Laborsphere

SEC Uses Its Powers under the Dodd-Frank Whistleblower Provisions to Warn Employers Against Attempting to Restrict Employees’ Ability to Report Potential Violations

On April 1, 2015, the SEC announced a settled enforcement proceeding against KBR, Inc., a publicly traded, Houston-based technology and engineering company, for including “restrictive language” in confidentiality agreements used in the course of internal investigations. This is the first time the SEC has used its enforcement powers under Rule 21F-17 of the Whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Rule 21F-17 provides that “[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement … with respect to such communication.”

The language to which the SEC took exception appeared in confidentiality agreements KBR used in connection with internal investigations. The statement, which investigators required employees to sign before the interview, was included in the Company’s Code of Business Conduct Investigations Procedures manual. The statement read:

I understand that in order to protect the integrity of this review, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during this interview, without the prior authorization of the Law Department. I understand that the unauthorized disclosure of information may be the grounds for disciplinary action up to and including termination of employment.

It does not appear that the policy specifically referenced reporting to the SEC or any governmental authority. Moreover, it seems likely that the Company’s intent was to prevent employees from discussing the matter with each other. The SEC admitted that it had no evidence KBR ever prevented an employee from communication with the SEC staff or that KBR took any action to enforce the confidentiality provision. Nevertheless, the SEC posited that the language undermined the purpose of Section 21F and Rule 21F-17(a), which is to “encourage individuals to report to the” SEC.

The SEC indicated its approval of KBR’s amended policy by quoting it in the Order. The new policy provides:

Nothing in this Confidentiality Statement prohibits me from reporting possible violations of federal law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. I do not need the prior authorization of the Law Department to make any such reports or disclosures and I am not required to notify the company that I have made such reports or disclosures.

While the Order imposes a modest civil penalty of $130,000, KBR is also required to contact KBR employees who signed confidentiality statements from August 21, 2011, to the present and to provide them with a copy of the Order and a statement that they do not need permission from KBR to communicate with any governmental entity.

This case of first impression underscores the SEC’s commitment to the Whistleblower program and its intent to punish employers that, intentionally or not, restrict an employee’s ability to report potential violations to the SEC. There has been much press about such restrictive language in employment agreements, not just related to the SEC, but also related to the National Labor Relations Board and other federal agencies. It is clear the SEC will consider such restrictive language wherever it may be found. By virtue of this Order, companies will have to manage protecting the integrity of internal investigations and avoiding accusations that it discouraged employees from going to the SEC. It also remains to be seen whether the SEC will take the position that companies are required to affirmatively inform employees of their ability to make reports to the SEC or other governmental bodies or whether employees must merely refrain from discouraging such activity. Because the Whistleblower provisions apply to both private and public companies, it seems a prudent course of action for all employers to review employment and confidentiality agreements.

New Guidance Regarding Employee Handbooks — Part One: Don’t Let Your Confidentiality Provisions “Chill” Employee Communications

It is a great time for employers to review their employee handbooks. Richard F. Griffin, Jr., General Counsel of the National Labor Relations Board (NLRB), recently issued a lengthy and detailed report summarizing the NLRB’s rulings on common handbook provisions. To view the complete Memorandum, click here.

The rulings in the report apply to both unionized and non-unionized employers because the National Labor Relations Act (NLRA) restricts all employers from issuing policies or rules – even if well-intentioned – that inhibit employees from engaging in activities protected by the act, such as discussing wages, criticizing management, publicly communicating about working conditions and discussing unionization.

This LaborSphere post is the first in a series that will provide guidance based on the NLRB’s report. Over the upcoming weeks, we will summarize what the NLRB has deemed acceptable and unacceptable language for workplace policies on: (1) professionalism; (2) harassment; (3) trademarks; (4) photography/recording; and (5) media contact.

When Does A Confidentiality Policy Go Too Far?

The NLRB acknowledges that employers have a legitimate right and need to protect confidential information. However, policies that are overbroad and can be interpreted by employees to prohibit discussion regarding their wages, hours and working conditions will draw scrutiny from the NLRB. While context always matters for policy language, there are some “DON’Ts” that have clearly emerged from the NLRB report:

• DO NOT prohibit employees from discussing “employee information.”

• DO NOT prohibit disclosure of “another’s confidential information.” This could be interpreted to be wages and therefore violate the NLRA.

• DO NOT prohibit disclosure of “details about the employer.”

• DO NOT prohibit disclosure of all categories of “non-public information.”

The NLRB not only disfavors policies and rules that expressly prohibit or restrict employee discussions and collective action, but also those that are vague enough to dissuade an employee from such activities. According to the NLRB, employees should not have to guess about whether they are allowed to talk about their pay, hours or working conditions, but should instead feel free to do so.

When Do Confidentiality Rules Strike The Right Balance?

Employers can vigorously and clearly prohibit disclosure of trade secrets and other confidential business information, provided that employers do not define those terms too expansively. Some examples of confidentiality policies that the NLRB has deemed lawful include:

• No unauthorized disclosure of “business ‘secrets’ or other confidential information.”

• “Misuse or unauthorized disclosure of confidential information not otherwise available to persons or firms outside [the Employer] is cause for disciplinary action, including termination.”

• “Do not disclose confidential financial data, or other non-public proprietary company information. Do not share confidential information regarding business partners, vendors or customers.”

Even with brightline rules and other strong guidance, perhaps the most important takeaway when reviewing company policies is that context matters. Illustrative of this point, the NLRB upheld a rule that prohibited disclosure of “all information acquired in the course of one’s work.” On its face, this rule is arguably overbroad and could chill employee communications. However, the NLRB recognized that the rule was “nested among rules relating to conflicts of interest and compliance with SEC regulations and state and federal laws” and, as such, could not be reasonably understood to prevent employees from discussing their wages, hours or working conditions.

In sum, when reviewing policies intended to safeguard confidential information, an employer should watch out for language that is arguably overbroad or lacks sufficient context to justify its scope. This approach is the best formula for ensuring that policies achieve the employer’s true purpose: protecting critical confidential and proprietary information.

Workplace Anxiety and the ADA

For employers, weighing an employee’s health issues with workplace concerns, such as employee safety and productivity, often requires a delicate balance. The challenge may be even greater when handling issues related to mental health. Questions abound on both sides: employees wonder if they should tell their employers about personal events that may be affecting their mental well-being, and employers struggle with difficult decisions concerning employment status when they have an ineffective worker.

The Americans with Disabilities Act (“ADA”) generally bars discrimination against an employee with a disability who is able to perform the essential functions of his or her job with or without a reasonable accommodation. The ADA defines “disability” as a “physical or mental impairment that substantially limits one or more major life activities.” The associated regulations define “mental impairment” as encompassing “any mental or psychological disorder, such as intellectual disability, organic brain syndrome, emotional or mental illness, and specific learning disabilities.” Navigating these definitions and avoiding lawsuits and potential liability for claims of mental disability present a serious challenge for employers.

Earlier this month, the U.S. Court of Appeals for the Fourth Circuit attempted to clarify the terrain. In Jacobs v. N.C. Admin. Office of the Courts, No. 13-2212, 2015 U.S. App. LEXIS 3878 (4th Cir. March 12, 2015), the Fourth Circuit reversed the lower court’s summary judgment dismissal of a lawsuit in which the plaintiff, who alleged that she suffered from “social anxiety disorder,” claimed that her former employer violated the ADA by: (1) discriminating against her on the basis of her disability; (2) failing to provide her with a reasonable accommodation; and (3) retaliating against her for seeking to exercise her rights under the ADA. The plaintiff, a deputy court clerk, alleged that her disability left her unable to engage in social interactions with the public at the courthouse’s front counter. In particular, she asserted that “working at the front counter caused her extreme stress and panic attacks.” The plaintiff alleged that, approximately three weeks after requesting reduced public interaction, the defendant terminated her employment.

The Jacobs Court, the first Court of Appeals to address “social anxiety disorder” under the ADA in the employment context, held that interacting with others is a major life activity and that social anxiety disorder can substantially limit one’s ability to engage in this activity. Thus, according to the Court, social disability disorder may constitute a disability under the ADA. The Court also considered the fact that many deputy court clerks at the defendant courthouse did not regularly interact with the public and, therefore, public interaction was not an essential function of the job. The Court concluded that a reasonable jury could find evidence supporting each of the plaintiff’s ADA claims. Accordingly, it reversed the lower court’s judgment and remanded the case for trial.

According to the National Alliance on Mental Illness, approximately 1 in 4 adults suffer from a mental health disorder. These disorders include depression, bipolar disorder, panic, post-traumatic stress and generalized anxiety disorders. Given the statistics, it is important for employers to understand their obligations under the ADA and similar state and local laws, and to consult with counsel when questions arise.

House Joins Senate in Passing Resolution to Disapprove New NLRB Election Rule

Last week, the U.S. House of Representatives voted 232-186 in favor of passing a resolution to disapprove the National Labor Relations Board’s (“NLRB’s”) new “quickie election” rule, which becomes effective April 14 and is expected to give unions a decided “edge” in winning union representation elections. The House’s vote comes as no surprise and follows a similar March 4th vote by the Senate also disapproving the NLRB’s election rule. The White House has announced that President Obama will veto the joint Congressional resolution.

A Republican-led Congress came out strongly against the new rule when the NLRB finalized the election rule in December 2014. Dubbing it an “ambush election” rule, Congress quickly sought to disapprove the new election rule under the Congressional Review Act, with top Republicans on the Senate Labor Committee citing major concerns such as the speed in which elections would progress and privacy issues arising from forced disclosure of employee personnel information.

Upon passing the resolution (S.J. Res. 8), House Education and the Workforce Committee Chairman John Kline (R-MN) stated “The board’s ambush election rule will stifle employer free speech, cripple worker free choice, and jeopardize the privacy of workers and their families. The House and Senate have firmly rejected this radical scheme.”

Lawsuits have also been filed to challenge the legal sufficiency of the NLRB’s election rule. On January 5, the US Chambers of Commerce filed a complaint against the NLRB over the election rule in the DC Federal District Court. This is the same court that struck down the NLRB’s prior attempt to implement new election rules in 2011. At that time, the U.S. District Court held that the rule had been finalized without a necessary quorum of at least three validly appointed NLRB Members. Business groups in Texas, including the Associated Builders and Contractors of Texas, Inc., filed suit in a federal court in Texas also challenging the NLRB’s new election rule.

Despite attack on two fronts, the NLRB shows no signs of withdrawing or postponing the election rule’s effective date. To the contrary, the NLRB actively is moving forward with implementation efforts, and began training all NLRB regional office employees on the new rule beginning March 16. Regional offices will offer educational meetings to labor practitioners from March 23 through April 13. Likewise, employers should begin to prepare for implementation of the new election rule, by reviewing and updating labor relations policies and practices for responding to a likely increase in union organizing campaigns.

Joint Employer Liability on the Rise

The Issue: Could my company be liable as a joint employer for California Labor Code violations of our subsidiary or third-party staffing company?

The Solution: Companies with subsidiaries and staffing companies in California should take steps to limit exposure.

Analysis: Parent corporations are generally presumed to be separate entities from their subsidiaries, and therefore not liable for the unlawful treatment of their subsidiary’s separate employees unless they exercise significant control over day-to-day operations. Recent developments, however, call this precedent into question.

In Castaneda v. Ensign, 229 Cal. App. 4th 1015 (2014) (review denied), the California Court of Appeal held: “an entity that controls the business enterprise may be an employer even if it did not ‘directly hire, fire, or supervise’ the employees.” (emphasis added). The parent company at issue claimed a lack of control over wages, hours and working conditions of its subsidiary operating companies’ employees. In reversing summary judgment for the parent and sending the case to be tried by a jury, the court highlighted evidence that the parent provided centralized human resources, accounting, payroll, and other key services to its subsidiary; controlled the mechanisms used to track subsidiary employees’ hours; handled subsidiary employee discipline, benefits and workers’ compensation claims; required subsidiary compliance with parent policies, practices, templates, forms, and training; and set the pay rate for some subsidiary employees.

Castaneda also resurfaced recent California Supreme Court precedent that “[m]ultiple entities may be employers where they control different aspects of the employment relationship…This occurs, for example, when one entity (such as a temporary employment agency) hires and pays a worker, and another entity supervises the work…Supervision of the work, in the specific sense of exercising control over how services are performed, is properly viewed as one of the ‘working conditions’…control over how services are performed is an important, perhaps even the principal, test for the existence of an employment relationship.” In other words, the worksite employer who supervises the worker may be liable to workers for Labor Code violations and other alleged wrongs even if it is not the employer of record who issues paychecks.

The California Legislature is not sitting on the sidelines, either. Effective January 1, 2015, AB 1897 imposed joint employer liability on many companies who engage labor contractors such as staffing agencies that fail to pay required wages to, or secure valid workers compensation insurance for, the workers they supply—regardless of the “control” test discussed above. Please see our prior blog post on this new law here.

Likewise, the California Department of Industrial Relations has clarified that California’s new paid sick leave law will apply equally to staffing agencies and their “joint employers.” Please see our prior blog post on this new law, here.

Given this upward trend in joint employer liability, companies with the help of counsel should evaluate their subsidiary and staffing relationships. Corporate structure—in name and in operations—should be separate and independent. Companies who prefer centralized corporate services by the parent company should weigh the risk that efficiency may indicate control over wages, hours, and working conditions. Careful selection and some oversight of, and indemnity agreements with, labor contractors should be considered.

Labor Laws for the New Year

If only the Beatles’ call to “Let it Be” was heard by the California Legislature. Instead, employer regulation is on the rise again. In 2014, 574 bills introduced mentioned “employer,” compared to 186 in 2013. Most of those 500-plus bills did not pass, and several that did pass were not signed into law by the governor. One veto blocked a bill that would have penalized employers for limiting job prospects of, or discriminating against, job applicants who aren’t currently employed.

A sampling of significant new laws affecting private employers, effective Jan. 1, 2015, unless otherwise mentioned, follows.

Shared Liability for Employers Who Use Labor Contractors

AB 1897 mandates that companies provided with workers from a labor contractor to perform labor within its “usual course of business” at its premises or worksite will “share with the labor contractor all civil legal responsibility and civil liability” for the labor contractor’s failure to pay wages required by law or secure valid workers compensation insurance, for the workers supplied.

The law applies regardless of whether the company knew about the violations and whether the company hiring the labor contractor (recast by the new law as a “client employer”) and labor contractor are deemed joint employers. This liability sharing is in addition to any other theories of liability or requirements established by statutes or common law.

The client employer will not, however, share liability under this new law if it has a workforce of less than 25 employees (including those obtained through the labor contractor), or is supplied by the labor contractor with five or fewer workers at any given time.

A labor contractor is defined as an individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer’s usual course of business, unless the specific labor falls under the exclusion clause in AB 1897. Excluded are bona fide nonprofits, bona fide labor organizations, apprenticeship programs, hiring halls operated pursuant to a collective bargaining agreement, motion picture payroll services companies and certain employee leasing arrangements that contractually obligate the client employer to assume all civil legal responsibility and civil liability for securing workers’ compensation insurance.

This bill is a significant expansion of existing law—which is limited to prohibiting employers from entering into a contract for labor or services with a construction, farm labor, garment, janitorial, security guard or warehouse contractor—if the employer knows or should know that the agreement does not include sufficient funds.

In light of the new law, labor services contractor engagements should be evaluated with an eye toward limiting the risk of retaining non-compliant contractors, including indemnity, insurance, termination provisions and compliance verification protocols.

Wage and Hour Changes

California’s $9 hourly minimum wage is due to increase to $10 Jan. 1, 2016. Defeated by the California Legislature, however, was a bill to raise the hourly minimum wage to $11 in 2015, $12 in 2016, $13 in 2017 and then adjust annually for inflation starting in 2018.

Undeterred, several municipalities have increased their respective minimum wage for companies who employ workers in their jurisdiction. For example, employees who work in San Francisco more than two hours per week, including part-time and temporary workers, are entitled to the San Francisco hourly minimum wage, which increased Jan. 1 from $10.74 to $11.05 and will increase to $12.25 by May 1. Hourly minimum wages also increased Jan. 1 in San Jose ($10.30).

The minimum wage will increase in Oakland March 2 ($12.25) and in Berkeley Oct. 1 ($11). Many other cities have either enacted, or have pending, minimum wage laws.

Federal minimum wage continues to lag behind California, but no longer for federal contractors. President Obama issued Executive Order 13658 in 2014 which established that workers under federal contracts must be paid at least $10.10 per hour. This applies to new contracts and replacements for expiring federal contracts that resulted from solicitations issued on or after Jan. 1, 2015, or to contracts that were awarded outside the solicitation process on or after Jan. 1, 2015. There are prevailing wage requirements for many state and local government and agency contractors as well.

Employers should monitor each of the requirements, including those in the jurisdiction in which they do business, to assure compliance.

Paid Sick Days Now Required

Effective July 1, AB 1522 is the first statewide law that requires employers to provide paid sick days to employees. The new law grants employees, who worked at least 30 days since the commencement of their employment, the right to accrue one hour of paid sick time off for each 30 hours worked—up to 24 hours (three days) in a year of employment. Exempt employees are presumed to work a 40-hour normal workweek; but, if their normal workweek is less, the lower amount could be used for accrual purposes.

An employer may cap accrual at 48 hours (six days) and also may limit the use of paid sick days in a year to 24 hours. Unused paid sick days normally carry-over from year to year, though no carry-over is required if 24 hours of paid sick days is accrued to the employee at the beginning of a year. No payout is required at termination of employment.

The paid sick days may be used for the employee’s own health condition or preventative care; a family member’s health condition or preventative care; if the employee is a victim of domestic assault or sexual violence; and stalking. “Family member” means a child, regardless of age or dependency (including adopted, foster, step or legal ward), parent (biological, adoptive, foster, step, in-law or registered domestic partner’s parent), spouse, registered domestic partner, grandparent, grandchild or siblings.

The law applies to all employers, regardless of size, except for a few categories of employees that are not covered—such as those governed by a collective bargaining agreement that contains certain provisions, in-home supportive services providers and certain air carrier personnel.

Employers must keep records for at least three years, a new workplace poster is required and employers are barred from retaliating against employees who assert rights under this new law.

Failure of an employer to comply with AB 1522 can result in significant monetary fines and penalties in addition to pay for the sick days withheld, reinstatement and back pay if employment was ended, and attorneys fees and costs.

Employers should beware to integrate city specific paid sick leave laws with the new state law. For example, the pre-existing San Francisco paid sick day law has some provisions that are similar and some that are different from AB 1522. As a general rule, where multiple laws afford employee rights on a common topic, the employee is entitled to the law benefits that favors the employee most.

Discrimination Law and Training Requirements Expanded

AB 1443 amends the California Fair Employment and Housing Act (FEHA) to make its anti-discrimination, anti-harassment and religious accommodation provisions apply to unpaid interns. It also amends FEHA’s anti-harassment, and religious belief or observance accommodation provisions, to apply to volunteers. This new law appears to respond to, and trump, courts that have not classified these workers as employees and, in turn, found them not eligible for legal protections afforded to employees.

Prior law requires the California Department of Motor Vehicles to commence issuing special drivers licenses in January to applicants who meet other requirements to obtain a license, but cannot submit satisfactory proof of lawful presence in the United States. AB 1660 amends FEHA to prohibit discrimination against holders of these special drivers licenses; adverse action by an employer because an employee or applicant holds a special license can be a form of national origin discrimination. Employer compliance with any requirement or prohibition of federal immigration law is not a violation of FEHA.

Since 2006, employers of 50 or more employees have been required to provide supervisors with two hours of classroom or other effective interactive anti-sexual harassment training, every two years. New supervisors are to receive the training within six months after they start a supervisory position. This is commonly known as “AB 1825” training.

In apparent response to societal concerns about the impacts of bullying in general, AB 2053 requires that AB 1825 training include a component on abusive conduct prevention. Under the new law, abusive conduct means “conduct of an employer or employee in the workplace, with malice, that a reasonable person would find hostile, offensive and unrelated to an employer’s legitimate business interests.

Abusive conduct may include repeated infliction of verbal abuse—such as the use of derogatory remarks, insults and epithets; verbal or physical conduct that a reasonable person would find threatening, intimidating or humiliating; or the gratuitous sabotage or undermining of a person’s work performance. A single act shall not constitute abusive conduct, unless especially severe and egregious.”

The new law does not make abusive conduct unlawful in and of itself, but it’s common for plaintiffs’ counsel to try, in attempts to win cases, to tether abusive behavior by a supervisor to conduct that is alleged to be unlawful.

SB 1087 requires farm labor contractors to provide sexual harassment prevention and complaint process training annually to supervisory employees and at the time of hire and each two years thereafter to non-supervisory employees. The new law also blocks state licensing of farm labor contractors who have been found by a court or administrative agency to have engaged in sexual harassment in the past three years, or who knew— or should have known—that a supervisor had been found by a court or administrative agency to have engaged in sexual harassment in the past three years.

Child Labor Laws Enhanced

AB 2288, the Child Labor Protection Act of 2014, accomplishes three things.

1. It confirms existing law that “tolls” or suspends the running of statutes of limitation on a minor’s claims for unlawful employment practices until the minor reaches the age of 18.

2. Treble damages are now available—in addition to other remedies—to an individual who is discharged, threatened with discharge, demoted, suspended, retaliated or discriminated against, or subjected to adverse action in the terms or conditions employment because the individual filed a claim or civil action alleging a violation of the Labor Code that arose while the individual was a minor.

3. For Class “A” child labor law violations involving minors at or under the age of 12, the required range of civil penalties increases to $25,000 to $50,000. Class A violations include employing certain minors in dangerous or prohibited occupations under the Labor Code, acting unlawfully or under conditions that present an imminent danger to the minor employee, and three or more violations of child work permit or hours requirements.

Immigration and Retaliation

Several new California laws involving immigration issues surfaced last year. All were premised on existing law that all workers are entitled to the rights and protections of state employment law regardless of immigration status, and that employers must not leverage immigration status against applicants, employees or their families.

This year, AB 2751 adds to and clarifies these existing laws.

For example, actionable “unfair immigration- related practices” now include threatening or filing a false report to any government agency. The bill also clarifies that a court has authority to order the suspension of business licenses of an offending employer to block otherwise lawful operations at worksites where the offenses occurred.

What’s Next?

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

*Originally published by CalCPA in the January/February 2015 issue of California CPA.