CMS Vaccine Mandate Enjoined Nationwide

Contributed by Suzannah Wilson Overholt, December 1, 2021

gavel and scales of justice

On Tuesday, November 30, Louisiana federal district Judge Doughty issued a nationwide injunction against implementation of Centers for Medicare & Medicaid Services’ (CMS) vaccine mandate for health care workers. Judge Doughty’s decision was issued just a day after Missouri federal district Judge Schelp issued a preliminary injunction against the mandate in 10 states. Unlike the Missouri decision, the Louisiana court issued a nationwide injunction due to that court’s conclusion that there was a need for uniformity and protection of unvaccinated healthcare workers. In reaching its decision, the court relied heavily on the Fifth Circuit’s injunction against the OSHA vaccine or test mandate, which we discussed in an earlier blog.

First, the court agreed that plaintiffs were likely to prevail on all of their arguments against the vaccine mandate.  The court concluded that CMS issued the vaccine mandate without following statutorily required processes for notice and comment and rejected CMS’ argument that it met the good cause exception that would exempt it from those requirements. Next, the court found that the mandate was beyond the authority of CMS, concluding that such a sweeping requirement should have at least been issued by Congress, not a federal agency, and questioned whether even Congress would have authority to issue the mandate. 

The court also concluded that the CMS mandate is likely contrary to law because the federal government did not consult with appropriate state agencies regarding the mandate, improperly dictated hiring and firing policies with respect to unvaccinated employees, and did not conduct a regulatory impact analysis for rural hospitals given the mandate’s likely significant impact on rural hospitals.  

In addition, the court agreed that the CMS mandate was likely arbitrary and capricious because it ignores patient well-being and instead focuses on the health of healthcare providers. Plaintiffs maintained that increasing individual vaccine rates would harm patient well-being by causing staff shortages and the federal government failed to consider or arbitrarily rejected alternatives to the mandate, such as daily or weekly COVID testing, wearing masks, natural immunity and/or social distancing. The court found that CMS had not provided any evidence of why it rejected these alternatives or why it departed from its earlier position of not requiring vaccines.  Finally, the court found that the mandate likely violates the states’ police powers and improperly delegates authority to CMS. 

The court next concluded that the states had shown irreparable injury by not being able to enforce their laws that were preempted by the mandate, incurring costs associated with the mandate, by having their police power encroached, and by having substantial burdens placed on the liberty interests of their citizens. Granting the injunction was in the public interest because it would maintain the liberty of individuals who do not want to take the COVID-19 vaccine.  We will keep you updated regarding the status of this issue. In the interim, health care entities who were subject to the CMS rule should be prepared to comply with the rule if the injunction is lifted.  Our prior post discusses the requirements of the rule.

Federal Contractors’ Alert: Minimum Wage for Workers Is Going Up January 30, 2022

 

Contributed by Heather Bailey, November 30, 2021

With the help of the US Department of Labor (DOL), the Biden Administration made good on its promise to increase the minimum wage for workers who work on new or updated federal contracts (including extended, renewed, or exercise of an option on an existing contract). The President’s full Executive Order may be found on the White House website.

This was carried out by the DOL on November 22, 2021 with its Final Rule requiring that such workers’ minimum pay will now be $15.00 an hour starting January 30, 2022. Keep in mind if your local or state minimum wage is more, you have to pay the higher minimum wage so this new law will not affect those employees already earning more money. The Rule allows for an annual raise to keep in line with inflation as set by the Secretary of Labor. The new minimum wage is also going to flow down to sub-contracts as well.

Tipped employees earned progressive bumps along the way: $10.50 an hour starting on January 30, 2022; 85% of the federal wage in effect as of January 1, 2023 (rounded to nearest $0.05); and full federal minimum wage in effect as of January 1, 2024 and beyond.

Are All Federal Contracts Covered?

No. Much like the vaccination mandate for federal contractors, this new Rule generally applies to the following types of federal contracts (so long as the wages of these workers are governed by the Fair Labor Standards Act, the Service Contract Act and/or the Davis-Bacon Act):

  • Contracts for services covered by the Service Contract Act;
  • Procurement contracts for construction covered by the Davis-Bacon Act;
  • Contracts for concessions; and
  • Contracts entered into with the Federal Government in connection with Federal Property or lands and related to offering services for Federal employees, their dependents, or the general public.

The minimum wage increase does not apply to the following:

  • Grants;
  • Contracts or agreements with Indian Tribes;
  • Procurement contracts for construction that are excluded from coverage of the Davis-Bacon Act;
  • Contracts for services that are exempted from coverage under the Service Contract Act;
  • Employees who are exempt from the minimum wage requirements of the Fair Labor Standards Act under 29 U.S.C. §§ 213(a) and 214(a)–(b) (additionally, learners, apprentices, messengers, certain students and white-collar exempted employees);
  • FLSA-covered workers performing in connection with covered contracts for less than 20 percent of their work hours in a given workweek; and
  • Contracts that result from a solicitation issued before January 30, 2022, and that are entered into on or between January 30, 2022 and March 30, 2022.

Keep in mind, the DOL encouraged all agencies to follow this same path and increase the minimum wage accordingly even if they do not fall into these categories. Thus, it is best to make sure that you review any new contracts or any updates to existing federal contracts made on or after January 30th to determine if the new regulation will apply to your workforce.

OSHA Suspends Emergency COVID-19 Vaccination and Testing Standard

Contributed by guest author Matthew Horn, November 18, 2021

In September, the Biden Administration directed OSHA to issue an Emergency Temporary Standard (“ETS”) requiring employers with one hundred or more employees to ensure their employees are either fully vaccinated or tested for COVID-19 on a weekly basis.  That promised ETS was published on November 5, 2021, and linked here are OSHA’s summary of the ETS and the FAQ’s relating to the ETS.   

One week later, on November 12, 2021, the 5th Circuit Court of Appeals issuing a scathing opinion staying the enforcement of the ETS.  In the week that followed, legal challenges were brought in every other Circuit Court of Appeals across the country.  On November 16, 2021, the matter was assigned through a lottery to the 6th Circuit Court of Appeals, which has jurisdiction over Michigan, Ohio, Kentucky, and Tennessee.  If the 6th Circuit upholds the stay of the ETS—which seems more likely than not—then the ETS will remain stayed while the issue proceeds to the U.S. Supreme Court.  If the 6th Circuit lifts the stay of the ETS, then the ETS could potentially go into effect while the issue proceeds to the U.S. Supreme Court. 

On November 17, 2021, OSHA formally acknowledged that it had suspended all activities related to the implementation and enforcement of the ETS.  However, OSHA and the Biden Administration have vowed to continue the fight and implement the ETS if/when allowed, so at this juncture, we continue to recommend that employers plan and prepare for the potential implementation of the ETS—namely, preparing the required policies and compiling a roster of employees who have been vaccinated (and those who have not).  

For a more thorough discussion of the ETS, the pending legal challenges, and our recommendation moving forward, please see our recent webinar on these issues. We will continue to keep you advised as to the status of the ETS and the related legal challenges. 

New Life for H1-B Petitions: Market Research Analyst Ruling a Good Sign for H-1B Petitioners

Contributed by Jacqueline Lentini McCullough, November 17, 2021

Immigration Law books with a judges gavel on desk in the library. Law education ,law books concept.

In December 2018, I got an unpleasant surprise: My first – and only – H-1B petition denial in my over 20+ years of practicing immigration law.

The petition was on behalf of an operations research analyst. I had done the same petition for other operations research analysts at this company. USCIS had approved them all, some all the way to green cards.

In this case I prepped the client, submitted a thorough petition, and responded to all requests for evidence. Unfortunately, this unpleasant surprise was not a shock. USCIS’s scrutiny had intensified and as many thought it was overstepping its bounds, creating a downward trend on approvals.

USCIS Scrutiny Oversteps Bounds

H-1B visas pertain to specialty occupations, jobs that by definition require a bachelor’s degree. When assessing an H-1B petition, USCIS consults one of two sources to check the job requirements. The first, and most common, is the Occupation Outlook Handbook (OOH). The second is O*Net.

Job descriptions in the OOH describe bachelor’s degree requirements in various ways. It will say a job “typically requires a bachelor’s degree” or “normally requires a bachelor’s degree” or “a bachelor’s degree may be required.” Until recent years, those descriptions sufficed to qualify a position as H-1B eligible. The wording of the job descriptions was understood to reflect the reality that employers look for candidates with bachelor’s degrees for those positions.

During the past administration, however, USCIS resorted to a stricter interpretation of those statements. Seizing on the notion that qualifying words like “normally,” “typically,” and “may be” signify it is not always the case. Based on this interpretation USCIS began denying petitions for positions it had approved in the past.

USCIS Unlawful Denial Challenged

In particular, one position that got caught in USCIS’s crosshairs was market research analyst. USCIS was arbitrarily denying H-1B market research analyst petitions for not qualifying as a “specialty occupation” based on the OOH description.

Noticing this pattern, the American Immigration Council, the American Immigration Lawyers Association (AILA), and several law firms brought a class action lawsuit. USCIS tried to get the case dismissed. When all attempts failed, instead of litigating it they reached a settlement agreement.

Settlement Agreement is a Good Sign

The settlement agreement corrects the Agency’s error and stipulates that employers whose H-1B market research analyst petitions were denied between January 2019 and October 2021 may request that USCIS reopen and re-adjudicate their cases.

This result  raised hopes among the immigration law community that arbitrary denials based on failing to qualify as a “specialty occupation” will cease for other positions. We view the rulings by the court and resulting settlement as setting precedent.

With these changes, it should be much easier for businesses to use H-1B petitions for their employees, and open up more options for their workforce. Additionally, it means that there is new life for any H1-B petition that was denied during the January 2019 to October 2021 time period – as the rulings and settlement indicate that there is a much better shot at those petitions being approved now if re-opened and re-adjudicated.

CMS Releases Interim Final Rule Requiring COVID-19 Vaccination for Employees and Suppliers

Contributed by Suzannah Wilson Overholt, November 4, 2021

Studio macro of a stethoscope and digital tablet with shallow DOF evenly matched abstract on wood table background

Today the Centers for Medicare & Medicaid Services (CMS) released its interim final rule requiring all employees and certain suppliers of most Medicare and Medicaid certified providers to be fully vaccinated against COVID-19 unless they receive an exemption due to a disability, medical condition or sincerely held religious belief (the “Rule”) (the text of the regulations starts on page 171 of the CMS publication). The Rule is effective upon official publication, which is targeted as November 5.

Covered Health Care Entities

The Rule applies to the following types of CMS regulated facilities:

  • Ambulatory Surgical Centers (ASCs)
  • Hospices
  • Psychiatric residential treatment facilities (PRTFs)
  • Programs of All-Inclusive Care for the Elderly (PACE)
  • Hospitals (acute care hospitals, psychiatric hospitals, hospital swing beds, long term care hospitals, children’s hospitals, transplant centers, cancer hospitals, and rehabilitation hospitals/inpatient rehabilitation facilities)
  • Long Term Care (LTC) Facilities, including Skilled Nursing Facilities (SNFs) and Nursing Facilities (NFs)
  • Intermediate Care Facilities for Individuals with Intellectual Disabilities (ICFs-IID)
  • Home Health Agencies (HHAs)
  • Comprehensive Outpatient Rehabilitation Facilities (CORFs)
  • Critical Access Hospitals (CAHs)
  • Clinics, rehabilitation agencies, and public health agencies as providers of outpatient physical therapy and speech-language pathology services
  • Community Mental Health Centers (CMHCs) offering partial hospitalization services
  • Home Infusion Therapy (HIT) suppliers
  • Rural Health Clinics (RHCs)/Federally Qualified Health Centers (FQHCs)
  • End-Stage Renal Disease (ESRD) Facilities

The Rule does not directly apply to other health care entities not regulated by CMS. Such entities may still be subject to other State or Federal COVID-19 vaccination requirements, such as those issued by OSHA for certain employers.  Our discussion of the OSHA Rule may be found in our previous blog post.

Key Dates (assuming the Rule is published November 5)

  • December 5, 2021 (30 days from publication): Staff must have received the first dose, or only dose as applicable, of a COVID-19 vaccine, or have requested or been granted an exemption to the vaccination requirement. 
  • January 4, 2022 (60 days from publication): The primary vaccination series must be completed and staff must be fully vaccinated, except for staff granted exemptions or those staff for whom vaccination must be temporarily delayed due to clinical precautions and considerations. Staff who have completed the primary series for the vaccine by this date are considered to have met these requirements, even if they have not yet completed the 14-day waiting period required for full vaccination.

Covered Employees Vendors

The vaccine requirement applies to the following, regardless of clinical responsibility or patient contact:

  • Employees;
  • Licensed practitioners;
  • Students, trainees, and volunteers; and
  • Individuals who provide care, treatment, or other services for the facility and/or its patients, under contract or other arrangement. 

Individuals who provide services 100% remotely, e.g. fully remote telehealth or payroll services, are not subject to the vaccination requirement.  Providers and suppliers are not required to ensure the vaccination of individuals who infrequently provide ad hoc non-health care services (e.g. annual elevator inspection), or services that are performed exclusively off-site, not at or adjacent to any site of patient care (e.g. accounting services).

Definition of “Fully Vaccinated”

“Fully vaccinated” means two weeks or more has elapsed since completion of a primary vaccination series. “Completion of a primary vaccination series” means the administration of a single-dose vaccine, or the administration of all required doses of a multi-dose vaccine. COVID-19 vaccine doses from different manufacturers may be combined. Providers and suppliers must have a process for tracking and securely documenting the COVID-19 vaccination status of any staff who have obtained any booster doses as recommended by the CDC.

Unvaccinated Staff

All applicable providers and suppliers must follow nationally recognized infection prevention and control guidelines to mitigate the transmission and spread of COVID-19 and implement additional precautions for all staff who are not fully vaccinated for COVID-19. The CDC infection control guidance can be found on the CDC website.

Documentation Requirements

Providers and suppliers must track and securely document the vaccination status of each staff member. Vaccine exemption requests and outcomes must also be documented. All vaccine documentation must be kept confidential and stored separately from the personnel files. Examples of acceptable forms of proof of vaccination include:

  • CDC COVID-19 vaccination record card (or photo of the card),
  • Documentation of vaccination from a health care provider or electronic health record, or
  • State immunization record.

Exemptions

Providers and suppliers must establish and implement a process by which staff may request an exemption from COVID-19 vaccination requirements based on recognized medical conditions or religious beliefs. The Rule directs providers and suppliers to the CDC guidance regarding contraindications. Our previous discussion regarding medical and religious exemptions can be found in a previous blog post.

Now is the time for affected providers to implement vaccination and exemption policies. We will continue to provide updates on this important issue.

OSHA Releases COVID-19 Vaccination and Testing Rule for Private-Sector Workers

Contributed by Peter E. Hansen and John R. Hayes, November 4, 2021

doctor hand wears medical glove holding syringe and vial bottle with covid 19 corona virus vaccine

The United States Department of Labor released a long-awaited Emergency Temporary Standard (“ETS”) for private employers with over 100 employees. The 490 page interim final rule answers a number of questions employers have had since the Biden Administration announced its plan in September, including:

What is the application to employers?

The ETS applies to employers with 100 or more employees as of November 5, 2021, regardless of the number of employees working at a specific location. The ETS does not, however, apply to employers covered by the CMS rule or federal contractors, so health care providers (other than physician groups) should review the CMS rule and federal contractors should follow the guidance published by the Safer Federal Workforce Taskforce.

The 100 employee count includes part-time, temporary, and seasonal employees, as well as home workers – however, employees who work exclusively outdoors and/or at home are not subject to the mandatory vaccination/testing requirements.

Do employers have to adopt a COVID-19 policy?

Employers must develop, implement and enforce either: (1) a mandatory vaccination policy; or (2) a policy requiring employees to either get vaccinated or test once a week and wear a face covering at work. 

Employers choosing to implement the mandatory vaccine policy should start with OSHA’s sample policy, available here. It contains all the necessary information that an employer needs to implement a vaccine mandate policy in compliance with the ETS. Specifically, it contains information for employers to use regarding vaccination dates, acceptable supporting documentation of vaccination, employee notification and removal from the workplace with a positive COVID-19 test, and information on testing and masking requirements.

Employers who instead decide to have an optional vaccine policy with mandatory weekly testing must also have a written policy, OSHA template available here.  If the employer goes with this option, it must “establish, implement, and enforce a written policy allowing any employee not subject to a mandatory vaccination policy to either choose to be fully vaccinated against COVID-19 or provide proof of regular testing for COVID-19 and wear a face covering in lieu of vaccination.”  Similar to the vaccine mandate policy, the testing policy contains all the relevant information for the mandatory weekly testing and mask wearing, as detailed in the ETS.

If the employer adopts a mandatory vaccination policy, can employees request a religious or medical exemption?

Yes, employers who adopt mandatory vaccination policies cannot require vaccination for employees:

  1. For whom a vaccine is medically contraindicated;
  2. For whom medical necessity requires a delay in vaccination; or
  3. Who are legally entitled to a reasonable accommodation because they have a disability or sincerely held religious beliefs, practices, or observances that conflict with the vaccination requirement.

Do employers have to provide paid leave for employees to get vaccinated?

Employers must provide up to 4 hours of paid leave for employees to become vaccinated and, if necessary, “reasonable time and paid sick leave” to recover from side effects experienced that prevent them from working.

What are the testing requirements and do employers need to pay for testing?

The ETS provides several examples of testing that would satisfy the weekly requirements, including tests with specimens that are processed by a laboratory (including home or on-site collected specimens which are processed either individually or as pooled specimens), proctored over-the-counter tests, point of care tests, and tests where specimen collection and processing is either done or observed by an employer.  Testing cannot be both self-administered and self-read.

The ETS clarifies that employers do not need to provide or pay for weekly testing for unvaccinated employees — unless required by other laws, regulations, employment contract, and/or collective bargaining agreements.  For example, employers would typically need to pay the cost of testing for employees who receive a medical or religious exemption from a mandatory vaccination policy.

What are the upcoming vaccine deadlines?

Employers must begin providing paid time off to get vaccinated and/or recover from vaccination, and implement face mask requirements, by December 5, 2021.  The deadline for employees to become fully vaccinated – meaning the deadline to have received their second dose of Pfizer or Moderna, or single dose of Johnson & Johnson – is January 4, 2022.

Are employers required to keep records of employee vaccinations?

Employers must obtain and keep proof of vaccination from employees. Documentation should generally include the name of employee, which vaccine was received, name of the healthcare provider, and date of vaccination. For unvaccinated employees, employers must maintain a record of each test result the unvaccinated employee is required to produce. Notably, the recordkeeping requirements apply only while the ETS remains in effect.  During that time, they must be treated like any other confidential medical record.

Can OSHA request access to policies and records?

Employers must provide OSHA with access to their written policy and the aggregate number of vaccinated and unvaccinated employees within 4 hours of a request, and any other records and documents “by the end of the next business day after a request.”

What is the deadline for federal contractors to be vaccinated?

The date for the implementation of the federal contractor vaccine mandate Executive Order is also moved from December 8, 2021 to January 4, 2022.

We will provide updates as we continue to closely analyze the ETS.  In the meantime, OSHA’s webinar and FAQs on the ETS are extremely helpful (albeit dense) and address a wide range of issues. 

How are Businesses to Navigate the Conflicting Federal Vaccine Mandates and State Bans on Such Mandates?

Contributed by John R. Hayes, November 4, 2021

black and white gavel

In the past several months there has been a flurry of Executive Orders and other legally binding rules regarding vaccine mandates. Standing first and above the rest are the Executive Order by the Biden Administration mandating federal contractors have a vaccinated workforce without the option for testing (we previously blogged on this topic on September 13, 2021 and on September 27, 2021), and the imminent Emergency Temporary Standard (ETS) to be issued by the Occupational Safety and Health Administration (OSHA). 

In the wake of those federal mandates many states have enacted legislation or Executive Orders in direct response. For example, Texas Governor Greg Abbott issued an Executive Order essentially prohibiting vaccine mandates by private employers. This would seem to directly conflict with the federal contractor Executive Order. On the flip side, Illinois has introduced legislation amending its Health Care Right of Conscience Act to clarify that no action will be allowed under the Act when the refusal to accept treatment involves steps taken to reduce the risk of COVID-19 transmission. So, what are employers to make of all this? 

First, employers should analyze the nature of their business, the federal rules that most impact their operations, the state(s) they operate in, along with their tolerance for risk before making any decisions regarding these constantly changing issues. At the same time, employers should continue to strongly encourage vaccination in the workplace and follow all feasible COVID-19 safety recommendations in accordance with current guidance from the CDC and OSHA.

State Mandate Bans

In addition to the Texas Executive Order essentially banning vaccine mandates, several states are taking, or have taken, similar action. Montana already prohibits employment discrimination based on vaccination status. Ohio is considering legislation that would require employers to accept negative COVID-19 tests if they implement vaccination mandates, and Arkansas recently sent legislation to its governor that will give workers the option to submit to weekly testing or submit proof biannually of natural antibodies from prior infection. Additionally, Iowa’s Governor Kim Reynolds recently signed a bill into law that does not ban vaccine mandates, but makes it easier for employees to get exemptions, by simply providing a note—and also providing unemployment benefits to employees who are fired for refusing a vaccine mandate by their employer. 

Generally speaking federal rules will preempt state law. However, the new federal rules are not applicable across the board to all private businesses, so their impact on each employer must be reviewed individually. For example, the federal contractor Executive Order only applies to certain employers under specific types of contracts with federal agencies, and the upcoming OSHA ETS will only apply to employers with 100 or more employees. So, employers in states with some type of vaccine mandate ban that are not covered by those federal rules may need to comply with their state’s rules.

Even though federal law preempts state law, this does not mean that some states are not gearing up for a fight. The attorneys general of 24 states have already pledged to fight the OSHA rule, and have sent a letter to President Biden stating the 100 employee threshold is arbitrary, that COVID-19 does not present a grave danger to workers and that it is not a true workplace standard. While at this time it seems unlikely these arguments will succeed, they may at the very least be used as a delaying tactic to slow the implementation of the federal rules. 

State Laws Bolstering Vaccine Mandates

On the other end of the spectrum from vaccine mandate bans and restrictions, in addition to the Illinois amendment, New York state issued an order requiring health care workers to get vaccinated that did not include an exception for employees with sincerely held religious objections. However, a court temporarily blocked that part of the state’s order while litigation ensues.

Moreover, governors and health agency leaders in 19 states require some or all state employees to be vaccinated against COVID-19 or get regularly tested. Twenty-one states also have some type of requirement for vaccinations of healthcare workers. For the most part these mandates align with the federal rules, and likely will not raise preemption questions.

Conflict with State OSHA Plans

Another issue is that many states have their own occupational safety plans and the federal rules could clash with anti-mandate laws in those states that have their own plans, which are partly funded by OSHA. Twenty-one states run their own plans, which must include workplace protections that are at least as stringent as federal rules for state, local government and private-sector workers. 

For example, under Indiana law, state agencies cannot require employees to provide written or electronic proof of COVID-19 vaccination. That conflicts with the upcoming federal OSHA ETS, which will require that employers track and maintain records of employee vaccination status.   

While it remains to be seen exactly how this will play out, at least until the OSHA ETS is issued, it is possible that these states with their own safety plans will face lawsuits and also the possibility of the federal OSHA taking over the state-run agencies/plans. These states may also file their own litigation against OSHA and the federal government contesting the OSHA rule.

What this Means for Businesses

So what are employers to make out of all these dizzying mandates, laws and rules they are being bombarded with? Initially, it is important to note that the proposed OSHA rule on large employers will not force them to ensure that their workers are immunized, rather it will allow for weekly COVID-19 testing as an alternative to vaccination. Thus, an employer could comply with both a state ban and federal law by, for instance, requiring all workers to get regularly tested for COVID-19. A rule therefore won’t automatically or necessarily preempt state vaccination bans, but will require a case-by-case analysis by the employer regarding its policies.

Moreover, it should be noted that any choices employers make about their policies should be well-documented and supported with appropriate employee communications and training. 

Employers will have to remain vigilant and likely adjust their policies carefully to comply with both the applicable federal rules as they are released and any new state requirements that may be issued. Employers should therefore look to confer with their legal counsel regarding any potential conflicts. Ideally, this discussion should occur as soon as possible once the OSHA ETS is issued given the potential for violations with conflicting rules.

Corporate Crack-Down: SEC Votes to Revive Clawback Rule Stripping Executives Of Their Paychecks

Contributed by Sara M. Rose, November 3, 2021.

15390108 – two men and a magnet

The executive compensation clawback rule mandated by Congress in Section 954 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), is back.  In the event of corporate misconduct, it will enable the SEC to recoup executive compensation (i.e., bonuses or other incentive-based pay), regardless of whether the executive was directly involved in or accused of any wrongdoing.

Section 954 of the Dodd-Frank Act

The U.S. Securities and Exchange Commission (SEC) proposed an initial draft of Section 954 in 2015. Under Section 954, the SEC was to issue rules requiring companies listed on national securities exchanges to create and enforce clawback policies relating to executive compensation. The draft fell dormant shortly after issuance and was not revisited for six years.

The Revised Rule

On October 14, 2021, the SEC re-opened public comment on the clawback rule and indicated that it seeks to finalize the rule within the next year.

As currently drafted, the clawback rule will apply to all publicly listed companies—including those whose only listed securities are debt securities or preferred stock. Furthermore,  it will require companies to implement and enforce clawback policies to be triggered upon restatement of company financials due to any “material noncompliance” with securities laws. More specifically, if triggered, the company will be forced to “claw back” executive compensation previously paid in excess of the executives’ compensation under the revised financial statements. This would potentially apply to compensation paid to past and present executives in the three (3) fiscal years leading up to the restatement, regardless of whether the misstatement was due to fraud, errors, or any other factors. Executives subject to these new policies would include a broad sweep of personnel, such as the company’s president, principal financial officer, principal accounting officer/controller, any vice president in charge of a principal business unit, division, or function; and any other officer or person who performs policymaking decisions and received incentive-based compensation. 

There are two situations in which companies may exercise discretion to forego clawing back compensation from executives.  Under both situations, recovery of the compensation must be impracticable, either due to (1) the cost of recovery being more than is owed, or (2) the applicable home country laws. Making a determination of impracticability will need to be documented and conducted by a compensation committee.

Impact on Companies

If finalized, companies will be forced to act as judge, jury and executioner. In other words, companies will be responsible for determining when to clawback executive compensation and for actually enforcing its clawback policy. This is burdensome because it exposes companies to claims by the executive, as well as the SEC.

Additionally, if a company fails to comply with or enforce its clawback policy, the company will be subject to de-listing by the national securities exchanges. While the SEC would likely have some input, the national security exchange where the company is listed would be responsible for determining whether the company has made a good faith effort to comply with its policy. 

What’s Next?

It is anticipated that the SEC will seek to expand its use of the clawback rule by demanding clawbacks of executive compensation in (1) its current actions, and (2) by requiring provisions for clawbacks in private settlements involving financial restatements. In particular, this is based on the understanding that efforts to finalize this rule are part of a broader push by the SEC and the current administration to end corporate malfeasance by enhancing the tools available for penalizing executives and using tools that it has viewed as being “underutilized.” The SEC has shifted its stance on the issue in hopes of strengthening the transparency and quality of corporate financial statements, as well as the accountability of corporate executives to investors. 

Although it is possible that the rule may not be implemented as it is still under review, there is ample time for this administration to push it through the approval process.  Companies should start reviewing whether they will be subject to the clawback rule. If so, companies should evaluate their current policies and determine whether any changes would need to be made to be compliant.  In doing so, companies should work with experienced labor and employment law counsel to avoid any potential pitfalls and/or issues with such policies.

We will continue to monitor and post on the revived clawback rule throughout the comment period and approval date.

Here We Go Again: DOL Announces Final Rule Regarding Tipped Employees With Dual Jobs

Contributed by Heather Bailey and Peter Hansen, November 1, 2021

On October 29, 2021, the U.S. Department of Labor published its final rule regarding tipped employees with dual jobs (i.e., employees who perform both tipped and non-tipped work), rejecting the Trump-era approach to determining when tipped employees may be paid subminimum wages. The final rule reinstates the dreaded “80/20” rule that employers with tipped employees are likely familiar with, and adds a new “substantial amount of time” component to the determination. If you are an employer covered by the Fair Labor Standards Act, listen up!

The 80/20 Rule

Under the reinstated 80/20 rule, employees who spend at least 20% of their workweek on non-tipped job duties that directly support their tip-producing work must be paid the full minimum wage for time spent on non-tipped duties rather than the federal subminimum wage of $2.13.  [Some states require employers to pay a higher tipped minimum wage than the $2.13 allowed under federal law, including Illinois ($6.60), Missouri ($5.15), Ohio ($4.40), and Wisconsin ($2.33).  Moreover, certain locales also require a higher rate such as Chicago at $8.40 (4-20 workers) and $9.00 (21 or more workers). Employers must follow the law of whichever rate is the highest.] The final rule provides some notable insight into compliance, including:

  • Defining “tip-producing work” broadly to include “any work performed by a tipped employee that provides service to customers for which the tipped employee receives tips,” and providing specific examples for servers, bartenders, nail technicians, bussers, parking attendants, and bellhops.
  • Examples of non-tipped work that directly supports tip-producing work, including a number of tasks that employers may not previously have considered to be “directly supporting,” such as down time while the employee is waiting for customers to arrive.
  • Examples of non-tipped work that does not directly support tip-producing work, including preparing food (including salads), ordering supplies, and cleaning areas outside the worker’s normal work area (e.g., a bartender cleaning the dining room or bathroom).

Notably, any time paid at the minimum wage rate does not count towards the 20% calculation, meaning it would not impact whether the employer could claim a tip credit.  Here is an example in the final rule:

A server is employed for 40 hours a week and performs 5 hours of work that is not part of the tipped occupation, such as cleaning the kitchen, for which the server is paid a direct cash wage at the full minimum wage. The server also performs 18 minutes of non-tipped directly supporting work twice a day, for a total of three hours a week. The employer may take a tip credit for all of the time the employee spends performing directly supporting work, because this time does not exceed 20 percent of the workweek. Because this employee has been paid the full minimum wage for a total of five hours a week, the employee could perform up to seven hours of directly supporting work (35 hours × 20 percent = 7 hours) without exceeding the 20 percent tolerance.

The “Substantial Amount of Time” Rule

The new “substantial amount of time” rule applies when a tipped employee performs non-tipped duties for more than 30 continuous minutes (regardless of whether the time exceeded 20% of their workweek).  When this occurs, the employee must be paid the full minimum wage for the time that exceeds 30 minutes. Accordingly, a tipped employee who spends 45 continuous minutes on non-tipped work may still be paid at the tipped employee minimum wage for the first 30 minute period, but must be paid the full minimum wage for the remaining 15 minutes. Similarly, the employer may claim a tip credit for the first 30 minutes, but not the remaining 15.

What’s Next?

The new rule will become effective December 28, 2021, so employers in the restaurant, hospitality, and service industries should begin preparations to comply with the dual job regulations and their challenges now, especially since tipped employees appear to be an area the Department of Labor is particularly focused on.  While the previous administration tried to clear up these muddy waters, we are back here again in an industry devastated by the pandemic.  Thus, determining compliance needs to happen immediately.  For example, an employer needs to decide how they are going to track the non-tip producing work, especially the work done pre and post shift.  As always, questions regarding these issues should be directed to experienced labor and employment counsel.

EEOC Offers Some Help in Navigating the Murky Waters for Religious Exemptions From COVID-19 Vaccines

Contributed by Suzannah Wilson Overholt, October 27, 2021

hand wears medical glove holding syringe and vial bottle with covid 19 corona virus vaccine

As many employers begin implementing COVID-19 vaccine mandates, they are receiving a large number of employee requests for exemption from the vaccine for religious reasons. Before this week there was no direct guidance from the EEOC on this point, but that changed when the EEOC added this topic to its COVID-19 guidance. The following summarizes key points from that guidance.

An employer should assume that a request for religious accommodation is based on sincerely held religious beliefs. However, the employer may ask for an explanation of how the employee’s religious belief conflicts with the COVID-19 vaccination requirement. 

An employer is not required to bear more than a “de minimis,” or a minimal, cost to accommodate an employee’s religious belief. Costs include not only monetary costs but also the burden on conducting the employer’s business, including the risk of the spread of COVID-19 to other employees or to the public. An employer should thoroughly consider all possible reasonable accommodations based on the employee’s job duties, including telework and reassignment. 

Undue hardship exists where the religious accommodation would impair workplace safety, diminish efficiency in other jobs, or cause coworkers to carry the accommodated employee’s share of potentially hazardous or burdensome work. Relevant considerations include whether the employee requesting a religious accommodation works outdoors or indoors, works in a solitary or group work setting, or has close contact with other employees or members of the public (especially medically vulnerable individuals).  An employer may also consider the number of employees who are fully vaccinated, how many employees and nonemployees physically enter the workplace, and the number of employees who will need a particular accommodation. Employers may rely on CDC recommendations when deciding whether an effective accommodation is available that would not pose an undue hardship. 

If an employer grants some employees a religious accommodation, it does not have to grant the requests of all employees who seek such an accommodation. The employer may take into account the cumulative cost or burden of granting accommodations to other employees.

An employer does not have to provide the religious accommodation preferred by an employee if there are other possible accommodations that are effective in eliminating the religious conflict and do not cause an undue hardship. If there is more than one reasonable accommodation, the employer may choose which accommodation to offer. While the employer should consider the employee’s preference, it is not obligated to provide the accommodation preferred by the employee. If the employer denies the employee’s proposed accommodation, the employer should explain why that accommodation is not being granted. 

If an employer grants a religious accommodation to an employee, the employer can later reconsider it. An employer has the right to discontinue an accommodation if it is no longer utilized for religious purposes or if the accommodation subsequently poses an undue hardship due to changed circumstances. An employer should discuss with the employee any concerns it has about continuing a religious accommodation before revoking it and consider whether there are alternative accommodations that would not impose an undue hardship.