Monthly Archives: June 2015

June 30, 2015

New Overtime Rules: $970 Per Week Salary Proposed For White Collar Exemptions in 2016

Huntington_CBy R. Calder Huntington 

The minimum weekly salary for exempt employees will be raised from the current $455 to a likely $970 in 2016, if the Department of Labor’s (DOL’s) overtime pay revisions go into effect as proposed. In its long-awaited proposed revisions to overtime rules, the DOL estimates that 4.6 million U.S. workers who are currently exempt will be entitled to minimum wage and overtime compensation under the new salary level requirements. 

Salary Level Would Automatically Adjust on an Annual Basis 

Under its proposed rules, the DOL sets the salary threshold for the white collar exemptions at the 40th percentile of weekly earnings for full-time salaried workers nationwide. For 2013, using data from the Bureau of Labor Statistics, that figure was $921 per week, or $47,892 per year. The DOL anticipates that when its Final Rule goes into effect in 2016, the salary level will be $970 per week, or $50,440 per year. 

In order to maintain the salary levels at a fixed percentile of earnings, the DOL proposes that the salary threshold automatically update annually. The automatic adjustment is intended to prevent the salary level from diminishing through inflation and to potentially make additional rulemaking adjusting the salary basis unnecessary. The DOL believes that this will provide more certainty to employers with a meaningful, bright-line test while improving government efficiency. 

Highly Compensated Employee Exemption: $122,148 Salary 

The current exemption for highly compensated employees requires an annual salary of $100,000. The DOL proposes to raise that salary threshold also based on an annualized value of a percentile of weekly earnings for full-time salaried workers. This proposal sets the salary level of highly-compensated employees at the 90th percentile, which was $122,148 per year for 2013. That number will likely be higher by the time the Final Rule is implemented. This salary requirement would also adjust automatically to the level equal to the 90th percentile of earnings for full-time salaried workers. 

No Proposed Changes to Duties Requirements 

Since 2004, the duties tests for the white collar exemptions have not included a limit on the amount of time that an employee can spend on nonexempt duties before the exemption is lost. Believing that a rise in the salary level will provide an initial bright-line test for the exemptions, the DOL refrained from proposing changes to the duties tests but will consider requests for changes during the comment period. 

In its proposal, the DOL noted that employer stakeholders opposed any changes to the duties requirements as percentage limits on the amount of time spent on nonexempt duties are sometimes difficult to apply and hinder flexibility for work duties. Employee groups, on the other hand, expressed concern that certain businesses treat workers as exempt even though the employees perform mostly nonexempt duties, especially (they claim) in the retail industry. Without proposing its own duties requirements, the DOL seeks input from interested parties on whether changes to the duties tests are necessary in light of the salary level increases proposed. 

Nondiscretionary Bonuses May Be Included in Salary Level Requirement 

In the past, the DOL has not included nondiscretionary bonus payments when determining whether an employee’s salary meets the white collar exemption threshold; it looked only at actual salary or fee payments made to employees. In its proposed rules, the DOL seeks input on whether it should permit some amount of nondiscretionary bonuses and incentive payments to count toward a portion of the salary level requirement for the executive, administrative and professional exemptions. The DOL states that for these bonuses or incentive payments to count toward the weekly salary requirement, the bonuses and incentive payments would need to be paid monthly or more frequently, not as a yearly “catch-up” payment. 

Next Steps 

If you want to submit any comments on the DOL’s proposed changes to the overtime rules, you have 60 days in which to submit your input either electronically or by mail. Instructions are at the beginning of the Notice of Proposed Rulemaking

After considering comments from interested parties, the DOL will decide whether to make any revisions to its proposed overtime rules and will issue its Final Rule sometime thereafter. Although the final version of the rules may change slightly, you should begin preparing for the changes now. 

Examine your payroll records to determine which employees are currently treated as exempt under the various white collar exemptions. Determine which, if any, would or would not meet the new salary thresholds: $50,440 per year for executive, administrative and professional exemptions and $122,148 for highly compensated employees. Review the duties tests to make sure your exempt employees are performing exempt tasks. 

After this review, consider how your organization is going to handle those employees who may not qualify as exempt under the new rules. Do you want to increase their salary to meet the new threshold? Change their status to nonexempt and pay them minimum wage and overtime? Do you need to change their duties to make sure they meet the duties tests? Have these internal conversations now so that you are not caught off guard when the Final Rule goes into effect in the coming months.

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June 26, 2015

Same-Sex Marriage Equality: What Employers Need to Know After Obergefell

Wisor_SBy Sarah Wisor 

Same-sex couples have a Constitutional right to marry and have their marriages recognized nationwide. In a 5-to-4 decision, the U.S. Supreme Court concluded that states are required to license a marriage between two people of the same sex under the Fourteenth Amendment. Obergefell v. Hodges, 576 U.S. ___ (2015). As a result, same-sex couples may now legally marry in all states. This ruling has massive implications, as rights and benefits extended to opposite-sex spouses will be available to same-sex spouses across the United States. 

Marriage Equality Prevails 

In an opinion authored by Justice Kennedy, the Court recognized that same-sex couples were not seeking to devalue the institution of marriage, but instead sought for themselves the respect, rights, and responsibilities that accompany a legal marriage. The Court held that under both the Due Process and the Equal Protection Clauses of the Fourteenth Amendment, same-sex couples have the fundamental right to marry. 

The Due Process Clause provides that no state shall “deprive any person of life, liberty, or property, without due process of law.” The Court determined that same-sex couples may exercise the right to marry under this Clause for four reasons: 

  1. the right to make the personal choice of who to marry is inherent in the right of individual autonomy; choices concerning family relationships, whether to have children, and whether to use contraception are protected intimate decisions that extend to all persons, regardless of sexual orientation;
  2. the right of couples to commit themselves to each other and enjoy intimate association extends to same-sex couples just as it does to opposite-sex couples;
  3. protecting same-sex marriage safeguards children and families because without the recognition and stability of marriage, children of same-sex couples suffer harm and humiliation as well as material costs because of the stigma attached to “knowing their families are somehow lesser” than families of opposite-sex couples; and
  4. marriage is a “keystone” of our country’s social order and national community; governmental recognition, rights, benefits and responsibilities depend in many ways on marital status and same-sex couples should not be denied the benefits that accompany marriage.

The Court also ruled that the right of same-sex couples to marry is a liberty protected by the Fourteenth Amendment’s guarantee of equal protection of the laws. The Court admonished that state laws that ban same-sex marriage deny same-sex couples the benefits afforded to opposite-sex couples, disparage same-sex couples’ choices, and diminish their personhood. The Equal Protection Clause prohibits such “unjustified infringement of the fundamental right to marry.” 

Recognition of Marriages Performed in Other States 

The Court also ruled that a state may not refuse to recognize the same-sex marriages lawfully performed in another state. The result is that any lawful marriage that has already taken place in the United States, whether same- or opposite-sex, must be recognized in all 50 states. 

What This Means for Employers 

Multi-state employers that have been dealing with state-specific policies that were dependent on state-law recognition of same-sex marriages may now want to implement a uniform policy that applies to all locations. Here are steps you should consider in light of the legalization of same-sex marriages nationwide: 

  • FMLA leave: Same-sex spouses will be deemed spouses under the Family and Medical Leave Act (FMLA) no matter where the marriage took place or where the employee resides. This means that you need to permit eligible employees to take FMLA leave to care for their same-sex spouse with a serious health condition, for qualifying exigency leave if the spouse is being deployed and other qualifying reasons. Update your FMLA policies, forms and practices to permit this leave.
  • Bereavement and other leaves: If you offer bereavement leave for the death of a spouse or in-laws, you should update your policy to reflect that this leave includes same-sex spouses and relatives of the same-sex spouse. If you offer any other leaves that define immediate family or extend to familial situations, such as non-FMLA medical leave or military leave, update those definitions as well.
  • Marital status discrimination: If you operate in states that prohibit discrimination based on an employee’s or applicant’s marital status, you will be prohibited from discriminating based on same-sex marriages.
  • Emergency contacts and beneficiaries: Employees with a same-sex spouse may want to update their emergency contact or beneficiary information listed on group life insurance or retirement plans. Be prepared to administer these changes.
  • Employee benefits: Group insurance, retirement and other employee benefit plans will need to be reviewed and updated. Be certain to consult your benefits attorney and plan administrators for advice on required changes.
  • W-4 Forms and tax updates: In light of potential income tax implications for newly recognized same-sex spouses, some employees may want to change their tax withholding information. Be prepared to update W-4 and state withholding amounts upon request. 

These and additional policies and procedures impacted by the Court’s ruling may require that you update your employee handbook, policies on your intranet, plan documents, forms, beneficiary designations and other personnel documents. Be sure to notify and train your human resources professionals and supervisors on all changes. 

The Court’s landmark decision grants “equal dignity in the eyes of the law” to same-sex couples. Take this opportunity to review your employment policies and practices so your company does the same.

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June 25, 2015

Affordable Care Act Survives Challenge: Tax Credits Available For Federal Exchanges

Busacker_B By Bret Busacker and Gabe Hamilton

To avoid an economic “death spiral” of insurance markets, the U.S. Supreme Court ruled that tax credits are available to individuals in states that have a federal exchange under the Patient Protection and Affordable Care Act (ACA).  King v. Burwell, 576 U.S. ___ (2015). In a 6-to-3 decision, the Court relied on context and policy to resolve an ambiguity in the statute, supporting the ACA’s tax credit in states where the health care exchange is established by the federal government. 

An Exchange Established by the State-or the Federal Government Hamilton_G

The question before the Court was whether the ACA’s tax credits are available to individuals in states that have a health exchange established by the federal government, or only to those in states where the exchange was established by the state. The ACA provides that individuals are only eligible for premium tax credits under the ACA if the individual obtains insurance through “an Exchange established by the State.” But the Act also provides that if a state fails to set up its own exchange, the federal government will establish “such Exchange.” 

The Internal Revenue Service issued a regulation making ACA premium tax credits available regardless of whether the exchange was established and operated by the state or the federal government. The parties challenging that IRS regulation in this case argued that tax credits should not be available in states with a federal exchange as that was not an exchange “established by the State.” 

Chief Justice John Roberts, writing for the majority, acknowledged that the challengers’ “plain-meaning” arguments were strong, but concluded that the context and structure of the statutory phrase meant that Congress intended the tax credits to apply to eligible individuals purchasing insurance on any exchange created under the ACA. He wrote that the statute is ambiguous and that plain meaning of a statute is but one means the Court uses to resolve an ambiguity. In this instance, context and structure of the statute were more persuasive. 

Roberts noted that Congress passed the ACA to improve health insurance markets, not to destroy them. He cited studies that suggested that if tax credits did not apply to federal exchanges, premiums would increase between 35-47 percent and enrollment would decrease by about 70 percent. He wrote, “It is implausible that Congress meant the Act to operate in this manner.” 

Tax Credits Are One of The ACA’s Key Reforms

The Court defined the tax credit scheme as one of the ACA’s three key health insurance reforms. The first key reform is the “guaranteed issue” requirement, which prevents insurance companies from denying health care insurance based on a person’s health, and a “community rating” requirement, which prohibits insurers from charging higher premiums to those in bad health. 

The second key reform is the individual insurance mandate, requiring individuals to have health insurance coverage or pay a tax penalty. This reform is designed to get more healthy people into the insurance pool, lowering premiums across the board. Individuals are exempt from this requirement if the cost of buying insurance would exceed eight percent of their income. 

The third key reform is providing tax credits to certain individuals in order to make insurance more affordable. People with household incomes between 100 and 400 percent of the federal poverty line are eligible to purchase health insurance on the exchange with tax credits which are provided directly to the insurance provider. The availability of premium tax credits through state and federal exchanges is seen as essential in getting more individuals insured and spreading the risk pool. 

Acknowledging that the ACA included many instances of “inartful drafting,” the Court decided that limiting tax credits to state exchanges would gut the second and third key reforms in states with a federal exchange. The combination of no tax credits and an ineffective coverage requirement would result in insurance markets plunging into a “death spiral.” The Court concluded that Congress meant for all of the key reforms to apply in every state, including those with federal exchanges. 

 Result: No Change for Employers in ACA Requirements 

By upholding the tax credit scheme in all states regardless of whether an exchange was set up by the state or the federal government, the Supreme Court supported the overall scheme of the ACA. Although Justice Scalia wrote a scathing dissent that was joined by two other justices, the ACA remains intact. Employers should continue to comply with all applicable ACA requirements.

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June 22, 2015

New FMLA Certification Forms Include GINA Safe Harbor Notice

Biggs_JBy Jude Biggs 

The U.S. Department of Labor (DOL) unceremoniously published new FMLA forms with an expiration date of May 2018. The only significant revision is the addition of a notice to employees and health care providers on the medical certification forms informing them not to reveal genetic information in violation of the Genetic Information Nondiscrimination Act (GINA). 

Genetic Information Off-Limits to Employers 

GINA, which went into effect in late 2009, applies to employers with 15 or more employees. It not only makes it unlawful for employers to discriminate or retaliate against employees and applicants because of their genetic information, but it also prohibits employers from requesting, requiring, purchasing or disclosing genetic information. 

Genetic information is defined to include information about an individual’s genetic tests and the genetic tests of an individual’s family members, genetic services and an individual’s family medical history. Family medical history is included because it often reveals whether someone has an increased risk of getting a disease, disorder or condition in the future. 

FMLA and GINA Intersect 

Under the FMLA, employers may require that an employee requesting leave for his or her own serious health condition or to care for a family member with a serious health condition provide a medical certification form completed by a health care provider. Through the medical certification form, health care providers provide medical facts about the condition, such as the expected duration, the nature of treatments, and whether the employee is unable to perform his or her job functions as well as information about the amount of leave needed. In some circumstances, responses by health care providers may reveal genetic information that is protected by GINA. 

Because of this intersection of the FMLA and GINA, the regulations implementing GINA offer suggested language that covered employers may use to specify that no genetic information should be provided when medical information is offered to support a request for FMLA leave. By utilizing this safe harbor language and advising the employee and the health care provider not to provide genetic information when completing the FMLA medical certification form, the inadvertent receipt of genetic information by the employer will not be deemed a violation of GINA. 

In the past, the DOL’s model FMLA certification forms lacked this GINA safe harbor language. Consequently, employers had to offer it separately or utilize their own FMLA forms in order to take advantage of GINA’s safe harbor provision. Now, the DOL has included the following language in its model FMLA certification forms: 

Do not provide information about genetic tests, as defined in 29 C.F.R. § 1635.3(f), or genetic services, as defined in 29 C.F.R. § 1635.3(e). 

The certification form for an employee’s own serious health condition includes a statement that no information about the manifestation of disease or disorder in the employee’s family members, 29 C.F.R. § 1635.3(b), should be provided. 

Use New FMLA Forms Or Update Your Own Forms 

The new FMLA model forms, with fillable form fields, are linked here: 

Take steps now to update your FMLA practices to use the new DOL forms, or if you use your own FMLA forms, update them to reflect the added recommended language.

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June 15, 2015

Employee Termination For Off-Duty Marijuana Use Legal, Says Colorado Supreme Court

By Emily Hobbs-Wright

In a nationally awaited decision, the Colorado Supreme Court upheld an employer’s termination of an employee who tested positive for marijuana due to his off-duty, off-premises marijuana use. Issued on June 15, 2015, the Court’s narrow decision in Coats v. Dish Network, LLC turned on the fact that marijuana use remains illegal under federal law. Construing the term “lawful” to encompass activities that are permitted by both state and federal law, the Court ruled that Coats’s off-duty marijuana use was not a protected activity within the meaning of Colorado’s lawful activities statute because marijuana use remains unlawful under the federal Controlled Substances Act. The Court refrained, however, from addressing the issue of whether the state’s Medical Marijuana Amendment confers a state Constitutional right to such use.

Although binding only on Colorado, this decision provides employers nationwide guidance in enforcing drug-free workplace policies as more and more states legalize some form of marijuana use.

Coats v. Dish Network: Employee Not Impaired By Marijuana At Work

Dish Network, LLC terminated Brandon Coats, a quadriplegic, for violating its zero tolerance drug policy after he tested positive for marijuana in a random workplace drug screen. Coats claimed he only used marijuana after work at home to treat painful muscle spasms caused by his quadriplegia. He stated that he did not use marijuana on Dish’s premises and was never under the drug’s influence at work. 

After his termination, Coats sued Dish claiming his termination violated Colorado’s lawful activities statute, which broadly prohibits discharging employees for engaging in “any lawful activity off the premises of the employer during nonworking hours.” Colo. Rev. Stat. § 24-34-402.5(1). Coats argued that because his use of marijuana was legal under state law, he engaged in a lawful off-duty activity for which he could not be discharged. He further argued that the phrase “lawful activity” in Colorado’s statute must be defined in reference to state, not federal law.  

Dish countered by focusing on the fact that marijuana remains illegal under federal law, and therefore, its use could not be a “lawful activity” under the Colorado statute, making Coats’s termination legal. The trial court agreed with Dish and dismissed the lawsuit finding that marijuana use is not lawful under state law. A divided Colorado Court of Appeals upheld the trial court’s decision on separate grounds (i.e., that in order for an activity to be “lawful” it cannot contravene state or federal law), which the Colorado Supreme Court has now affirmed. 

“Lawful” Means Permitted By Both State and Federal Law

The Colorado lawful activities statute does not define the term “lawful.” Coats argued it should be read as limited to activities that are lawful under state law, which could include legalized marijuana use. The Court disagreed. It looked to the plain language of the statute to conclude that the term “lawful” means permitted by law, or not contrary to, or forbidden by law. The Court refused to impose a state law limitation to the term, ruling that because marijuana use is unlawful under federal law, it is not a “lawful” activity under the Colorado statute.

A successful appeal of the Court’s interpretation of the lawful activities statute to the U.S. Supreme Court is unlikely as the Colorado Supreme Court based its decision on a straightforward common sense construction of a state statute, which is deemed to be within the state’s highest court’s jurisdiction to decide.

Coats’s Impact on Marijuana in the Workplace

The Coats decision is significant to Colorado employers because it confirms that employers are entitled to enforce drug-free workplace policies without fear of violating the state lawful activities statute. Although this case dealt with marijuana use for medical purposes, the Court’s reasoning should apply to recreational marijuana use as well.

Notably, the Court did not decide whether off-duty marijuana use is protected under Colorado’s Medical Marijuana Amendment, which arguably only creates an exemption from criminal prosecution. Any such narrow ruling would almost certainly have spawned additional litigation over the different wording in Colorado’s more recent Recreational Marijuana Amendment, and whether that amendment made off-duty marijuana use “lawful.”

While the Coats decision resolves an important open issue under Colorado law, Colorado employers should continue to exercise caution when dealing with employee marijuana use outside the workplace. Drug testing policies should provide employees with clear notice of consequences for off-duty marijuana use. Further, employers must enforce zero tolerance policies consistently in order to avoid discrimination claims brought under statutes such as the Americans with Disabilities Act and the Colorado Anti-Discrimination Act. When dealing with an employee who uses marijuana off-duty and off-premises, employers should carefully evaluate the facts of each situation and consider the risks of violating other employment laws before making adverse employment decisions.

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June 10, 2015

Employers Must Raise Defense of Unverified EEOC Charge or It Is Waived

Gutierrez_SBy Steven M. Gutierrez 

According to the Tenth Circuit Court of Appeals, verifying an EEOC charge is not a jurisdictional requirement, necessary to give the federal courts the authority to resolve the case; rather, the Court ruled that verifying an EEOC charge is a condition precedent to filing a Title VII lawsuit in federal court, which may be waived if the employer does not challenge it when first responding to the lawsuit. Gad v. Kansas State University, No. 14-3050 (10th Cir. May 27, 2015). 

Verification of EEOC Charge 

Title VII, the federal statute that prohibits employers from discriminating on the basis of race, color, national origin, sex or religion, requires that claimants submit a charge to the EEOC prior to filing suit in federal court. That submission must be “in writing under oath or affirmation.” EEOC regulations require that the written charge be signed and verified, which means sworn under penalty of perjury or affirmed before a notary public, an EEOC representative or another person authorized to administer oaths. 

So what happens if the individual asserting discrimination does not verify his or her EEOC charge prior to filing suit? Does the employer-defendant have to raise the issue of the unverified charge, or does the lack of compliance with the verification requirement mean that the federal court lacks jurisdiction to hear the case at all? 

Verification Not a Jurisdictional Prerequisite to Title VII Lawsuit 

Not every defect in the administrative process defeats jurisdiction, rendering federal courts without authority to hear the case, pointed out the Court. After discussing previous U.S. Supreme Court cases that examined Title VII jurisdictional issues, the Tenth Circuit focused on four key points: 

  1. Whether a Title VII statutory requirement is jurisdictional or not depends on whether it is written within Title VII’s jurisdictional subsection – here, the verification requirement is contained in a separate provision that does not deal with jurisdiction of the district courts;
  2. Because non-lawyers initiate Title VII processes, courts should not interpret procedural rules in a way that deprives individuals of their rights under the law – here, interpreting the verification requirement as jurisdictional might lead to inadvertent forfeiture of Title VII rights;
  3. Verification is intended to protect employers from the burden of defending against frivolous claims or claims of which they had no notice – here, because verification remains a Title VII requirement, an employer may raise the plaintiff’s failure to satisfy the requirement as a defense, which serves to protect employers; and
  4. Failure to verify a document as required by a federal rule should not render the document fatally defective – here, if a claimant’s failure to verify destroyed subject-matter jurisdiction, it would make the charge fatally defective by destroying a court’s ability to hear the case at all. 

Based on its analysis of these four points, the Court concluded that the EEOC verification requirement is not jurisdictional. 

Lack of Verification As Defense 

Because verification of the EEOC charge remains a Title VII requirement, an employer defending a Title VII discrimination claim may raise a plaintiff’s failure to satisfy the requirement and seek dismissal of the case on that basis. The Court likened the verification requirement to other Title VII requirements that have been deemed non-jurisdictional, waivable defenses. For example, compliance with the statutory time limit for filing EEOC charges is prerequisite to bringing a Title VII suit in federal court that has been ruled to be subject to waiver and estoppel. Similarly, TitleVII’s application to employers with 15 or more employees has been determined to be a non-jurisdictional requirement that is waivable by an employer. Consequently, if an employer fails to raise a known verification defect during the EEOC proceeding, it likely waives the requirement and the case proceeds. 

Waiver Left For Further Analysis 

Because the district court in Gad had dismissed the plaintiff’s case for lack of subject-matter jurisdiction, it had not examined the issue of waiver of the defense. The Tenth Circuit noted that Gad had not argued that her employer, Kansas State University (KSU), had waived the verification requirement. (In its answer, KSU stated generally that Gad had failed to exhaust her administrative remedies but did not specifically mention her failure to verify her EEOC charge.) Instead, Gad argued only that the EEOC had waived the verification requirement, due to an EEOC investigator allegedly telling Gad that she did not need to return the signed EEOC form. 

In reversing on the jurisdictional issue, the Tenth Circuit sent the case back to the district court to determine whether the verification requirement had been waived. The Court stated that despite the conclusion that an employer may waive the verification defect, it “does not necessarily follow that the EEOC can waive the requirement unilaterally.” But, the Court noted that there may be extreme circumstances where non-compliance with the verification requirement might be excused, such as negligent EEOC conduct that would mislead a reasonable layperson into thinking that he need not verify the charge. The Court refused to define the scope or parameters of a waiver rule, as that specific issue was not before the Court. 

What This Case Means to You 

When faced with a Title VII lawsuit, get a copy of the EEOC file at the earliest possible moment and check whether the claimant’s EEOC charge was verified. If not verified, you should seek dismissal of the proceeding on the basis that the claimant failed to verify his or her EEOC. If you choose to respond to the merits of the lawsuit ,without asserting lack of verification as a defense, you have likely waived that requirement.

It does not, however, appear that you should always raise the issue of lack of verification prior to your first response to the federal lawsuit. That is because an EEOC regulation permits “an otherwise timely filer to verify a charge after the time for filing has expired” and to cure technical defects or omissions, including failure to verify the charge. Consequently, if you point out the defect at any time prior to the claimant filing the lawsuit, the claimant will likely be able to amend their charge to correct the verification defect.  But you should always raise the defense before responding to the merits of the charge of discrimination to ensure that you do not waive the defense. 

Less clear, however, is the issue of an EEOC waiver of the verification requirement. Because the Court did not define the circumstances, if any, under which a claimant may argue that the EEOC did not ask for or require verification, we must wait for further guidance before knowing whether a claimant may proceed with a Title VII lawsuit even after you’ve raised the unverified charge defense.

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June 4, 2015

How to Keep Isolated Pay Deductions From Destroying Exempt Status

Vilos_JBy Joanna Vilos 

You’ve probably heard this many times: If you improperly deduct pay from the salary of an exempt employee, you risk losing the exemption. Losing the exemption means you become liable for overtime pay. A recent case from the Tenth Circuit Court of Appeals offers guidance on what steps you need to take in order to keep an isolated improper salary deduction from negating your employee’s exempt status. Ellis v. J.R.’s Country Stores, Inc., No. 13-1346 (10th Cir. Mar. 9, 2015). 

Store Manager Claimed Exemption Lost After Improper Pay Deduction 

In 2007, Sandra Ellis was hired to manage one of J.R.’s Country Stores convenience stores. Under the store’s manager pay plan, she received a weekly salary of $600 (later increased to $625) in exchange for working whatever number of hours per week was necessary to effectively run her store, with a minimum of 50 hours each week and a minimum five-day workweek. She also received a monthly bonus depending on the performance of her store. The company classified her as exempt. 

In early April 2012, the company deducted $31.20 from her weekly salary because she had worked less than the requisite 50 hours that week. It was the only time during her four-plus years of employment that she had been paid less than her full weekly salary. Ellis soon quit and notified the company that it owed her over $42,000 in unpaid overtime compensation because she had lost her exempt status due to the company’s deduction when she didn’t work the full 50-hour week. 

Although denying any improper deduction, the company agreed to “take the high road” and paid her for the overtime she worked during the time period in which the deduction occurred. Ellis wasn’t satisfied with the $332.88 check she received, so she sued the company in federal court claiming she was not exempt because she was not paid on a true salary basis under the Fair Labor Standards Act (FLSA), and sought to recover all unpaid overtime pay. She also intended to expand her lawsuit into a collective action on behalf of similarly-situated store managers. 

Single, Isolated Salary Deduction 

Exempt status for most of the white collar exemptions under the FLSA depends on the employee being paid on a salary basis. This means that the employee is paid a predetermined weekly amount, which currently must be $455 or more per week, that may not be reduced because of the quantity or quality of the employee’s work. Consequently, with limited exceptions, you must pay exempt employees their full salary for any week in which they perform work, regardless of the number of days or hours worked. 

Under FLSA regulations, an actual practice of making improper deductions can show that the employer did not intend to pay the employee on a salary basis, resulting in the loss of exempt status. The number of improper deductions and the number of employees affected by the deductions are factors that can show an employer does not intend to pay on a salary basis.

In Ellis’ case, the company made a single pay deduction over one pay period. She argued that was sufficient to destroy the salary basis and her exempt status. The Court disagreed. Relying on earlier court decisions, the Court concluded that the single, isolated deduction from Ellis’ salary was not enough to show that the company did not intend to pay her on a salary basis. 

Handbook Policy Prohibited Improper Deductions 

Another factor to be considered is whether the employer has a clearly communicated policy permitting or prohibiting improper deductions and whether it provides a complaint mechanism for employees to seek a correction of an improper deduction. J.R.’s Country Stores had a policy in its employee handbook that stated the company “prohibits deductions from an exempt, salaried employee’s pay except under the circumstances set forth in the [FLSA] and state law. If you believe improper [deductions have occurred], it will promptly reimburse the employee and ensure the mistake will be corrected in the future.” 

Ellis argued this policy was insufficient as it requires employees to know or research the law to determine which deductions are allowed. She also asserted that it did not adequately provide for a complaint mechanism. The Court disagreed with both of these assertions. It found the policy sufficient to show that the company intended to pay its exempt employees on a salary basis. 

Correcting Improper Pay Deductions 

According to FLSA regulations, if an employer reimburses an employee for an isolated or inadvertent improper deduction, it will not lose the exemption for that employee. This so-called “window-of-correction” defense essentially allows an employer to correct a mistaken deduction. In Ellis’ case, the Court found that the company was entitled to rely on this defense as the improper deduction was isolated and the company reimbursed Ellis shortly after it was made. In the end, the Court ruled that the company intended to pay Ellis on a salary basis and the single improper deduction did not cause her to lose her exempt status. Therefore, she was not entitled to overtime pay. 

Proper Salary Deductions 

As noted above, you generally are not permitted to make deductions from an exempt employee’s predetermined pay for days or hours missed. You are, however,permitted to make salary deductions for the following: 

  • If no work is performed in a given workweek, no salary need be paid for that week;
  • Absences from work for one or more full days for personal reasons other than sickness or disability;
  • Absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness;
  • To offset amounts employees receive as jury or witness fees, or for military pay;
  • For penalties imposed in good faith for infractions of safety rules of major significance;
  • For unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions;
  • For a partial initial or terminal week of employment; or
  • For unpaid leave under the Family and Medical Leave Act. 

Best Practices For Paying On a Salary Basis 

Start with a policy that prohibits improper deductions from an exempt employee’s salary. Make sure the policy is communicated to employees through your employee handbook, intranet or other places where policies are posted. Make sure you include a complaint mechanism to notify employees how to raise questions about their pay and get improper deductions corrected. Be sure to train your payroll personnel and supervisors on the policy and what deductions are acceptable and not acceptable. 

Be careful about requiring exempt employees to “clock in” or keep track of their hours. Although tracking hours of exempt employees is not itself a violation, if you pay the employee based on the hours tracked, you will not be paying on a salary basis. 

Administration of sick time, vacation and leaves of absence must be tailored to address exempt employees. Even though you may track how much sick time, vacation time and other leaves an exempt employee uses, remember that you may not make pay deductions unless the circumstances fall within one of the exceptions listed above. 

If an exempt employee isn’t putting in as much time as you require, or isn’t producing the volume or quality of work you expect, treat it as a discipline issue, not a pay issue. Similarly, if an exempt employee exhausts his or her time off benefits (e.g., PTO, vacation, etc.) and continues to take time off, handle it as a discipline issue rather than deducting pay (again, unless within a permissible exception). 

Finally, if an isolated or inadvertent improper deduction is made, rectify it immediately by reimbursing the employee to make their salary whole. Then be sure to take steps to prevent a similar deduction from occurring in the future.

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June 2, 2015

USCIS Flips Position: Proposes That Amended H-1B Petitions Must Be Filed When Changing Worksite

Tsai_RBy Roger Tsai 

If your H-1B employee changes his or her worksite location, you’ll need to file an amended H-1B petition with a corresponding new Labor Condition Application for Nonimmigrant Workers (LCA) under a proposed guidance recently released by the U.S. Citizenship and Immigration Services (USCIS). This position, consistent with this April’s decision by USCIS’ Administrative Appeal Office in the Matter of Simeio Solutions, LLC, is a complete reversal of USCIS’ long-held position that a geographic move does not trigger the need to file an amended Form I-129 petition. The proposed change will significantly affect employers who have multiple offices or locations, making it more difficult and costly to move H-1B employees from one work location to another. 

Reversal on Need to File Amended H-1B Petition 

Previously, USCIS had informed employers that as long as the LCA has been filed and certified for a new employment location, there was no need to file an amended H-1B petition solely because of the change in worksite location. As long as there were no other material changes in the terms and conditions of the employee’s status or eligibility for H-1B classification, you only needed to post the new LCA in the new worksite location to be in compliance. 

Now, under the proposed guidance and Simeio Solutions decision, an amended H-1B petition will be needed whenever an H-1B employee changes his or her place of employment to a location outside of the county covered by the existing, approved H-1B petition. This applies even if a new LCA has been certified and posted at the new location. USCIS now contends that a change in the H-1B worker’s place of employment is a material change in the terms and conditions of employment which therefore triggers an amended petition. 

USCIS clarifies that you will not need to file an amended petition if your H-1B worker is moving to a new worksite within the same metropolitan statistical area county or “area of intended employment” as in the original petition and LCA. You still must post the original LCA in the new work location, but no amended documents must be filed. Similarly, you would not need to file an amended petition if your H-1B employee will be working at a new location for only a short time, namely up to 30 days (60 days, in some cases), or the employee goes to a “non-worksite” location (e.g., staff seminars, management conferences or other casual, short-term assignments). 

What To Do If Your H-1B Workers Change Worksite Locations 

If your H-1B workers have already changed worksites, you have until August 19, 2015 to file an amended H-1B petition and corresponding LCA. USCIS states it will not take any adverse action against you or your employees as long as you file by the August 19th deadline. If you fail to file an amended petition by that date, you will be out of compliance and both you and your H-1B employee would be subject to adverse action. 

After you file the amended petition, your H-1B worker may begin to work at the new worksite location immediately. You need not wait for a final decision to move the employee to a different worksite. 

If your amended H-1B petition is denied, your H-1B employee may return to work at the location covered by the original petition, as long as the original petition is still valid and the employee is able to maintain valid nonimmigrant status at that location. 

Comment Period Open Until June 26 

USCIS will accept comments from the public and interested parties about its proposed change in position until June 26, 2015. Accordingly, USCIS may change its final guidance based on questions and concerns raised during the comment period. We will keep you posted as this issue gets finalized.

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June 1, 2015

Religious Accommodation: Employer Need Not Have Actual Knowledge of Accommodation Need, Says High Court

Bennett_D

By A. Dean Bennett 

An employer’s motives, not its actual knowledge, determine whether it has discriminated against an applicant or employee in violation of Title VII, ruled the U.S. Supreme Court today. In an 8-to-1 decision, the Court ruled that an employer that refuses to hire an applicant in order to avoid accommodating a religious practice may be liable for discrimination even though the applicant did not inform the employer of the need for an accommodation. As long the applicant can show that her need for an accommodation was a motivating factor in the employer’s decision to refuse to hire her, the employer can be liable for disparate treatment under Title VII. The Supreme Court reversed the Tenth Circuit’s opinion which held that liability for failure-to-accommodate a religious practice applies only when the applicant directly informs the employer about the need for an accommodation.  EEOC v. Abercrombie & Fitch Stores, Inc., 575 U.S. ___ (2015). 

Head Scarf Versus “Look Policy” 

This case arose when Samantha Elauf, a seventeen-year old applicant, went to an interview for an in-store sales position at an Abercrombie & Fitch store wearing a headscarf. Although the topic of religion did not come up at the interview, the interviewer, assistant store manager Heather Cooke, assumed that Elauf was Muslim and that she wore the headscarf due to her Muslim religion. 

Cooke rated Elauf as qualified to be hired but was concerned that the headscarf would conflict with Abercrombie’s strict “Look Policy” which forbids wearing of “caps.” Cooke consulted with her district manager who told Cooke not to hire Elauf because wearing the headscarf would violate the Look Policy, as would all other headwear, religious or otherwise. 

The Equal Employment Opportunity Commission (EEOC) sued Abercrombie on Elauf’s behalf. The District Court granted summary judgment to the EEOC, finding Abercrombie liable for failing to accommodate a religious practice in violation of Title VII, with a jury awarding $20,000 in damages. Abercrombie appealed and the Tenth Circuit reversed, concluding that Abercrombie could not be liable for failing to accommodate a religious practice where Elauf never provided Abercrombie with actual knowledge of her need for an accommodation. The EEOC appealed to the Supreme Court. 

No Knowledge Requirement in Title VII 

“An employer may not make an applicant’s religious practice, confirmed or otherwise, a factor in  employment decisions,” stated the Court in an opinion written by Justice Scalia. Intentional discrimination under Title VII looks only to the employer’s motives in making its employment decisions, not its actual knowledge. Consequently, if an employer thinks that a job applicant might need an accommodation, such as time off to attend religious observances, and denies the applicant a job in order to avoid that prospective accommodation, the employer violates Title VII, regardless of whether the employer actually knows of the applicant’s religious practices or need for accommodation. 

ADA Has Knowledge Requirement 

The Court recognized the difference in the reasonable accommodation duty under Title VII versus under the Americans with Disabilities Act (ADA). Discrimination under the ADA is defined to include an employer’s failure to make reasonable accommodations to the known physical or mental limitations of an applicant. However, Title VII does not include the knowledge requirement. Therefore, failure to accommodate a religious practice will be deemed discrimination under Title VII as long as the employer’s desire to avoid the accommodation was a motivating factor in its employment decision. 

Neutral Policies Still Require Religious Accommodation 

Abercrombie argued that its Look Policy was neutral and that it did not treat religious practices less favorably than similar secular practices so it could not be liable for intentional discrimination. The Court disagreed, stating that Title VII gives religious practices favored treatment. The Court acknowledged that an employer is entitled to have a neutral dress policy, such as a no headwear policy, but when an applicant or employee requires an accommodation as an aspect of a religious practice, Title VII requires that the employer accommodate that practice, in the absence of an undue hardship. 

Lessons on Religious Accommodations 

The practical implication of this decision is that you may not make employment decisions based on suspected religious accommodations. In other words, if you think that an applicant has certain religious beliefs which might lead to the need for an accommodation once hired, you cannot reject them – even if you never discussed or confirmed their religious practices. If the applicant’s potential need for an accommodation is a factor in your decision not to hire them, you may be found liable for discrimination under Title VII.

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