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Labor and Employment Update - Winter 2017

03.31.17

WAGE AND HOUR ISSUES UNDER THE TRUMP ADMINISTRATION

In the brief time he has been in office, President Trump has made clear that his Administration has a very different outlook than President Obama’s on the role of federal government. One area where there is a stark contrast is on wage and hour issues, which generally fall under the purview of the Department of Labor ("DOL"). This article examines some of the key issues already impacted by President Trump's team and also identifies issues on the horizon where the Administration is likely to act other than its predecessor.

By way of background, the Obama DOL was marked by several aggressive initiatives perceived by many observers as disproportionately favoring workers over business. This included the following:

  • a broad reinterpretation of the standard to qualify as an independent contractor;
  • a more liberal standard for concluding that a joint employer relationship existed;
  • as part of the independent contractor initiative, the DOL aggressively pursued enforcement actions alleging contractor misclassification;
  • proposed increases to the salary minimum needed to satisfy the "white collar" exemption under the Fair Labor and Standards Act (“FLSA”), which were set to go into effect until a federal court judge enjoined the regulatory change at the 11th hour; and
  • lastly, the Obama DOL largely stopped the practice of issuing opinion letters that were relied upon by industries for guidance on compensation practices.

As one of his first acts, President Trump signaled that he believes there are too many federal regulations – by all agencies -- that put an unreasonable burden on business. President Trump ordered that for every new regulation, two would have to be rescinded. While the logistics and enforceability of that Executive Order are unclear, the signal was not. As key aide Stephen Bannon noted, the Trump Administration seeks the "deconstruction of the administrative state."

Consistent with that goal, President Trump has been slow to exercise his authority to nominate presidential appointees to fill key roles within the DOL, further slowing DOL activity and also providing little substantive guidance to career employees as to priorities. At the DOL, the President's first nominee for Secretary withdrew when it became clear he lacked the votes to pass the Senate and the current nominee is in the midst of a tough nomination process. In the interim, a career employee is Acting Secretary and positions like Wage and Hour Administrator remain vacant.

As for the FLSA white collar litigation, the Obama Administration appealed the District Court injunction prior to the end of its term. President Trump, however, has asked the appellate court for more time to evaluate the government position before submitting a reply brief. The President has previously expressed opposition to the new regulations, but some of the reasoning for the injunction may make it difficult for him to totally give up the appeal.

Going forward, businesses should expect fewer enforcement actions and a DOL that acts more in an advisory role, similar to what was done under the Bush Administration. Given the President's strong blue collar base, the DOL still will likely take certain actions supportive of that demographic. The DOL remains responsible for enforcement of the FLSA and companies that engage in clear violations should not expect a cessation of activity just because of a new president. Overall, there remains a lot unknown about the Administration's agenda in this area, but a diminution in enforcement aggressiveness is a reasonable assumption.

By: Jonathan S. Krause
jkrause@klehr.com

RECENT DECISIONS UNDER THE WARN ACT DEMONSTRATE "LOOPHOLES" IN THE LAW

The Federal Worker Adjustment and Retraining Notification Act (WARN Act) -- and analogous state laws -- exist to give employees [and the states and local communities in which they live] at least sixty (60) days advance notice that they will be losing their jobs. In simplest terms, the WARN Act provides that if an employer has at least 100 employees company-wide and lays off more than fifty employees at a single site of employment, it must give WARN Act notices to employees as well as to state and local officials sixty days in advance of the layoffs. Failure to give such notice exposes the employer to damages of sixty days wages and benefits, civil penalties, and payment of the employees’ attorneys’ fees. However, there are some affirmative defenses and exceptions to these obligations some of which were addressed in the following cases.

In April 2015, Catalina Restaurant Group restructured and sold its chain, restaurants were closed, and there were some layoffs at the corporate headquarters, leaving a total of about 3,000 employees out of work -- without giving sixty days notice. In Ross v.Catalina Restaurant Group , the Federal Court for the Central District of California found that the WARN Act did not cover the employees because the individual restaurants were located in geographically diverse locations and could not be considered a “single site of employment.” No locations were covered because, even though Catalina laid-off a total of 3000 employees without giving sixty days notice, they did not lay off fifty employees at any single site. It should be noted that some courts have held that if there are fifty employees laid-off at any location, then all employees at all locations are covered. However, that is the minority view.

In Mwarabu v. Penncro Associates Inc., the Federal Court for the Southern District of Texas found that the sudden cancellation of a contract by a client constituted unforeseen business circumstances allowing for a reduction in the notice period. The WARN Act says that under certain circumstances (a faltering company seeking capital; an unforeseen business circumstance; or a natural disaster), the employer is entitled to a reduction in the notice period. Under all circumstances, it must still give “as much notice as is practicable,” however.

Penncro operates telephone call centers that engage in collection efforts, mortgage services, and customer service.  Its biggest client was Bank of America (BofA). The contract with BofA provided that it could be terminated with forty-five days notice. Although the companies appeared to have a good working relationship, in the fall of 2014, Penncro received notice from BofA that it was terminating the contract effective December 31, 2014. Penncro learned of the decision on October 31, 2014, when a BofA representative told Penncro during a conference call.

After spending several days evaluating the impact of the BofA contract loss, on November 10, 2014, Penncro held a meeting with its affected employees and notified them that it would be laying off numerous employees because of the contract cancellation. Subsequent to the meeting, Penncro gave written notices of the layoffs to the employees and to the Texas Workforce Commission. The Plaintiff was not laid off until December 31, 2014, and many other employees were laid off beginning in mid-November 2014, so they did not get anything close to sixty days notice.

Ultimately, the court held that the sudden cancellation of the contract was an unforeseen business circumstance. The court cited examples of our foreseeable events listed in the federal regulations, which include “a principal client’s sudden and unexpected termination of a major contract with the employer….” Moreover, any delay in telling the employees after notification by BofA was reasonable and did not violate the WARN Act. The court held that the employer's attempts to determine whether it could retain additional employees or find other work was reasonable and what a “reasonable business person” would do under the same circumstances.

The WARN Act has numerous pitfalls and violating it can be an expensive mistake even for companies that ultimately end up in bankruptcy. It should be a primary consideration when planning a re-structuring, sale, or closure of a company and you should consult counsel for guidance.

By: Charles A. Ercole
cercole@klehr.com

THE NLRB PROVIDES MORE GUIDANCE TO EMPLOYERS ABOUT WHICH POLICIES THE BOARD WILL CONSIDER UNLAWFUL

As we have discussed before, Section 7 of the National Labor Relations Act (NLRA or the Act) provides union and non-union employees with the right to self-organization and to communicate with each other regarding their workplace terms and conditions of employment. If a work policy explicitly prohibits employees from exercising these rights or if it simply would tend to “chill” employees in the exercise of these rights, it will violate the NLRA, even if the policy never is enforced.

Unfortunately for employers, there is no bright line rule about when a policy (that does not expressly prohibit lawful activity) could be seen by the Board as chilling employees in the exercise of their rights under the Act. Also, to complicate matters, the overall context of the employer’s other policies and practices can impact whether a particular rule is deemed unlawful.

In recent years, the NLRB increasingly has been scrutinizing employee handbooks to determine if employer policies violate the Act. While this puts pressure on employers to keep abreast of Board decisions on this issue and to review their policies regularly, the decisions at least provide helpful guidance about the way the Board may read an employer’s policies. For example, in a recent NLRB decision, Cellco Partnership d/b/a Verizon Wireless, et al., 365 NLRB No. 38 (Feb. 24, 2017), the Board reviewed several of Verizon Wireless’s policies and found that some violated established Board precedent and others were written so broadly that a reasonable person could construe them as chilling their rights under the Act.

For example, Verizon Wireless’s Rule 1.6, Solicitation and Fundraising, provided, in pertinent part:

Solicitation during work time (defined as the work time of either the employee making or receiving the solicitation), the distribution of non-business literature in work areas at any time or the use of company resources at any time (emails, fax machines, computers, telephones, etc.) to solicit or distribute is prohibited . . . . To determine whether a particular activity is authorized by the company, contact the VZ Compliance Guideline.

(emphasis added). The Board agreed with the Administrative Law Judge (ALJ) that the underlined portion of the policy violated the Act based on the principles enunciated in a Board decision, Purple Commc’ns., Inc., 361 NLRB No. 126 (2014). In Purple Commc’ns., the Board made it clear that, absent the employer demonstrating special circumstances, “employee use of email for statutorily protected communications on nonworking time must . . . be permitted by employers who have chosen to give employees access to their email.” Because Verizon Wireless’s rule specifically prohibited the use of company email, at any time, to solicit (about anything), and because the company did not offer evidence of special circumstances, the rule violated the Act.

Such was the case, as well, with Verizon Wireless’s Rule 3.4.1., Prohibited Activities. This rule was unlawful because it forbade employees from ever:

using company systems (such as e-mail, instant messaging, the Intranet or Internet) to engage in activities that . . . violate company policies or result in Verizon Wireless’ liability or embarrassment [,such as] offensive [and] harassing conduct; . . . unauthorized mass distributions, [and] communications primarily directed to a group of employees inside the company on behalf of an outside organization.

Because “unauthorized mass distributions,” “communications primarily directed to a group of employees inside the company on behalf of an outside organization,” and communications that result in Verizon Wireless’s embarrassment could all be protected activity, the company’s prohibition against using e-mail for these uses violated the Act.

In addition to the above, an example of a rule that was unlawful simply because it was written broadly enough that a reasonable employee could construe it as restricting his/her rights under the Act was Verizon Wireless’s Code of Conduct. The Code prohibited employees from “[d]isparaging or mispresenting the company’s products or services or its employees.” According to the Board, the rule was overbroad and unlawful because it reasonably could be understood to prohibit employees from voicing criticisms of the company to coworkers.

Another example of an overbroad rule was Verizon Wireless's 2014 version of Rule 1.8, Employee Privacy. It provided, in pertinent part:

Verizon Wireless acquires and retains personal information about its employees in the normal course of operations, such as for employee identification purposes and provision of employee benefits. You must take appropriate steps to protect all personal employee information, including social security numbers, passwords, financial information and residential telephone numbers and addresses.

You should never access, obtain or disclose another employee’s personal information to persons inside or outside of Verizon Wireless unless you are acting for legitimate business purposes and in accordance with applicable laws, legal process and company policies . . . .

(emphasis added). Even though the Board recognized that employers have an interest in protecting certain business information (like social security numbers), the Board noted - about the underlined portions of the Rule - that: (1) under certain circumstances, employees have the right under the Act to obtain the names and telephone numbers of employees from employer records; and (2) the phrase “employee’s personal information” in the second paragraph did not necessarily refer only to the examples in the first paragraph and could include information shared during protected communications regarding working conditions or the terms and conditions of employment. Notably, in contrast, the 2015 version of Rule 1.8 did not violate the law because it included a specific list of the employee information about which it concerned, which included only employee social security numbers, identification numbers, passwords, bank account information, and medical information.

Finally, according to the Board, Verizon Wireless’s Rule 2.1.3, Activities Outside of Verizon Wireless, was written too broadly as well. It provided, in pertinent part:

Many employees participate in an individual capacity in outside organizations (such as their local school board or homeowners’ association). Memberships in these associations can cause conflicts if they require decisions regarding Verizon Wireless or its products. If you are a member of an outside organization, you must remove yourself from discussing or voting on any matter that involves the interests of Verizon Wireless or its competitors. You must also disclose this conflict to your outside organization without disclosing nonpublic company information and you must disclose any potential conflict to the VZ Compliance Guideline. Participating in any outside organization should not interfere with your work for Verizon Wireless. To the extent that your participation infringes on company time or involves the use of Verizon Wireless resources, your supervisor’s approval is required.

(emphasis added). As an initial matter, the Board held that the Rule was unlawful because it pertained to any matter that involved the interests of Verizon Wireless or its competitors, which could include participation in a labor union. Also, the rule could be construed as prohibiting any conduct that would “conflict” with the company’s image or reputation, including picketing or striking. Further, the rule forbade employees from disclosing “nonpublic company information” to the outside organization, which could include information shared with a labor union about the terms and conditions of employment. Moreover, the rule could be read to require employees to disclose to their supervisor their union or protected activity and such a requirement is illegal.

Practical Implications: In this current climate, well-intentioned employers may feel that drafting lawful policies can be quite a challenge. That said, Board decisions on this issue, including the one discussed above, do reveal some overarching principles that employers can keep in mind. Specifically: (1) rules should be written as narrowly as possible and avoid using mere examples of conduct or lists that contain the words, “including but not limited to;” (2) rules should not prohibit employees from communicating about matters that may be merely embarrassing or unfavorable to the company; and (3) rules should be read with a critical eye to ensure that they cannot reasonably be construed as restricting employee rights under the Act. In any event, it is apparent that very careful and mindful drafting of policies, with knowledge of the rights to which employees are entitled under the Act, is critical.

By Lee D. Moylan
lmoylan@klehr.com