December 1, 2014

Colorado’s 2015 Minimum Wage Hike

Amid legislative efforts to raise the federal minimum wage, the Colorado minimum wage is set to go up by 23 cents to $8.23 per hour automatically on January 1, 2015. The state minimum wage is adjusted annually for inflation, as required by Article XVIII, Section 15, of the Colorado Constitution. The minimum wage for tipped employees will be $5.21 per hour.

Employees Subject to the Colorado Minimum Wage

Colorado employees are entitled to the state minimum wage in two situations, namely if covered by (1) Colorado Minimum Wage Order Number 31 (Minimum Wage Order); or (2) the minimum wage provisions of the federal Fair Labor Standards Act (FLSA). The Minimum Wage Order applies to certain employers/employees for work performed within the state of Colorado in the following four industries:

Retail and Service
Commercial Support Service
Food and Beverage
Health and Medical

Each industry is defined within the Minimum Wage Order. Employers covered by the Minimum Wage Order must comply with not only the minimum pay requirements, but also obligations related to meal and rest periods, overtime pay, uniforms, recordkeeping and other labor standards.

Employees subject to the minimum wage provisions of the FLSA (and therefore, also entitled to the Colorado minimum wage) include those non-exempt workers performing work involved in interstate commerce and those working for a business or organization that has two or more employees and has an annual dollar volume of business of at least $500,000 or a hospital, school, government agency or residential medical or nursing facility, regardless of annual sales.

If an employee is subject to both the state and federal minimum wage laws, they are entitled to be paid the higher of the two hourly minimum rates of pay. At present rates, the $8.23 Colorado minimum wage trumps the federal $7.25 minimum hourly rate so employers must pay their non-exempt employees working in Colorado at the higher Colorado rate.

Inflation Adjustment Based on Consumer Price Index

The Constitutionally required annual adjustment in the Colorado minimum wage is measured by the Consumer Price Index (CPI) for Colorado. According to the federal Bureau of Labor Statistics, the CPI for the Denver-Boulder-Greeley metropolitan area of Colorado increased 2.9 percent from the first half of 2013 to the first half of 2014. The overall increase was driven by a nearly 5.0 percent increase in costs for housing as well as a 3.9 percent increase in energy costs and a 2.0 percent increase in food prices. The 2.9 percent raise in the CPI for Colorado was then applied to the 2014 state minimum wage of $8.00 per hour, resulting in a 23 cent per hour increase in the minimum wage for 2015.

Plan Now for the January 1st Wage Increase

Businesses and organizations with employees who are subject to Colorado’s minimum wage should take steps now to update their payroll systems and practices in order to implement the new minimum wage on January 1, 2015. Employers that use an outside payroll vendor should confirm that the payroll provider has programmed the new Colorado minimum wage in their systems to take effect on January 1. Note, too, that employers subject to the Colorado Minimum Wage Order must post a copy of the new Minimum Wage Order in their workplace in an area frequented by employees where it may be easily read during the workday. The Colorado Department of Labor and Employment, Division of Labor, provides a copy of Minimum Wage Order Number 31 at https://www.colorado.gov/pacific/sites/default/files/Proposed%20Wage%20Order%2031%20Rules%209-30-14.pdf.

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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.

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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.

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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.

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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.

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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.

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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.

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July 31, 2014

OSHA Rising – Forecasting the Impact of Chemical Facility Safety Executive Order On OSHA Enforcement

By Trey Overdyke

The Occupational Safety and Health Administration (OSHA) regulates highly hazardous chemicals, in part, through the Process Safety Management (PSM) standard, which states “This section contains requirements for preventing or minimizing the consequences of catastrophic releases of toxic, reactive, flammable, or explosive chemicals. These releases may result in toxic, fire or explosion hazards.” 29 C.F.R. § 1910.119. Recent discussions by a federal working group may result in expansion of the PSM standard to include additional industries and could lead to increased OSHA enforcement activities. In addition, suggestions for strengthening the civil and criminal penalties for safety violations could affect all employers subject to the OSH Act, not just those covered by the PSM standard.

OSHA’s Efforts to Implement Executive Order

In an effort to improve the safety and security of chemical facilities and to reduce the risks associated with hazardous chemicals, President Obama issued Executive Order (EO) 13650—Improving Chemical Facility Safety and Security (EO 13650) last year. The EO 13650 established a working group co-chaired by the Secretary of Homeland Security, the Administrator of the Environmental Protection Agency, and the Secretary of Labor (the Working Group) to address and reduce hazards associated with the hazardous chemicals in the United States.

Following the issuance of EO 13650, the Working Group published the “Solicitation of Public Input on Options for Policy, Regulation, and Standards Modernization.” That document served as a starting point to identify the preliminary options for stakeholder discussion regarding increased safety and security for hazardous chemicals. In May 2014, the Working Group published a status report on their efforts to comply with the directives set forth in EO 13650 — Actions to Improve Chemical Facility Safety and Security – A shared Commitment (Status Report.

OSHA’s Federal Plan of Action

Although it remains unclear what impact, if any, EO 13650 will have on OSHA’s enforcement regime, the Federal Action Plan’s section entitled “Modernizing Policies and Regulations,” strongly suggests that OSHA intends to expand the scope of the PSM standard as well as increase civil and criminal penalties.

The Status Report states the following: “Using lessons learned from incident investigations, enforcement experience, and comparison with industry practices and regulatory requirements of other States, counties, and countries, OSHA determined that a stronger PSM standard can more effectively prevent incidents and protect workers.” (Emphasis added). Many of OSHA’s immediate provisions address ways to clarify the PSM standard. Specifically, the Status Report states that in the year following the publication of this report, OSHA will clarify a number of elements of the PSM standard, including

interpretations of various definitional terms such as “retail facilities”;
revising jurisdictional concentration levels of chemicals covered by the PSM standard;
whether Ammonium Nitrate as a covered chemical under PSM standard; and
determining whether to include oil and gas drilling and servicing operations under PSM standard, which are currently exempt;

More Industries May Be Subject to PSM Standard

Though styled as a means to “modernize” OSHA’s PSM standard to improve safety, the Federal Action plan suggests a much broader OSHA enforcement regime. Indeed, the Federal Action Plan does contain action items that suggest a concerted effort to clarify various ambiguities in the PSM standard, but the overall thrust of the plan appears to focus heavily on including more industries under the jurisdiction of the standard.

Increased Penalties Sought for All OSHA Violations

The Status Report also provides a clear indication that OSHA will attempt to increase the civil and criminal penalties through legislation. Currently, violations of the OSH Act can lead to civil penalties of up to $70,000 per violation. Criminal penalties, however, are only imposed for willful violations that cause an employee death. Criminal penalties can total up to $10,000 and not more than six months in jail for a first conviction, and up to $20,000 and not more than twelve months in jail for a second conviction. The Working Group compared the OSHA civil and criminal penalty provisions to the same provisions under EPA and stated “OSHA’s PSM standard and EPA’s RMP regulation were created at about the same time pursuant to the Clean Air Act Amendments to address the same underlying general hazards. Yet the OSH Act’s penalty provisions are much weaker than those under the CAA’s RMP program. This imbalance in penalties should be corrected by strengthening the OSH Act’s civil monetary penalties and indexing them for inflation.”

Regardless of whether employers are or will be covered by the PSM standard, it appears that OSHA’s stated intent to increase civil and criminal enforcement penalties could impact all employers.

Stay Tuned and Stay Informed

Employers should continue to monitor the Working Group’s activities in order to stay involved and have a voice in any future rule making or policy changes.

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June 27, 2014

U.S. Supreme Court Eliminates Fiduciary Protection for Employer Stock Investment

By Brenda Berg

On June 25, 2014, the U.S. Supreme Court issued its unanimous opinion that retirement plan fiduciaries are not entitled to a presumption of prudence with respect to the plan's investment in employer stock. Fifth Third Bancorp v. Dudenhoeffer, U.S., No. 12-751, 6/25/14. Instead, the fiduciaries are subject to the same duty of prudence that applies to all investment decisions made by ERISA fiduciaries. The rejection of the presumption of prudence might result in an increase in litigation involving employer stock. However, the Court also ruled that the ERISA duty of prudence does not require violating securities laws by disclosing insider information or otherwise taking action that could be in violation of securities laws, and the Court articulated a high pleadings standard for overcoming a motion to dismiss on that point.

Presumption of Prudence

Retirement plan fiduciaries have a duty to act prudently: with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity would act. Many federal circuit courts had adopted a rule that if the governing plan document requires an employer stock investment option, especially where such portion of the plan is designated as an ESOP, then there is a presumption that the fiduciary duty of prudence is met. This presumption is often referred to as the Moench presumption, after the case that first articulated it.

Fiduciaries also have a duty to follow the terms of the plan documents, unless doing so would be contrary to ERISA. The Moench presumption of prudence was an attempt to balance the duty or prudence with the duty to follow plan documents, considering Congress's intent to encourage employee ownership through ESOPs. Under the presumption, fiduciaries have a duty to follow plan documents that require an employer stock investment option, unless the employer is in such "dire" circumstances, such as an employer's bankruptcy, that would likely make the employer go out of business.

In the Dudenhoeffer case, the plaintiffs, who were participants in the plan, alleged that the fiduciaries had violated the duty of prudence by permitting participants to invest in employer stock, and that in July 2007, the fiduciaries knew or should have known that the stock was overvalued. From July 2007 to September 2009, when the complaint was filed, the Fifth Third stock price fell 74%. Although the District Court had dismissed the case based on the presumption of prudence, the Sixth Circuit Court of Appeals reversed and held that the presumption of prudence did not apply at the pleading stage, but only at the evidentiary stage. The U.S. Supreme Court rejected that as well, since the Court held the presumption of prudence does not apply at all. The Court found the presumption was not supported by the statutory language, which provides an ESOP exception from ERISA's duty to diversify but not from the duty of prudence – and Congress's intent to encourage ESOP investments does not override that. In addition, even where the plan document requires an employer stock investment, the regular duty of prudence applies rather than a requirement that only "dire" circumstances can override the plan language.

Conflict with Insider Trading Laws

The Court acknowledged that potential for conflict with the insider trading laws is a legitimate concern. In publicly traded companies, plan fiduciaries are often corporate insiders as well. However, the Court held that a presumption of prudence "is an ill-fitting means" of addressing the concern. The Court also recognized that lack of a presumption may put the fiduciary between a rock and a hard place, in that the fiduciary could be sued for failing to divest the stock, or could be sued for failing to allow the stock as an investment option where the plan documents require it. Again, though, the Court held that the presumption of prudence is not the proper way to address this concern; rather, a motion to dismiss for failure to state a claim is the proper mechanism.

Ultimately, the Court vacated the judgment of the Court of Appeals and remanded the case to consider whether the pleadings were sufficient to overcome a motion to dismiss. The Court referred to its previous guidance of considerations on the insider trading issue. As a general rule, where a stock is publicly traded, it would not be sufficient to claim that the fiduciary should have recognized the stock was overvalued based on publicly available information unless the plaintiffs could point to special circumstances affecting the reliability of the market price. With respect to nonpublic information available to the fiduciaries as company insiders, the Court said the plaintiffs must allege an alternative action that the fiduciaries could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund (for example, by driving the price down in a sell-off) than to help it.

Note that the case involved publicly traded employer stock, and does not provide much guidance for fiduciaries of ESOPs with non-publicly traded stock.

Next Steps for Plan Fiduciaries

In light of the Court's Dudenhoeffer decision, fiduciaries of retirement plans that allow investments in employer stock should reevaluate whether employer stock is a prudent plan investment. Fiduciaries can no longer rely on the Moench presumption that the investment would be prudent as long as the documents required the employer stock and the employer was not experiencing "dire" or other extreme circumstances. Instead, fiduciaries must evaluate all of the circumstances of the employer, within the confines of securities laws, and determine on that basis whether employer stock is a prudent investment under the plan. In other words, fiduciaries must treat an employer stock investment just like every other investment offered under the plan. If the fiduciaries determine that employer stock should no longer be offered under the plan, the removal of the stock should be undertaken carefully in order to best protect fiduciaries from participant claims for the removal of the stock.

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June 26, 2014

Recess Appointments to NLRB Invalid, Rules U.S. Supreme Court in Noel Canning Opinion

By Brian Mumaugh

In a unanimous decision, the U.S. Supreme Court ruled today that President Obama lacked the authority to make three recess appointments to the National Labor Relations Board (NLRB) while the Senate was in pro forma session in early January 2012. While affirming the decision of the D.C. Circuit that the appointments fell outside the scope of the Recess Appointments Clause, the Supreme Court came to that conclusion on different grounds. NLRB v. Noel Canning, No. 12-1281 (June 26, 2014). The decision effectively invalidates the rulings made by the three NLRB members who were improperly appointed via recess appointment.

Recess Appointments Clause

The Recess Appointments Clause gives the President the power “to fill up all Vacancies that may happen during the Recess of the Senate.” This power essentially allows the President to fill vacant federal positions without obtaining Senate confirmation of the appointments and is intended to ensure the continued functioning of the government at those times when the Senate is not in session.

At issue in the Noel Canning case was whether President Obama’s appointment of three members of the NLRB while the Senate was on a three-day intra-session break in which the Senate was in pro forma session fell within his authority under the Recess Appointments Clause. The Supreme Court said no.

Vacancies May Be Filled During Intra-Session and Inter-Session Recesses

Unlike the D.C. Circuit, the Supreme Court ruled that the Recess Appointments Clause applies during intra-session recesses (breaks in the midst of a formal Senate session) as well as during inter-session recesses (breaks between formal sessions of the Senate). The Court stated that the Senate is equally away and unavailable to conduct business during both types of breaks. The Court also looked carefully at the history of recess appointments and found that Presidents have made intra-session recess appointments going all the way back to President Andrew Johnson in 1867. During that time, the Senate has never taken any formal action to deny the validity of intra-session recess appointments. Accordingly, the Court gave great weight to the long-standing practice of allowing recess appointments during both intra- and inter-session recesses.

Recess Must Be Of Sufficient Length

Although the Recess Appointments Clause does not establish how long a recess must be in order to trigger the President’s recess appointment power, the Court held that the Senate’s recess must be of sufficient duration as to be a significant interruption of legislative business. Noting that the government’s attorney conceded that a three-day recess would be too short and that throughout history, no recess appointments had been made during an intra-session recess of less than ten days, the Court wrote that a recess of more than three days but less than ten days is presumptively too short to fall within the Clause.

Vacancies Filled As Recess Appointments Need Not Arise During the Recess

The Court interpreted the Recess Appointments Clause to allow the President to fill vacancies that existed prior to the start of the Senate’s recess. The D.C. Circuit had interpreted the Clause differently, applying only to vacancies that first come into existence during a recess. The Supreme Court chose a broader interpretation to ensure that offices that need to be filled can be filled, even if the vacancy arose before the Senate went into recess. Again, the Court looked at historical practices and found that nearly every President since James Buchanan (term: 1857-1861) has made recess appointments to pre-existing vacancies. Unwilling to counter this long-accepted practice, the Court ruled that any vacancy, whether pre-existing or one that arises during the recess, may be filled under the Recess Appointments Clause.

Applying the Clause to the 2012 NLRB Recess Appointments

The Court ruled that the President lacked the authority to appoint the three members of the NLRB in early 2012 because the Senate was still in session during that time. Although the Senate was meeting just every three days in pro forma sessions, it retained the power to conduct business. Consequently, because the Senate was in session and the three-days between its pro forma sessions was too short of a break to bring it within the scope of the Recess Appointments Clause, the President lacked the authority to make the three NLRB member appointments in January of 2012.

Big Picture – Effect of Noel Canning

There are two primary effects that will come out of today’s Noel Canning decision. First, the NLRB rulings that were made by the improperly appointed members will need to be revisited. Numerous challenges have already been made in some of the affected cases and the current NLRB, which now has five Senate-confirmed members, may need to revisit those rulings.

Second, the future of Presidential recess appointments will hinge on the length of a Senate recess. Political analysts are already stating that both the House and Senate have mechanisms to force the Senate out of a recess into a pro forma session so if those mechanisms are exercised, Congress could limit or block a President’s ability to make recess appointments. We will likely learn a great deal about the scheduling powers of Congress in the days to come.

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interpretations of various definitional terms such as “retail facilities”;

revising jurisdictional concentration levels of chemicals covered by the PSM standard;

whether Ammonium Nitrate as a covered chemical under PSM standard; and

determining whether to include oil and gas drilling and servicing operations under PSM standard, which are currently exempt;

More Industries May Be Subject to PSM Standard