The federal Fair Credit Reporting Act (FCRA) has created a flurry of class action complaints in recent years aimed at employers who fail to comply with the FCRA’s hyper-technical disclosure and consent requirements. However, a new class action against UPS reminds us that traditional FCRA claims have not faded away and employers should remain mindful of the Act’s requirements. READ MORE
Companies operating in the “on-demand” or “gig economy” have enjoyed tremendous success in recent years, as emerging technologies and shifts in consumer tastes have buoyed their growth. These companies span a cross-section of industries (transportation, food delivery, lodging) but have one thing in common: each aims to deliver traditional services more efficiently by connecting consumers directly with service providers.
But as we all know by now, success often begets legal challenges. Take Uber, for example. The company has faced a thicket of litigation in recent years, most notably related to the question of whether its drivers are employees or independent contractors.
Like many companies in today’s economy, Uber has implemented an arbitration policy as a way to efficiently resolve disputes. Below we recap some of the developments in this area and preview some legal issues that companies will want to monitor in the months ahead. READ MORE
The United States Senate is slated to consider Andrew (Andy) Puzder, CEO of CKE Restaurants, as the next Secretary of Labor (“DOL”). Although his confirmation hearing which was set for February 7, 2017 has been delayed reportedly to give Mr. Puzder additional time to complete government ethics disclosures, Mr. Puzder has stated that he is fully committed to becoming Secretary of Labor and says that he is “looking forward to [his] hearing.”
CKE Restaurants operates “fast food” restaurants known as Carl’s Jr. west of the Rockies and Hardee’s in the east. The restaurants, perhaps better-known for their commercials featuring women models in skimpy swimsuits, began a new advertising campaign last fall focusing on its employees talking about the quality of the food offerings — burgers made with grass fed beef, hand-breaded chicken tenders, hand-scooped ice cream, and scratch made biscuits. If confirmed, Mr. Puzder in all likelihood, would also steer the DOL in a new direction with a decidedly more business-friendly approach than his predecessor, Tom Perez. We consider what would a Puzder DOL would likely focus on. READ MORE
On January 20, 2017, shortly after Donald Trump became the 45th President of the United States, his Chief of Staff, Reince Priebus, issued an Executive Memorandum mandating a 60-day freeze on published federal regulations that have yet to take effect to allow Trump’s appointees time to review the regulations. Although such action is fairly standard during a change of administration, the impact could be significant if certain regulations set to take effect in 2017 are delayed or ultimately replaced. Regulations potentially affected by the 60-day freeze include the Department of Labor’s (“DOL”) overtime and fiduciary rules, and the Equal Employment Opportunity Commission’s (“EEOC”) EEO-1 pay reporting requirements.
DOL Overtime Rule
In May 2016, the DOL announced significant changes to the overtime rules under the Fair Labor Standards Act (“FLSA”). As we’ve previously blogged about here, the overtime rules mandated that, beginning December 1, 2016, the salary requirement for exempt employees would increase by nearly double – from $23,660 to $47,476 per year. Under these new rules, employees who earn less than $47,476 would no longer meet the overtime exemption from the FLSA, and would be entitled to overtime compensation for all hours worked over 40 in a workweek.
The new overtime rules made headlines late last year when a federal district court in Texas issued a preliminary injunction enjoining its implementation. The decision was issued on November 22, 2016, just days before the new rules were set to take effect.
Between the ongoing litigation over the legality of the overtime rules and the recent 60-day regulatory freeze, the future of the overtime rules remains uncertain. Other than publicly advocating a small-business exemption, Trump has remained non-committal about the overtime rules and has not signaled whether he will ask the Department of Justice (“DOJ”) to drop its defense of the matter. Notably, the DOJ has sought a stay in the ligation while the new administration reconsiders its position. As a practical matter, this places employers in a difficult position. Many employers already implemented changes to comply with the new overtime rules in anticipation of the December 1, 2016 effective date, by increasing salaries, reducing workforces, cutting benefits, and changing employees’ schedules. In addition, the language in the Executive Memorandum could also muddy the waters. The Executive Memorandum provides for postponing, for 60 days, published regulations that “have not taken effect.” Employee advocates have argued that, as the effective date for the overtime regulations was December 1, 2016, the Executive Memorandum does not apply. This hyper-technical reading would likely be rejected by a court. And, the argument has no practical effect as the rule is enjoined.
DOL Fiduciary Rule
The Executive Memorandum, however, will not stop the fiduciary rule train. It became effective on June 7, 2016. The fiduciary rule, which is scheduled to be phased in starting April 10, 2017 through January 1, 2018, expands the definition of “investment advice fiduciary” under ERISA to include persons who provide investment advice or recommendations for a fee or other compensation with respect to retirement accounts. Under the new rule, investment advice includes recommendations regarding the advisability of buying or selling securities or other investment property and recommendations as to the management of securities or other investment property.
Being a fiduciary requires financial professionals to put their clients’ best interests above their own. As a result, financial professionals who earn commissions are required, under the new rule, to provide clients with a Best Interest Contract Exemption disclosing potential conflicts of interest, fees or charges to be paid by the investor, and compensation the fiduciary expects to receive in connection with recommended investments. The impact of the new rule on the financial services industry is significant due to the potential for lost commissions and the additional expense of complying with the heightened fiduciary standard.
Financial professionals are left to hoping that the new administration will roll back the rule. However, barring extraordinary action by Congress, there may be little that Trump can do on his own as the rule was promulgated through notice and comment rulemaking. Further, rolling back the rule does not appear to be a high priority. Trump has not taken a position publicly on the fiduciary rule. However, he generally supports broad roll backs of regulations and, Anthony Scaramucci, one of his key advisors, has publicly promised to repeal the fiduciary rule. Those in the financial services industry who have already taken steps to comply with the new rules in anticipation of the April 10, 2017 implementation date should continue their efforts until they receive a clear signal from the administration or Congress.
EEOC Revised EEO-1 Form
On September 29, 2016, the EEOC announced approval of a revised EEO-1 form to collect pay data from employers with 100 or more employees beginning with the 2017 report to be submitted by March 31, 2018. It is unclear what effect, if any, the 60-day regulatory freeze will have on the pay reporting requirements because, technically, the information collection procedures for the form did not have an effective date. However, as Trump has already appointed a new EEOC Chair, Victoria Lipnic, signs point to a rollback.
The revised EEO-1 form requires certain employers to submit summary pay data, including the total number of full and part-time employees employed during the year in each of twelve pay bands listed for each job category on the EEO-1. Pay data is based on employees’ W-2 forms. The revised EEO-1 form does not require employers to report individual pay or salaries. Additionally, employers required to submit an EEO-1 form must report the number of hours worked during the year by employees in each pay band. According to the EEOC, the purpose of collecting pay data from employers is to allow the EEOC to better assess allegations of pay discrimination, but many fear that providing pay data without context will fuel costly, meritless class action lawsuits.
Many predict that the future of the EEOC’s pay reporting rule is vulnerable under the Trump administration, while others believe that Ivanka Trump’s statements in support of equal pay may not indicate a complete pullback of the pay equity focus. Regardless of whether the 60-day freeze affects the pay reporting requirements, the issue of pay equity will be at the forefront of legal issues facing employers in 2017. This blog will continue to provide updates as new developments occur.
The Defend Trade Secret Act (“DTSA”) contains a whistleblower immunity provision which could have a significant impact on employers. Until last month, however, no court had interpreted this provision which provides that no one “shall be held criminally or civilly liable under Federal or State trade secret law for the disclosure of a trade secret” made in confidence to a government official or an attorney and “solely for the purpose of reporting or investigating a suspected violation of law.” 18 U.S.C. § 1833(b). Now, the U.S. District Court for the District of Massachusetts has. In rejecting that assertion of the provision in a motion to dismiss, the court concluded that the party seeking the protections of the provision has the burden of at least asserting facts justifying its application. See Unum Group v. Loftus, No. 16-cv-40154-TSH, 2016 WL 7115967 (D. Mass. December 6, 2016). READ MORE
Recently, in Augustus v. ABM Security Services, Inc., the California Supreme Court upheld a $90 million award of statutory damages, interest, and penalties against an employer who required employees to remain on-call during rest periods, despite no evidence showing that any employee’s rest period was ever actually interrupted. This holding has significant implications statewide, and employers in California should promptly review their rest break policies to ensure full compliance. READ MORE
On January 9, 2017, New York State Governor Andrew M. Cuomo proposed a package of reforms to promote his vision of social justice within the state. The wide ranging set of proposals included two Executive Orders focused on eliminating the gender and race wage gap, which is one of the core stated goals of the New York Promise Agenda. READ MORE
In August of 2016, we reported that the Ninth Circuit created a deeper circuit-split on whether class action waivers in arbitration agreements violate the National Labor Relations Act (“NLRA”) with its decision in Morris v. Ernst & Young LLP.
As expected, the Supreme Court granted review today of three of the conflicting Court of Appeals decisions. It granted review of the Fifth Circuit’s decision in Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015). The Fifth Circuit rejected the National Labor Relations Board’s (“NLRB”) position that class action waivers unlawfully interfere with employees’ NLRA rights to engage in concerted activity, agreeing with the Second and Eighth Circuits. The Ninth and Seventh Circuits, on the other hand, adopted the NLRB’s position that class action waivers violate the NLRA.
The Supreme Court also granted review in Morris v. Ernst & Young, 834 F.3d 975 (9th Cir. 2016) and Epic Systems Corp. v. Lewis, 823 F.3d 1147 (7th Cir. 2016). The Seventh Circuit held that an arbitration agreement precluding collective arbitration or collective action violates section 7 of the NLRA and is unenforceable under the FAA. The Ninth Circuit agreed and concluded that compulsory class action waivers violate sections 7 and 8 of the NLRA by limiting workers’ rights to act collectively, noting in footnote 4 that agreements containing an “opt-out” clause for pursuing class claims do not violate the NLRA.
All three cases have been consolidated and will be argued together.
On December 5, 2016, the Seventh Circuit affirmed dismissal of a complaint filed by two University of Pennsylvania track and field athletes against the National Collegiate Athletic Association, the university, and more than 120 other NCAA Division I universities and colleges alleging that student athletes are entitled to minimum wage under the Fair Labor Standards Act (“FLSA”). In Berger v. NCAA, the court held that student athletes are not “employees” within the meaning of the FLSA and thus, are not entitled to a minimum wage for their athletic activities. READ MORE
Just before their December 31, 2016 planned effective date, the regulations proposed by the New York State Department of Labor in October 2016 were formally adopted on December 28, 2016. Pursuant to the regulations, New York City employees need to be paid a minimum of $42,900 annually to be considered exempt from overtime under the administrative and executive exemptions. Lower salary thresholds have been established for small New York City employers (10 or fewer employees) and for employers outside of New York City. An employee who earns less than the salary thresholds on and after December 31, 2016 will become non-exempt and overtime eligible unless their salaries are increased above the new salary threshold. New York State employers should also be mindful that the salary thresholds will increase annually through 2020. A complete schedule of the new salary thresholds by employer location and size can be found here.
For employers who might have suspended or reversed decisions to reclassify employees or increase their salaries when the federal overtime regulations were enjoined last month, the New York State Department of Labor did not leave much time to consider the options and address compensation practices. Although just formally adopted, the regulations are effective on December 31, 2016 as had been contemplated in the proposed regulations. (See New Minimum Wage FAQs).