Author Archives: Holland & Hart

January 11, 2018

EEOC Reveals Its Strategy For Upcoming Years; Will Review Public Comments

Little V. West

By Little V. West

The U.S. Equal Employment Opportunity Commission (EEOC) recently issued its draft strategic plan for fiscal years (FY) 2018-2022. Because the strategic plan outlines the agency’s priorities for enforcing anti-discrimination laws in the upcoming years, employers can learn a great deal about the types of discrimination and class actions the EEOC will pursue and litigate to further its agenda. Let’s look at highlights of the draft plan to see where the EEOC intends to focus its resources.

Substantive Area Priorities

In its draft strategic plan for upcoming years, the EEOC makes some changes to the substantive areas of law that encompasses its priorities for enforcement efforts. First, it adds two new priorities under the Emerging and Developing Issues area. The agency will look to address discriminatory practices against those who are Muslim or Sikh, or persons of Arab, Middle Eastern, or South Asia descent, particularly protecting members of these groups from backlash following tragic events in the U.S. and the rest of the world. The agency also will look to clarify the employment relationship and the application of anti-discrimination laws to the evolving employment relationships related to temporary workers, staffing agencies, independent contractors, and the on-demand economy (e.g., Uber, Airbnb, freelancers, and other economic models that do not have a traditional employment relationship).

Second, the priorities under the Americans with Disabilities Act will be narrowed to focus on qualification standards and inflexible leave policies that discriminate against individuals with disabilities.

Third, in the area of Immigrant, Migrant, and Other Vulnerable Workers, the EEOC will look to its district offices and the agency’s federal sector program to identify vulnerable workers and underserved communities in their area. For example, the EEOC states that some district offices may focus on employment discrimination against members of Native American tribes, where those groups have local issues of concern.

Fourth, the EEOC proposes to expand its priority on equal pay to go beyond discrimination based on sex, but to address compensation systems and practices that discrimination based on race, ethnicity, age, individuals with disabilities, and other protected groups. Consequently, addressing and remedying pay discrimination is intended to reach all workers, not just those paid differently because of their gender.

Fifth, the agency will focus on preserving access to the legal system and challenging practices that limit workers’ substantive rights or impede the EEOC’s investigative or enforcement efforts. In particular, the EEOC intends to focus on overly broad waivers and releases of claims. It will also target overly broad mandatory arbitration provisions. In addition, the agency looks to focus on significant retaliatory practices that dissuade other employees from exercising their rights.

Finally, the EEOC will continue to make it a priority to prevent systematic workplace harassment. Given the current environment that has shed new light on sexual harassment, the EEOC will look specifically to claims that raise a policy, practice, or pattern of harassment.

Strategy Leads to Priority Handling and Litigation

Because of limited resources, the EEOC will use its strategic priorities to guide its charge handling, investigations, and litigation. If a charge raises a substantive area priority, it will be given priority in charge handling. Cases with strong evidence in substantive priority areas will be given precedence in the selection of cases for litigation. In general, the agency looks to its strategic plan to offer a more targeted approach to its enforcement efforts.

Integrating EEOC Efforts Across The Agency

In addition to the substantive priority areas, the EEOC states that it is committed to using an integrated approach to consider ideas, strategies and best practices across the agency. It looks to reinforce consultation and collaboration between the investigative staff and the EEOC’s lawyers who litigate the cases. It also looks to increase the collaborative efforts between the federal and private sector staff, especially with respect to protecting LGBT workers. It also looks to enhance a coordinated and consistent nation message when it comes to education and outreach activities.

Next Steps

The EEOC accepted comments from interested parties on its draft strategic plan through January 8, 2018. The agency is expected to review submissions and approve its final version of the plan in the coming months.

January 8, 2018

Confidential Sexual Harassment Settlements No Longer Tax Deductible

Steven Gutierrez

By Steve Gutierrez

The recently enacted tax reform bill contains a short provision that could significantly affect whether and how employers settle sexual harassment claims. Section 13307 of the Tax Cuts and Jobs Act states that no deduction is allowed for any settlement or payment related to sexual harassment or sexual abuse if the settlement or payment is subject to a nondisclosure agreement. The new provision also prohibits a tax deduction for attorney’s fees related to confidential sexual harassment settlements or payments.

Deductibility Hinges On Confidentiality of Settlement

The new tax provision eliminates a tax deduction for sexual harassment-related settlements only if the settlement or payment is subject to a nondisclosure agreement. In other words, if an employer requires the alleged victim of sexual harassment or abuse to keep the settlement (and presumably the underlying claim) confidential, then the amount of the payment and any attendant attorney’s fees are not tax deductible. Sexual harassment/abuse settlements and related attorney’s fees remain tax deductible if they are not subject to a nondisclosure agreement.

The policy behind this provision appears to be in response to the recent spate of sexual harassment and abuse claims coming to light. The “#MeToo” campaign has raised significant concerns about companies and their high-level employees hiding behind nondisclosure agreements to avoid public scrutiny about unlawful sexual conduct in the workplace. Repeat offenders often keep their jobs when their employers pay off the victims in secret. By eliminating the tax deduction for confidential settlements and related attorney’s fees, companies will be forced to weigh confidentiality against tax deductibility when deciding whether to settle each claim.

What If Sexual Harassment/Abuse Is Only One of Multiple Claims Being Settled?

One of the questions left unanswered in this new tax reform provision is what happens to the tax deduction for payments that settle more than one kind of employment claim. In many cases, the victim of sexual harassment or sexual abuse brings other claims against his or her employer, such as retaliation, gender discrimination, violation of the Equal Pay Act, or defamation. The language of the provision is unclear as to what is meant by any settlement or payment related to sexual harassment or sexual abuse. One could argue that a retaliation claim that arose from an adverse action following a complaint of sexual misconduct would be related to the sexual harassment claim. But what about an Equal Pay Act claim? Is that related to sexual harassment or sexual abuse?

It is unclear whether confidential settlement payments related to these other types of employment claims will remain tax deductible when lumped in with a sexual harassment settlement. This open question will likely lead employers to separate settlement agreements and payments for non-sexual harassment claims in order to keep the settlement of these other types of claims confidential and tax deductible. It also could lead employers (on likely advice from their attorneys) to structure settlements of multiple claims with an allocation of only a small amount, say $100, to the settlement of the sexual harassment claim, with the remainder of any settlement payment attributed to other types of claims alleged by the victim. Absent any clarification on this issue, we expect this will be the subject of much litigation down the road. In the meantime, companies and their attorneys likely will use creative drafting of settlements to try to separate unrelated claims in order to keep the settlement of non-sexual-harassment claims confidential and retain the deductibility of payments and attorney’s fees incurred for non-harassment matters.

Deductibility of Victim’s Attorney’s Fees

Another open question is whether the denial of deductibility applies only to the companies making settlement payments and their own attorney’s fees related to such settlements, or if it applies to the attorney’s fees incurred by the victim as well. The new provision denying deductibility for settlements subject to nondisclosure agreements amends section 162 of the Internal Revenue Code (IRC) which is the section that allows deductions for ordinary and necessary trade or business expenses paid or incurred during the course of a taxable year. Generally, an individual would not be able to take a business deduction under IRC Section 162. However, the language in the new provision does not make it clear that it applies only to the business’s own attorney’s fees, thus leaving open an interpretation that it also prohibits the victim of sexual harassment or sexual abuse from deducting his or her attorney’s fees related to settlements of such claims. It also could be interpreted to deny the deduction to a business that pays the victim’s attorney’s fees as part of a confidential settlement.

This could hit victims hard as those who sign nondisclosure agreements may have to pay taxes on the entire settlement, including any amounts paid to cover his or her attorney’s fees. Or, it could lead victims to reject any settlement containing a nondisclosure provision in order to avoid paying taxes on the attorney’s fee portion of the settlement payment.  It also may make employers less likely to agree to pay the victim’s attorney’s fees as part of a confidential settlement because the total amount of fees paid to attorneys on both sides would not be deductible as a business expense. It is unclear whether Congress meant to hamstring victims in this way, or if it was the result of inarticulate drafting. We will have to see whether a correction or guidance is issued to clarify how the new denial of deductibility provision affects a victim’s ability to deduct attorney’s fees.

Get Advice Before Settling

The denial of deductibility provision affects any amounts paid or incurred after December 22, 2017 (when the tax reform act became effective). This makes one thing about this new tax deduction provision clear – employers should get advice from competent counsel and tax professionals before settling any sexual harassment or sexual abuse claims. Employers will need to evaluate each case individually to decide whether confidentiality trumps deductibility. Then, after the employer decides whether to impose a nondisclosure requirement on the alleged victim of sexual harassment/abuse, the settlement agreement must be drafted carefully in light of this new provision. If the victim asserts multiple claims, employers may be able to keep the settlement of non-harassment claims both confidential and deductible, if the settlement agreement is drafted correctly.

The bottom line is seek advice early and don’t use boilerplate settlement agreements without considering the tax deductibility consequences of nondisclosure provisions.

January 4, 2018

Tip-Pooling Regulation May Change Under DOL Proposal

Rebecca Hudson

By Rebecca Hudson

The Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) seeks to rescind a 2011 tip-pooling regulation that prohibits sharing of tips among employees who are not customarily tipped employees. Under a Notice of Proposed Rulemaking issued in early December 2017, the WHD proposes to eliminate restrictions on the sharing of customer tips in certain circumstances.

2011 Tip-Ownership Regulation

Revised in 2011, the DOL regulation at issue limits what employers may and may not do with tips. That regulation states:

Tips are the property of the employee whether or not the employer has taken a tip credit under section 3(m) of the FLSA. The employer is prohibited from using an employee’s tips, whether or not it has taken a tip credit, for any reason other than that which is statutorily permitted in section 3(m): As a credit against its minimum wage obligations to the employee, or in furtherance of a valid tip pool.

29 C.F.R. § 531.52 (2011).

In essence, this provision means that even if an employer pays its tipped employees the mandatory minimum wage (currently $7.25 per hour federally), the employer may not keep any of the tips for itself or set up a tip pool that includes employees who are not regularly tipped.

Proposal To Eliminate Tip Ownership Rule When Employer Pays Full Minimum Wage

The WHD intends to remove the limitations on an employer’s use of tips, but only when the employer pays its tipped employees a direct cash wage of at least the full minimum wage. In other words, if an employer pays its tipped employees at least $7.25 per hour (or a higher applicable state or local minimum wage) for all hours worked, then the employer may reallocate tips as it sees fit. This would allow employers to include non-tipped workers, such as dishwashers and cooks, in a tip pool. It may even allow employers to keep tips for itself.

Notably, the proposed change does not apply to employers who take a tip credit. Under the Fair Labor Standards Act (FLSA), employers of “tipped employees” may pay a reduced federal hourly wage of $2.13 per hour as long as those employees receive sufficient tips to raise their earnings to the $7.25 hourly minimum. Employers who take advantage of this tip credit to pay a lower cash wage to its tipped employees would still be subject to the limitation on the sharing of tips under the tip-ownership regulation.

Courts Have Invalidated The 2011 Limits on Tip Ownership

Following the 2011 tip-ownership regulation, employers and employees have been litigating various tip pooling and tip retention arrangements, resulting in numerous courts ruling that the DOL exceeded its authority in enacting the regulation or incorrectly interpreted the FLSA when placing the tip ownership restrictions on employers who paid the full minimum wage. A recent case from the Tenth Circuit Court of Appeals (whose decisions apply to Colorado, Wyoming, Utah, Kansas, New Mexico, and Oklahoma) illustrates the issue. In that case, employer Relish Catering regularly added customer gratuities to the customer’s final catering bill. Relish retained those tips for itself rather than passing them along to its employees who worked at the events. Relish paid its employees $12 per hour for all hours up to forty hours per week, and $18 per hour for overtime, and did not rely on any sort of tip credit to meet the minimum wage.

The Tenth Circuit ruled that the FLSA tip-credit provision does not require that employers turn over all tips to employees in all circumstances. Instead, it held that when an employer does not take the tip credit, the tip-credit provision imposes no restrictions on what the employer may do with tips as long as it pays an hourly wage above the $7.25 minimum. The Court found nothing in the FLSA that directed the DOL to regulate the ownership of tips when the employer does not take the tip credit. Because the FLSA limits the tip restrictions to employers who take the tip credit, the Court ruled that the DOL lacked the authority to regulate otherwise. Marlow v. New Food Guy, Inc., 861 F.3d 1157 (10th Cir. 2017). Read more >>

January 2, 2018

Sexual Harassment – Employers Should Act Now

By Mark Wiletsky

Roger Ailes, Bill O’Reilly, Harvey Weinstein, Kevin Spacey, Charlie Rose, Matt Lauer, politicians from both sides of the aisle – the list of prominent individuals accused of sexual harassment and assault continues to grow. And as sexual harassment dominates the headlines, workers are coming forward in increasing numbers to describe inappropriate sexual conduct in the workplace.

This heightened awareness by both the public and employees should make every employer pause to consider if it is doing enough to keep employees safe and free from harassment. Here are our recommendations for steps you should take right now to help prevent your organization from appearing in the headlines.

Have a Strong Anti-Harassment Policy

Every employer should have a written policy that prohibits sexual harassment in the workplace. If you do not have one, you should strongly consider implementing one to ensure your employees know that sexual harassment is absolutely prohibited. If you already have one, review it to ensure that it includes the following provisions:

  • zero tolerance for unlawful harassment and inappropriate sexual conduct in the workplace
  • examples of unacceptable physical conduct, such as unwelcome touching, hugging, kissing, groping, and gestures, as well as inappropriate verbal or visual conduct, such as sexual jokes, emails, cartoons, pictures, and propositions
  • requests for sexual favors or demands to engage in intimate relationships will not tolerated
  • policy applies to inappropriate conduct by managers, co-workers, vendors, customers, and others who come into contact with your employees
  • every employee is expected to report any harassment that he or she experiences or witnesses
  • reporting mechanism that offers two or more reporting channels (such as a supervisor and the human resources manager)
  • commitment to take complaints seriously through timely and thorough investigation
  • no retaliation or adverse consequences will occur to those who report sexual harassment or cooperate in any investigation or proceeding
  • employees found to have engaged in sexual harassment or other inappropriate conduct will be subject to discipline, up to and including termination.

Train Both Managers and Employees

A policy does little good if your employees are not aware of it. Take this opportunity to conduct sexual harassment training for your entire workforce. Live in-person presentations may be the best way to train your employees, allowing you to take questions and emphasize your organization’s commitment to preventing and resolving any harassment issues. If live training sessions are impossible, offer video or recorded training. Provide specialized training to your executives, managers, and supervisors so that you can stress their input in creating a culture that is free of harassment, and to help them recognize and learn how to handle harassment scenarios.

Encourage Reporting of Inappropriate Conduct 

Employees won’t report harassment to you if they feel their complaint will fall on deaf ears.
They may, instead, talk to the media or an attorney. Consequently, management and human resources professionals need to encourage reporting of workplace improprieties, no matter who it involves or how sensitive the accusation. If you do not welcome complaints, you will not have an opportunity to nip inappropriate conduct in the bud or resolve situations that could prove highly detrimental to your company. 

Investigate Every Complaint

You must treat every report of sexual misconduct or harassment seriously and conduct a timely, thorough investigation to determine whether the alleged conduct occurred. If the complaint is against your company president or another high-ranking individual, you still must investigate it in the same vigorous manner you would for any other employee accused of the misconduct. Consider whether you need to hire outside counsel or a third-party investigator to preserve privilege and to avoid allegations that the investigator was biased because he or she reports to the person accused of misconduct. Take time now to make sure you have an investigation process in place so that when a report of harassment comes in, you don’t waste time determining who does what. 

Take Prompt, Appropriate Action

As you receive a sexual harassment complaint and begin an investigation, you need to determine what action, if any, should be taken pending the investigation’s outcome. You may need to place the alleged harasser on leave, or you may need to separate workers so that they work on separate shifts or in different locations. Your duty is to stop any harassment from occurring, so take whatever steps may be necessary to do that. Then, when you have sufficient facts about the alleged harassment, determine what action is warranted to resolve it. If you conclude that harassment likely occurred, you need to impose consequences. Depending on the severity, that could mean immediate termination of employment. Remember, zero tolerance means no unlawful harassment goes unpunished.

Preventing and Resolving Sexual Harassment Should Help Keep You Out of the News

Because the topic of sexual harassment is so hot right now, take the time to recommit your organization to preventing and resolving workplace harassment by following the steps above. Your efforts now will go a long way in avoiding surprise allegations in the future.

December 28, 2017

Colorado Minimum Wage Goes Up To $10.20 Per Hour On January 1

By Emily Hobbs-Wright

Minimum wage employees in Colorado will get a raise in the new year. The state minimum wage goes up by ninety cents per hour, from the current $9.30 to $10.20, beginning January 1, 2018.

Annual Increases Approved By Voters In 2016

The upcoming minimum wage increase is the result of a ballot effort last year to increase Colorado’s minimum wage to $12 per hour by 2020. In the November 2016 election, Colorado voters approved Amendment 70 which raises the state’s hourly minimum wage by 90 cents per hour each year, as follows:

  • $10.20 effective 1/1/18
  • $11.10 effective 1/1/19
  • $12.00 effective 1/1/20

After 2020, annual cost-of-living increases will be made to the mandatory minimum wage.

Tipped Employees

Under Colorado law, employers may take a tip credit of $3.02 off the full minimum wage for employees who regularly receive tips. Consequently, the minimum wage that must be paid to tipped workers will go up by 90 cents on January 1, 2018 as well. The applicable minimum wage for tipped workers for upcoming years is as follows:

  • $7.18 effective 1/1/18
  • $8.08 effective 1/1/19
  • $8.98 effective 1/1/20

Remember that if tips combined with wages does not equal the state minimum wage, the employer must make up the difference in cash wages.

Take steps now to ensure that your payroll system is ready to comply with the increased minimum wage beginning January 1.

December 26, 2017

The New Tax Bill & Employee Benefits: What is Changing? What is Not?

By Molly Hobbs and Brenda Berg

On December 22, 2017, the President signed into law the Republican tax bill that was passed by Congress just days earlier. Beyond cutting individual tax rates temporarily and slashing corporate taxes to 21 percent permanently, the tax bill includes some important changes to the taxation of certain employee benefits.

Listed below are the major changes to employer-provided benefits under the final tax bill:

  • Revised: Time to repay “offset” employer-sponsored retirement plan loans.
    • Currently, retirement plan loans are generally accelerated (i.e., immediately due and payable) when the plan terminates or the participant terminates employment. If the loan is not repaid, the plan will “offset” the loan against the participant’s account. This loan offset may be rolled over by making an equivalent contribution to an IRA or another qualified plan, but this must be done within 60 days of the date of the offset.
    • Beginning in 2018, the period to roll over a loan offset is extended to the individual’s due date for the tax return for the year in which the offset occurred (including extensions).
  • Repealed: Employer deduction for qualified transportation fringe benefits, including commuting expenses.
    • Currently, an employer can deduct the cost of certain transportation fringe benefit provided to employees (i.e., parking, transit passes, and vanpool benefits), even though such benefits are excluded from the employee’s income.
    • Beginning in 2018, the employer deduction for qualified transportation fringe benefits is fully disallowed. In addition, except as necessary for ensuring the safety of an employee, the employer deduction for providing transportation or any payment or reimbursement for commuting to work is disallowed.
    • These changes do not appear to prevent employers from sponsoring a qualified transportation plan to allow employees to elect to have certain transportation costs paid on a pre-tax basis.
  • Repealed: Employee exclusion of bicycle commuting reimbursements.
    • Currently, an employee can exclude from income qualified bicycle commuting reimbursements of up to $20 per qualifying bicycle commuting month. These amounts are also excluded from wages for employment tax purposes.
    • Beginning in 2018, the qualified bicycle commuting reimbursement exclusion is fully disallowed.
    • Going forward, employers can still maintain a program for bicycle commuting, however, reimbursements under such program will be taxable to the employee.
  • Repealed: Employer deduction for entertainment, amusement and recreation provided to employees.
    • Currently, an employer can fully deduct expenses for recreational, social, or similar activities primarily for the benefit of non-highly compensated employees, provided such activities directly relate to the active conduct of the employer’s business.
    • Beginning in 2018, this deduction is fully disallowed. The employee exclusion remains unchanged.
  • Partially Repealed: Employer deduction for meals, food and beverages provided to employees.
    • Currently, an employer can fully deduct any food and beverage expense that can be excluded from an employee’s income as a de minimis fringe benefit.
    • Beginning in 2018, there will be a 50% limitation on the deduction for food and beverages that can be excluded from an employee’s income as a de minimis fringe benefit, including expenses for the operation of an employee cafeteria located on or near the employer’s premises. The employee exclusion remains unchanged.
  • Partially Repealed: Employee exclusion of value of certain types of employee achievement awards and the employer’s related deduction.
    • Currently, an employer can deduct up to $400 (or up to $1,600 in the case of certain written nondiscriminatory achievement plans) of the value of certain employee achievement awards for length of service or safety. The employee receiving such award can exclude the award from income to the extent that the value of the award does not exceed the employer’s deduction.
    • Beginning in 2018, the employee’s exclusion and employer’s deduction for employee achievement awards will not apply to cash, gift coupons/certificates, vacations, meals, lodging, tickets to sporting or theater events, securities, and “other similar items.” However, an employee can still exclude (and an employer can still deduct) the value of other tangible property and gift certificates that allow the recipient to select tangible property from a limited range of items pre-selected by the employer.
  • Repealed: Employee exclusion from income of employer-provided qualified moving expense reimbursements.
    • Currently, an employee can exclude qualified moving expense reimbursements paid by his or her employer for the reasonable expenses of moving. These amounts are also excluded from wages for employment tax purposes.
    • Beginning in 2018, the qualifying moving expense reimbursement is fully taxable to the employee, except for members of the Armed Forces on active duty who move pursuant to a military order.
  • Enacted: Employer tax credit for employers providing paid family and medical leave.
    • Beginning in 2018, an employer that offers at least two weeks of annual paid family and medical leave, as described by the Family and Medical Leave Act (FMLA), to all “qualifying” full-time employees (and a proportionate amount of leave for non-full-time employees) will be entitled to a tax credit. The paid leave must provide for at least 50% of the wages normally paid to the employee. “Family and medical leave” does not include leave provided as vacation, personal leave, or other medical or sick leave.
    • A “qualifying employee” is an employee who has been employed by the employer for at least one year, and whose compensation for the preceding year did not exceed 60% of the compensation threshold for highly compensated employees (i.e., compensation did not exceed $72,000).
    • The credit will be equal to 12.5% of the amount of wages paid to a qualifying employee during such employee’s leave, increased by .25% for each percentage point the employee’s rate of pay on leave exceeds 50% of the wages normally paid to the employee (but not to exceed 25% of the wages paid).

In addition, employers should be aware that the tax bill eliminates the Affordable Care Act’s (“ACA”) individual mandate penalty starting in 2019. The individual mandate requires most individuals (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage. Currently, individuals who do not enroll in health coverage can incur a tax penalty. Beginning in 2019, individuals will still technically be required to carry health coverage, but will no longer be penalized for failing to do so. This change to the ACA’s individual mandate could indirectly impact employers. For example, if fewer employees avail themselves of Exchange coverage and the related subsidies, an employer’s penalty risk under the ACA’s employer mandate will decrease. The lack of individual penalty could also destabilize the Exchange, resulting in more individuals looking to their employers for coverage.

Although earlier drafts of the tax bill called for repeal or modification, the following benefit provisions remain unchanged by the final tax bill:

  • The hardship distribution safe harbor rules incorporated into many retirement plans (proposals would have eased hardship rules);
  • The employer-provided child care credit;
  • Dependent Care Assistance Programs (DCAPs);
  • Adoption assistance programs;
  • Employer-provided housing; and
  • Educational assistance programs.

Takeaways for Employers:

In light of changes to employer-provided benefits under the final tax bill, employers should take the following actions:

  • Determine whether any changes are needed to retirement plan loan distribution paperwork regarding tax and rollover consequences.
  • Review qualified transportation plan(s) in light of the changes to qualified transportation fringe benefits and bicycle commuting reimbursements.
  • Review any company policies that involve recreational, social, or similar activities for employees, employee meals, employee achievement awards, and/or employee moving expenses.
  • Adjust payroll reporting as necessary and determine whether any taxable amounts are now eligible compensation for retirement plan deferrals and employer contributions.
  • Consider utilizing the new tax credit for paid family and medical leave.

December 14, 2017

NLRB Overturns Controversial Standards on Joint-Employer Status and Neutral Employment Policies; Questions Quickie Election Rule

By Steve Gutierrez 

In a series of decisions that affect both union and non-union employers, the National Labor Relations Board (NLRB or Board) has overruled numerous controversial standards that had broadened the coverage of employee rights in recent years. On December 14, 2017, the Board returned the standard for determining joint-employer status to the pre-Browning-Ferris standard as well as walking back the standard for determining whether facially neutral employment policies infringe on employees’ section 7 right to engage in protected concerted activities. The return to more employer-friendly standards will help ease the risk of engaging in unfair labor practices under the National Labor Relations Act (NLRA). Here are the highlights of the new developments.

Joint-Employer Status Depends on Control

In its 2015 controversial decision in Browning-Ferris Industries, the NLRB significantly broadened the circumstances under which two entities could be deemed joint employers for NLRA purposes. In that case, the Board ruled 3-to-2 that Browning-Ferris Industries was a joint employer with a staffing company that provided workers to its facility for purposes of a union election because Browning-Ferris had indirect control and had reserved contractual authority over some essential terms and conditions of employment for the workers supplied by the staffing company.

Today, in a 3-2 decision, the now Republican-majority Board overruled Browning-Ferris, now requiring that two or more entities actually exercise control over essential employment terms of another entity’s employees and do so directly and immediately in a manner that is not limited and routine, in order to be deemed joint employers under the NLRA. This returns the joint-employer standard to the pre–Browning Ferris standard. Consequently, proof of indirect control, contractually-reserved control that has never been exercised, or control that is limited and routine, will no longer be sufficient to establish a joint-employer relationship.

This doesn’t mean that the Board will no longer find two or more entities to be joint employers under the NLRA. In fact, in the current case in which it overturned Browning-Ferris, it applied the tougher standard and still ruled that two construction companies were joint employers and therefore jointly and severally liable for the unlawful discharges of seven striking employees. Still, the requirement that entities have direct control that is exercised over the workers in question is a more workable and beneficial rule for employers.

New Standard For Facially Neutral Policies

In recent years, the NLRB has ruled that many types of standard employee policies unlawfully interfered with employees’ section 7 rights. That scrutiny went back to the 2004 decision in Lutheran Heritage Village-Livonia  which ruled that employer policies that could be “reasonably construed” by an employee to prohibit or chill the employees’ exercise of section 7 rights violated the NLRA, even if such policies did not explicitly prohibit protected activities or were not applied by the employer to restrict such activities. Consequently, a series of Board rulings deemed certain language in employer policies unlawful even when facially neutral on their face, including policies on confidentiality, non-disparagement, recording and video at work, use of social media and company logos, and other typical employment rules.

In its recent decision, the Board ruled 3-to-2 to overturn Lutheran Heritage Village-Livonia and its standard governing facially neutral workplace rules. The new standard for evaluating employer policies will consider: (1) the nature and extent of the potential impact on NLRA rights, and (2) legitimate justifications associated with the rule. To provide greater clarity for employers, employees, and unions, the Board announced that prospectively, it will categorize workplace rules into three categories depending on whether the rule is deemed lawful, unlawful, or warrants individualized scrutiny. This change should significantly relieve the uncertainty that has existed under the “reasonably construed” standard.

Quickie Elections Being Reconsidered

In another move to reverse recent Board rules, the Board published a Request for Information (RFI) asking for public input on the 2014 representation election rule that changed the process and timing of union elections. In particular, the Board seeks public input on whether the 2014 quickie election rules should be retained, changed, or rescinded. The deadline for submitting responses is February 12, 2018. This RFI signals that the quickie election rule could be on its way out.

Conclusion

We will continue to monitor these and other Board developments. If you have any questions or concerns about these changes and how they may affect your workplace, you should reach out to your labor counsel.

November 20, 2017

Draw Against Commissions: Keeping FLSA Minimum Wage and Overtime Violations At Bay

By Mark Wiletsky

Paying sales employees on a commission basis can achieve multiple goals. Salespersons have an incentive to increase sales to earn more money while the company sees higher revenues without being locked into a guaranteed pay structure for underperforming employees.

Although various types of commission structures may be used, a common one is a draw against commission. Typically, this type of pay structure means that a sales employee is paid solely on the basis of commissions, but may be advanced a certain amount of money known as a “draw” for weeks in which the employee fails to earn a certain level of commissions. Then, the draw is deducted from future commissions when the employee’s commissions exceed the expected level. It sounds easy, but such arrangements can be fraught with FLSA traps.

Illustrative Case

The Sixth Circuit Court of Appeals (whose decisions apply to Michigan, Ohio, Kentucky, and Tennessee) recently examined an employer’s draw-against-commissions policy to determine whether the policy violated the minimum wage and overtime requirements of the FLSA. In that case, current and former retail and sales employees of hhgregg, Inc. and Gregg Appliances filed a lawsuit claiming that hhgregg’s commission policy violated the FLSA and state law in numerous ways. Here is a summary of the policy at issue:

  • In pay periods when an employee’s earned commissions fell below the minimum wage, the employee would be paid a draw to meet the minimum-wage requirement
  • In a non-overtime week (i.e., the employee worked 40 or fewer hours), the draw equaled the difference between the minimum wage for each hour worked and the amount of commissions actually earned
  • In an overtime week (i.e., the employee worked more than 40 hours), the draw equaled the difference between one and one-half times the minimum wage for each hour worked and the amount of commissions actually earned
  • Draw payments were calculated on a weekly basis
  • The amount of the draw would be deducted from commissions earned in future weeks
  • An employee could be subject to discipline, including termination, if he or she received frequent draws or accumulated a high draw balance
  • Upon termination of employment, an employee with a draw balance was required to immediately pay the company any deficit.

Retail and Service Establishment Exemption

The FLSA exempts retail or service employees from the overtime pay requirement but only if (1) “the regular rate of pay of such employee is in excess of one and one-half times the minimum hourly rate applicable” under the FLSA, and (2) “more than half his compensation . . . represents commissions on goods or services.” This exemption does not relieve employers from meeting minimum wage obligations.

In the hhgregg case, the employer argued that the exemption applied. The Sixth Circuit disagreed, pointing to the allegation that the commission policy paid exactly the minimum hourly rate in a normal, nonovertime week, thereby failing to meet the exemption requirement that it be “in excess of one and one-half times the minimum hourly rate.” Because the exemption didn’t apply, hhgregg could not escape overtime pay obligations.

Deductions of Draws From Future Earnings Was Not An Illegal “Kick Back”

Under the FLSA, when an employee earns less in commissions than was advanced through a draw, the employer may deduct the excess amount from later commissions, if otherwise lawful. In the hhgregg case, the plaintiffs argued that the deductions were not “otherwise lawful” because the draws to meet the minimum wage were not delivered “free and clear,” as is required by DOL regulation. Plaintiffs argued that the draws were loans that the sales persons were expected to repay, functioning as an unlawful “kick back.”

The Sixth Circuit rejected the plaintiffs’ argument, finding that because the employees could keep the full amount of the draw at the time it was “delivered,” it was not an unlawful “kick back.” Thus, deducting the draw payments from future commissions did not violate the “free and clear” regulation.

Immediate Repayment Upon Termination

Plaintiffs alleged that making employees immediately pay the company any deficit in draws upon termination of employment violated the FLSA. On that claim, the Sixth Circuit agreed, at least to the extent of allowing the lawsuit to proceed. The Court looked to hhgregg’s written commission policy to find that the sales employees could reasonably believe that they would be liable to hhgregg for any unearned draw payments at the time of termination. Because that provision could violate the DOL regulation that minimum wage be provided “free and clear,” the Court held that plaintiffs alleged sufficient facts in their complaint to support their claim that the policy violated the FLSA.

Off-The-Clock Work

Plaintiffs further alleged that the company encouraged sales employees to attend required training and store meetings “off the clock” in violation of minimum wage and overtime requirements. Specifically, plaintiffs alleged that hhgregg managers approved of and sometimes encouraged sales persons to work “off the clock” to avoid incurring a higher draw.

hhgregg argued that any practice of off-the-clock work would not violate the FLSA because “by allegedly under-reporting working time in draw weeks and thereby lessening their draw payments, [plaintiffs] increased the amount of commission pay they subsequently received by the same amount.” Therefore, “the ‘off-the-clock’ work allegedly performed did not deprive them of pay; it simply shifted it to a different week.”

The Court rejected the company’s argument. Because the FLSA requires employers to pay the minimum wage for all hours worked on a week-by-week basis, an employer may not “shift” pay for hours worked to a future week. Therefore, the Court ruled that plaintiffs’ claim could continue.

Review Your Commission Policy

This recent draw-against-commission case highlights the FLSA issues that employers may face when implementing commission policies. If you use commission payments for any segment of your workforce, we recommend that you review your policy to confirm that it pays employees for all hours worked (e.g., no “off-the-clock” time). In addition, if you offer a draw against commissions, make certain that it meets your minimum wage and overtime pay obligations. Finally, if you rely on an FLSA exemption, such as the exemption for retail and service establishments, compare your commission policy to the exemption to ensure you meet the exemption test. Because this is a tricky area, consult with experienced counsel to resolve any questions or compliance concerns.

November 15, 2017

Faking Cancer Delivers Colorado Postal Worker A Criminal Record

By Steven T. Collis

A longtime Colorado postal worker faked a cancer diagnosis to get time off of work, and for nearly two years, she got away with it. Her charade was discovered, however, when she misspelled the name of her supposed physician in forged doctors’ notes she provided to her supervisor. An investigation by her employer revealed the extent of her ruse, and she was eventually indicted in federal court.

Although this case is an extreme example and not representative of most employees, it’s a good reminder that you should keep proper documentation and conduct a thorough investigation if you suspect an employee isn’t being honest about the need for medical leave.

Deception Begins

In 2015, Caroline Boyle of Highlands Ranch, Colorado informed her supervisor at the U.S. Postal Service (USPS) that she had recently been diagnosed with non-Hodgkins lymphoma and needed time off. Boyle, who had been employed at the USPS’s customer products and fulfillment category management center in Aurora for 25 years, had recently been denied a promotion.

Over the next 20 months, Boyle took 112 days of sick leave and was allowed to work part-time and attend frequent doctor visits. Her boss also permitted her to work from home and granted her paid administrative leave that did not count against her sick-leave balance.

Faked Doctors’ Notes Lead to Indictment

To support her need for time off and other accommodations for her claimed cancer, Boyle provided numerous doctors’ notes to her supervisor. One note stated that she was being treated for lymphoma at Anova Cancer Care in Lone Tree. That note included the purported signature of radiation oncologist Gregg Dickerson. She submitted another note purported to be from Rocky Mountain Cancer Centers in Lone Tree, signed by Dr. Ioana Hinshaw.

In June 2016, a supervisor became suspicious of Boyle’s cancer claim, prompting a USPS investigator to begin reviewing the doctors’ notes she had provided. The investigator found that Dickerson’s name was spelled incorrectly on the note.

The possible forgery caused the inspector to show the note to two Anova administrators, who stated that Boyle wasn’t a patient of the clinic or of Dickerson. They also said that the template of the note was wrong and didn’t include the doctor’s U.S. Drug Enforcement Agency (DEA) and medical license numbers. The inspector then checked with Rocky Mountain Cancer Centers and learned that Boyle wasn’t a patient of Hinshaw, either.

In March 2017, a federal grand jury indicted Boyle on felony counts of forged writings, wire fraud, and possession of false papers to defraud the United States.

Guilty Plea and Sentencing

In late April, Boyle pleaded guilty to the indictment as charged. According to the facts in her plea, after not being selected for a promotion, she decided to take some time off work by pretending to have cancer. She admitted she took substantial amounts of sick leave and received numerous other workplace accommodations despite not having non-Hodgkins lymphoma or any other type of cancer or serious illness. She also created the alleged doctors’ notes despite not being a patient of either doctor. She intended to keep up the cancer ruse until her scheduled retirement in April 2017, after which she planned to take a vacation to Hawaii. Based on the charges, she faced up to 10 years in prison and a fine of up to $250,000.

At the sentencing hearing, a former subordinate of Boyle’s, Lisa Roberts, testified that Boyle had essentially mimicked her cancer diagnosis and treatment. Roberts had worked at the Aurora postal center and reported to Boyle until 2012.

In 2010, Roberts began fighting non-Hodgkins lymphoma and needed time off for treatment. Boyle accused Roberts of faking cancer in order to take a long vacation, asking her why she didn’t lose her hair. Boyle demanded that she provide her confidential medical records, which she believed Boyle later used to fake a cancer diagnosis.

By the time Boyle claimed to have cancer, Roberts had lost her job in Aurora and moved to Texas. She returned to testify at Boyle’s sentencing hearing because she believed Boyle modeled her fake illness on her real cancer. She alleged that Boyle claimed to have the same type of cancer and to be receiving treatment at the same cancer centers, essentially using all of her medical information to create her fake illness. Roberts further stated that while Boyle was given wide-ranging accommodations for the fake cancer, she had denied similar accommodations to Roberts.

On August 22, 2017, federal judge Raymond Moore sentenced Boyle to five years’ probation with the first six months as in-home confinement wearing an electronic monitor. The judge also ordered her to pay a $10,000 fine and $20,798 in restitution. In perhaps the most fitting portion of the sentence, the judge ordered her to perform 652 hours of community service at a cancer treatment center, research facility, or hospice.

Lessons Learned

Most employees wouldn’t dream of fabricating a life-threatening illness in order to take advantage of sick leave and other employee benefits. But every once in a while, a dishonest manipulator may think he can get away with it.

If you become suspicious about an employee’s need for leave or question whether he or she really qualifies for an employee benefit, conduct an investigation. But be sure to do so within the confines of applicable law so that your investigation doesn’t result in unexpected liability – e.g., Family and Medical Leave Act (FMLA) interference, violation of privacy rights, or retaliation. In fact, if faced with a potential “fake” illness scenario, it’s best to consult with your employment counsel when you first suspect a problem.

November 6, 2017

Take Note: Benefit Plan Deadlines Approaching

By Molly Hobbs

At this time of year, important deadlines are quickly approaching for 401(k) plans and health and welfare plans. Here is a non-exhaustive list of significant employee benefit plan deadlines for the remainder of 2017 and early 2018. These deadlines are generally for calendar year plans, unless otherwise specified.

Retirement Plan Deadlines:

December 2

  • Distribute the following notices, as applicable, by December 2, 2017:
    • Traditional 401(k) Safe Harbor Notice
    • Qualified Automatic Contribution Arrangement (QACA) Notice
    • Eligible Automatic Contribution Arrangement (EACA) Notice
    • Non Safe-Harbor Automatic Contribution Arrangement Notice
    • Qualified Default Investment Alternatives (QDIA) Notice
  • Determine when the annual participant fee disclosure was last provided and timely provide the disclosure. The annual participant fee disclosure is required every 14 months. Many employers provide this disclosure on or before the end of the year along with other year end notices.

December 16

  • Provide summary annual report (SAR) to participants if the 2016 Form 5500 was filed by extension on or before October 16, 2017. For non-calendar year plans, the SAR must be provided two months after the Form 5500 was filed, including by approved extension.

December 31

  • Adopt any discretionary amendments implemented during the plan year.
  • Ensure all required minimum distributions have been paid to applicable participants.

January 2018

  • Provide non-discrimination testing census data to the record keeper or Third Party Administrator (TPA).

March 15, 2018

  • Make sure TPA has completed non-discrimination testing, and distribute any excess contributions, in order to avoid excise taxes.

April 16, 2018

  • Distribute any excess contributions and related earnings from prior year.
  • Make any employer contributions to retirement plan(s) in order to receive tax deduction (plus extensions).

Health and Welfare Plan Deadlines:

November 1

  • If the plan’s open enrollment is approaching, fix the starting and ending dates for open enrollment and prepare and distribute enrollment materials such as the Summary of Benefits and Coverage.
  • Marketplace/Exchange open enrollment begins.

November 15

  • If the plan is a self-funded health plan, submit the Transitional Reinsurance Program (TRP) Annual Enrollment and Contributions Submission Form, reporting the annual enrollment count and selecting a payment schedule. If the Plan elected in 2016 to pay the TRP fee in two installments, the second payment is also due by November 15, 2017.

December 15

  • Open enrollment for the Marketplace/Exchange coverage ends.

December 16

  • Provide summary annual report (SAR) to participants if the 2016 Form 5500 was filed by extension on or before October 16, 2017. For non-calendar year plans the SAR must be provided two months after the Form 5500 was filed, including by approved extension.

December 31

  • Provide the following annual notices, as applicable, by December 31, 2017:
    • Children’s Health Insurance Program (CHIP)
    • Women’s Health and Cancer Rights Act (WHCRA)
    • HIPAA Notice of Privacy Practices (at least every three years)
  • Many plan sponsors provide these notices with the annual open enrollment materials.

January 31, 2018

  • If the employer is subject to the ACA employer mandate, provide full-time employees with an IRS Form 1095-C documenting 2017 health coverage.

February 28 (March 31, if filing electronically)

  • If the employer is subject to the ACA employer mandate, file Form 1094-C and Forms 1095-C with the IRS.
Keep this deadline checklist handy to ensure that your plans remain compliant and as always, consult with your employee benefits counsel for additional information.