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Labor and Employment Update - Spring 2014

05.01.14

PAY FOR PLAY?
UPDATE ON COLLEGE ATHLETES’ FIGHT TO UNIONIZE

As we reported in our last newsletter, a group of football players at Northwestern University submitted a petition to the National Labor Relations Board (“NLRB”), seeking to form the first official players union in the history of collegiate sports.  The group (the College Athletes Players Association or “CAPA”) is backed by the United Steelworkers union and the NFL Players Association. Northwestern, and the National Collegiate Athletic Association (“NCAA”), however, are adamant that student-athletes are not employees and thus do not have the right to unionize under the National Labor Relations Act (“NLRA”).  

The Chicago Region of the NLRB issued a landmark decision on March 26, finding that the football players at Northwestern are “employees” and are entitled to form a labor union.  In making its decision, the NLRB found that students who receive scholarship funds from a private university for playing football are not merely “students.”  Rather, the scholarships the athletes receive are in exchange for athletic services they perform for the university.  Additionally, the university benefits from the services rendered by the athletes--the NLRB noted that the Northwestern football program generated revenues of approximately $235 million during the nine year period of 2003-2012.  In addition to the foregoing factors, the NLRB found that the university’s strict and exact control over the athletes further established an employment relationship.   

Northwestern is challenging the ruling, with the goal of having the decision overturned.  In its brief, Northwestern argues that the NLRB should have followed its earlier decision in the Brown University case (where the NLRB found that the overall relationship between graduate assistants and the university was primarily an educational one rather than economic, and thus, the assistants were not employees), and in support of that argument, states that its football players are recruited, first and foremost, because they are good students.  Furthermore, the university argues that the players are in fact there to receive an education.

In response, CAPA argues that the players’ “football-related duties” are wholly unrelated to their academic studies, and thus, the Brown University case is inapplicable, as the graduate assistants in that case performed teaching and research duties that were inextricably related to their graduate degree requirements.  Furthermore, CAPA argues that the football players generate income and are recruited specifically to play football, and as such, they have a primarily economic relationship with the university.  Finally, CAPA notes that the players receive benefits such as room, board and tuition reimbursement solely because of their selection by the coaching staff as talented football players, and that such benefits are lost if they leave the team voluntarily or are cut from the team for misconduct.  

Legal commentators have opined that even if the NLRB accepts the request for review, the decision will likely be affirmed by the current pro-union appointees serving on the Board.  However, such a decision could also be appealed to the Federal Court of Appeals and ultimately, to the United States Supreme Court.  Most likely, the request for review will still delay the effort to unionize, as the votes on April 25th will likely be impounded and not counted until the NLRB rules on Northwestern’s appeal.  

If the NLRB’s decision is upheld, the potential impacts are significant, and the related costs affect not only the universities but also the student athletes.  For example, scholarship funds received by student athletes are currently not taxed.  However, if such scholarships are deemed compensation rather than simply financial aid, they will be subject to FICA taxes.  Furthermore, if athletes receive additional bargained-for benefits such as health, retirement or pension, such benefits may also be taxed.  

The potential cost to the universities is quite substantial.  While the NLRB’s decision affects only private institutions, there are seventeen (17) private universities in the Football Bowl Subdivision (FBS) which will be impacted if the decision is upheld (Baylor, Boston College, BYU, Duke, Miami, Northwestern, Notre Dame, Rice, SMU, Stanford, Syracuse, TCU, Tulane, Tulsa, USC, Vanderbilt and Wake Forest).  The ability of these universities to comply with NCAA amateurism rules will become nearly impossible due to state and federal labor laws and minimum wage laws.  In addition, these universities will now be faced with the risk of employment discrimination lawsuits anytime a player is kicked off a team. Finally, while national football powers such as USC, Stanford, Notre Dame and Miami may have sufficient revenue to cover the increased costs associated with the unionization of their football players, the smaller schools that are outside of the major-conference structure do not have the same revenue sources and may not be able to afford union athletes.  

By:  Carianne P. Torrissi
ctorrissi@klehr.com

A BANKRUPTCY COURT TEACHES ANOTHER LESSON ABOUT THE WARN ACT NOTICE REQUIREMENTS

Most companies that have more than 100 employees are at least generally aware that the Worker Adjustment and Retraining Notification (“WARN”) Act may apply to them when closing a work site or conducting a mass layoff.  These companies probably also know that they must provide sixty (60) calendar days’ advanced notice of the “plant closing” or “mass layoff” (as those terms are defined in the WARN Act) unless one of the following three exceptions in the Act applies: (1) the employer is actively seeking capital or business and reasonably believes that advance notice would preclude its ability to garner capital or business (the “faltering company exception”); (2) the employer experiences unforeseen business circumstances; or (3) a natural disaster occurs (the “Exceptions”).  It is apparent from a very recent WARN Act decision issued on April 10, 2014, by the United States Bankruptcy Court in the Southern District of New York, however, that employers still have some things to learn about the WARN Act notice requirements.  In deciding plaintiff’s motion for judgment on the pleadings/summary judgment, that bankruptcy court evaluated whether the employer – the now defunct law firm of Dewey & LeBoeuf, LLP (“Dewey”) – could avail itself of any of the Exceptions if its written notice to employees did not include specific enough details.  The court answered “No.”

The court explained that for one of the Exceptions to apply, it must find that Dewey provided a written WARN Act notice (albeit less than 60 days from the date of the terminations) and “a brief statement of the basis for the reduced notice period.”  In this case, Dewey sent two letters to its employees no more than two weeks before it terminated their employment and explained that Dewey  “unexpectedly experienced a period of extraordinary difficulties” and referenced “adverse developments.”  Despite conceding that the letters did not provide a “brief statement” as required under the Act, Dewey argued that it still should be entitled to benefit from an Exception because it supplemented the two letters with in-person meetings during which the firm orally explained to employees the reasons for the imminent terminations.  Dewey contended that these meetings satisfied the WARN Act because, while the WARN notice must be in writing, the brief statement need not be and may be delivered separately from the notice.  According to Dewey, this makes sense because communicating the reasons for the shortened notice during a meeting when employees could ask questions was more practical and preferable than including it in the WARN Act written notice itself.  The plaintiffs countered that the court should reject these contentions because: (1) the WARN Act is a “bright line statute” that specifically requires the brief statement to be in the written WARN notice and not issued separately; and (2) in any event, 31% of the employees did not attend the meetings and were not otherwise given the required “brief statement.”  The court sided with the plaintiffs.

Specifically, the court held that the plain meaning of the language in the statute and its regulations requires the “brief statement” to be in writing in the WARN notice itself.  Also, the court found that, while the Exceptions exist to address extenuating circumstances making 60-day notice impracticable, nothing in the statute or the law altogether excuses employers from providing the notice and brief statement in writing.  In fact, the court could not imagine an extenuating circumstance that would justify an employer failing to deliver written notice.  

In light of this decision, an employer who is subject to the WARN Act notice requirements must be aware that, before the narrowly construed exceptions can apply: (1) the employer must provide notice that briefly explains the reasons why 60-day notice could not have been given; and (2) that brief statement must be included in the written notice informing employees of the shut-down or layoff.  This is the case regardless of whether the employer fully informed its employees orally of the reasons – before or after giving the written notice.     

By:  Lee D. Moylan
lmoylan@klehr.com

THE PHILADELPHIA PROTECTION OF DISPLACED CONTRACT WORKERS: A PRIMER

Various states and municipalities have continued passing laws which provide temporary protection for the employees of service contractors when their employers lose a contract – which can happen for many reasons including the sale of a property or simply a change in service contract companies.  Philadelphia enacted one such ordinance in 2000. And while a few courts have limited their impact by finding that all or portions of the statutes are pre-empted by the National Labor Relations Act, the majority of courts continue to uphold the laws. Many employers are unaware of the impact these laws have on their ability to hire and fire employees.

The Philadelphia Protection of Displaced Contract Workers (“PDCW”) ordinance covers any person who is employed to provide services pursuant to a service contract, including registered nurses.  Thus, the PDCW applies to a broad range of individuals, such as food-service workers in hotels and restaurants, janitorial, security and building maintenance personnel, and health care workers.  However, managerial, supervisory, confidential employees, and those employees who work less than fifteen hours a week are not covered by the PDCW.

The PDCW applies to situations in which an owner of a business (an “awarding authority”) replaces one contractor who supplies covered services with another contractor. The PDCW further applies when a company acquires a business and decides to switch contractors.  

In such a situation, the PDWC requires that the new contractor hire the previous contractor’s employees for a ninety-day transition employment period. During this “transition employment period,” the employer may only terminate an employee for “cause.” The successor contractor is required to provide the employees with notice of the 90-day transition period in the form provided below.  However, if the contractor decides to use fewer employees at the covered site, it must retain employees by seniority within each job classification. The contractor is also required to maintain a preferential hiring list comprised of the employees not retained during the 90-day period.

An employee terminated in violation of the PDCW may bring a civil suit against the contractor and may be awarded back pay, reinstatement.  Furthermore, attorney’s fees and costs are to be awarded to a prevailing employee.  The PDCW also imposes civil penalties of between $50 and $100 per employee per day.

Form of Notice

DATE:
TO: (name of employee)

IMPORTANT INFORMATION REGARDING YOUR EMPLOYMENT  

We have received information that you are employed by (name of predecessor contractor) and are currently performing work at (address of worksite). (Name of predecessor contractor) has lost its contract with the owners of (address of worksite) and will no longer be providing (security or janitorial or building maintenance or food and beverage, hotel service or health care) services as of (last day of predecessor contract).

We are (name of successor contractor) and have been hired by the owners of (address of worksite) to provide the same (security or janitorial or building maintenance or food and beverage, hotel service or health care) service. We are offering you a job with us for a 90 day probationary period starting (first day of successor contract) to perform the same type of work that you have already been doing for (name of predecessor contractor) under the following terms:

Payrate (per hour): $ _____
Hours per shift: _____
Total Hours Per Week: _____
Benefits: ____

You must respond to this offer within the next ten days. If you want to continue working at (address of worksite) you must let us know by (mm/dd/yyyy – no later than 5 days prior to the expiration of the predecessor contract or 10 days after the date of this letter if the predecessor contract has already expired). If we do not receive your response by the end of business that day, we will not hire you and you will lose your job. We can be reached at (successor contractor phone number).

The Protection of Displaced Contract Workers Ordinance, Chapter 9-2300 of the Philadelphia Code gives you the following rights

1.     You have the right, with certain exceptions, to be hired by our company for the first 90 days
 that we begin to provide services at (address of worksite).
2.     During this 90 day period, you cannot be fired without just cause.
3.    If you believe that you have been fired or laid off in violation of this Ordinance, you have
    the right to sue us and be awarded back pay, attorneys fees and court costs.

FROM: (Name of successor contractor)
(Address of successor contractor)
(Telephone # of successor contractor)

The Notice must also be provided in Spanish if the contractor has Spanish-speaking employees.

By:  Diana L. Eisner
deisner@klehr.com