Monthly Archives: May 2018

May 21, 2018

Arbitration Agreements Waiving Class Actions Do Not Violate the NLRA, Rules Supreme Court

Dora Lane

The U.S. Supreme Court ruled today that arbitration agreements requiring that an employer and an employee resolve any employment disputes through one-on-one arbitration do not violate the National Labor Relations Act (NLRA). In an opinion authored by Justice Neil Gorsuch, the Court ruled 5-to-4 that the Federal Arbitration Act (FAA) dictates that arbitration agreements be enforced, and nothing in the NLRA overrides that policy to permit employees to bring class or collective actions when employees have agreed otherwise. Epic Systems Corp. v. Lewis, 584 U.S. ___, (2018).

NLRA Does Not Protect Class and Collective Lawsuits

Emily Hobbs-Wright

In three cases consolidated before the Court, employees alleging wage claims sought to pursue collective lawsuits, joining with other allegedly harmed employees, under the Fair Labor Standards Act (FLSA) and applicable state wage laws. In each case, the employer sought to dismiss the collective lawsuits and instead resolve each employees’ allegations through individual arbitration as provided in arbitration agreements signed by the employees. The employees argued that the class-action waivers in the arbitration agreements were unlawful, violating their rights to engage in concerted activities for their mutual aid and protection under §7 of the NLRA. The employers asserted that the FAA demands that the individual arbitration agreements be enforced, as the NLRA does not override the FAA’s enforcement provision.

The Court ruled that the FAA requires courts to enforce arbitration agreements on the terms that the parties select, subject to courts’ refusal to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract” (e.g., fraud, duress, unconscionability – not arbitration-specific defenses). In the majority opinion, the Court stated that the NLRA does not override the FAA, and that §7 focuses on the right of employees to organize unions and bargain collectively, not on the right to pursue class or collective actions. The Court concluded that neither the NLRA nor the FAA’s savings clause protected the employees’ ability to resolve employment disputes through collective or class action when the employees have agreed to arbitrate their disputes with their employers on a one-on-one basis.

Dissent Focuses On Employee Rights

Justice Ruth Bader Ginsburg wrote a scathing dissent, that was joined by Justices Breyer, Sotomayor, and Kagan. The dissenting opinion notes that an individual employee’s claim against his or her employer for unpaid wages, or a similar employment law violation, may be relatively small and not worth the expense and effort of pursuing, when going it alone. But by seeking redress for commonly experienced wage losses on a collective basis, banding together to confront an employer, employees are placed on a more equal footing with employers and may better safeguard employee rights.

Justice Ginsburg writes that the majority’s decision “is egregiously wrong.” The dissent states that lawsuits to enforce workplace rights fit within the NLRA umbrella of “concerted activities for the purpose of . . . mutual aid or protection.” The dissent points to over 75 years of Board rulings that have held that the NLRA safeguards employees from employer interference when they pursue joint, collective, and class suits related to the terms and conditions of their employment. The dissent further states, “Forced to face their employers without company, employees ordinarily are no match for the enterprise that hires them. Employees gain strength, however, if they can deal with their employers in numbers.” The dissenting justices believe that NLRA §7 rights include the right to use class or collective litigation to resolve disputes over wages and hours, and would hold that class-action waivers in arbitration agreements are unlawful.

Big Win For Employers

In this not-unexpected result, the more conservative members of the Court have sanctioned the use of arbitration agreements by employers to help avoid class actions in the employment context. By using arbitration agreements with their employees, employers are able to resolve employment disputes in front of a neutral arbitrator rather than in the more public setting of a state or federal court. By requiring that disputes be arbitrated on an individual, rather than a class or collective basis, employers avoid lengthy and expensive class action lawsuits that often involve hundreds, if not thousands, of current and/or former employees who allege they have similar claims against the employer. The Supreme Court’s decision is a clear win for employers who now may use individual arbitration agreements to better control the cost, publicity, and liability exposure related to alleged violations of employment laws.

May 15, 2018

IRS Is Sending ACA Penalty Notices to Employers

Bret Busacker

By Bret Busacker

If you believe your company was subject to the Affordable Care Act (ACA) coverage requirements in 2015 (generally, all employers with 50 full-time or full-time equivalent employees), please take note that the Internal Revenue Service (IRS) is beginning to send out notices of ACA penalties due from employers who failed to satisfy ACA health coverage requirements. Specifically, the IRS is mailing Employer Shared Responsibility Payment (ESRP) notices to employers that it believes failed to comply with the ACA coverage requirements in 2015. Some employers receiving these notices may have actually complied with the ACA requirements in 2015, but the IRS received inaccurate or incomplete information and consequently has incorrectly identified the employer as failing to satisfy the ACA coverage requirements.

Limited Time To Respond To IRS Notice

If an employer receives an ESRP notice, it must dispute the IRS penalty within 30 days of the date of the notice. We have seen employers receiving very large fines for periods in which the employer actually complied with the ACA coverage requirements.

Employers who were subject to the ACA coverage requirements in 2015 should review their 2015 ACA filings (on Form 1094-C) to: (1) determine who at the company will receive the ESRP notice from the IRS, if one should arrive; and (2) make sure the contact address is correct (See Part 1; Lines 1 thru 8 of Form 1094-C). If any of the contact information on the Form 1094-C is inaccurate or if the contact person is no longer employed by the company, the employer should consider updating its contact information with the IRS. Employers with questions about responding to an ESRP notice should contact their legal counsel promptly.

May 14, 2018

DOL Launches “PAID” Program To Resolve Wage Violations

Brad Cave

By Brad Cave

Workers want to get paid, and the U.S. Department of Labor (DOL) is offering a new way to help make sure they do. The DOL’s Wage and Hour Division (WHD) recently launched the Payroll Audit Independent Determination (PAID) program to help resolve potential minimum wage and overtime disputes without litigation. With a healthy bit of skepticism, employers and their counsel may want to explore this new avenue to resolve inadvertent wage violations.

Wage and hour claims are difficult to resolve because the Fair Labor Standards Act (FLSA) states that an employee cannot waive or release his FLSA rights to minimum wages or overtime through an agreement with the employer, unless it is part of a court-approved or DOL-supervised settlement. Most employers are understandably reluctant to involve the DOL in resolving wage and hour errors because the agency may decide to take other enforcement actions, and nobody wants to be sued for trying to informally resolve the problem directly with your employees, only to have them reject your offer and hire a lawyer. The PAID program may give employers a viable third option for getting into compliance and resolving any outstanding liability to employees.

Here’s a look at the pilot program and its potential benefits and pitfalls.

FLSA-Covered Employers May Participate

The PAID program is open to all employers covered by the FLSA that want to attempt to resolve wage issues quickly and without having to defend claims in court. To participate, an employer must review WHD’s compliance materials (available on its website) and conduct a self-audit of its compensation practices. If the employer discovers any issues, it must specify the potential violations to WHD, identify affected employees and the time periods involved, and calculate the amount of back wages it would owe each employee.

The WHD will evaluate the information provided, contact the employer to seek any additional information needed, and confirm any back wages that are due. The agency then will issue a summary of unpaid wages. It also will provide forms describing settlement terms for each affected employee.

The settlement forms will include a release of claims, limited to the potential violations for which the employer will pay back wages. Each employee must sign a settlement form in order to receive any back pay owed. The employer then will pay the back wages directly to each employee no later than the end of the next full pay period after it receives the summary of unpaid wages. The employer must send proof of payment to the WHD.

Wage Violations Covered By PAID Program

The WHD intends that the PAID program will be used to resolve potential FLSA violations related to overtime and minimum wages. For example, the agency suggests that failure to pay overtime at one-and-one-half times the regular rate of pay, “off-the-clock” work, and misclassification of exempt employees may be appropriate topics for resolution through the program.

Importantly, the PAID program cannot be used if an employer is already facing a WHD investigation for payroll practices, the employer has already been sued, or an attorney or union acting on behalf of employees has threatened a lawsuit or demanded a settlement.

Potential Benefits and Pitfalls of Program

The PAID program will require employers with identified wage violations to pay all back wages due, but the WHD will not assess liquidated damages or civil monetary penalties. As a result, the process can help employers avoid costly litigation. The lack of penalties and litigation fees can be a substantial incentive to take advantage of the pilot program.

On the other hand, settlements with employees who are owed back wages will be limited to the wage issues resolved through the PAID program. That suggests that employees are free to assert additional FLSA violations not addressed through the program as well as state-level wage and hour issues at a later date or in a different forum.

In addition, the program requires participating employers to agree to correct their problematic pay practices at issue going forward. That leaves the door open to potential follow-up by the WHD down the road. Moreover, there do not appear to be any assurances that the WHD will not investigate wider payroll issues at participating companies once it has been alerted to potential self-identified noncompliance. That means the wage violations resolved through the PAID program may be used against an employer should any future FLSA violations be discovered or litigated, resulting in potential willful violations.

Approach Program With Caution

The pilot program will be implemented for approximately six months. The WHD then will evaluate the program and consider future options. For most employers, conducting a self-audit of payroll practices can be worthwhile and may help eliminate potential liability for violations going forward. However, because troublesome details of the program remain unknown, employers should use caution when deciding to utilize this WHD-facilitated resolution process.