Category Archives: Uncategorized

Are Independent Contractor Transportation Workers Exempt from the Federal Arbitration Act?

Contributed by Brian Wacker, December 10, 2018

The Supreme Court recently heard arguments on an issue which will have lasting implications on the arbitrability of claims between employers and certain independent contractors. Where the Court lands will have significant impact on employers moving forward, not only with regard to the form of contracts employers offer, but also with regard to how they classify workers in the transportation field.

Currently, the Federal Arbitration Act (the “FAA”) authorizes transportation employers to include mandatory arbitration provisions in employment contracts, which can require employees to arbitrate workplace disputes in lieu of going to court, and limit them to bringing those claims individually. This is obviously a strong tool for employers seeking to minimize the uncertainty and costs of litigation.

SupremeCourtBuilding

Supreme Court Building

However, as employers with workers engaged in transportation should know, an exception is made in Section 1 of the FAA, exempting “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. §1. This has become known as the “transportation” exemption. Historically, Congress included this exemption, in part, because transportation workers were subject to separate federal dispute resolutions statutes already in effect.

In New Prime, Inc. v. Oliveira, Sup. Ct. Case. No. 17-340, the Court considered the “transportation” exemption in the FAA – specifically two issues: (1) whether disputes over its applicability should be resolved by an arbitrator or a judge and (2) whether the exemption applies to independent contractors as well as employees.

The scope of the “transportation” exemption has been wrangled over for years, culminating in the 2001 landmark decision in Circuit City Stores, Inc. v. Adams, where the Court plainly read the exemption, holding that it did not apply to any workers outside of the delineated transportation industries. In other words, non-transportation workers could no longer try to seek the benefit of the exemption.

Despite this precedent, workers have continued to try to expand its application with New Prime being just the latest example – this time to independent contractors working in the transportation field. Following submissions and several amicus briefs in support of both sides, the issue and positions of the parties were clear. When defining the exemption’s scope, it uses the term “contracts of employment.” New Prime, the Petitioner, has asked the Court to interpret this term narrowly, arguing it should mean only those contracts that establish a common-law employment relationship. Oliveira, the Respondent, argued the term should refer to all agreements to perform work, regardless of form, which would necessarily include independent contract agreements.

The Court heard oral argument on October 3, 2018. Because the case was submitted prior to new Associate Justice Kavanaugh’s confirmation, the case was only heard by eight justices. So if the justices split along ideological lines 4-4, Oliveira will prevail and the First Circuit’s ruling that the independent-contractor agreement at issue was a “contract of employment” for purposes of the exemption.

The Court is not expected to rule until early 2019. This blog will update as soon as the Court’s opinion is issued.

Proposed Regulations Issued on Hardship Distributions

Contributed by William Scogland, November 30, 2018

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hand stacking coins

The IRS has issued proposed regulations on hardship distributions under section 401(k) and 403(b) plans (“Proposed Regulations”), addressing issues raised by the Bipartisan Budget Act of 2018 (“Budget Act”) and the 2018 Tax Cuts and Jobs Act (“Tax Act”). Plan sponsors need to consider administrative and plan amendment changes promptly.

There are two requirements for a permissible hardship distribution:

  • The withdrawal must be made due to an immediate and heavy financial need; and
  • The amount of the withdrawal must be limited to the amount necessary to satisfy that financial need.

Elimination of Six-Month Contribution Suspension

Under current regulations, participants who take a hardship distribution are prohibited from making contributions to the plan and other employer-sponsored plans for six months. The Proposed Regulations eliminate the six-month contribution suspension requirement.

Plan Loans Not Required Before a Hardship Distribution

Previously, a requested hardship distribution could be approved only if the participant has taken all plan loans otherwise available. The Proposed Regulations would remove this requirement. Unlike the elimination of the six-month suspension period, however, the elimination of this requirement is not mandatory.

New Circumstances for Hardship Distributions

Under current regulations, an employee is considered to have an immediate and heavy financial need in one of six categories of hardship events. The Proposed Regulations liberalize these rules:

  • A participant could take a hardship distribution for expenses to repair damage to his principal residence if the damage qualified for a casualty loss deduction under Code Section 165. The Proposed Regulations would restore the casualty loss hardship distribution even though the casualty loss deduction has generally been repealed.
  • Hardship distributions for qualifying medical, educational, and funeral expenses include those expenses incurred by a participant’s “primary beneficiary.”
  • Under a new category of permitted hardship distribution events, participants may take a hardship distribution due to expenses and losses (including loss of income) incurred after federally-declared disasters (as long as the participant’s home or principal place of business at the time of the disaster was located in an area designated for federal assistance).

Expansion of Sources

The Proposed Regulations expand the sources available for hardship distributions. Proposed Regulations confirm that safe harbor 401(k) employer contributions (and earnings thereon) and a number of other plan “buckets” are available sources for hardship distribution. Plan sponsors would not be required to expand the available sources for hardship distributions.

Plan Administrators May Rely Solely on New Participant Representation

A participant need only represent (in writing or by electronic means) that they have insufficient cash or liquid assets to satisfy the financial need. A plan administrator could rely on the representation in the absence of actual knowledge to the contrary.

Effective Date

The Proposed Regulations generally apply to hardship distributions made in plan years starting after December 31, 2018, but some special rules apply. There may be additional changes in final regulations.

The New Year is Coming…Is Your Office Prepared with the Required Illinois Posters for 2019?

Contributed by Sara Zorich, November 20, 2018

As the holidays are quickly approaching and the hustle and bustle of the end of the year begins, it is important to focus on compliance for 2019. Illinois employers need to ensure that they have the required Illinois postings displayed in their workplaces. The following Illinois posters are required for the designated Illinois employers:

  1. NEW Discrimination and Sexual Harassment Poster (Required to be posted by ALL ILLINOIS EMPLOYERS as of September 2018). In addition, employers should review the notice to employers which outlines information about the poster AND the additional posting requirements necessary in the Company’s handbook.
  2. NEW Illinois Service Member Employment and Reemployment Rights Act (ISERRA) Poster (Required to be posted by ALL ILLINOIS EMPLOYERS by January 1, 2019). This is a new law applicable to public and private employers governing military service leave which aligns Illinois’ military law with the federal law USERRA. For private employers, there are some additional requirements beyond USERRA regarding performance reviews addressed in Section 330 ILCS 61/5-5(3) of the Act. This new law has NO IMPACT on the Illinois Family Military Leave Act which is still applicable law.
  3. Pregnancy Notice (Required to be posted by ALL ILLINOIS EMPLOYERS)
  4. Know Your Rights Poster (Required to be posted by ALL ILLINOIS EMPLOYERS)
  5. Workers Compensation (Required to be posted by ALL ILLINOIS EMPLOYERS)
  6. Unemployment Insurance Benefits Notice (Required to be posted by ALL ILLINOIS EMPLOYERS)
  7. Emergency Choking Notice (Required to be posted by ALL ILLINOIS EMPLOYERS)
  8. Smoke Free Illinois Act Notice (Required to be posted by ALL ILLINOIS EMPLOYERS)
  9. Sexual Harassment in Higher Education Act Poster (Required for those entities who are a public university, a public community college, or an independent, not-for-profit or for-profit higher education institution located in Illinois)
  10. Employee Classification Act of 2008 Poster (Required to be posted by ALL ILLINOIS CONSTRUCTION CONTRACTORS that have one or more individuals that are not classified as employees)
  11. Illinois Occupational Safety & Health Act Poster (Required to be posted by ALL ILLINOIS PUBLIC SECTOR EMPLOYERS)
  12. Illinois Day and Temporary Labor Services Act (Required to be posted by ALL ILLINOIS TEMPORARY LABOR AGENCIES)

Federal Court Strikes Down Certain EEOC Wellness Program Regulations, Effective January 1, 2019

Contributed by Steven Jados, January 12, 2018

In a recent decision with a nation-wide effect, the U.S. District Court for the District of Columbia struck down certain provisions of the EEOC’s Wellness Program regulations.

As we have previously discussed, workplace wellness programs generally provide certain incentives to employees as part of programs intended to prevent illness and encourage healthier lifestyles.  But these programs can run afoul of various federal and state anti-discrimination laws, particularly the Americans with Disabilities Act (“ADA”) and the Genetic Information Nondiscrimination Act (“GINA”), if the programs require employees to disclose private medical information under circumstances that are not truly “voluntary.”

The inherent difficulty with wellness program incentives is the notion that, at some point, a reward or penalty becomes so great that it becomes impossible to refuse.  At that point, the incentives are so coercive that the wellness program can no longer be considered voluntary under the ADA and GINA.

To assist employers with implementing ADA and GINA-compliant wellness programs, the EEOC issued regulations in May 2016 that set an upper limit on incentives (which can take the form of rewards or penalties) linked to wellness program participation of 30% of the cost of employee-only health care coverage.  Under the regulations, the EEOC considered wellness programs that complied with the 30% incentive threshold as falling within the definition of “voluntary.”

In August 2017, however, the D.C. district court ruled that the 30% incentive regulations were improper.  The main shortcoming of the regulations, as identified by the court, is that the EEOC apparently set the 30% threshold without any concrete data or reasoning to support the proposition that an incentive crosses the line from voluntary to involuntary at 30% of the cost of health insurance.  Instead of striking down the regulations entirely at that time, the court gave the EEOC the opportunity to modify the regulations.

In the closing days of 2017, the court revisited the issue and determined that the EEOC was not moving quickly enough to correct the regulations on its own, and the court vacated the 30% incentive regulations—but did so with an effective date of January 1, 2019, in order to minimize disruptions to existing wellness programs and to allow employers sufficient time to modify their wellness programs in the future.

The court also noted that the effective date of January 1, 2019, was intended in part to provide the EEOC additional time to issue new regulations.  Prior to the December ruling, the EEOC told the court that the EEOC intended to issue proposed regulations by August 2018, but that final regulations would not go into effect until 2021.  The court’s response was that 2021 is “unacceptable,” and the court “strongly encouraged” the EEOC to accelerate its timeline.

With all of that in mind, the bottom line is that until the EEOC issues new regulations, employers must consider structuring wellness program incentives with an eye toward documenting, with concrete data and analysis, that the program’s incentives are not so great–and, therefore, not so coercive—that the program becomes involuntary.  Stay tuned, as we will closely monitor any further action and guidance from the EEOC on this issue.

DOL Says Goodbye to Six-Factor Unpaid Internship Test

Contributed by JT Charron, January 10, 2018

On Friday, the Department of Labor abandoned its six-part test for determining whether an intern must be paid, and replaced with the more employer-friendly “primary beneficiary test.” This announcement came less than a month after the Ninth Circuit became the fourth federal appellate court to expressly reject the DOL’s six-factor test in favor of the primary beneficiary test.

Background

Under the Fair Labor Standards Act (FLSA) employers must generally pay employees minimum wage for all hours worked, and overtime for all hours worked over 40 in a week. The FLSA, however, exempts certain individuals from these requirements, including bona fide interns. To determine whether an intern was bona fide, the DOL introduced a six-factor test in 2010, which required that:

  1. The internship was similar to training that would be offered in an education environment;
  2. The internship experience was for the benefit of the intern;
  3. The internship was not displacing a regular employee;
  4. The training provide by the employer to the intern may have impeded the employer’s operations;
  5. The intern was not expecting a permanent position at the conclusion of the internship; and
  6. Both the employer and the intern understand that there was no compensation.

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    “interns wanted” sign

According to the DOL, if even one of these factors did not apply, the individual was an employee — not an intern — and was required to be paid minimum wage and overtime.

The Primary Beneficiary Test

First articulated in 2015 by the Second Circuit Court of Appeals, the primary beneficiary test is a case-by-case approach that gives consideration to the following seven factors:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee — and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

Importantly, no single factor is dispositive, and the employee/intern distinction will be based on the unique circumstances of each case.

Bottom Line

While the primary beneficiary test will provide more flexibility for businesses preparing for the 2018 internship season, employers must still be careful in designing internship programs. As the above factors indicate, the primary beneficiary of any program must still be the intern — not the employer.

The Impact of Local Minimum Wage and Paid Sick Leave Ordinances on the Transportation Industry

Contributed by Michael Wong, January 5, 2018

Over the past few years, cities, counties and local municipalities have been enacting laws and ordinances increasing the minimum wage and requiring paid sick leave for employees. While there have been growing pains with how these apply to normal hourly non-exempt employees and tipped servers, do these apply to motor carriers and employees who are truck drivers?  This can be the most frustrating legal response of all, “it depends.”

In most cases, minimum wage laws enacted by states follow the Fair Labor Standard Act (“FLSA”) and provide exemptions for motor carriers.  Indeed, under Section 12(b)(1) of the FLSA, employees whose duties, wholly or in part, affect the safety of operation of a motor vehicle and are involved in interstate commerce are exempt from being paid overtime. Whether a municipality’s minimum wage ordinance applies, depends on the language and rules of the ordinance. For example, the rules of the Cook County, Illinois minimum wage specifically state that a regulated motor carrier subject to subsection 3(d)(7) of the Illinois Minimum Wage Law is not a “Covered Employer” that would be required to pay covered employees the Chicago or Cook County minimum wage. Similarly, the rules of the City of Chicago minimum wage states that individuals employed for a motor carrier who are subject to the Department of Transportation regulation are not subject to the Chicago minimum wage.

However, paid sick leave laws and ordinances are different.  Neither the Cook County, Illinois earned sick leave ordinance or City of Chicago earned sick leave ordinance have the same exclusion for motor carriers or truck drivers.  While neither expressly states that motor carriers are required to provide paid sick leave to employees who are truck drivers, they also do not state that motor carriers or truck drivers are exempt.  Due to the plain language exempting motor carriers and truck drivers from the minimum wage ordinances, there is a very strong argument that motor carriers are required to provide their employees who are truck drivers with paid sick leave.

Indeed, this interpretation is not unusual within the growing trend of states, cities and local municipalities expanding employee rights – including those of truck drivers. Currently there are 8 states and 30 cities and municipalities that have paid sick leave laws which include:  Illinois (local), Washington (state and local), California (state and local), Arizona (state and local), Oregon (state and local), Minnesota (local), Vermont (state), Massachusetts (state and local), Pennsylvania (local), New Jersey (local), New York (local), Connecticut (state) and Washington, D.C. (local).

Bottom line, the different paid sick leave laws do not address or expressly exempt motor carriers or truck drivers from being subject to the law or ordinance. By not addressing or expressly exempting motor carriers and their employees, these laws are creating significant exposure for motor carriers that fail to make changes by providing employees who are truck drivers with the ability to earn paid sick leave or considering how those employees are being compensated. Certainly, with the patchwork of laws and nuances in each jurisdiction, it can be extremely frustrating and difficult to try and implement a globally compliant policy.  Thus, special attention must be taken when crafting such policies and review by experienced counsel should be part of the process.  Moreover, motor carriers utilizing truck drivers who are independent contractors or owner/operators should take particular pause to consider the increased liability from misclassification claims and the potential damages under the paid sick leave laws, in addition to any applicable minimum wage law or ordinance.

Tax Bill Cuts Deduction for Confidential Sexual Harassment & Abuse Settlements

Contributed by Noah A. Frank and Kelly Haab-Tallitsch, January 3, 2018

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law as P.L. 115-97.  Hidden about halfway into the law, in Section 13307, is an amendment to the tax code on itemized deductions for individuals and corporations. Generally, current law permits employers to treat the costs of settlement payments and related attorney’s fees as a tax deductible business expense. However, the recent amendment eliminates the deduction in certain situations, stating:

No deduction shall be allowed under this chapter for — (1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or (2) attorney’s fees related to such a settlement or payment. (26 USC 162(q)).

This change applies to any payments made after December 22, 2017, including payments for settlements that occurred prior to this date.

The result of this amendment is that business must weigh their desires to (a) deduct the settlement as a business expense, versus (b) keep allegations and settlement of sexual harassment/abuse claims confidential. Employers may have been willing to pay more for an agreement with a non-disclosure provision, but the inability to deduct the settlement may be changing this calculus.

Interestingly, the amendment applies only to sexual harassment/abuse related settlements in for-profit businesses – it does not impact settlements:

  • Related to race, religion, age, disability, other civil rights-type causes of action, employee benefits claims, breach of contract, or other employment related claims.
  • For tax exempt enterprises (that do not have such deductions to take), or
  • For government agencies (that do not pay federal taxes).

The IRS and courts will be left to clarify the nature and extent of this amendment, including (i) what “related to” means; (ii) whether part of a settlement can be confidential if there are multiple causes of action (e.g., sex and age harassment); (iii) whether attorney’s fees may be apportioned between investigation, evaluation, multiple claims, etc. to allow for a deduction if the final result is a confidential, sexual harassment related settlement agreement.

What this means for your business:

Of course, the best position to be in is to prevent claims in the first place. Seek the advice of employment counsel for effective preventative measures. At a minimum, employers must conduct regular antidiscrimination/anti-sexual and other harassment training (bullying, too, in some states), and ensure that employment policies, reporting procedures and the like remain up to date.

But if there is a claim of sexual harassment and/or abuse for which a business decides to settle, the business will be left to determine whether a tax deduction or confidential settlement is more important, and how to handle related issues.