Professional Employer Organizations: New Tax Services Possible

Posted in Employee Benefits

Currently, Professional Employer Organizations (PEOs) have no comprehensive federal framework under which to offer employment tax collection and remittance services to their clients. The Small Business Efficiency Act (“SBEA Act”) is set to change this effective as of January 1, 2016, following an interim deadline for the IRS to establish a federal certification program for interested PEOs by July 1, 2015. While the SBEA Act will not require PEOs to provide employment tax collection and remittance services to their clients, the SBEA Act will provide a new way for interested PEOs to add these tax services to their larger base of product and service offerings. This expansion to the general PEO service model is widely perceived as a positive development by both PEOs and their clients.

More specifically, the SBEA Act codifies the authority of certified PEOs (“CPEOs”) to assume sole liability to collect and remit employment taxes on behalf of their employer customers. The SBEA Act also clarifies that CPEOs will be granted successor employer status to eliminate double taxation from a wage base restart for employers that join or leave a PEO relationship in the middle of the tax year, and confirms that the CPEO may claim any available federal tax credits on behalf of its customers. To be certified by the IRS, a CPEO will have to submit annual audits and quarterly attestations to the IRS, as well as comply with certain bonding obligations. A CPEO will also be subject to an annual fee of $1,000.

It is critical to note that the SBEA Act does not change the existing landscape with respect to identifying whether a CPEO and/or its client is the employer of any particular worker. Although a CPEO will be able to assume new levels of responsibility for paying employment taxes on behalf of customers, the SBEA Act clarifies that the Act will not change the analysis of the identification of the underlying common law employer, particularly for the purpose of defining employees under the Affordable Care Act’s “employer mandate”.

No, You Cannot Prohibit Employees from Protesting or Discussing Their Wages

Posted in Labor Relations

A reminder to employers concerned about employees’ discussing their wages or acting in concert to petition for higher wages: This is legally protected activity that employers cannot prohibit or restrain. A recent National Labor Relations Board decision involving a Chipotle restaurant chain in Missouri illustrates this point.

Patrick Leeper was a Chipotle employee as well as a member of a labor union. He actively participated in its “Show Me 15” campaign, which seeks to raise the minimum wage in Missouri to $15 per hour. Leeper participated in protests in which union members carried banners and signs and wore t-shirts displaying messages aimed at raising the minimum wage. He also discussed wages with other employees and publicly questioned the employer’s pay policies.

A supervisor interrogated employees about which employees had been discussing wages, told employees they could not talk about their wages, threatened employees with retaliation if they talked about their wages or other terms and conditions of employment, and told employees that all managers were instructed to report any employee discussions about wages and that no employee should be talking about wages. The company eventually fired Leeper, ostensibly for missing a mandatory store meeting.

Under Section 7 of the National Labor Relations Act, employees have the right to engage in concerted activities for their mutual aid or protection. Section 8(a)(1) of the Act makes it unlawful for an employer to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights. The test for evaluating whether an employer’s conduct or statements violate Section 8(a)(1) is whether the statements or conduct have a reasonable tendency to interfere with, restrain, or coerce protected activities.

After a trial, the administrative law judge assigned to the case ruled that the employer violated Section 8(a)(1) by: (1) telling employees that they could not talk about wages; (2) telling employees there would be reprisals for talking about wages; (3) instructing managers not to let employees discuss wages, and to report employee wage discussions to management; and (4) firing Leeper for engaging in concerted activities with other employees.

Employers may rightfully be concerned that employees who join together to protest and discuss their wages and working conditions will sow discord among the workforce, pressure the employer to pay higher wages, and encourage the formation of a labor union if one is not already in place. Yet this type of concerted activity is precisely what the Act was designed to protect. Any attempt by an employer to prohibit or restrain such activity will likely be met by swift and forceful action by the NLRB.

Supreme Court Rules on, But Fails to Clarify, Pregnancy Discrimination Law

Posted in Disability, Employment Discrimination Harassment & Retaliation

The Pregnancy Discrimination Act extends Title VII’s prohibition against sex discrimination to include pregnancy. It also says that employers must treat “women affected by pregnancy . . . the same for all employment-related purposes . . . as other persons not so affected but similar in their ability or inability to work.” But what does this latter provision mean when an employer accommodates some but not all workers with nonpregnancy-related disabilities? That was the issue addressed by the Supreme Court’s decision in Young v. United Parcel Service, Inc. (March 25, 2015). Unfortunately the Young decision fails to offer clear guidance to employers, and is likely to lead to more litigation over the meaning of pregnancy discrimination in the workplace.

Young was a part-time driver for UPS. When she became pregnant, her doctor advised her that she should not lift more than 20 pounds. UPS required drivers to be able to lift up to 70 pounds and told Young that she could not work while under a lifting restriction.  Young sued, claiming that UPS violated the PDA by refusing to accommodate her pregnancy-related lifting restriction. Young pointed to UPS policies that accommodated workers who were injured on the job, had disabilities covered by the Americans with Disabilities Act, or had lost Department of Transportation certifications. Young contended that under these policies, UPS had accommodated several workers whose disabilities created work restrictions similar to hers. She argued that these policies showed that UPS discriminated against its pregnant employees because it had a light-duty-for-injury policy for numerous “other persons,” but not for pregnant workers. Young argued that under the PDA, whenever an employer accommodates some workers with disabling conditions, an employer must accommodate pregnant workers who are similar in their ability to work, even if other non-pregnant workers do not receive accommodations.

UPS argued that since Young did not fall within its on-the-job injury, ADA, or DOT policies, it had not discriminated against Young on the basis of pregnancy, but had treated her just as it treated all “other” relevant persons. UPS argued that an employer violates the PDA only if it fails to offer pregnant women the accommodations it provides to others within a facially neutral category. For example, according to UPS, an employer can deny accommodations to pregnant employees as long as it denies accommodations to other workers with off-the-job injuries.

The Court rejected both arguments and held that: (1) a plaintiff may make out a prima facie case under the PDA by showing that she sought and was denied an accommodation, and that the employer accommodated others similar in their ability to work; (2) the employer may then seek to justify its refusal to accommodate the plaintiff by relying on legitimate, nondiscriminatory reasons for denying her accommodation – but those reasons normally cannot be simply that it is more expensive or less convenient to accommodate pregnant women; (3) if the employer meets its burden, the plaintiff may in turn show that the employer’s proffered reasons are pretextual by providing evidence that the employer’s policies impose a significant burden on pregnant workers, and that the employer’s reasons are not sufficiently strong to justify the burden, so as to give rise to an inference of intentional discrimination.

Under Young, the new “rules” on pregnancy discrimination are murky, and the analysis of a pregnancy discrimination claim will now be highly fact-specific. This state of affairs invites litigation and suggests that most cases will be adjudicated only after an expensive trial rather than at the summary judgment stage.

All of this is bad news for employers, except that the Young decision may effectively be moot. As the Court suggests toward the beginning of its decision, a different statute, the ADA Amendments Act of 2008, may require employers to accommodate pregnant employees with temporary impairments. Thus, employers would be wise to consider accommodating pregnant workers with impairments in order to avoid liability under the ADA, even if the employees’ rights under the PDA are unclear following Young.

Employee Handbooks Should Be Reviewed in Light of NLRB Report

Posted in Employee Handbooks & Policies

Your employee handbook may be unlawful. That’s the takeaway from a 30-page report issued by the National Labor Relations Board’s Office of the General Counsel on March 18, 2015.

The report, entitled “Report of the General Counsel Concerning Employer Rules,” presents recent developments on employee handbook rules arising in the context of NLRB cases that address whether particular rules violate the National Labor Relations Act by restricting rights guaranteed under section 7 of the Act. Section 7 gives workers the right to form unions and engage in other types of concerted activity, i.e., when two or more employees act together to improve wages or working conditions. The NLRB says that employee handbook rules that have a “chilling effect” on section 7 rights violate the Act, which makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7” of the Act.

The report contains many examples of policies that the General Counsel has opined are either lawful or unlawful, depending on whether they can reasonably be construed to restrict section 7 activities. The rules address a variety of workplace policies, including confidentiality, employee conduct both inside and outside the workplace, the use of company logos, copyrights and trademarks, restrictions on photography, recording and the use of personal electronic devices, leaving work, conflicts-of-interest, social media usage, solicitation, and restrictions on disclosing the employee handbook or its provisions.

Employee handbook policies on any of these issues may run afoul of the Act. But in many cases, employers may be able to bring an unlawful rule into compliance by modifying the rule or adding an explanation or examples to make it clear that the rule is not intended to restrict section 7 rights.

Employers and their counsel should immediately review existing employee handbooks in light of the General Counsel’s report to ensure compliance with the Act. As the report makes clear, it is not necessary for an employer to apply an unlawful policy in order to run afoul of the Act. The mere maintenance of an unlawful policy violates the Act and can give rise to an unfair labor practice charge.

Employers’ Safety Records Will Soon Be a Click Away

Posted in Workplace Safety & OSHA

Employers should be aware of a proposed OSHA recordkeeping rule that is expected to be issued as a final rule this year. The proposed rule requires employers to electronically report to OSHA data on serious workplace injuries and illnesses that the employers already collect on OSHA injury logs. OSHA will provide a secure web site for the data collection, and will make all of the data it collects publicly available online after redacting personally identifiable information.

In particular, employers with 250 or more employees will be required to electronically report to OSHA the information currently reported on Forms 300 (log of work-related injuries and illnesses), 301 (injury and illness incident report) and 300A (summary of work-related injuries and illnesses). This requirement will not apply to businesses with 250 or more employees that are partially exempt from keeping injury and illness records. The proposed rule does not add to or change any employer’s obligations to complete and retain injury and illness records.

The proposed rule will also impact smaller employers. Businesses with 20 or more employees in designated industries will be required to electronically submit the information from OSHA Form 300A to OSHA or OSHA’s designee on an annual basis. This will replace the current requirement that employers that receive OSHA’s annual survey form complete it and mail it in.

So what’s the rationale behind this new rule? According to OSHA, public posting of workplace injury and illness data will encourage employers to identify and eliminate hazards so that they can be seen as leaders in workplace safety. The data will also allow employees and prospective employees to compare safety records at different companies, and allow researchers to better identify causes of injuries and emerging health hazards.

The new rule will not, according to OSHA, result in more OSHA enforcement overall. But it will allow OSHA to identify relatively safe and unsafe workplaces and allocate the agency’s limited resources accordingly. Employers with poor safety records should therefore take heed.

Illinois Restrictive Covenants: The “Gray” Bright Line Regarding Sufficient Consideration

Posted in Non-Compete & Trade Secret Litigation

Illinois non-compete law continues to wend a circuitous path through the employment landscape, making it occasionally difficult for employers and employees alike to predict outcomes in these cases.

One issue that has arisen with some frequency concerns the matter of consideration for a restrictive covenant with an employee where the only consideration provided is employment: namely, is mere employment sufficient, or must there be something “else?”

In 2013, this question arose in the Illinois appellate court with jurisdiction over Cook County (Chicago) in Fifield v. Premier Dealer Servs., 2013 IL App (1st) 120327. The restrictive covenant there actually was more generous than many, providing that it would not apply if Mr. Fifield was terminated without cause during the first year of his employment (seemingly providing some consideration other than mere employment). The First District concluded that an employee must remain employed for at least two years in order for a restrictive covenant to be enforceable. And, it does not matter whether the employer or employee ended the relationship – Mr. Fifield, the employee, had resigned his position. The Illinois Supreme Court declined to hear the case on a petition for leave to appeal.

The court’s holding arguably can be interpreted to apply only where the sole consideration provided was employment, because the written opinion does not reflect whether Premier Dealer Services argued that other consideration was provided, such as training, a bonus, stock or access to confidential information. The inapplicability of the covenant if the employer terminates the employee before at least 12 months of employment similarly is not sufficient. The Illinois Appellate Court for the Third District has since followed this decision, applying the two-year rule to strike down a restrictive covenant in the absence of other consideration, where the employee served for only nineteen months. Prairie Rheumatology Assocs., S.C. v. Francis, 2014 IL App (3d) 140338. Neither opinion addresses whether other elements of consideration may suffice to shorten the two-year period.

While these decisions represent binding precedent on the courts within their jurisdictions (Chicago, and 21 other counties), they represent only persuasive authority for the rest of Illinois, including the three federal district courts that serve the state. The decisions have not led to predictable results in these other courts.

In two recent Chicago federal cases, the courts rejected the two-year rule and found shorter periods sufficient. See Bankers Life & Casualty Co. v, Miller, Case No. 14 C 3165, 2015 WL 515965 (N.D. Ill. Feb 6, 2015) (Shah, J.) (rejecting two-year rule, denying a motion to dismiss); Montel Aetnastak, Inc. v. Miessen, 998 F. Supp. 2d 694, 716 (N.D. Ill. 2014) (Castillo, C.J.) (finding 15 months sufficient).

In contrast, two other federal decisions, one from Chicago and the other from Peoria, predicted that the Illinois Supreme Court would go the other way and adopt the two-year rule. See Instant Tech., LLC v. DeFazio, Case No. 12 C 491, 2014 WL 1759184 (N.D. Ill. May 2, 2014) (Holderman, J.) (striking down covenants with shorter employment periods); Cumulus Radio Corp. v. Olson, Case No. 15 C 1067, 2015 WL 643345 (C.D. Ill. Feb. 13, 2015) (McDade, J.) (15 months not sufficient).

Thus, this is an area of law that continues to evolve in Illinois. A practitioner faced with one of these cases must take care to examine the consideration provided for the covenant, take stock of the jurisdiction in which the case is pending, and be creative in offering any relevant consideration arguments while at the same time preserving any serious issue for appeal given the current state of these matters.

H-4 Visa-Holders’ Eligibility for Employment Authorization Announced

Posted in Immigration Planning & Compliance

Effective May 2015, certain spouses of H-1B visa-holders who are present under H-4 status will be eligible to apply for an employment authorization document, or EAD. Currently, those in H-4 status—the category assigned to spouses and children of H-1B visa-holders—are not authorized to work in the States, creating economic and personal hardship for these families during lengthy wait periods for green cards. This much-anticipated change in immigration law benefits an estimated 179,600 H-4 visa-holders who may be eligible to apply for employment authorization this year alone.

The new regulation allows H-4 spouses to apply for employment authorization if the H-1B spouse is either (1) the principal beneficiary of an approved immigrant visa (I-140) petition, or (2) was granted an extension of H-1B status beyond the six-year limit based on a PERM application for labor certification that has been pending for more than 365 days. Absent any federal litigation or program delays, H-4 visa-holders may apply for an EAD beginning May 26, 2015. The current estimated case processing time is 90 days, so an H-4 visa-holder with an approved EAD may accept employment no sooner than August 26, 2015. Additionally, spouses present under other visa categories may also consider filing a change to H-4 status if work authorization is desired.

Employees who are sponsored for employment-based green cards are classified into certain categories based on the terms of their employment, as well as their educational qualifications and professional experience. All immigrant visa categories are limited by annual and per-country caps, causing long delays before employees in those categories are permitted to apply for a green card. As an example of this backlog, certain Indian employees whose immigrant visa petition was approved in August 2005 were only permitted to apply for a green card beginning March 2015, nearly 10 years later.

An approved EAD will likely have the same validity period of the applicant’s H-4 visa, which is up to three years. Applicants who receive EADs may also apply for a Social Security number.

EEOC Will Now Process Sexual Orientation Discrimination Claims

Posted in Employment Discrimination Harassment & Retaliation

On February 3rd, the Equal Employment Opportunity Commission released an internal memorandum stating that the EEOC will now process and investigate claims of discrimination based on sexual orientation, transgender status, and gender identity. The EEOC will treat such claims as charges of sex discrimination under Title VII.

Of course, the EEOC does not have the authority to amend Title VII, so its memorandum does not change the substantive law. The memorandum does, however, reflect the EEOC’s current view that discrimination based on sexual orientation may be grounded in sex-based stereotypes and thus violate Title VII’s prohibition on sex discrimination. For example, the EEOC believes that discrimination against a gay man because he’s not attracted to women, or discrimination against a lesbian because she’s viewed as insufficiently feminine, are based on impermissible sex-based norms and expectations in violation of Title VII.

Similarly, the EEOC takes the position that complaints of sexual orientation discrimination can constitute “protected activity” for purposes of a retaliation claim. The EEOC reasons that in light of its own enforcement efforts and several recent court decisions, a belief that Title VII prohibits sexual orientation discrimination is “objectively reasonable,” even if the presiding court rules that Title VII contains no such prohibition.

Several federal courts have ruled that Title VII does not prohibit sexual orientation discrimination, while other courts take a more expansive view of the statute. The proposed Employment Non-Discrimination Act would clarify this issue by amending Title VII to expressly prohibit discrimination based on sexual orientation and gender identity. But ENDA has been kicking around Congress since 1994, and its chances of passing in a Republican-controlled Congress seem slim.

If the EEOC has its way, ENDA won’t be necessary. Title VII will evolve through EEOC enforcement efforts and private litigation until sexual orientation, transgender status, and gender identity discrimination claims are all considered forms of sex discrimination. Another possibility is that the Supreme Court will rule that these forms of discrimination are not prohibited by Title VII. That would clarify the issue in the courts, but spur the call for ENDA’s passage.

For now, employers would do well to err on the side of caution and strictly prohibit sexual orientation discrimination in the workplace. Depending on the location of the workplace, state laws or local ordinances may already impose this obligation.

Truck Driver With “Current” Diagnosis of Alcoholism Is Not Qualified Under the ADA

Posted in Disability

An alcoholic is a person with a disability and is protected by the Americans with Disabilities Act if he is qualified to perform the essential functions of the job. But what if one of the essential functions of the job is not having a current diagnosis of alcoholism? That was the question posed recently by Jarvela v. Crete Carrier Corp., Case No. 13-11601 (11th Cir., January 28, 2015). The Eleventh Circuit Court of Appeals ruled that the employee was not qualified for the job and could be lawfully terminated – yet the decision leaves a key question unanswered.

Sakari Jarvela was a commercial motor vehicle driver employed by Crete Carrier Corporation. Crete terminated Jarvela one week after a substance abuse treatment center had discharged Jarvela with a diagnosis of alcohol dependence and cleared him to return to work. Crete concluded that Jarvela was not qualified for the job because U.S. Department of Transportation regulations forbid motor carriers to allow someone who has a “current clinical diagnosis of alcoholism” to drive a CMV. Crete’s job description for CMV drivers incorporates this standard.

Jarvela sued Crete, claiming that Crete discriminated against him in violation of the ADA. The district court granted Crete’s motion for summary judgment.

On appeal, the Eleventh Circuit affirmed, noting that under the ADA, employers subject to DOT qualification standards may require their employees to comply with those standards. Because one of those standards was that Jarvela have “no current clinical diagnosis of alcoholism,” the court reasoned that “Jarvela could not perform an essential function of Crete’s job description (and, indeed, Crete could not allow him to drive a commercial motor vehicle), unless he had ‘no current clinical diagnosis of alcoholism.’”

The court’s decision seems quite straightforward until you ask, what is a “current clinical diagnosis of alcoholism”? Jarvela presented testimony from two physicians, his mental health counselor, and a colleague that being an alcoholic is a permanent condition. That’s why, according to Jarvela’s colleague, recovering alcoholics in Alcoholics Anonymous introduce themselves as “alcoholic” for as long as they live. But the DOT’s regulations can’t mean that because alcoholism is permanent, a diagnosis of alcoholism will always be “current.” Following this logic, Jarvela argued that his diagnosis was not current when he was terminated because according to one of his doctors, “he was doing what was necessary to stay dry… and that means currently he’s not having a problem with alcoholism.”

The Eleventh Circuit rejected Jarvela’s argument, holding that “a seven-day-old diagnosis is ‘current’ … Jarvela did not ‘lose’ his clinical diagnosis between his discharge [from the treatment center] on April 20 and his termination by Crete one week later.”

But the court declined to say how long an employee must stay dry before a diagnosis of alcoholism is no longer “current” under DOT regulations. “We are not prepared to draw a bright line as to how much time must pass before a diagnosis of alcoholism is no longer ‘current,’” the court wrote. That question may be answered in future cases. Until then, motor carriers subject to DOT regulations are left with little guidance on the issue.

Florida Whistleblower Act Objector Must Prove an Actual Violation of Law, Says Second DCA

Posted in Whistleblower & Retaliation Claims

The Florida private sector Whistleblower’s Act protects employees who object or refuse to participate in a violation of a law, rule or regulation by their employer. But an employee’s “reasonable belief” of a violation is insufficient – the employee must prove an actual violation to state a claim under the FWA, according to a recent decision by Florida’s Second District Court of Appeal, Kearns v. Farmer Acquisition Co., Case No. 2d12-6388 (February 11, 2015).

In reaching this holding, the court acknowledged a split of authority on this issue: Numerous federal trial courts have held that proof of an actual violation is required, while at least two federal courts as well as Florida’s Fourth District Court of Appeal have held that an employee’s reasonable belief is sufficient. In Kearns, the Second DCA was persuaded by the reasoning of the decision in White v. Purdue Pharma, Inc., 369 F. Supp. 2d 1335,1336 (M.D. Fla. 2005), in which the court stated that requiring a plaintiff to prove an actual violation promoted the FWA’s policies “while adequately protecting the legitimate interests of private employers.” The White court explained:

Allowing for the expanded reading of the statute Plaintiff proposes would place an onerous burden on the employer to anticipate all of its conduct that an employee may reasonably believe is proscribed by a law, rule or regulation. Even if the employer knows the conduct is perfectly legitimate, it would be left with the Hobson’s choice of terminating the employee and defending suit against the employee’s reasonable belief or allow[ing] the employee to refuse to meet the requirements of the job with no consequence. In apparent recognition of this dilemma the legislature declined to include in the relevant section of the Act this protection for employees.

The Second DCA in Kearns therefore concluded that “Kearns must prove that he objected to an actual violation of law or that he refused to participate in activity that would have been an actual violation of law.”

Despite this favorable holding for employers, the Second DCA went on to reverse the trial court’s decision in favor of the employer. The court ruled that Kearns, a former employee of the defendant’s automobile dealership, had sufficiently alleged that his employer violated a Florida statute by making false statements about its vehicles to assist purchasers in obtaining credit to purchase the vehicles. The Second DCA therefore ordered a new trial.

As we reported in 2013 when Aery was decided, the conflict among the courts on the proper legal standard under the FWA ultimately will have to be resolved by the Florida Supreme Court, or by an amendment to the FWA. For now, the legal standard that applies will be determined by the court in which the parties find themselves.