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    Welcome to the Labor and Employment Law Update where attorneys from SmithAmundsen blog about management side labor and employment issues. We cover topics including addressing harassment and discrimination in the workplace, developing labor law, navigating through ADA(AA), FMLA and workers’ compensation issues, avoiding wage and hour landmines, key legislative, case law and regulatory changes and much more!
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Can Employment Discrimination Plaintiffs Survive Summary Judgment?

Contributed by Julie Proscia and Steven Jados

The Seventh Circuit recently affirmed summary judgment for the employer in Miller v. St. Joseph County, a race discrimination case, and in doing so applied what may prove to be a streamlined standard for determining whether employment discrimination plaintiffs can survive summary judgment.

The plaintiff in Miller was a long-time employee of the county’s police department who sought several promotions which he did not receive. He alleged, among other things, that the promotion denials, a temporary assignment he disliked (but which did not change his compensation, benefits or rank), and the fact that he did not receive certain other promotions for which he apparently did not even apply, were all the result of race discrimination.

The court, while noting that it could not overrule the McDonnell Douglas burden-shifting method of proof, and its prima facie elements, instead applied a brief three-part test as a substitute for what the court called the “cumbersome” indirect and direct methods of proof. The three parts are: (1) membership in a protected class; (2) an adverse employment action; and (3) evidence from which “a rational jury could conclude that the employer took that adverse action on account of . . . protected class, not for any non-invidious reason.”

Applying that test, the court noted that there was no evidence of racial slurs or other manifest racial hostility; no evidence that the plaintiff was more qualified than the individuals hired into the positions plaintiff sought; and no evidence that race played a factor in the temporary assignment the plaintiff disliked. In short, the court looked at the evidence the plaintiff presented and saw nothing that could lead a rational jury to conclude that race discrimination occurred—and the court affirmed summary judgment in the employer’s favor as a result.

Now, what does this mean as a practical matter for human resources and management professionals?  It appears to signal the court’s interest in adjudicating discrimination cases on a common-sense basis.  That sounds simple, but whether it actually streamlines the litigation of discrimination cases—especially a case based heavily on circumstantial evidence—remains to be seen.

Tattoos, Facial Piercings, Ear Gauges? What’s an Employer to Do?

Contributed by Suzanne Newcomb

In the past, dress codes were straightforward. Depending on the nature of the business, they required a “neat, clean uniform” or perhaps “professional attire” and banned tube tops and flip flops. But as visible body art becomes more mainstream, many employers find themselves struggling to decide whether and where to draw the lines when drafting a personal appearance policy that works for their business.

As a starting point, body art itself is not a legally protected characteristic so bans are generally permissible. However, employers should be mindful that some tattoos, piercings, and other body adornments could have religious or cultural roots.  Accordingly, employers must ensure their policies do not adversely impact a particular ethnic or religious group and should take seriously requests to accommodate religious beliefs.

Back in 2004 a federal appeals court dismissed claims brought by a member of the Church of Body Modification finding that accommodating her multiple facial piercings imposed an undue hardship because it could adversely affect the employer’s public image. Since then, district courts have found that a restaurant employee who claimed covering his tattoo amounted to sacrilege; an employee who refused to remove her allegedly religious nose ring; and a Rastafarian who was moved to a non-customer contact position after refusing to cut his hair, all presented potentially viable claims warranting jury trials.

It is tough to say whether the tide is turning. Nevertheless, it is an issue many employers deal with on a regular basis.

Best practices for drafting an effective and workable personal appearance policy:

  1. Really think about what you will tolerate and why. Will you hire an employee with a visible tattoo? What if the tattoo is on her face? Might a total ban exclude applicants who would be a great asset for your business? Is there an alternative to a total ban that makes more sense? What about ear gauges and tunnels?
  2. Be prepared to justify the reasoning behind any bans or limits you decide are best for your business. Is the policy rooted in concern for the company’s public image? Fear of customer reaction? Safety or sanitation concerns?
  3. Consider whether the policy might look different for different segments of your workforce. One size fits all might not make the most sense here.
  4. Most importantly, as the cases referenced above demonstrate, employers must take claims for accommodation of religious beliefs seriously and engage in an interactive process to determine whether a workable accommodation exists if an employee or applicant claims conforming to the policy would infringe upon his religious beliefs.

Use Independent Contractors? DOL Says Almost Everyone Is An Employee Under the FLSA

Contributed by Steven Jados

On July 15, 2015, the U.S. Department of Labor (DOL) issued an Administrator’s Interpretation addressing the distinction between employees and independent contractors in the Fair Labor Standards Act (FLSA).

The DOL has aggressively pursued potential misclassifications of employees as independent contractors in recent years. Indicative of that aggressive approach, the interpretation states that most workers are employees under the FLSA. While that statement is walked-back somewhat in other parts of the interpretation, businesses that rely heavily on independent contractors should take this message to heart and reassess whether their independent contractor relationships will truly survive scrutiny by the DOL and other government agencies. The consequences of independent contractor misclassification may be severe and include liability for unpaid taxes, wages, and other damages and costs.

Much of the interpretation covers old ground, but nevertheless there are several interesting insights. Among them is the interpretation’s discussion on workers who are able to choose how many hours they work in a day or week, or when and where they perform their work. In short, the interpretation states that such freedom should not weigh heavily in favor of an independent contractor relationship if the workers are not exercising managerial skills in a way that affects the workers’ opportunities to realize profits or losses. However, if a worker negotiates the rate at which customers paid for the worker’s services, then that would indicate independent contractor status.Independent contract

The interpretation reiterates that an independent contractor relationship cannot be established by a contract between a business and worker declaring the worker an independent contractor. Instead, the DOL uses a six-factor “economic realities” test in conjunction with the FLSA’s “suffer or permit” standard (which is intended to make the FLSA’s coverage as broad as possible) to analyze whether a worker is an employee or independent contractor. The interpretation phrases those six factors as:

(A) the extent to which the work performed is an integral part of the employer’s business; (B) the worker’s opportunity for profit or loss depending on his or her managerial skill; (C) the extent of the relative investments of the employer and the worker; (D) whether the work performed requires special skills and initiative; (E) the permanency of the relationship; and (F) the degree of control exercised or retained by the employer.

In the end, the question of whether a worker is an employee or independent contractor will generally boil down to whether a worker is truly “in business for him or herself”—and therefore an independent contractor—or whether the worker is “economically dependent on the employer” and an employee. That said, if your business treats workers who are economically dependent on your business as independent contractors, we strongly recommend seeing advice of counsel to determine if changes can be made to ensure a strong defense against litigation or other enforcement actions by the DOL or the independent contractors themselves.

The Ongoing Debate About Adequate Consideration in Non-Competition and Other Restrictive Covenants

Contributed by Carlos Arévalo

In late June, the appellate court for the first district reiterated that employment lasting less than two years is inadequate consideration to support enforcement of a post-employment restrictive covenant. In McInnis v. OAG Motorcycle Ventures, a motorcycle salesman filed a lawsuit seeking to have his non-competition agreement declared invalid because he resigned 18 months after signing the agreement. The employer counterclaimed seeking an injunction to enforce the restrictive covenant. The salesman won.Featured image

The court came to this conclusion after examining the 2013 first district case, Fifield v. Premier Dealer Services, Inc. That case has been criticized because of its emphasis on the duration of employment after the execution of the agreement, as opposed to reviewing the totality of the circumstances under the Illinois Supreme Court standard. The case involved an employee who was laid off when his employer was purchased by another company. The new company offered the employee a job, but required him to sign a non-competition agreement. While he signed the agreement, the employee resigned three months later. The employee and his new employer sued to invalidate the agreement. The court agreed and established a bright-line rule that employment lasting less than two years after signing a non-competition agreement would not be sufficient consideration. Before this decision, courts had maintained that employment for a “substantial” period of time would be sufficient consideration. The employer, supported by the Illinois Chamber of Commerce, appealed the Fifield decision to the Illinois Supreme Court. However, the appeal was denied.

The Third District Court also adopted the two-year rule. In the 2014 case of Prairie Rheumatology Associates, S.C. v. Francis, the court held that a physician, who left the practice after 19 months, was not bound by her non-competition agreement. Some federal court judges, however, have expressed skepticism that the Illinois Supreme Court would adopt the two-year rule. In February, Judge J.B. McDade of the Central District noted that the two-year rule in Fifield is “overprotective of employees, and risks making post-employment restrictive covenants illusory for employers subject completely to the whimsy of the employee as to the length of his employment.”

This ongoing debate is by no means settled. In fact, Justice David Ellis disagreed with the majority of the court in the McInnis decision. In his dissent, Justice Ellis stated that he does not believe that a per se rule exists in Illinois nor that a bright-line, two-year rule is warranted.  We will have to wait and see what happens.

Until the issue is settled by the Illinois Supreme Court, employers should review their existing restrictive covenants to ensure that there is sufficient consideration in light of these court decisions and should carefully analyze what consideration is being offered in agreements currently being negotiated. This additional consideration can take the form of added bonuses, additional benefits such as more sick or vacation time, or other incentives particular to the individual business and employees.

Penalties Doubled for Affordable Care Act Reporting Noncompliance

Contributed by Kelly Haab-Tallitsch

The Trade Preferences Extension Act of 2015 (“Trade Bill”), signed into law by President Obama on June 29, significantly increases potential penalties for employers and insurers that fail to comply with the Affordable Care Act (ACA) reporting requirements, beginning in early 2016.

As a reminder:

  • IRS Code 6056 requires employers with 50 or more full-time equivalent employees to file reports with the IRS annually stating whether the employer offered health coverage to full-time employees and their dependents during the preceding calendar year.
  • IRS Code 6055 requires all employers with self-insured plans, and insurers, to file reports with the IRS indicating whether an individual had health coverage during the preceding year. These reports must also be furnished to employees.
  • The reporting requirements help the IRS enforce the ACA individual and employer mandates, and are effective for the 2015 calendar year, with reports first due in early 2016.

The penalty for failure to file a required information return with the IRS was increased by the Trade Bill from $100 per return to $250 per return. The annual cap on penalties doubled from $1,500,000 to $3,000,000. In the event a failure to file is due to intentional disregard, the new $250 penalty is doubled and no annual cap applies. Records Room

In addition to filing reports with the IRS, the ACA requires employers to provide certain forms to employees, similar to the existing WS-2 reporting requirements. It is important for employers to be aware that the penalties apply separately to both requirements. For example, a failure to file a Form 1095-C with the IRS and a failure to furnish the same Form 1095-C to the employee will result in two penalties of $250 each, or $500 per affected employee.

These increased penalties also apply to other IRS information returns and filings, such as W-2s, and are effective in 2016. Reduced penalties apply when the failure to file is corrected within a certain period of time and the cap is reduced to $500,000 for employers (or insurers) with $5,000,000 or less in gross annual receipts.

Despite the hike in penalties, the IRS’s enforcement policy for the first year of ACA reporting remains unchanged. The IRS has stated it will not penalize employers that can show they made good faith efforts to comply with the ACA reporting requirements for 2015.

Employers can reduce the risk of noncompliance by taking the following steps:

  • Ensure you are capturing and tracking the data needed to complete the required forms now, to allow for reporting in early 2016
  • Understand what forms are required and their applicable due dates (statements to employees are due as early as January 31)
  • Review the 2014 IRS forms and instructions available at www.irs.gov

Is Your Contractor Really Independent?

Contributed by Noah A. Frank

Recently, a California labor commissioner found that an Uber driver was an employee and not an independent contractor (“IC”), awarding the driver over $4,000 in expenses (Uber Techs., Inc. v. Berwick, CGC-15-546378 (Cal. Sup. Ct. June 16, 2015)). Similar lawsuits, including class action matters, are being filed around the country.  The implications for Uber are huge: unemployment taxes, workers’ compensation insurance, minimum wage, overtime, and third-party tort liability to start.

What is so surprising about this ruling is that Uber drivers seem to epitomize the IC relationship. They enter into explicit IC agreements, work when and where they want, accept the fares they want, supply their own vehicle, pay their own gas and maintenance costs, and work for competitors (i.e., Lyft and traditional taxi services). Uber generally requires drivers to complete an application, be safe drivers, and be knowledgeable about the city’s geography. Uber processes the fare, deducts its fee, and pays the remainder to the driver.

How did the IC relationship become so complex?  Well, the law favors the employer-employee relationship as the default.  It ensures workers receive minimum and overtime wages, are covered by workers’ compensation and unemployment benefits when the relationship ends. Of course, this also means that the government receives taxes (rather than hope an IC actually pays taxes), and will not become the guarantor of an unemployed or uninsured individual through social welfare programs like Medicaid.

ContractIt’s not so simple after all.  Here are five tips for engaging an Independent Contractor:

  • First, consider whether the IC arrangement is really best for your business. For example, if you want a lot of control versus an end product, it may be better to hire employees.
  • Second, will you be engaging individuals or companies?  Most employment law tests favor the IC arrangement when the two parties are independently established businesses.
  •  Third, have a good, tailored contract.  While not conclusive, contracts are meant to provide black-and-white evidence of the parties’ intent (which, by its nature, is drafted when things are going well to protect them for when things go south).
  • Fourth, perform an audit of the relationship under the various substantive laws governing your industry (e.g., special rules for construction, trucking, and temporary labor to name a few) before entering into the IC relationship.  The key is: would the relationship satisfy an administrative agency’s test if an IC complained?
  • Finally, seek the advice of counsel to ensure that the four steps above are conducted with an objective eye towards protecting your business now and going forward.  While most business deals can be made, upfront review may save costly legal fees in litigation and otherwise.

What is the OWBPA Again and Why Should We Care? Here Is A Quick Refresher

Contributed by Suzanne Newcomb

The Older Workers Benefits Protection Act (OWBPA) amended the Age Discrimination in Employment Act (ADEA) back in 1990 to specifically permit bona fide seniority systems and voluntary early retirement incentive plans.  Along with these allowances, the OWBPA mandated strict requirements for ADEA waivers and disclosures for group termination.  The provisions are very technical and have tripped up many unsuspecting employers.

To be effective a waiver must be “knowing and voluntary.”  That sounds straightforward, but the statute specifically spells out what “knowing and voluntary” means in this context.  If the situation involves an isolated termination – a single employee terminated for cause or let go as a result of a restructuring that impacts his position alone – an ADEA waiver is not “knowing and voluntary unless at a minimum,” the waiver:

  • is in writing and written in a manner the individual can understand;
  • specifically refers to ADEA rights or claims;
  • does not waive rights or claims arising after the waiver is executed;
  • provides consideration over and above anything to which the individual is entitled already;
  • advises the individual in writing to consult with an attorney prior to executing the agreement (advising the individual has the right to consult with an attorney may not be sufficient);
  • allows the individual at least 21 days (45 in the case of group terminations addressed below) to consider the agreement before signing; and
  • allows the individual at least 7 days to revoke following execution of the agreement.

The statute tacks on additional requirements for waivers “requested in connection with an exit incentive or other employment termination program offered to a group or class of employees.”  Legislators complicated matters by failing to define the key terms in this phrase.  Relevant regulations and considerable case law interpret them broadly to encompass any situation in which two or more employees are terminated at or near the same time under similar circumstances or are offered incentives which stem from a standardized plan.

Whenever a release is offered in conjunction with a reduction in force involving more than one employee or other group terminations, the employer must follow each of the requirements set forth above and must also disclose:

  • the “decisional unit” or class, unit, or group of individuals covered by such program – in other words, the pool of employees from which the employer chose those who would be involuntarily terminated or offered an incentive to leave;
  • the eligibility factors used to determine who was selected for termination or offered an exit incentive;
  • any applicable time limits; and
  • job titles and ages of all eligible or selected individuals and all individuals in the same job unit who are not eligible or selected.

If you are implementing a RIF or thinking about offering severance to a departing employee in hope of avoiding potential litigation, you should consult qualified legal counsel first.  It is important to make sure the ADEA waiver contained in your release is enforceable.

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