Category Archives: employers

Main Street Employee Ownership Act Signed

Contributed by William Scogland, October 3, 2018

EMPLOYEE STOCK OWNERSHIP PLAN CONCEPT

Employee Stock Ownership Concept with laptop and phone in background

On August 13, 2018, as part of the John S. McCain Fiscal Year 2019 National Defense Authorization Act, President Trump signed into law the Main Street Employee Ownership Act, which was originally introduced by Senator Gillibrand and Representative Velazquez, a rare bipartisan achievement.

Employee Stock Ownership Plans (ESOPs) are often established using a loan to finance the purchase of company stock by the plan. ESOPs only infrequently default, so this is an area in which the government can be confident that the taxpayers will get their money back. The Small Business Administration (SBA) was authorized to make ESOP loans in 1979, but it was done only infrequently because it was so cumbersome.

The Act facilitates the establishment of ESOPs by revising the rules under which the SBA may assist small employers to transition to employee ownership.

Specifically, it:

  • Permits the SBA to make loans to companies that can then re-lend to ESOPs (prior law only allowed direct loans made to ESOPs, but commercial ESOP loans are almost always made to the company and relent to the ESOP);
  • Permits ESOP loans to be made under the SBA’s preferred lender program, which should expedite the process;
  • Provides that ESOPs do not need to have full voting rights to qualify, which aligns more closely with Federal income tax rules;
  • Makes an exception to an SBA rule that sellers of a company cannot have an ongoing role in the firm (the Act codifies in statute a recently released SBA policy that allows the seller to stay on as an owner, officer, director, or key employee of the company, when the ESOP acquires a controlling interest i.e., 51 percent or more, but any seller who remains as an owner, regardless of percentage of ownership interest, would be required to provide a personal guarantee, which is often required in commercial ESOP loans in any event);
  • Helps finance transition costs, which can be expensive, by allowing transaction costs to be financed as part of the SBA loan; and
  • Grants SBA the authority to waive equity requirements (SBA currently requires an equity injection of at least 10 percent of the total project cost for loans that finance change of ownership, but under the Act SBA may waive that requirement on a case by case basis for loans that finance a change of ownership to an ESOP).

Small businesses, which may be considering a switch to employee ownership, should be aware of these changes that may make the transition easier. In some limited circumstances, one or more of these changes may even be the deciding factor in proceeding with a transaction.

 

New Forms! FMLA & FCRA

Contributed by Noah A. Frank, September 27, 2018

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hand with pen over form

In September 2018, the U.S. DOL published “updated” FMLA forms and the U.S. Consumer Financial Protection Bureau published updated FCRA forms.

DOL – Family and Medical Leave Act Forms

The DOL’s September 4, 2018 update is trivial: only the expiration date changed (now extended to August 31, 2021). There are no other changes to information, questions, or even layout (indeed, they maintain their prior revision date). Nonetheless, employers should promptly update their files with these new template forms. 

The forms are all available from the DOL’s  Wage and Hour Division be individually downloaded by clicking on the following links, or simply send an email and we will gladly provide them to you:

CFPB – Fair Credit Reporting Act Form Notice

On September 12, 2018, the CFPB released an updated Fair Credit Reporting Act Notice.  This is an important document to be provided to employees when using a third-party provider to obtain a “consumer report,” such as criminal background check or financial history inquiry.

Enforced by the U.S. EEOC in the employment context, failure to strictly comply with the FCRA has resulted in a significant increase in employment class action and discrimination lawsuits, including by professional plaintiffs — those who never really intended to work for the company, but found an opportunity to make a few dollars from a noncompliant company through threatening litigation and obtaining a nice settlement.

As part of the company’s regulatory compliance, ensure that the company and any third-party vendor immediately updates their FCRA notices, available from the CFPB in English and Spanish. 

As always seek the advice of competent employment counsel if there are any concerns with the use, completion, or interpretation of any of these government documents.

 

Failed Drug Test: Diet Coke & A Poppy Seed Muffin

Contributed by Noah A. Frank, September 21, 2018

We’ve all heard Seinfeld’s Elaine Benes’s defense to a failed drug screen for opium: she eats a poppy seed muffin every day. With Coca-Cola recently announcing that it was exploring a cannabidiol-infused beverage line, companies should again buckle-up for the next wave of employment-based substance screening.

61078750 - 3d illustration of magnifying glass over the words of drug testing

Magnifying glass over the words “Drug Testing”

Is the Benes Defense valid? Could a poppy seed muffin a day actually result in a false-positive?

Maybe. The U.S. Department of Health and Human Services occasionally changes the cutoff levels for initial and confirmatory testing thresholds for metabolites. This testing does NOT show impairment, rather it shows how much a particular substance (like opioids, cocaine, amphetamines, etc.) are in the blood, urine, or other body tissue sampled. If a drug screen set the threshold too low, it is possible that it could detect trace amounts of opioids from that poppy seed muffin. This is why confirmatory testing using recognized standards is so important when employment decisions are to be made. So, there may be some validity to the defense, but very unlikely!

So, now what is an employer to do with the possibility of CannabidOLA hitting the shelves?

Initially, it is important to understand the two main substances involved derived from cannabis plants:

  • Cannabidiol or “CBD” is a non-psychoactive component of cannabis;
  • Tetrahydrocannabinol or “THC” is the psychoactive compound that provides the euphoric stoned or high sensation.

Both CBD and THC are believed to have medical benefits. While marijuana remains unlawful under federal law, over 30 states and Washington D.C. have made some form of medical use permissible, with 10 of these approving recreational (adult) use. The lawful medical and recreational use numbers are growing.

Companies that consider entering into the CBD-infused market should understand and ensure that their products comply with the highly regulated patchwork of state and local laws. For example, ensuring that their products will not cause the average (or even heavy) consumer to rely upon the Benes Defense.

For employers, the legality of medical and recreational use is becoming more prevalent. Prepare for these changes now – including understanding that off-duty use of (but never at-work use of or impairment from) lawful substance may be protected under disability and/or privacy laws. To the extent substance screening is used, employers may need to closely evaluate the metabolite threshold to ensure that they meet both the company’s actual policies and their enforcement (e.g., zero tolerance vs. zero impairment).

As always contact competent counsel in navigating these highly evolving laws.

 

Illinois Amends Nursing Mothers in the Workplace Act to Expand Rights of Breastfeeding Mothers

Contributed by Allison P. Sues, September, 19, 2018

96042497 - baby milk bottles and pacifier on white background

baby bottles and pacifier on white background

Illinois employers should be aware of amendments to the Illinois Nursing Mothers in the Workplace Act that expand the rights of employees who need to express milk while they are at work. Both before and after the amendments, the Act requires employers to provide a private space, other than a toilet stall, for mothers to pump at work. The amendments, which went into effect immediately when Governor Bruce Rauner signed House Bill 1595 on August 21, 2018, make some key changes to the law, each discussed below:

  • Employers cannot require employees to pump during their break time. Formerly, the Act provided that the employee’s pumping break “must, if possible” run concurrently with other break times provided. The amendments now provide that the pumping break “may” coincide with other break times, but adds that employers must provide “reasonable breaks each time the employee has the need to express milk for one year after the child’s birth.” These amendments provide moms with greater control in scheduling pump breaks according to their needs, and confirm that an employer cannot require an employee to schedule pumping breaks around other previously scheduled breaks.
  • Employers cannot reduce pay for pumping breaks. The prior version of the Act required employers to provide “unpaid” breaks for pumping mothers. The amendments remove the word “unpaid,” and instead state that an “employer may not reduce an employee’s compensation for the time used for the purpose of expressing milk.” While the Act does not expressly provide that all pumping breaks must be paid, it does prohibit employers from reducing an employee’s pay for pumping breaks. Under a fair reading of these amendments, employers should pay employees exactly as they would have if they were not taking pumping breaks. If an employee needs to pump during a regularly scheduled unpaid break, the employer does not need to pay her for that time.  However, if an employee needs to pump during a time period that is regularly paid, the employer cannot reduce her pay for that time spent pumping.
  • Employers may only restrict employees from pumping if it causes an undue hardship. The former act provided that an employer is not required to provide this break time if it would “unduly disrupt the employer’s operations.” Under the new amendments, an employer may only restrict mothers from pumping at work if it can satisfy the higher burden of showing an undue hardship, as defined by the Illinois Human Rights Act. This means an employer would need to show that a pumping break would be prohibitively expensive or disruptive given the employer’s size, financial resources, and operation, among other factors.

As before, this Act applies to employers who have more than five employees. The requirement that employers provide a private space to pumping mothers in close proximity to their work area remains unchanged. In light of these amendments, employers should review their workplace lactation policies and reach out to employment counsel with any questions.

 

Massachusetts Adds More Limits To Non-Competition Agreements

Contributed by Brian Wacker, September 5, 2018

If you are an employer with employees or independent contractors in Massachusetts, it is about to get much more burdensome to protect your customer contacts and trade secrets. In sweeping legislation affecting all employers with employees or independent contractors in the Commonwealth, Massachusetts has altered the meaning, validity and enforceability of non-competition agreements.

83442717 - man is signing non compete agreement

man signing non-compete agreement

The new law, which goes into effect October 1, 2018, requires that any non-competition agreement affecting employees or independent contractors in Massachusetts meet eight minimum requirements in order to be valid and enforceable:

  1. If entered prior to employment, it must: be in writing; state that the employee has the right to consult with an attorney; and be provided to the employee at least 10 business days prior to employment.
  2. If entered after employment but not as part of a separation, in addition to the requirements above, it must: be supported by consideration independent of continued employment; and the employee must have ten 10 days’ notice before it is effective.
  3. It must be necessary to protect one of the following legitimate business interests of the employer: trade secrets; confidential information; or goodwill.
  4. The term of the non-competition cannot be for more than one year after employment has ended.
  5. The geographic scope must be “reasonable in relation to the interests protected,” a benchmark for which the legislature says would be a geographic area where the employee provided services in the past two years.
  6. The scope of services precluded in the agreement must be “reasonable,” which the legislature again says is a benchmark for which would be a restriction on activities the employee performed in the past two years.
  7. The agreement must contain a “garden leave” clause or other similar consideration, which requires the employer to pay the employee 50% pro-rata of his/her annual salary during the entire restricted period.
  8. It must be “consonant” with public policy.

The new law also makes non-competition agreements completely unenforceable against certain classes of employees – namely, students with internships or short-term employment, employees terminated without cause or laid off, non-exempt employees under the Fair Labor Standards Act and any employee under the age of 18 years old.

 

 

The Illinois Human Rights Act is Amended: Increased Filing Timeframes, Opt-Out Provisions, and a Restructured Commission. Oh, My!

Contributed by Julie Proscia, August 29, 2018

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Black and white gavel

On August 24, 2018 Governor Rauner signed PA 100-1066 into law thereby amending the Illinois Human Rights Act which revamps, and sometimes streamlines, discrimination complaints on the state level.  This legislation, effective immediately, comes after months of hearings and recommendations from both the Senate and House Task Forces on Sexual Misconduct.  I have had the privilege of sitting on the Illinois Task Force on Sexual Misconduct and take this opportunity to report on these amendments. During the course of the hearings, the Task Force heard testimony from business organizations, individual plaintiffs, and stakeholders regarding their concerns related to the current administrative system. The core discussions focused on changes that would give individuals the right to opt out of the administrative process, create parity between the filing of claims at the EEOC and the Illinois Department of Human Rights, and reduce the backlog of cases before the Illinois Human Rights Commission. The most significant amendments are:

  • The Illinois Human Rights Act is amended to increase the time frame that individuals have to file a charge, from 180 to 300 calendar days, from the date of the alleged civil rights violation;
  • Sets forth opt out provisions in which an individual may, within 60 days of filing a complaint with the Illinois Department of Human Rights, opt out of an investigation at the Illinois Department of Human Rights and proceed to circuit court; and
  • Restructures the Illinois Human Rights Commission in order to decrease the backlog of cases and theoretically prevent a backlog from occurring in the future. Effective January 2019, the Commission will, amongst other initiatives, be comprised of 7 full time members, as opposed to 13 part-time members, with dedicated staff attorneys and training for newly appointed commissioners.

So what does this mean for employers?  Some good, some bad, and some neutral.  The change from 180 to 300 calendar days is not a significant change, although on the surface it appears to be.  In the State of Illinois, an individual currently has, even before the new legislation, 300 calendar days from the date of alleged harm to file a charge with the EEOC.  As such, the new legislation creates parity in deadlines for filing between the state and its federal administrative counterpart.  The inclusion of opt out provisions can potentially increase the flow of discrimination litigation away from the administrative system, while the restructuring of the Commission is designed to decrease congestion.  In either scenario or design, prevention prior to this level of escalation is paramount.  Good policies, procedures, and annual training can reduce the likelihood of having to test the new amendments.

FDIC Publishes Final Rule on Section 19

Contributed by Carlos Arévalo, August 16, 2018

On August 3, 2018, the Federal Deposit Insurance Corporation (FDIC) published its final rule on proposed modifications to the Statement of Policy under Section 19 of the Federal Deposit Insurance Act. Section 19 prohibits, without prior written consent from the FDIC, the employment of any person who has either been convicted of, or who has entered a pretrial diversion program (program entry) for, a crime involving dishonesty, breach of trust or money laundering.

GavelBW

Black and white gavel 

Certain modifications in the final rule are intended to expand the FDIC’s de minimis criteria which obviate the need for a consent application. Currently, a covered offense is deemed de minimis if: 1) there is only one conviction or program entry; 2) the offense was punishable by imprisonment for a term of one year or less and/or a fine of $2,500 or less and the individual served three days or less of jail time; 3) the conviction or program entry was entered at least five years prior to the application; and 4) the offense did not involve a bank or insured credit union.

Pursuant to the new rule, not only will “jail time” be more specifically defined (to include significant restraint on individual’s freedom of movement including confinement to a facility), but the following additional de minimis exceptions will be added:

  1. A conviction or program entry that occurred when the individual was 21 years of age or younger;
  2. Multiple conviction(s) or program entry(ies) for writing “bad” or insufficient funds check(s) if there is no other conviction or program entry and the aggregate value of all “bad” checks is $1,000 or less;
  3. A conviction or program entry for small dollar, simple theft (less than $500);
  4. A conviction or program entry for the use of a fake, false or altered form of identification for the purpose of obtaining alcohol

So why is this final rule important?  On the one hand, FDIC institutions apply Section 19 and disqualify applicants with criminal histories because filing consent applications are neither a sure thing nor an immediate process. On the other, Section 19 generally conflicts with federal, state and local anti-discrimination laws. For instance, the use of arrest or criminal history information as a basis to refuse employment is a civil rights violation under the Illinois Human Rights Act. As a result, FDIC institutions must be careful and thorough in their application of Section 19. This is particularly important in light of the expansion of the de minimis exceptions outlined in the final rule published last week.  While Section 19 may serve as a defense to a claim of discrimination, such a defense may not hold if Section 19 is improperly applied. Accordingly, we recommend FDIC institutions consult experienced counsel regarding updates to internal policies and to ensure existing and new Section 19 de minimis exceptions are properly taken into account when evaluating candidates for employment.