsideration of this issue in the future. We’ll have to wait to see if unions try again to organize scholarship athletes under different conditions.

August 10, 2015

Dodd-Frank CEO Pay Ratio Disclosure Rules Approved

By Bret Busacker

On August 5, 2015, the SEC approved the final rules on the so-called “CEO pay ratio disclosure” under the Dodd-Frank Act. The CEO pay ratio disclosure will require most publicly traded companies (referred to below as a “registrant”) to disclose the ratio of CEO pay to the median income of all other employees of the registrant.

Companies must first begin providing the pay ratio disclosure for the first full fiscal year that begins on or after January 1, 2017. Accordingly, for most companies with a December 31 year-end, disclosure will first be required in the registrant’s 10-K filed in 2018 for the 2017 fiscal year or in the 2018 proxy statement for the 2018 shareholder meeting (so long as the proxy is filed within 120 days of the 10-K).

Here is a general summary of the CEO pay ratio disclosure requirements as well as an explanation of the more significant changes adopted as part of the final rule.

Note: The CEO Pay Ratio Rule uses the term PEO (Principal Executive Officer) in lieu of CEO. We refer to the CEO below for simplicity.

General Overview of the CEO Pay Ratio Disclosure Rule

Who does the rule apply to? Registrants who are required to provide executive compensation disclosure pursuant to Item 402 of Regulation S-K must comply with the CEO pay ratio disclosure. Emerging growth companies, smaller reporting companies and foreign private issuers are not subject to the rule. Special transition rules apply to companies that become publicly traded or become subject to the rule as a result of a merger or acquisition.

Where must the CEO pay ratio be disclosed? Generally, wherever executive compensation disclosure is otherwise required under Item 402 of Regulation S-K. Accordingly, disclosure will be required on Form 10-K, proxy statements and registration statements that require executive compensation disclosure (but not in current reports or quarterly reports). The pay ratio disclosure is considered “filed” with the SEC instead of “furnished.” Accordingly, the disclosure is subject to the applicable liability provisions under Section 18 of the Exchange Act and Section 11 of the Securities Act.

How does the CEO Pay Ratio Rule work? The focus of the rule is to identify the employee with the median income of the registrant and its affiliates (excluding the income of the CEO) and compare the median income employee’s total annual compensation to the CEO’s total annual compensation. This means the registrant must establish a compensation list of all employees (other than the CEO) and their compensation levels and then determine which employee has the same number of employee compensation levels above and below him or her on that list. Once the median income employee is identified, that employee’s total annual compensation must be described in a ratio to the CEO’s annual total compensation for the same year using the proxy statement summary compensation table rules in Item 402(c) of Regulation S-K (“SCT Compensation”).

May a registrant use a simplified method to identify the median income employee? Yes. A registrant may use W-2 wages or other types of consistent compensation records to identify the median income employee. In addition, a registrant may use statistical sampling of its employees or other reasonable methods in identifying the employee with median income. Accordingly, a registrant could use a statistical sample of the W-2 wages of its employees to identify the median income employee. However, once the median income employee is identified, that median income employee’s compensation must be calculated using SCT Compensation (defined above) in order to actually report the CEO pay ratio disclosure in the proxy or Form 10-K.

Which employees must be considered in determining the median income employee? All full-time, part-time, and seasonal workers worldwide of a registrant (and its affiliates) must be considered in identifying the median income employee. However, as explained below, the final rule does allow a registrant to exclude a limited number of non-U.S. employees and provides the registrant some flexibility in determining the date used to determine the list of employees considered in identifying the median income employee.

How may the CEO pay ratio be described? The ratio may be described numerically (e.g., “the ratio of the median of the total annual compensation of all employees (other than the CEO) to that of the CEO is 1 to 268”) or narratively (e.g., “the CEO’s annual total compensation is 268 times that of the median annual total compensation of all employees”). Registrants must also describe the methodology, assumptions and estimates used in creating the ratio. The pay ratio disclosure may be supplemented with additional information at the discretion of the registrant so long as such additional information does not detract from the required pay ratio disclosure and is not otherwise misleading.

Significant Changes to the Final CEO Pay Ratio Disclosure Rule

The final CEO pay ratio disclosure rules include a number of changes from the proposed rules that will provide some flexibility in determining the median income employee.

A company may rely on the same median income employee determination to calculate the CEO pay ratio for as many as three years, so long as the registrant can reasonably determine that there has been no circumstance, such as a significant change in the number of employees of the registrant, that would require a new determination of the median income employee. If the median income employee identified in year one of the three-year reliance period changes positions, or is no longer employed by the registrant in years two or three of the reliance period, the registrant may identify a replacement median income employee with similar compensation.

A company may select any date within three months of the end of the registrant’s fiscal year to determine the registrant’s employees to be included in the median income employee determination. This date must be used consistently from year-to-year and the registrant must explain any change to the date selected in subsequent disclosure years.

A company may exclude from the median income employee calculation the non-U.S. employees whose compensation information is protected from disclosure by foreign data privacy rules. Non-U.S. employees may be excluded if they are located in a jurisdiction in which foreign data privacy laws would preclude disclosure of such employees’ compensation. To rely on this exclusion, the registrant must take reasonable steps to obtain a waiver from the foreign jurisdiction’s data privacy requirements, explain in the actual CEO pay ratio disclosure that the foreign data privacy exclusion was used, and obtain a legal opinion certifying that it is unable to comply with the foreign jurisdiction’s data privacy rules and that it was unable to obtain a waiver from the foreign jurisdiction’s data privacy rules.

A company may also exclude up to 5% of its employees who are non-U.S. employees so long as all employees of that same jurisdiction are excluded under the rule. Employees excluded from the median employee calculation under the foreign data privacy exclusion (described above) count against the number of employees that may be excluded under the general 5% exclusion. For example, if a registrant has excluded 4% of its employees of a jurisdiction in reliance on the data privacy exclusion, it may not exclude the employees in another foreign jurisdiction if the number of employees in that foreign jurisdiction exceed 1% of all employees of that registrant.

A company may use a cost of living adjustment to adjust the compensation of employees outside of the jurisdiction in which the CEO lives to determine the median income employee. If a cost of living adjustment is used to identify the median income employee, then such same cost of living adjustment must be used in calculating SCT Compensation as part of the actual CEO pay ratio disclosure. The cost of living adjustment method, the jurisdiction in which the median income employee resides, and a separate pay ratio comparison without the use of a cost of living adjustment must be included in the CEO pay ratio disclosure.

Only employees of a registrant and its consolidated subsidiaries, generally based on a 50% ownership threshold, will be included in the median income employee calculation.

Action Items

Although the CEO pay ratio disclosure is not required for more than two years, companies subject to the disclosure requirement should begin now to evaluate the best method of identifying the median income employee. Accordingly, registrants should consider the following:

Provide a summary of the final rule to the Board and/or compensation committee of the Board.
Identify any foreign jurisdictions in which data privacy laws may preclude the registrant from including employees of that jurisdiction in the CEO pay ratio disclosure calculations.
Determine whether non-U.S. employees may be excluded under the general 5% exclusion rule and determine which of those non-U.S. employees should be excluded.
Evaluate how the median income employee will be determined (i.e., based on SCT compensation, W-2, statistical sampling, etc.) and identify any limits or restrictions in collecting that information that may arise.
Begin to evaluate whether other disclosures may be appropriate to include with the CEO pay ratio disclosure to provide context and meaning to the CEO pay ratio disclosure.

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July 23, 2015

EEOC Concludes Sexual Orientation Discrimination Violates Title VII – Will Courts Agree?

By Dustin Berger

According to an opinion from the Equal Employment Opportunity Commission (EEOC) last week, Title VII’s bar on sex discrimination also forbids employment discrimination based on sexual orientation. It is unclear, however, whether courts facing Title VII sexual orientation or gender identity discrimination claims will agree with the EEOC’s conclusion.

Federal Employee Alleged He Was Denied Permanent Position Because He Is Gay

An employee of the Federal Aviation Administration (FAA) filed a complaint alleging that he was denied a permanent position as a Front Line Manager at the Miami Tower TRACON facility because he is gay. He alleged that his supervisor, who was involved in the selection process, had made several negative comments about his sexual orientation, such as “We don’t need to hear about that gay stuff.”

The FAA declined to process the employee’s claim under rules that govern federal employee complaints of Title VII. The employee appealed to the EEOC. This teed up the issue of whether Title VII covers claims of sexual orientation discrimination.

Three Reasons Why Sexual Orientation Already Covered As Sex Discrimination

In its decision, the EEOC details three reasons why it concludes that sexual orientation discrimination is sex discrimination prohibited by Title VII:

Sexual orientation discrimination necessarily entails treating a worker less favorably because of that person’s sex. As an example, the EEOC states that if an employer suspends a lesbian employee for having a picture of her female spouse on her desk but does not suspend a male employee for displaying a photo of his female spouse, the employer took an adverse action against the lesbian employee that it would not have taken if she were male.
Sexual orientation discrimination is associational discrimination on the basis of sex. The EEOC views sexual orientation discrimination as treating a worker differently for associating with a person of the same sex. It opines that if associating with a person of a different race, such as an interracial marriage or a biracial child, constitutes race discrimination, as numerous courts have ruled, then discrimination based on associating with a person of the same sex constitutes sex discrimination.
Sexual orientation discrimination involves discrimination based on gender stereotypes. In its 1989 Price Waterhouse v. Hopkins decision, the U.S. Supreme Court ruled that Title VII prohibited an employer from discriminating against a female employee who the employer deemed was not “feminine enough” and did not conform to the female stereotype. Pointing to numerous court cases from the past decade, the EEOC stated that discrimination against LGBT employees based on gender stereotypes constitutes prohibited sex discrimination under Title VII.

No New Protected Class Needed

The EEOC acknowledges that Title VII does not specifically prohibit employment discrimination based on sexual orientation. It doesn’t have to, says the EEOC.

The EEOC asserts that interpreting Title VII as not covering sexual orientation as part of prohibited sex discrimination would insert a limitation into the text of Title VII that Congress had not included. It suggests that nothing in the text of Title VII supports the conclusion that Congress intended to “confine the benefits of [the] statute to heterosexual employees alone.” Instead, the EEOC states that even if Congress did not envision the application of Title VII to protect LGBT employees, the interpretation of the law should not be limited only to what Congress had in mind when it passed the law in 1964.

To dispel claims that the EEOC’s interpretation creates a new class of covered persons, the EEOC points to other expanded interpretations of Title VII which did not result in a new protected category. For example, when courts held that Title VII protected employees based on their association with persons of a different race, it did not create a new protected class of “people in interracial relationships.” Similarly, when the Ninth Circuit ruled that religious discrimination under Title VII extended to protect an employee who lacked religious beliefs, no new class of “non-believers” was created. Instead, the EEOC asserts that “courts have gone where the principles of Title VII have directed.”

What Does This Mean?

Sexual orientation and/or gender identity discrimination is already prohibited by law in many states and municipalities. In addition, federal contractors are prohibited from discriminating on those bases as well. If your organization is a federal contractor or is covered by a state or local law prohibiting employment discrimination on those grounds, you should already have updated your equal employment opportunity policies and practices to prohibit harassment, discrimination and retaliation based on sexual orientation and gender identity.

If your organization is not covered by those laws, but is subject to Title VII (which covers employers with 15 or more employees), consider whether to adopt the EEOC’s position. The courts may interpret Title VII differently and ultimately may reject the EEOC’s inclusion of sexual orientation as a form of sex discrimination.

Indeed, for many years, as advocates of the right to same-sex marriage pressed their cases in courts, many courts rejected the argument that discrimination based on sexual orientation was a form of discrimination based on sex. However, as the EEOC observes in its opinion, many courts that have taken up this question more recently have been willing to conclude that discrimination based on sexual orientation is a form of sex discrimination. The EEOC points to both the Ninth Circuit’s landmark Perry decision and the U.S. Supreme Court’s recent same-sex marriage decision in Obergefell as signaling that courts are ready for this interpretation.

While it may take some time for the federal appellate courts to provide more definitive rulings, be aware that the EEOC will pursue claims on behalf of, or in support of, allegedly aggrieved LGBT employees and applicants. You’ll need to weigh your risk tolerance to determine how to respond. We will keep you posted on further developments.

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July 20, 2015

Unpaid Internships Permitted Under New Test

By Brad Williams

A federal circuit court has adopted a new test permitting employers to use unpaid interns where the “tangible and intangible benefits provided to the intern are greater than the intern’s contribution to the employer’s operation.” In Glatt v. Fox Searchlight Pictures, Inc., 2015 WL 4033018 (2nd Cir. July 2, 2015), the U.S. Court of Appeals for the Second Circuit rejected a stringent and outdated six-part test promoted by the Department of Labor (DOL) for determining whether “interns” are actually “employees” within the meaning of federal wage and hour law. Glatt will have a significant impact on intern-initiated litigation, including by making class or collective actions more difficult to prosecute in jurisdictions that adopt the test.

Background to Glatt

Internships have become a hot-button topic in recent years. In 2010, the DOL issued “Fact Sheet #71” to educate private sector, for-profit employers about unpaid interns and to dissuade their use. Derived from a 1947 U.S. Supreme Court case that addressed the use of “trainees” hoping to become railroad brakemen, the Fact Sheet listed six criteria that the DOL believed must be satisfied for interns to be excluded from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime requirements. Most notably, these criteria included requirements that employers derive “no immediate advantage” from interns’ activities and that interns not “displace” regular employees (e.g., by preventing their hiring, or by absorbing overtime hours). The DOL took the position that all six criteria must be satisfied for the “trainee” / “intern” exception to apply. However, because most employers receive at least some benefit from unpaid interns, the DOL’s rule would effectively preclude all private sector, for-profit businesses from using unpaid interns, except in unusual cases involving bona fide educational programs and job shadowing.

Based largely on the DOL’s position, interns initiated a wave of class and collective actions across the country alleging that they had been wrongly classified as “interns” rather than “employees.” Despite ambiguity in the controlling case law, employers settled many of these lawsuits at great expense and out of fear that satisfying the DOL’s six-factor test would prove impossible. For instance, Condé Nast settled a class action involving 7,500 interns for $5.8 million in 2014, and Saturday Night Live settled a similar lawsuit involving thousands of interns for $6.4 million that same year. Other employers elected to discontinue their internship programs altogether to avoid the threat of litigation.

Case Law Response to DOL’s Six-Factor Test

Despite employers’ capitulation in the face of class and collective action threats, the actual test for distinguishing between “interns” and “employees” under the FLSA has always been ambiguous. Although the DOL has long promoted its six-part test, it has vacillated in opinion letters and other administrative guidance regarding whether all six criteria must be satisfied. For their part, courts have afforded the DOL’s test some deference, but have rarely held that all six criteria must be met. Instead, they have considered the “totality of the circumstances” or the “economic realities” of interns’ and employers’ relationships in determining whether interns (or similar workers) are actually “employees.” Many of these cases are based upon U.S. Supreme Court cases like Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947), and Tony & Susan Alamo Found. v. Sec’y of Labor, 471 U.S. 290 (1985). Other courts – most notably the U.S. Court of Appeals for the Sixth Circuit in Solis v. Laurelbrook Sanitarium & Sch.. Inc., 642 F.3d 518 (6th Cir. 2011) – have eschewed the DOL’s six-part test altogether, favoring a “primary beneficiary” test which looks at which party receives the primary benefit of an internship. In Solis, the Sixth Circuit concluded that the “primary beneficiary” test was supported by Walling v. Portland Terminal Co., 330 U.S. 148 (1947), the very same 1947 U.S. Supreme Court case on which the DOL purported to base its six-factor test.

District Court Decisions in Glatt and Hearst

The Glatt case was originally filed in 2011 in New York by former interns of Fox Searchlight Pictures who had worked on the film Black Swan. A similar lawsuit was filed in 2012 in New York by former interns of Hearst Corp. who had worked on magazines including Harper’s Bazaar and Marie Claire. Both cases were high-profile and amongst the first wave of intern-initiated lawsuits to work their way through the courts. Both were closely watched by employers concerned about the legality of internships.

In 2013, the district court in Glatt held that two of plaintiffs were “employees” rather than “interns”/ “trainees” under the FLSA and state law. The court applied a version of the DOL’s six-factor test but did not expressly hold that all six factors must be satisfied. The court also granted class and conditional collective action certifications to a third plaintiff.

Also in 2013, the district court in Hearst held that the magazine interns were not “employees” under the FLSA and state law based on a “totality of the circumstances” test. The court denied the plaintiffs’ motion for class certification. Because Glatt and Hearst addressed the same issues, but reached different results, they were eventually consolidated for argument on appeal to the U.S. Court of Appeals for the Second Circuit.

Second Circuit’s Adoption of “Primary Beneficiary” Test in Glatt

On July 2, 2015, the Second Circuit issued its long-awaited decision in Glatt. That same day, it issued a summary order in the companion case, Hearst. In Glatt, the court rejected both the DOL’s six-factor test, and the plaintiffs’ insistence that they were automatically “employees” of Fox Searchlight Pictures because the company had received an “immediate advantage” from their work. The court found the DOL’s six-factor test unpersuasive, and afforded it virtually no deference because it was based upon the DOL’s reading of Walling, which the Second Circuit concluded it was equally competent to construe (along with other U.S. Supreme Court cases).

Accepting Fox Searchlight Pictures’ argument, the Second Circuit adopted a “primary beneficiary” test, holding that “the proper question is whether the intern or the employer is the primary beneficiary of the relationship.” Although not fully articulated in the court’s decision, this test is supported by both a defensible reading of Walling, and later U.S. Supreme Court cases mandating consideration of the “totality of the circumstances” and the “economic realities” of the parties’ relationships. To help lower courts apply the new test, the Second Circuit listed seven non-exclusive factors to consider in determining whether an intern or an employer is the “primary beneficiary” of an internship:

The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

Because the district court in Glatt had not expressly considered these factors, the Second Circuit vacated the lower court’s decision and remanded for further proceedings. Given its holding in Glatt, the Second Circuit also vacated the district court’s decision in Hearst and remanded for further proceedings.

Glatt’s Impact in the Second Circuit and Beyond

Glatt’s “primary beneficiary” test is more favorable to employers than the DOL’s six-factor test. The fact that employers receive some benefit from interns’ work no longer means that internships are automatically illegal. In addition, the individualized assessment required to determine whether an intern – as opposed to an employer – benefits more from an internship under the test means that class and collective actions might now prove impossible to certify. In fact, the Second Circuit vacated the district court’s class and conditional collective action certifications in Glatt, and affirmed the district court’s denial of class certification in Hearst. This strongly suggests that class and collective actions may no longer be appropriate vehicles for resolving intern classification disputes in jurisdictions that apply the new test. To the extent that Glatt or Hearst proceed in the courts below, the defendants will likely face liability only as to individual interns, not entire classes.

Glatt’s new test is currently only the law in the Second Circuit, which covers Connecticut, New York, and Vermont. However, the test for distinguishing between “interns” and “employees” remains in flux in many jurisdictions, and other federal circuit courts may adopt similar tests as more intern-initiated lawsuits work their way through the courts. For instance, the U.S. Court of Appeals for the Tenth Circuit – which covers Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming – currently applies a “totality of the circumstances” test based on Reich v. Parker Fire Prot. Dist., 992 F.2d 1023 (10th Cir. 1993). However, like Glatt, Reich recognized that the DOL’s six-factor test was unpersuasive, and the case contains language consonant with Glatt’s “primary beneficiary” test.
The Tenth Circuit may eventually adopt a more favorable standard if and when it revisits intern classification. Regardless of how the case law develops, however, Glatt plainly illustrates the weakness in the DOL’s six-factor test, and shows that employers may profitably resist intern class or collective actions, even when it requires making new law.

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July 15, 2015

Independent Contractors: New DOL Interpretation Focuses on Economic Dependence of Workers

By Brad Cave

If you hire workers as independent contractors, you need to review that status with fresh eyes in light of a new Administrator’s Interpretation issued by the U.S. Department of Labor (DOL). In his July 15th Interpretation, Wage and Hour Division Administrator David Weil stresses that most workers are employees under the Fair Labor Standards Act (FLSA), not independent contractors. Multiple factors still come into play when determining independent contractor status but the DOL ultimately will look to whether the worker runs his or her own independent business or instead, is economically dependent on the employer.

Broad “Suffer or Permit to Work” Standard

The FLSA defines “employ” as “to suffer or permit to work.” According to Administrator Weil, this broad definition will encompass most workers. He notes that the definition had roots in state child labor laws which sought to ferret out employers who used children as laborers illegally.

He also cites Supreme Court and federal court cases that state that the “suffer or permit to work” standard has broad applicability and extends to the farthest reaches in order to achieve the goals of protecting workers under the FLSA.

Economic Realities Test

Noting that courts have developed a multi-factor “economic realities” test to determine whether a worker is an employee or an independent contractor, the Administrator’s Interpretation goes through each factor, providing examples and cases that help in the analysis. While the factors haven’t really changed, here are some important distinctions made in this Interpretation:

A contract setting forth an independent contractor relationship “is not relevant” in determining whether the worker is properly classified as an independent contractor; the actual working relationship is what matters, not the label given to it by the parties.
The individual’s opportunity to make a profit or realize a loss on the job must include whether the individual’s managerial skills result in that profit or loss; in other words, a worker’s willingness or ability to work more hours or work more efficiently is not enough to suggest independent contractor status, instead the individual must be making managerial decisions about hiring assistants, purchasing materials, advertising, etc., in order to support independent contractor status.
The worker’s investment in tools, equipment and doing the job must be compared to the employer’s investment; a worker who provides a few essential tools to do the job may not be enough to contribute toward independent contractor status; instead, the worker’s investment must be significant, particularly when compared to the entity’s investment in the job.
Being highly skilled in a particular type of work is not sufficient in suggesting independent contractor status as many employees are highly skilled in the services they provide to their employer; instead, an independent contractor must include “business-like initiative.”
The degree to which the entity controls the work of the individual should not play an oversized role in the analysis; many workers today are not under constant supervision of their employers but that lower degree of monitoring and control does not make them independent contractors.

The Administrator’s Interpretation establishes that no single factor in the economic realities test is determinative and each factor should be analyzed in terms of whether the worker is economically dependent on the employing entity or is truly in business for him- or herself.

Time to Review Your Independent Contractor Classifications

The DOL has made misclassification of employees a high priority for the past few years and with this Administrator’s Interpretation, it is signaling its intent to crack down even further on businesses who classify workers as independent contractors. We suggest that you review the Interpretation, study the examples and then audit your independent contractor relationships to determine whether your classifications will pass DOL scrutiny. In difficult cases, consult with your employment counsel for guidance. Conducting the review yourself and making any necessary changes will go a long way in avoiding headaches and potential liability should the DOL appear at your door for an audit. And, keep in mind that this Interpretation does not carry the force of law. The Administrator’s view will undoubtedly be challenged in court as the DOL ramps up its aggressive posture.

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July 13, 2015

EEOC’s Conciliation Efforts Must Be Real, Not “For Appearances Only,” After Mach Mining Decision

By Mark Wiletsky

An unsupported demand letter cannot constitute an actual attempt by the Equal Employment Opportunity Commission (EEOC) to engage in the required pre-lawsuit conciliation process, according to a federal judge in Ohio. EEOC v. OhioHealth Corp. (S.D.Ohio June 29, 2015). In one of the first cases to review the sufficiency of EEOC conciliation efforts after that review was authorized by the U.S. Supreme Court in its April Mach Mining decision, it is clear that courts are not willing to rubber stamp the EEOC’s purported conciliation efforts and will delay the lawsuit until actual conciliation takes place.

Insufficient Conciliation Efforts Often Frustrate Employers

If the EEOC finds reasonable cause to believe that employment discrimination occurred, it is required to try to eliminate the alleged discrimination through informal conference and conciliation with the employer. The goal is to get the employer to voluntarily comply with federal discrimination laws and resolve the alleged discrimination privately. In fact, the conciliation process is a necessary precondition to the EEOC filing a discrimination lawsuit against the employer. The EEOC is prohibited from suing the employer until after its conciliation efforts have failed.

At times, employers have been frustrated by a lack of real conciliation efforts, particularly in cases where the EEOC seems to prefer going to court rather than settling with the employer. The Mach Mining decision was a win for employers as it allows an employer to ask a judge to conduct a limited review of the EEOC’s conciliation efforts before a lawsuit goes forward.

EEOC’s Affidavit on Its Conciliation Efforts

The Supreme Court had explained in Mach Mining that a sworn affidavit from the EEOC describing its conciliation efforts would usually suffice to show that it had met its obligations. Many who analyzed that statement feared that an EEOC affidavit would effectively end the employer’s challenge to the sufficiency of the EEOC’s conciliation efforts, resulting in an empty judicial review. But Judge Frost’s decision out of the federal court in the Southern District of Ohio shows that is not the case.

In this case, the EEOC submitted an affidavit that stated that the EEOC had issued a reasonable cause determination letter that invited the parties to join “in reaching a just resolution of this matter” and stating that “conciliation of this matter has now begun.” The affidavit further states that over one month, the EEOC communicated with the employer, OhioHealth, including sending a conciliation proposal which was rejected. The EEOC then sent OhioHealth a final letter stating that conciliation efforts had not been successful.

OhioHealth countered the EEOC’s affidavit by providing its own declaration which stated that the EEOC had made a take-it-or-leave-it demand and failed to provide any information to back up its demand. Even though the EEOC’s determination letter had indicated that a commission representative would prepare a dollar amount that included lost wages and benefits, applicable interest and any appropriate attorney fees and costs, no such calculation was ever provided by the EEOC to OhioHealth. OhioHealth stated that it remained ready and willing to negotiate but that the EEOC instead declared that conciliation efforts had failed.

Judge Frost ruled that the EEOC’s “bookend” letters – first declaring the conciliation process open and then closed — did not constitute an actual attempt at conciliation. He wrote that without the EEOC providing the calculation of the charging party’s damages to OhioHealth, the parties could not shape their positions and the “conciliation process could have been nothing but a sham.” The judge ordered that the EEOC’s lawsuit against OhioHealth be stayed for 60 days while the EEOC engaged in good faith conciliation.

Judge Frost went on to offer a cautionary note to the EEOC. He was disturbed by the EEOC’s statements that it simply would not reach a private resolution of this matter via conciliation and that only a public resolution would be possible. He admonished the EEOC, stating that its position was “ridiculous” and defied the statutory scheme, binding case law, the court and common sense. He wrote that if the EEOC failed to engage in good faith efforts at conciliation as ordered, the court would impose all available consequences, including contempt and dismissal of the lawsuit. Pretty strong words indeed!

Lessons for Employers

Although this is only one court’s review of one conciliation process, employers should be pleased that the Mach Mining decision may have teeth, with courts taking a serious look at the actual conciliation efforts being made. If faced with a reasonable cause determination from the EEOC (and assuming you do not want to go to court), make certain to engage in conciliation by responding to the EEOC’s communications. If the EEOC makes a settlement demand, ask for the calculation of damages that supports the demand. Remain ready and willing to negotiate and document that willingness in writing. And if the EEOC files a lawsuit against you without first making real conciliation efforts, consider seeking a stay of the case by asserting that the EEOC failed to meet a condition precedent to filing the lawsuit.

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June 26, 2015

Same-Sex Marriage Equality: What Employers Need to Know After Obergefell

By Sarah Wisor

Same-sex couples have a Constitutional right to marry and have their marriages recognized nationwide. In a 5-to-4 decision, the U.S. Supreme Court concluded that states are required to license a marriage between two people of the same sex under the Fourteenth Amendment. Obergefell v. Hodges, 576 U.S. ___ (2015). As a result, same-sex couples may now legally marry in all states. This ruling has massive implications, as rights and benefits extended to opposite-sex spouses will be available to same-sex spouses across the United States.

Marriage Equality Prevails

In an opinion authored by Justice Kennedy, the Court recognized that same-sex couples were not seeking to devalue the institution of marriage, but instead sought for themselves the respect, rights, and responsibilities that accompany a legal marriage. The Court held that under both the Due Process and the Equal Protection Clauses of the Fourteenth Amendment, same-sex couples have the fundamental right to marry.

The Due Process Clause provides that no state shall “deprive any person of life, liberty, or property, without due process of law.” The Court determined that same-sex couples may exercise the right to marry under this Clause for four reasons:

the right to make the personal choice of who to marry is inherent in the right of individual autonomy; choices concerning family relationships, whether to have children, and whether to use contraception are protected intimate decisions that extend to all persons, regardless of sexual orientation;
the right of couples to commit themselves to each other and enjoy intimate association extends to same-sex couples just as it does to opposite-sex couples;
protecting same-sex marriage safeguards children and families because without the recognition and stability of marriage, children of same-sex couples suffer harm and humiliation as well as material costs because of the stigma attached to “knowing their families are somehow lesser” than families of opposite-sex couples; and
marriage is a “keystone” of our country’s social order and national community; governmental recognition, rights, benefits and responsibilities depend in many ways on marital status and same-sex couples should not be denied the benefits that accompany marriage.

The Court also ruled that the right of same-sex couples to marry is a liberty protected by the Fourteenth Amendment’s guarantee of equal protection of the laws. The Court admonished that state laws that ban same-sex marriage deny same-sex couples the benefits afforded to opposite-sex couples, disparage same-sex couples’ choices, and diminish their personhood. The Equal Protection Clause prohibits such “unjustified infringement of the fundamental right to marry.”

Recognition of Marriages Performed in Other States

The Court also ruled that a state may not refuse to recognize the same-sex marriages lawfully performed in another state. The result is that any lawful marriage that has already taken place in the United States, whether same- or opposite-sex, must be recognized in all 50 states.

What This Means for Employers

Multi-state employers that have been dealing with state-specific policies that were dependent on state-law recognition of same-sex marriages may now want to implement a uniform policy that applies to all locations. Here are steps you should consider in light of the legalization of same-sex marriages nationwide:

FMLA leave: Same-sex spouses will be deemed spouses under the Family and Medical Leave Act (FMLA) no matter where the marriage took place or where the employee resides. This means that you need to permit eligible employees to take FMLA leave to care for their same-sex spouse with a serious health condition, for qualifying exigency leave if the spouse is being deployed and other qualifying reasons. Update your FMLA policies, forms and practices to permit this leave.
Bereavement and other leaves: If you offer bereavement leave for the death of a spouse or in-laws, you should update your policy to reflect that this leave includes same-sex spouses and relatives of the same-sex spouse. If you offer any other leaves that define immediate family or extend to familial situations, such as non-FMLA medical leave or military leave, update those definitions as well.
Marital status discrimination: If you operate in states that prohibit discrimination based on an employee’s or applicant’s marital status, you will be prohibited from discriminating based on same-sex marriages.
Emergency contacts and beneficiaries: Employees with a same-sex spouse may want to update their emergency contact or beneficiary information listed on group life insurance or retirement plans. Be prepared to administer these changes.
Employee benefits: Group insurance, retirement and other employee benefit plans will need to be reviewed and updated. Be certain to consult your benefits attorney and plan administrators for advice on required changes.
W-4 Forms and tax updates: In light of potential income tax implications for newly recognized same-sex spouses, some employees may want to change their tax withholding information. Be prepared to update W-4 and state withholding amounts upon request.

These and additional policies and procedures impacted by the Court’s ruling may require that you update your employee handbook, policies on your intranet, plan documents, forms, beneficiary designations and other personnel documents. Be sure to notify and train your human resources professionals and supervisors on all changes.

The Court’s landmark decision grants “equal dignity in the eyes of the law” to same-sex couples. Take this opportunity to review your employment policies and practices so your company does the same.

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June 25, 2015

Affordable Care Act Survives Challenge: Tax Credits Available For Federal Exchanges

By Bret Busacker and Gabe Hamilton

To avoid an economic “death spiral” of insurance markets, the U.S. Supreme Court ruled that tax credits are available to individuals in states that have a federal exchange under the Patient Protection and Affordable Care Act (ACA). King v. Burwell, 576 U.S. ___ (2015). In a 6-to-3 decision, the Court relied on context and policy to resolve an ambiguity in the statute, supporting the ACA’s tax credit in states where the health care exchange is established by the federal government.

An Exchange Established by the State-or the Federal Government

The question before the Court was whether the ACA’s tax credits are available to individuals in states that have a health exchange established by the federal government, or only to those in states where the exchange was established by the state. The ACA provides that individuals are only eligible for premium tax credits under the ACA if the individual obtains insurance through “an Exchange established by the State.” But the Act also provides that if a state fails to set up its own exchange, the federal government will establish “such Exchange.”

The Internal Revenue Service issued a regulation making ACA premium tax credits available regardless of whether the exchange was established and operated by the state or the federal government. The parties challenging that IRS regulation in this case argued that tax credits should not be available in states with a federal exchange as that was not an exchange “established by the State.”

Chief Justice John Roberts, writing for the majority, acknowledged that the challengers’ “plain-meaning” arguments were strong, but concluded that the context and structure of the statutory phrase meant that Congress intended the tax credits to apply to eligible individuals purchasing insurance on any exchange created under the ACA. He wrote that the statute is ambiguous and that plain meaning of a statute is but one means the Court uses to resolve an ambiguity. In this instance, context and structure of the statute were more persuasive.

Roberts noted that Congress passed the ACA to improve health insurance markets, not to destroy them. He cited studies that suggested that if tax credits did not apply to federal exchanges, premiums would increase between 35-47 percent and enrollment would decrease by about 70 percent. He wrote, “It is implausible that Congress meant the Act to operate in this manner.”

Tax Credits Are One of The ACA’s Key Reforms

The Court defined the tax credit scheme as one of the ACA’s three key health insurance reforms. The first key reform is the “guaranteed issue” requirement, which prevents insurance companies from denying health care insurance based on a person’s health, and a “community rating” requirement, which prohibits insurers from charging higher premiums to those in bad health.

The second key reform is the individual insurance mandate, requiring individuals to have health insurance coverage or pay a tax penalty. This reform is designed to get more healthy people into the insurance pool, lowering premiums across the board. Individuals are exempt from this requirement if the cost of buying insurance would exceed eight percent of their income.

The third key reform is providing tax credits to certain individuals in order to make insurance more affordable. People with household incomes between 100 and 400 percent of the federal poverty line are eligible to purchase health insurance on the exchange with tax credits which are provided directly to the insurance provider. The availability of premium tax credits through state and federal exchanges is seen as essential in getting more individuals insured and spreading the risk pool.

Acknowledging that the ACA included many instances of “inartful drafting,” the Court decided that limiting tax credits to state exchanges would gut the second and third key reforms in states with a federal exchange. The combination of no tax credits and an ineffective coverage requirement would result in insurance markets plunging into a “death spiral.” The Court concluded that Congress meant for all of the key reforms to apply in every state, including those with federal exchanges.

Result: No Change for Employers in ACA Requirements

By upholding the tax credit scheme in all states regardless of whether an exchange was set up by the state or the federal government, the Supreme Court supported the overall scheme of the ACA. Although Justice Scalia wrote a scathing dissent that was joined by two other justices, the ACA remains intact. Employers should continue to comply with all applicable ACA requirements.

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June 22, 2015

New FMLA Certification Forms Include GINA Safe Harbor Notice

By Jude Biggs

The U.S. Department of Labor (DOL) unceremoniously published new FMLA forms with an expiration date of May 2018. The only significant revision is the addition of a notice to employees and health care providers on the medical certification forms informing them not to reveal genetic information in violation of the Genetic Information Nondiscrimination Act (GINA).

Genetic Information Off-Limits to Employers

GINA, which went into effect in late 2009, applies to employers with 15 or more employees. It not only makes it unlawful for employers to discriminate or retaliate against employees and applicants because of their genetic information, but it also prohibits employers from requesting, requiring, purchasing or disclosing genetic information.

Genetic information is defined to include information about an individual’s genetic tests and the genetic tests of an individual’s family members, genetic services and an individual’s family medical history. Family medical history is included because it often reveals whether someone has an increased risk of getting a disease, disorder or condition in the future.

FMLA and GINA Intersect

Under the FMLA, employers may require that an employee requesting leave for his or her own serious health condition or to care for a family member with a serious health condition provide a medical certification form completed by a health care provider. Through the medical certification form, health care providers provide medical facts about the condition, such as the expected duration, the nature of treatments, and whether the employee is unable to perform his or her job functions as well as information about the amount of leave needed. In some circumstances, responses by health care providers may reveal genetic information that is protected by GINA.

Because of this intersection of the FMLA and GINA, the regulations implementing GINA offer suggested language that covered employers may use to specify that no genetic information should be provided when medical information is offered to support a request for FMLA leave. By utilizing this safe harbor language and advising the employee and the health care provider not to provide genetic information when completing the FMLA medical certification form, the inadvertent receipt of genetic information by the employer will not be deemed a violation of GINA.

In the past, the DOL’s model FMLA certification forms lacked this GINA safe harbor language. Consequently, employers had to offer it separately or utilize their own FMLA forms in order to take advantage of GINA’s safe harbor provision. Now, the DOL has included the following language in its model FMLA certification forms:

Do not provide information about genetic tests, as defined in 29 C.F.R. § 1635.3(f), or genetic services, as defined in 29 C.F.R. § 1635.3(e).

The certification form for an employee’s own serious health condition includes a statement that no information about the manifestation of disease or disorder in the employee’s family members, 29 C.F.R. § 1635.3(b), should be provided.

Use New FMLA Forms Or Update Your Own Forms

The new FMLA model forms, with fillable form fields, are linked here:

Take steps now to update your FMLA practices to use the new DOL forms, or if you use your own FMLA forms, update them to reflect the added recommended language.

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June 15, 2015

Employee Termination For Off-Duty Marijuana Use Legal, Says Colorado Supreme Court

By Emily Hobbs-Wright

In a nationally awaited decision, the Colorado Supreme Court upheld an employer’s termination of an employee who tested positive for marijuana due to his off-duty, off-premises marijuana use. Issued on June 15, 2015, the Court’s narrow decision in Coats v. Dish Network, LLC turned on the fact that marijuana use remains illegal under federal law. Construing the term “lawful” to encompass activities that are permitted by both state and federal law, the Court ruled that Coats’s off-duty marijuana use was not a protected activity within the meaning of Colorado’s lawful activities statute because marijuana use remains unlawful under the federal Controlled Substances Act. The Court refrained, however, from addressing the issue of whether the state’s Medical Marijuana Amendment confers a state Constitutional right to such use.

Although binding only on Colorado, this decision provides employers nationwide guidance in enforcing drug-free workplace policies as more and more states legalize some form of marijuana use.

Coats v. Dish Network: Employee Not Impaired By Marijuana At Work

Dish Network, LLC terminated Brandon Coats, a quadriplegic, for violating its zero tolerance drug policy after he tested positive for marijuana in a random workplace drug screen. Coats claimed he only used marijuana after work at home to treat painful muscle spasms caused by his quadriplegia. He stated that he did not use marijuana on Dish’s premises and was never under the drug’s influence at work.

After his termination, Coats sued Dish claiming his termination violated Colorado’s lawful activities statute, which broadly prohibits discharging employees for engaging in “any lawful activity off the premises of the employer during nonworking hours.” Colo. Rev. Stat. § 24-34-402.5(1). Coats argued that because his use of marijuana was legal under state law, he engaged in a lawful off-duty activity for which he could not be discharged. He further argued that the phrase “lawful activity” in Colorado’s statute must be defined in reference to state, not federal law.

Dish countered by focusing on the fact that marijuana remains illegal under federal law, and therefore, its use could not be a “lawful activity” under the Colorado statute, making Coats’s termination legal. The trial court agreed with Dish and dismissed the lawsuit finding that marijuana use is not lawful under state law. A divided Colorado Court of Appeals upheld the trial court’s decision on separate grounds (i.e., that in order for an activity to be “lawful” it cannot contravene state or federal law), which the Colorado Supreme Court has now affirmed.

“Lawful” Means Permitted By Both State and Federal Law

The Colorado lawful activities statute does not define the term “lawful.” Coats argued it should be read as limited to activities that are lawful under state law, which could include legalized marijuana use. The Court disagreed. It looked to the plain language of the statute to conclude that the term “lawful” means permitted by law, or not contrary to, or forbidden by law. The Court refused to impose a state law limitation to the term, ruling that because marijuana use is unlawful under federal law, it is not a “lawful” activity under the Colorado statute.

A successful appeal of the Court’s interpretation of the lawful activities statute to the U.S. Supreme Court is unlikely as the Colorado Supreme Court based its decision on a straightforward common sense construction of a state statute, which is deemed to be within the state’s highest court’s jurisdiction to decide.

Coats’s Impact on Marijuana in the Workplace

The Coats decision is significant to Colorado employers because it confirms that employers are entitled to enforce drug-free workplace policies without fear of violating the state lawful activities statute. Although this case dealt with marijuana use for medical purposes, the Court’s reasoning should apply to recreational marijuana use as well.

Notably, the Court did not decide whether off-duty marijuana use is protected under Colorado’s Medical Marijuana Amendment, which arguably only creates an exemption from criminal prosecution. Any such narrow ruling would almost certainly have spawned additional litigation over the different wording in Colorado’s more recent Recreational Marijuana Amendment, and whether that amendment made off-duty marijuana use “lawful.”

While the Coats decision resolves an important open issue under Colorado law, Colorado employers should continue to exercise caution when dealing with employee marijuana use outside the workplace. Drug testing policies should provide employees with clear notice of consequences for off-duty marijuana use. Further, employers must enforce zero tolerance policies consistently in order to avoid discrimination claims brought under statutes such as the Americans with Disabilities Act and the Colorado Anti-Discrimination Act. When dealing with an employee who uses marijuana off-duty and off-premises, employers should carefully evaluate the facts of each situation and consider the risks of violating other employment laws before making adverse employment decisions.

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