Hunton Employment & Labor Law Perspectives : Employment Lawyers & Attorneys : Hunton & Williams Law Firm : Labor Law Legislative Updates

The new regulations were drafted in response to two U.S. Supreme Court decisions that changed the landscape for employers facing ADEA claims.  In Smith v. City of Jackson (2005), the Court held that an employment practice which disparately impacts older workers is not discriminatory if it can be justified by a “reasonable factor other than age.”  Because Smith did not specify which party bore the burden of persuasion on this defense, the Court decisively ruled in Meacham v. Knolls Atomic Power Lab (2008), that an employer bears both the burden of production and the burden of persuasion.

 The new regulations seek to clarify the scope of the “reasonable factor other than age” defense in a number of ways.  The regulations offer a nonexhaustive list of factors to be used in determining the “reasonableness” of the challenged employment practice.  The list includes considerations such as whether the employer’s practice and implementation involved a common business practice, the extent to which the practice is related to the employer’s stated business goal, the extent to which the employer took steps to assess the adverse impact of the practice on older workers, and whether alternative options were available.  The proposed rules also consider the extent to which the employer gave supervisors unchecked discretion to assess employees subjectively and the extent to which supervisors were given guidance on how to apply the factors and avoid discrimination.

 Critics of the proposed regulations argue that the rules, along with the Smith/Meachum  analysis, make it virtually impossible for even the most careful employer to survive summary judgment on a disparate impact claim because a plaintiff merely has to show that the facially-neutral employment practice falls more heavily on older workers.  Opponents also question the EEOC’s reliance on a tort theory of “reasonableness” to create a duty on the part of the employer to avoid discrimination.  Along these lines, one of the commissioners who voted against the rule expressed concern that the rule would be vulnerable to substantive and procedural legal challenges as a result of its “wholesale application of tort law [principles].”

As we reported on December 23, 2010, the NLRB had issued a proposed rule regarding the notice on December 22, 2010. The NLRB received more than 7,000 comments in the six-month comment period that followed. The NLRB appears to have made minor adjustments based on comments received, but the Final Rule is substantially as proposed.

The Final Rule requires private-sector employers who are covered by the NLRA (which is most companies) to post the designated 11x17 employee rights notice wherever other workplace notices are typically posted. If employers regularly post rules or policies on an intranet or internet site, the Board’s notice must also be posted there. Translated versions must be posted where at least 20% of the workforce is not proficient in English. 

The notice tells employees of their unionizing rights, gives examples of unlawful employer and union conduct, and tells employees how to contact the NLRB with questions and complaints. The NLRB describes the notice as “similar” to the notice required for federal contractors by the U.S. Department of Labor (“DOL”). The NLRB will deem a contractor in compliance with this requirement if it posts the DOL’s notice.

Failure to post the notice may be treated as an unfair labor practice (“ULP”).

What This Means For Employers

Unless a company already posts the DOL’s comparable notice, employers should obtain a copy of the notice from the NLRB (via its website or a Regional Office), once it is published around August 30, 2011. The notice should be posted, both physically and electronically, in all places that other employee notices are posted. Companies should ensure they are in compliance with this requirement by no later than November 14, 2011.

The EEOC has initiated an aggressive campaign to correct what it considers as widespread discriminatory practices in the hiring process. As part of this campaign, the EEOC is examining the alleged “emerging practice” of unemployment discrimination. On February 16, 2011, the EEOC held a public meeting in which advocates of the movement to prohibit unemployment discrimination testified that employers and staffing agencies are refusing to consider unemployed applicants for vacant positions at an increasing rate. According to these advocates, as well as the EEOC, unemployment discrimination has a “disparate impact” on minority, older, and disabled workers because those groups face higher-than-average unemployment rates.

Several members of Congress have supported the EEOC’s plans to prohibit employers from making hiring decisions based on unemployment status. Prior to the EEOC’s February public meeting, 54 members signed a letter to EEOC Chairperson Jacqueline Berrien encouraging the Commission to investigate the “very serious issue” of unemployment discrimination. Many of these Congress members also cosponsored H.R. 1113, a bill introduced by Rep. Henry Johnson, Jr. (D-GA) on March 16, 2011, which would amend Title VII to include “unemployment status” as a protected category, along with race, color, religion, sex, or national origin.

More recently, on July 12, 2011, Rep. Rosa L. DeLauro (D-CT) introduced another bill intended to prohibit unemployment discrimination. H.R. 2501, entitled the “Fair Employment Opportunity Act of 2011,” specifically targets employment actions commonly viewed as discriminatory against the unemployed, such as denying employment based on unemployment status, refusing to consider unemployed applicants, publishing job postings that bar applications by unemployed persons, and directing a staffing agency to do the same. Although the Act was introduced just weeks ago, it has already garnered the support of 30 cosponsors.

While it is too early to gauge just how far the EEOC and Congress will push the issue of unemployment discrimination, employers should be mindful of these recent trends.

Under the new law, employers may not “require an employee or prospective employee to consent to a request for a credit report that contains information about the employee’s or prospective employee’s credit score, credit account balances, payment history, savings or checking account balances or savings or checking account numbers as a condition of employment.” There are, however, four exceptions to that rule.  Employers may require such consent if:

• the employer is a financial institution;
• such a report is required by law;
• the employer reasonably believes that the employee has engaged in specific activity that constitutes a violation of the law related to the employee’s employment; or
• such report is substantially related to the employee’s current or potential job or the employer has a bona fide purpose for requesting or using information in the credit report that is substantially job-related and is disclosed in writing to the employee or applicant.

By restricting an employer’s ability to request consent for a credit report, the new law indirectly restricts employer use of credit reports in employment decisions. In most cases, employers will seek refuge in the last exception. Luckily for employers, “substantially related to the employee’s current or potential job” is defined rather broadly by the Connecticut statute. “Substantially related to the employee’s current or potential job” means the information contained in the credit report is related to the position for which the employee or prospective employee who is the subject of the report is being evaluated because the position:

• Is a managerial position which involves setting the direction or control of a business, division, unit or an agency of a business;
• Involves access to customers’, employees’ or the employer’s personal or financial information other than information customarily provided in a retail transaction;
• Involves a fiduciary responsibility to the employer, including, but not limited to, the authority to issue payments, collect debts, transfer money or enter into contracts;
• Provides an expense account or corporate debit or credit card; 
• Provides access to
  confidential or proprietary business information, or
  • (information, including a formula, pattern, compilation, program, device, method, technique, process or trade secret that:
    • derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from the disclosure or use of the information; and
    • is the subject of efforts that are reasonable under the circumstances to maintain its secrecy; or
• Involves access to the employer’s nonfinancial assets valued at two thousand five dollars or more, including, but not limited to, museum and library collections and to prescription drugs and other pharmaceuticals.

 Employers should prepare to comply with the new law, which goes into effect on October 1, 2011.

For many years, the Department of Labor has interpreted the “advice exception” broadly to exclude arrangements where the consultant has no direct contact with employees.  However, as we reported last spring and summer, the DOL has decided to move away from a broad interpretation of the advice exception and, as a result, held public meetings regarding its desire to narrow the advice exception.

The DOL has now taken the next step in its efforts to narrow the advice exception.  Specifically, on Tuesday June 21, 2011, the DOL issued a Notice of Proposed Rulemaking, which attempts to remedy what the DOL refers to as a “significant underreporting” problem.  According to the proposed rule, the term “advice” would be limited to “an oral or written recommendation regarding a decision or course of conduct.”  Under this narrower definition, if a consultant engages in actions or communications that would indirectly or directly persuade employees regarding organizing, such activity is reportable under section 203 notwithstanding the fact that the consultant did not have direct contact with the workers.  Thus, for example, when a consultant prepares or provides a persuasive script, letter, or videotape for use by an employer in communicating with employees, or if the consultant makes revisions to such items to enhance their persuasive message, the advice exception may not apply, and the duty to report could be triggered.

The impact of this proposed rule will be significant if it is adopted.  Employers may no longer be able to shield third-party arrangements from reporting simply by isolating consultants from direct employee contact.  Moreover, the rule may interfere with employers’ ability to obtain legal advice from law firms out of fear that both the employer and the law firm may incur reporting obligations as a result. 

Comments to the proposed rule are due no later than August 22, 2011.  We encourage all employers potentially affected by the proposed rule to review the rule closely and submit comments to the rule. 

Among other things, the app will enable workers to more easily track time worked while not on the employer’s premises. This could be particularly useful for non-exempt employees in tracking the time they spend working remotely on a smart phone, such as reading and sending e-mails and performing other work-related tasks. The app would allow the employee simply to activate the electronic timesheet before the employee starts working on the smart phone, and then deactivate it when the work is complete. With the press of a button, the employee can create a spreadsheet showing the wage calculation for any time period.

The DOL stated that this new technology is significant because, “instead of relying on their employers’ records, workers can now keep their own records,” which can “prove invaluable during [a DOL] investigation when an employer has failed to maintain accurate employment records.” The DOL further indicated that future apps may be launched to assist employees with compliance issues relating to payment of tips, commissions, bonuses, holiday pay, weekend pay, shift differential and pay for regular days of rest, as well as for impermissible pay deductions.

The introduction of the new DOL app provides further proof of the DOL’s aggressive approach to the enforcement of the FLSA and the importance of employers maintaining carefully drafted wage and hour policies and procedures. With this new technology, employers will need to be prepared to defend the accuracy of their own records in the event of a dispute with an employee or the DOL.

If the proposed changes are accepted as drafted, contractors will face increased compliance obligations when responding to audits.  Although several of the proposed changes merely clarify requests in the current Itemized Listing, many of the changes will require contractors to provide new information and detailed data that was not previously requested in audits.  Several of the more significant proposed changes are explained below.

Leave Policies.  Under the proposed changes contractors must provide employment leave policies including policies that address pregnancy leave, the Family and Medical Leave Act and accommodations for religious observances and practices.  If these policies are contained in employee manuals or handbooks, contractors should provide the handbook or manual.  This proposed change is notable because the current Itemizing Listing does not address these issues,  which are typically handled by the Wage and Hour Division of the Department of Labor or the Equal Employment Opportunity Commission.

Detailed Demographic Information.  The proposed Itemized Listing requires contractors to provide applicant, hire, promotion and termination data by specific race/ ethnicity group, instead of by categories of minority and non-minority.  The OFCCP explains that contractors should list this data based on the following race/ ethnicity categories; African American/Black, Asian/ Pacific Islander, Hispanic, American Indian/Native Alaskan, and White.

Job Title and Job Group.  The OFCCP has proposed that applicant, hire, promotion and termination data be submitted by both job group and job title.  Currently contractors may submit this information by either job group or job title.

Pool Data.  The proposed changes would also require contractors to provide the “actual pool of candidates who applied for or were considered” for promotions and additionally the “actual pool of candidates who were considered for terminations.”  Under the current Itemized Listing contractors need only provide the number of individuals promoted or terminated, the pool data is not required.

Additional Compensation Data.  The amended Itemized Listing makes major changes to its request for compensation data.  The proposed changes would require contractors to provide individual employee compensation data rather than aggregate compensation data, which is requested in the current scheduling letter.  This information would need to be provided by particular racial/ethnicity group rather than by minorities as a whole.  The proposed changes also require contractors to identify separately the following information; base salary, wage rate and hours worked, bonuses, incentives, commissions, merit increases, locality pay and/or overtime.  Finally, contractors would be required to produce any documentation and policies relating to compensation practices, including such policies used to explain the factors and reasons for compensation decisions.

Veterans’ Employment Reports.  The OFCCP’s proposed changes would require contractors to provide their VETS 100 and/or VETS 100A reports for the last three years. 

Although in explaining the proposed changes the OFCCP states that the revisions “will reduce the overall burden on contractors,” the opposite seems to be true.  If the proposed changes are accepted contractors will not only have to provide more information and more detailed data in an initial response to an audit, but they will need to track and collect this new information.  This will likely require contractors to make significant adjustments to both their human resources practices and technologies.  Because the current Scheduling Letter and Itemized Listing are set to expire in September 2011, contractors should be aware of these possible changes so they can respond to future audit letters appropriately.

The proposed rule includes several significant changes including a shift in the overall tone of the regulations from providing suggestions for compliance to now issuing mandates for compliance. Below are several examples of actions contractors must take under the proposed rule.

• Mandatory Job Listing Requirements. Contractors must provide the state employment service with the following information annually; 1) status as federal contractor; 2) contact information for the contractor hiring official at each location in the state; 3) contractor’s request for priority referrals of protected veterans for job openings; and 4) contact information for any outside job-search companies used by the contractor. 
• Pre-Offer Invitation to Self-Identify. Contractors must invite all applicants to self-identify as a protected veteran prior to being offered a job.  (Applicants would not be required to specify which type of protected veteran he or she is.)
• Increased Data Collection.  Contractors must collect the following data annually and maintain records of this data for five years;
  • Total number of referrals; number of priority referrals of protected veterans received; and ratio of referred protected veterans to total referrals.
  • Total number of applicants; number of applicants who are known protected veterans; and ratio of protected veteran applicants to total applicants.
  • Total number of people hired; number of protected veterans hired; and ratio of protected veterans hires to total hires.
  • Total number of job openings; number of jobs filled; and ratio of job openings to job openings filled.
• Hiring Benchmarks. Contractors must establish annual hiring benchmarks. The benchmark will be established by determining the percentage of total hires who are protected veterans that the contractor seeks to hire in the following year.
• Annual Evaluation of Recruitment Efforts. Contractors must evaluate the effectiveness in identifying and recruiting qualified protected veterans and document this review. Contractors should review the number of protected veteran referrals, applicants and hires for the current year and two previous years.

The increased obligations presented in the proposed rule will likely have a significant impact on federal contractors. If the rule is finalized as drafted, contractors will face greater burdens in terms of data tracking, data collection and record keeping. Because contractors will likely need to overhaul their internal practices and procedures to satisfy these burdens, contractors should follow the proposed rule closely in order to be prepared to implement the necessary changes to achieve compliance.

The most prominent of these emerging types of claims is retaliation.  Retaliation claims have been filed with the EEOC at a steadily increasing rate in recent years. In 2010, for the first time in history, retaliation claims became the most frequently filed type of claim, even outnumbering claims of race and sex discrimination.  Retaliation claims can be problematic for employers. An EEOC spokeswoman was quoted by the Wall Street Journal as saying, retaliation “is easier [for an employee] to prove.” Adding to employers’ concerns, the Supreme Court recently expanded the rights of third parties to file retaliation claims. See Thompson v. North American Stainless, LP, 562 US __, 131 S. Ct. 863 (U.S. 2011). As retaliation claims continue to gain notoriety, and as employees become more aware of their rights to file this type of claim, the number of retaliation claims filed with the EEOC will assuredly continue to grow in the foreseeable future.

Another emerging type of claim about which employers should be concerned is disability discrimination. In 2010, the number of disability discrimination claims filed with the EEOC increased by nearly 20%. Due in large part to the enactment of the ADA Amendments Act of 2008 (ADAAA), this surge will continue as the EEOC publishes its final regulations concerning the ADAAA. These final regulations are expected to establish a broad definition of “disability,” thereby expanding the pool of qualified individuals who can file claims of disability discrimination. In fact, the final regulations reportedly will include a list of per se disabilities that cannot be challenged by employers. Official publication of the EEOC’s final ADAAA regulations is expected by April 2011. If these regulations prove to be as pro-employee as is anticipated, employers undoubtedly will face an increased number of disability discrimination claims.

Employers also should take note that the number of claims under the Genetic Information Nondiscrimination Act (GINA) may rise significantly in 2011. GINA is relatively new law and provides a new type of claim to individuals who believe they have been discriminated against because of their genetic information. In fact, the EEOC handled its first GINA claims in 2010. Although the number of GINA claims filed last year was relatively small (just 201 in total), employers should not overlook the expected emergence of this claim type. Since the end of the 2010 fiscal year, the EEOC has issued its final GINA regulations, which took effect on January 10, 2011. See EEOC Issues Final Regulations On The Genetic Information Nondiscrimination Act. Without question, employees will become more informed about their rights under GINA and more ambitious to test their rights under this new law.

It is critical that employers take appropriate steps to protect themselves against these emerging claims. Employers should update policies to correspond with the recent changes in law. Taking proactive steps now can contribute significantly in avoiding potential claims and in defending against claims filed with the EEOC and related local agencies.

At the federal level, Congress is considering its own limit on employment-related credit checks. In January 2011, the “Equal Employment For All Act” (H.R. 321) was introduced in the House. The bill seeks to amend the Fair Credit Reporting Act to “prohibit the use of consumer credit checks against prospective and current employees for the purposes of making adverse employment decisions.” 

Proponents of the bills argue that job applicants with poor credit are being unfairly excluded from the job market. They assert that it’s a Catch-22--the unemployed can’t get a job with poor credit and can’t improve their credit without a job.

And the EEOC is not sitting on the sidelines. This past December, the EEOC filed suit against Kaplan Higher Education alleging that the company’s practice of conducting pre-employment credit checks has a disparate impact on racial minorities. According to the lawsuit, Kaplan’s use of credit history data in the hiring process is “not job-related and consistent with business necessity.” The lawsuit comes only months after the EEOC held a public meeting to discuss the use of credit history data in employment decisions.   

A similar lawsuit was filed in November 2010 by a private plaintiff challenging the University of Miami’s use of pre-employment credit checks. Similar to the EEOC’s lawsuit, the plaintiff alleges that the University’s use of credit checks has a disparate impact on minorities.  

Given the increased scrutiny of pre-employment credit checks, employers should consider reviewing their pre-employment credit check practices. To minimize potential liability, employers should limit credit checks to positions where there is a “business necessity” and the applicant’s credit history is relevant to the position.

The Secretary of Labor is charged with enforcing the FSMA’s whistleblower protections, including awarding the appropriate relief.  If after receiving a retaliation or whistleblower complaint the Secretary concludes that there is reasonable cause to believe that a violation of Section 402 has occurred, the Secretary may issue among other relief an order reinstating the employee and providing for back pay. If the Secretary has not issued a final decision within 210 days after filing of the complaint, the employee may file a complaint in federal district court seeking reinstatement, back pay, and “compensation for any special damages sustained as a result of the discharge or discrimination, including litigation costs, expert witness fees, and reasonable attorneys’ fees.”  Food Safety Modernization Act, Pub. L. No. 111-353, § 402(b)(4)(B)(iii.), 124 Stat 3885, 3970.

While the majority of the FSMA does not become effective until 2012, the whistleblower provisions of the FSMA became effective immediately upon the law being signed by President Obama. Given its sweeping nature and broad protections, any entity potentially covered by the FSMA—which includes essentially any entity in the food industry—should consider  adopting strong anti-retaliation policies (including the provision of alternative avenues for an employee to complain), advising its managers and supervisors of the company’s anti-retaliation prohibitions, and providing training to all managers and supervisors educating them on the policy and on ways to avoid even the appearance of retaliation. 

Section 402 is the latest expansion of strong anti-retaliation whistleblower protection for employees in an increasing number of industries. Its passing illustrates again the need for employers to be mindful of the potential exposure and reputational harm from whistleblower lawsuits, and to adopt strong anti-retaliation policies and implement appropriate training programs.

This comes as the EEOC has hired more employees to handle the growth in volume and clear the backlog of unprocessed charges and actions. Despite the sharp increase in new charges filed during FY 2010, the EEOC was apparently able to slow the growth of charge inventory and ended the year with 86,338 pending charges -- an increase of only 570 charges, or less than one percent.  This is significant because during FY 2008 and 2009, the EEOC’s pending inventory increased 15.9 percent.

The EEOC found no reasonable cause in 64.3% percent of the FY 2010 charges, and found reasonable cause in only 4.7% of charges. Of the 99,922 new charges, 35.9% were based on race, 29.1% based on sex, 11.3% based on national origin, 3.8% based on religion, 23.3% were based on age, 25.2% were based on disability, 1.% were based on the Equal Pay Act, 0.2% were based on the Genetic Information Nondiscrimination Act, and 36.3% were retaliation charges (in FY 2009, retaliation claims surpassed race as the most frequently filed charge).

The EEOC’s mediation program also set a record during FY 2010. Of the 99,922 new charges received, 9,370 or 9.3% were settled at the administrative stage, which was ten percent more than FY 2009 and resulted in $319.4 million in monetary benefits for claimants, not including monetary benefits obtained through litigation.

The EEOC also filed 250 lawsuits during FY 2010, resolved 285 lawsuits, and resolved a total of 104,999 private sector charges resulting in a total of $404 million in monetary benefits from employers, which the EEOC reported is “the highest level of monetary relief ever obtained by the Commission through the administrative process.”

The record level of charges and recoveries -- more than at any time in the EEOC’s 45 year history -- comes during the worst job market since the Great Depression, suggesting that the increase stems, in large measure, from an increase in adverse actions caused by the bad economy, and displaced employees who refuse to go without a fight.

Voluntary Wellness Programs

The law does not prohibit wellness programs, but it places limits on them.  The law permits employers to acquire genetic information as part of a wellness program, so long as it is completely voluntary and employees cannot be penalized for failing to provide such information.  Employers are also prohibited from offering money for employees’ genetic information, but money can be offered for the completion of health risk assessments, which include questions involving genetic information.  This is permitted provided it is clear that the money will be paid regardless of whether the employees answer the genetic information questions.  For example, an employer could offer a $150 incentive to employees who complete a 100-question health risk assessment that includes 20 questions at the end about family medical history and other genetic information, so long as the employer specifies that the money will be paid to all employees who respond to the first 80 questions, regardless of whether or not they complete the remaining 20 questions on family medical history and genetic information. 

Inadvertently Acquired Genetic Information

GINA has an exception for the inadvertent receipt of “family medical history.”  The EEOC, in its commentary on the final rules, extends this exception to any genetic information an employer inadvertently receives.  Otherwise an employer could arguably be held liable for the acquisition of genetic information if, for example, it overhears a conversation where one employee tells another that her mother had a genetic test to determine whether she was at increased risk of getting breast cancer (which would constitute genetic information, but not family medical history, under the regulations).  The regulations outline a number of scenarios where this exception would be applicable, including, for example, where a supervisor learns genetic information by overhearing a conversation at the water cooler; where a supervisor receives genetic information in response to an ordinary expression of concern (e.g., “How are you?” or “Did they catch it early?” asked of an employee who was just diagnosed with cancer, provided the supervisor does not follow up with probing questions likely to result in the acquisition of genetic information); or where the supervisor inadvertently learns genetic information by accessing an employee’s page on a social networking site which the supervisor had been granted permission by the employee to access.  The EEOC also provides “safe harbor” language for use when requesting health information as part of the FMLA and/or ADA reasonable accommodation process.  If the language is used, any receipt of genetic information will be considered “inadvertent.” 

Confidential Treatment Of Genetic Information

The EEOC makes clear that, once genetic information about employees is acquired, employers that possess the information must maintain it in files that are separate from employee personnel files and treat it as confidential medical records.  Genetic information can only be disclosed in limited circumstances, such as upon receipt of an employee’s written request or in response to a court order.  Although the regulations provide that genetic information placed in personnel files prior to November 21, 2009 need not be removed, the regulations prohibit disclosure in the same manner. 

Clarification Of Definitions Used In GINA

The definitions in GINA left many open questions.  It was unclear whether former employees would be covered and/or whether persons who become dependents by adoption or placement would be covered, for example.  The EEOC has answered both questions in the affirmative.  The EEOC has made clear that former employees are covered by the law.  This will require employers to carefully protect genetic information about current and former employees.  The EEOC has also made clear that persons who become dependents by adoption or placement for adoption are considered “family members” whose genetic information falls under GINA.  While adoptees may not be genetically related to the covered employee, the EEOC reasons that “the acquisition of information about the occurrence of a disease or disorder in an applicant’s or employee’s adopted child could certainly result in the type of discrimination GINA was intended to prohibit.”

The regulations also attempt to explain more fully the term “genetic test,” providing several examples of tests that constitute genetic tests under the statute (for example, amniocentesis and other tests used to determine the presence of genetic abnormalities in a fetus during pregnancy, testing that reveals family relationships, such as paternity tests, and testing to determine whether an individual has the BRCA1 or BRCA2 variant indicating a predisposition to breast cancer), as well as several examples of tests that do not constitute genetic tests under the statute (for example, cholesterol tests, tests for the presence of drugs or alcohol, and HIV tests). 

Next Steps For Employers

Employers are advised to immediately take the following steps to ensure compliance with GINA and its implementing regulations: 

• revise EEO policies to prohibit discrimination based on genetic information;
• train supervisors, human resources, and other hiring personnel regarding GINA compliance;
• conduct an audit of any voluntary wellness programs to ensure that their policies with respect to genetic information comply with GINA;
• revise any form requests for medical information to include the “safe harbor” language provided in the regulations; and
• remove any genetic information from personnel files and place it in confidential medical files.

Employees v. Independent Contractors

In his Complaint, the Attorney General points to several details of FedEx drivers’ jobs that allegedly support his assertion that the drivers are not independent contractors.  Specifically, the Complaint alleges that drivers are required to wear uniforms, comply with FedEx standards regarding the appearance of their trucks, and submit driver logs and other records on a daily basis.  Additionally, the Attorney General alleges that FedEx monitors the performance of the drivers daily, retains the right to discharge drivers, and maintains a contractor operations department, which is the equivalent of a human resource department for the drivers.  Based on these allegations, Attorney General Conway contends that FedEx exercises extensive control over its drivers and as a result the drivers should be classified as employees rather than independent contractors.

Legal Consequences of Misclassification

The Kentucky lawsuit goes on to contend that because of FedEx’s alleged misclassification of its drivers, FedEx has violated several Kentucky laws.  The Complaint claims that FedEx failed to file the required reports and make the proper contributions for its drivers under Kentucky unemployment insurance law and additionally, failed to provide workers compensation for its drivers as required by Kentucky workers compensation law.  Furthermore, the Kentucky lawsuit contends that FedEx did not withhold the necessary payroll tax amounts required for employees of Kentucky and also acted in violation of the Kentucky Consumer Protection Act, which prohibits deceptive acts or practices when conducting business.

FedEx’s Response

FedEx has responded to the Kentucky lawsuit by citing previous legal decisions that held in its favor.  A spokesman for FedEx explained that the claims in the Kentucky lawsuit conflict with rulings by the United States Courts of Appeals, the Internal Revenue Service and a jury in Washington State Court, all of which validated the company’s position that FedEx drivers are properly classified as independent contractors.  Attorney General Conway disagrees with these previous rulings and noted that laws are different in different states. 

What Are Employers To Do?

This case is yet another example of the predicted increase in scrutiny regarding the employment status of workers.  As noted in several of our earlier posts, federal and state legislative bodies along with enforcement agencies have expanded their efforts to challenge employers’ decisions regarding the classification of individuals as independent contractors.  For example, Congress continues to develop and support new legislation to target employers who classify their workers as independent contractors, such as the Employee Misclassification Prevention Act and the Fair Playing Field Act.  These new legislative and enforcement efforts compound the complexity posed by conflicting legal decisions and varying state laws.  Considering these developments, employers should carefully review the classification of their workers in light of both federal and state laws.

Currently, the Internal Revenue Code provides a safeharbor for employers to avoid penalties or at least suffer lighter penalties when they misclassify employees as independent contractors as long as there is a reasonable basis for the classification.  And, given the IRS’s current moratorium on issuing guidance on worker classification issues, employers can almost always provide a rationale for their classification decision because the absence of substantial guidance allows employers to be creative in developing their reasonable basis defense.  According to Senator Kerry’s website, the proposed legislation will reduce the use of the safeharbor by:

• Ending the moratorium on IRS guidance on worker classification issues and requiring the Secretary of Treasury to issue prospective guidance;
• Amending the tax code provisions to clarify that the reduced penalty is not available where employers fail to comply with IRS/Treasury guidance;
• Requiring business owners who use independent contractors to provide each contractor a written statement regarding the contractor’s tax obligations, the labor and employment law protections that do not apply to independent contractors, and the right of the contractor to seek a status determination from the IRS; and
• Requiring the Secretary of Treasury to issue annual reports on worker misclassification.

The White House quickly gave its strong endorsement to the proposed legislation.  According to Vice President Biden, “[S]topping worker misclassification is a priority for the President’s Middle Class Task Force. . . . The legislation is timely, as misclassification is an increasing problem, one that puts employers who properly classify their workers at a disadvantage in the marketplace and costs the government billions of dollars in unpaid taxes.  I urge the Congress to stand up for workers and create a level playing field for law-abiding businesses by supporting this bill.” 

The proposal of The Fair Playing Field Act of 2010, along with the White House’s heightened interest in misclassification issues, underscores the need for employers to closely examine their independent contractor relationships and, to the extent necessary, take corrective action now before they find themselves the subject of a government investigation or a private lawsuit. 

Here are the highlights:

• Dodd-Frank incentivizes individuals to aggregate and then report information that leads to a successful enforcement action of the Securities Exchange Commission (“SEC”), the Department of Justice (“DOJ”) or other arms of government, by entitling an individual to between 10% and 30% of monetary sanctions exceeding $1 million as a result of “original information” provided by the individual;
• Dodd-Frank creates new whistleblower protections by prohibiting retaliation against an individual who provides information related to violations of securities laws to the SEC, who participates in any related SEC action, or who makes required disclosures under the Securities Exchange Act, SOX, or any law or regulation within the SEC’s jurisdiction;
• Dodd-Frank entitles an individual to bring a private whistleblower action directly in federal court where he or she may be entitled to reinstatement and two times back pay;
• Dodd-Frank incentivizes plaintiffs’ counsel to pursue whistleblower actions through lengthy limitations periods and allows for reimbursement of costs and attorneys’ fees to a prevailing plaintiff; 
• Dodd-Frank gives the SEC the authority to restrict pre-dispute arbitration agreements between customers or clients of brokers, dealers, or municipal securities dealers, so long as the SEC views the limitations as being in the public interest or to protect investors;
• Dodd-Frank creates a new private whistleblower action for alleged retaliation for any individual who provides information to the SEC; initiates or participates in any investigation or judicial or administrative action of the SEC; or makes disclosures as otherwise required under a variety of Federal laws including SOX and believes they were retaliated against as a result;
• Dodd-Frank amends SOX to expand coverage of the SOX whistleblower provisions to now include both publicly-traded companies and “any subsidiary or affiliate whose financial information is included in the consolidated financial statements of such” publicly-traded company;
• Dodd-Frank amends SOX to expand the time an individual has to bring a SOX whistleblower claim from 90 days after a violation occurs, to within 180 days of the aggrieved individual learning of the violation;
• Dodd-Frank amends SOX to allow a jury trial of whistleblower claims; and
• Dodd-Frank declares void any pre-dispute arbitration agreements waiving rights and remedies provided by SOX.

Although the regulations implementing and related to this legislation have not yet been written, an individual who submits information will still be entitled to the statutory protections the legislation affords.  Just as individual whistleblowers and their lawyers will not wait around for this legislation to ripen, companies subject to securities laws need to address the Dodd-Frank Act immediately and thoughtfully in a coordinated and deliberate fashion.  As the regulations are drafted and this enormous piece of legislation gains traction in the coming days, weeks and months, please consult the Hunton Employment & Labor Perspectives Blog for related in-depth analyses and updates.

According to the Committee, the witnesses for the hearing will be:

• Seth Harris, the Deputy Secretary of Labor
• Colleen Gardner, the Commissioner of New York State’s DOL
• Frank Battaglino, the Owner of Metro Test and Balance, a contractor in Maryland
• Catherine Ruckelshaus, the Co-Director of the National Employment Law Project
• Gary Uber, the Co-Founder of Family Private Care, a referral service for home health caregivers

Though we do not know what position Mr. Battaglino and Mr. Uber (the two business owners on the panel) will take on the proposed legislation, Mr. Harris, Ms. Gardner, and Ms. Ruckelshaus will likely provide testimony in support of the legislation.  Mr. Harris is the Obama Administration’s representative on the issue, and the Administration has made employee misclassification one of its top employment-related priorities.  Ms. Gardner is currently the Commissioner of New York State’s DOL, an agency that has aggressively pursued employee misclassification enforcement in previous years.  Ms. Ruckelshaus’s employer, the National Employment Law Project, is a national advocacy group for low wage workers that, on June 15, issued a report purporting to measure the fiscal impact of independent contractor misclassification.

The Committee’s decision to hold a hearing on the Employee Misclassification Prevention Act represents a continuation of the Administration’s and Congress’s heightened interest in the independent contractor misclassification issue.  This trend has been discussed in many of our prior posts.  In light of these developments and the likelihood that the Act will garner sufficient votes in both houses of Congress, employers who use independent contractors should promptly conduct an audit of its independent contractors to ensure that they can withstand an investigation by a government agency or a legal challenge by an individual worker.

Background

Executive Order 13496 was signed by President Obama on January 30, 2009.  It revokes Executive Order 13201, which required posting of the “Beck Poster” (the Beck Poster advised employees they could not be compelled to join a union or maintain a union membership to keep their jobs, and could restrict the use of their union dues for certain purposes).  The goal of the Order is to ensure federal contracts will not be interrupted by labor unrest.  It is premised on the idea that industrial peace is best achieved by informing workers of their rights under Federal labor law.

After almost a year and a half of rulemaking, the form of the new notice has been finalized.  Hard copies can be obtained from the DOL’s Office of Labor-Management Standards (OLMS) at (202) 693-0123 or by email request at olms-public@dol.gov. 

What The Notice Does 

The new notice informs employees of their rights to organize, join a union, bargain collectively, and engage in other protected concerted activity under the NLRA.  It also gives examples of illegal conduct by employers and unions, and gives contact information for National Labor Relations Board.

Is Your Company Affected?

Companies should carefully scrutinize any federal contracts or subcontracts that are signed or modified after June 21, 2010.  The new posting obligation is triggered by the government agency or department’s inclusion of a notice clause in the government contract.  The  clause may not be included in full, however, so also look for inclusion by reference to “29 CFR Part 471, Appendix A to Subpart A.” 

Exceptions to the posting requirement include federal contracts under $100,000, subcontracts below $10,000, and contracts/subcontracts for work to be performed exclusively outside the territorial U.S.  Also, employers who exclusively employ workers excluded from coverage under the NLRA are not covered.

What Should You Do To Comply?

If the notice clause is present in your contract, the company must conspicuously post the prescribed notice wherever employees covered by the NLRA are engaged in activities related to performance of the contract.  The notice must be posted in all places where notices to employees are customarily posted, both electronically and physically.  Physical postings must be on 11x17 size paper.  For electronic postings, the employer must provide an electronic link to the actual notice.  If a large portion of the company’s workforce is not proficient in English, a translated notice must be provided.  Translations can be obtained from the OLMS.  
 
In addition, the contractor must include provisions requiring posting of the same notice in all subcontracts entered into in connection with the contract.

Penalties and Enforcement

The Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) will conduct evaluations to determine compliance with the new requirement.  It is thus particularly important for any company undergoing audit by the OFCCP to ensure the new notice is posted by June 21, 2010.  The OFCCP has issued a Powerpoint Presentation of guidance to federal contractors.  Employees also may file complaints about noncompliance.

Failure to comply with the notice and posting obligation can result in cancellation, termination or suspension of the government contract, in whole or in part.  The contractor may also be declared ineligible for further government contracts.  In addition, the Secretary of Labor may publish the names of any contractors that have failed to comply. 

WHD recently indicated that it would no longer issue fact-specific opinion letters and that it would instead issue what it refers to as “Administrator’s Interpretation Letters” (“AI”) that will provide general interpretation of wage and hour laws and regulations.  The WHD claims that the AI process will help it “provide meaningful and comprehensive guidance and compliance assistance to the broadest number of employers and employees” and “will be a much more efficient and productive use of resources” than the opinion letter process.

Though we do not doubt WHD’s interest in providing comprehensive guidance and in avoiding inefficient processes, there may be other reasons why WHD has decided to forego the fact-specific opinion letter process.  In several prior posts, we have discussed the fact that the new WHD seems to have made enforcement investigations its top priority.  The elimination of the opinion letter process in favor of the more general (and less helpful) AI process is yet another step in the enforcement direction. 

Over time, the elimination of the opinion letter process will weaken the Portal Act’s safeharbor provision related to reliance on opinion letters.  The move away from fact-specific opinion letters to AIs is also troubling because the AIs will not be based on a specific factual scenario but instead will be based on WHD’s assumptions about a particular industry or position.  For example, the first AI issued by WHD said that mortgage loan officers were not exempt from the FLSA’s overtime requirements.  In doing so, the WHD assumed that all mortgage loan officers performed a set of “typical job duties.”  This is contrary to the WHD’s own regulations, which make clear that wage and hour issues, particularly questions about an employee’s exempt status, are fact-specific and do not turn on job titles alone.  Even within one employer, the courts have long-recognized that employees with the same job title are not necessarily equally exempt or non-exempt because their job duties may be varied. 

WHD claims that it will still accept requests for opinion letters from employers but at the same time has indicated that such requests “will be responded to by providing references to statutes, regulations, interpretations and cases that are relevant . . . but without an analysis of the specific facts presented.”   Such a response would be of little assistance to employers because locating statutes, regulations, and cases that are generally applicable to a particular issue tends to be the easy part of wage and hour compliance.  It is the application of those statutes, regulations, and cases to a particular set of facts that presents challenges to employers.

Many employers believe that including language in a contract stating that a worker is an independent contractor will end the classification inquiry.  The inquiry, however, will extend beyond the contract language since determination as to whether a worker is properly classified as an independent contractor is based on multiple factors.  While written contracts and job titles are certainly important factors to consider when assessing whether an independent contractor has been properly classified, a thorough audit should focus on all the facts and circumstances surrounding the worker’s specific job functions and the relationship between the worker and the company.  Examples of questions that should be asked during an audit include: 

• Does the company have the right to control the means and methods of the work or just the work result?
• How, when and where does the worker perform the work?
• Who provides the equipment?
• To whom does the worker report?
• Does the company have a right to determine which workers can perform the services?
• How is the worker paid?
• How does the worker earn vacation and benefits? 
• Are the services performed by the worker traditionally services that are performed by employees? 

While an employer should always review its job classifications at the outset of a new employment relationship or new job classification, employers should also reexamine such classifications periodically to ensure continued compliance with the various applicable laws.

Employers who violate the notice and/or recordkeeping requirements or misclassify a worker would be subject to a civil penalty of up to $1,100 per worker for a first offense and up to $5,000 per worker for willful or repeated violations.  Employers who misclassify workers and violate the minimum wage and overtime requirements would be subject to treble damages.  The proposed legislation also contains broad anti-retaliation/discrimination provisions.

To enforce the Act’s provisions, the Department of Labor would be directed to perform targeted audits focusing on employers in industries that frequently misclassify employees.  The Department of Labor and Internal Revenue Service would be permitted to refer incidents of misclassification to each other.  The states would be directed to increase their own penalties for worker misclassification, conduct audits for the purpose of identifying employers who misclassify workers, and report the results of the audits to the Department of Labor on a quarterly basis. 

While the EMPA is in the earliest stages of consideration by both houses of Congress, its introduction is significant because it follows introduction of the Taxpayer Responsibility, Accountability, and Consistency Act of 2009 (“TRAC”) (H.R. 3408, S. 2882), which would revise the Revenue Act of 1978’s safe harbor provision (the safe harbor provision allows an employer to treat a worker as a contractor if certain requirements are met), make it more difficult for employers to classify workers as independent contractors, and significantly increase employer penalties in the event of misclassification.  It also follows President Obama’s proposed budget for 2011, which includes significant funding for the U.S. Department of Labor’s Wage and Hour Division to increase the Division’s number of investigators, train investigators to detect misclassification of workers, and focus on industries where misclassification is most prevalent.  In sum, the EMPA serves as a reminder that curtailing employers’ use of independent contractors remains a significant issue in Congress.  Employers who have not yet done so would be well-advised to review their independent contractor relationships and ensure that they are on the up and up before the Department of Labor and/or a corresponding state agency does it for them. 

Although the proposed regulation is unlikely to be limited to independent contractor classifications, this all comes on the heels of renewed DOL efforts to crack down on the misclassification of employees as independent contractors.  During a Live Q&A Session to discuss the new Regulatory Agenda, Nancy Leppink, Deputy Administrator of WHD, was asked whether WHD is concerned that the implementation of rules tightening worker classification enforcement will upset the benefits associated with employing independent contractors.  Ms. Leppink responded by essentially parroting a DOL fact sheet on the proposal, which states that “updating the recordkeeping requirements to promote transparency is expected to encourage greater levels of compliance by employers, to enhance awareness among workers of their status as employees or independent contractors . . . and to facilitate DOL enforcement.”

Some of the issues that DOL will need to consider as it formulates the rule include:

• Whether any industries will be exempted from the classification analysis and enhanced recordkeeping requirements.
• Whether the classification analysis is to be conducted on a position-by-position or a worker-by-worker basis.
• The required content of analysis disclosures to workers and whether each worker will have to be formally notified of his or her FLSA status and how it was determined.
• What the proposed retention requirements for classification analysis will be in light of the Lilly Ledbetter Act.

If the proposed rule is implemented, employers will almost certainly be required to expend substantial amounts of time re-analyzing worker classifications and drafting new documents to comply, ultimately generating a significant amount of paperwork.  DOL plans to issue a formal Notice of Proposed Rulemaking for this rule in August, at which time employers will have an opportunity to submit comments on the proposed rule. Stay tuned for more information in August. In the meantime, employers should examine their current worker classifications to protect and prepare themselves.

Officials in several states, as well as the U.S. Department of Labor, however, are now taking a very close look at employers whose internship programs may violate minimum wage laws.  The influx of internships in recent years, combined with layoffs and downsizing, has made regulators suspicious of employers seeking to illegally use internships for free labor. Consequently, employers should be sure to adhere to local and federal wage and hour laws when administering internship programs.

The federal Department of Labor looks to six criteria, as outlined in Walling v. Portland Terminal Co., 330 U.S. 148 (1947), to determine whether interns are exempt from minimum wage coverage under the Fair Labor Standards Act (“FLSA”).  None of the individual criteria are dispositive, and they should be viewed together to reflect the totality of the circumstances.

Private employers seeking to maintain unpaid internship programs in which participants do not qualify as employees under the FLSA, but do receive training and experience relevant to their studies or career goals, should strive to adhere to the following suggestions: 

• The program should provide interns with training similar to what they would learn in school, only with the benefit of hands-on experience.
• The main beneficiaries of an unpaid internship should the interns, who must derive more than a minimal benefit from their exposure to the workings of the business.  Where the unpaid intern is the party receiving the program’s predominant benefit, there is generally no employment relationship.
• Interns should not displace employees; rather, they should work under employees’ close supervision in order to acquire and learn skills useful in the employer’s field.  Close supervision—rather than independent work that would typically be performed by employees—requires substantial investment on the part of the employer and may offset any economic advantage conferred upon the employer.
• If the intern performs the main work of the business, be sure to keep detailed records of regular employees’ time spent supervising and training interns.  Employers who can demonstrate that they suffered impediments like the consumption of a supervisor’s time in educating interns, even if the company ultimately experienced an economic advantage from training the interns, are more likely to prove that it was the unpaid intern who benefitted most from the valuable on-the-job experience.
• Though employers may use internship programs to assess potential employees, they should make it sufficiently clear to interns as well as regular employees that interns are not entitled to positions with the company at the conclusion of the internship.
• Be sure that interns understand they are not entitled to wages.  Reasonable stipends are not wages, and do not create an employment relationship.

The Department of Labor’s “We Can Help” campaign, is two-fold: (1) It intends to raise awareness of workers’ rights among “vulnerable” classes of workers; and (2) it adds 250 field investigators who will target employers in communities that have a history of labor problems.  The campaign will focus on violations under the Fair Labor Standards Act (“FLSA”) and related federal rules governing minimum wages, overtime payments and hours worked.

These vulnerable classes include low-wage employees, immigrants (regardless of legal status), women in male dominated professions, young workers, subcontractors, and the disabled. The Department will target industries it believes are known for employing vulnerable workers including construction, apparel, manufacturing, restaurants, home health care, hotels and motels, janitorial, food service, and agriculture.

To inform workers of their rights and ways they can report violations to the Department, Solis said the Department will partner with labor and religious organizations across the nation to offer advice and steer workers to federal investigators. Solis said,

“[T]he campaign will inform workers of their rights and encourage them, regardless of their immigration status, to report violations of wage and hour laws on the job.”

The campaign will also involve public service announcements featuring prominent actors and activists, billboards, videos, internet-based resources, and a toll-free hotline. Information will be available in several languages including Spanish, Chinese, and Polish.
 
While this campaign intends to target certain categories of workers and employers, it will undoubtedly raise awareness of wage and hour laws among employees generally.  Thus, all employers should take note of the campaign and audit their compliance with wage and hour laws.  Depending on the situation, either the employer or an independent consultant can conduct the audit, but it is important to have legal counsel involved throughout this process.
 
A thorough audit will address time-keeping policies and procedures, recordkeeping, required workplace postings, and overtime pay requirements.

During a Department investigation, there are several points to keep in mind:

• Get legal counsel involved.
• Assuming the investigator wants to be fair and being responsive to the investigator will likely create a positive tone for the employer’s relationship with the investigator.
• Be sure to gather basic information first: Ask the investigator for documentation proving they are an investigator; ask if a complaint was filed; and determine the scope of the investigation.
• If an investigator seems unprofessional, have a third-party witness involved in interactions with the investigator and be sure to document those interactions soon after they occur.
   

The Paycheck Fairness Act would amend the Equal Pay Act of 1963 (prohibiting wage discrimination on the basis of sex) and significantly alter the proof and enforcement provisions of that long standing federal law.  The proposed amendments would provide additional remedies for claims of pay discrimination, including uncapped punitive damages, and would increase the burden on employers to prove that pay differences resulted from factors other than gender.  It also would prohibit retaliation against employees who inquire about, discuss, or disclose their own wages or the wages of other employees. 

Although it is difficult to predict whether the Senate will ultimately vote on and pass the Paycheck Fairness Act, the fact that a Senate committee is turning its attention to bill in today’s financial and political environment should signal to employers that the legislation is not likely to go away any time soon.  Indeed, President Obama mentioned the issue in his State of the Union address in January, stating,  “We are going to crack down on violations of equal pay laws -- so that women get equal pay for an equal day’s work.”  True to his words, the President created the National Equal Pay Enforcement Task Force in January.  In addition, the U.S. Equal Employment Opportunity Commission, which administers Title VII and Equal Pay Act claims, added more than 150 new hires by the end of 2009 and received an additional $23.9 million in funding for the current fiscal year for enforcement.  It is seeking $18 million on top of that for fiscal year 2011.

In light of the growing threat of legislative action, regulatory enforcement, and civil litigation (including class actions alleging systemic discrimination), employers should take proactive steps now to position themselves optimally for a legal challenge.  This may involve a privileged audit of the employer’s pay practices, including a review of policies and procedures and a statistical analysis of compensation data.  Because these are steps that undoubtedly would be taken in the event of a government audit or private lawsuit, employers should not wait until a legal proceeding to identify and address any problems that might exist.

Proactive steps such as these can have substantial benefits in risk reduction.  Employers need a well organized plan for identifying vulnerabilities, assessing employment policies and practices, monitoring outcomes of decisions on a statistical basis, and identifying solutions to address risk, all under the protection of attorney-client privilege.  In addition, employers need systems and tools to help ensure the most informed and defensible decision making.   A privileged compensation audit can help employers meet all of these needs.

These budget increases will allow the EEOC and DOJ to increase enforcement efforts.  EEOC Chairman Stuart Ishimaru noted that budget increases would “allow [the EEOC] to build on the progress [ ] made in hiring frontline staff, reducing a burgeoning inventory of charges, and increasing productivity.” BNA 20 Daily Labor Report AA-8.   Furthermore, Ishimaru, who has made the EEOC’s nationwide systemic enforcement program a top priority, noted that increased funding would enable the agency to “continue [its] focus on systemic enforcement.”  BNA 20 DLR AA-8

Systemic discrimination cases typically involve an employer policy or practice that results in a disparate impact upon a group of persons in a protected class or a class action.  Such cases often focus on employer hiring and promotion policies or practices.  Both the EEOC and the DOJ’s Civil Rights Division have authority to litigate systemic discrimination or pattern or practice cases under Title VII of the 1964 Civil Rights Act.  The EEOC handles systemic discrimination cases on behalf of employees in the private and federal sector while the Civil Rights Division litigates pattern or practice cases on behalf of persons employed by state and local governments.  In addition, the EEOC also has the ability to litigate systemic discrimination cases under many of the other laws that it enforces, such as the Age Discrimination in Employment Act and the Americans with Disabilities Act.

Systemic discrimination cases are important to the EEOC’s goal of eliminating employment discrimination because such cases often gain nationwide attention, can lead to large settlements or damage awards, and can impact a broad section of an industry or a profession.  Private employers should be aware that the EEOC often utilizes information that it gathers from individual charges and requests for information to build a case for potential systemic discrimination claims.

Misclassification of employees as independent contractors is expected to cost the Treasury Department over $7 billion in lost payroll tax revenue over the next ten years.  To help make up for this shortfall, the proposed budget includes a joint proposal by the Departments of Labor and Treasury.  The joint proposal, a $25 million initiative, would enhance the ability of both agencies to penalize employers who misclassify their employees and would attempt to eliminate or reduce opportunities under current law for employers to misclassify workers.  The initiative also provides for competitive grants to boost states’ incentives to address the problem, as well as the hiring of 100 new enforcement personnel to target worker misclassification. 

The President’s proposal also is likely to build momentum for legislation, already introduced called the Taxpayer Responsibility, Accountability, and Consistency Act of 2009, that would revise the Revenue Act of 1978’s safe harbor provision (which allows an employer to treat a worker as a contractor if certain requirements are met) to make it more difficult for employers to classify workers as independent contractors for employment tax purposes.  The legislation also would significantly increase employer penalties in the event of misclassification.  In addition, states also are enacting new laws to impose harsher penalties for misclassification.  Colorado, for example, passed a law in 2009 that included penalties of up to $5,000 per employee for the first offense and up to $25,000 per employee for subsequent violations.  Other states have passed similar laws.

In light of these developments, which continue a trend that has been building for the past several years, employers will need to be vigilant to ensure that their independent contractor relationships will pass muster.  Misclassifying an employee as an independent contractor will be a very costly mistake. 

The EEOC’s fiscal year data, which ended September 30, 2009, reflects increases in certain types of discrimination and retaliation complaints.  Notably, disability complaints increased by 10 percent, from 19,453 to 21,451; national origin complaints increased 5 percent, from 10,601 to 11,134; and religious discrimination claims increased 3 percent, from 3,273 to 3,386.  Also, retaliation charges reached a record high of 2009, going from 32,690 to 33,613 over the span of a year.  Meanwhile, although the number of age bias claims decreased from 24,582 in 2008 to 22,778 in 2009, it was still the second-highest total ever. The EEOC also reported that it recovered a record high of $294 million through administrative enforcement and mediation. 

According to Stuart J. Ishimaru, acting chairman of the EEOC, “[t]he latest data tell us that, as the first decade of the 21st century comes to a close, the commission’s work is far from finished….Employers must step up their efforts to foster discrimination-free and inclusive workplaces, or risk enforcement and litigation by the EEOC.” 

Employers will likely see similar rises in liability risks and activity in the area of discrimination and retaliation in year 2010, particularly in light of the ADA Amendments Act of 2008, which went into effect on January 1, 2009, and expands the scope of the Americans with Disabilities Act by reversing or nullifying several Supreme Court rulings that significantly narrowed the scope of protection under the ADA. Similarly, the EEOC’s Fiscal Year 2010 Congressional Budget Justification includes, as the EEOC’s objectives for Year 2010, an increased focus on combating systemic discrimination (unlawful patterns or practices of discrimination which have a broad impact on an industry, profession, company, or geographic location) as well as charges raising priority, novel or emerging legal issues in the context of race discrimination.

To help manage exposure, employers should revisit their handbooks, policies, and day-to-day practices, and should take steps to make certain that their supervisors and human resources staff are trained to both identify and properly address potential discrimination and retaliation issues.
 

The recent revisions could signal an increased focus on several particular topics.  For example, a number of the revisions address issues relating to undocumented witnesses, bilingual or non-English speaking witnesses, and posting of notices in languages other than English.  These provisions likely highlight an increased focus on workplaces with high concentrations of workers from other countries.  Significantly, investigators and field agents are told to inform undocumented witnesses that the NLRB is not associated with the U.S. Immigration and Customs Enforcement, but that they cannot guarantee that action will not be taken against the witness due to immigration status. 

Several of the revisions relate to the issuance of investigative subpoenas and procedures for opposing petitions to revoke subpoenas, including a new section on recovery of attorneys’ fees and costs in subpoena enforcement proceedings.  One section adds as considerations for issuing a subpoena “the possible derivative liability of additional parties” and the possible need “to obtain a protective order or other pendente lite relief.”  Another section clarifies language regarding notice to attorneys, emphasizing that the agency is not required to notify a party or its counsel if the agency subpoenas a witness who is not a supervisor or agent of the party.  This may forebode an increased emphasis on the use of subpoenas in Board investigations and proceedings.  The Regional Director has broad discretion to issue pre-complaint investigative subpoenas whenever evidence cannot be obtained by reasonable voluntary means.

Other sections with revisions include guidance on procedures when attorney misconduct is alleged in agency proceedings, guidance on introducing evidence regarding the appropriateness of particular remedies, and guidance on processing representation petitions that are blocked by ULP charges that are otherwise appropriate for deferral to grievance and arbitration.  Significantly, even if such a ULP charge is appropriate for deferral, the Manual states that Regional Offices should proceed with pre-complaint investigations and reach determinations on the merits (but not proceed to a complaint), so as to unblock the representation case.  In addition, the revised Manual also contains a new section with guidance on alternative dispute resolution of cases pending before the Board.  These changes might suggest a heightened aggressiveness on the part of the agency to pursue enforcement and obtain settlements in a more efficient manner.

Although to some extent the revisions to the Manual might simply reflect the need to update procedures in light of issues encountered over the past several years, they also constitute tangible evidence that the NLRB is taking steps to improve its enforcement procedures so they may be put to better use.

Solis said the DOL will be working with "advocacy groups and other stakeholders" to develop and distribute campaign materials to workers.  She noted that this initiative signifies her intent to increase both employee outreach efforts and enforcement efforts against employers who are accused of violating the law.  Solis had a strong rebuke for employers who are not in compliance with minimum wage and overtime standards: "There is no excuse for employers who disregard federal labor standards - especially those that are designed to protect the most vulnerable in the workplace."
 
To help support this effort, Solis has hired 250 new wage and hour investigators, who she says will ensure that the DOL can properly respond to complaints and "undertake more targeted enforcement."  Solis vows that the DOL "will not rest until the law is followed by every employer."
 
We have commented previously that the federal agencies charged with enforcing workplace protection laws, such as EEOC, OSHA, and NLRB, all have indicated that they will be pursuing employee complaints more aggressively.  Solis' recent announcement is yet another example that the Obama administration is taking a more employee friendly approach to federal enforcement.  Employers should be taking steps now to ensure that their pay practices comply with the FLSA and applicable state wage and hour laws, which may include a privileged pay practices audit by experienced legal counsel.
 

Secretary Solis announced that the DOL planned to hire an additional 670 investigators, inspectors, and program staff to support the increased enforcement.  Since July 2009, the Occupational Safety and Health Administration (OSHA), which is an arm of the DOL, has conducted 689 inspections resulting in 1,100 violations and $1.6 million in fines.  Although pleased with recent enforcement efforts, Secretary Solis commented that there is “much more work to do to protect workers.” 

Secretary Solis’ recent comments are only the latest indication that the DOL intends to increase enforcement of the nation’s workplace protection laws.  During the 2008 presidential campaign, Candidate Obama accused the DOL of following a mandate to “err on the side of corporations.”  He stated that “OSHA must be reinvigorated” by increased Congressional funding “to assure that there are more inspectors to reach more of the most dangerous workplaces.”

Once in office, President Obama nominated David Michaels, a research professor at George Washington University and former Assistant Secretary of Energy for Environment, Safety and Health, in July to head OSHA.  Michaels has consistently advocated for increased funding to support OSHA’s aggressive enforcement efforts.  Michaels’ confirmation has stalled in the Senate.

If confirmed, a Michaels-led OSHA is expected to concentrate on three main areas.  First, OSHA will likely focus on prevention of workplace injury and illness.  This goal will be pursued through stricter occupational safety and health standards supported by an augmented OSHA inspection staff.

Second, OSHA is expected to address recordkeeping accuracy and efficiency.  Advocates of enhanced enforcement believe that employers have seriously under-reported injuries in the workplace.  OSHA may investigate employer recordkeeping practices and possibly mandate increased recordkeeping requirements, such as electronic recordkeeping.  

Third, OSHA will likely seek more severe penalties for OSHA violations.  It is believed that OSHA will promulgate regulations and seek legislative enactments to increase employee protections and employer penalties. 

With or without Michaels, the DOL is expected to continue pushing for an enhanced enforcement agenda for OSHA.  Although no concrete plan or timeline has been established, changes at OSHA will almost assuredly take place under the Obama Administration.

Shiu is considered to be an aggressive advocate of employee rights and disadvantaged persons.  This, coupled with an expected increase in the OFCCP’s budget, suggests that the OFCCP’s enforcement efforts will be particularly active under her leadership.  Her new position currently is classified as a Deputy Assistant Secretary of Labor, which does not require Senate confirmation.  However, following a reorganization in the DOL, Shiu will report directly to Labor Secretary Hilda Solis, which could elevate her title to Assistant Secretary of Labor and require Senate confirmation.

Shiu has been an employment attorney with the Legal Aid Society of San Francisco since 1983.  She focuses primarily on employment cases of alleged race and sex discrimination.  Shiu also directs the Legal Aid Society’s Works and Family Project and is the Vice President of Programs.  Shiu graduated from the University of San Francisco School of Law, and spent several years in private practice before joining the Legal Aid Society.

In the federal arena, Shiu’s experience includes an appointment to the Department of Education’s Civil Rights Reviewing Authority during the Clinton administration.  She is also a former board member and past vice president of the National Employment Lawyers Association, a plaintiffs’ attorney group.

Lopez has 13 years of experience working with the EEOC in both the field and at the agency’s headquarters.  He has tried several notable EEOC cases, including a jury verdict case against the software company GoDaddy.com for discrimination against a Muslim employee, and he obtained a consent degree with the Phoenix Suns for its sex restrictive hiring policies.  Lopez obtained his undergraduate degree in Political Science from Arizona State University and graduated magna cum laude from Harvard Law School.  From 1988 to 1991, he worked as an associate with the D.C. firm of Spiegel & McDiarmid.  Following this, he worked in the U.S. Department of Justice’s Civil Rights Division.

Under Lipnic’s leadership, the agency made the first revisions to the union financial disclosure regulations in forty years, and the Office of Federal Contract Compliance Programs (OFCCP) issued its first compensation guidance and regulations.  Lipnic also served as counsel for the House Committee on Education and Labor.  Before her work for Congress, Lipnic spent six years as in-house labor and employment counsel for the U.S. Postal Service, then the largest employer in the country.  Most recently, 1she has been Of Counsel with law firm Seyfarth Shaw LLP.   She received a B.A. from Allegheny College in 1982, and graduated from the George Mason University School of Law in 1991.  She is admitted to the Pennsylvania bar.

In July 2009, the President named Jacqueline A. Berrien as the next Chair of the EEOC.  Berrien has a strong background in civil rights advocacy, and particularly in the area of voting rights.  Since September, 2004, Berrien has been the Associate Director-Counsel for the National Association for the Advancement of Colored People (NAACP)’s Legal Defense and Educational Fund (LDF).  In that capacity, she supervises litigation, public education, and organizational work.  From 2001-2004, Berrien was a Program Officer in the Governance and Civil Society Unit of the Ford Foundation’s Peace and Social Justice Program.  Before that, she was an attorney with the Voting Rights Projects of the Lawyers’ Committee for Civil Rights and then Assistant Counsel for the LDF, where she coordinated the areas of voting rights and political participation. 

Berrien received a B.A. with high honors in government from Oberlin College.  She graduated from Harvard Law School, where she was General Editor of the Harvard Civil Rights-Civil Liberties Law Review.  She began her legal career by clerking for the Honorable U.W. Clemon, who was the first African-American U.S. District Court Judge in Birmingham, Alabama.  She has represented African-American voters before the United States Supreme Court and various U.S. Courts of Appeals and U.S. District Courts.  She also has taught trial advocacy at the Harvard and Fordham law schools, and is an Adjunct Professor of Law at New York Law School. 

In September 2009, President Obama chose Chai R. Feldblum to fill another vacancy on the EEOC.  Feldblum is a law professor at the Georgetown University Law Center, where she has taught since 1991.  She specializes in disability discrimination and gay and lesbian rights.  If confirmed, she will serve a five-year term.  Before Georgetown, Feldblum was legislative counsel to the American Civil Liberties Union (ACLU)’s AIDS Project, where she led efforts (among others) to draft and negotiate the Americans with Disabilities Act of 1990.  She also has also been instrumental in supporting the more recent ADA Amendments Act of 2008, and is considered an expert on the proposed Employment Nondiscrimination Act, which if enacted would prohibit discrimination based on sexual orientation.

Feldblum received her J.D. from Harvard Law School and her undergraduate degree from Barnard College.  She clerked for Judge Frank M. Coffin on the First Circuit Court of Appeals and for Justice Harry A. Blackmun on the U.S. Supreme Court.

All these nominations require Senate confirmation.  They are currently pending before the Senate’s Health, Education, Labor and Pensions Committee.  Some commentators speculate that Lipnic’s recent nomination will help speed along those of Berrien and Feldblum. 

President Obama has at least one other EEOC appointment on the horizon.  He will need to replace Commissioner Constance Baker, whose term expires in 2011. 

These new EEOC appointments may lead to new enforcement and litigation goals and priorities.  The Commission already has stepped up enforcement activity and likely will continue increasing the overall number of cases filed, particularly those involving systemic discrimination.  Focus likely will turn also to reducing the EEOC’s significant backload of charges, which has more than doubled since 2004.