Header graphic for print

Employment Law Monitor

Insights on Recent Developments in Federal and State Labor & Employment Matters

Second Circuit Holds That Parties May Not Voluntarily Settle Claims Under the Fair Labor Standards Act With Prejudice Without Judicial or Department of Labor Approval

Posted in Wage and Hour, Wage and Hour and Executive Compensation

In Cheeks v. Freeport Pancake House, Inc. et als., the United States Court of Appeals for the Second Circuit held that parties may not privately settle claims arising under the Fair Labor Standards Act (“FLSA”) with prejudice (which forecloses a future lawsuit), without court approval or United States Department of Labor (“DOL”) supervision.  With this ruling, employers facing an FLSA suit in the Second Circuit must be prepared for a public filing and judicial approval of any settlement.

In Cheeks, Mr. Cheeks worked at the Freeport Pancake House as a server and manager.  In August 2012, he sued for unpaid overtime wages, liquidated damages and attorneys’ fees under both the FLSA and the New York Labor Law.  Mr. Cheeks also claimed damages for his demotion and ultimate termination.

The parties agreed to a private settlement of Mr. Cheeks’ action and attempted to file a Joint Stipulation and Order of Dismissal pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii), which allows for a voluntary dismissal without court order, unless there is an “applicable federal statute” providing otherwise.  The District Court refused to accept the Stipulation, however, concluding that the parties could not agree to a private settlement of the FLSA claims without either District Court or DOL approval.  The parties certified the question to the United States Court of Appeals for the Second Circuit, which affirmed the District Court.

In deciding this issue, the Second Circuit settled a split among the District Courts.  In Cheeks, the Court was called upon to answer the open issue of whether parties could voluntarily dismiss an FLSA action, with prejudice, and without court approval.  In holding that the FLSA presents an exception to Rule 41, the Court cited the purpose and policy behind the FLSA, a “uniquely protective statute,” which seeks to prevent the “potential for abuse” in wage and hour settlements.  On balance, the court found the burdens of requiring judicial review of often small FLSA actions are outweighed by the remedial purpose of the FLSA.

Employers should now understand that they may not secure “with prejudice” dismissals of wage and hour disputes without court or DOL approval.  In order to secure a complete release of an employee’s claims filed in court under the FLSA, including liquidated damages and attorneys’ fees, as well as the dismissal of putative class or collective actions, the parties must submit the settlement to the court or DOL for approval.

 

United States Department of Labor Issues Memorandum Indicating Agency’s View that Most Workers Are “Employees” Covered by the Fair Labor Standards Act

Posted in Employment Policies and Practices, Wage and Hour

Confirming what many employment law practitioners already know, on Wednesday July 15, 2015, the United States Department of Labor, Wage and Hour Division (“USDOL” or the “Agency”) confirmed that the Agency takes a very expansive view of “employment” under the federal Fair Labor Standards Act (“FLSA”). The USDOL issued a 15 page “Administrator’s Interpretation” in which the USDOL pointed out the importance of properly classifying workers as “employees” so that they do not lose critical legal protections important for such workers, particularly those in low paying jobs. The noted protections include minimum wage, overtime compensation, unemployment insurance and workers compensation. The Interpretation also noted the need to provide an even playing field for employers who properly classify their workers. The Interpretation can be accessed here.

Under the FLSA, to “employ” means to “suffer or permit to work.” The Agency reads the phrase broadly, concluding that Congress intended the FLSA to have broader application than the common law control test. To assess employment under the FLSA, the Interpretation confirms the six (6) part “economic realities test” long analyzed by courts. In so doing the Agency notes that the “ultimate inquiry” in the analysis of a worker’s status is whether the worker is in business for him/herself (making the worker an independent contractor) or dependent on the employer, which indicates employment. The Interpretation outlines the six (6) factors to be considered in conducting this analysis as follows: the nature and degree of the employer’s control, whether the work is integral to the business, whether the worker has an opportunity for profit or loss, how the worker’s relative investment compares to the employer’s investment, whether the work performed requires special skill and initiative, and whether the relationship between the worker and the employer is permanent or indefinite. The Agency notes that the factors are “tools” and “guides” to aide in the ultimate question of determining economic independence, which should be assessed “in totality.”

The Interpretation should be viewed in conjunction with the USDOL’s recent issuance of proposed regulations regarding changes to the number of employees eligible for exclusion from overtime under the FLSA. In light of the Agency’s focus on this issue, this is an excellent time for companies to take note of the USDOL’s conclusion that “most workers are employees under the FLSA’s broad definitions” in closely assessing their classification of workers.

United States Supreme Court Upholds the Affordable Care Act Subsidies

Posted in Employment Policies and Practices

As we previously reported, one of the greatest challenges to the Affordable Care Act (“ACA” or “Act”) came in King v. Burwell, otherwise known as the Obamacare subsidy lawsuit, where the plaintiffs challenged the ACA subsidies issued by the IRS in States that use the federal exchange (www.HealthCare.gov) to offer health insurance rather than their own State-run exchanges. A ruling in the challengers’ favor would have dismantled the ACA by essentially causing its financial collapse. This near-collapse of the Act was avoided yesterday when the Supreme Court issued its opinion, upholding the subsidies and finding that Americans are entitled to keep the tax subsidies that help defray the cost of insurance.

In a 6-3 opinion, the Supreme Court agreed that subsidies were always meant to be distributed through both Federal and State channels, and that the goal of the law was to cover all Americans. The decision comes after the Court found, in National Federation of Independent Business v. Seleblius, that the individual mandate (the portion of the Act that requires Americans to buy health insurance or pay a penalty) was constitutional.

 

NYC Becomes The Latest Major City To Pass “Ban the Box” Legislation

Posted in Employment Policies and Practices

New York City passed the Fair Chance Act last week, making it the latest of a growing number of states, counties and cities across the country to bar employers from inquiring about job applicants’ criminal histories during the early stages of the job application process. This law, known more commonly as “Ban the Box” legislation, makes it a violation of the New York City Human Rights Law for New York City private employers to question job applicants about their criminal backgrounds until after making them a conditional employment offer. The legislation is designed to provide capable, qualified individuals with criminal backgrounds the opportunity to apply for jobs without being rejected at the outset based solely upon their troubled histories. However, it does not mandate that employers ultimately hire individuals with criminal histories.

As noted, under the Fair Chance Act, prospective employers are permitted to inquire about an applicant’s criminal history after extending a conditional job offer. If the employer so decides it may withdraw the offer after learning about the person’s criminal background, the employer must keep the position open for a three-day period and provide the applicant with a written explanation as to why the offer is being rescinded. The applicant may utilize the three-day window to interact with the employer and address the employer’s stated concerns, such as correcting any inaccuracies and/or submitting proof of rehabilitation. As with other Ban the Box legislation, exemptions are made for jobs where criminal backgrounds would present an automatic bar to employment, including law enforcement and other sensitive, security-related positions.

Former Mayor Michael Bloomberg passed a similar law back in 2011 that applied to New York City public sector job applicants. Mayor Bill de Blasio is expected to sign the pending legislation in the upcoming weeks.

New York City Prohibits Employers From Considering Credit History When Making Employment Decisions

Posted in Employment Policies and Practices, Harassment, Discrimination and Retaliation

On May 6, 2015, New York City enacted the Stop Credit Discrimination in Employment Act (the “Act”), which amends the New York City Human Rights Law to make it unlawful for employers to consider an individual’s consumer credit history in making employment decisions. Not only does the Act prohibit the consideration of an applicant’s or employee’s credit history, but it also prohibits employers from requesting a credit history.

Despite its broad prohibitions, the Act does contain specific exemptions that permit employers to consider an applicant’s or employee’s credit history in certain situations. For example, the Act does not apply to:

  • employees with fiduciary responsibility to their employer and the authority to enter into financial agreements on behalf of the employer for $10,000 or more;
  • employees with signatory authority over third-party funds valued at $10,000 or more;
  • employees with authority to modify the employer’s digital security systems;
  • non-clerical employees who have access to trade secrets, intelligence information, or national security information;
  • employees required to possess security clearance under state or federal law;
  • employers that are required by state or federal law or regulation, or by a self-regulatory organization to use consumer credit history for employment purposes;
  • employees required to be bonded under applicable local, state, or federal law;
  • police officers; or
  • certain employees within the New York City Department of Investigations.

The enactment of the Act follows a growing trend across the United States to prohibit the use of credit histories in employment decisions. The States of California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington have all passed similar legislation. Employers need to remain mindful of changes in state and local laws in the jurisdictions where their employees work to ensure compliance with applicable laws.

EEOC Endorses Incentives To Employees For Participation In Qualified Wellness Programs

Posted in Employment Policies and Practices, Harassment, Discrimination and Retaliation

On April 20, 2015, the United States Equal Employment Opportunity Commission (“EEOC”) issued proposed guidance concerning employer wellness programs. The proposed rule would amend the EEOC’s regulations and interpretive guidance implementing Title I of the Americans with Disabilities Act (“ADA”). Prior to the proposed rule, the EEOC was silent as to whether employers may offer financial incentives to encourage employees to participate in wellness programs. The proposed rule clarifies that the ADA permits employers to offer incentives to employees who participate in wellness programs and/or for achieving health outcomes. Under the proposed rule, employers will be permitted to offer participating employees a maximum incentive of 30% of the total cost of the employee-only coverage.

The proposed rule applies only to employee health programs that include disability-related inquiries or medical examinations. These programs must be “voluntary” and must be reasonably designed to promote health or prevent disease. In order for an employee’s participation to be deemed “voluntary,” the employer may not require employees to participate, may not deny health coverage to those who do not participate, and may not take adverse action against employees who do not participate. In addition, the employer must clearly explain:

  1. What medical information will be obtained;
  2. Who will receive the medical information;
  3. The restrictions on disclosure; and
  4. The methods the covered entity uses to prevent improper disclosure of employee’s medical information.

The proposed rule provides that an employer’s act of providing incentives to employees to participate in wellness programs will not render the program “involuntary.”

Members of the public have 60 days, or until June 19, 2015, to comment on the proposed regulations. At the end of the comment period, the EEOC will evaluate the comments and make revisions, if necessary. Assuming the proposed rules are adopted, employers can now provide financial incentives to increase employee health through qualified wellness programs. Stay tuned to see whether these proposed rules are in fact adopted.

NLRB Issues Guidance on Employee Handbooks

Posted in Employment Policies and Practices

The National Labor Relations Board (“NLRB”) has recently been aggressive in its enforcement of the National Labor Relations Act (“NLRA”) and, in particular, Section 7 of the NLRA, which protects employees’ rights to form or join a union and engage in “protected, concerted activity” regarding wages, hours and other working conditions for their “mutual aid or protection.” The NLRB has also been diligent in trying to protect employees’ rights under Section 8(a)(1) of the NLRA, which prohibits employers from interfering with employees’ Section 7 rights. The NLRA applies to both union and nonunion workplaces. For the past several years, the NLRB has closely examined employee handbook policies to ensure that they do not inadvertently prohibit or “chill” protected Section 7 activity.

On March 18, 2015, the NLRB’s General Counsel, Richard F. Griffin, Jr. issued an extensive memo entitled “Report of the General Counsel Concerning Employer Rules,” which addresses recent handbook policy cases and provides examples of workplace policies that the NLRB believes will “chill” employee activity, as well as examples of those that will pass NLRB muster. The report also addresses handbook rules gleaned from a recently settled NLRB charge against Wendy’s International LLC.

The General Counsel’s memo includes a discussion of policies in the areas of confidentiality, conduct toward co-workers and management, communications with the media, conflicts of interest, photography and recording in the workplace, and the use of intellectual property. Although the NLRB has been scrutinizing handbook policies for some time, this memo provides concrete examples of the NLRB’s views in this area. As reflected in the memo, the difference between a lawful and unlawful policy is often quite a close call.

In light of this guidance, employers should examine their handbooks and employment policies to ensure that they will withstand NLRB scrutiny.

The Affordable Care Act Part Three – Upcoming Requirements & the Impact Recent Judicial Decisions Have on the ACA

Posted in Employment Policies and Practices

This is the last of our three part series on the Affordable Care Act (“ACA” or “Act”), commonly known as “ObamaCare.” This post discusses upcoming requirements under the ACA and judicial decisions that have impacted or may impact future requirements of the Act.

Employer Mandate

As we previously reported, the Employer Mandate for employers with 100 or more full-time employees became effective on January 1, 2015. The Employer Mandate will also go into effect for employers with 50 to 99 full-time employees as of January 1, 2016.

Judicial Challenges to the ACA

To date, opponents of the ACA have made a number of legal challenges to the Act, which have made their way to the United States Supreme Court.  Those cases are discussed below.

NIFIB v. Seleblius

The first significant challenge to the ACA was National Federation of Independent Business v. Seleblius, in which the NIFIB challenged the constitutionality of the individual mandate under the ACA (which requires most Americans obtain health insurance or pay a tax penalty) and the expansion of Medicaid programs (which required State Medicaid programs cover most individuals below 133% of the federal poverty level or lose their federal funding).

On June 28, 2012, the Court upheld the majority of the ACA in a 5-4 decision. Specifically, the Court affirmed Congress’ power to enact the individual mandate, finding that although the individual mandate was not authorized under the Commerce Clause (which grants Congress the power to regulate interstate commerce), was a proper exercise of Congress’ power under the Taxing and Spending Clause (which grants Congress the power to levy taxes and spend federal funds). On the challenge to the Medicaid programs, the Court found that the Medicaid expansion violated the Constitution by threatening States with the loss of their existing Medicaid funding if they did not comply with the expansion. A copy of the full opinion can be found here.

Burwell v. Hobby Lobby

In June 2014, the Supreme Court tackled another major issue arising from the ACA – whether closely-held corporations with religious owners could be required to pay for insurance coverage of contraception under the Act, when contraception conflicted with the owners genuinely held religious beliefs. In a closely divided opinion, the Court ruled that in such circumstances, closely-held corporations could not be required to pay for contraception under the ACA. The “Hobby Lobby” decision, named for the chain of stores that initiated the action, has been said to constrict the ACA and expand the right of some corporations to be treated more like people with a wide range of constitutional protections.

King v. Burwell

Currently, the greatest challenge to the ACA comes in King v. Burwell, otherwise known as the Obamacare subsidy lawsuit, where the plaintiffs challenge the ACA subsidies issued by the IRS in States that use the federal exchange (www.HealthCare.gov) to offer health insurance rather than their own State-run exchanges.

The challenge in King v. Burwell is based on 3 specific sections of the ACA – Section 1311, Section 1321, and Section 1401 – none of which expressly provide that individuals using the federal exchange, as opposed to a State exchange, are entitled to the federal tax subsidy. As a result, the IRS issued a clarification and confirmed that the ACA provides tax credits to taxpayers who obtain coverage through a State exchange, regional exchange, subsidiary exchange, and the federally-facilitated exchange. The King Plaintiffs, therefore, essentially argue that the subsidy provision of the ACA was intended to pressure the States into setting up exchanges, but when it became clear that the States would reject exchanges, the IRS and federal government claimed the intention always was for the IRS to issue subsidies to those using federal exchanges even though such subsidies are allegedly not authorized by the ACA.

The Supreme Court heard oral argument in this case on March 4, 2015 and is expected to issue its decision by mid-June. The challengers reportedly hope that a ruling in the favor would dismantle the ACA by causing its financial collapse. Because only 13 States have created exchanges, the majority of individuals that obtain health insurance through an exchange do so through the federal exchange. Without subsidies, individuals obtaining insurance through the federal exchange might be unable to purchase insurance, resulting in lower enrollment, and thus, less healthy people paying insurance premiums that offset the increased insurance coverage required under the ACA.

The Court’s decision could also open the door for regulatory agencies, Congress, and future lawsuits to have more freedom in interpreting laws with vague wording. Look for our next blog post on the Court’s decision in King v. Burwell sometime this summer.

Third Circuit Court of Appeals Applies an Exception to the Motor Carrier Exemption

Posted in Employment Policies and Practices, Wage and Hour and Executive Compensation

On March 11, 2015, the Third Circuit Court of Appeals became the first Circuit Court to apply the “covered employee” provision of the SAFETEA-LU Technical Corrections Act of 2008 (the “Corrections Act”) to the Motor Carrier Act exemption of the Fair Labor Standards Act (“FLSA”). In McMaster v. Eastern Armored Services, Inc., No. 14-1010 (Precedential), the Court held that an employee of a motor carrier whose job “in whole or in part” affects the safe operation of vehicles lighter than 10,000 pounds is a “covered employee” entitled to overtime for weeks in which such employee works more than 40 hours.

The FLSA generally provides that employers must pay hourly employees 150% of their regularly hourly rate for hours worked in a workweek over 40. 29 U.S.C. § 207. The “motor carrier exemption” provides that overtime pay is not required for any employee for whom the Secretary of Transportation has the power to establish qualifications and maximum hours of service. See 29 U.S.C. § 213(b)(1). In McMaster, the Third Circuit affirmed the decision of the United States District Court for the District of New Jersey that Ashley McMaster, an employee of an armored courier company, fell squarely within the exception to the Motor Carrier exemption created by Congress’s June 6, 2008 passage of the Corrections Act. As such, the Court determined McMaster to be entitled to overtime.

McMaster was employed by Eastern Armored Services (“Eastern”) from March 2010 through June 2011, and her employment included driving an armored vehicle as well as riding as a passenger in an armored vehicle to ensure safety and security. Eastern paid her hourly, and she spent 51% of her total days working on vehicles rated heavier than 10,000 pounds and 49% of her total days working on vehicles rates lighter than 10,000 pounds. She often worked more than 40 hours in a workweek but was never paid overtime because, according to Eastern, McMaster fell within the Motor Carrier exemption to the FLSA. The District Court disagreed and granted summary judgment in favor of McMaster, entering an order that McMaster was eligible to be paid overtime wages for all hours she worked over 40 in a particular workweek. The Third Circuit affirmed the District Court’s decision. Simply put, “covered employees” are subject to the FLSA’s overtime rules, despite the Motor Carrier Act’s provisions. The Court declined to define the term “in part” and determined that “[w]hatever ‘in part’ means, it is certainly satisfied by McMaster, who spent 49% of her days on vehicles less than 10,000 pounds.”

This case demonstrates that compensating employees properly within the statutory framework of the FLSA and its myriad exemptions and “exceptions to exemptions” is a complicated task. Employers should regularly review their compensation practices with counsel to ensure compliance with the changing statutory landscape and judicial interpretation and application of new statutes.

The DOL Adopts New FMLA Protections for Same-Sex Couples

Posted in Employment Policies and Practices

On Wednesday, February 25, 2015, the United States Department of Labor (“DOL”) finalized a rule expanding the scope of protections afforded under the Family and Medical Leave Act (“FMLA”) to married same-sex couples. The rule follows on the heels of the 2013 United States Supreme Court decision in United States v. Windsor, which struck down the federal Defense of Marriage Act’s definition of “marriage” as consisting only of a union between a man and a woman. The new DOL rule, which will take effect on March 27, 2015, will provide same-sex and opposite-sex couples with equal protections for federal leave under the FMLA.

The FMLA permits eligible workers up to 12 weeks of unpaid, job-protected leave for certain enumerated family and medical reasons, including, by way of example, caring for spouses or children with serious health conditions. Under the old FMLA framework, if an employee in a same-sex union resides in a state that does not recognize same-sex unions, he/she was precluded from FMLA coverage. The DOL’s revised rule replaces this former residence-based test in favor of the “place of celebration” rule. FMLA eligibility will now be dependent on where a couple is married and whether the marriage (same-sex or opposite-sex) is recognized in the state in which it was entered. This new standard will allow for a more uniform, consistent application of the FMLA’s protections across the country, regardless of the state in which a married employee currently resides.