LaborSphere, Author at Laborsphere

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

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.

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EEOC More Than Doubles the Fine for Failure to Comply with Notice-Posting Requirements

The Equal Employment Opportunity Commission (EEOC) has published a new rule in the Federal Register that will more than double the monetary penalty for employers that violate the notice-posting requirements of Title VII and other nondiscrimination statutes. Click here to view the rule on the Federal Register’s website.

Effective July 5, 2016, the maximum penalty for violating the notice posting requirements will be $525 per violation, a substantial increase from the previous penalty of $210 per violation.

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Split Circuit Court Decisions Create Uncertainty on Class Action Waivers and likely Supreme Court Review

Last week the 7th Circuit U.S. Circuit Court of Appeals, in Lewis v. Epic-Systems Corp., held that a company’s arbitration agreement, which prohibits employees from participating in “any class, collective or representative proceeding,” violated an employees’ right to engage in concerted activity under the National Labor Relations Act (NLRA). The ruling creates a circuit split on the enforceability of class action waivers because the 2nd, 5th, and 8th Circuits each have held that class action waivers do not violate an employee’s rights under the NLRA. Because of this circuit split, it is likely that the Supreme Court will visit this issue in the near future.

Background on Enforceability of Class Action Waivers

In recent years, federal courts have largely upheld arbitration pacts with class or collective action waiver language that provides that not only must an employee bring his or her claim exclusively in arbitration, but also that he or she must do so on an individual, and not on a class-wide basis. Specifically, in AT&T Mobility v. Concepcion (2011), the Supreme Court ordered the enforcement of arbitration agreements in a dispute involving an arbitration provision in cellphone contracts. In the process, Concepcion generally held that the Federal Arbitration Act (FAA) preempts state bans on class action arbitration waivers. The case however, did not directly address the viability of class action waivers in the employment context.

Shortly thereafter, in January 2012, the National Labor Relations Board (NLRB) ruled that an employer could not force its employees to sign arbitration agreements with class waiver provisions because such agreements were unlawful under the NLRA. See D.R. Horton, Inc., 357 NLRB 184 (2012). On appeal, the 5th Circuit rejected the NLRB’s holding that class waivers in mandatory arbitration agreements are unlawful, joining the 2nd and 8th Circuits, which had issued similar rejections.

Seventh Circuit Opinion

In Lewis v. Epic-Systems Corp., the plaintiff had entered into an arbitration agreement with his employer in which he had waived his “right to participate in or receive money or any other relief from any class, collective, or representative proceeding.” Lewis later filed a suit in federal court on behalf of himself and other employees alleging that the company had violated the Fair Labor Standards Act (FLSA) by misclassifying the employees and depriving them of overtime.

The employer moved to dismiss plaintiff’s claims and compel arbitration on an individual claim basis. The plaintiff argued that the agreement’s class and collective action waiver was unenforceable because it interfered with his right to engage in concerted activity under Section 7 of the NLRA. The district court agreed with plaintiff and denied employer’s motion to dismiss, relying primarily on a prior decision the district court had issued adhering to the D.R. Horton’s decision. The district court believed the 5th Circuit’s majority opinion “never persuasively rebutted the board’s conclusion that a collective litigation waiver violates the NLRA and never explained why, if there is tension between the NLRA and the FAA, it is the FAA that should trump the NLRA, rather than the reverse.” The employer subsequently appealed the district court’s decision to the 7th Circuit.

In its analysis, the 7th Circuit adopted the NLRB’s reasoning (as stated in D.R. Horton) that engaging in class, collective or representative proceedings is “concerted activity” and a protected right under Section 7 of the NLRA. Therefore, the court concluded, it would be an unfair labor practice under Section 8 of the NLRA for an employer “to interfere with, restrain, or coerce employees in the exercise” of this right.

Surprisingly, the 7th Circuit rejected the argument that the arbitration agreement must be enforced under the FAA—an argument adopted by all the other circuits that have ruled on this matter. In its ruling, the court focused on the FAA’s savings clause, which provides that arbitration agreements are enforceable except if the agreements themselves are unlawful. Thus, the court found that Epic’s arbitration agreement is illegal under the NLRA, and because an illegal agreement is not enforceable under the FAA’s savings clause, there is no conflict between the FAA and the NLRA.

General Takeaways for Employers

The Lewis decision leaves employers with several takeaways: First, employer need to know that class and collective action waivers will not be enforced in federal courts sitting in Illinois, Indiana and Wisconsin, which are the states within the Seventh Circuit’s jurisdiction.

Second, these same agreements will likely continue to be enforced in federal courts sitting in the circuits that have rejected the NLRB’s reasoning in D.R. Horton (for now, 2nd, 5th, and 8th Circuits).

Third, this circuit split will likely involve the input of the Supreme Court in the future but perhaps not between the Presidential election, and the appointment of a ninth Justice, given the desire to avoid a 4-4 split. If the case is brought before the Supreme Court before a new Justice is confirmed by the Senate, and the Supreme Court decision is split 4-4, each of the Circuit’s decisions will remain in effect.

The Defend Trade Secrets Act’s Seizure Provisions and What They Mean for Employers

It’s an employer’s worst nightmare: you discover that a former employee has stolen a company trade secret. You know you must act immediately to keep this extremely important and sensitive information from being disseminated or risk losing important intellectual property protection. However, protecting a misappropriated trade secret is very difficult, particularly in situations where the suspected misappropriator is unlikely to follow a court order. Thankfully, the recently passed Defend Trade Secrets Act (“DTSA”) includes helpful seizure provisions an employer may use to recover and prevent dissemination of trade secrets from suspected misappropriators.

What Is The Defend Trade Secrets Act?

President Obama signed the DTSA into law on May 11, 2016. This new law is effective immediately and provides a nation-wide civil cause of action for misappropriation of trade secrets. Although companies may still pursue trade secret litigation under state causes of action, the DTSA permits companies to prosecute their claims in federal court, thus allowing them to avoid the complexity and cost of pursuing trade secret claims in multiple jurisdictions simultaneously.

What Are The DTSA’s Seizure Provisions?

Significantly, the DTSA includes an ex parte seizure provision allowing “the seizure of property necessary to prevent the propagation or dissemination” of trade secrets, meaning the employer may seize property through court order without providing notice to the other party. See DTSA § 2(b)(2). To receive a court order allowing such seizure, the employer must:

• Allege specific facts showing that the suspected misappropriator would “evade, avoid, or otherwise not comply with” other extraordinary relief, such as a temporary restraining order, and would “destroy, move, hide, or otherwise make [the property to be seized] inaccessible to court” if notified of the seizure proceedings;

• Be able to show that the employer would suffer “immediate and irreparable injury” if the requested seizure were not occur, and that such injury would be greater than any to be suffered by the suspected misappropriator or any third parties if the seizure request is granted;

• Be able to show that the suspected misappropriator has actual possession of the trade secret and either misappropriated or conspired to use improper means to misappropriate that trade secret;

• Describe, with reasonable particularity and to the extent reasonable, what is to be seized and where it is located; and

• Not have publicized the requested seizure.

See id. § 2(b)(2)(A)(ii). Orders of seizure are executed by a Federal law enforcement officer. The employer may not participate in the seizure, although the law enforcement officer may request to be accompanied by an unaffiliated technical expert. Any materials seized will be held in court custody until a hearing can be held, although a motion to encrypt seized material may be made at any time. See id. § 2(b)(B), (D), and (H).

What Does This Mean For Employers?

The good news is that now if a trade secret is misappropriated, employers may be able seize it and halt its dissemination before irreparable harm has occurred. In our modern world where information can be copied and transported across state lines (or international boarders) in mere moments, this is very important. However, there are a number of cautions employers should be aware of:

• Seizure under the DTSA is extraordinary relief only. The DTSA’s drafters contemplated it would be used in instances such as when “a defendant is seeking to flee the country or planning to disclose the trade secret to a third party immediately or not otherwise amendable to…the court’s orders.” Rep. No. 114-220 at 9 (2016). Accordingly, seizure will be permitted only in the most extreme situations.

• The DTSA requires an employer seeking seizure to provide security “determined adequate by the court for the payment of the damages that any person may be entitled to recover as a result of a wrongful or excessive seizure.” DTSA 2(b)(B)(vi). This security will not act as a cap on damages if it is later determined that property was wrongfully seized.

• The DTSA’s drafters struggled with handling misappropriated trade secrets contained in electronic files. If, for example, an employee downloaded files containing trade secrets from her company computer onto a flash drive, the court could seize that flash drive. The situation becomes more murky, however, when an employee transmits files containing trade secrets to himself via his personal email (thus leaving a copy on the server of the email provider), or uploads company files to a third party cloud service. In order to protect these unintended recipients, the DTSA’s drafters included carve outs prohibiting seizure from innocent third parties (although injunctions prohibiting disclosure are permitted). Accordingly, until the employer can obtain other relief, the trade secret will remain on the third party’s server, potentially vulnerable to misappropriation from bad actors engaged in cyberespionage.

On balance, the DTSA is a helpful piece of legislation that will greatly assist employers in protecting trade secrets under certain circumstances. However, as with any new piece of legislation, it is unclear how these provisions, particularly those concerning electronic information, will be applied in practice.

If you would like to discuss best practices for keeping trade secrets secure or need help dealing with potentially misappropriated trade secrets, please contact the author or any member of our Labor and Employment Practice Group.

DOL Exemption Rules to Take Effect December 1, 2016

Making good on a 2014 directive from President Obama “to modernize and streamline” existing overtime regulations, the Department of Labor (DOL) today published its highly anticipated Final Rule Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees. As expected, the Final Rule (which becomes effective December 1, 2016 ) more than doubles the current $455 weekly minimum salary required for employees to qualify for “white collar” exemptions to the minimum wage and overtime requirements under the Fair Labor Standards Act (FLSA). The DOL expects its new Final Rule to extend minimum wage and overtime protections to more than 4.2 million Americans and increase employee wages by $12 billion over the next 10 years.

Key Changes under the DOL’s Final Rule

The FLSA requires that covered employees be paid minimum wage for all worked hours and overtime at a rate not less than one and one-half their regular rate of pay for all hours worked in excess of 40 hours in a single workweek. To qualify for exemption from the FLSA’s minimum wage and overtime requirements, an employee must be paid a predetermined minimum weekly salary (not subject to reduction based on variations in quality or quantity of work) and primarily perform certain job duties qualifying for one or more of the standard executive, professional or administrative “white collar” exemptions to the FLSA.

In June 2015 the DOL issued a Proposed Rule which gave employers a preview of the likely revisions to the exemption regulations. Today’s Final Rule differs from the DOL’s 2015 Proposed Rule in certain key areas.

Significant changes under the DOL’s Final Rule include the following:

Increase in the Salary Basis Requirement.

The Final Rule increases from $455 to $913 (or $47,476 annually) the minimum weekly salary level necessary for employees to qualify for a white collar exemption under the FLSA. This minimum weekly salary automatically will adjust every three years to a rate equaling the 40th percentile of full-time salaried workers in the nation’s lowest-wage Census region (currently the South). Minimum salary adjustments under the Final Rule will be published at least 150 days before their effective dates, with the first adjustment being effective January 2020. The minimum salary increase in the Final Rule is slightly lower than that contemplated in the Proposed Rule, with the DOL citing to public comments expressing concerns that the regulations should account for salaries paid in lower cost-of-living regions.

Increase in the Salary Requirement for the Highly Compensated Employee (HCE) Exemption.

The Final Rule increases from $100,000 to $134,004 the minimum total annual compensation necessary for a “highly compensated employee” to qualify for exemption under the FLSA. This minimum annual compensation also automatically will adjust every three years to an amount equal to the 90th percentile of full-time salaried employees nationally. Although the compensation increase in today’s Final Rule is larger than contemplated in the Proposed Rule, the change simply is due to an increase in the 90th percentile threshold from 2013 to the fourth quarter of 2014.

Automatic Triennial Updating.

The Proposed Rule contemplated updating the salary thresholds annually using either a wage index (i.e., a fixed-percentile approach using Current Population Survey data) or a price index (i.e., the CPI). As noted above, the Final Rule has adopted the fixed-percentile approach, with updates to occur every three years rather than annually. Employers that submitted comments said they “strongly opposed” using a fixed-percentile method, arguing that it would result in the “ratcheting” of salaries – that is, with each successive salary update, employers would be expected to convert lower-earning exempt employees to hourly status; those employees would be removed from the CPS data; and the salary threshold would thus rapidly accelerate with each increase. The DOL largely discounted these concerns, finding a lack of historical evidence of “ratcheting” in analyzing data from the last salary increase in 2004. Nonetheless, the DOL did respond to employer comments that an annual update would be unduly volatile and would not provide sufficient notice, and instead adopted triennial updating.

Inclusion of Nondiscretionary Bonuses, Incentive Payments, and Commissions in the Salary Level Requirement.

Employers now will be allowed to use nondiscretionary bonuses and incentive pay to satisfy up to 10 percent of the DOL’s new salary standard, provided such bonuses/incentives are paid on at least a quarterly basis. Employers also will be able to “catch-up” by quarterly bonus and incentive payments the salary of any exempt employee that falls short of the minimum salary requirement by an amount of up to 10 percent.

Duties Tests.

Surprisingly, the DOL’s Final Rule makes no substantive changes to the standard duties tests required for the executive, administrative and professional exemptions. Although the DOL sought public comments on this issue, the DOL ultimately declined to adopt any changes to the standard duties tests.

Over the next six months, covered employers will need to review exempt positions to ensure compliance with DOL’s new standards. A few suggestions include:

Review Salary Minimums.

Employers may choose to increase the salaries of employees who fall below the DOL’s new $917 weekly minimum, or reclassify employees as nonexempt and take steps to ensure employees are paid a minimum wage and overtime premium in accordance with FLSA standards.

Review Employer Criteria for Establishing Exemption Status.

Employers can expect DOL enforcement initiatives in 2017 (and beyond) to focus on exemption status. Employers are well advised to use the DOL’s Final Rule as an opportunity to review the exemption classifications of all exempt positions to ensure compliance with FLSA standards.

Provide Education and Training to Key Employees.

Employers should consider investing in education and training of front-line managers and human resources representatives tasked with implementing new exemption standards. Employers also should consider development of a communication strategy and action plan for reclassification of affected employees.

New York City Earned Sick Time Act Amended Effective March 4, 2016

The New York City Earned Sick Time Act, originally enacted in June 2013, has been amended effective March 4, 2016. The Earned Sick Time Act generally requires employers with five or more employees in New York City to provide eligible employees up to 40 hours of paid sick leave each year for themselves or eligible family members. The new rules clarify parts of the Earned Sick Time Act, establish requirements to carry it out and meet its goals, and provide guidance to covered employers and protected employees.

Written Sick Time Policies

Employers may no longer distribute the Notice of Employee Rights promulgated by the Department of Consumer Affairs in lieu of distributing or posting their own written sick time policies. But it is important to note that distribution of the Notice of Employee Rights is still required.

The Amended Act further requires that an employer’s written sick time policies state, at a minimum:

The employer’s method of calculating sick time. If, on the first day of the calendar year, the employer provides employees with an amount of sick time that meets or exceeds the requirements of the Act by the employee’s 120th day of employment (known as “frontloading”), the written policy must specify the amount of frontloaded sick time to be provided. If the employer does not frontload, the policy must specify when accrual of sick time starts, the rate at which an employee accrues sick time, and the maximum number of hours an employee may accrue in a calendar year.

The employer’s policies regarding the use of sick time, including any limitations or conditions. Written policies must now include: (1) any requirement that an employee provide notice of a need to use sick time; (2) any requirement for written documentation or verification of the use of sick time, and the employer’s policy regarding consequences if an employee fails to provide such documentation; (3) any minimum increment or fixed period for the use of sick time; and (4) any policy on employee discipline for misuse of sick time.

The employer’s policy regarding carry-over of unused sick time at the end of an employer’s calendar year.

If an employer fails to provide an employee with a copy of its written policy, the employer cannot deny sick time or payment of sick time to the employee based on non-compliance with the policy.

Employer Recordkeeping

Employers are now required to maintain records demonstrating compliance with the requirements of the Earned Sick Time Act, including records of any policies required by the Act, for a period of three years. Employers must also maintain contemporaneous and accurate records that show, for each employee:

The employee’s name, address, phone number, employment start date, employment end date (if any), rate of pay, and whether the employee is exempt from overtime requirements;
The hours worked each week by the employee, unless the employee is exempt from overtime requirements;
The date and time of each instance of sick time used by the employee and the amount paid for each instance;
Any change in the material terms of employment specific to the employee; and
The date the Notice of Employee Rights was provided to the employee and proof that the Notice of Rights was received by the employee.

There is a penalty involved if an employer fails to follow these much more detailed requirements. An employer’s failure to maintain, retain or produce a record that is “relevant to a material fact” alleged by the Department in a notice of hearing or these rules, creates a “reasonable inference” that such fact is true.

Minimum Increments and Fixed Intervals

Employers may now set fixed periods of 30 minutes or any smaller amount of time for the use of accrued sick time beyond the minimum increment (not to exceed four hours per day) and may require fixed start times for such intervals. The Notice of Adoption of Rule issued by the Department of Consumer Affairs provides the following example: An employer maintains a four-hour minimum sick time increment and now requires that employees use sick time in 30 minute intervals that start on the hour or half-hour. An employee who is scheduled to work 8:00 a.m. to 4:00 p.m. schedules a doctor’s appointment for 9:00 a.m. and notifies the employer of her intent to use sick time and return to work the same day. If the employee does not return to work until 12:17 p.m., the employer can require the employee to use four and a half hours of her accrued sick time and require her to begin work at 12:30 p.m.

Temporary Help Firms

The Act also now defines the term “temporary help firm,” as an organization that recruits and hires its own employees and assigns those employees to perform work or services for another organization to: (i) support or supplement the other organization’s workforce; (ii) provide assistance in special work situations including, but not limited to, employee absences, skill shortages or seasonal workloads; or (iii) perform specific assignments or projects. When a temporary help firm places a temporary employee in an organization, the temporary help firm is now solely responsible for compliance with all of the provisions of the Earned Sick Time Act for that temporary employee, regardless of the size of the organization where the temporary help firm places the employee.

Penalties

If the Department finds that an employer has a policy or practice of not providing or refusing to allow employees to use paid sick leave required under the Act, employers now will be subject to penalties for “each and every employee” affected by the policy.

Employer Considerations

In light of these recent amendments and the increased penalties for non-compliance with the Act, New York City employers should ensure that part of their “spring cleaning” involves a thorough review of their existing written sick time policies and recordkeeping practices. Such a review with counsel should include preparation of compliant employee notice materials and recordkeeping forms.