Court Cases & Legislation

Several recent updates regarding the new Department of Labor (DOL) fiduciary rule have caused confusion for our clients. On March 1, 2017, the DOL announced a proposed delay of the new fiduciary rule and prohibited transaction exemptions that were set to become applicable on April 10, 2017. The DOL requested that all comments on the proposed delay be submitted by March 17, 2017. Once the DOL reviews the comments, it will publish a final rule, which could either retain the April 10 applicability date or delay the applicability date 60 days or more.

In addition, the DOL will conduct economic and legal analysis that could change the requirements of the rule.

It is not certain when the DOL will publish its final rule. On March 10, 2017, the DOL issued Field Assistance Bulletin 2017-01, which provides that the DOL will not enforce the rule as of April 10 if a rule is issued after that date and delays the applicability date. If there is no delay in the applicability date, the DOL will not enforce the rule if affected parties comply with the requirements within a “reasonable period.” Importantly, however, the guidance does not shield advisors or financial institutions from private lawsuits.

We outline a brief summary of the rule and provide client recommendations in a white paper on the topic.

Earlier this month the United States Supreme Court decided to hear three cases which will resolve the split between various Courts of Appeals (discussed in our prior post here) as to whether individual arbitration agreements barring class arbitration actions in employment-related matters are enforceable. While the Court held in 2011 that the Federal Arbitration Act would allow companies to avoid consumer class actions by insisting upon individual arbitrations in their contracts, AT&T Mobility v. Concepcion, workers have contended that employment contracts are different. They have successfully argued that the National Labor Relations Act prohibits class waivers since it would impinge upon worker’s rights to engage in “concerted activities”. The Seventh Circuit Court of Appeals accepted such an argument in Epic Systems Corp. v. Lewis (discussed in our prior post here), and the Ninth Circuit accepted such an argument in Ernst and Young v. Morris. The Fifth Circuit Court of Appeals rejected the same argument in National Labor Relations Board v. Murphy Oil U.S.A. Continue Reading Mandatory Employee Arbitration Split To Be Heard By Supreme Court

In a prior post, we discussed the Department of Labor’s issuance of a new final rule that expanded disclosure requirements for companies that hire union avoidance consultants.  The Department’s new “persuader” rule required employers to report the hiring of such consultants whenever these third parties engaged in indirect persuader activities (e.g., planning employee meetings, training supervisors to conduct meetings, and drafting or providing speeches to be made to employees), whereas the previous rule required disclosure only when the consultants engaged in direct contact with workers.

Subsequent to the DOL’s publication of the final version of the rule in late March, business groups and law firms sued to invalidate the rule.  Several states joined the case later as intervenors.  On November 16, a federal judge in Texas entered a “permanent injunction with nationwide effect,” blocking the DOL from enforcing the rule.  Judge Sam R. Cummings of the Northern District of Texas, had previously issued a preliminary injunction relating to the rule back in June.  In that earlier ruling, the Court had found that the rule effectively eliminated the Labor Management Disclosure Act’s advice exemption, was arbitrary capricious, and constituted an abuse of discretion.  In last week’s decision, the Court granted the Plaintiffs’ summary judgment motions and converted the preliminary injunction into a permanent injunction.

The Obama administration now faces the decision of whether to appeal the ruling, as they did with the Court’s preliminary injunction.  However, it is unlikely that the Fifth Circuit Court of Appeals would make any rulings on these issues prior to the inauguration of President-elect Donald Trump, after which the Department’s positions and strategy may change dramatically.  We will continue to keep you apprised of developments related to the persuader rule.

Executive, Professional and Administrative employees are exempt from overtime requirements if they meet three tests:  the salary level test; the salary basis test; and the duties test. As I am sure you have heard, new overtime regulations raise the required annual salary level from $23,660 to $47,476 (or $913 each week). Under the new salary level test, which goes into effect on December 1, 2016, exempt employees paid less than $47,476 no longer qualify for exempt status. So what is an employer to do?  Here are some potential options:

1. Retain Exempt Status. Increase the employee’s annual salary to at least $47,476 and the employee will remain exempt. Please note, however, that the rules establish a mechanism for automatically updating the salary and compensation levels every three years; thus, you may be required to again increase the employee’s salary in three years to meet the new threshold. Additionally, the employee still needs to meet the duties test, and this is a good time to review compliance with that test. This is the only option that does not require the employer to track the employee’s work hours.

a. Example.  Currently an exempt employee has an annual salary of $41,600 ($800 weekly) and, therefore, no longer passes the new salary test.  Employer raises the employee’s annual salary to $47,476.  Employee retains the exemption from overtime pay under the new regulations.

2. Convert to Hourly. Convert the exempt employee from a salary to an hourly wage and begin paying overtime for more than 40 hours worked in a week. The employer must begin tracking the hours worked by the employee. Overtime hours can be controlled by limiting or forbidding overtime without the employer’s express approval.

a. Example.  Currently exempt employee has an annual salary of $41,600 ($800 weekly).  Employer converts the employee to the equivalent hourly wage of $20 an hour ($800 ÷ 40 hours).  The employee’s overtime rate would be $30 an hour ($20 x 1.5).  Thus an employee who works 45 hours during one week would be paid $950 (($20 x 40 hrs) + ($30 x 5 hrs.)).  Assuming the employee averages working 45 hours a week during a year, this equates to an annual salary of $49,400 ($950 a wk x 52 wks).  Under these particular facts, it would be cheaper to pay the employee the $47,476 annual salary and have the employee remain exempt.

3. Remain Salaried, but Pay Overtime. Have the employee remain on a salary, but pay overtime when the employee exceeds 40 hours in a workweek. This will require the employer to track the employee’s time. The regular rate will be calculated by dividing 40 hours into the weekly salary and then paying 1 ½ times that amount for overtime hours. This may be a good option where an employee enjoys the status of a salaried employee and doesn’t want to become an hourly employee. Overtime hours can be controlled by limiting or forbidding overtime without the employer’s express approval.

a. Example.  Currently exempt employee has an annual salary of $41,600 ($800 weekly).  Employer retains the employee at this salary, but pays the employee overtime for any hours worked over 40 in a week.  The employees overtime rate would be $30 an hour (($800 ÷ 40) x 1.5).  Thus, an employee who works 45 hours during one week would be paid $950 ($800 + (30 x 5)).  Assuming the employee averages working 45 hours a week during a year, this equates to an annual salary of $49,400 ($950 x 52).  Please note that the employee is paid the same amount whether he is paid hourly or paid a salary.  Under these particular facts, it would be cheaper to pay the employee the $47,476 annual salary and have the employee remain exempt.

4. Fluctuating Workweek Plan. Use the Fixed Salary/Fluctuating Work Week plan, which is approved by the DOL regulations. Under this plan, the employee is paid a fixed salary that covers the straight time for all hours worked, including overtime hours. Thus, overtime is paid at a ½ time rate (compared to 1 ½ time rate) for the hours worked over 40 hours.  Under this plan, the regular rate must be calculated each week (by dividing the total number of hours worked by the fixed salary). Certain conditions, including prior employee agreement and paying the same salary when the employee works less than 40 hours in a week, are necessary to use this plan. Continue Reading Employer Options Under the New DOL Regulations

On February 3, 2016, Husch Blackwell Labor and Employment attorneys Terry Potter and Robert Rojas presented a webinar on Workplace Safety vs. Workplace Gun Rights. The webinar focused on the legal landscape of current gun legislation, how certain legislation affects employers and the workplace, and how to minimize any risks associated with that legislation. Specifically, the presentation covered state-specific parking lot laws and posting requirements, both of which regulate where and how an employer may prohibit weapons on its property. Parking lot laws make it illegal for employers to prohibit the possession of firearms in personal vehicles on employer-owned property while posting laws require employers to use certain signage to notify employees, customers, and others that firearms are prohibited inside an employer’s buildings or worksite.

As discussed during the webinar, the laws are state-specific so particular requirements and compliance issues will vary depending on the state in which you operate. To help navigate those laws, Husch Blackwell has prepared a 50-State Survey summarizing the state-specific parking lot and posting requirements.

If you missed the webinar and would like more information on the subject, we have included a link to the on-demand recording of the presentation.

In January 2016, two new laws will go into effect in California that increase the obligations on contractors in California.  The first imposes obligations typically enforced on public works projects on private construction of hospitals, and the second, strictly regulates the workforce employed by contractors on school facility design-build projects.

Assembly Bill 852

Assembly Bill 852 expands the definition of “public works” to include the construction, alteration, demolition, installation or repair work done under a private contract for a general acute care hospital when the project is paid for, in whole or in part, by the proceeds of conduit revenue bonds, as defined in California Government Code § 5870(c).  The statute, however, provides an exception for small, rural general acute care hospitals with a maximum of 76 beds.

This expanded definition of public works will impose additional obligations that generally are only imposed on public projects.   For example, the new law will require the contractors on these private projects to pay the prevailing wage rate to workers, increasing costs on these private contracts.

Assembly Bill 1358

The second law, Assembly Bill 1358, implements requirements for school facility design-build contracts and lays out specific provisions for bidding on such projects.  Most notably, the new law requires bidding contractors to make a commitment that it, and its subcontractors, will used a “skilled and trained workforce” to perform all the work on the project.  A “skilled and trained workforce” means the workers must be either “skilled journeypersons” or apprentices registered in an approved apprenticeship program.  A “skilled journeyperson” is a worker who either (1) graduated from either a California or federal approved apprenticeship program; or (2) has at least as many hours of on-the-job experience in the application as required to graduate from the applicable apprenticeship program.   Further regulating the workforce, the law requires that, as of July 1, 2016, at least 20% of the skilled journeypersons employed must be graduates of a state or federal apprenticeship program for the applicable occupation, and increases this percentage to 30% by July 1, 2017, 40% by July 1, 2018, 50% by July 1, 2019, and 60% by July 1, 2020, partially phasing out the number of non-apprenticeship graduates.

A contractor can establish its commitment to provide the required workforce by: (1) supplying its compliance to the school district on a monthly basis throughout the project; (2) agreeing to become a party to a project labor agreement that the school district entered into that binds all contractors and subcontractors to the requirements of this law; or (3) entering into a project labor agreement that binds all contractors and subcontractors on the project to these requirements.

These regulations limit who contractors can employ for school districts’ public projects, creating an additional burden on contractors and making it much more difficult for non-unionized contractors to bid on these types of projects.

A bill that would make Missouri the latest state to adopt so-called right-to-work laws or policies passed the Republican-controlled House here on Thursday, but without enough votes to override an expected veto from the Democratic governor.

The business groups and conservatives that have for years pushed for a Missouri right-to-work law had hoped they would have enough votes this year to enact the measure, which failed last year. But Thursday’s vote, in which 23 Republicans joined Democrats in opposing the measure, suggested that the bill might again die this year.

Nevertheless, supporters of right-to-work laws, which allow workers who choose not to join a labor union to avoid paying the equivalent of dues, celebrated the bill’s passage even while they acknowledged that significant obstacles remained.

“Right-to-work will come to Missouri at some point in time — I think it’s inevitable,” said Representative John Diehl, a Republican and speaker of the Missouri House of Representatives. “Hopefully, we can get it done this year, but if not this year, it’s going to keep being an issue until it crosses the finish line.”

Even if the Senate, which is also controlled by Republicans, approves the bill, Gov. Jay Nixon said this week that he had never seen a right-to-work bill he would sign. Both chambers would have to muster two-thirds majorities to override a veto — but the House vote on Thursday, 91 to 64, fell well short of that margin.

One of the Republicans who voted against the bill was Representative Bart Korman, whose rural and suburban district west of St. Louis has a strong union presence. Mr. Korman said that his party colleagues were respectful of his position and that he did not foresee changing his mind if a similarly worded bill returned to the House for a vote to override.

Mr. Korman said unions had lobbied forcefully against a right-to-work law this year, as they had done in other states. Missouri is only the latest place in the Midwest to take up the issue. Six of the eight states that border Missouri have right-to-work policies, according to the National Right to Work Legal Defense Foundation. In neighboring Illinois, which does not have such a law or policy, the Republican governor issued an executive order this week that allows state employees there to opt out of paying union dues.

Mike Louis, president of the Missouri A.F.L.-C.I.O., said a right-to-work law would cause unions to lose members and, in turn, some of their negotiating power. He said he did not expect the right-to-work bill to become law this session.

“I think the workers who belong to the unions would suffer,” Mr. Louis said, “and that would bleed over to the middle-class workers who are not represented by unions.”

During hours of debate on the House floor this week, Republican after Republican spoke of job opportunities in Missouri that they claimed were lost to bordering states such as Kansas and Arkansas that have right-to-work laws or policies.

“States like Missouri with forced unionism are losing in population and revenue growth because unions don’t have to be responsive,” said Representative Eric Burlison, Republican of Springfield, who sponsored the measure.

Despite the bill’s failure to win a veto-proof majority, its passage underscored the commanding majorities Missouri Republicans have built in the Legislature in recent elections. Peverill Squire, a political-science professor at the University of Missouri, said those gains had given Republicans the ability to push a variety of laws, including a longstanding desire of some in the party to enact a right-to-work law.

Professor Squire said it was an open question whether the Senate would take up the measure this session. Even if senators approved it, he said, the governor’s veto threat means that enacting the measure would take an extraordinary effort.

“I think it’s a very slim chance,” he said.

Ed Martin, the chairman of the Missouri Republican Party, said he believed the legislative majorities were moving Missouri toward a right-to-work law. “I think we’re making progress,” said Mr. Martin, who noted that a right-to-work effort was not included in the state party’s official platform. “I just don’t know where the thing will stop this time.”

 

The Governor of Illinois, Bruce Rauner, today issued an Executive Order banning fair share fee agreements for public sector workers in the state.  Under the Order, all state agencies are “prohibited from enforcing . . . Fair Share Contract Provisions.” Much of the Order describes the Governor’s reading of Harris v. Quinn and his conclusion that fair share fees are now unconstitutional, amounting to compelled speech that violates the First Amendment.  The Governor is also pursuing judicial action to invalidate fair share fees, telling the Chicago Sun Times that he is “simultaneously filing what is known as a declaratory judgement action in the federal court asking ultimately that the (Illinois) Supreme Court declare that these fair share provisions are unconstitutional.”

The Executive Order is here.

The Supreme Court this week heard oral arguments regarding the Mulhall case which was not your run-of-the-mill issue in the area of labor disputes.  In fact, the focus was just the opposite of a dispute: agreements whereby unions and employers agreed to terms under which a union would be able to organize an employer’s employees.  They are known in the trade as “neutrality agreements.”  While some of these agreements have been found unlawful by both the NLRB and the courts, for the most part, so long as the parties follow the guidelines now long established for such agreements, they have historically been found lawful.

The twist to this proceeding is the allegation that such neutrality agreements violated Section 302 of the Labor Management Relations Act.  This is frankly a little known and little utilized provision of labor law which forbids employers to pay, lend or deliver any money or other thing of value to a labor organization.  In other words, it is an anti-bribery statute.

Frankly these agreements are quite common when you have a chain of operations in which the union already represents a number of the employer’s employees and, rather than face a corporate campaign, the employer agrees to certain ground rules to control the organizing environment.  In the case at hand, the employer allowed the union access to its employees and agreed to rules allowing employees to vote by using a card-check procedure, rather than by the secret ballot method normally utilized by the NLRB.  The key distinction in this agreement, however, was that the union also agreed to spend $100,000 to support a referendum that was favorable to the employer.  Accordingly, while most of the provisions set forth in the neutrality agreement were pretty boilerplate, the $100,000 support portion of the agreement was obviously something beyond the normal situation.

The Washington Post Mulhall has commented on the oral arguments, as well as others others.  Some believe that ancillary legal issues, such as standing, may get in the way of the Court actually issuing an opinion of any substance, but it would seem unlikely that the Court would have taken the matter up if they simply were going to rule on an issue of standing, which will have very little value in terms of clearing the path for future agreements of this nature.  In the interim, it will be wise to have any neutrality agreement be subject to review by appropriate labor counsel to insure Section 302 is not brought to bear, as it is not only a violation of that statute, but it also has criminal implications.

On April 23, in Caterpillar Inc. v. NLRB, the Board found that the employer had violated Section 8(a)(1) and (5) of the Act by refusing a non-employee union representative access to the facility to conduct a health and safety inspection after a fatal accident.  In access case situations, the Board has historically reviewed the facts and circumstances under the standard articulated in Holyoke Water Power Company, 273 NLRB 1369 (1995), enfd 778 F. 2d  49 (1st Cir 1985).  The test is a relatively easy one: the Board is to balance the employer’s property rights vis a vis the employees’ right to be responsibly represented.  The Board found that the weak link in the employer’s argument was a long history of allowing third parties access to the facility.  Hence, denying access to the union was inconsistent with this provision.  But even more disturbing was the fact that, even though the Administrative Law Judge provided for the parties to bargain over an appropriate confidentiality agreement to protect the employer’s property interest in the remedy section, the Board found that inappropriate where, as in this situation, the employer failed to seek a protective order at the hearing over matters which it contended were confidential in support of its property interest.

In hindsight, the employer should have negotiated an access clause which would accommodate these concerns in the collective bargaining agreement in advance, rather than attempting to resolve them on an ad hoc basis.  The Board has recognized a union’s right to waive its rights under the Act for such access and they are relatively common clauses found in collective bargaining agreements to protect an employer’s property rights.  Takeaway: take a look at your own access clauses if something like this could affect your business.