The U.S. Court of Appeals for the Seventh Circuit issued a significant decision last week addressing the compensation of tipped employees who perform non-tipped work. In Schaefer v. Walker Bros. Enterprises, 2016 WL 3874171 (7th Cir. July 15, 2016), a restaurant server in Illinois pursued a class and collective action alleging, among other things, that his employer violated state and federal wage and hour laws by failing to pay servers minimum wage for the time they spent on non-tipped duties. The Seventh Circuit affirmed summary judgment dismissal of the lawsuit. The Court held that an employer may compensate a tipped employee at the reduced “tip credit rate” of pay for: (1) limited non-tipped work incidental or related to tipped work; and (2) other negligible non-tipped work. The decision provides helpful guidance to restaurant employers regarding the types of duties that tipped employees may perform at a reduced rate of pay.
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Federal Court Orders Stop to DOL’s Persuader Rule
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.
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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.
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.
A Notable Week Indeed – From OSHA to Trade Secrets to ADA Accommodations and Transgender Rights!
It’s been a busy and, let’s say notable, week in the area of employment law. Here’s a quick recap, with more to come in future posts, of what you may have missed if you were focused elsewhere this week.
First, OSHA published a new injury Rule this week. While it does not take effect until January 1, 2017, employers should not wait until then to begin thinking about what changes may be necessary to ensure full compliance in the new year. The rule changes create a new cause of action for employees if they suffer retaliation for reporting a workplace injury, and employers are expected to ensure that policies addressing safety do not discourage employees from reporting such injuries. Large employers will also have some additional reporting requirements to OSHA. And, significantly, and in line with the current administration’s agenda of transparency, OSHA will begin making injury data accessible to the public, after removing any personally identifiable information regarding employees. That’s just a summary, with more to come in a future blog post. Stay tuned.
Second, did you hear that President Obama signed into law the Defend Trade Secret Act of 2016? Yes, that’s right, claims for trade secret misappropriation are not just limited to what the applicable state law provides. The new law creates a federal cause of action for the theft/misappropriation of trade secrets that are “related to a product or service used in, or intended for use in, interstate or foreign commerce.” The law also creates a new mechanism for a court to order the civil seizure of property, ex parte, if an employer can meet certain stringent standards for such an order.
Third, not to be overshadowed by either the President or OSHA, the EEOC published its own resource document this week regarding employer duties to provide leave as a reasonable accommodations in the workplace. While the new resource tracks what the EEOC has been saying for many years (or what we, as employment attorneys, know from tracking EEOC litigation and publications), the new resource delves a little deeper into how employers should be analyzing an employee’s request for leave and may be a helpful resource for employers who may still be under the mistaken impression that simply applying a leave policy (or workplace rule) the same to everyone is acceptable under the ADA (hint: we know that employers must modify policies for individuals with a disability if doing so could be a form of reasonable accommodation). Our mantra of no more “automatic termination” policies can no longer be ignored. This is serious stuff. Lots more to come on this topic.
Fourth, the EEOC was also busy issuing a new fact sheet on bathroom access for transgender employees. The fact sheet is brief, essentially reciting the few decisions issued on the topic, and reiterating for employers that transgender employees must be permitted to use the bathroom that corresponds with their gender identity (not biological sex) and cannot be conditioned on an employee having undergone reassignment surgery. Also, employers beware, providing a separate, single-user bathroom for a transgender employee is a form of discrimination (although you can provide a single-user bathroom for use by all employees). A transgender employee must have equal access to the common bathroom that corresponds with their gender identity, regardless of whether it makes other employees uncomfortable.
These are just a few of the many things that happened this week. Stay tuned for further analysis on these topics and more (including the much-anticipated DOL overtime regulations that could be published as early as next week).
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.