Category Archives: News & Tips

OVERTIME RULE UPDATE – DOL APPEALS PRELIMINARY INJUNCTION

Contributed by Noah A. Frank

As we previously reported, on 11/22/2016, Judge Amos Mazzant (E.D. Texas) granted a preliminary injunction that halted the 12/1/2016 implementation of the DOL’s Final Overtime Rule, which would have more-than-doubled the minimum salary level for executive/administrative/professional exempt employees.Wage-Hour2

On 12/1/2016, the U.S. DOL filed a notice of appeal to the Fifth Circuit Court of Appeals, indicating that it strongly believes that the DOL followed all required administrative processes, and there is no reason to delay implementation of the Final Rule.

This fight is not over. Employers that have not yet undertaken serious analysis of the duties of claimed exempt positions should do so promptly and determine the strategies they will implement should the injunction be vacated. Stay tuned for further news and analysis of this hotly evolving issue.

Use This Language to Comply with the Notice Requirements in the New Federal “Defend Trade Secrets Act”

Contributed by Jeff Glass, May 17, 2016

As we reported on May 13, 2016, there is now a federal statute, called the Defend Trade Secrets Act (DTSA) that provides a federal cause of action for trade secret misappropriation. The full DTSA is found here.

One important feature of the DTSA is that it, like most state trade secret statutes, allows employers to recover punitive damages and attorney’s fees for the unauthorized use or disclosure of trade secrets. However, unlike the state statutes, the DTSA conditions the availability of these remedies on compliance with certain notice requirements contained in Section 7 of the Act.

The notice must be provided “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” The DTSA also allows notice to be provided by cross referencing a policy document that is provided to the employee.  Although the Act specifically mentions contracts with “an employee,” elsewhere it defines “employee” to include “any individual performing work as a contractor or consultant for an employer.”

The scope of contracts covered by the Act is wide. It would appear to include not only confidentiality agreements entered into at the time of hire, or during employment, but also severance and separation agreements that contain confidentiality provisions.

We strongly suggest that employers add the following language to any contracts that relate to the protection of trade secret information:

Notice of Rights Pursuant to Section 7 of the Defend Trade Secrets Act (DTSA)

Notwithstanding any provisions in this agreement or company policy applicable to the unauthorized use or disclosure of trade secrets, you are hereby notified that, pursuant to Section 7of the DTSA, you cannot be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law.  You also may not be held so liable for such disclosures made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.  In addition, individuals who file a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal and does not disclose the trade secret, except pursuant to court order.

We will keep you updated on further developments under the DTSA.

New Statute Creates Federal Trade Secret Claim

Contributed by Jeff Glass, May 13, 2016

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (DTSA).  DTSA provides a new federal cause of action for misappropriation of trade secrets. A “trade secret” is a broad category of intellectual property. Essentially, it includes any business information that is confidential and derives value from not being known to competitors. It can include everything from technology, to business strategies, to proprietary information about customers and prospects. Unlike patents, copyrights or trademarks, there is no registration system for trade secrets nor is there any set expiration date.

Frequently, trade secret claims are asserted where parties accuse competitors of stealing proprietary information. Trade secret claims can also be used where an employee uses his or her access to company information to compete unfairly, but never signed a restrictive covenant.

Legal protection of trade secrets has been available for many years under the Uniform Trade Secrets Act (UTSA), which has been enacted in some form by 47 states. Now, under DTSA, so long as the trade secret dispute meets threshold Commerce Clause requirements – basically, a nexus with interstate commerce – litigants can access the federal courts. DTSA does not pre-empt state statutes or common law doctrines that govern trade secret misappropriation.

The DTSA adopts the framework of the UTSA with some subtle definitional changes which may or may not be significant depending on how courts interpret the Act. This blog will provide updates as the statute is interpreted. Like the UTSA, it provides for recovery of legal fees for willful violations, allows for punitive damages, and provides for sanctions for bad faith lawsuits. DTSA is not retroactive. It applies to violations that occur on or after May 11, 2016.

Although DTSA is similar to UTSA in most respects, there are some noteworthy differences:

  • The Act has a “whistleblower” notice provision that requires employee confidentiality agreements to include language putting employees on notice that they are immune from DTSA liability if they disclose trade secrets in confidence to the government with suspected violations of law or in compliance with subpoenas. If this notice is not provided, an employer cannot avail itself of exemplary damages or attorneys’ fees in DTSA litigation against such persons. Accordingly, employers should update their agreements to provide this notice.
  • The Act provides for ex parte seizures of property in “extraordinary circumstances.”
  • The Act has heightened criminal penalties for trade secret misappropriation.

Notwithstanding these provisions, for most employers, the main impact is the option to file in federal court. This enhances lawyers’ ability to choose the best forum for their clients’ claim. In addition, as the DTSA is interpreted by federal courts, substantive differences in the law applicable to trade secret misappropriation may develop between the state and federal statutes, such that employers would be better served by filing in federal court as opposed to state court.

We will keep you updated in this blog as to the development of the DTSA. Click here to read a follow up on how to comply with notice requirements regarding DTSA.

“Cadillac Tax” on Health Plans Delayed Until 2020

Contributed by Kelly Haab-Tallitsch

Employers are receiving a temporary reprieve from the controversial “Cadillac Tax” on health plans as part of a large spending and tax bill signed into law by President Obama on Friday, December 18, 2015. The Consolidated Appropriations Act (the “Act”) delays the effective date of the Affordable Care Act’s (ACA’s) excise tax on so-called high cost health plans, known as the “Cadillac Tax,” until January 1, 2020.

The Cadillac Tax, previously scheduled to take effect on January 1, 2018, is a 40% excise tax on employers and insurers who offer health insurance plans that exceed specified high-cost limits ($10,200 for individuals and $27,000 for families for 2018). The 40% tax applies to the cost of the plan above these thresholds.

In addition to the delay, the Act makes the Cadillac Tax a tax-deductible expense for employers, somewhat cushioning its impact. The Act also calls for an examination of suitable benchmarks to be used for the adjustment of the excise tax thresholds in future years.

The delay comes after mounting criticism of the Cadillac Tax from employers, insurers, labor unions and lawmakers. Critics argue that the tax, which was expected to affect an estimated 25% to 30% of employers in 2018, and as many as 50% within the next 10 years, unfairly penalizes employers and unionized workers and will ultimately lead to employees paying more out of pocket for medical expenses.

What Does this Mean for Employers?

While opponents of the Cadillac Tax are citing the delay as the first step towards a repeal of the tax, employers must remain cautious and plan for the tax to be implemented in 2020. Employers should continue evaluating the costs of the health coverage offered to their employees and begin to consider alternatives to reduce exposure to the tax in 2020. Additionally, employers should review the accounting consequences of the now deductible Cadillac Tax.

Temporary Staffing Agencies & User Companies Deemed “Joint Employers” By the NLRB

Contributed by Jeffrey Risch

As we anticipated and previously discussed, on August 27, 2015, the National Labor Relations Board (NLRB) issued its ruling in the closely watched Browning-Ferris Industries of California, Inc. (BFI) case (Case 32-RC-109684). In rejecting over 30 years of precedent and the underlying Administrative Law Judge’s ruling on the issue, the NLRB’s pro-union majority established a new standard for determining joint-employer status. While the decision related to a company’s engagement of a subcontractor supplying workers, the NLRB’s new joint-employer standard will certainly have a direct impact on franchisor/franchisee relationships, temporary staffing and leased employee business models as well as all aspects of employment outsourcing. In short, it lays the groundwork to overturn other past NLRB decisions and will, if left unchecked, alter how two or more independent businesses conduct business in the United States.

The underlying case: Teamsters Local 350 filed an organizing petition seeking to represent employees of Leadpoint who were placed at BFI’s facility. BFI and Leadpoint objected to this organizing attempt and ultimately prevailed before the NLRB’s assigned Administrative Law Judge. The ALJ, in applying decades of precedent, ruled that BFI and its subcontractor, Leadpoint, were not joint employers because BFI did not share “immediate and direct control” over the terms and conditions of Leadpoint’s employees working at the BFI facility. The Teamsters appealed the decision and urged the NLRB to adopt a new standard to allow the representative process to move forward. The NLRB’s General Counsel advanced the Teamsters’ position as well as a host of pro-union organizations — once invited to do so by the NLRB.

The new standard: According to the NLRB’s majority, two or more entities should be deemed joint employers of a single workforce under the Act when (1) they are both employers within the meaning of the common law; and (2) they directly or indirectly share or codetermine essential terms and conditions of employment. In evaluating whether an employer possesses sufficient control over employees to qualify as a joint employer, the NLRB will now consider whether an employer has exercised or reserved ANY control over terms and conditions of employment (directly or indirectly). Suffice to say… it’s now a very low standard. According to the majority, the new standard is designed “to better effectuate the purposes of the Act [National Labor Relations Act] in the current economic landscape.” However, make no mistake… this means exactly what the union, pro-union organizations and the NLRB’s own General Counsel advanced — which was essentially: if business conditions make it more difficult for unions to organize workers or collectively bargain, then the standards must be lowered to allow such.

Board Chairman Mark Gaston Pearce was joined by Members Kent Y. Hirozawa and Lauren McFerran in the majority opinion; Members Philip A. Miscimarra and Harry I. Johnson III dissented. Interestingly, and fodder for future legal challenges, the 2-member dissent stated: “…our colleagues have announced a new test of joint-employer status based on policy and economic interests that Congress has expressly prohibited the Board from considering.”

The impact: Two separate and distinct legal entities could now be embroiled with one another’s alleged unfair labor practices, union organizing drives, strike activities and picketing disputes as well as mandatory bargaining obligations. Further, this decision lays the groundwork for the NLRB to overturn other key decisions and continue its recent actions to provide unions with life-support. For instance, in July 2015, the NLRB invited briefs in the Miller & Anderson, Inc. matter (05-RC-079249), to help determine if the NLRB should overturn its decision in Oakwood Care Center (343 NLRB 659), which disallowed inclusion of solely employed employees or jointly employed employees in the same unit absent consent of both employers. Have no doubt, the writing is already on the wall here. Additionally, this decision will certainly be used by the EEOC, U.S. DOL and other federal agencies in their ongoing efforts to increasingly regulate the workplace.

Conclusion: Take action now! Don’t wait. First, immediately review and analyze all written agreements in place between your organization and any 3rd party. Whether you are a franchisor, franchisee, user company, general contractor, subcontractor, supplier company, temporary staffing firm…. It does not matter. Review all agreements through the lens of the NLRB and its bent towards finding joint-employer status. Second, carefully review and evaluate actual supervisory functions and oversight, training requirements and other day-to-day activities surrounding employee relations (of your own direct employees and 3rd party employees). Finally, perhaps its time to sit down and determine whether your current business model needs to be tweaked or modified in light of these disturbing developments.

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.

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