Category Archives: Wyoming

May 23, 2016

Limitations Period For Constructive-Discharge Claim Starts When Employee Gives Notice of Resignation

The Supreme Court made clear today that the filing period for a constructive-discharge claim begins to run when the employee gives notice of his or her resignation. In a 7-to-1 decision, the Court favored the five-circuit majority who recognized such timeline and rejected the Tenth Circuit’s reasoning that the clock begins to run on the date of the “last discriminatory act.” Green v. Brennan, 578 U.S. ___, (2016). Although the case involved a federal employee, the Court noted that the Equal Employment Opportunity Commission (EEOC) treats federal and private sector employee limitations periods the same so this ruling should affect constructive-discharge claims against private employers as well.

Discriminatory Act That Triggers Limitations Clock

In the case before the Court, Marvin Green, a postmaster in Colorado, claimed he was denied a promotion because of his race. A year after that matter was settled, Green filed an informal EEO charge with the Postal Service alleging that he was subjected to retaliation for his prior EEO activity due to his supervisor threatening, demeaning, and harassing him. After the Postal Service’s EEO Office completed its investigation of his allegations, he was informed he could file a formal charge, but he failed to do to.

A few months later, Green was investigated for multiple infractions, including improper handling of employee grievances, delaying the mail, and sexual harassment of a female employee. Green was placed on unpaid leave during the investigation. Federal agents quickly concluded that Green had not intentionally delayed mail, but neither Green nor his union representative was told. Instead, the Postal Service began negotiating with Green’s union representative to settle all the issues against Green, resulting in Green signing a settlement agreement in December 2009 that included giving up his postmaster position. On February 9, 2010, Green submitted his resignation which was to be effective March 31.

During that time, Green filed multiple charges with the Postal Service’s EEO Office. By regulation, federal employees must contact an equal employment opportunity officer in their agency within 45 days of “the date of the matter alleged to be discriminatory” before bringing suit under Title VII. Green’s allegations included that he had been constructively discharged by being forced to retire.

Green eventually sued the Postal Service in federal court in Denver. The district court dismissed Green’s constructive discharge claim, ruling that he had not contacted an EEO counselor about his constructive-discharge claim within 45 days of the date he signed the settlement agreement in December. On appeal to the Tenth Circuit Court of Appeals, Green argued that the 45-day limitations period did not begin to run until he announced his resignation, even though that was months after the last alleged discriminatory act against him. The Tenth Circuit disagreed with Green, ruling that the clock began to run on the date of the “last discriminatory act” giving rise to the constructive discharge, as two other circuits have held.

Limitations Period Begins When Employee Gives Notice of Resignation

On appeal to the Supreme Court, Green asserted that the statute of limitations began when he actually resigned due to constructive discharge, the act that gave rise to his cause of action, which was consistent with the rulings of numerous other Courts of Appeals. Interestingly, the Court agreed with the position taken by the Postal Service, which was different from the Tenth Circuit’s decision, ruling that the limitations period for a constructive-discharge claim begins to run when the employee gives notice of his resignation.

In an opinion written by Justice Sotomayor, the Court explained that “the ‘matter alleged to be discriminatory’ in a constructive-discharge claim necessarily includes the employee’s resignation.” The Court noted that to the “standard rule” governing statutes of limitations, the “limitations period commences when the plaintiff has a complete and present cause of action.” It means that period begins when the plaintiff “can file suit and obtain relief.” In effect, a constructive-discharge claim is like a wrongful-discharge claim which accrues only after the employee is fired. With nothing in Title VII or its regulations to the contrary, the Court therefore found that the limitations period should not begin to run until after the discharge itself.

So precisely when does an employee resign for purposes of triggering the limitations period for a constructive-discharge claim? The Court ruled that the limitations period begins on the day the employee tells his employer of his resignation, not the employee’s actual last day of work.

The Court did not decide the factual question of when Green actually gave notice of his resignation to the Postal Service, sending the matter back to the Tenth Circuit to determine that fact.

Significance of Decision for Employers

The practical effect of the Court’s ruling is to extend the period in which an employee may allege a constructive discharge beyond the limitations period for the underlying discriminatory acts that gave rise to the resignation. Hypothetically, employees who resign may be able to bootstrap any alleged discriminatory act during the course of their employment to their decision to abandon employment. In his dissent, Justice Thomas further opined that a discrimination victim may extend the limitations period indefinitely simply by waiting to resign. Yet the Court believed such concerns to be overblown, doubting that a victim of employment discrimination would continue to work under intolerable conditions only to extend the limitations period for a constructive-discharge claim. Nonetheless, even if the applicable Title VII limitation period (typically 180 or 300 days for private employers) for the underlying discrimination has passed, an employee may still have a timely claim for constructive discharge under the Court’s rule.

Time will tell if Justice Thomas’s concerns were more realistic that his colleagues believed.

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May 20, 2016

Employers Who Prevail In A Title VII Case May Seek Attorneys’ Fees Even Without A Ruling On The Merits

By Dora Lane

In a unanimous decision, the U.S. Supreme Court ruled that a Title VII defendant is not required to obtain a favorable judgment on the merits of the underlying discrimination case to be eligible to recover its attorneys’ fees. The decision means that employers who are able to dispose of Title VII claims for non-merits reasons, such as a dismissal on statute-of-limitations grounds, lack of subject matter jurisdiction, failure of the EEOC to conciliate, or something similar, may ask a court to award the attorneys’ fees incurred in contesting the claims (assuming, of course, it satisfies the remaining requirements for an attorneys’ fees award). Refusing to decide whether the EEOC must pay the $4 million attorney fee award at issue, the Court sent the case back to the Eighth Circuit Court of Appeals to consider an alternative theory proposed by the EEOC. CRST Van Expedited, Inc. v. EEOC, 578 U.S. ___ (2016).

Trucking Company Gets Sexual Harassment Claims Dismissed

In the case before the Court, a new female driver at a large trucking company, CRST Van Expedited, Inc., filed a discrimination charge with the EEOC alleging that she was sexually harassed by two male trainers during her 28-day over-the-road training trip. After a lengthy investigation and unsuccessful conciliation, the EEOC filed suit alleging sexual harassment on behalf of the driver and other allegedly similarly situated female employees. During discovery, the EEOC identified over 250 other women who had supposedly been harassed.

Years of legal battles ensued, during which the district court ultimately dismissed all of the EEOC’s claims for various reasons, including expiration of the statute of limitations, lack of severity or pervasiveness of the alleged harassment, employees’ failure to complain timely, CRST’s prompt and effective response to harassment complaints, and discovery sanctions for the EEOC refusing to produce certain women for depositions. Upon dismissing the lawsuit, the court ruled that CRST was a prevailing party and invited them to apply for attorneys’ fees. CRST did, and the court awarded CRST over $4 million in fees.

The EEOC appealed (twice) and the Eighth Circuit Court of Appeals, among other things, reversed the award of attorneys’ fees. Bound by previous decisions in its circuit, the Court of Appeals held that before a defendant could be deemed to have prevailed for purposes of recovering attorneys’ fees, the defendant had to obtain a favorable judicial determination on the merits of the case. The Eighth Circuit then determined that CRST had not prevailed on the claims brought on behalf of 67 women because their claims were dismissed due to the EEOC’s failure to investigate and conciliate, which was not a ruling on the merits. As a result, the Eighth Circuit ruled that CRST was not entitled to an award of attorneys’ fees on those claims. CRST appealed to the Unites States Supreme Court.

Defendant As “Prevailing Party”

Title VII provides that a court, in its discretion, may award reasonable attorneys’ fees to the prevailing party. Accordingly, before deciding whether to award attorneys’ fees in any given case, a court must determine whether the party seeking fees has, in fact, prevailed. That determination is relatively clear when a plaintiff proves his or her discrimination case and a favorable judgment or court order is entered in the plaintiff’s favor. But there has been no clear definition on how courts should determine whether a defendant has prevailed, especially when the complaint is dismissed for procedural deficiencies or on jurisdictional grounds.

In rejecting the Eighth Circuit’s requirement that “prevailing party” status depends on a ruling on the merits, the Court stated that “[c]ommon sense undermines the notion that a defendant cannot ‘prevail’ unless the relevant disposition is on the merits.” Instead, the Court held that a defendant fulfills its primary objective whenever it can rebuff the plaintiff’s case, irrespective of the precise reason for the court’s decision. Looking to the congressional intent for Title VII’s fee-shifting provision, the Court ruled that a defendant may “prevail” even when the court’s final judgment in not on the merits.

Fees Expended in Frivolous, Unreasonable, or Groundless Litigation

The Court noted that under Title VII’s fee-shifting provision, prevailing defendants may seek attorneys’ fees whenever the plaintiff’s claim was frivolous, unreasonable, or groundless. The Court recognized that defendants spend significant attorney time and expenses contesting frivolous and unreasonable claims that result in their favor, whether on the merits or not, and that a request for an award of fees in such cases is appropriate.

Good News For Employers

The Court’s decision is good news for employers defending Title VII claims because it makes clear that a defendant may ask for attorneys’ fees when it gets a favorable judicial result for reasons not on the merits, where the defendant can show that the plaintiff’s claim was frivolous, unreasonable, or groundless. That clarification may help deter the EEOC and individual plaintiffs from filing or continuing to litigate groundless claims.

That said, we may not have seen the final word on application of the Title VII fee-shifting provision as the Court sent the CRST case back to the Eighth Circuit to consider a new argument put forth by the EEOC, namely that a defendant must obtain a preclusive judgment in order to be the “prevailing party.” We’ll keep tabs on this case and let you know of any further developments.

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May 18, 2016

New Overtime Rule: $47,476 Annual Salary Required For White Collar Exemptions

By Jude Biggs

Exempt white collar workers must be paid an annual salary of at least $47,476 under the Department of Labor’s (DOL’s) just-released final overtime rule. That salary threshold is more than twice the current salary requirement for the white collar exemptions under the Fair Labor Standards Act (FLSA). Highly compensated employees must be paid at least $134,004 per year (increased from $100,000) to meet that exemption. The new rule is effective December 1, 2016, so employers have about six months to decide what to do with current exempt white collar workers who do not meet the new thresholds.

Salary Level Will Automatically Adjust Every Three Years

In a change from its proposed rule, the DOL will now automatically update the salary levels once every three years. Originally proposed as an annual update, the final rule will raise the standard threshold to the 40th percentile of full-time salaried workers in the lowest-wage Census region. The first adjustment will be posted August 1, 2019, 150 days in advance of its effective date on January 1, 2020.

Duties Tests Are Unchanged

Since 2004, the duties tests for the white collar exemptions have not included a limit on the amount of time that an employee can spend on nonexempt duties before the exemption is lost. Believing that a rise in the salary level will provide an initial bright-line test for the exemptions, the DOL refrained from changing the duties tests.

Nondiscretionary Bonuses, Incentive Payments, and Commissions

In the past, the DOL has not included nondiscretionary bonuses, incentive pay, or commissions when determining whether an employee’s salary meets the white collar exemption threshold; it looked only at actual salary or fee payments made to employees. In its final rule, the DOL will allow up to 10 percent of the salary threshold for non-highly compensated employees to be met by non-discretionary bonuses, incentive pay, or commissions. Note that these types of payments must be made on at least a quarterly basis to be included as “salary.” The DOL stated that this new policy was included in response to “robust comments” received from the business community which use these forms of pay as part of overall compensation packages for managerial and other exempt employees.

Next Steps

Over the next six months, you need to decide how to address previously exempt employees who no longer meet the salary thresholds. In order to meet the December 1 effective date, use the following checklist of steps to keep your pay practices compliant.

Examine your payroll records to determine which employees are potentially affected by the changes in the white collar exemptions.
Review the tasks performed by each white collar exempt employee to determine whether each meets the duties test under an applicable exemption.
If an employee does not meet the duties tests, you must treat them as non-exempt, regardless of salary.
Review if you are paying exempt employees on a salary basis, meaning they get paid their salary without reduction due to variations in the quantity or quality of work.
If an employee otherwise meets an exemption but is not currently paid at or above the new salary levels, decide whether to raise their salary to meet the new threshold or convert them to non-exempt and pay them time and one-half for all hours worked over 40 per week.
For any employees no longer treated as exempt, inform and train the employee, supervisors, and payroll administrators on proper timekeeping and overtime obligations. If appropriate, make sure such employees work as little overtime as possible, to hold down costs.
Consider whether the base rate of pay for such employees can be adjusted, so that with overtime pay, the employees earn about the same as before.
For employees who meet the exemption, implement procedures to update salary levels every three years to keep up with the DOL’s automatic adjustments.

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May 16, 2016

FCRA Lawsuit Sent Back To Ninth Circuit For Further Analysis on Standing to Sue

By Dora Lane

A bare procedural violation of the Fair Credit Reporting Act (FCRA) is not sufficient to permit an individual to sue for a willful FCRA violation, ruled the U.S. Supreme Court today. But, if the alleged procedural violation entails a risk of real harm, the plaintiff may have a concrete injury sufficient to have standing to sue. In a 6-to-2 decision, the Court sent the case back to the Ninth Circuit for further analysis of the injury-in-fact requirement of Article III standing. Spokeo, Inc. v. Robins, 578 U.S. ___ (2016).

People Search Engine Allegedly Produced False Information

Spokeo, Inc. operates a website that provides users with information about other people, including contact data, marital status, age, occupation, economic health, hobbies, shopping habits, musical preferences, and wealth level. It collects that information from various sources including phone books, real estate listings, and social networks.

According to Thomas Robins' allegations, he found that Spokeo’s website published false information about him. It stated that he was married, in his fifties, had children, held a job, was relatively affluent, and had a graduate degree – none of which was accurate. Robins sought to file a class action against Spokeo, asking to recover the $1,000 in damages allowed by the FCRA for each willful violation of the statute. The potential class could include millions of people.

Ninth Circuit Reversed on Whether Actual Harm Needed for Willful FCRA Violations

The trial court focused on Robins’ allegations of harm, which were “that he has been unsuccessful in seeking employment, and that he is concerned that the inaccuracies in his report will affect his ability to obtain credit, employment, insurance, and the like.” It dismissed his complaint without prejudice, ruling he lacked standing to sue Spokeo because he had not alleged “any actual or imminent harm.” Despite filing an amended complaint in which he more fully described the inaccuracies in the information on Spokeo’s website, the district court ruled that Robins had failed to plead an injury-in-fact and that any injuries pled were not traceable to Spokeo’s alleged violations.

The Ninth Circuit Court of Appeals reversed. Spokeo had argued that Robins could not sue under the FCRA without showing actual harm, but the Ninth Circuit found that the FCRA does not require a showing of actual harm when a plaintiff sues for willful violations. Therefore, the Ninth Circuit held that a plaintiff can suffer a violation of the statutory right without suffering actual damages.

Injury-In-Fact Requires Concrete and Particularized Harm

The Supreme Court vacated the Ninth Circuit’s decision, stating that the appellate court had failed to consider both aspects of the injury-in-fact requirement for standing to sue, namely that the plaintiff suffered an invasion of a legally protected interest that is both concrete and particularized, rather than hypothetical. Justice Alito, writing for the majority, stated that the Ninth Circuit focused on the “particularized” aspect of Robins’ injury – in other words, that he had been affected in a personal and individual way – but failed to consider whether his injury was “concrete.” The Court emphasized that Article III standing requires a concrete injury, even in the context of a statutory violation.

The Court pointed out, however, that a concrete injury does not have to be tangible. An intangible harm may constitute an injury-in-fact and Congress can identify and elevate intangible harms to give rise to a case or controversy sufficient for standing to sue. A risk of real harm may satisfy the concreteness requirement.

As it relates to Robins’ allegations of Spokeo’s willful FCRA violations, the Court wrote that although Congress clearly sought to prevent the dissemination of false information by adopting the safeguards in the FCRA, Robins could not satisfy the injury-in-fact requirement for standing simply by alleging a bare procedural violation of the FCRA. The Court noted that a violation of one of the FCRA’s procedural requirements, such as providing an incorrect zip code, may not result in harm. The Court, without taking a position on whether the Ninth Circuit’s ultimate conclusion was correct, sent the case back to the Ninth Circuit to further analyze whether Robins’ particular procedural violations, as alleged, involve a degree of risk sufficient to meet the concreteness requirement.

Effect of Ruling

By remanding this case back to the appellate court, the Supreme Court may have muddied the waters for defendants who face a statutory violation of the FCRA (or other federal statutes). Although it is good news that a bare statutory violation without concrete harm will not be sufficient to confer standing to sue, the analysis of the injury-in-fact requirement will likely mean that most cases will not be dismissed early in the proceeding, say on a motion to dismiss. That will raise the cost of defending such cases. Today’s opinion also leaves the door open for Robins’ class action case to proceed, should the Ninth Circuit find that the plaintiffs’ face the risk of real harm from false information in Spokeo’s people search database. We will continue to follow the case as the liability for statutory violations of the FCRA in a class action is huge.

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May 4, 2016

New Federal Trade Secret Act: What Employers Need to Know

By Mark Wiletsky

In a rare bipartisan effort, Congress passed the Defend Trade Secrets Act (DTSA) that will allow an owner of a trade secret to bring a misappropriation action in federal court. For the first time, companies seeking to protect their trade secrets will be able to file civil lawsuits for misappropriation under the federal Economic Espionage Act. The new law will apply to trade secrets related to a product or service used in, or intended for use in, interstate or foreign commerce. President Obama is expected to sign the bill into law very soon.

Protection of Trade Secrets

Many companies rely on a secret formula, process, or technique for their success. Consider, where would Coca-Cola or Kentucky Fried Chicken be without their secret recipes? Under current law, companies seeking to sue for misappropriation of a trade secret must rely on each state’s trade secret law and pursue their lawsuits in state court. Prosecutors may file criminal actions under the federal Economic Espionage Act for theft of trade secrets, but that statute did not provide a mechanism for filing a private federal civil suit – until now.

The DTSA amends the Economic Espionage Act to permit private parties to bring a civil lawsuit in federal court alleging trade secret misappropriation. It provides certain remedies, including injunctions, damages, and an unusual provision allowing for the civil seizure of property in extraordinary circumstances. Although the DTSA does not replace state trade secret laws, it offers an additional enforcement venue for the protection of trade secrets.

DTSA Provides Access To Federal Courts, Injunctions, Damages, and Seizure of Property

Employers need to understand the primary components of the DTSA in order to take advantage of this new avenue to protect valuable proprietary information. First, the DTSA opens the doors of federal courthouses to those alleging an actual or threatened trade secret misappropriation. As with other areas of employment law where there is an overlap of state and federal law, plaintiffs may choose whether to bring a misappropriation claim in state or federal court, depending on which law offers the most protection, more favorable discovery and motion practice, and greater damages. Federal protection for trade secrets should lead to a more consistent approach on what is protected as a “trade secret,” what constitutes a misappropriation, and what remedies are available. More predictable discovery and motion practice under federal court rules should help streamline costs while offering more uniformity in litigation across jurisdictions.

Second, the DTSA tries to balance the need to bolster protection of valuable trade secrets against the right of employee mobility by allowing for injunctions, but only in limited circumstances. Employers can seek an injunction to prevent actual or threatened misappropriation of a trade secret by an employee on terms that the court deems reasonable, as long as it does not prevent a person from entering into an employment relationship or circumvent state laws regarding restraints on employment, such as state non-compete laws. An injunction will not be granted based “merely on the information the person knows” but instead, must be based on evidence of threatened misappropriation.

Third, federal courts may award damages caused by the misappropriation of a trade secret, to include damages for actual loss, for any unjust enrichment not addressed in the damages for actual loss, or the imposition of a reasonable royalty for the misappropriator’s unauthorized disclosure or use of the trade secret. For a willful and malicious misappropriation, federal courts may award double damages and reasonable attorney’s fees. Courts also may award reasonable attorney’s fees to the prevailing party if a claim of misappropriation is made in bad faith, or a motion to terminate an injunction is made or opposed in bad faith.

In a unique provision, the DTSA allows the right to seek a civil seizure of property, but only in extraordinary circumstances. In such cases, a court may order the seizure of property when necessary to prevent the use or dissemination of the trade secret. If, however, the seizure is wrongful or excessive, the DTSA allows the individual whose property has been seized to sue for damages suffered as a result of the unlawful seizure. My colleague, Teague Donahey, provided an excellent summary of the DTSA and its seizure provisions in a recent article.

Safe Harbor For Whistleblower Disclosure of Trade Secrets

The DTSA offers safe harbor to individuals who disclose trade secrets to the government to investigate potentially illegal activity. Whistleblowers are granted civil and criminal immunity if they disclose a trade secret in confidence to a federal, state, or local government official, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law, or as part of a lawsuit or other proceeding when the disclosure is made under seal.

The new law also protects limited disclosure of trade secrets when an employee files a retaliation claim based on reporting a suspected violation of law against an employer. The employee must make such disclosures under seal and must not disclose the trade secret except pursuant to court order. Note that an “employee” is defined under the whistleblower immunity provision to include “any individual performing work as a contractor or consultant for an employer,” a broader definition than most other employment laws.

This immunity for use of trade secret information in an anti-retaliation lawsuit must be included in any contract or agreement that governs the use of trade secrets and other confidential information. Alternatively, employers may provide a cross-reference to a policy document that is provided to the employee that specifies the employer’s reporting policy for a suspected violation of law. Failure to comply with the notice requirement will result in the employer losing the ability to recover double damages and attorneys’ fees against the employee that might otherwise be available.

What You Should Do Now

If you use confidentiality or non-disclosure agreements that are designed to protect company trade secrets, review and revise future agreements to incorporate the DTSA’s whistleblower immunity notice. You’ll also want to consider expanding the venue language in your agreements to be sure you don’t exclude pursuing enforcement of the agreement in federal court.

If faced with a potential misappropriation of trade secrets, discuss with your legal counsel whether your state’s trade secret law or the new federal law (assuming it is signed into law) would provide the best enforcement mechanism. The DTSA provides an important avenue for increased protection of trade secrets but in some circumstances, state court may remain your best option.

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April 11, 2016

New Fiduciary Rule Applies Stricter Standard to Most Retirement Account Advisers

By Rebecca Hudson, Bret Busacker, and Molly Hobbs

In its long-awaited final fiduciary rule, the Department of Labor (DOL) establishes stricter fiduciary standards for investment advisers and consultants providing services to ERISA plans and IRAs. Intended to offer additional protection to ERISA plan participants and IRA owners, the final rule issued on April 7th broadens the application of the ERISA fiduciary standard to many investment professionals, consultants, and advisers who previously had no obligation to adhere to ERISA’s fiduciary standards or to the related prohibited transaction rules.

Final Fiduciary Rule Replaces Five-Part Test

Since 1975, ERISA and its implementing regulations have defined “fiduciary” and “investment advice” narrowly. Under ERISA Section 3(21)(A), a “fiduciary” is someone who has the authority and/or responsibility to provide investment advice under a retirement savings plan and is compensated for doing so. Investment advisers and consultants who are a fiduciary with respect to an ERISA plan or IRA engage in a prohibited transaction if they receive “conflicted compensation” (e.g., commissions, trailing commissions, sales loads, 12b-1 fees, and revenue-sharing payments) from third parties with respect to the investments they recommend to these ERISA plans and IRAs.

In 1975, the DOL created a five-part test to identify an ERISA fiduciary. An adviser or consultant who does not acknowledge his or her fiduciary status with respect to a plan will nonetheless be a fiduciary with respect to the plan if the adviser enters into an agreement to regularly provide individualized investment advice that will serve as the primary basis upon which the advice recipient will make investment decisions (the “five-part test”).

Believing that the retirement landscape has changed significantly since 1975, including the prevalence of participant-directed 401(k) plans and the extensive use of individual retirement accounts (IRAs), in 2010, the DOL proposed to broaden the definition of investment advice. The DOL subsequently withdrew the 2010 proposed rule in response to significant push back from various stakeholders. In 2015, a new proposed rule was published that eliminated the five-part test and extended fiduciary status to those advisers who provide advice that is individualized or specifically directed to the advice recipient. In response to the wide range of comments it received on the 2015 proposed rule, the DOL made significant changes to the final fiduciary rule, but kept much of the expansive nature of the 2015 proposed rule.

General Structure of the Final Fiduciary Rule

In today’s marketplace, many investment professionals, consultants and advisers have no obligation to adhere to ERISA’s higher fiduciary standards or to the prohibited transaction rules because they do not satisfy each prong of the five-part test. The DOL expects that broader application of the fiduciary standard under the final fiduciary rule will more closely align the advisers’ interests with those of their customers, while reducing conflicts of interest, disloyalty, and imprudence.

Under the final rule, an investment adviser or consultant that makes a “recommendation” to a plan or IRA for a fee or other compensation that is customized for or specifically directed at the plan or IRA may be a fiduciary. For purposes of the final fiduciary rule, a “recommendation” includes providing advice with respect to:

buying, holding, selling, exchanging, or rolling over securities or other investment property, or

management of securities or other investment property, investment policies or strategies, portfolio composition, selection of other persons to provide investment advice or services, selection of investment account arrangements, and recommendations with respect to rollovers, distributions, or transfers from a plan or IRA.

Accordingly, an investment adviser or consultant who makes an investment recommendation (as defined above) and receives conflicted compensation in connection with the advice provided to the plan or IRA will engage in a prohibited transaction unless one of the enumerated carve-outs from the rule applies or the adviser/consultant complies with the “Best Interest Contract Exemption” requirement.

What You Need to Know

Plans, their affected financial advisers, and other service providers have until April 10, 2017 to prepare for any change from non-fiduciary to fiduciary status. Notably, there are also two exceptions to the effective date, which will provide more time for certain service providers to adapt to the new standards. In particular, the Best Interest Contract Exemption and rules regulating advice with respect to the advisers proprietary funds will have a transition period during which fewer conditions apply, from April 2017 to January 1, 2018, at which time the rule will be fully implemented.

ERISA plans should begin now to review their relationship with their current investment adviser/consultant. Some things plans should consider include:

Determine if an adviser or consultant is currently a fiduciary under the new fiduciary rule.
Determine if one of the rule carve-outs applies to the services provided by adviser or consultant.
Discuss the Best Interest Contract Exemption with any adviser that is a fiduciary and determine the best way to document and comply with that exemption.

In conducting this review, plans should interpret the general fiduciary rule broadly and interpret any of the enumerated carve-outs narrowly. Fiduciaries should expect that advisers will provide written documentation of their role and their satisfaction of any carve-out. Plans should require advisers to indemnify the plan from any prohibited transaction that arises as a result of its failure to comply with any carve-out or exemption.

For more information about this rule, its carve-outs and the Best Interest Contract Exemption, please read our full summary.

March 22, 2016

Class-Action Lawsuit Permitted To Rely On Sample Data To Determine Wages Owed

By John Husband

In the absence of actual time records, time spent by employees donning and doffing protective gear may be established by representative evidence in order to establish the employer’s liability for unpaid overtime pay in a class action lawsuit, ruled the U.S. Supreme Court today. The Court rejected the company’s argument that each employees’ wage claim varied too much to be resolved on a classwide basis. Instead, the Court upheld the class certification, sending the case back to the district court to determine how to distribute to class members the $2.9 million dollar jury award. Tyson Foods, Inc. v. Bouaphakeo, 577 U.S. ___ (2016).

Pay For Donning and Doffing Protective Gear

Under the Fair Labor Standards Act (FLSA), it is well established that employers must pay employees for time spent performing preliminary or postliminary activities that are “integral and indispensable” to their regular work. In the Tyson Foods case, over 3,300 pork processing employees sued, alleging that the company failed to pay them for time spent putting on and taking off required protective gear at the start and end of their work shifts and at meal periods. The employees argued that such time was “integral and indispensable” to their work and that when added to their weekly work hours, pushed them beyond 40 hours per week resulting in unpaid overtime.

Because Tyson Foods did not keep any time records for donning and doffing time, the employees presented representative evidence of the time spend on those activities, including employee testimony, video recordings of the donning and doffing process at the plant, and a study by an industrial relations expert, Dr. Kenneth Mericle. Dr. Mericle analyzed 744 videotaped observations to determine how long various donning and doffing activities took, concluding that employees in the kill department took an estimated 21.25 minutes per day while workers in the cut and retrim departments took an estimated 18 minutes per day. Using that data, another expert added that time to each employees’ recorded work time to determine how many hours each employee worked per week.

Tyson Foods argued that because the workers did not all wear the same protective gear, each individual plaintiff spent different amounts of time donning and doffing the gear. Therefore, Tyson Foods maintained that whether and to what extent it owed overtime pay to each individual employee was a question that could not be resolved on a class-action basis. Importantly, Tyson Foods did not attack the credibility of the employees’ expert or attempt to discredit the statistical evidence through its own expert, but instead opposed class certification on the basis that the individual variances of the time spent by each employee made the lawsuit too speculative for classwide recovery.

Employee-Specific Pay Inquiries Do Not Destroy Class Action

The Court determined that the employees’ use of Dr. Mericle’s representative study was permissible to establish hours worked in order to fill the evidentiary gap created by the employer’s failure to keep time records of the donning and doffing activities. The Court refused to define a broad-reaching rule about when statistical evidence may be used to establish classwide liability, stating instead that it would depend on the purpose for which the evidence was being introduced and the elements of the underlying action. It ruled it appropriate to rely on sample evidence when each class member could have relied on that sample to establish liability if he or she had brought an individual lawsuit. In the wage and hour context, if the sample data could permit a reasonable jury to find the number of hours worked in each employees’ individual action, the “sample is a permissible means of establishing the employees’ hours worked in a class action.”

The Court, in its 6-to-2 decision, refused to rule on the issue of how the jury’s $2.9 million award would need to be dispersed among the class members and how to prevent uninjured class members (i.e., those whose donning and doffing time did not result in overtime) from recovering any part of the award. In fact, Chief Justice Roberts, writing a separate concurring opinion, expressed his concern that the district court would not be able to devise an allocation method that would award damages only to those class members who suffered an actual injury. But, because the majority found that the allocation methodology issue was not before the Court, the case gets sent back to the trial court for that determination.

Litigation Tactics To Oppose Class Certification

The Court noted numerous litigation strategies by Tyson Foods that may have proved fatal to its case. First, Tyson Foods failed to move for a hearing to challenge the admissibility of the employees’ expert study by Dr. Mericle. A so-called Daubert hearing would have offered Tyson the chance to keep the representative sample out of the trial which may have eliminated the employees’ evidence of time spent donning and doffing protective gear.

Second, the Court noted that Tyson Foods did not attempt to discredit Dr. Mericle’s sample evidence through an expert of its own. By focusing its trial strategy only on attacking the class certification issue, the jury was left without any rebuttal to the employees’ experts.

Finally, Tyson Foods rejected splitting the jury trial into two phases, a liability phase and a damages phase. Instead, it insisted on a single proceeding in which damages would be calculated in the aggregate and by the jury. The jury came back with a $2.9 million award, which was half of what the employees’ sought, but still a significant award against Tyson Foods.

Blow To Businesses Defending Class Actions

Although the Court refrained from approving the use of representative data in all class-action cases, the Court’s decision makes it more difficult for employers to object to sample data when defending a class or collective action. Noting that representative data is not an appropriate means to overcome the absence of a common employer policy that applies to all class members, per its 2011 Wal-Mart Stores, Inc. v. Dukes decision, the Court allowed representative data to fill the evidentiary gap regarding hours worked where each employee worked in the same facility, did similar work, and was paid under the same policy.

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March 17, 2016

New Overtime Regulations May Be Finalized Sooner Than Expected

By Jude Biggs

The U.S. Department of Labor’s (DOL’s) agenda specifies that its final overtime regulations are due to be published in July, but recent developments suggest they may be released a few months earlier. With the salary threshold for the white collar exemptions going up from the current $23,660 to over $50,000 per year, employers need to prepare now for the changes.

DOL’s Overtime Rule Sent To OMB

On March 15, 2016, the DOL sent its proposed final overtime regulations to the Office of Management and Budget (OMB) which is the final step before the rule can be published. The OMB review process typically takes one to two months, but speculation suggests that the review of this rule may be sped up to allow for publication as early as April or May.

The political environment in Washington, D.C. and fact that this is an election year may be to blame for the expedited process. The Congressional Review Act (Act) provides Congress with 60 legislative days to review any final rule issued by a federal agency. If Congress disapproves of the regulation, which current Republicans in Congress are sure to do with the overtime rule, it may pass a resolution to nullify the rule. The President can veto that resolution, but then Congress has the opportunity to override the veto by a two-thirds vote.

Because of an unusual provision in the Act, any new rule that is not submitted to Congress within 60 session days of the adjournment of the Senate or House, may be subject to a renewed review by the new Congress in the next Congressional session (with potential veto by a newly elected President). Or, if Congress’s 60-day-review period extends after the presidential inauguration, the new President may let a resolution of disapproval stand, killing the rule. The Obama Administration will not want to take the chance that a new Congress and/or President gets to review the overtime rule in 2017 so it is expected that the White House will do everything possible to get the new overtime rule to Congress prior to the cutoff date.

Salary Threshold For Exemptions Will More Than Double

The DOL’s proposed rule raises the salary threshold for the white collar exemptions from the current $455 to an expected $970 per week, more than doubling the annual salary level to more than $50,000. The salary threshold for the highly compensated employee exemption will increase from the current $100,000 to more than $122,000 per year. The DOL estimates that almost five million U.S. workers who are currently exempt will be entitled to minimum wage and overtime compensation under the new salary level requirements. In addition, the final rule will include an automatic annual adjustment provision that will require that the salary thresholds be adjusted each year to keep up with inflation.

Next Steps

With a compressed timeline for the new rule to become effective, employers need to take steps now to decide how to handle employees who no longer qualify as exempt under the new rules. Some companies may choose to increase exempt employee salaries to meet the new threshold in order to retain the exemption. Others may choose instead to change the status of some workers’ status to non-exempt and pay them overtime. Either way, employers need to get a plan in place to prevent headaches and potential wage claims when the final rule goes into effect.

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March 16, 2016

Muslim Teacher May Proceed With National Origin Hostile Work Environment Claim

By Emily Hobbs-Wright

A Turkish-born Muslim teacher claimed that her school had a culture of racial and ethnic hostility. The Tenth Circuit Court of Appeals (whose decisions apply to Colorado, Utah, Wyoming, Kansas, Oklahoma, and New Mexico) recently ruled that her complaints of national origin discrimination may move forward, offering lessons in how to handle cultural differences in the workplace.

School Principal Made and Allowed Insensitive Comments

Zeynep Unal worked as an elementary teacher in the school district’s gifted and talented program for about four years before the district hired Katheryn Vandenkieboom as the principal at Unal’s school. Born in Turkey, Unal spoke with a distinct Turkish accent and was the only foreign-born teacher at the school. Prior to Vandenkieboom’s arrival, Unal was considered a good teacher and received regular positive reviews.

According to Unal, Vandenkieboom made numerous hostile comments to her and allowed other school staff to do the same. When Vandenkieboom and other faculty began discussing an American movie in the faculty lounge, Vandenkieboom, in front of the staff, told Unal “You wouldn’t know about this. You are not from here.” During an after-school Christmas concert, Vandenkieboom thanked various teachers for being at the concert but then approached Unal to ask, “what are you doing here?” despite Unal’s own child participating in the concert. Vandenkieboom also would correct Unal’s pronunciation in front of staff. Another staff member once called Unal “a turkey from Turkey,” but later apologized.

Unal alleged that Vandenkieboom and her staff also made insensitive remarks about other nationalities, such as repeatedly referring to a Vietnamese family as the “little people,” and openly joking about an Asian family’s surname, Fu, by turning it into the crude insult, “F.U.” The office staff also made announcements over the school’s intercom system while faking foreign accents and then laughing about it.

Unal Alleged A Hostile Work Environment Based On National Origin

Unal sued the school district, its superintendent, and principal Vandenkieboom for, among other things, a violation of Title VII on the basis of a hostile work environment based on her national origin. The parties agreed that she was subject to some unwelcome harassment, but her employer argued that the harassment was not based on her national origin and was not sufficiently severe or pervasive to demonstrate a hostile work environment. The district court agreed with the school district, granting it summary judgment on Unal’s claims. But on appeal, the Tenth Circuit overturned that ruling, sending it back for trial.

Title VII Is Not A “General Civility Code”

The Tenth Circuit panel noted that Title VII is not a “general civility code.” In order to proceed to trial, Unal needed to show that a rational jury could find that the workplace was “permeated with discriminatory intimidation, ridicule, and insult, that is sufficiently severe or pervasive to alter the conditions of [her] employment and create an abusive working environment.”

Evidence of Harassment Supported Claim

Unal needed to show that the harassment was based on a discriminatory animus toward her national origin. Evidence of such animus directed toward Unal’s specific nationality is the strongest evidence, but the Court noted that incidents of harassment of other nationalities could also be considered in evaluating her claim.

The Court found that Unal provided evidence that some comments were directed toward her own nationality. Such comments included Vandenkieboom’s question as to why Unal would attend a school Christmas concert while thanking other teachers who attended, Vandenkieboom’s exclusion of Unal from the faculty lounge discussion of an American movie because she was “not from here,” and another staff member’s comment that Unal was a “turkey from Turkey.” Though each comment was not necessarily supportive of a hostile work environment claim, the Court found that taken together, they were intended to negatively emphasize Unal’s status as a foreigner.

The Court also determined that comments directed to other nationalities, such as the derogatory remarks made about the Vietnamese and Asian families, as well as making school announcements with feigned foreign accents, support an inference that the school’s administration permitted a culture of animus toward foreign-born individuals.

In addition, the Court gave weight to several incidents where seemingly neutral conduct resulted in Unal being treated differently than other teachers. For example, Vandenkieboom solicited negative feedback about Unal from a substitute teacher but did not do so with respect to any other teachers. Vandenkieboom also discounted Unal’s expertise in the gifted program, excused other teachers from attending Unal’s meetings while not excusing attendance at other teachers’ meetings, and letting months pass before assigning an instructional assistant to help Unal while assigning an assistant to another teacher in only a week. Even though these events were not discriminatory on their face, the Court viewed them in relation to the totality of the circumstances and determined that a reasonable jury could conclude that those events were the result of a larger environment of hostility based on national origin.

Close Case On Severity or Pervasiveness

The conduct alleged by Unal as creating a hostile work environment occurred over a three year period. While noting that there is no “mathematically precise test” to determine whether harassment is sufficiently severe or pervasive to have altered a term, condition, or privilege of employment, the Court concluded that Unal met that standard. Calling it a close case, the Court viewed the totality of the circumstances of Unal’s allegations and found that a reasonable jury could find that Unal was subjected to unwelcome harassment based on her national origin that created an abusive work environment.

Handling Diverse Employees

By allowing this case to proceed to trial, the Court sent a strong message to employers to clean up a workplace culture that excludes or segregates workers based on their national origin, or creates hostility toward employees from other countries. Jokes, name-calling, correcting pronunciations, and other conduct that treats individuals differently because of their name, accent, appearance, food or music preferences, religious observances, or traditions can lead to a hostile work environment claim.

To avoid hostile work environment claims based on national origin, take these steps to make sure your managers and staff understand what is, and is not, acceptable behavior at work:

Make sure your harassment policy prohibits unlawful conduct based on all protected characteristics, not just sexual harassment.
Provide examples of unacceptable conduct in your harassment policy, including conduct that targets workers on the basis of their national origin, religion, or ethnicity.
Require all employees to review and acknowledge your harassment policy at least annually.
Train management to recognize and stop such conduct before it becomes severe or pervasive.
Promptly investigate any complaint of workplace harassment and take steps to correct improper conduct so that it doesn’t happen again.

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March 8, 2016

Paid Sick Leave Requirements For Federal Contractors: What To Expect

By Mark Wiletsky

An estimated 437,000 workers who do not currently receive paid sick leave will become eligible for up to seven days of annual paid sick leave under recently released proposed regulations from the Department of Labor (DOL). Last fall, President Obama issued Executive Order 13706 to require federal contractors to provide paid sick leave to employees who work on covered contracts. If you are or expect to be a federal contractor, here is what you’ll need to know about the proposed rules.

Accrual of Paid Sick Time

For every 30 hours worked on, or in connection with, a covered contract, employees must accrue a minimum of one hour of paid sick leave, with a maximum cap of at least 56 hours. Contractors must calculate each employee’s accrual at the conclusion of each workweek. Alternatively, if a contractor does not want the trouble of calculating accruals, the proposed rules allow a contractor to provide an employee with at least 56 hours of paid sick leave at the beginning of each accrual year.

Contractors must provide written notification to covered employees about the amount of paid sick leave that the employee has accrued but not used. Notifications are required at the following times:

at least monthly
each time the employee requests to use paid sick leave
upon separation of employment
upon reinstatement of paid sick leave, and
whenever the employee asks for this information (but no more than once a week).

Notifications of sick leave benefits that accompany paychecks or are accessible online will generally satisfy this requirement.

Use of Paid Sick Leave

Under the proposed rules, an employee may use paid sick leave for an absence resulting from any of the following:

the employee’s medical condition, illness or injury (physical or mental)
for the employee to obtain diagnosis, care, or preventive care from a health care provider for the above conditions
caring for the employee’s child, parent, spouse, domestic partner, or another individual in a close relationship with the employee (by blood or affinity) who has a medical condition, illness or injury (physical or mental) or the need to obtain diagnosis, care, or preventive care for the same
domestic violence, sexual assault, or stalking, that results in a medical condition, illness or injury (physical or mental), or causes the need to obtain additional counseling, seek relocation or assistance from a victim services organization, take legal action, or assist an individual in engaging in any of these activities.

Definitions for these terms are included in the proposed regulations. Contractors must permit employees to use their accrued paid sick leave in increments of no greater than one hour.

Leave Requests and Medical Certifications

Employees must be permitted to make a verbal or written request to use paid sick leave. If leave is foreseeable, the request must be made at least seven calendar days in advance. When not foreseeable, the request must be made as soon as practicable. Any denial of leave must be provided in writing to the employee, with an explanation for the denial.

Contractors may only require a medical certification issued by a health care provider (or other documentation related to domestic violence) if the employee is absent for three or more consecutive full workdays.

Carryover and Reinstatement Of Unused Leave

Contractors are permitted to cap the amount of paid sick leave that employees may accrue to 56 hours each year. But, contractors must carry over unused, accrued paid sick leave from one year to the next, with a cap of at least 56 hours of accrued paid sick leave at any one time. In addition, under the proposed regulations, contractors must reinstate an employee’s unused, accrued paid sick leave if the employee is rehired by the same contractor or a successor contractor within 12 months after a job separation. Contractors will not be required to pay out any unused, accrued paid sick time at the termination of employment.

Interaction With FMLA and Existing Company PTO Policies

Paid sick leave under these regulations may run concurrently with Family and Medical Leave Act (FMLA) leave but it does not otherwise change a contractor’s obligations to comply with the FMLA. In other words, if an employee is eligible for time off under the FMLA, the contractor must meet FMLA requirements for notices and certifications regardless of whether the employee is eligible to use accrued paid sick leave.

For contractors with an existing paid time off (PTO) policy, the policy will meet the requirements of the proposed regulations if the paid time off policy satisfies all the obligations under the proposed rules. But, if it does not meet all of the requirements under the regulations, such as not permitting an employee to use paid time off for reasons related to domestic violence, sexual assault, or stalking, then the PTO policy would not suffice. In such cases, the contractor would have to either amend its PTO policy to make it compliant, or separately provide paid sick leave under the proposed regulations in addition to its PTO.

Covered Contracts and Employees

The Executive Order applies to new contracts and replacements for expiring contracts with the federal government that result from solicitations (or awards outside the solicitation process) issued on or after January 1, 2017. It essentially applies to four major categories of contracts:

procurement contracts for construction covered by the Davis-Bacon Act
service contracts covered by the McNamara-O-Hara Service Contract Act
concessions contracts, and
contracts in connection with federal property or lands and relating to offering services for federal employees, their dependents, or the general public.

Employees covered by the Executive Order, and therefore entitled to paid sick leave, include any person performing work on, or in connection with, a covered contract. There is a narrow exclusion for employees who perform work “in connection with” covered contracts but who spend less than 20 percent of their hours in a particular workweek in connection with such contract work.

Next Steps

Interested parties and the general public may submit comments on the proposed regulations on or before March 28, 2016. The DOL then will review the comments and decide whether to make any revisions before issuing a final rule sometime before the end of this year.

As you can see, many of the requirements of these proposed regulations differ from what we typically see in an employer’s sick leave or PTO policy. Consequently, employers who expect to seek or renew federal contracts after January 1, 2017 should review their existing sick leave and/or PTO policies to determine what changes may be required in order to comply with the proposed regulations. The devil is in the details on this one so don’t wait until the last minute to get your policies and procedures in place.

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