Worker Misclassification, Health Care, NLRB Action, Immigration to Keep HR Busy in 2015

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By Martin Berman-Gorvine

Jan. 2 — As 2015 begins, employers confront a full plate of regulatory matters with potentially far-reaching and severe consequences for the noncompliant, ranging from misclassification of nonexempt employees who should be paid overtime as exempt supervisory employees or independent contractors, to the myriad headaches associated with implementation of the Affordable Care Act, to a potential revolution in when an organization is considered a “joint employer,” to evolving and changing regulations on social media, discrimination, immigration and benefits.

“There's way too many lawyers suing you for violating the Fair Labor Standards Act” for misclassifying nonexempt employees as exempt or employees as independent contractors, Lawrence P. Postol, a partner in the Washington office of management-side law firm Seyfarth Shaw LLP, said in a Nov. 7 session on developments in employment law sponsored by the Human Resource Association of the National Capital Area. “And I'm sorry to say the reason they're suing you is because you're not doing it right. The burden of proof is on the employer to show the employee meets an exemption.”

An employee can't be classified as exempt just because he or she is paid a salary instead of an hourly wage, Postol said, and “the administrative exemption is limited to overhead functions with significant discretion.”

Similarly, a company's decision to issue somebody a 1099 tax form doesn't make that person an independent contractor; “if you direct and supervise the day-to-day work of a worker, the person is your employee,” Postol said, adding that “we anticipate investigations on independent contractors and industries with vulnerable, low-wage workers to increase in 2015.”

It has been several months since President Obama directed the Department of Labor to further limit which employees can be classified as exempt, although the notice of proposed rulemaking for the white collar overtime rule (RIN 1235-AA11) has been delayed. Postol said the latter should appear “in the next few months, followed by a public comment period of 30-90 days, followed by publication of final rules in 2015-16.”

Battles Over the Health Care Law

Turning to the ACA, Postol noted the headline-grabbing U.S. Supreme Court rulings barring enforcement of the contractive coverage mandate for closely held corporations whose owners have sincerely held religious beliefs against contraception.

Postol also mentioned the final IRS regulations on employer shared responsibility requirements, which he said “contained important forms of transition relief intended to minimize impact of the new rules, particularly on smaller employers”.

The new year will see the high court rule on a Republican-backed appeal against the ACA targeting tax credits that have helped more than 4 million people afford insurance, the effect of which could eviscerate the president's signature health-care law.

“There are delays in the regulations, but we will start to see some action on employer penalties, although they are delayed for another year,” management-side attorney Khristan Heagle of Klein Zelman Rothermel Jacobs & Schess LLP in New York City told Bloomberg BNA Nov. 20.

Immigration Up for Grabs

Immigration is the focus of even more intense political controversy following President Obama's Nov. 20 announcement of the Immigration Accountability Executive Action (IAEA), which most notably allowed for more than 4 million undocumented immigrants to remain in the U.S., but also alters policy in a number of ways that are of great interest to employers.

“There are delays in the [ACA] regulations, but we will start to see some action on employer penalties,” management-side attorney Khristan Heagle told Bloomberg BNA.

The crux of the matter for employers is that “there are lots of possible things in it that are positive for employment-related immigration issues, but no dates” for anything to become a regulation, Valentine Brown, a partner at management-side law firm Duane Morris LLP in Philadelphia, said in a Dec. 22 interview with Bloomberg BNA.

As an example, she cited the Program Electronic Review Management (PERM) process, the first step in obtaining a green card. “The PERM process is notoriously odious for the DOL's lack of forgiveness for any mistake or typographical error no matter how unintentional or small,” she said. “For example, an obvious typo on the application form of a date of a particular recruitment step is likely to cause a denial of the application, but only after DOL has had the application in process for over 12 months and the employer has spent thousands of dollars on required newspaper print ads.”

Under the IAEA, “the Department of Labor has to study and decide what to do” about improving PERM, but there's no telling whether this process will be complete in 2015 or later.

The same lack of agency deadlines applies to the “visa modernization program,” or improvements in such areas as allowing “concurrent filing” for the second and third steps of the green card process, which in most cases must be done separately at present, and in making sure no available green card visas go unused, Brown said. There are no deadlines for the relevant agencies to finish studying these items.

“On the compliance side, nothing is going to change that's enforcement related,” Brown said. For example, she said, employers will continue to face both a compliance crackdown on I-9 employment eligibility forms and scrutiny to make sure they are not using these forms to practice illicit discrimination.

And the H-1B visa cap “will get reached on the first day again, on April 1, 2015,” Brown said. The IAEA reiterates the unimplemented promise to put in place a new regulation to allow “H-4 spouses of H-1B workers who have reached certain milestones in the lengthy green card process” to apply for work authorization, she said.

“My takeaway is that there will be slow but steady gains for employers in sponsoring people for immigration benefits,” Brown said.

The Attack on ‘Joint Employers.'

The headline-making demonstrations against low wages at fast-food restaurants over the past year may be less significant in the long run than a potentially major change in the way the National Labor Relations Board views franchisers' relationships to their franchisees' employees.

“My takeaway is that there will be slow but steady gains for employers in sponsoring people for immigration benefits,” attorney Valentine Brown told Bloomberg BNA.

On July 29, NLRB General Counsel Richard F. Griffin set off a fierce debate over when businesses should be considered joint employers of their franchises when he announced that he has authorized unfair labor practice complaints alleging McDonald's USA LLC is a joint employer with franchisees operating fast-food restaurants in the U.S.. The Office of the General Counsel announced Dec. 19 it has issued 13 unfair labor practice complaints nationwide against McDonald's and certain franchisees as joint employers.

The NLRB action “has the potential for the most immediate and far-reaching impact on the greatest number of employers,” George A. Voegele Jr. of management-side law firm Cozen O'Connor said in a Nov. 19 interview with Bloomberg BNA.

He added that a lot of litigation could result if the NLRB does decide to alter this standard. It “has the potential to force a lot of firms to the bargaining table, and not just the smaller franchisees,” Voegele said.

The NLRB's jurisdiction extends beyond the unionized workforce, and all employers should take note of cases the agency is involved with “alleging handbook policies breach the NLRA [National Labor Relations Act] by hindering employees' ability to engage in concerted activity, e.g., preventing employees to discuss wages and other terms of employment,” Postol said.

This can extend to employer discipline of employees for remarks made on social media, although only some such comments are protected, he added: “If [an employee] posts on Facebook, ‘My wages are terrible, my supervisor is terrible,' that's protected. If an employee says, ‘McDonald's hamburgers are bad,' that's not protected. If an employee says, ‘please kill my employer,' that's not protected, you can fire them.”

If an employer fires an employee for a social media post that the NLRB deems concerted activity, however, the company “must reinstate the employee,” Voegele noted. “We will have to continue to work with employers as the board expands its authority into areas not traditionally thought of [as within its jurisdiction], especially nonunion workplaces.”

Congressional push-back against the NLRB is already under way, however. “I anticipate the Republicans will try to use the power of the purse to try to prevent the NLRB from enforcing policy in certain areas,” Cozen O'Connor's Jeffrey I. Pasek told Bloomberg BNA in a Nov. 10 interview.

Beyond Gay Marriage

Developments in antidiscrimination law that affect employers go far beyond the most attention-getting, such as the possibility that the U.S. Supreme Court will have to step in to resolve a split between the U.S. Court of Appeals for the Sixth Circuit, which went against the grain of other federal appeals courts in upholding same-sex marriage bans in four states in November, and other courts. Before the Supreme Court takes up the case, however, the Sixth Circuit will decide whether the full court will rehear the case. “I imagine because of the publicity it has received, there will be a decision on an en banc hearing very quickly,” Victoria Zellers of Cozen O'Connor said in a Nov. 17 interview. “It's a very fast-moving issue. I think it will end up being decided within 12 to 18 months” on a nationwide basis.

The hottest area in antidiscrimination law now is arguably transgendered individuals' rights. Zellers noted that the Equal Employment Opportunity Commission is now pursuing cases on behalf of two such individuals, “trying to expand” the sex or gender stereotyping theory developed out of the U.S. Supreme Court's landmark decision in Price Waterhouse v. Hopkins, 490 U.S. 228, 49 FEP Cases 954 (1989), Zellers said. This approach has already been upheld in the Third and Sixth circuits, she said, adding, “I think that courts will continue to agree that transgender discrimination is sex stereotyping and allow it to proceed on that basis.”

Courts have not to date been as friendly to the view that transgender discrimination is barred by Title VII of the Civil Rights Act of 1964, but on Dec. 15 outgoing U.S. Attorney General Eric Holder sent a memo to all Department of Justice component heads and United States Attorneys stating that “the department will no longer assert that Title VII’s prohibition against discrimination based on sex excludes discrimination based on gender identity per se, including transgender discrimination, reversing a previous Department of Justice position,” according to a Dec. 18 press release from DOJ's Office of Public Affairs.

Postol noted the EEOC is active on many other fronts as well, notably the new enforcement guidance on reasonable accommodation requirements for pregnant employees under the Pregnancy Discrimination Act); what Postol characterized as the agency's “aggressive stance” on criminal and credit background checks; a new Q&A document on workplace accommodations for religious clothing and grooming practices; and a focus on sex discrimination and equal pay for women. At the same time, there is “judicial and congressional review of the EEOC's conciliation and litigation practices,” he noted.

However, for HR practitioners, Postol said, the focus should be more on the danger of making standard severance agreement provisions overbroad. Citing EEOC v. CVS Pharmacy, Inc. (2014 BL 283586, N.D. Ill., No. 1:14-cv-863, 9/18/14), a case the agency lost in September, Postol nevertheless advised, “You need to be careful not to exclude the right to go to the EEOC,” and “don't make the nondisparagement clause mutual.” Similar lessons can be drawn from another severance agreement case the agency filed in 2014, EEOC v. CollegeAmerica Denver, Inc., 2014 BL 338471, D. Colo., No. 1:14-cv-01232.

“We will have to continue to work with employers as the board expands its authority into areas not traditionally thought of [as within its jurisdiction], especially nonunion workplaces,” George A. Voegele Jr. of Cozen O'Connor said.

Alongside the EEOC, the Department of Labor's Office of Federal Contract Compliance Programs is also tasked with combatting discrimination. Although its authority is limited to federal contractors, that covers a lot of ground, Pasek said: “One in five employees is working for a federal contractor or subcontractor.”

According to Postol, the “most notable changes” in 2014 for the OFCCP are that its “rules now provide metrics to measure federal contractors' progress toward achieving equal opportunity,” namely an annual hiring benchmark for veterans of 7.2 percent or a level set by data- and company-specific factors under the Vietnam Era Veterans' Readjustment Assistance Act, and a 7 percent utilization goal under Section 503 for the disabled.

However, these goals may conflict with other antidiscrimination goals, potentially posing an insoluble problem for employers. “Only 8 percent of veterans are women,” Postol noted, so the veterans' and gender nondiscrimination goals may interfere with each other.

Federal contractors, and by implication subcontractors, are also affected by a new requirement to disclose labor law violations, Pasek said. “Many of these things are usually settled confidentially. A contractor could be in a position of wanting to appeal an adverse district court ruling and have the government say they want you to forego it” if the company wishes to keep getting government contracts, he added.

An employer accused of discrimination could be exonerated by a court but still find itself on the hook for retaliating against the complaining employee. “There is a definite increase in the number of retaliation claims employees are filing,” Debbie Friedman of the Labor & Employment Practice Group of Cozen O'Connor, Philadelphia, said in a Nov. 14 interview with Bloomberg BNA. “In fiscal year 2013, the last year for which data are available from the EEOC, there were more retaliation cases than any other type of filing—more than 31,000 just Title VII cases.”

“It's easier to succeed on a retaliation claim than on the underlying discrimination claim,” she added. “It's particularly dangerous to the employer, and it impacts the clients' underlying reputation.” Moreover, she said, “the trend has been to allow the claims to proceed to trial because they often involve disputes of fact,” and there is “the potential for serious monetary exposure.”

Retirement Benefits Trends

The pension field will continue to see ferment as well, Kevin Wagner, a senior retirement consultant in Towers Watson's Atlanta office, said in a Dec. 22 interview with Bloomberg BNA. For example, “the mortality table is likely to be changed by the IRS in the next couple of years,” he said.

The No. 1 theme in retirement accounts for 2015, however, is “optimization,” Wagner said. This means efforts to increase the amounts and improve the distribution of employees' defined contribution plan investments, which also benefit the plan sponsors and avoid having “a workforce that can't afford to retire,” he added. “I think companies will put lots of good options out there and give employees the tools to choose among them.”

A second trend to watch for in 2015, Wagner said, is a continuation of pension de-risking. This will include offering former employees lump sums instead of deferred annuities as a way of holding costs down over the long term, he said.

Additional trends to look out for in retirement benefits, Wagner said, include more market-driven consolidation of vendors and possible tax law changes.

To contact the reporter on this story: Martin Berman-Gorvine in Washington at

To contact the editor responsible for this story: Simon Nadel at


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