Category Archives: Employment Counseling

February 23, 2015

Exempt Employee Salary Deductions for a Reduced Schedule

Classifying an employee as exempt under the Fair Labor Standards Act (FLSA) comes with a trade-off. Most employers know that exempt employees are not entitled to overtime. But, in exchange for that benefit, the FLSA limits employers’ ability to reduce the exempt employee’s salary, even when they are not coming to work. However, exempt employees are not immune from needing time off of work to recover from a medical condition, to settle an aging parent into an assisting living arrangement or to handle a long-term behavioral issue with a child. If an employee seeks some time off each week to take care of such matters, you may agree to allow the employee to work a reduced work schedule for a period of time. But when payday rolls around, must you pay the employee his or her full weekly salary or can you deduct pay to reflect the reduced work schedule? Missing this answer can have significant ramifications for the employee’s exempt status.

FLSA Salary Basis

Under the Fair Labor Standards Act, exempt employees’ pay must meet the salary basis test, which means that the employee must receive a predetermined amount of salary for each workweek, without reductions because of variations in the quality or quantity of work during the week. Thus, deductions from salary for reduced working hours is generally not permitted under the salary basis test. Deducting pay for the missed time could result in the loss of the employee’s exempt status. However, two exceptions may apply to your employee.

FMLA Leave Can Result in Pay Deduction

If the employee’s reduced schedule constitutes unpaid leave under the Family and Medical Leave Act (FMLA), the FLSA regulations permit employers to “pay a proportionate part of the full salary for time actually worked” without risk to the exempt status. This means that if your employee is missing work for an FMLA-qualifying reason, you may deduct pay from their weekly salary to reflect the unpaid FMLA leave time.

PTO, Sick Leave or Other Paid Leaves

If the employee has accrued PTO, sick leave or another type of company-provided paid leave, you can require that the employee use such paid leave to cover the partial day absences, as long as the employee continues to receive the full amount of their weekly salary. And, once the employee uses up all of their accrued paid leave, you can make salary deductions for full-day, but not partial-day, absences.

Saved Wages Vs. Loss of Exempt Status

Deductions from an exempt employee’s salary should be made only after careful consideration of the potential consequences. After all, the salary you save now for missed time may seem trivial if you lose the exempt status of this and all similarly-situated employees and owe them overtime for the past two years.

November 17, 2014

When Key Employees Go To A Competitor

By Mark Wiletsky

Your executives and top salespeople have access to your most valuable business strategies, sales contacts, growth plans and innovations. What do you do when one (or more) of your key employees leaves to work for a competitor? Without the correct agreements in place to protect your proprietary information, you may have little recourse.

Don’t Rely on a Court to Protect Your Business Information

When a key employee leaves to go to a competitor, the former employer often scrambles to seek a court injunction to prevent the employee from working for the competitor and to stop the employee from disclosing or using trade secrets and confidential information. But courts are not always willing to prevent an employee from moving on, especially if the company does not have a reasonable and otherwise enforceable non-compete agreement in place.

In a recent case in Colorado, a high level executive used his company-issued laptop to send an email containing his business contacts to his personal email address as he began negotiating to work for a competitor. He also downloaded some business information onto a personal external hard drive and thumb drive and kept physical copies of certain business documents in a box in his car. About three weeks later, the competitor hired the executive.

There was no evidence that the competitor requested or obtained from the executive any confidential information, the executive had signed only a nondisclosure agreement with his former employer, and the executive agreed to an injunction preventing him from using his former employers confidential information or trade secrets. Nevertheless, the former employer asked the federal court in Colorado to prevent the executive from working as the competitor’s President for one year, arguing that he had threatened or would inevitably disclose its trade secrets in his new job. Despite the executive’s decision to transfer information to his personal devices just before leaving the company, the court denied the company’s request, citing a lack of evidence that the executive had or would use his former company’s trade secrets to its competitive disadvantage. Cargill Inc. v. Kuan, No. 14-cv-2325 (D.Colo. Oct. 20, 2014). The judge noted that enjoining the executive from working for the competitor would, in effect, afford his former employer something it could have obtained or bargained for: a covenant not-to-compete.

Employment-Related Agreements to Consider

Keeping proprietary information confidential can be key to the future prosperity and competitiveness of your business. You can help protect that information from walking out the door by having key employees sign one or more of the following agreements:

Non-compete agreement: the restriction on working for a competitor must be reasonable in time and geographic scope, and comply with other applicable state law requirements;
Confidentiality agreement: requires employees to keep secret your company’s trade secrets and other proprietary information;
Non-solicitation agreement: restricts an employee from soliciting customers (who must be defined in the agreement) or from soliciting other employees to go to work elsewhere; and
Assignment of inventions: any products, inventions, innovations and other developments created during the worker’s employment are assigned to and owned by the company.

Depending on the circumstances, you may want to incorporate some or all of these provisions into a single agreement, and you may need to address varying state law requirements (or choice of law and venue issues) depending on where your employees are located. However, be careful to tailor your agreements to each type of key employee. For example, the non-compete for your CEO or general manager may need different restrictions than a similar agreement for your Regional Sales Manager. And be sure not to use a non-compete with all employees—including lower level ones who have no need for such post-employment restrictions—because it will diminish your justification for asking a higher-level employee to sign the same or similar agreement.

The bottom line is that you need to be proactive in protecting your vital assets, including your confidential information and your key employees. Taking steps now to implement proper agreements will go a long way in protecting your business down the road when key employees decide to depart.

Click here to print/email/pdf this article.

November 10, 2014

NLRB Unwilling to Give Up on Workers’ Right to Class Actions

By Brian Mumaugh

Reaffirming its controversial D.R. Horton decision, the National Labor Relations Board (NLRB or Board) recently ruled that an employer who required its employees to agree to resolve all employment-related claims through individual arbitration, waiving their right to pursue class actions, violated the National Labor Relations Act (NLRA). Though two members of the Board dissented, the three member majority pointed to the core objective of the NLRA, namely the protection of workers acting in concert, to find that mandatory arbitration agreements waiving an employee’s right to file a class or collective action is unlawful. Murphy Oil USA, Inc., 361 NLRB No. 72 (Oct. 28, 2014).

Employees Filed FLSA Collective Action

Four employees of Murphy Oil USA, Inc., which operates over 1,000 retail fueling stations across 21 states, filed a lawsuit in federal court in Alabama alleging that the company violated the Fair Labor Standards Act (FLSA) by failing to pay overtime and requiring employees to perform work-related activities off-the-clock. They brought the case as a collective action under the FLSA which allows them to sue on behalf of themselves and all other similarly situated Murphy Oil employees. The company asked the court to dismiss the collective action, seeking to enforce arbitration agreements signed by the employees that require that all claims be arbitrated on an individual basis. One of the plaintiff-employees then filed an unfair labor charge with the NLRB alleging that the company was violating Section 8(a)(1) of the NLRA by using and enforcing mandatory arbitration agreements that prohibited employees from engaging in protected, concerted activities.

Board Asserts D.R. Horton Was Correctly Decided

In deciding this NLRA violation issue, the Board believes the rationale articulated in its 2012 D.R. Horton case is correct, asserting that “[m]andatory arbitration agreements that bar employees from bringing joint, class, or collective workplace claims in any forum restrict the exercise of the substantive right to act concertedly for mutual aid or protection that is central to the National Labor Relations Act.” The Board states that the basic premise of federal labor law – protecting the right of workers to engage in collective action – makes the NLRA different from other labor and employment statutes. The Board points to earlier Supreme Court decisions that made clear that the NLRA protects employees “when they seek to improve working conditions through resort to administrative and judicial forums . . .” Other court decisions cited by the Board held that individual agreements between employees and an employer (as opposed to collective bargaining agreements) cannot restrict employees’ Section 7 rights. Relying on these cases and the majority’s interpretation of the core objective of federal labor law, the Board adheres to its position that protecting workers’ right to pursue collective actions to improve working conditions is a substantive right under the NLRA that cannot be waived by employees through a mandatory arbitration agreement.

Fifth Circuit Got D.R. Horton Decision Wrong, According to the Majority Opinion of Board

In December 2013, a divided Fifth Circuit Court of Appeals held that the NLRA did not override the Federal Arbitration Act (FAA), thereby allowing an employer’s arbitration agreement to be enforced according to its terms, including the agreement’s waiver of class claims. D.R. Horton, Inc. v. NLRB, ___ F.3d ___, 2013 WL 6231617 (5th Cir. Dec. 3, 2013). Rather than settling the issue for the NLRB and employers nationwide, the Fifth Circuit’s decision did little to quell the NLRB’s belief that class action waivers violate the NLRA. In the Murphy Oil case, the Board attempts to explain why it believes the Fifth Circuit got it wrong.

First, the Board asserts that the Fifth Circuit simply followed other FAA cases that did not involve a substantive right under Section 7 of the NLRA. The Board argues that both the NLRA and the FAA must be accommodated and the Fifth Circuit’s decision gave too little weight to the NLRA and its underlying labor policy. Second, the Board states that the Fifth Circuit’s decision forces workers into more costly and disruptive forms of concerted activity than bringing a collective action in court. The Board believes that there is no basis for carving out concerted legal activity as entitled to less protection than other concerted activities, such as picketing, strikes and boycotts. Third, the Board notes that the Supreme Court, while favoring arbitration, prohibits a prospective waiver of a party’s right to pursue statutory remedies and an arbitration agreement that precludes employees from filing joint, class or collective claims regarding working conditions in any forum amounts to a prospective waiver of a right guaranteed by the NLRA.

Analysis By Other Circuits Rejected by Board

The Board pays little attention to and dismisses decisions by three other circuit courts of appeal that rejected the Board’s D.R. Horton rationale. In essence, the Board states that the Second and Eighth Circuits purportedly did not conduct a thorough analysis of the legal issues and the Ninth Circuit amended its decision to refrain from deciding the issue. Consequently, the Board found those decisions to be unpersuasive.

Two Board Members Dissent

Two of the five board members dissented, rejecting the majority’s D.R. Horton rationale. Member Miscimarra stated that the NLRA “cannot reasonably be interpreted as giving employees a broad-based right to “class” treatment under other Federal, State, and local laws.” Member Johnson stated that the Board’s “interpretation of the FAA – which otherwise requires an agreement to be enforced exactly according to its terms – would allow Section 7 to swallow up the FAA itself.” The dissenters also noted that the majority essentially ignored numerous clear decisions of the Supreme Court. In citing the Supreme Court’s 2011 AT&T Mobility, LLC v. Concepcion case, member Johnson stated “Notably, the Court forbade [the majority’s] interpretation [of the FAA] when it decided that the FAA’s savings clause could not be construed to include a right that would be “absolutely inconsistent” with the FAA’s provisions.” He went on to write:

The governing law could not be plainer. Provisions in arbitration agreements precluding class actions may not be condemned simply because they restrict an employee’s ability to use litigation procedures established under other statutes in litigating those employment-related claims. This is especially so where the governing statutes clearly describe the litigation procedures as procedural rights.

The dissenting members believe that employees and employers may enter into agreements that waive class procedures in litigation or arbitration.

What’s Next For Arbitration Agreements That Waive Class Actions?

The current majority of the Board appears unpersuaded by federal court decisions—not to mention the Supreme Court of the United States–holding that its position in D.R. Horton is simply wrong. It appears that, absent a further Supreme Court decision on the issue, the NLRB General Counsel likely will continue to issue complaints against employers who require employees to sign arbitration agreements that include a waiver of joint, class and collective actions. If and when the makeup of the Board changes, the dissenting opinion may become the majority opinion for future cases. In the meantime, employers who mandate such agreements should continue to enforce them. In other words, if faced with a class or collective action by an employee or employees who signed an agreement waiving class claims, the employer should ask the court to compel individual arbitration, dismissing the class/collective action. Despite the Board’s current position, a court is likely to grant that request. Employers should review their arbitration agreements, however, to ensure that any disputes arising under the NLRA are not subject to the mandatory arbitration provision and that employees are not prohibited from participating in proceedings before the Board.

Click here to print/email/pdf this article.

October 28, 2014

Defeating Micro-Units: Employer Strategies to Challenge Smaller Bargaining Units

By Brian Mumaugh

Unions are organizing smaller segments of an entire workforce in order to get their foot in the door and keep organizing efforts alive. The National Labor Relations Board (NLRB or Board) has approved so-called micro-units, setting employers up for difficult battles over appropriate bargaining units in the future. Employers should think about the possibility of seeing a micro-unit proposed in their workforce—and how to avoid them.

Unions Can More Easily Win Representation For Smaller Groups

As unions press to increase their membership in the United States, unions are looking for new ways to organize workers and remain relevant. Organizing large workforces requires unions to expend significant resources – money, personnel and time – to collect signatures from at least 30% of the proposed bargaining unit to trigger an election (some unions want to see upwards of 70% signing authorization cards before petitioning for an election). Then additional resources are needed to get out the vote to ensure a majority of votes cast are in favor of the union. Large organizing campaigns also give the company time to mount an anti-union campaign.

Organizing micro-units, however, can be done relatively quickly, cheaply and often without much response from the company. Think about it – organizing a unit of 30 workers in a single department may need only one or two union organizers to persuade the 15 to 20 employees needed to win the organizing campaign. Before you know it, you’ve got a segment of your workforce represented by a third party with whom you must collectively bargain. This can lead to multiple micro-units at your company represented by different unions and the headaches multiply.

Parameters For Micro-Units Are Evolving

The NLRB has discretion in representation cases to determine the appropriate bargaining unit, whether an employer unit, craft unit, plant unit or subdivision thereof, pursuant to section 9(b) of the NLRA. Although decided on a case-by-case basis, the main, long-standing factor for determining an appropriate unit was the “community of interest” of the employees involved. In 2011, however, the Board significantly changed that analysis in a case called Specialty Healthcare, allowing the unit petitioned-for by the union to govern except in those situations where the employer can establish by “overwhelming evidence” that the requested unit is inappropriate. This new approach places a high burden on employers who wish to challenge the make-up of the unit proposed by the union.

In recent months, the Board has decided a couple of micro-unit cases that offer some guidance on what it takes to challenge a micro-unit. In a case involving a Macy’s Department store in Massachusetts, the Board deemed appropriate a micro-unit made up of only cosmetics and fragrances employees at the store. Macy’s Inc., 361 NLRB No. 4 (July 22, 2014). The store argued that the unit was too narrow and that the appropriate unit in a retail store context is a “wall-to-wall unit” or, alternatively, all selling employees at the store. The Board did not agree. It concluded that the cosmetics and fragrances employees were a readily identifiable group that shared a community of interest not shared by other store employees. Factors weighing in favor of the micro-unit included the fact that the cosmetics and fragrances employees were in the same department and were supervised by the same managers. In addition, there was little regular contact between the cosmetics and fragrances employees and other store employees. The NLRB found that Macy’s had not met the high burden of showing that other employees should be included in the unit because they did not share an “overwhelming community of interest.”

Coming to the opposite conclusion, however, the Board rejected a micro-unit of sales associates who sold shoes at the Manhattan Bergdorf Goodman store. The union had petitioned for the unit to be made up of 35 women’s shoes sales associates in the Salon shoes department (high end designer shoes) and 11 women’s Contemporary shoes sales associates in the Contemporary Sportswear department (modestly priced shoes). The Board concluded the proposed unit was inappropriate because the two shoe departments were located on separate floors, did not share the same supervisors and managers, did not have any cross-over or interchange between employees and did not have much contact with employees in other departments storewide. The Neiman Marcus Group, Inc. d/b/a Bergdorf Goodman, 361 NLRB No. 11 (July 28, 2014).

Strategies for Attacking Micro-Units

The Macy’s and Bergdorf Goodman cases offer some guidance to help employers avoid union organizing of micro-units. Strategies to consider now, before a union organizing campaign begins, include:

Combining departments or job classifications that share skills or tasks
Cross-training and cross-utilizing workers across departments, classifications or locations
Allowing for promotional and transfer opportunities across department and organizational lines
Revising supervisory and managerial structures so that more employees report to the same managers
Maintaining pay and bonus structures common to all employees or for all in a larger unit.

Micro-units can be a game-changer when it comes to union organizing so employers have to change their own tactics to combat such bargaining units. Taking time now to change organizational and reporting structures can go a long way in overcoming a proposed micro-unit in the future.

Click here to print/email/pdf this article.

October 21, 2014

EEOC’s Failure to Engage in Conciliation Dooms Its Separation Agreement Lawsuit Against CVS Pharmacy

By Mark Wiletsky

Chalk up a loss for the Equal Employment Opportunity Commission (EEOC) in its lawsuit against CVS Pharmacy’s separation agreements. As we reported earlier, the EEOC sued CVS alleging that CVS’s separation agreements deterred employees from filing charges and communicating with the EEOC about discrimination and retaliation. Dismissing the case, a federal judge recently ruled that the EEOC failed to engage in the required procedural steps, including conciliation, before filing its lawsuit.

EEOC Dismissed Employee’s Charge, Then Went After Employer

This lawsuit is an example of the aggressive, proactive nature of the EEOC in extending the protections of Title VII to new and novel claims. The case arose after CVS terminated Tonia Ramos, a pharmacy manager. Ms. Ramos signed CVS’s standard separation agreement, which included a release of claims and a covenant not to sue. She then proceeded to file a charge with the EEOC claiming that her discharge was based on sex and race in violation of Title VII. Almost two years later, the EEOC dismissed Ms. Ramos’s charge.

The EEOC then contacted CVS asserting that based on the separation agreement, CVS was engaging in a pattern or practice of resistance to their employees’ full enjoyment of rights under Title VII. In other words, the EEOC concluded that even though the individual employee did not have a valid discrimination claim against CVS, it would bring a pattern or practice case against CVS based on the language in its standard separation agreement used with potentially hundreds of former employees.

No Conciliation, No Lawsuit

Under Title VII enforcement procedures, the EEOC has the authority to investigate and act on a charge of a pattern or practice of discrimination, whether filed on behalf of an allegedly harmed employee or by the EEOC itself. The procedures require that the EEOC try to resolve any alleged unlawful employment practices through informal means before filing a lawsuit. Such means include conferences, conciliation and persuasion. Although the EEOC and CVS discussed potential settlement by telephone twice before the EEOC filed suit, the EEOC failed to engage in conciliation, which proved fatal to its case. Because an attempt at reaching a conciliation agreement is a prerequisite to the EEOC filing suit and it was undisputed that the EEOC did not engage in any conciliation process, the federal court dismissed the EEOC’s case against CVS.

Judge’s Guidance is in the Footnotes

The case was dismissed on procedural grounds, but the judge took the opportunity to offer his view on the merits of the EEOC’s arguments in several footnotes in the opinion. First, the EEOC argued that the term “resistance” as used in Title VII should be interpreted broadly to extend to the language in CVS’s separation agreement even if that language did not amount to discrimination or retaliation under the Act. The judge rejected that argument, stating that the term “resistance” requires some retaliatory or discriminatory act.

Second, the judge discussed the “covenant not to sue” provision in CVS’s separation agreement. Even though the provision stated that an employee could not “initiate or file . . . a complaint or proceeding asserting any of the Released Claims,” the release of claims (in another paragraph of the separation agreement) stated that it did not limit “any rights that the Employee cannot lawfully waive.” In addition, the agreement contained two carve out provisions specifying an employee’s “right to participate in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws” and that the agreement did not prohibit the employee from cooperating with any such agency in its investigation. The judge wrote that these provisions would allow an employee to file an EEOC charge. He went on to write that even if the separation agreement explicitly banned filing charges, those provisions would be unenforceable and could not constitute “resistance” under Title VII.

One Case Down; One Still Pending

The dismissal of the CVS lawsuit is good news for employers who use separation agreements, especially in light of the judge’s comments signaling that the EEOC’s arguments were without merit. However, a similar case filed by the EEOC against College America is still proceeding through the federal court in the District of Colorado. (We wrote about the College America case here.) Like CVS, College America has asked the court to dismiss the EEOC’s case. We will let you know when the court rules on that motion. In the meantime, employers should review their separation agreements to ensure they include a provision that the agreement does not prohibit employees from filing a charge, participating in an investigation or otherwise cooperating with an appropriate federal, state or local government agency that enforces discrimination laws.

Click here to print/email/pdf this article.

September 23, 2014

Cheyenne Jury Awards $1,481,000+ On FMLA Retaliation Claim

By Brad Cave

The series of large verdicts for Wyoming employees seems to be marching forward. The most recent example occurred recently when a Cheyenne jury awarded over $740,000 to a trona miner after deciding that he was fired because he took FMLA leave. With liquidated damages available in an FMLA case, the Wyoming court entered judgment in an amount in excess of $1.48 million in favor of the employee. This case stands as yet another example about the importance of supervisor training and careful, well-documented and consistent decision making.

Long Term Employee With A Pain in the Neck. We first told you about this case in March of this year, when the Tenth Circuit Court of Appeals sent the case back to Wyoming for trial after reversing the trial court’s dismissal of the case. (Safety Violation or Too Much Intermittent FMLA Leave?). Here is a short recap of the facts.

Steven Smothers had been employed by Solvay Chemical for 18 years when his employment was terminated. Smothers had experienced back problems since 1994 resulting in three surgeries on his neck and other medical procedures, and an extended course of medical treatment by specialists. Over the years, Smothers took intermittent FMLA leave for his medical appointments and when he was unable to work due to the pain. The amount of FMLA leave he took did not go unnoticed. He was pressured by the production superintendent to change shifts to lessen the additional overtime cost caused by his absences, but such a change would have cost him about $7,000 per year in shift differential pay. Solvay also gave Smothers a negative rating on his performance evaluation because of his absences, and he was told that he was rejected for a promotion because of the leave.

Smothers’ Safety Rule Violation. In August 2008, Smothers and his coworkers were performing an acid wash, which Solvay did every six months to clean residual trona out of the equipment. When Smothers noticed that a damaged spool piece had caused a leak, he began to fix it without obtaining a line break permit which was required by Solvay safety rules. Smothers and a co-worker, Mahaffey, argued about whether the permit was necessary, and after Smothers removed the spool piece without first getting the permit, Mahaffey immediately reported Smothers’ actions to a supervisor.

Solvay terminated Smothers’ employment on August 28, 2008, based on a joint decision of six Solvay managers. Five of the six decision makers testified that the argument between Smothers and Mahaffey weighed heavily in the group’s decision to fire Smothers. Although the trial court originally dismissed the case, the Tenth Circuit believed that Smothers had presented enough evidence to create doubt about the real reasons for Smothers’ termination. So, the case was sent back to the trial court for trial.

What’s the Real Reason for Smothers’ termination? Like all retaliation cases, the jury in this trial was asked to decide whether Smothers was fired for a safety rule violation, as the employer contended, or because his employer retaliated against him for using intermittent FMLA leave or discriminated against him because of his disability. We don’t have a transcript of the trial, so we cannot tell you what evidence the jury heard or what facts persuaded the jury. We do know that the Tenth Circuit reasoned that the jury could disbelieve Solvay’s reasons because:

Supervisors criticized Smothers informally and in his performance evaluation for taking FMLA-protected leave, and rejected him for a promotion because of his time off;
Solvay did not give Smothers an opportunity to describe or explain his side of the argument with Mahaffey, even though the argument was a central reason for the decision to terminate Smothers’ employment;
Other Solvay employees who committed safety rule violations were not terminated.

And the Jury Returns.The jury found in favor of Smothers on his FMLA claim, and awarded Smothers the amount of $740,535 for his lost wages and benefits from the date of his termination, August 27, 2008, through the date of trial. But the potential damages don’t stop with the lost wages. Under the FMLA, the successful employee may be entitled to an additional amount equivalent to the jury’s award for liquidated damages – in other words, a penalty against the employer for the violation. As a result, the court has entered judgment against Solvay in the total amount of $1,481,070, twice the amount of the jury’s verdict, plus interest since the date of termination. The trial court declined to award Smothers any future lost wages. However, Smothers is entitled to an additional judgment for his reasonable attorneys’ fees and costs, which could add hundreds of thousands of dollars to the total.

Bottom Line. Regardless of the final number after adding prejudgment interest and attorneys’ fees, this is one of the largest judgments ever entered against a Wyoming employer. We cannot speculate about what evidence led the jury to its verdict, but we can share some lessons, with the benefit of twenty-twenty hindsight, that will help any employer avoid this kind of result:

Managers and supervisors must be trained and committed to the fact that taking FMLA leave is protected by federal law, and must not be the reason for formal criticism, denied opportunities, or informal complaining. FMLA-protected leave cannot be held against an employee for any reason whatsoever. Any comment or suggestion to the contrary can be used as evidence of pretext.
Investigations must be thorough and even-handed. While we don’t know all the evidence in this case, the jury may have heard that Solvay spent much more time asking Mahaffey about the argument with Smothers, while never asking Smothers for his side of the argument. Everybody should get the same opportunity to tell their side of the story. An inadequate investigation can be used as evidence of pretext.
Employees must be treated consistently. Smothers had evidence that other Solvay employees intentionally violated safety rules without being terminated. Employers need to mete out comparable discipline for comparable violations, or have a compelling reason why an employee gets tougher punishment.
Employers must respect long years of service. Of course, keeping a job for eighteen years does nothing to technically change the legal relationship or create any new rights or protection for the employee. But, after that length of time with a good performance record, it becomes difficult for a jury to believe that termination is an appropriate response for one incident.

Wyoming juries have delivered substantial employee verdicts over the last few years. Employers should pay attention.

Click here to print/email/pdf this article.

August 7, 2014

Favoritism to Paramour is Not Gender Discrimination

By Brad Cave

Friendship, cronyism, nepotism, affairs – many types of personal relationships may result in one employee being treated better than another employee. But is that favoritism discriminatory? Does the non-favored employee have a discrimination claim against the employer? No, Title VII does not prohibit favoritism based on a special relationship, says the Tenth Circuit Court of Appeals.

“I Like You Best”

If an employer pays the CFO’s sister a higher wage than other employees doing similar work, offers the most lucrative deals to an employee who is the boss’s best friend or gives playoff tickets as a bonus to the manager’s boyfriend who works at the company, that special treatment is permissible because it is based on the special relationship or bond between the parties, not on a protected characteristic. It is only when the differential treatment is based on an impermissible classification, such as gender, race or age, that it crosses the line into unlawful discrimination. In a recent decision, the Tenth Circuit Court of Appeals affirmed that distinction, ruling that a supervisor’s favoritism toward a female subordinate based on their purported intimate relationship did not amount to reverse gender discrimination against her male counterpart. Clark v. Cache Valley Elec. Co., No. 13-4119 (10th Cir. July 25, 2014).

Reverse Gender Discrimination Under Title VII

Project manager Kenyon Brady Clark sued his employer, Cache Valley Electric Company, alleging violations of Title VII. Clark’s discrimination claim alleged that his supervisor, Myron Perschon, favored a female project manager, Melissa Silver, over him because Perschon and Silver were in a romantic relationship. Clark asserted that Perschon gave Silver better work assignments, paid her more for performing less work and performed most of Silver’s job duties himself. Although it turned out that there had been no affair, Clark still asserted that “whether they were having sex or not, there was favoritism.” When asked about the reason for the favoritism at his deposition, Clark admitted that if the favoritism was not due to a romantic relationship, he did not know the reason for it.

The Court analyzed Clark’s claim as a reverse gender discrimination case under which Clark needed to show circumstances that would support an inference that his employer discriminates against the majority (i.e., males) or that “but for [his] status the challenged decision would not have occurred.” Significantly, Clark did not assert that the favoritism was due to Silver being a female or that Cache Valley treated women more favorably than men. Instead, Clark focused on the preferential treatment that his supervisor offered to one specific female employee. That deficit was fatal to his reverse gender discrimination claim. The Court cited numerous cases where the motives for preferential treatment were other special relationships, such as friendship, nepotism or personal fondness or intimacy, in which it had ruled that such favoritism was not within the purview of Title VII’s anti-discrimination provisions. Because Clark’s discrimination claim was based only on the favoritism shown to a special friend and not on a protected characteristic, his claim was not covered by Title VII. The Court affirmed summary judgment in favor of Cache Valley.

Retaliation Claim Fails Too

Clark also raised a retaliation claim in his lawsuit against Cache Valley. Clark asserted that his supervisor, Perschon, retaliated against him by trying to get a competitor to hire him, refusing to communicate with him and otherwise distancing himself from Clark. Clark also alleged that he was fired in retaliation for complaining about Perschon’s favoritism and retaliation. He had complained to management about the alleged affair between Perschon and Silver, stating that it was difficult to continually respond to vendors and suppliers who had questions about the purported relationship. He reported that they were acting like a married couple. He later complained about the preferential treatment that Silver received from Perschon, including receiving better job assignments and higher bonuses. In a letter to the company’s CEO and to human resources, Clark wrote that over the past three years, he had personally and professionally suffered serious and real adverse effects to his employment due to the alleged affair. He wrote that the affair created a hostile work environment and that it was the company’s responsibility to ensure that the workplace was free of harassment and retaliation. Shortly after meeting with HR and the company’s legal counsel to discuss his letter, Clark was terminated.

The Court rejected Clark’s retaliation claim. To make out a Title VII retaliation claim, Clark needed to show that (1) he engaged in protected opposition to discrimination, (2) a reasonable employee would have found the challenged action materially adverse, and (3) a causal connection existed between the protected activity and the materially adverse action. The Court concluded that Clark failed to show that he engaged in protected opposition to discrimination. He needed to show that he had a reasonable good-faith belief when he complained to the company that he was engaging in protected opposition to discrimination and that his good-faith belief was reasonable both subjectively and objectively. He failed to do so. Although he made statements about a “hostile work environment” and “discrimination” in his complaints to the company, the Court found such statements to be conclusory and not related to gender discrimination. The statements were about Perschon’s favoritism to Silver based on the alleged inappropriate relationship, which was not gender discrimination. Therefore, Clark’s retaliation claim failed.

Just ‘Cuz It’s Legal Doesn’t Make It Smart

Clark’s reverse discrimination claim was a little more cut and dried than most because he essentially admitted that the preferential treatment shown by his supervisor to a female colleague was not due to her status as a female. Consider whether the outcome would have been different had Clark provided evidence that the supervisor historically treated women better than men. Or think about other situations where special relationships result in favoritism, such as when the boss takes all his male cronies to play golf with clients while the female employees toil away at work. Even though the courts have been clear about distinguishing favoritism based on special relationships from discrimination based on a protected class, employers are wise to steer clear from favoring some employees over others, especially when it comes to pay, bonuses and benefits where the non-favored employees can prove financial harm. Keeping the terms and conditions of employment on an even footing will help keep your workplace productive, the morale of employees high and your company out of court.

Click here to print/email/pdf this article.

May 13, 2014

Independent Contractor Status — Colorado Supreme Court Sets Forth Applicable Test

By Bradford J. Williams

Yesterday we posted an article describing the unsettled test for independent contractor status under Colorado’s unemployment insurance benefits laws after the Colorado Court of Appeals issued a new decision last week. Now, that test has been settled as the Colorado Supreme Court issued its decision in the Softrock and Western Logistics cases.

The Colorado Supreme Court ruled yesterday that determining whether a worker is “customarily engaged in an independent trade, occupation, profession, or business” in order to be deemed an “independent contractor” under Colorado’s unemployment insurance benefits laws requires an evaluation of the totality of the circumstances surrounding the relationship between the worker and the putative employer. In two companion cases, the Court rejected a stringent, single-factor test for determining whether a worker is an employee or independent contractor for purposes of unemployment insurance tax liability and benefits. Reversing decades of case law, the Court ruled that no single factor is dispositive of an employer-employee relationship. Instead, courts and agencies may consider nine factors enumerated in a statute pertaining to independent contractor agreements, as well as “any other information relevant to the nature of the work and the relationship between the employer and the individual.” ICAO v. Softrock Geological Servs., 2014 CO 30; Western Logistics, Inc. v. ICAO, 2014 CO 31.

Putative Employer Must Prove Independent Contractor Status

Under the Colorado Employment Security Act (CESA), employers must pay unemployment taxes on wages paid to employees, but not on compensation paid to independent contractors. Similarly, employees are entitled to collect unemployment insurance benefits under the CESA whereas independent contractors are not. Putative employers bear the burden of proving that workers are independent contractors, not employees, for purposes of the CESA.

In order to establish that a worker is an independent contractor, a putative employer must prove that the individual (i) is free from control and direction in the performance of his or her service, and (ii) is customarily engaged in an independent trade, occupation, profession, or business related to the service performed. C.R.S. § 8-70-115(1)(b). The CESA does not define what must be shown to satisfy the second part of this test.

2012 Court of Appeals Decisions on the Single-Factor Test

For years, the Colorado Division of Employment and Training and most courts have applied a single-factor test, rejecting claims that workers are independent contractors, and thus ineligible for unemployment insurance benefits, where they do not provide similar services to others while working for the putative employer. It has not mattered, for instance, whether the workers were directed or controlled by the putative employer, whether they maintained separate business entities, whether they set their own hours, whether they were trained by the putative employer, whether they were paid an hourly or fixed rate, whether they provided their own equipment, whether they had their own offices, or whether they advertised their own businesses. If they did not provide similar services to others while working for the putative employer, they were almost always deemed to be employees for purposes of receiving unemployment insurance benefits.

In 2012, one division of the Colorado Court of Appeals reaffirmed this decades-old case law effectively mandating a single-factor test. Western Logistics, Inc. v. ICAO, 2012 COA 186. Another division of the Court of Appeals, however, rejected the stringent, single-factor test, holding for the first time that agencies and courts must instead apply a multi-factor test to determine whether an individual “is customarily engaged in an independent trade, occupation, or business related to the service performed.” Softrock Geological Servs. v. ICAO, 2012 COA 97. In Softrock, the Court of Appealsstated that the factors to be considered in the “customarily engaged” inquiry are the nine factors set forth in statutory section 8-70-115(1)(c), which defines evidence that must be included in an independent contractor agreement to create a presumption that a worker is an independent contractor rather than an employee. In March 2013, the Colorado Supreme Court agreed to hear the appeals in both the Western Logistics and Softrock cases in order to finally determine the appropriate test for deciding whether a worker is customarily engaged in an independent business for purposes of the CESA.

Single-Factor Test No Longer Dispositive

In its decision yesterday, the Supreme Court concluded that the appropriate test for courts and agencies to apply is a totality of the circumstances test that looks at all the relevant factors bearing upon the relationship between a worker and his or her putative employer. The Court rejected the stringent, single-factor test used in Western Logistics and numerous other cases, finding that relying on a single factor – i.e., whether a worker provides similar services to others at the same time he or she works for the putative employer – is unfair to putative employers because it leaves the independent contractor determination up to the unpredictable decisions of workers. For instance, it ignores the putative employer’s own intent regarding the working relationship, and also ignores whether workers even desire to find other work in the same field.

In its decision, the Court broadly adopted the Court of Appeal’s approach in Softrock, concluding that the statutory factors should be considered in determining whether a worker is engaged in an independent business under the CESA. However, the Supreme Court went even further, holding that other factors may also be relevant to this determination. The Court rejected “a rigid check-box type inspection,” and opted instead for a fact-specific inquiry into the nature of the working relationship between a worker and his or her putative employer where no single factor is dispositive of the worker’s status.

Interestingly, just last week, yet another division of the Colorado Court of Appeals anticipated the Supreme Court’s ruling in these two cases, concluding that virtually any relevant circumstances may be considered in weighing independent contractor status. The decision rejected both the Western Logistics single-factor test and the Softrock multi-factor test that limited the determination to just those factors specifically delineated in statute. See Visible Voices, Inc. v. ICAO, 2014 COA 63.

Many Factors May Determine Independent Contractor Status

The Supreme Court’s new totality of the circumstances test is very helpful to putative employers because it allows them to prove independent contractor status based on the entire working relationship between the worker and the putative employer. A putative employer seeking to prove that a worker is an independent contractor engaged in an independent business or trade may now produce evidence bearing upon the nine factors set forth in statute, showing that the putative employer did not:

Require the worker to work exclusively for the putative employer; except that the worker may choose to work exclusively for that business for a finite period of time specified in the independent contractor agreement;
Establish a quality standard for the worker; except that the putative employer can provide plans and specifications regarding the work but cannot oversee the actual work or instruct the worker as to how the work will be performed;
Pay a salary or hourly rate but rather a fixed or contract rate;
Terminate the worker during the contract period unless the worker violates the terms of the contract or fails to produce a result that meets the specifications of the contract;
Provide more than minimal training for the worker;
Provide tools or benefits to the worker; except that materials and equipment may be supplied;
Dictate the time of performance; except that a completion schedule and a range of mutually agreeable work hours may be established;
Pay the worker personally but rather makes checks payable to the trade or business name of the worker; and
Combine the putative employer’s business operations in any way with the worker’s business, but instead maintains such operations as separate and distinct.

The putative employer may also invoke other evidence not set forth in the statute, but nonetheless relevant to whether the worker maintains an independent trade or business. As suggested in recent cases, these factors include, but are not limited to, whether the worker:

Maintains an independent business card, listing, address, or telephone;
Has a financial investment in the project or risks suffering a loss;
Uses his or her own equipment on the project;
Sets the price for performing the project;
Employs others to complete the project; or
Carries liability insurance.

Although we have yet to see how the courts and agencies will apply this new totality of the circumstances test, putative employer should try to satisfy as many of these factors as possible in order to establish that workers are independent contractors, not employees. Putative employers should also continue to use independent contractor agreements that satisfy all the statutory factors needed to create a presumption that workers are independent contractors. However, there is now no limit to the types of evidence putative employers may invoke to establish independent contractor status, and putative employers are no longer bound by the outdated rule that workers must always offer their services to others at the same time the work for the putative employer in order to be considered independent contractors.

Click here to print/email/pdf this article.

May 12, 2014

Independent Contractor Status Dependent On More Than One Factor, Says Second Colorado Court

By Bradford J. Williams

A second division of the Colorado Court of Appeals has just rejected a stringent, single-factor test for determining whether a worker is an employee or independent contractor for purposes of receiving unemployment insurance benefits. On May 8, 2014, a division of the Court of Appeals issued a decision in an unemployment insurance tax liability case, rejecting longstanding case law holding that a worker is an employee, and thus entitled to unemployment insurance benefits, unless he “actually and customarily provides similar services to others while working for the putative employer.” Visible Voices, Inc. v. ICAO, 2014 COA 63.

For years, the Colorado Division of Employment and Training has rejected claims that workers are independent contractors, and thus ineligible for unemployment insurance benefits, based solely upon the fact that they do not provide similar services to others while working for the putative employer. It has not mattered whether the workers were directed or controlled by the putative employer, whether they maintained separate business entities, whether they set their own hours, whether they were trained by the putative employer, whether they were paid an hourly or fixed rate, whether they provided their own equipment, whether they had their own offices, or whether they advertised their own businesses. If they did not provide similar services to others while working for the putative employer, they were almost always deemed to be employees for purposes of receiving unemployment insurance benefits.

In rejecting this stringent, single-factor test, the Visible Voices court followed the 2012 lead of another division of the Colorado Court of Appeals in Softrock Geological Servs. v. ICAO, 2012 COA 97 (cert. granted Mar. 25, 2013). First breaking with the decades-old, single-factor assessment, the Softrock court held that the Division of Employment and Training must instead apply a multi-factor test to determine whether an individual “is customarily engaged in an independent trade, occupation, or business related to the service performed.” This multi-factor test considers factors set forth in Colorado statute.

While broadly adopting the Softrock court’s reasoning, the Visible Voices court went even further, holding that factors not listed in the Colorado statute may also be considered in assessing independent contractor status. The Visible Voices court further noted that some of the statutory factors might also not be relevant to a particular worker depending on the circumstances. In short, the Visible Voices court concluded that virtually any relevant circumstances may be considered when weighing independent contractor status, and rejected the argument that the multi-factor test is limited to just those factors specifically delineated in statute.

By choosing to consider multiple factors, the Visible Voices court expressly declined to follow Western Logistics, Inc. v. ICAO, 2012 COA 186 (cert. granted Mar. 25, 2013), in which yet another division of the Colorado Court of Appeals recently reaffirmed the decades-old cases effectively mandating a single-factor test. Unlike the Western Logistics court, the Visible Voices and Softrock courts have decided that no single factor is determinative of independent contractor status.

Two divisions of the Colorado Court of Appeals have now rejected the single-factor test that has long stymied putative employers’ attempts to prove that their workers are independent contractors for purposes of unemployment insurance benefits. However, the Colorado Supreme Court will have the last word on the proper test for determining independent contractor status as it is currently reviewing both the Softrock and Western Logistics cases. The Supreme Court heard oral arguments in both cases on March 6, 2014 (audio of the oral arguments may be accessed here), and a decision is expected in the coming months. Based on the oral arguments, a favorable ruling for putative employers seems possible. We will let you know the outcome as soon as the Supreme Court rules on this issue.

Click here to print/email/pdf this article.

May 9, 2014

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

By Emily Hobbs-Wright

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.

Click here to print/email/pdf this article.