The Office of Management and Budget Hits the Brakes on the Revised EEO-1

By Lynne Anne Anderson, Kate S. Gold and Philippe A. Lebel

Last year, the U.S. Equal Employment Opportunity Commission (EEOC) unveiled its proposed revisions to the Employer Information Report EEO-1 (EEO-1). Previously, the EEO-1 directed federal contractors and employers with 100 or more employees to report annually the number of individuals that they employ by job category, race, ethnicity and gender in 10 different job groupings. As part of the Obama administration’s enhanced focus on equal pay, the EEOC’s proposed EEO-1 revisions aimed to expand the information collected to include pay data and working hours to help the EEOC discover potential discrimination in employment and pay equity.

The EEOC finalized its new EEO-1 in September 2016, and the additional information was to be provided by employers by the next reporting deadline in March 2018. That was the plan until the Office of Management and Budget (OMB) stepped in.

Continue reading “The Office of Management and Budget Hits the Brakes on the Revised EEO-1”

Get Ready to Comply: All Signs Point to Enforcement of the Enhanced EEO-1 Form and Reporting Obligations

By Alexa E. Miller and Lynne A. Anderson

For approximately fifty years, the Equal Employment Opportunity Commission (“EEOC”) has collected workforce data about race, gender, ethnicity and job category from all businesses with 100 or more employees, using the EEO-1 report.  In an effort to combat pay discrimination, last year the EEOC announced that it finalized regulations expanding the information collected in the annual EEO-1 report to include pay data.

The revised EEO-1 form requires employers to collect aggregate W-2 earnings and report the number of employees in each of the twelve pay bands (spanning from $19,239 and under to $208,000 and over) for the ten EEO-1 job categories (Executive/Senior Level Officials and Managers; First/Mid Level Officials and Managers; Professionals; Technicians; Sales Workers; Administrative Support Workers; Craft Workers; Operatives; Laborers and Helpers; Service Workers) and classified by race, sex and ethnicity.  The revised EEO-1 form has been largely criticized by employers claiming that the collection of W-2 earnings, without any context to explain legitimate non-discriminatory reasons for pay disparities (e.g., education, training, experience, tenure, merit, etc.) will unnecessarily open the door to increased scrutiny and investigations.  To make matters worse, the EEOC has not been very forthcoming about how the information would be analyzed and used, other than as a “screening tool” to identify pay discrimination.

With the post-election transfer of power completed, many practitioners were unsure whether the EEOC would move forward with collecting summary pay data under the new administration.  Indeed, one of President Trump’s first actions was to issue a government-wide regulatory freeze halting any new and pending regulations from taking effect.  Moreover, the newly appointed acting chair of the EEOC, Victoria Lipnic, confirmed that the revised EEO-1 forms are precisely the intended regulations targeted by Trump’s directive to halt and re-evaluate new and pending rules.  That stance coupled with the President’s executive order requiring that for every new federal regulation implemented, two must be rescinded, left many within the employment law community predicting that the new EEO-1 form would fall victim to the new administration’s chopping block.

However, with the passage of time, it appears that the revised EEO-1 form is likely here to stay.  Unlike some other agencies, the EEOC operates by majority vote.  Acting Chair Lipnic voted against the new pay data reporting requirements, but she was outnumbered 3 to 1.  Therefore, any changes to the new EEO-1 report would require a majority vote from the commission.  Trump will have an opportunity to nominate two more Republican commissioners later this year, which, if the nominees are confirmed by the Senate, could tip the balance in favor of rolling back the revised EEO-1 form.  However, that type of ideological shift among the EEOC commissioners would not occur until at least the Fall of 2017.  Although Lipnic indicated that the enhanced pay data collection requirements may be re-evaluated in the future, she has also stressed that equal pay remains a priority for the EEOC.  Given the timing of any new appointments and the upcoming filing deadline (March 31, 2018), it’s more likely that we will see a proposal to modify the revised EEO-1 form, rather than a complete repeal of the collection of pay data.

Thus, employers with more than 100 employees would be wise to gear up for compliance. The EEOC recently issued guidance to assist companies with the new reporting obligations by answering questions from the agency’s employer webinars about the revised EEO-1 report. The EEOC’s guidance instructs employers to reference an employee’s wages as reported in his or her W-2, Box 1 for the calendar year, which includes wages, tips and other compensation, to identify the correct pay band.  The EEOC clarified that employers cannot reference gross annual earnings instead of W-2, Box 1, earnings.  Employers should then count and report the total number of employees in each pay band for the job category on the new EEO-1 form.

The revised EEO-1 form also requires employers to report the total hours worked during the year, which will help explain partial year or part-time employment. The new EEO-1 form follows the Fair Labor Standards Act (FLSA) definition of hours worked.  Therefore, employers are not required to include paid leave, such as sick leave, vacation leave, or paid holidays as hours worked.  For non-exempt employees, employers should use the number of hours worked under the FLSA during the reporting year.  For exempt employees, employers can choose to either report the designated proxy hours of 40 per week for full-time employees or 20 hours per week for part-time employees multiplied by the number of weeks worked that year, or, alternatively, report actual hours worked, as defined by FLSA, if the employer already maintains such records.  Employers are not required to create or retain any new records of hours worked for exempt employees.

Other noteworthy changes in the new EEO-1 report include the new workforce snapshot period, which was previously a pay period in between July 1 and September 30, but is now a pay period between October 1 and December 31, and the new filing deadline every March 31, beginning March 31, 2018 and continuing thereafter. Employers are reminded to report pay and hours worked for the entire year for employees who are on the payroll during the workforce snapshot period.  The job categories and demographic data remain the same.

“Ensuring equal pay protections for all workers” remains a substantive priority for fiscal years 2017-2021, as set forth in the EEOC’s Strategic Enforcement Plan. Therefore, it is important that employers are fully ready to comply with the new reporting obligations.  Prior to compiling and reporting its 2017 EEO-1 data, we recommend that companies conduct an internal audit to identify any pay disparities and then consult with legal counsel to analyze the bona fide business reasons for any discrepancies.

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.

How to Comply With the EEO-1’s Proposed New Hours Reporting Requirements

By Valerie Dutton Kahn

As you may have heard, the Equal Employment Opportunity Commission (“EEOC”) released revised EEO-1 reporting guidelines on July 13, 2016 (for an overview of the new guidance in its entirety, see EEOC Issues Revised EEO-1 Proposal).  These new guidelines apply to employers with 100 or more employees and require them to report, among other things, hours worked by exempt and non-exempt employees, subdivided by gender, race, ethnicity, job classification, and pay band.  For an example of the proposed new reporting form, click here.  Although employers and other members of the public will have until August 15, 2016 to comment on the revised proposal, it is unlikely that any further substantive revisions will be made. Currently, it appears that employers will be required to submit the new EEO-1 form on March 31, 2018, giving them approximately a year and a half to prepare their recordkeeping systems to capture the newly required data.  Therefore, employers are advised to review, and update if necessary, internal recordkeeping systems to be prepared to report hours worked, and pay data, for calendar year 2017 when filing the EEO-1 on March 31, 2018.

What Are “Hours Worked” And Why Does The EEOC Want Them?

In response to employer requests for guidance concerning the definition of “hours worked,” the EEOC has specified that, for employees covered by the Fair Labor Standards Act (“FLSA”), their hours should be recorded as follows:

Non-exempt Employees: The EEOC should report “hours worked” as defined by the FLSA.  “Hours worked” includes time when the employee is actually working (either at the employer’s premises or remotely).  Therefore, “hours worked” would not include meal time, vacation, PTO or other leave, even if the non-exempt employee is paid for that time off, and even though the compensation for those hours will be reflected in the W2 data provided on the EE0-1 form.

Exempt Employees. Employers have two options: (1) provide the actual hours of work of exempt employees if the employer already maintains accurate records of this information, or (2) report a proxy of 40 hours per week for full time exempt employees and 20 hours per week for part-time exempt employees, multiplied by the number of weeks the individuals were employed during the reporting year.

The EEOC provides a few reasons for requiring disclosure of hours worked. First, if the EEOC discovers a pay disparity, it intends to use this information to it assess whether a disparity is caused by the part-time or full-time status of the respective employees, rather than by gender, race, or ethnicity.  Second, the EEOC intends to use the hours worked data to assess whether employees in protected classes are subject to discrimination in terms of hours instead of pay, with an employer habitually assigning more hours and overtime to some employees while denying it to others.

Next Steps For Employers

Employers are well-served to apply the same analysis that the EEOC intends to use while doing internal audits to determine if there are statistical concerns, and the reasons behind the patterns.  The employer can then consider if actions are warranted now to remediate any issues before 2017, or, be able to explain the legitimate business reasons for any disparities if called upon to defend pay practices.

Employers should also audit time-keeping protocols and policies to be sure that non-exempt employees are accurately recording “hours worked”.  Employers should also confirm that their HRIS systems can run reports of hours worked, that do not include paid time off.  Additionally, if employers intend to report actual hours worked for exempt employees, rather than the 40 hour proxy for full time employees, then the same recommendations apply.

For assistance with an employee payroll audit or advice concerning EEO-1 forms or other federal or state fair pay act requirements, contact Valerie Kahn, Kate Gold, Lynne Anderson,  or any member of the Drinker Biddle & Reath’s Labor & Employment Group.

EEOC Issues Revised EEO-1 Proposal

By Lynne Anderson

The EEOC published its revised proposal for the new EEO-1 report today. The revised proposal came after extensive, and polarized, comments on the EEOC’s prior proposal this Spring. The prior proposal revised the existing EEO-1 report to require disclosure of data on pay ranges and hours worked in addition to the already required reporting on workforce profiles by race, ethnicity and gender. The revised proposal released today still requires reporting of this data. The EEOC has not changed course on its plan to use the data to identify discriminatory pay practices and target companies for investigations and class action equal pay lawsuits – without having to identify an injured party plaintiff. The primary change in the revised proposal is that the first date by which employers will have to submit the new EEO-1 report has been moved from September 2017 to March 31, 2018. In addition to allowing more time for employers to prepare for the new report, the EEOC made this change to simplify reporting by allowing employers to use existing W-2 data from the 2017 calendar year for the 2018 report. The EEOC also provided options for calculating “hours worked” for exempt employees, and will not require employers to collect hours worked for exempt workers if they do not already track those hours.

The revised proposal does not provide further clarification to address employers’ concerns that the EEOC has not provided clear guidance on how the data will be analyzed. Employers also voiced legitimate concerns about the data being misinterpreted, since the summary wage data will be reported using ten broad and generic job categories that group together employees with very different job descriptions, responsibilities, qualifications, experience, etc. – all legitimate reasons for pay disparities. Also, employers should take note of EEOC Commissioner Jenny Yang’s recent public statements cautioning employers against using salary negotiations or prior salary as an explanation for gender pay gaps.

Employers and others have until April 15, 2016, to submit written comments on the revised proposal. However, it is unlikely there will be substantive revisions. Employers can expect an increase in individual and class action litigation once the EEOC starts collecting the data in the new EEO-1 report. The EEOC has repeatedly stated that enforcement of equal pay laws is an agency priority. In addition, many states have either passed, or are considering, new aggressive equal pay laws, following the lead of California’s Fair Pay Act. As a result, employers will be well-served by conducting privileged internal audits now to assess whether significant pay disparities exist. Given that the 2018 EEO-1 report will be based on 2017 pay data, employers should ideally conduct audits prior to making final compensation decisions effective in 2017. There may be legitimate, non-discriminatory reasons for pay disparities, but employers must understand those reasons in order to explain them to the EEOC. In addition, proactive audits allow employers the opportunity to address unintended pay disparities for workers in substantially similar jobs before the reporting obligations become effective.