The NLRB and Now the Seventh Circuit Appellate Court in Chicago, Threaten Arbitration Agreements That Prevent Class Action Lawsuits by Employees

May 2016

James B. Sherman, Esq.

The use of arbitration as a means to resolve disputes that otherwise would proceed in court, has grown exponentially over the past decade. Besides the cost savings over litigation (at least in theory), one of the biggest reasons employers have turned to arbitration is the ability to include “class waivers” in such agreements. A class waiver clause in an arbitration agreement requires the employee to take his or her dispute through arbitration alone, and forego class or collective claims with other employees.  These agreements have withstood challenges in court brought under the Federal Arbitration Act (FAA).  More recently, however, the National Labor Relations Board (NLRB) has decided to get involved. In its 2012 decision in D. R. Horton, the NLRB held that the right of employees to join together for mutual aid and protection – “concerted activities” protected by federal labor law - includes their right to pursue class-action arbitration or lawsuits outside the realm of the National Labor Relations Act (NLRA).  This far-reaching decision was promptly shot down by the U.S. Court of Appeals for the 5^th Circuit, in New Orleans.  However, on May 26, 2016, the 7^th Circuit Court of Appeals in Chicago, adopted the NLRB’s position in upholding its decision in Epic Systems Corp. In doing so, the 7^th Circuit gave broad deference to the NLRB’s opinion even though the Board was essentially straying far afield from labor matters.  For example, the decision would ban class waivers of everything from wage and hour to discrimination and harassment claims.

Now that a split exists on the issue between the 5^th and 7^th Circuits, a showdown in the Supreme Court seems likely. Management will no doubt support the 5^th Circuit’s position that the NLRB has exceed its authority under the NLRA. Of course unions, employees and perhaps most fervently, class-action plaintiff lawyers, will advocate strongly in favor of the recent decision of the 7^th Circuit. Both sides face uncertainty, given the vacancy left in the Supreme Court by the death of Justice Antonin Scalia and the political maneuvering over his replacement.  In the meantime, employers in Wisconsin, Illinois and Indiana are stuck with the 7^th Circuit’s decision upholding the NLRB’s position that class waiver clauses in arbitration agreements, violate federal labor law and therefore, are unlawful.  

Compliance, Compliance, Compliance!

The New Overtime Rules Place Employers In Compliance Mode.

By James B. Sherman

Wessels Sherman has been deeply involved in all the issues brought about by the DOL’s final rule on overtime exemptions, really from the start. In fact, the comments that we assembled and submitted last fall on behalf of employers in opposition to troubling aspects of the proposed rule, were expressly recognized in the DOL’s preamble to its new rule out of more than 270,000 submissions it received from business groups, unions, individuals and certainly many other law firms.

The Department of Labor released major changes to the Fair Labor Standards Act (“FLSA”) overtime requirements, which has put businesses on notice that they need to assure their pay methods are in compliance by no later than December 1, 2016. So what does a business do when the U.S. Department of Labor abruptly more than doubles the minimum salary employees must be paid in order to qualify as exempt from the overtime requirements of the Fair Labor Standards Act?

The biggest change is obviously the salary increase for exempt workers. The new regulations increase the salary basis requirement to $47,476.00, which is $913 per week. Any individual falling under that salary requirement, will need to be paid overtime at a rate of time and a half for all hours over 40, unless another FLSA exemption applies. Based on the numerous objections that were sent to the DOL regarding the proposed rule, the DOL included a provision allowing employers to include nondiscretionary bonus and incentive pay toward a portion capped at 10% of the new salary threshold. This will slightly help businesses, but overall, the DOL seems to have added the section as an attempt to simply appease the overall opposition to these new rules. Although, the DOL added a “catch-up” pay, which allows a business to ensure that exempt employees who may fall below the new minimum salary in a given quarter, by paying a lump sum to make up the shortfall in salary. Businesses now have less than 6 months to determine how best to address all of the changes brought about by this new overtime exemption rule. For example, is it better to increase an employee’s salary to the new, greatly increased minimum salary to remain exempt, or does it make more sense to convert a particular employee to nonexempt status and pay overtime at 1 ½ times the employee’s regular rate of pay for any hours worked over 40.

So businesses now have only a few short months in which to:

1. assess the extent of the impact of the new overtime rule on their organizations, including how many employees may be impacted (i.e. currently exempt employees who will not meet the minimum annualized salary of $47,476 by the December 1, 2016 deadline);
2. determine whether any shortfalls in salary can be mitigated through existing or new nondiscretionary incentive or bonus pay, up to 10% of the required salary;
3. for currently exempt employees whose salaries fall short of the new minimum and do not meet the new minimum by including allowable non-salary earnings, deciding either to increase their salaries to the new minimum or to convert their status to nonexempt and pay overtime for hours worked over 40 in any given workweek.

If a business can afford to increase its costs, the simplest avenue is to increase the current exempt employees to the new minimum threshold. Perhaps, in order to maintain the employees’ morale, the business keeps the employee on a salary and simply tracks the employee’s hours and any hours worked over 40 are paid on a time and a half basis. Businesses must understand that the exempt employees must still meet the job duties test associated with the executive, administrative, or professional exemption to qualify for the exemption.

What if the business cannot increase its costs? How can a business remain in compliance with the new regulations? A business can start by implementing a policy that employees need permission to work over 40 hours in a week. This will allow a business to control its labor costs associated with time and a half. A business could also use the fluctuating work week pay method. If implemented correctly and by a qualified attorney, a business would be able to control labor costs by paying a fixed salary, but also, only be responsible for ½ time for hours worked over 40. But again, a business must implement the pay method correctly and review every issue necessary to be in compliance.

Businesses must become educated in this area and utilize the numerous exemptions or different pay methods that are allowed under the FLSA. The first step should be to become educated on the new regulations, the second step should be to perform a self-audit or an audit with a qualified attorney on the businesses pay practices, and the last step should be to properly implement the new pay methods. With the media coverage these new regulations have received, it’s a perfect time for a business to modify all of its pay methods without employee becoming suspicious and wondering why things are changing.

Questions? Contact Wessels Sherman.

NLRB Regional Director Says Misclassifying Employees As Independent Contractors Violates Federal Labor Law

May 2016
James B. Sherman, Esq.

Treating workers as non-employee, “independent contractors” can land employers in trouble with a wide variety of federal and state government agencies if the workers are determined to be employees under any number of laws, each with its own definition of who is an “employee.” Misclassifying employees as independent contractors typically means that no employment taxes are withheld, no unemployment taxes are remitted worker’s compensation and group health insurance is not provided, among other liabilities.  Consequently, when federal or state agencies such as the IRS or Minnesota Department of Employment and Economic Development challenge employers using independent contractors through an audit or in response to a worker’s complaint, the liability can be massive.

To make matters worse, thanks to a recent unfair labor practice, or ULP complaint issued by one of its Regional Directors in Los Angeles, CA, the National Labor Relations Board (NLRB) can be added to the list of agencies that may challenge an employer’s use of independent contractors and/or other contingency workers. The complaint is unique in that it alleges the employer, Intermodal Bridge Transport, misclassified its drivers as independent contractors and, in doing so, interfered with the protections employees are to enjoy under federal labor law.  This complaint follows a directive from the NLRB’s General Counsel in Washington, D.C., Richard Griffin, for the Board’s Regional Directors to explore issues involving “the employment status of workers in the on-demand economy.”  It also is consistent with the NLRB’s ongoing efforts to expand the agency’s reach into non-union workplaces.

The rationale used by the NLRB’s Regional Director, is that treating workers as independent contractors or other non-employee contingency workers necessarily inhibits rights specifically granted to employees under the National Labor Relations Act, as they are enforced by the NLRB.  Among other things these protected rights include the right to engage in forming or joining a union, as well as other “concerted activities” for their mutual aid and protection.  Workers not identified as employees would not be inclined to understand that they have these rights, according to the Board’s presumed theory.

Independent contractors and other non-employee contingent workers are widely used by American businesses and can form a very beneficial relationship for both parties. However, now more than ever it is essential that businesses take great care to ensure that these relationships are truly independent and do not cross the sometimes nebulous “line” into an employer/employee relationship. It is a fine line that shifts, depending on which federal or state agency is defining it.  Businesses must now add the NLRB to this list of agencies that may question the status of workers.

Given the stakes, where a ruling that workers have been misclassified can threaten a business’ very existence, employers are well-advised to seek advice from an expert in this area of the law before engaging independent contractors. Obviously an audit or complaint should be taken very seriously. 

Questions? Contact Attorney James B. Sherman at (952) 746-1700 or email jasherman@wesselssherman.com. 

Drastic Changes From DOL’s Final Rule on Overtime Pose BIG TROUBLE for Most Employers in 2016!

May 2016
James B. Sherman, Esq.

What do you get when the U.S. Department of Labor abruptly more than doubles the minimum salary employees must be paid in order to qualify as exempt from the overtime requirements of the Fair Labor Standards Act (FLSA)? For starters, you impact many millions of employees (an estimated 4-5 million). Employers are faced with the dilemma of choosing either to: (1) increase salaries of affected employees to the new minimum - increases of up to 100% in some cases - in order to keep them exempt from overtime; or (2) reclassify workers from exempt to non-exempt status, thus making them eligible for overtime pay. So what’s the big deal? The Obama administration claims the final rule, which takes effect on December 1, 2016, will result in big pay hikes for millions of employees whose salaries currently fall below the new $47,476 annualized minimum exempt salary level.  The administration’s theory is that employees will receive a DOL imposed salary hike, or lots of extra pay in the form of overtime pay at the FLSA required rate of 1½ times the regular rate for all hours worked over 40 hours in a workweek. To be sure, employers who fail to assess the impact of the sweeping changes under the DOL’s new rule, will likely see huge spikes in payroll costs before the year is out; that, or lawsuits from plaintiff wage and hour lawyers who are just licking their chops at the many prospects for claims against unsuspecting employers. The potential impact to the bottom line may be enough to put some employers out of business. Particularly hard hit are retail, hospitality, healthcare and non-profit organizations, although employers in manufacturing, transportation, food and many other industries will no doubt be affected as well.  Wessels Sherman aims to help employers deal with these changes.

Wessels Sherman shareholders James Sherman have been deeply involved in all the issues brought about by the new DOL rule, really from the start. Their webinar last summer on the proposed rule, drew a record-setting crowd.  The comments these attorneys assembled and submitted on behalf of employers in opposition to troubling aspects of the proposed rule, were expressly recognized out of the more than 270,000 comments the DOL received on its proposed rule. Now, their webinar on June 2^nd is among the first in the country giving employers an early opportunity not only to learn the pertinent details of the final overtime rule, but providing practical advice from experienced wage and hour litigators on:

·        Ways to assess the overall impact of these changes on your organization.

·    Determining what to do about the new rule (e.g. for starters, whether to meet the new minimum salary or reclassify certain employees from exempt to non-exempt).

·   Implementing sound policies and practices (handbook revisions, record-keeping, payroll practices, etc.) to address the sweeping changes many employers are sure to face…very soon.

Already, our phones are ringing and emails are buzzing with frantic HR and other business professionals seeking guidance on these changes from our experienced practitioners. Mr. Sherman, along with other lawyers in our firm’s 5 offices around the Midwest, are busy scheduling meetings and conference calls to assist employers with coping with the changes brought about by the final DOL overtime rule. To schedule your company’s initial assessment and develop a “plan of reaction” to the new rule before it takes effect in just 6 months, contact us at our Minnesota or Chicago offices, or any of our firm’s three other offices, below.

We also recommend attending our early webinar on the subject to hear from our highly qualified, experienced presenters. Another record crowd is already registering for this exciting, information packed webinar, scheduled for Thursday, June 2^nd, from 1:00 to 2:00 p.m.  See below to register now!

Legislative Update: Can Illinois Employers Still Have a “Use it or Lose it” Vacation Policy?

May 2016
By Anthony J. Caruso, Jr., Esq.

It is my belief that the answer is YES!

The Illinois Department of Labor, noting its well-established regulation under 56 Ill. Adm. 300.520(e) states:

“An employment contract or an employer’s policy may require an employee to take vacation by a certain date or lose the vacation, provided that the employee is given a reasonable opportunity to take the vacation. The employer must demonstrate that the employee had notice of the contract or policy provisions.”

To complicate things, effective August 22, 2014, the Illinois Department of Labor ADDED a new regulation on vacation policies. 56 Ill. Adm. 300.520(h) WITHOUT CHANGING, MODIFYING, OR REVISING THE EXISTING “USE IT OR LOSE IT” regulation as stated above. The new regulation 300.520(h) confusingly states as follows:

“An employer cannot effectuate a forfeiture of earned vacation by a written employment policy or practice of the employer.”

Based upon statutory interpretation, the Illinois Department of Labor should have deleted the “Use it or Lose it” authorizing regulation if it was no longer valid. Rather, the likely interpretation is that the new forfeiture regulation forbids OTHER types of forfeiture policies or practices by employers of earned vacation. For example, the following policies are prohibited under the new regulation 300.520(h):

• Employee’s failure to give two weeks’ notice prior to resigning results in employee forfeiting earned vacation.
• Employee forfeits earned vacation if terminated for performance or misconduct.

Therefore, the “Use it or Lose it” vacation policy is still likely valid; however, the IDOL has not issued a written legal advisory opinion. At some point, there may be a legal clarification by the courts. I would suggest that Illinois employers have a clear legal argument to continue to have a “Use it or Lose it” policy. The policy should clearly state that the employee will be given a reasonable opportunity to take the earned vacation before losing it. The policy should also indicate that it is in compliance with the Illinois Department of Labor Vacation Regulation under 56 Ill. Adm. 300.520(e).

Questions? Contact Anthony J. Caruso, Jr. of Wessels Sherman’s St. Charles office at (630) 377-1554 or via email at ancaruso@wesselssherman.com