Wednesday, May 18, 2016

The Top Ten Things Employers Need to Know About the New FLSA Regulations Released Today

Today the United States Department of Labor issued the long-awaited, updated Final Rule revising the federal regulations under the Fair Labor Standards Act ("FLSA") implementing the exemption from minimum wage and overtime pay for executive, administrative, professional, outside sales, and computer employees.  Here are the highlights from the 508-page release that employers need to know:
  1. The salary test for EAP workers (defined as executive, administrative and professional employees under the current FLSA tests) has more than doubled from $455 per week ($23,360 per year) to $913 per week ($47,476 per year).  
  2. The DOL did not make any changes to the EAP duties tests.
  3. The highly-compensated employee total annual compensation level has increased from $100,000 to $134,004.
  4. For the first time, employers will be permitted to count non-discretionary bonuses, incentives, and commissions toward up to 10% of the standard weekly salary test, as long as employers pay those amounts on a quarterly or more frequent basis.
  5. The DOL will permit a "catch-up" payment at the end of each quarter with respect to the 10% amount noted in #4 above provided it is made within one pay period of the end of the quarter. Any such catch-up payment will count only toward the prior quarter's salary amount and not toward the salary amount in the quarter in which it was paid.
  6. White collar employees subject to the salary level test earning less than $913 per week will not qualify for the EAP exemption.
  7. The Final Rule provides for salary and compensation threshold updates every three years, and the first update will take place on January 1, 2020.
  8. The DOL contends the new regulations will decrease the amount of litigation.
  9. Employers will be forced to make some difficult choices related to reclassifying employees.
  10. The effective date for the Final Rule is December 1, 2016, which means employers have about six months to become compliant.

Monday, May 9, 2016

The Tangled Web: Different Tests under Texas and Federal Laws Leave Franchisors and Franchisees Wondering Whether and When They Are Joint Employers

The International Franchise Association defines franchising as a method for expanding business and distributing goods through a licensing agreement.   In the franchisor-franchisee relationship, a franchisor typically grants a license to a franchisee to conduct business under the trademark and trade name of the franchisor. 
For obvious reasons, the franchisor has a vested interest in ensuring that the franchisee maintains the quality and integrity of the brand, which in turn, generally requires some level of oversight of the franchisee’s operations.  But how much control can a franchisor exercise before it crosses the threshold and becomes a joint employer with its franchisee for purposes of establishing liability?

The Texas Labor Code
Effective September 1, 2015, and in an apparent response to the federal government’s efforts to find joint employers behind every corner, the Texas Legislature amended seven provisions of the Texas Labor Code to clarify that franchisors (defined as any person who grants a franchise and participates in the franchise relationship), are not the employers of a franchisee (defined as any person who is granted a franchise) or franchisee employees unless a court of competent jurisdiction in Texas has found that the franchisor has exercised a type or degree of control over the franchise or the franchisee’s employees not customarily exercised by a franchisor for the purpose of protecting the franchisor’s trademarks and brands.
The seven sections of the Texas Labor Code that were amended are:  Chapter 21 (Employment Discrimination); Chapter 61 (Payment of Wages); Chapter 62 (Minimum Wage); Chapter 91 (Professional Employer Organizations); Chapter 201 (Unemployment Compensation); Chapter 401 (Workers’ Compensation); and Chapter 411 (Workers’ Health and Safety). 
The obvious questions raised by the amendments are: (1) what is the meaning of the phrase, “not customarily exercised”?; and (2) what test or factors will a court apply to determine whether a degree of control is or is not customarily exercised by a franchisor?

Board Law 
In the Browning-Ferris Industries decision it issued in August 2015, the National Labor Relations Board (NLRB) restated its standard for how it will determine the existence of a joint employer relationship. Under the restated standard, the Board may find that two or more entities are joint employers of a single work force “if they are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms and conditions of employment.”  
In determining whether a common-law employment relationship exists, the Board looks to the Restatement (Second) of Agency (1958) for guidance, which provides that, “a servant is a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other’s control or right of control.”  The phrase “essential terms and conditions of employment” is broadly construed to include, for example, hiring, firing, discipline, supervision, direction, controlling scheduling, seniority and overtime, determining wages and hours, and the manner and method of work performance. 
Importantly, the Board’s decision expressly rejects its prior standard that required both the possession and exercise of the authority to control the terms and conditions of employment to find a joint employer relationship.  Now, reserved authority, even if not exercised, and indirectly exercised control, such as through an intermediary, may establish joint employer status.

The United States Department of Labor
In January 2016, and not wanting to miss a ride on the joint employer bandwagon, United States Department of Labor (DOL) Wage and Hour Administrator David Weil issued Administrator’s Interpretation No. 2016-1 (AI), wherein he sets forth the DOL’s “guidance” for determining a joint employer relationship under the Fair Labor Standards Act (FLSA).  
The AI provides guidance regarding both vertical and horizontal joint employment.  Horizontal joint employment may be established when an employee is employed by two or more technically separate but related or overlapping employers.  For example, this analysis would apply where a server works for two separate restaurants that are operated by the same entity, and the question is whether the two restaurants are sufficiently associated with respect to the server such that they jointly employ him.
The AI identifies a number of factors when analyzing the degree of association between, and the sharing of control by, potential horizontal employers, including the: (a) existence of common ownership; (b) overlap of officers, directors, executives, or managers; (c) sharing of control over operations, including hiring, firing, payroll, advertising, and overhead costs; (d) degree to which the joint employers’ operations are intermingled; (e) supervision by one employer over the work of another employer; (f) treatment of employees as a pool of employees available to both employers; (g) sharing of clients or customers; and (h) existence of any agreement between the potential joint employers. 
Vertical joint employment, as defined in the AI, may exist when an employee of one employer, referred to in the AI as an “intermediary employer,” is also, with regard to the work performed for the intermediary employer, economically dependent of another employer, referred to as a “potential joint employer.”  According to the AI, where there is vertical joint employment, there is usually a contract or other arrangement, but not necessarily an employment relationship, between the intermediary employer and the potential joint employer. 
In vertical joint employment situations, one employer typically contracts with an intermediary employer to provide it with labor, and/or perform some employer functions, such as hiring and payroll.  The vertical joint employment analysis is used to determine, for example, whether a construction works who works for a subcontractor is also employed by the general contractor.
A threshold question in the vertical joint employment analysis is whether the intermediary employer is actually an employee of the potential joint employer, because if it is, then all of the intermediary employer’s employees are employees of the potential joint employer too, and there is no need to conduct a vertical joint employer analysis.  For example, if a farm labor contractor is not actually an independent contractor, but is an employee of the grower for which it provides services (meaning it is economically dependent on the grower as a matter of economic reality), then all of the farm labor contractor’s employees are also employees of the grower.  As set forth in the AI, it is therefore important to first determine whether the intermediary employer is an employee of the potential joint employer before proceeding with the joint employment analysis.  Interestingly, the AI requires a look at the economic reality of the relationship before proceeding to the vertical joint employment analysis, which is itself an economic reality test.
The AI identifies seven economic realities factors it contends should be applied to further the expansive definition of employment under the FLSA: (a) directing, controlling, or supervising the work performed; (b) controlling employment conditions; (c) permanency and duration of the relationship; (d) repetitive and rote nature of the work; (e) integral to business; (f) work performed on premises; and (g) performing administrative functions commonly performed by employers. 
According to the majority opinion in the Browning-Ferris decision, the economic realities test used by the DOL “is significantly more expansive” than the Board’s common-law test. 

The Fifth Circuit
In 2014, the Fifth Circuit applied its version of the economic realities test to determine whether a pizza and pasta restaurant franchisor was a joint employer with its franchisee for purposes of liability for alleged FLSA violations.  Orozco v. Plackis, 757 F.3d 445 (5th Cir. 2014).  In that case, a cook employed by the franchisee sued the franchisee for various FLSA violations, settled with the franchisee, and then added the franchisor owner, individually, as a defendant under the joint employer theory.  The jury ultimately returned a verdict for the cook, and the lower court denied a motion for judgment as a matter of law, resulting in the franchisor’s appeal.
Under its test, the Fifth Circuit evaluated whether the individual franchisor: (a) possessed the power to hire and fire the employees; (b) supervised and controlled employee work schedules or conditions of employment; (c) determined the rate and method of payment; and (4) maintained employment records.  The court was clear that a party need not establish each element in every case. 
The court agreed there was insufficient evidence for the jury to find a joint employer relationship because: (a) there was no evidence the individual franchisor maintained the cook’s employment records; (b) despite the movement of employees between the franchisor and franchisee locations, and the fact the franchisor gave advice to the franchisee on improving profitability, there was no direct evidence that the franchisor had authority to hire and fire the franchisee’s employees; (c) there was insufficient evidence to show the franchisor supervised and controlled employee work schedules or conditions of employment, even though the franchisor reviewed the work schedules, trained the cook and the franchisee, and frequently met with shift managers and provided suggestions to improve profitability; and (d) the cook testified the franchisor did not control the cook’s rate of pay.  Further, the court rejected the cook’s argument that the franchise agreement between the parties, which provided that the franchisee would at all times comply with all lawful and reasonable policies promulgated the franchisor, established sufficient control by the franchisor to create a joint employer relationship. 
The Fifth Circuit’s economic reality test is far narrower than both the DOL’s vertical joint employer test and the Board’s restated joint employer test, which places far greater emphasis on the potential for control of workplace terms and conditions, as opposed to actual control of them. 

For the foreseeable future, government agencies will more than likely continue to expand the definition and scope of the joint employer relationship, and employers will look to the courts to validate or reject the expansion, and provide meaningful guidance regarding the types of activities a franchisor can take with respect to its franchisees without losing its status as a single, not joint, employer.
Franchisors cannot insulate themselves from a joint employer finding simply by stating in a franchise agreement that the parties do not intend to create a joint employment relationship.  To the contrary, a franchisor should consult with counsel to determine its potential risk for a joint employer finding based on the realities of its relationship with its franchisee(s).  Once it does so, it can determine how, if at all, it will modify its franchise arrangements.



Thursday, May 5, 2016

Colorado Jury Tosses Religious Failure to Accommodate Claims

After a nearly eight-year battle with the Equal Employment Opportunity Commission (EEOC) and several intervenors, a Denver airport contractor defeated a lawsuit alleging it failed to accommodate Muslim women who asked to wear long skirts at work based on their religious belief that women should dress modestly.  See EEOC v. Jetstream Ground Services, Inc., No. 13-cv-02340-CMA-KMT, in the United States District Court for the District of Colorado. 
The contractor, Jetstream Ground Services, argued that allowing the women to work in long skirts as aircraft cabin cleaners posed an undue hardship based on the safety risks they faced when accessing aircraft from jetway stairs.  Last fall, the district court refused to grant summary judgment on this issue for Jetstream, and the case proceeded to trial.

Last week, a federal jury in Colorado returned a verdict that found the EEOC and the intervenors failed to prove their discrimination claims. 

Employers faced with discrimination claims based on an alleged failure to accommodate religious beliefs should be mindful that the determination of the existence of an undue hardship is based on the facts of each case, and cannot be based on speculative safety concerns. 


Wednesday, May 4, 2016

EEOC Issues New Fact Sheet Related to LGBT Discrimination

Yesterday, the EEOC issued a new Fact Sheet titled, "What you Should Know About EEOC and the Enforcement Protections for LGBT Workers."  You can find it on the EEOC's website at:

Therein, the EEOC tells employers it:
  1. interprets Title VII's prohibition against sex discrimination as forbidding any employment discrimination based on gender identity or sexual orientation;
  2. will not recognize an employer's reliance on a contrary state or local law as a defense; and
  3. will consider a wide range of conduct to be discriminatory, including the failure to use the name and gender pronoun that correspond to the gender identity with which an employee identifies.
The EEOC's position that it will not recognize state law to the contrary is certain to result in an increase in litigation.

Tuesday, May 3, 2016

Employer Policy Requiring Professional Behavior, Cooperation, and a Positive Work Environment Found Unlawful by NLRB

Employers should be able to expect employees to behave professionally, cooperate with one another, and maintain a positive working environment.  In its continuing attack on employer policies, however, the National Labor Relations Board (NLRB) recently found that an employer's Workplace Conduct policy requiring those behaviors was unlawful. See T-Mobile USA, Inc., 363 NLRB No. 171 (April 29, 2016). 

The policy at issue read as follows:

     [Employer] expects all employees to behave in a professional manner that promotes efficiency, productivity, and cooperation.  Employees are expected to maintain a positive work environment by communicating in a manner that is conducive to effective working relationships with internal and external customers, clients, co-workers, and management.
Disagreeing with an Administrative Law Judge's conclusion that the policy was lawful, and with the employer's argument that the policy reflected business-related objectives, the NLRB found that the policy was subjective, and that employees would reasonably construe the rule to restrict potentially controversial or contentious communications and discussions, including those protected by Section 7 of the National Labor Relations Act.
In the same opinion, the NLRB also found the employer's policy prohibiting recording devices to prevent harassment, maintain individual privacy, encourage open communication, and to protect confidential information was overly broad and unlawful. 
This opinion underscores the need for employers to routinely review their handbook policies to ensure compliance with the NLRB's expanding list of prohibited rules.