Category Archives: Current Affairs

May 9, 2014

Colorado Legislative Wrap-Up: Wage Theft, Disability Definition and Workers’ Comp Physician Choice Bills Pass

The Colorado General Assembly wrapped up its 2014 Legislative Session this week, passing a number of bills that change the landscape for Colorado employers. Here is a look at the significant employment-related bills that passed and are expected to be signed into law by Governor Hickenlooper as well as other bills that were introduced but did not make it through the legislative process.

Bills that Passed This Session.

Wage Protection Act of 2014. Senate Bill 14-005 establishes an administrative procedure to adjudicate wage claims under Colorado law. For wages and compensation earned on or after January 1, 2015, the Colorado Division of Labor may receive complaints and adjudicate claims for nonpayment of wages or compensation of $7,500 or less. The written demand for unpaid wages to the employer may come from or on behalf of the employee and is satisfied if a notice of complaint filed with the Division is sent to the employer. In addition to existing fines that may be levied against employers who fail to pay wages, the new law allows the Director of the Division of Labor or a hearing officer to impose a fine of $250 on an employer who fails to respond to a notice of complaint or any other notice from the Division when a response is required. All fines collected will be credited to the State Wage Theft Enforcement Fund to be used for enforcement of this law.

The Wage Protection Act also requires Colorado employers to keep payroll records, including the information contained in an employee’s itemized pay statement, for at least 3 years after payment of wages and to make such records available to the employee and the Division of Labor. (C.R.S. §8-4-103 (4.5)). Employers who violate this record retention requirement are subject to a fine of $250 per employee per month, up to a maximum fine of $7,500.

This new law also provides for the recovery of reasonable attorney fees and court costs for an employee who recovers unpaid wages under Colorado’s minimum wage requirement. Additionally, the new law sets forth procedural requirements for employers responding to a demand for payment and procedures for resolving wage disputes through the administrative procedure. The majority of the new provisions in this law go into effect on January 1, 2015.

Definition of Disabled Individuals Aligned with Americans With Disabilities Act. Senate Bill 14-118 conforms state law definitions of a disability to match definitions under the federal Americans with Disabilities Act (ADA). Specifically, the terms “disability” and “qualified individual with a disability” under Colorado Revised Statute section 24-34-301 are given the same meaning as under the ADA. This bill also moves the definition of “sexual orientation” out of the Employment Practices definition section (C.R.S. § 24-34-401) and into the general definition section for the Civil Rights Division (C.R.S. § 24-34-301.) It also changes the term “assistance dog” to “service animal” and provides additional penalties for violations of the rights of an individual with a disability who uses a service animal and for persons who cause harm to service animals. The law also expanded the available remedies for retaliation and violations of the fair housing and public accommodations discrimination prohibitions. Once signed into law by the Governor, these provisions will go into effect on August 6, 2014.

Expanded Doctor Choice for Workers’ Compensation. House Bill 14-1383 changes the Colorado workers’ compensation law to allow injured workers more choice of doctors. Currently, an employer or workers’ compensation insurer must provide a list of at least 2 physicians or corporate medical providers from which an injured employee may select a treating physician. This bill expands that number to 4. There are additional provisions related to the location and shared ownership status of the health care providers. After signed into law by the Governor, this law will become effective on April 1, 2015.

Clarification of Credit Report Restriction Allowing Employment Use By Financial Institutions. Senate Bill 14-102 amends last year’s Employment Opportunity Act which restricts an employer’s use of credit reports. This amendment clarifies that all positions at a bank or financial institution are jobs for which credit information is deemed to be “substantially related to the employee’s current or potential job.” As a result, financial institutions will be able to obtain and use credit information on employees and applicants when making employment decisions for all job positions. Governor Hickenlooper signed this bill into law on March 27, 2014 and it became effective immediately.

Bills that Failed to Pass This Session.

Paid Sick Leave. Called the Family and Medical Leave Insurance Act (FAMLI), Senate Bill 14-196 sought to create an insurance program to provide pay to employees who take unpaid FMLA or sick leave. The program would be paid for by employees who pay premiums into a “fund” in the state treasury; employers would not be funding it. Eligible employees would be able to receive a percentage of their pay while on leave, not to exceed $1,000 per week. The bill would have prohibited Colorado employers from discharging, discriminating or retaliating against employees who seek to use benefits under the program or assist in a related-proceeding. Advocated by the Colorado chapter of 9 to 5, this bill, introduced on April 15th, differed from previous paid sick leave bills as it did not require employers to fund the program. On May 1, this bill was postponed indefinitely in committee and therefore, did not make it to a vote.

Drug Testing Misdemeanor. House Bill 14-1040 would have established a drug misdemeanor for an employee who is legally required to undergo drug testing as a condition of his or her job and either tests positive for a controlled substance without a prescription, or knowingly defrauds the administration of the drug test by an employer. To “defraud the administration of a drug test” is defined in the bill to include submitting a sample from someone else or a sample collected at a different time or some other conduct intended to produce a false or misleading outcome. This bill passed the House but the Senate sent it to committee where it was postponed indefinitely.

Anti-Union Bills. – House Bills 14-1087 would have prohibited collective bargaining for the state’s public employees. House Bill 14-1098 and Senate Bill 14-113 would have prohibited employers from entering into agreements to require employees to join a union. All three bills failed shortly after introduction as expected due to the democratic majority in both chambers of Colorado’s legislature.

The bills that passed in the 2014 Legislative Session reflect a continued trend at the state level to implement new or refine existing employment-related laws. We will keep you posted on any further developments.

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May 6, 2014

Separation Agreements Targeted By EEOC Again

By Mark Wiletsky

The Equal Employment Opportunity Commission (EEOC) recently filed a lawsuit seeking to stop a Colorado employer from using its form separation and release agreement and to allow employees who have signed the form agreement to file charges of discrimination and participate in EEOC and state agency fair employment investigations. In its federal court complaint, the EEOC alleges that CollegeAmerica Denver violated the Age Discrimination in Employment Act (ADEA) by conditioning employees’ receipt of severance benefits on signing a separation and release agreement which, according to the EEOC, chills and interferes with the employees’ rights to file charges and/or cooperate with the EEOC and state fair employment practice agencies.

As we wrote on this blog earlier, the EEOC has been scrutinizing employers’ separation agreements. This is the second such lawsuit challenging language in the separation agreements that does not permit the filing of discrimination or retaliation charges with the EEOC or other government agencies. As in the EEOC’s earlier complaint against a national pharmacy, the recent complaint against CollegeAmerica Denver targets numerous provisions in the separation agreement, including the release of claims, a non-disparagement clause and provisions in which the employee represents that he/she has not filed any claims, has disclosed to the company all matters of non-compliance and will continue to cooperate with and assist the company with any investigation or litigation.

Many of the targeted provisions are standard clauses in form separation agreements. Although it remains to be seen whether the courts will agree with the EEOC’s claims, it is always a good idea for organizations to review their agreements and ensure they do not raise any red flags for the EEOC while still protecting the company from future payouts for employment-related claims. We will continue to provide updates as new developments arise.

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April 16, 2014

EEOC Loses Kaplan Credit Check Appeal

By Brad Cave

In 2010, the Equal Employment Opportunity Commission (EEOC) sued Kaplan Higher Education Corporation, claiming that Kaplan’s use of credit reports had a disparate impact on black applicants. The trial court threw out the EEOC’s suit because it used an invalid method for determining the race of Kaplan’s applicants. The EEOC appealed, and lost again. In a stinging opinion, the Sixth Circuit Court of Appeals agreed with Kaplan and rejected the methodology promoted by the EEOC’s expert witness. The Sixth Circuit’s opinion dooms the agency’s background check disparate impact lawsuit against Kaplan and slaps the EEOC for suing a private employer “for using the same type of background check that the EEOC itself uses.” The ruling also illustrates the EEOC’s failure to show that an employer’s use of neutral background checks results in a disparate impact on African-American applicants. EEOC v. Kaplan Higher Educ. Corp., No. 13-3408 (6th Cir. April 9, 2014).

Credit Checks Aimed At Preventing Employee Abuses

Kaplan is a for-profit test preparation and higher education provider. Because some Kaplan students receive financial aid, some Kaplan employees have access to students’ financial information, including information that is subject to the U.S. Department of Education confidentiality regulations. Years ago, Kaplan discovered that some of its financial-aid officers had stolen aid payments and some executives had engaged in self-dealing by hiring relatives as vendors for the company. To help stop these abuses, Kaplan began conducting credit checks on applicants for senior-executive positions as well as accounting, financial aid and other positions where employees have access to company or student financial information. Neither Kaplan nor its credit check vendor provided or linked the applicant’s race with the applicant’s credit report.

EEOC Alleges Kaplan’s Credit Checks Screen Out More African-Americans

Consistent with its efforts to target employers who use background check policies to screen applicants, the EEOC sued Kaplan alleging that Kaplan’s use of credit checks resulted in more African-Americans being rejected than whites, creating a disparate impact in violation of Title VII. To support its claim, the EEOC hired industrial and organizational psychologist Kevin Murphy to analyze Kaplan’s credit check data and offer an expert opinion based on the statistics. However, because the credit check information did not include the applicant’s race, Murphy and his team needed another method to determine race. They created a process that the EEOC called “race rating” in which a team of five “race raters” reviewed drivers’ license photos for a portion of the applicants to visually identify their race. Despite having credit information for 4,670 applicants, Murphy based his “expert” analysis on only 1,090 applicants, of whom 803 had been racially classified using Murphy’s “race rating” process.

“Homemade Methodology” Rejected by Court

The Sixth Circuit wholeheartedly rejected Murphy’s “race rating” process, stating that “[t]he EEOC brought this case on the basis of a homemade methodology, crafted by a witness with no particular expertise to craft it, administered by persons with no particular expertise to administer it, tested by no one, and accepted only by the witness himself.” The Court upheld the exclusion of Murphy’s testimony not only due to his faulty methodology, but also because the group of 1,090 applicants in Murphy’s statistical analysis was not representative of the applicant pool as a whole. Of Kaplan’s entire pool of 4,670 applicants, only 13.3% of the applicants were rejected on the basis of credit checks, but Murphy’s smaller pool of applicants had a fail rate of 23.8%. The Court found that Murphy’s unrepresentative sample might not equate to the respective fail rates of black versus white applicants and therefore, was an unreliable method for the EEOC to show disparate impact.

EEOC’s Own Background Check Policy Contradicts Its Attack on Private Employers For Use of Credit Checks

Although not central to the exclusion of the EEOC’s expert, the Court put the EEOC’s own background check policy front and center. Through the discovery process, Kaplan had successfully obtained information on the EEOC’s background check policies and pointed to the agency’s personnel handbook which states “[o]verdue just debts increase temptation to commit illegal or unethical acts as a means of gaining funds to meet financial obligations.” To address those potential concerns, the EEOC runs credit checks for 84 of the 97 positions within the agency. The Court highlighted the disconnect between the EEOC attacking Kaplan for a credit check policy that the agency used itself.

Future EEOC Challenges to Employer Use of Credit Checks

The Kaplan decision is the latest in a string of EEOC losses in class actions alleging disparate impact based on an employer’s use of a neutral background check process. The EEOC seems unable to provide evidence to support a finding that African-Americans, Hispanics or other groups are being rejected for employment at higher rates than whites based on background checks. In addition, the EEOC’s own use of credit checks in hiring will be used against it in any future similar lawsuits. Although it remains to be seen whether the EEOC will back off of its systemic enforcement efforts related to the use of background checks, the trend for employers is positive.

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April 3, 2014

Severance Payments Are Wages Subject to FICA Tax

By Arthur Hundhausen and Mark Wiletsky

Employers offer severance payments to separating employees for numerous reasons, including rewarding long-time employees affected by a plant closure, to maintain goodwill, to secure a release and waiver of existing or potential claims, or to comply with company policies or agreements that require such payments. But whether the severance is dictated by policy or an individually-negotiated benefit, one sticky issue that employers may neglect to address is whether severance payments are subject to FICA taxes. The U.S. Supreme Court recently settled that issue by confirming that severance payments made to employees terminated against their will are taxable wages under FICA. United States v. Quality Stores, Inc., No. 12-1408, 572 U.S. ___ (2014). The Supreme Court’s ruling was consistent with the longtime IRS historical position on this issue.

Involuntary Terminations Due to Bankruptcy Triggered Severance Payments

Quality Stores terminated thousands of employees in connection with its involuntary Chapter 11 bankruptcy filing in 2001. The employees received severance payments under one of two plans, ranging from six to eighteen months of severance pay. Initially, Quality Stores reported the severance payments as wages for FICA purposes on the Forms W-2 filed with the IRS and the employees. Consistent with such reporting, Quality Stores paid the employer’s required share of FICA taxes and withheld the employees’ share of FICA taxes as well. Quality Stores then decided to file FICA tax refund claims with the IRS, totaling over $1 million in paid FICA taxes. The IRS neither allowed nor denied the refund claims, so Quality Stores sought a refund as part of its bankruptcy proceeding. Both the District Court and the Sixth Circuit Court of Appeals concluded that severance payments were not “wages” under FICA, meaning Quality Stores and its affected employees were entitled to a refund of the FICA taxes paid.

The Sixth Circuit’s decision, however, directly contradicted rulings by other Courts of Appeals, which concluded that at least some severance payments constitute “wages” for purposes of FICA taxes. The U.S. Supreme Court agreed to review the issue to resolve the split among the courts.

FICA’s Broad Definition of Wages Includes Severance Payments

FICA defines wages as “all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash.” Under the plain meaning of this definition, the Court found that severance payments made to terminated employees constitutes “remuneration for employment.” The Court noted that severance payments are made to employees only, often will vary depending on length of service, and are made in consideration for past services in the course of employment.

Looking at statutory history, the Court noted that in 1950, Congress repealed an exception from “wages” for “[d]ismissal payments which the employer is not legally required to make” from the Social Security Act and since that time, FICA has not excepted severance payments from the definition of “wages.” Agreeing with the government’s position in the case, the Court ruled that severance payments are taxable wages for FICA purposes.

Implications for Employers

The Court’s ruling confirms that employers are obligated to pay their portion of FICA taxes and withhold the employees’ portion of FICA taxes from severance payments. Depending on the amount of the severance at issue, this FICA obligation can greatly change the total payout amount for the employer. It also can catch unknowing employees off guard if they are expecting to receive a higher severance payment without FICA taxes being withheld. Employers should factor the FICA tax obligation into any severance offer to ensure that both the company and the separating employee understand the total amount that is at issue and the final amount that the employee will receive. In addition, employers offering severance payments should review their policies and practices to ensure that proper tax payments are made.

If employers identify past severance payments where no FICA taxes were paid or withheld, such employers should consult with their tax counsel to determine whether any corrective steps are required. In general, the applicable statute of limitations for an employer’s payroll tax liability begins on April 15 of the year following the year in which wages are paid (when prior year payroll tax returns are “deemed” to be filed), and expires after three years. For example, the applicable statute of limitations for payroll taxes owed for 2010 began on April 15, 2011 and expires on April 15, 2014.

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March 25, 2014

2014 Wyoming Legislature Keeps Status Quo, But Changes On The Horizon?

By Brad Cave

The 2014 session of the Wyoming Legislature did not pass any significant employment legislation, but the Legislature’s actions on some of the measures it did consider could portend a much more interesting 2015 legislative session.

Independent Contractors. The issue of independent contractors garnered the most legislative attention of any employment issue in the 2014 session. In February, we reported on House Bill 16 which would have created misdemeanor criminal penalties for “knowingly failing to properly classify an individual as an employee” leading to a reduction in unemployment contributions or workers compensation premiums or benefits. (A companion measure, Senate File 112, was introduced in the Senate but failed to get sufficient votes for introduction.) This measure was sponsored by the Joint Corporations, Elections and Political Subdivisions Interim Committee. Although it failed to garner the two-thirds vote required for introduction during a budget session, a majority of the representatives in the House voted in favor introduction in the 32-26 vote. This bill may rear its ugly head again in the 2015 general session, where introduction requires only a majority vote.

On the bright side of the independent contractor issue, Senate File 96 proposed an amendment that would have relaxed the definition of independent contractor in the unemployment and workers compensation statutes. Those two identical definitions currently require that a person classified as an independent contractor meet three requirements:

The person is free from control or direction over the details of the performance of services by contract and by fact;
The person represents his services to the public as a self-employed individual or an independent contractor; and,
The person may substitute another individual to perform his services.

These three factors have always been part of the commonly accepted definition of an independent contractor, as recognized by courts, other statutes and the Internal Revenue Service. But courts and the IRS weigh these and several other factors, without any single factor or group of factors controlling the determination. This approach permits employers to fashion independent contractor relationships under a variety of circumstances. Because of the “and” between the second and third factor, the Wyoming definition requires employers to meet all three of these factors, regardless of the other circumstances surrounding the independent contractor relationship. Add to that the fact that the second factor is wholly outside of the employer’s control, and you have a very strict and onerous definition.

Senate File 96 would have added a second test to the unemployment and workers compensation definitions to give employers two ways to prove independent contractor status. Under the second option, a person providing services would be properly classified as an independent contractor if the person:

is free from control or direction, asserted directly by the person or entity contracting for the services, over the details of the performance of services by contract and by fact; and,
has substantial investment used in connection with the performance of the services. The investment may include physical assets, financial assets, education, experience, intellectual property or any combination of these factors.

This proposed change would obviously open the door to a broader range of independent contractor relationships, and recognize the importance and prevalence of the sole proprietor independent contractor, particularly in technology services.

Senate File 96 passed the Senate with strong support, but the House defeated the measure by a vote of 54 to 6. Reasons for its demise may include timing – it was brought to the floor of the House on the last day for the entire House to consider new measures. Also, there may have been some confusion about whether the changes would be consistent with the IRS definitions of independent contractors and other statutory definitions. Because the House had little or no time to resolve these questions, the measure died. We encourage the Legislature to address this topic again next session.

Employer Access to Social Media Accounts. The surprise proposal of the session was Senate File 81, which would have put Wyoming on the bandwagon of other states which are restricting employer access to employees’ social media accounts. This proposal would have amended the Wyoming Fair Employment Practices Act to make it an unfair employment practice for employers to “request or require” any employee or applicant to disclose any username, password or other method of accessing personal social medial accounts. Social media accounts was broadly defined under the proposal, to include videos, images, blogs, podcasts, instant and text messages, email, internet websites or locations and other online services or accounts.

The measure included exceptions to the general restrictions for (1) access to employer social media accounts used for the employer’s business purposes; (2) when personal social media is reasonably believed to be relevant to an investigation of allegation of employee misconduct or violation of laws or regulations, if access is limited to the investigation or a related proceeding; (3) when conducting an investigation of an employee’s social media when required to comply with the requirements of state or federal law, or the rules of a self-regulating organization; or, (4) when an applicant applies for law enforcement employment.

Senate File 81 flew through the Senate with strong support, and started strong in the House, but was then defeated by a House vote of 36-16.

Our experience suggests that this is a solution in search of a problem. The huge majority of employers already avoid efforts to access employees’ social media because learning such information can cause all sorts of headaches for employers. In fact, employers usually learn about employees’ social media content when employees report to the employer some other employee’s bad behavior as described on social media, and usually expect the employer to do something about it. Although the exception for investigation-related access is helpful, even that language forces employers to couch their requests in terms that will simply raise the stakes of workplace situations.

Wyoming employers should pay attention next session to see if the Legislature takes up this topic.

Misconduct Disqualifications from Unemployment Benefits. Senate File 76 added a new definition of misconduct to the unemployment compensation statute to outline the circumstances under which a former employee may be disqualified from unemployment benefits. It was signed by Governor Mead on March 10, 2014, and will become effective on July 1, 2014.

The unemployment compensation statute already states that an employee will be disqualified from benefits if the Department of Workforce Services finds that the employee was discharged for “misconduct connected with his work” but does not define that phrase. To fill the gap, several years ago the Wyoming Supreme Court adopted a definition that required a showing of an act of the employee that indicated a disregard of the employer’s interests or the commonly accepted duties, obligations and responsibilities of an employee, to include carelessness or negligence of such a degree or recurrence as to reveal willful intent or intentional disregard of the employer’s interests or the employee’s duties and obligations. Violation of company policies or rules could qualify as misconduct under the court’s definition, provided the employee acted intentionally. The court’s definition also provided that inefficiency, failure of good performance due to incapacity or inability, ordinary negligence or good faith errors in judgment were not adequate to disqualify an employee.

The new definition of “misconduct connected with work” seems to adopt much of the Wyoming Supreme Court’s interpretation of the phrase. The phrase is now defined as “an act of an employee which indicates an intentional disregard of the employer’s interests or the commonly accepted duties, obligations and responsibilities of an employee.” The amendment also excludes from the definition of misconduct, (1) ordinary negligence in isolated instances; (2) good faith errors in judgment and discretion, and (3) inefficiency or failure in good performance as the result of inability or incapacity.

Because the new statutory definition is very similar to the definition the Supreme Court has used for years, we will need to see how the definition is applied by the Department and the courts to determine whether the misconduct standard has changed at all through this amendment.

Computer Trespass. Although not an employment measure, House Bill 178 created a new criminal offense that may give employers a new tool to help prevent employee sabotage. This measure, which passed both houses and was signed by Governor Mead, created the crime of computer trespass. A computer trespass occurs when a person knowingly and without authorization, with the intent to damage or cause the malfunction of a computer, system or network, sends malware, data or a program which alters, damages or causes the malfunction of the computer, system or network, or causes it to disseminate sensitive information.

The measure also created a civil remedy for computer trespass, and permits a person who suffers damage due to a trespass to sue the computer trespasser for damage to computers, systems, or networks, and the costs incurred because of the loss of use of those assets. The person brining the action can recover the damages caused by the trespass, as well as the costs incurred to identify the trespasser and to serve a complaint on the trespasser.

House Bill 178 was passed by both houses, and signed by Governor Mead on March 10, 2014. The new law will become effective on July 1, 2014.

This new law may be useful to employers if former or disgruntled employees attempt to misuse an employer’s computer systems. Employers should adopt and periodically review technology policies that carefully define when and how employees are authorized to use the employers’ computer, systems and networks. If an employee causes computer damage under questionable circumstances, such policies may help employers draw clear lines about when an employee’s access is unauthorized and pursue civil remedies under the statute.

And the Rest of the Pack. A few other employment measures never saw the light of day during the 2014 session. House Bill 45, which would have raised the minimum wage, and House Bill 57, which would have restricted employers’ ability to restrict the post-termination value of accrued vacation, both failed to get enough votes for introduction.

Bottom Line. The 2015 legislative session should be interesting, with the possible return of independent contractor and social media legislation. These are significant issues for Wyoming employers. We will keep you posted.

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March 6, 2014

SOX Whistleblower Protection Extends to Employees of Private Contractors, According to Supreme Court

By Jude Biggs and Jeff Johnson

On March 4, 2014, the U.S. Supreme Court ruled that employees of private contractors and subcontractors who contract with public companies are protected under the whistleblower provisions of the Sarbanes-Oxley Act of 2002 (SOX). Lawson v. FMR LLC, 571 U.S. ___ (2014). The ruling means that private employers who have a contract with a public company may not retaliate against their employees who report a potential fraud. As pointed out in the dissenting opinion, the holding by the six-justice majority creates the potential for increased litigation as it offers private sector employees another avenue to bring retaliation claims. In addition, it implies private sector employers with such contracts may need to strengthen their corporate compliance and complaint procedures to discover and fix problems early.

Whistleblowers Reported Potential Fraud In Mutual Fund Operations

Two former employees of private companies that contracted to advise and manage mutual funds filed separate administrative complaints alleging retaliation under 18 U.S.C. §1514A, the whistleblower provision of SOX. The mutual funds themselves were public companies, but they did not have any employees. Instead, the funds contracted with private companies to handle the day-to-day operation of the funds, including making investment decisions, preparing reports for shareholders and filing reports with the Securities and Exchange Commission (SEC).

Jackie Hosang Lawson was the Senior Director of Finance for a private advisory firm that contracted to provide services to the Fidelity family of mutual funds. Lawson alleged that she suffered a series of adverse employment actions that resulted in her constructive discharge after she raised concerns about certain cost accounting methods being used with the funds. She alleged that she believed that expenses associated with operating the funds were being overstated.

The second petitioner, Jonathan M. Zang, was a portfolio manager for a different division of the company that advised Fidelity mutual funds. Zang alleged that he was fired after he expressed concerns about inaccuracies contained in a draft SEC registration statement concerning some of the mutual funds.

After pursuing their administrative complaints, both whistleblowers filed retaliation lawsuits under §1514A in federal court in Massachusetts. Their employers, collectively referred to as FMR, moved to dismiss the suits, arguing that §1514A only protects employees of public companies, and because FMR is a private company, neither plaintiff had a viable claim under §1514A. The District Court denied FMR’s motion to dismiss. FMR sought an interlocutory appeal to the First Circuit, which reversed, ruling that §1514A only refers to employees of public companies, not a contractor’s own employees. The Supreme Court agreed to hear the case to resolve a division of opinion on the issue. The question before the Supreme Court was whether the SOX whistleblower provision shields only those employed by a public company itself, or also shields employees of privately held contractors and subcontractors who perform work for the public company.

“Employee” Presumes an Employer-Employee Relationship Between the Retaliator and the Whistleblower

Section 1514A provides: “No [public] company . . ., or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of [whistleblowing or other protected activity].” FMR argued that the prohibition against retaliating against “an employee” meant an employee of the public company. The Court (in an opinion by Justice Ginsburg) disagreed. It looked at the provision as stating that “no . . . contractor . . . may discharge . . . an employee” and found that the ordinary meaning of “an employee” in that context was the contractor’s own employee. The Court stated that contractors are not ordinarily in a position to take adverse actions against employees of the public company for which they contract so to interpret the provision as FMR did would “shrink to insignificance the provision’s ban on retaliation by contractors.” The Court rejected FMR’s argument that Congress included contractors in §1514A’s list of governed parties only to prevent companies from hiring contractors to carry out retaliatory terminations, such as the “ax-wielding specialist” portrayed by George Clooney in the movie “Up in the Air.” The majority believed that Congress presumed that there must be an employer/employee relationship between the retaliating company and the whistleblower.

Purpose of SOX Supports Extending Whistleblower Protections to Employees of Private Contractors

The Court emphasized that SOX was enacted to safeguard investors in public companies and to restore trust in the financial markets after the collapse of Enron Corporation. The Court found that because outside professionals, such as accountants, lawyers and consultants, have great responsibility for reporting fraud by the public companies with which they contract, such employees of contractors and subcontractors must be afforded protection from retaliation by their employers when they comply with SOX’s reporting requirements. The fear of retaliation was a major deterrent to the employees of Enron’s contractors in reporting fraud. Consequently, the Court’s reading of §1514A extending whistleblower protection to the employees of private contractors is consistent with the purpose for which SOX was enacted.

Mutual Fund Industry Should Not Escape Ban on Retaliation

Because virtually all mutual funds are structured as public companies without any employees of their own, the Court expressed the need to protect the employees of the investment advisors who are often the only firsthand witnesses to shareholder fraud in the mutual fund industry. To rule otherwise, said the Court, would insulate the entire mutual fund industry from §1514A.

Dissent Worries About Opening the Floodgates to More Retaliation Claims

Justice Sotomayor, joined by Justices Kennedy and Alito, dissented from the majority, believing that the Court’s holding creates an “absurd result” that subjects “private companies to a costly new front of employment litigation.” According to Sotomayor, the Court’s ruling means that any employee of an officer, employee, contractor or subcontractor of a public company, including housekeepers, nannies and gardeners, can sue in federal court under §1514A if they suffer adverse consequences after reporting potential fraud, such as mail fraud by their employer’s teenage kids. The majority dispels this concern, stating that there is “scant evidence that [this] decision will open any floodgates for whistlelowing suits outside §1514A’s purposes” given that FMR did not identify a single case in the past decade in which an employee of a private contractor had asserted a §1514A claim based on anything other than shareholder fraud. Still, the dissent believes that only employees of a public company should be protected from retaliation for whistleblowing activities under §1514A.

Private Employer Take-Aways

Despite the majority’s reassurances that employers will not see a substantial increase in new whistleblower retaliation cases, only time will tell if they are right. Private employers who contract with public companies should review their employment policies to ensure that employees are protected from retaliation as a result of reporting concerns or unlawful activities involving the public companies with whom they do business. Employers also should train their managers, supervisors and human resources professionals on this new development so that decision-makers do not inadvertently expose their company to the risk of a whistleblower retaliation claim under §1514A.

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March 5, 2014

NLRB GC Identifies Initiatives and Policy Concerns

By Steve Gutierrez

Richard Griffin, General Counsel for the National Labor Relations Board (NLRB) recently issued a memorandum that identifies his initiatives and the areas of labor policy and law that are particularly concerning to him. The memo informs the NLRB regions which cases must be submitted to the Division of Advice at the Board’s Washington, D.C. headquarters so that the General Counsel’s office may “provide a clear and consistent interpretation of the [National Labor Relations] Act.”

The list of mandatory advice cases is split into three categories: (1) matters that are particularly concerning to the General Counsel and involve his initiatives; (2) cases involving difficult legal issues that are relatively rare in the regions and issues where there is no established precedent or the law is changing; and (3) cases that have traditionally been submitted to headquarters for legal advice. A look at the issues identified in the first two categories provides employers with useful insight into areas that will be targeted for further legal scrutiny and possible reversal of existing labor precedent.

General Counsel Initiatives and Issues of Labor Policy Concerns

GC Griffin points out a dozen labor issues that are top initiatives for him, including the following:

The applicability of Weingarten rights in non-unionized settings. (Weingarten rights provide union employees the right to have a union representative present during an employer’s investigation interview that could result in disciplinary action against the employee. In 2004, the NLRB ruled that non-union employees are not entitled to have a representative present during such meetings. IBM Corp., 341 NLRB 1288 (2004)).
Whether employees have a right to use an employer’s e-mail system for union-related communications and the standard concerning discriminatory enforcement of company rules and policies. (In 2007, the NLRB established a narrow standard for discrimination regarding company rules about solicitation and communications, ruling that an employer could make distinctions in its rules that might adversely affect employees’ NLRB Section 7 rights so long as the policies (and enforcement of the policies) did not discriminate along union-related lines. Register Guard, 351 NLRB 1110 (2007)).
Whether a “perfectly clear” successor must bargain with a union before setting the initial terms of employment. (The NLRB takes the position that in cases when it is obvious that a new employer that acquired a unionized workplace will retain all of the employees in the bargaining unit, the successor employer is obligated to bargain even over the initial terms of employment – the so-called “perfectly clear” exception.)
Whether an employer violates the NLRA when it acts with an unlawful motive in hiring permanent strike replacements. (Under NLRB precedent going back to 1964, the employer’s motive for replacing economic strikers is essentially irrelevant. Hot Shoppes, 146 NLRB 802 (1964). The GC is likely looking for an appropriate case to overrule this long-standing decision so that an employer’s desire to defeat the economic strikers’ rights to reinstatement will be deemed unlawful.

Additional issues that are on the GC’s list include cases where the possible remedies for unfair labor practices related to an organizational campaign include access to nonwork areas, access to the employer’s electronic communications systems and equal time for the union to respond to captive audience speeches.

Difficult Labor Issues or Cases Without Clear Precedent

Griffin also instructs the regions to submit to headquarters cases that involve difficult legal issues or those without clear, established legal precedent. Some of those issues include:

Mandatory arbitration agreements with class action waivers not resolved by D.R.Horton
Cases involving “at-will” provisions in employer handbooks that are not resolved by existing advice memoranda.
Cases concerning undocumented workers where the issues are unresolved.
Union access to lists of employee names and addresses during an organizing campaign where the employees are widely dispersed or have no fixed work location.
The validity of partial lockouts.
Cases involving novel conduct, such as excessive use of loudspeakers, coordinated “shopping” or corporate campaigns.

Don’t Be The Precedent Setting Case

Employers should review and become familiar with the GC’s list of priority issues. If any of the noted issues arise in your workplace, you’d be wise to consult with legal counsel early on because if the NLRB gets involved, the regional directors and officers will be forwarding your case to Washington for advice from the GC’s office. Proper handling of the matter from the start may help avoid your case being the conduit for the GC to establish new precedent that furthers his initiatives.

A copy of the memorandum may be found here.

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February 20, 2014

EEOC Challenges Separation Agreements

By Mark Wiletsky

If you use standard separation agreements to secure a release and waiver of claims from employees who are laid off, fired, or who otherwise threaten a claim, you might want to review your agreement. In a lawsuit filed recently in Illinois federal court, the EEOC alleges that a company with national operations interfered with its employees’ right to file charges with the EEOC and state fair employment practices agencies by conditioning the employees’ receipt of severance pay on signing an overly broad separation agreement.

According to the EEOC, five separate paragraphs (which are commonly found in separation agreements) are improper:

Cooperation: Employee agrees to promptly notify the Company’s General Counsel by telephone and in writing if the employee receives a subpoena, deposition notice, interview request or other process relating to any civil, criminal or administrative investigation or suit.
Non-Disparagement: Employee will not make any statements that disparage the business or reputation of the company or any of its officers or employees.
Non-Disclosure of Confidential Information: Employee agrees not to disclose to any third party or use for him/herself or anyone else Confidential Information without the prior written authorization of the company.
General Release of Claims: Employee releases company for any and all causes of action, lawsuits, charges or claims, including any claim of unlawful discrimination, that the employee may have prior to the date of the agreement.
No Pending Actions; Covenant Not to Sue: Employee represents that he/she has not filed or initiated any complaints prior to signing the agreement and agrees not to initiate or file any actions, lawsuits or charges asserting any of the released claims.

Disclaimer Allowing Workers to Bring Claims to the EEOC Not Enough

Recognizing that employers may not prevent workers from filing charges with the EEOC or participating in EEOC or state agency investigations, the paragraph containing the covenant not to sue contained a sentence stating “[n]othing in this paragraph is intended to or shall interfere with Employee’s right to participate in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws, nor shall this Agreement prohibit Employee from cooperating with any such agency in its investigation.” In its complaint, the EEOC says this disclaimer is insufficient as it is contained in only one of the paragraphs that contain limits on the employees’ rights.

What does this mean for employers?

It’s important to remember that the Court has not agreed with the EEOC’s allegations—and, in fact, it might reject them outright. Regardless, the risk of such actions is enough to justify a closer look at your standard separation or release agreement. Even an agreement that has been repeatedly reviewed and revised can likely be improved for clarity. Make sure the agreement is understandable, does not contain excessive “legalese,” and it should not contain provisions that interfere with an employee’s right to file a charge with the EEOC or state agency.

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February 19, 2014

Utah Rejects Multi-Employer Worksite Doctrine: General Contractor Not Responsible for Occupational Safety of All Workers on Worksite

By Cole Wist (formerly of Holland & Hart) and Trey Overdyke

In a significant break from federal rulings, the Utah Supreme Court recently rejected the multi-employer worksite doctrine as incompatible with the Utah Occupational Safety and Health Act (UOSH Act). Hughes General Contractors, Inc. v. Utah Labor Comm., 2014 UT 3. Generally, the multi-employer worksite doctrine makes a general contractor responsible for the safety of all workers on a worksite, including the safety of employees of subcontractors and other third parties. In rejecting the legal doctrine (which has developed under the federal Occupational Safety and Health Act (OSH Act)), the Utah Supreme Court held that Utah’s state occupational safety and health law regulates conduct between employers and employees and does not permit a general contractor to be held liable for the safety violations of a subcontractor.

General Contractor Appealed Safety Violations by Subcontractor

Hughes General Contractors oversaw a construction project at Parowan High School involving over 100 subcontractors. One of the subcontractors, B.A. Robinson, performed masonry work on the project. The Utah Occupational Safety and Health Division found that scaffolding used and erected in connection with the masonry work violated the UOSH Act. The UOSH compliance officer determined that Hughes was responsible for the safety conditions for B.A. Robinson’s employees under the multi-employer worksite doctrine. The Division cited and fined both Hughes and B.A. Robinson for the scaffolding violation.

Hughes contested the citation, arguing against the legal viability of the multi-employer worksite doctrine under the UOSH Act. An Administrative Law Judge upheld the citation under the doctrine and the Utah Labor Commission’s Appeals Board affirmed. The Appeals Board looked at the governing Utah statute, section 34A-6-201, found that it “mirrored its federal counterpart” and applied federal case law that recognized the multi-employer worksite doctrine to hold Hughes liable for the safety violations of a subcontractor. Hughes appealed to the Utah Court of Appeals which asked the Utah Supreme Court to decide the applicability of the multi-employer worksite doctrine under the UOSH Act.

Workplace Safety Obligations Extend Only to Employers under the UOSHA

Similar to its federal OSHA general duty clause counterpart, the UOSH Act requires each Utah employer to provide “a place of employment free from recognized hazards that are causing or are likely to cause death or physical harm to the employer’s employees and comply with the standards promulgated under this chapter.” Utah Code § 34A-6-201(1). At the trial level, the Utah Labor Commission read this provision broadly to extend the safety responsibilities to anyone with supervisory control over a particular worksite. The Utah Supreme Court instead interpreted this provision as focused on the employment relationship. The Court held that the duty to furnish a workplace free from recognized hazards and to comply with the UOSH Act standards is one that extends between employer and employee. The Court stated “the relevant control is not over the premises of a worksite, but regarding the terms and conditions of employment.” In determining whether an employment relationship exists, the relevant factors include the existence of covenants or agreements, the right to direct and control the employee, the right to hire and fire, the method of payment (i.e., wages versus payment for a completed job or project) and the furnishing of equipment.

Applying its analysis, the Court found Hughes was not an “employer” in connection with the work done by B.A. Robinson’s workers. B.A. Robinson was the sole employer involved in the masonry work and controlled the workers involved in the scaffolding problems that resulted in the citations. Hughes did not have any of the rights of control that would deem it an employer in connection with the work done by B.A. Robinson’s employees (e.g., no right to hire or fire, no payment of wages, etc.).

Utah Safety and Health Act Distinguished from Federal Law

Numerous federal courts have recognized the multi-employer worksite doctrine under the federal OSH Act. However, the Utah Supreme Court analyzed the structure of the federal OSH Act and found that it sets forth the duty to comply with certain safety standards in separate sub-sections of the statute. By contrast, the Court held that Utah law requires “each employer” to provide a safe workplace and to comply with promulgated standards in a single provision of the statute.

Second, the Utah Supreme Court distinguished its decision because of the lack of administrative deference that applied in interpreting Utah law. The Court noted that when federal courts resolve ambiguity in a statute, the courts look to the interpretation of the statute provided by the relevant federal agency and defer to the agency’s viewpoint as long as it is based on a permissible construction of the statute. The Court wrote that federal courts typically have not rendered an independent assessment of the meaning of the relevant OSH Act provision and instead have deferred to the federal agency’s regulation that construes the statute to allow for the multi-employer worksite doctrine. However, Utah has not adopted a similar standard of judicial deference to an agency’s resolution of a statutory ambiguity so the Court conducted its own independent determination to find that the Utah law did not allow for the multi-employer worksite doctrine.

Important Victory for General Contractors

It is unclear what broader impact this decision may have. For now it is a significant victory for general contractors overseeing projects in Utah. Time will tell if state courts in other occupational safety and health state plan jurisdictions will follow Utah’s lead in rejecting the multi-employer worksite doctrine. Should these courts flirt with the idea, they may find the Utah Supreme Court’s analysis to be a helpful road map. Further, it will be interesting to watch the impact this may have on the multi-employer worksite doctrine in federal OSHA jurisdictions. We will keep you posted on any new developments on this issue.

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February 12, 2014

Wyoming Legislature Convenes, Again!

By Bradley T. Cave

The Wyoming Legislature convened its 2014 Budget Session on February 10. Most of the Legislature’s time will be consumed with the state’s finances, but a few significant employment measures have been proposed. If any of these bills can obtain the two-thirds vote required for introduction of non-budget bills, Wyoming employers may need to call their legislators!

Criminal Penalty for Misclassification of Employees as Independent Contractors. House Bill 16 is the most concerning measure proposed this session, and it is a surprise that the measure was approved by the Joint Corporations Committee. It would create a misdemeanor criminal penalty for “knowingly failing to properly classify an individual as an employee” to reduce the employer’s unemployment contributions or to reduce or avoid the payment of benefits to an employee. The offense would permit a sentence of up to 90 days in jail and a fine of up to $750.00. The measure would add the same language to the workers compensation statute, making it a misdemeanor offense to knowingly fail to properly classify an employee on a workers compensation payroll report or generally in connection with workers compensation coverage.

Employers should aggressively resist this proposal because it would greatly raise the stakes of classification decisions that are rarely clear cut. One of the three factors in the definition of an independent contractor for unemployment and workers compensation purposes – whether the individual “represents his services to the public” – is not even in the employer’s control, and could change without the employer’s knowledge. A second factor in the definition – whether the worker is free from control or direction over the details of performance of the services – often depends on the perspective of the person looking at the relationship. Independent contractor relationships are not “check the box” decisions. While an employer could not be convicted of the proposed crime unless they “knowingly” misclassified an employee, the determination of whether a decision was “knowingly” incorrect is the stuff of jury trials. Also, the measure is not needed. Employers already face aggressive auditing by the Employment Tax Division about the independent contractor classification of workers, and audits can result in civil liability and substantial administrative costs.

Finally, don’t buy the argument that the criminal penalty will only be pursued in the worst cases – if a criminal penalty for misclassification is adopted, it will remain a subtle and unspoken threat to employers whenever the Department of Workforce Services conducts an audit and questions independent contractor relationships, and employers may need to “lawyer up” and protect themselves at an entirely new level whenever the Department audits those relationships.

Update: Although House Bill 16 failed to get the two-thirds vote needed to be introduced during the budget session, it was proposed by the Joint Corporations committee and is likely to be raised in future legislative sessions.

Minimum Wage Increase. House Bill 45 is a perennial attempt to raise the minimum wage for employees not covered by the federal Fair Labor Standards Act. The measure would increase the standard minimum wage from $5.15 per hour to $9.00 per hour, and increase the minimum hourly wage for tipped employees from $2.13 to $5.00. As in past years, this bill is not likely to make much progress.

Repeal of Vacation Pay Amendment. Last year, the Legislature amended the wage collection statute to give employers the flexibility to offer paid vacation that was forfeited upon termination of employment, rather than being considered unpaid wages which were required to be paid out after termination. House Bill 57 would repeal the language adopted last year. We expect this measure also has a dim future.

Bottom Line. Employers should pay attention to House Bill 16 and watch if it is proposed again in future legislative sessions. If it makes any progress, employers will want to contact their legislators. You can track the progress of these and all the measures before the Legislature here through the link entitled “2014 Bill Tracking Information.”

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