Monthly Archives: April 2018

April 12, 2018

Salary History Cannot Justify Unequal Pay Between Men and Women, According to Ninth Circuit

Dora Lane

by Dora Lane 

The Ninth Circuit Court of Appeals ruled this week that an employer cannot justify a pay difference between male and female employees performing equal work based on prior salary. Rizo v. Yovino. This is a significant decision that could increase potential liability for Equal Pay Act (EPA) claims for employers with workers in states covered by the Ninth Circuit, namely California, Nevada, Idaho, Montana, Arizona, Oregon, Washington, Alaska, and Hawaii.

Equal Pay Act Requirements 

The EPA was enacted in 1963, amending the Fair Labor Standards Act, to prohibit wage disparities based on sex. In short, it requires that men and women be paid equal pay for equal work regardless of sex. Specifically, the law provides that no employer shall discriminate on the basis of sex in paying wages for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions. Exceptions are permitted when wages are made pursuant to a seniority system, a merit system, a system measuring earnings by quantity or quality of production, or a differential based on any other factor other than sex.

Employer’s Pay Policy Added Five Percent to New Hires’ Prior Salary

In the case before the court, Aileen Rizo was hired as a math consultant by the Fresno County Office of Education. Her salary was set according to the County’s Standard Operating Procedure under which a new hire would be paid five percent over his or her prior salary, and placed on a corresponding step of the County’s ten-step salary schedule. Based on Rizo’s prior salary in Arizona, she was placed at step 1 of level 1 on the County’s hiring schedule.

A few years into her employment, Rizo was having lunch with her colleagues and learned that her male counterparts had been subsequently hired as math consultants at higher salary steps. Rizo filed a pay disparity complaint with the County which replied that her pay was set in accordance with its Standard Operating Procedure. Rizo filed a federal lawsuit alleging a violation of the EPA, sex discrimination under Title VII, and related state law claims.

Prior Pay Not A “Factor Other Than Sex”

The County did not dispute that it paid Rizo less than comparable male employees for the same work. Instead, it argued that considering each employee’s prior salary to set wages was a permissible “factor other than sex,” so any resulting wage differential was not in violation of the EPA.

The Ninth Circuit ruled that an employer was not permitted to consider an employee’s prior salary, either by itself or in combination with other factors, when establishing the employee’s wages. The Court specifically stated that “prior salary alone or in combination with other factors cannot justify a wage differential” because prior salary history does not constitute a “factor other than sex” under the EPA’s statutory “catchall” exception. The Court wrote that prior salary is not a legitimate measure of work experience, ability, performance, or any other job-related quality, and that employers must look directly to those underlying factors rather than prior salary when justifying a wage differential between male and female employees doing equal work. Writing for the majority, Judge Reinhardt stated, “To hold otherwise – to allow employers to capitalize on the persistence of the wage gap and perpetuate that gap ad infinitum – would be contrary to the text and history of the Equal Pay Act, and would vitiate the very purpose for which the Act stands.” Read more >>

April 10, 2018

Colorado Non-compete Law for Physicians Amended To Allow Continuing Treatment For Rare Disorders

Mark Wiletsky

by Mark Wiletsky

The Colorado legislature recently added a paragraph to the state statute that governs non-compete agreements to permit physicians to continue to treat patients with rare disorders without liability. Signed into law by Governor Hickenlooper on April 2, 2018, Senate Bill 18-082 allows physicians to disclose their continuing practice and new professional contact information to any patient with a rare disorder to whom the physician was providing consultation or treatment before termination of their relationship with the organization.

Physician Non-competes Only Allow Damages

Under Colorado Revised Statute 8-2-113, non-compete provisions in an employment, partnership, or corporate agreement with a physician that restrict the physician’s right to practice medicine when the agreement terminates is void and unenforceable. However, the law does permit such an agreement to require the physician to pay damages in an amount that is reasonably related to the injury suffered because of competition. In other words, if a physician in Colorado leaves a group practice or other employer, he or she may practice anywhere but may be compelled to pay damages if he or she practices within an area that is directly competitive with his or her former employer.

New Provision Creates Exception to Damages Remedy

Under the newly passed amendment, physicians and their new employers are shielded from damages for providing information and care to patients with a rare disorder, as defined in accordance with the criteria developed by the National Organization For Rare Disorders, Inc., or any successor organization. Specifically, a non-compete agreement cannot prohibit physicians from disclosing their continuing practice of medicine and new professional contact information to any patient with a rare disorder. Similarly, physicians may continue to provide care to such patients.

Next Steps for Healthcare Employers

Hospitals, physician groups, and other healthcare employers should consider the extent to which this new exception to non-compete damages will apply to the doctors in their group. It is possible that very prominent, renown physicians who may cause the hospital or group to suffer the most in monetary damages when they leave the group will be the same physicians who treat multiple patients for rare disorders. But because the new exception applies only to those patients with rare disorders, the physician may still be held liable for damages for continuing treatment of patients without rare disorders. If in doubt about how to structure and enforce these types of non-compete agreements with physicians, please consult with experienced counsel.

April 9, 2018

Idaho Legislature Repeals 2016 Changes to Non-Compete Law

Nicole Snyder

by Nicole Snyder and A. Dean Bennett

When a new business comes to town, when an existing business seeks to expand, or when a startup is making its way off the ground, it may want (or need) to recruit key employees from existing companies. That can be especially true in the technology field where experienced developers, analysts, and executives are hard to come by.

In 2016, the Idaho legislature made it more difficult for key employees and independent contractors across all industries to change jobs when they were covered by a post-employment non-compete agreement. Recently, the Idaho legislature repealed that 2016 provision in a move seen as correcting an imbalance in the playing field between employers and their key employees when it comes to non-compete restrictions.

A. Dean Bennett

2016 Non-Compete Presumption Burdened Key Employees

When enacted in 2016, the recently repealed non-compete law was touted as business-friendly, as it strengthened an employer’s ability to enforce a non-compete agreement with its key employees. The 2016 law provided that if a court found a key employee or key independent contractor breached a non-compete agreement, the employee or independent contractor then had the burden of overcoming a presumption that their breach of the non-compete caused irreparable harm to the employer. Essentially, the employee was forced to prove a negative, namely that he or she could not adversely affect the employer’s legitimate business interests.

However, the perceived effect of the 2016 non-compete law was that it made it tougher for key employees and independent contractors to change jobs, seek more responsibility or pay at another company, or even start up their own business. Idaho’s non-compete laws have received national attention at the same time Idaho is recognized as the fastest growing state with the fastest growing pay rate.

Repeal Restores Pre-2016 Standard of Proof For Non-Competes

Senate Bill 1287 strikes the language added in 2016 that shifted the burden to key employees and independent contractors to prove that they have no ability to adversely affect the employer’s legitimate business interests as a result of their competitive employment. Consequently, when a breach of a non-compete is litigated in court, the burden will be back on the employer to prove its former employee’s competitive actions harmed the employer’s legitimate business interests.

Governor Otter allowed this repeal bill to become law without his signature. He wrote, “There is no consensus within the business community, or even within the community of technology-driven businesses, for this second change within two years to Idaho Code regarding non-compete agreements between employers and key employees or key independent contractors.” The governor further wrote that the issue can vary depending on the nature of each company’s business plan and whether management considers a “dynamic” workforce, with regular turnover, a positive or detrimental aspect of their business. The governor suggested that he saw little risk in removing the 2016 language as it had not yet been tested in Idaho courts. He also urged the Idaho legislature to take up the issue again in 2019, suggesting that perhaps the creation of a different less onerous standard on employees may be a good middle ground.

Effect on Idaho Employers

Whether you think this repeal is a good or bad development may rest largely on whether you seek to retain your key employees and contractors by limiting their mobility through  non-compete agreements, or whether you need to expand and recruit talent within your industry without your recruits being subject to post-employment restrictions. Regardless of what side of that debate you are on, the repeal of the 2016 rebuttable presumption means that Idaho employers seeking to enforce a non-compete in court will need to show that the employee or contractor harmed its legitimate business interests when leaving to work for a competitor in violation of a restrictive covenant. Consequently, this is a good time to revisit your non-compete agreements, giving thought to what business assets and interests you are seeking to protect. In addition, be sure to review the geographic, time, and scope limitations of your non-compete restrictions as only reasonable provisions will be enforceable. As always, check with your attorney to resolve any questions.

April 2, 2018

Service Advisors Exempt From Overtime, Says Supreme Court

Brian Mumaugh

 by Brian Mumaugh

In a 5-to-4 decision, the Supreme Court ruled that service advisors at car dealerships are exempt from overtime pay under the Fair Labor Standards Act (FLSA). In an opinion written by Justice Thomas, and joined by Justices Roberts, Kennedy, Alito and Gorsuch, the Court determined that service advisors are salesmen who are primarily engaged in servicing automobiles, putting them within the FLSA exemption language. Encino Motorcars, LLC v. Navarro.

Service Advisors Challenged Exempt Status

In 1961, Congress amended the FLSA to exempt all employees at car dealerships from overtime pay. A few years later in 1966, however, Congress narrowed the car dealership exemption so that it no longer exempted all dealership employees but instead applies only to “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, truck, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers” (as currently written). Until 2011, federal courts and the Department of Labor (DOL) interpreted that exemption to apply to service advisors.

In 2011, however, the DOL issued a new rule stating that a service advisor was not a “salesman” under the FLSA exemption. This new interpretation ran contrary to 50-years of precedent and threw auto dealerships a curve ball. In 2012, service advisors at a Mercedes-Benz dealership in Los Angeles sued their employer, alleging that their regular work hours were 7 a.m. to 6 p.m. resulting in a minimum of 55 hours per week for which they were owed overtime pay for all hours over 40 in a work week.

The Mercedes-Benz dealership moved to dismiss the complaint, arguing that service advisors were exempt under the FLSA language, despite the new DOL interpretation. The district court agreed and dismissed the lawsuit. The service advisors appealed and the Ninth Circuit Court of Appeals reversed, relying on the DOL’s 2011 rule. The dealership appealed to the Supreme Court who decided that the DOL’s rule could not be given deference as it was procedurally defective. On remand, the Ninth Circuit again ruled in favor of the service advisors, determining that Congress did not intend to exempt service advisors from overtime, in part because FLSA exemptions should be narrowly construed and the legislative history did not specifically mention service advisors. The case went up to the Supreme Court a second time.

Service Advisors Are Salesmen Engaged in Servicing Automobiles

The Supreme Court looked to the plain meaning of “salesman” as someone who sells goods and services. Because service advisors sell customers services for their vehicles, the Court stated that a service advisor “is obviously a ‘salesman.’”

The Court also decided that service advisors are primarily engaged in servicing automobiles because they are “integral to the servicing process.” The Court acknowledged that service advisors do not physically repair cars, but the justices decided that the phrase “primarily engaged in servicing automobiles” necessarily included individuals who do not physically repair automobiles, including service advisors.

In an interesting passage of the opinion, the Court rejected the Ninth Circuit’s statement that FLSA exemptions should be narrowly construed. Justice Thomas quoted his friend and former colleague, deceased Justice Antonin Scalia, “Because the FLSA gives no ‘textual indication’ that its exemptions should be construed narrowly, ‘there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.’” A fair reading of the FLSA, the majority concluded, focuses not only on the overall objective of the law but also on the stated exemptions. And the Court concluded that a fair reading of the automobile salesmen, partsmen, and servicemen exemption is that it covers service advisors.

Dissent Says Overtime Required, Unless Commission Exemption Applies

Justice Ginsburg wrote a dissent with which Justices Breyer, Sotomayor, and Kagan joined, stating that because service advisors neither sell nor repair automobiles, they should not be covered by the auto dealership salesman, partsman, and serviceman exemption. The dissent notes that many positions at dealerships are not covered by the exemption, including painters, upholsterers, bookkeepers, cashiers, purchasing agents, janitors, and shipping and receiving clerks. Consequently, the dissent stated that there are no grounds to add service advisors as a fourth category of dealership workers that are exempt, adding to the three positions explicitly enumerated in the FLSA exemption.

The dissent notes that many dealerships, including the Mercedes-Benz dealership in this case, compensate their service advisors on a primarily sales commission basis. According to the dissent, such commission-based positions could fall within the FLSA overtime exemption that applies to retail and service establishments where employees who receive more than half of their pay through commission are exempt from overtime pay, so long as each employee’s regular rate of pay is more than one-and-one-half times the minimum wage. The dissent concludes that even without the auto salesman, partsman, serviceman exemption at issue, many service advisors compensated on a commission basis would remain ineligible for overtime premium pay under the commission exemption.

Dealerships May Treat Service Advisors As Exempt

As a result of the Court’s ruling, car dealerships may continue to treat their service advisors as exempt from overtime under the FLSA. Dealerships should still review applicable state laws to ensure that the exemption applies under state wage law. It is also a good time to review written job descriptions to include service advisor duties that support their exempt status under this decision.