Third Circuit Makes it Easier to Prove ADEA Disparate Impact Claims By Use of Subgroups of Older Workers

By Lawrence J. Del Rossi 

The Third Circuit Court of Appeals recently issued a precedential decision, Karlo, et al. v. Pittsburgh Glass Works, LLC, that likely will make it easier for subgroups of older workers to bring lawsuits under the Age Discrimination in Employment Act (“ADEA”), on a “disparate impact” theory of liability.  It also creates a split with the Second, Sixth and Eighth circuits, paving the way for greater uncertainty for national employers.

The Karlo Decision – Comparison of Subgroups Permitted For Disparate Impact Analysis  

The defendant Pittsburgh Glass Works, LLC instituted reductions in force that resulted in the termination of approximately 100 employees.  The plaintiffs, a group of workers all over the age of 50, brought a putative ADEA collective action, asserting, among other things, disparate impact claims.  To establish a prima facie case for disparate impact under the ADEA, a plaintiff must (1) identify a specific, facially neutral policy, and (2) proffer statistical evidence that the policy caused a significant age-based disparity. The plaintiffs alleged that they had identified a policy that disproportionately impacted a subgroup of employees older than 50.  However, because the policy favored younger members of the protected class (i.e., employees older than 40 but younger than 50), adding them into the comparison group did not show any statistical evidence of disparity.  The district court initially certified a collective action, but subsequently granted a motion to decertify and then granted summary judgment to the employer.

On appeal, the Court characterized the central question as, “whether so-called ‘subgroup’ disparate-impact claims are cognizable under the ADEA.”  It answered in the affirmative and vacated the district court’s dismissal orders.  The Court concluded that ADEA disparate-impact claims are not limited to forty-and-older comparisons.  A comparison of “subgroups” of older workers within a particular age band (e.g., over 50) is permissible to show a specific, facially neutral employment practice caused a significantly disproportionate adverse impact based on age.  Relying on the “plain text” of the ADEA as interpreted by the Supreme Court and the ADEA’s “remedial purpose,” the Third Circuit explained that various forms of evidence can establish disparate impact based on age, including “forty-and-older comparisons, subgroup comparisons, or more sophisticated statistical modeling, so long as that evidence meets the usual standards for admissibility.”  It rejected the notion that the risk of “gerrymandered evidence is so great that it can override” the ADEA’s statutory language prohibiting discrimination based on age.

Circuit Split

The Court in Karlo expressly acknowledged that its decision is “at odds” with rulings from other circuits, including the Second Circuit, Lowe v. Commack Union Free School District (1989), the Sixth Circuit, Smith v. Tenn. Valley Authority (1991), and the Eighth Circuit, EEOC v. McConnell Douglas Corporation (1999).  While it was reluctant to create a circuit split, the Court cited three “compelling” grounds on which to diverge: (1) those decisions pre-date and contradict Supreme Court precedent, (2) they confuse “evidentiary concerns with statutory interpretation,” and (3) they “incorrectly assume that recognizing subgroups will proliferate liability for reasonable employment practices.”

Takeaways

The Karlo decision hits upon a number of complex issues when dealing with reductions in force, particularly the use and analysis of statistical evidence to establish disparate impact claims.  The decision could have a significant impact on any employer that has a facially neutral policy that in practice favors workers over the age of 40, but disfavors one or more “subgroups” of those workers, e.g., workers over the age of 50 or 60, etc.  It is unclear from Karlo, for example, to what extent a court would limit the age parameters of the subgroups or the number of subgroups in the comparison set.  Employers in the Third Circuit that are planning to conduct reductions in force must consider carefully the statistical impact to different age “subgroups” within the larger group of forty-and-older workers.  As Karlo highlights, “[m]ore exacting analysis may be needed in certain cases, and subgroups may answer that need.”

In addition, one unique challenge that national employers could now encounter is a reduction in force that impacts workers across state lines with conflicting statistical analysis and evidentiary rules, e.g., New York in the Second Circuit versus New Jersey in the Third Circuit.

Finally, it is noteworthy that at the beginning of its opinion, the Karlo court commented that the employer had not trained its decision makers on how to implement the RIF, did not have any written guidelines or policies related to the RIF, did not conduct any disparate-impact analysis, did not review prospective RIF terminees with counsel, and did not document why any particular employee was selected for inclusion in the RIF.  Employers should document the decision-making process, conduct a disparate-impact analysis, and consult with counsel regarding the scope and impact of the RIF on prospective terminees.

Laboring Under New Laws

By Mark E. Terman

*Originally published by CalCPA in the January/February 2017 issue of California CPA — the original article can be found here.

Few things in this world can be certain, except that the California Legislature will expand regulation of employers each year and the sun will come up tomorrow. In an apparent pendulum swing, 569 bills introduced in 2016 mention “employer,” compared to 224 in 2015 and 574 in 2014. Most of those bills did not pass, and of the ones that did, most were not signed into law by Gov. Brown. Essential elements of selected bills that became law affecting private employers, effective Jan. 1, 2017, unless otherwise mentioned and organized by Senate and Assembly bill number, follow.

California Minimum Wage Ascending to $15
SB 3 sets a state minimum wage for non-exempt employees that will escalate annually over the next several years. As of Jan. 1, the state minimum wage at employers with 26 or more employees increases to $10.50 per hour, and then increases 50 cents per hour on Jan. 1 of each following year until and including 2022, when the rate will reach $15 per hour. For employers of 25 or fewer employees, state minimum wage will remain $10 per hour until Jan. 1, 2018, when it will increase to $10.50, and then escalate 50 cents per hour each year until and including 2023 when the rate will arrive at $15 per hour.

Beginning July 1, the state director of finance is to determine each year whether economic conditions can support the next scheduled increase. If conditions cannot support an increase, the governor can—no more than twice—temporarily postpone the increase schedule for a year. After the final scheduled escalation year, the state minimum wage can remain the same or increase based on any increase in consumer inflation as determined by the director.

Changes in state, but not local, minimum wage also impact classification of most exempt workers. In addition to strict“duties tests” for administrative, executive and professional wage and hour exemptions, a salary of at least twice the state minimum wage must be paid to meet the “salary basis test.” As of Jan. 1, the annualized salary rate that employers with 26 or more employees must pay to meet the exempt salary requirement will advance to $43,680, up from $41,600.

For employers with smaller workforces, the $41,600 amount of the exempt salary requirement will remain in place until Jan. 1, 2018, when it will move up to $43,680. With each escalation, the required salary also will rise. At a $15 state minimum wage, the exempt salary requirement will be $62,400.

Also affected by SB 3 is the retail, inside-sales exemption, which requires employees be paid at least 1.5 times the state minimum wage, and at least half of their other earnings be from commissions.

At the same time, the trend of municipalities creating and increasing their own minimum wage for companies that have employees working in their jurisdiction continues. For example, by July 1, the city and the County of Los Angeles require employers with 26 or more employees to raise the local minimum wage to $12 per hour, up from $10.50, and then comply with other scheduled annual increases up to $15 per hour by July 1, 2020. Los Angeles employers with fewer employees, or nonprofit corporations who obtain approval to pay a deferred rate, do not start paying more than the state minimum wage until July 1, 2018.

Minimum wage for employees in San Francisco will increase to $14, up from $13, on July 1, 2017. Many other cities—including Berkley, Oakland, Malibu, Santa Monica, El Cerrito and San Diego—have enacted local minimum wage laws. In addition, living-wage laws may require higher minimum wages be paid as a condition of contracting with local, state or federal agencies. Employers should monitor each of the requirements to assure compliance.

As of press time, a federal court enjoined implementation of a new federal rule that would have increased by Dec. 1, 2016, the salary basis requirement for exempt workers status under the Fair Labor Standards Act to $47,476. This would have been higher than the California exemption salary amount will be for at least two years. For now, California employers are not legally required to either increase salaries to satisfy this federal exemption rule or to reclassify employees as non-exempt.

No Sunset on Overtime Pay for Personal Attendant Domestic Workers
The Domestic Worker Bill of Rights (AB 241) added Labor Code Sec. 1454, effective Jan. 1, 2014, (and caused amendment to Wage Order 15-2001). It entitles a domestic work employee who is a “personal attendant” overtime pay at the rate of one-and-one-half times their regular rate of pay for hours worked in excess of nine hours in any workday or more than 45 hours in any workweek. A domestic worker who spends at least 80 percent of his or her time supervising, feeding and dressing a child or person who needs assistance due to advanced age, physical disability or mental deficiency is considered a personal attendant. SB 1015 removes a Jan. 1, 2017, sunset provision from the law. As such, these overtime rules will remain in effect into the future.

Immigration Related Unfair Practices Expanded
SB 1001 adds Labor Code Sec. 1019.1 to existing prohibitions of unfair immigration practices. This bill constrains employers, who are verifying that workers have the necessary documentation to lawfully work in the United States, from requesting of such workers more or different documents than are required under federal law, refusing to honor documents tendered that on their face reasonably appear to be genuine, refusing to honor documents or work authorization based upon the specific status or term of status that accompanies the authorization to work, or reinvestigating or re-verifying an incumbent employee’s authorization to work using an “unfair immigration practice.” Applicants and employees may file a complaint with the Division of Labor Standards Enforcement. Any person who is deemed in violation of this new law is subject to a penalty imposed by the labor commissioner of up to $10,000, among other relief available.

Wage Anti-discrimination Law Now Applies to Race and Ethnicity
Under the Fair Pay Act in effect since Jan. 1, 2016, employers are prohibited from paying an employee at wage rates less than the rates paid to employees of the opposite sex in the same establishment for equal work on jobs the performance of which requires equal skill, effort and responsibility, and which are performed under similar working conditions.

The Fair Pay Act provides for exceptions such as, the wage differential is based upon one or more of the following factors:

  1. A seniority system;
  2. A merit system;
  3. A system that measures earnings by quantity or quality of production; and
  4. A bona fide factor other than sex, such as education, training or experience.

The later factor will apply if the employer shows that the factor is not the result of a sex-based differential in compensation, is job related to the position, and is consistent with business necessity.

SB 1063 amends Labor Code secs. 1197.5 and 1199.5 to expand requirements of the Fair Pay Act to employees’ race or ethnicity, in addition to gender. In other words, the same rules now apply to prohibit wage differential based on race or ethnicity. Like existing Fair Pay Act sex-based prohibitions, the amendment bans employers from discriminating or retaliating against employees who report or assist with others’ affected by race or ethnicity-based wage differentials; provides the same enforcement rights; and includes protections for employees to disclose, inquire or discuss wages.

AB 1676 amends the Fair Pay Act (Labor Code Sec. 1197.5) to provide that an employee’s “prior salary shall not, by itself, justify any disparity in compensation” under the bona fide factors above.

Non-California Choice of Law and Forum in Employment Contracts Voidable
SB 1241 adds Labor Code Sec. 925 to prohibit employers from requiring an employee who primarily resides and works in California, as a condition of employment, to enter into agreements (including arbitration agreements) to:

  • Adjudicate claims arising in California in a non-California forum; or
  • Deprive the employee of the substantive protection of state law during a controversy arising in California.

Any provision of a contract that violates this new law is voidable by the employee, the dispute will be adjudicated in California under California law and the employee is entitled to recover reasonable attorneys’ fees incurred enforcing Sec. 925 rights. This section applies to any contract entered into, modified or extended on or after Jan. 1, 2017.

There’s an exception to Sec. 925: It does not apply to any contracts with an “an employee who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.” Thus, in the case of more executive-level employees, who often retain independent counsel to negotiate employment agreements, employers may still be able to make use of forum-selection and choice-of-law provisions.

Workplace Smoking Restricted Further
California law already prohibited smoking of tobacco products inside an enclosed place of employment for certain employers. ABX2-7 amends Labor Code Sec. 6404.5 to expand that enclosed space prohibition to all employers of any size, including a place of employment where the owner-operator is the only employee. “Enclosed space includes covered parking lots, lobbies, lounges, waiting areas, elevators, stairwells and restrooms that are a structural part of the building.” A “place of employment” does not include:

  • 20 percent of the guestroom accommodations in a hotel, motel or similar transient lodging establishment;
  • Retail or wholesale tobacco shops and private smokers’ lounges;
  • Cabs of “motortrucks” or truck tractors;
  • Theatrical production sites, if smoking is an integral part of the story in the theatrical production;
  • Medical research or treatment sites, if smoking is integral to the research and treatment being conducted;
  • Private residences, except licensed family day care homes; and
  • Patient smoking areas in long-term health care facilities.

Violations are punishable by a fine not to exceed $100 for a first violation, $200 for a second violation within one year and $500 for a third and for each subsequent violation within one year.

Overtime Pay Increasing for Agricultural Workers
Existing law affords ag workers who work more than 10 hours per day overtime pay at one-and-one-half times the regular rate of pay. AB 1066 (Phase-In Overtime for Agricultural Workers Act of 2016) amends Labor Code Sec. 554 to, among other things, provide a gradual phase-in of overtime pay expansion to agricultural workers.

For employers with 26 or more employees, beginning Jan. 1, 2019, and continuing until Jan. 1, 2022, the phase-in provides for annual reduction of the daily overtime threshold by a half-hour per day until reaching eight hours, and the weekly overtime trigger by five hours per week until reaching 40 hours. As such, on Jan. 1, 2019, agricultural workers working more than 9.5 hours per day or in excess of 55 hours in any one workweek are to receive overtime pay at one-and-half times their regular rate of pay.

By Jan. 1, 2022, the annual phase-ins will conclude with agricultural workers working more than eight hours per day or in excess of 40 hours in any one workweek receiving overtime pay at one-and-half times their regular rate of pay. In addition, beginning Jan. 1, 2022, agricultural workers working more than 12 hours per day are to receive overtime pay at twice their regular rate of pay.

Finally, this bill authorizes the governor to delay the implementation of the phase-in schedule if he or she also suspends the implementation of the scheduled increase in the California minimum wage (see, Minimum Wage Ascending, above). For employers with 25 or fewer employees, the phase-in schedule begins on Jan. 1, 2022, and continues annually through Jan. 1, 2025.

All-gender, Single-user Restrooms
By March 1, 2017, AB 1732 requires all single-user toilet facilities in any business establishment, place of public accommodation or government agency to be identified with signage as all-gender toilet facilities. For the purposes of this section, “single-user toilet facility” means a toilet facility with no more than one water closet and one urinal with a locking mechanism controlled by the user. This bill also allows inspectors, building officials or other local officials responsible for code enforcement to inspect for compliance.

More Restriction on Criminal History Inquiry of Job Applicants
Under existing law, an employer cannot ask an applicant about an “arrest or detention that did not result in conviction, or information concerning a referral ;to, and participation in, any pretrial or post-trial diversion program, or concerning a conviction that has been judicially dismissed or ordered sealed pursuant to law.”

AB 1843 amends Labor Code Sec. 432.7 to prohibit employers from asking applicants to disclose, or using as a factor in determining any condition of employment, information concerning or related to “an arrest, detention, process, diversion, supervision, adjudication or court disposition that occurred while the person was subject to the process and jurisdiction of juvenile court law.”

This bill also alters the definition of “conviction” to exclude “any adjudication by a juvenile court or any other court order or action taken with respect to a person who is under the process and jurisdiction of the juvenile court law.” In addition, this bill contains some exceptions for health care facilities involving final adjudications of recent sex crimes and specified controlled substances crimes.

More Talent Services Act Artist Protection
AB 2068 amends Labor Code secs. 1703 and 1703.4 to provide further protect of artists’ information and photographs in any form of communication, such as “an online service, online application, or mobile application of the talent service or one that the talent service has the authority to design or alter.” AB 2068 also requires:

  • The talent service to act, within 10 days, on requests of the artist made by any form of electronic communication, including text messages, to remove information or photographs from the talent service’s website, online service, online application or mobile application (collectively “electronic medium”) or an electronic medium the talent service has the authority to design or alter; and
  • That the artist may cancel the contract within 10 business days from the date of the talent service contract or the date on which the artist commences utilizing the services under the contract, whichever is longer.

Domestic Violence, Sexual Assault or Stalking
By July 1, 2017, AB 2337 requires employers with 25 or more employees to provide specific information in writing to new employees upon hire, and to other employees upon request, of their rights to take off time from work and not suffer adverse employment action from doing so under Labor Code Sec. 230.1 (relating to victims of domestic violence, sexual assault or stalking). This bill also requires that, on or before July 1, 2017, the labor commissioner develop and post on its website a compliant form of notice that employers may elect to use. Employers are not required to comply with the notice requirement until the labor commissioner posts the form.

Wage Statement Requirement for Exempt Employees
Labor Code sec. 226 requires employers to provide their employees along with each paycheck an accurate itemized statement in writing containing information listed in the statute, including hours worked, unless the employees are paid solely a salary and are properly exempt from overtime.

AB 2535 clarifies that hours worked are not required to be recorded on wage statements of employees exempt from minimum wage and overtime under a specified exemption for: executive, administrative or professional employees; the “outside sales” exception; salaried computer professionals; parents, spouses, children or legally-adopted children of the employer; directors, staff and participants of a live-in alternative to incarceration rehabilitation program for substance abuse; crew members employed on commercial passenger fishing boats; and national service program participants. This bill does not change the requirement to include total hours worked by non-exempt employees in their itemized wage statements for each pay period.

Bond Required to Contest Minimum Wage Citation
Labor Code Sec. 1197.1 authorizes the labor commissioner to issue, upon inspection or investigation, a citation against an employer who has paid its employees less than the minimum wage. The citation must specify the nature of the violation, and the labor commissioner is to take steps to enforce the citation and to recover the civil penalty assessed, wages, liquidated damages and waiting time penalties.

An employer can contest a citation through the superior court. AB 2899 amends the statute to require that, prior to contesting a citation, the employer must post a bond with the labor commissioner in an amount equal to the unpaid wages assessed under the citation, excluding penalties. The bond must be in favor of the employee and will be forfeited to the employee if the employer fails to pay the amounts owed within 10 days from the conclusion of the proceedings if the citation is not reversed.

What’s Next?
Employers should consider how these new laws impact their workplaces, and then review and update their personnel policies and practices with the advice of experienced attorneys or human resource professionals.

Recent Scrutiny of Non-Competes

Larry Del Rossi published an article for Today’s General Counsel titled, “Recent Scrutiny of Non-Competes.” Larry provides an overview of non-compete agreements (also known as restrictive covenants) and discusses a recent uptick in government activity that may regulate or challenge private businesses’ use and enforcement of non-competes.

Larry says “one major challenge for national companies is that enforcement of non-competes varies from state to state, so that there is no uniform standard.” In May 2016 the White House issued “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses,” a document intended to identify areas where implementation and enforcement of non-competes may present issues, put forward a set of best practices, and serve as a call to action for state reform.

Larry advises companies to consider whether all employees within the company should have non-competes, evaluate the scope and structure of their agreements, and document the business rationale for requiring employees (including at-will employees) to sign any non-compete.

Read “The Recent Scrutiny of Non-Competes.”

Read Larry’s previous post, “What Employers Need to Know about the Government’s Recent Scrutiny of Non-Competes.”

2016 Presidential Election Aftermath: What Can be Expected in the Labor & Employment Law Space

By Gerald T. Hathaway

We continue to analyze and assess what the 2016 election results mean in the Labor & Employment Law space, and what we can expect from a GOP White House, House and Senate.  The last two times that this GOP alignment was present were 1929 and 2007 (let’s hope that the financial events that followed those two occasions – the Great Depression and the Great Recession – do not repeat themselves this time around).

It is difficult to predict what President Donald J. Trump’s actual agenda will be, because his campaign was long on broad concepts and very short on serious, detailed policy presentation. While Candidate Trump said many things, including contradictory things, about many topics, some themes can be discerned from pre-election and post-election comments.  Also, some issues have been on the GOP wish list for some time, but until they could have the alignment of White House and Congress that will be in place in January, those wish list items, as a practical matter, were just wishes.  Here are our impressions about what changes will occur.

NEAR TERM

  • Affordable Care Act (Obamacare)

There will be a change, but it is not clear as to what the extent of the change will be, nor is the timing. Candidate Trump promised repealing and replacing the entire law.  But President Elect Trump has indicated that he wants to maintain coverage for dependents up to age 26, and to continue the mandate that previously existing conditions be covered.  If the statements of President Elect Trump are the desired results, the altering of the ACA then becomes quite complicated, because fundamental rules of underwriting will have to be respected (because the mandate for coverage was put into place to offset the costs of insuring pre-existing conditions, by having many healthy people in the pool of the insured).  This may be the subject of negotiation, but it will be within the GOP, to the exclusion of the Democratic Party (who may want nothing to do with any amendment, anyway).

There likely will be a push to allow insurance companies regulated in one state to offer insurance to residents of a different state, without being subject to regulation by the other state whose residents are being insured. Under that scheme, states desiring tax revenues from hosting insurance companies will lower their regulatory schemes, and the least regulated companies will be offering the insurance. (The Democratic Party may try and filibuster this particular issue).

  • Public Works: Possible Repeal or Major Modification of the Davis-Bacon Act

In his victory speech, President-Elect Trump made the following statement, which is similar to statements he made during the campaign:

We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.

We think that this initiative would invigorate the U.S. economy, particularly if there is a mandate for the use of materials made in the USA.  This initiative, however, may be opposed by the party he joined to run his Presidential campaign. We think that if they conclude that they must go along with this initiative, the GOP will realize that they may be in a place to do what was not so long ago unthinkable, and that is the repeal of the Davis-Bacon Act (or a substantial modification of it).  The Davis-Bacon Act requires “prevailing wages” to be paid for federal construction projects – which as a practical matter means union wages, which almost always results in the public projects being built by union contractors.  Prevailing wages are typically in the range of $50-$60 per hour, for wages and benefits.  If that requirement is removed, and non-union market wages are paid, the cost of constructing the new projects would be drastically reduced.  We think it likely that the GOP will make that trade, and the obvious benefit of spending so much money on local economies may well deter a Senate filibuster.  Given the drastic drop in union membership over the last few decades, it seems unlikely that the AFL-CIO has the muscle anymore to stop this.

  • New EEO-1 Form

Every year, the EEOC requires employers having 100 or more employees (50 if a government contractor) to file an EEO-1 form, which is a numerical census of the work force broken down by types of jobs, and the sex and race characteristics of those who hold them. Over the last year or so, the EEOC has been preparing a much more detailed form, which would require employers not only to give information about types of jobs, but salary bands of workers, broken down by sex and race.  Management interests have widely criticized the new form, both because of the magnitude of the task of collecting the data, and the low value of the data collected.  If the White House exercises its influence over the EEOC, which we expect it will, President-Elect Trump will likely direct that this new form be killed.

  • Increase in Race, Sex and Religious Discrimination Cases

Many were surprised by the rhetoric of the campaign, which included incendiary racial commentary that would be actionable if the commentary were tethered to workplace speech. Indeed the Trump campaign was openly supported by the KKK and other racial hate groups.  Since the election results were announced, both the FBI and the Southern Poverty Law Center have announced that hate crimes are being committed at new levels of frequency, and there is fairly widespread open and notorious anti-racial speech.  In this environment, one can expect open racial, sexual and religious hostility to reveal itself in the workplace, which will result in an increase of claims in response to that hostility, which may well include pattern and practice claims, and the return of race class actions.  Harassment training is the best answer for this problem, but the trainers had better be prepared for open push-back against notions of diversity.

  • Arbitration of Employment Claims and Class Action Waivers

There has been over the last three decades much back and forth as to what kind of employment claims can be forced into private arbitration, and whether there can be waivers of class action claims. The Congress can address this without fear of veto, and as a consequence there may be a legislative initiative to strengthen the Federal Arbitration Act with respect to employment and wage & hour claims, as well as some legislation permitting class action waivers.

  • Federal Regulations Review

Congress has had the power for twenty years to engage in filibuster-proof review of recently implemented federal regulations. Under the technical provisions of the Congressional Review Act (“CRA”) (enacted as part of Newt Gindrich’s “Contract with America” that followed the mid-term elections that occurred during President Bill Clinton’s first term), any regulation published as “final” after May 30, 2016 can be subject to review.  This date is estimated to be the cut-off date based on Congressional schedules currently in effect, and the actual cut-off date is subject to change.  An explanation of that the complicated process for determining the cut-off date for CRA review is here.

Rarely used in the past, because the President would likely veto any attempt to set aside a regulation put into effect by that President’s administration, the CRA likely will be used to set aside the August “blacklisting” rule applicable to government contractors, which requires federal contractors and bidders to disclose their labor violations to the government, as well as the sick-leave mandates applicable to federal contractors.

On the other hand, and apart from action on the part of federal courts, the new DOL Regulations elevating the salary levels for exempt, white-collar employees will remain in effect.  Since they were published as final on May 23, 2016, it currently appears that they will not be subject to the Congressional Review Act when the next Session of Congress takes place.  There is some wide-spread litigation seeking to block those regulations, and an update on that litigation is here.  As of November 23, 2016, a federal court injunction is in place blocking the implementation of the rule.

  • No Anti-Bullying Legislation

Despite the incoming First Lady’s recently announced campaign against cyber bullying, we are of the view that contemplated federal anti-bullying legislation will not happen.  This website likely will disappear: https://www.stopbullying.gov/laws/.  Many states will fill in the gap, likely led by California.

  • E-Verify

Employers must obtain I-9 forms from new employees to ensure that they are eligible to work in the United States. A streamlined way to verify the information given on an I-9 is E-Verify, the use of which is required for certain federal contractors.  It may well be that the requirements to use E-Verify will be expanded to include almost all employers.

MEDIUM TERM

In 2018, 33 senators will be up for re-election, but only eight of them are Republicans, and seven of those eight are in states that have long histories of voting the Republican slate. The other 25 senators are Democrats, or caucus with Democrats.  Many of those are from states that have been traditionally “blue,” but went “red” in 2016, among them:

Florida
Indiana
Missouri
Montana
North Dakota
Ohio
Pennsylvania
West Virginia
Wisconsin

So it is possible that in 2019, the Republican President will have a filibuster-proof Senate. If that happens, deregulation and repeal of a lot of labor & employment legislation will occur.  It is too early to tell which laws will be targeted.

In the meantime, states that have been deeply and historically blue will be passing laws to give protections that the federal government rolls back. While federal laws are generally pre-emptive, in the labor & employment space most laws are exempt from pre-emption, allowing states to provide greater benefits than the protections that are available under federal law.  The laws that are pre-empted relate to unionization and union affairs, and to ERISA pension & welfare benefits.

LONG TERM

If there is indeed a filibuster-proof GOP Senate, and there is a roll-back of labor & employment laws, we can expect employees to return to unionization, seeking protections from unions in the absence of protective federal laws.

We will update this list as our review of issues continues.

What Employers Need to Know about the Government’s Recent Scrutiny of Non-Competes

By Lawrence J. Del Rossi

For more than 400 years, private businesses have used non-compete agreements in one form or another to protect their legitimate business interests, such as long-standing customer relationships, investment in specialized training, or development of trade secrets. They are commonplace in many employment contracts in a variety of industries ranging from retail, insurance, healthcare, financial services, technology, engineering, and life sciences.  Some state legislatures and courts have curtailed their use in certain industries or professions.  California, for example, prohibits them unless limited exceptions apply.  Cal. Bus. Code §16600.  Most states prohibit them for legal professionals.  Many courts can modify or “blue pencil” them if the restrictions are found to be broader than necessary to protect an employer’s legitimate business interests.

Historically, federal and state agencies have generally stayed out of the mix in terms of regulating or challenging private businesses’ use and enforcement of non-competes.  However, a recent uptick in government enforcement activity suggests a new wave of challenges is on the horizon for employers.

The U.S. Government Takes Aim at Non-Competes

In March 2016, the Office of Economic Policy of the U.S. Department of the Treasury issued a report titled, “Non-Compete Contracts: Economic Effects and Policy Implications.”  According to the report, an estimated 18% of all workers, or nearly 30 million people, have non-compete agreements.  The report discusses the effects of non-competes on worker mobility and economic growth, and recommends greater transparency and communication with employees.

Two months later in May 2016, the White House released a report titled, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses.”  The report’s preamble explains that, “the President has directed executive departments and agencies to propose new ways of promoting competition and providing consumers and workers with information they need to make informed choices, in an effort to improve competitive markets and empower consumers’ and workers’ voices across the country.”  It outlines States’ efforts to curtail the use of non-competes, and announces that “[i]n the coming months, as part of the [Obama] Administration’s efforts to support competition in consumer product and labor markets, the White House, Treasury, and the Department of Labor will convene a group of experts in labor law, economics, government and business to facilitate discussion on non-compete agreements and their consequence.”  The goal of this initiative is to identify “key areas where implementation and enforcement of non-competes may present issues,” examine “promising practices in states,” and put “forward a set of best practices and call to action for state reform.”

State Agencies File Lawsuits to Limit Use of Non-Competes

Apparently hearing the White House’s “call to action for state reform,” some states appear to have stepped up their enforcement efforts.  For example, on August 4, 2016, the New York Attorney General’s Office issued a press release announcing that a nationwide medical information services provider agreed to stop using non-competes for most of its employees in New York.  The non-competes had prohibited all employees, including “rank-and-file workers,” from working for competitors after their employment ended, regardless of whether they had access to trade secrets or other sensitive information.

In June 2016, the Illinois Attorney General’s Office filed a lawsuit against Jimmy John’s franchises “for imposing highly restrictive non-compete agreements on its employees, including low-wage sandwich shop employees and delivery drivers whose primary job tasks are to take food orders and make and deliver sandwiches.”  [Press Release] The Complaint alleges that Jimmy John’s has engaged in unfair conduct in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, seeks a declaration invalidating the non-competes and $50,000 per violation.  Jimmy John’s previously had reached a deal with the New York Attorney General’s Office, agreeing to not use non-compete agreements for most of its workers in New York.

The NLRB Strikes Down Private Employer’s Non-Competes

In addition to the uptick in state enforcement activities, the NLRB has weighed in.  On July 29, 2016, a three-member panel of the National Labor Relations Board found that steel product company, Minteq International, Inc., violated federal labor law by requiring new employees to sign non-compete and confidentiality agreements as a condition of their employment without giving Local 150 of the International Union of Operating Engineers the opportunity to bargain on this issue. Minteq Int’l, Inc. & Specialty Minerals Inc. v. Int’l Union of Operating Engineers, 13-CA-139974, 364 NLRB No. 63 (7/29/2016).  Local 150 filed an unfair labor charge after Minteq sent letters to a former employee reminding him of his 18-month post-termination non-compete obligations.  The Board found the non-compete was a mandatory term of employment, and as such, the Union should have been notified and given the opportunity to bargain prior to its implementation.  It concluded that Minteq’s unilateral imposition of the non-compete as a condition of employment violated Section 8(a) of the National Labor Relations Act.

Key Takeaways

Most often a “one size fits all” approach to non-competes is not necessary to protect an employers’ legitimate business interests.  In light of the government’s recent focus on and scrutiny of non-competes, employers should evaluate the scope and structure of their non-competes.  Agencies appear focused on companies that require all employees, regardless of whether they have access to trade secrets or other sensitive information, to sign post-termination non-competes.  Consider whether such across-the-board agreements are necessary to protect their legitimate business interests.  Selective use of non-competes may go a long way to staving off challenges to an employer’s use of non-competes.

Federal Court Orders Stop to DOL’s Persuader Rule

By Stephanie Dodge Gournis, Gerald Hathaway, and Mark Foley

On June 27, 2016, a Texas federal court granted a preliminary injunction preventing the Department of Labor (DOL) from moving forward on a nationwide basis with the July 1st enforcement of its Final Rule Interpretation of the “Advice” Exemption to Section 203(c) of the Labor Management Reporting and Disclosure Act (LMRDA) (also known as the DOL’s “Persuader Rule”). The court order was based on findings that plaintiffs in the case of National Federation of Independent Business, et al. v. Perez, 5:16-cv-00066-C, were likely to succeed on the merits of their claims in establishing that the DOL’s Persuader Rule is inconsistent with federal law and exceeds the DOL’s statutory authority.

The LMRDA requires employers and labor relations consultants (including attorneys) to report certain agreements and arrangements (and payments made pursuant to such agreements/arrangements) under which a consultant performs activities that have “an object … directly or indirectly to persuade employees concerning their rights to organize and bargain collectively.” The statute expressly exempts from its reporting requirements consultant activity that involves a consultant’s mere giving of “advice” to the employer. The DOL historically has interpreted this LMRDA “Advice Exemption” as not requiring employers or consultants to report “indirect” consultant persuader activity – meaning activity in which the consultant works behind-the-scenes, but never directly communicates with employees. With the publishing of its new Persuader Rule on March 24, 2016, the DOL announced its rejection of the prior Advice Exemption  interpretation and directed employers and consultants to begin reporting indirect persuader activities, including activities in which a consultant drafts or revises employer policies and communications, assists management in developing coordinated responses to organizing and collective bargaining, and/or conducts seminars or management training which assists the employer in developing anti-union strategies or action plans. Under the LMRDA reporting requirements, officers of employer and consultant companies are required to maintain necessary records to support DOL filings for at least 5 years, and are subject to criminal penalties and prosecution for false or incomplete reporting, or failure to file a required report as required under the DOL’s rules.

The DOL’s new Persuader Rule technically went into effect on April 24, 2016, but was scheduled to apply only to consultant agreements and arrangements made after July 1, 2016. This meant that starting July 1, 2016 employers and consultants faced increased reporting obligations requiring them to report all consultant agreements/arrangements, and activities and payments made pursuant to such agreements/arrangements. Consultants (including law firms) also were required to report on an annual basis all receipts and disbursements arising in connection with any labor relations advice or services rendered to employers without limitation to the consultant’s “persuader clients.” In other words, consultants (and law firms) that engaged in persuader activity for a single client would be required to report labor relations advice and services for all clients (even when no persuader activity was involved for those other clients).

The National Federation of Independent Business case is just one of three federal lawsuits pending in various jurisdictions seeking to prevent the DOL’s Persuader Rule from taking effect. In this case interested business groups and ten states joined together to pursue an injunction against the DOL in the United States District Court in Northern Texas. The outcome of the case was influenced by expert testimony of labor attorneys, bar association representatives and business associations regarding the anticipated economic business costs of implementing the new reporting requirements, as well as concerns regarding restrictions on employer free speech rights and opportunities to obtain adequate legal representation for labor relations matters.

Based on the evidence presented, Senior District Judge Sam R. Cummings concluded that the DOL failed adequately to explain its reasoning for abandoning the prior, longstanding interpretation of the LMRDA Advice Exemption, and thus the DOL should not be afforded the usual deference in its agency interpretations. The Court found the DOL’s Persuader Rule arbitrary, capricious, and an abuse of the DOL’s discretion on the basis that the rule unreasonably conflicts with state rules regarding the practice of law, including attorney duties to protect client confidentiality, exercise independent professional judgment and render candid advice. The Court found the DOL’s Persuader Rule imposes content-based burdens on employer First Amendment rights to express opinions regarding union organizing, and to consult and hire attorneys to speak on an employer’s behalf. The Court found substantial likelihood that the plaintiffs would succeed on claims that the Persuader Rule is “void-for-vagueness” under the Due Process Clause of the Fifth Amendment. In the words of the Court, “[h]ere DOL replaced a long-standing and easily understandable bright-line rule with one that is vague and impossible to apply.” The Court found there to be “a substantial risk that associations, employers and consultants, including attorneys, will not be able to determine with reasonable certainty whether their actions require reporting.” Finally, the Court found substantial likelihood that the Persuader Rule violates the Regulatory Flexibility Act (RFA), on the basis that in promulgating the new rule the DOL “artificially excluded important costs of its implementation from consideration,” including significant costs incurred by consultants in having to file annual reports detailing expenditures of their individual clients. The Court granted the plaintiffs’ petition for temporary injunction, finding that the plaintiffs would suffer irreparable harm in absence of injunctive relief.  With this decision the DOL is enjoined on a national basis from implementing “any and all aspects” of its Persuader Rule pending full resolution of the case merits or until further Court Order. The decision calls into serious question whether the DOL’s Persuader Rule can be legally enforced. At a minimum, and assuming the injunction is not lifted by an emergency appeal, it will be many months (if not years) before the DOL can move forward with its new-found interpretation of the law.