Reminder for New Jersey Employers: Statewide 'Ban the Box' Law Takes Effect March 1

This post was written by Meghan Offer and E. David Krulewicz.

As previously reported, New Jersey’s version of the “ban the box” law, entitled “Opportunity to Compete Act” (the Act), goes into effect March 1, 2015. The Act limits covered employers’ ability to inquire into a job applicant’s criminal record.

In less than a week, public and private employers that have 15 or more employees hired to work in 20 or more calendar weeks will be prohibited from inquiring about an applicant's criminal record until after the employers have completed the "Initial Employment Application Process" which runs from when the employer or employee first makes an inquiry about the position until the employer conducts the first interview.

Even after these initial steps are complete, employers are still prohibited from inquiring into: expunged criminal records; arrests that did not result in conviction; disorderly conduct convictions in which the date of sentence or the release from jail (whichever is later) occurred five or more years ago; and conviction of crimes of the fourth degree (or out-of-state equivalent) in which the date of sentence or the release from jail (whichever is later) occurred 10 or more years ago.

The Act also limits employers from posting job advertisements that state they will not consider applicants who have been arrested or convicted of a crime, unless the advertisement seeks applicants for one of the exempt positions set forth in the Act.

Covered employers that violate the Act will face civil penalties of $1,000 for first violations, $5,000 for second violations, and $10,000 for subsequent violations. The Act does not, however, provide for any private right-of-action against employers (such as by individual applicants or employees).

Finally, the Act prohibits local governments from enacting their own laws as to the same subject matter, and effective March 1, 2015, all pre-existing, local ban-the-box laws – such as those in Newark, N.J. – are preempted.

With the Act set to go into effect in a few days, we remind covered employers to review and revise employment applications and job postings to eliminate any references or inquiries into applicant criminal backgrounds. Covered employers should also revisit their interview processes and materials, and remind those involved in the interview process of the prohibition against inquiring about an applicant’s criminal background until after the initial employment application process is complete.

Reminder for N.Y. Employers: Significant Labor Law Amendments Take Effect February 27

This post was written by Cindy S. Minniti and Mark S. Goldstein.

As we previously reported, the New York State Legislature last June passed a Bill, intended to revitalize the Wage Theft Prevention Act (WTPA), that proposed significant changes to the state’s labor laws. Among other things, the Bill eliminated the requirement that employers furnish annual wage notices to employees between January 1 and February 1. On December 29, 2014, Gov. Andrew Cuomo signed the Bill into law, with an effective date of February 27, 2015.

With the Bill set to take effect in just a few days, Empire State employers should familiarize themselves with its requirements and obligations. The following is a summary of the Bill’s most significant provisions:

Elimination of the Annual Wage Notice for N.Y. Employers

Initially enacted in 2010 to curb wage payment abuses, the WTPA required employers to furnish written wage-related information – including pay rate, employer intention to claim an allowance, overtime entitlement and applicable rate and regular payday – to all existing employees between January 1 and February 1 of each year, and to all new hires upon commencement of employment.

In a welcome move for employers, the Bill eliminated the WTPA’s annual wage notice requirement. As we previously explained, this was the only provision of the Bill that took effect December 29, when Gov. Cuomo signed it into law.

Increased Penalties for Other WTPA Violations

The WTPA originally sought to combat employee misclassification. Recognizing that the annual wage notice obligation failed to achieve this, lawmakers strengthened other WTPA provisions. Despite abolishing the annual notice, the Bill still requires employers to furnish wage notices to all new hires, and increases the penalties for non-compliance.

Originally, the WTPA levied a $50 penalty – per workweek, per worker – against an employer that failed to provide a wage notice upon commencement of the employment relationship, up to $2,500. As amended by the Bill, the WTPA now imposes a $50 penalty – per workday, per worker – against an employer that fails to provide a wage notice within the first 10 days of employment, up to a maximum assessment of $5,000.

The Bill also increases the penalties for employers that fail to provide employees with a written statement identifying the employee’s pay rate and related information with each wage payment, as required by the WTPA. Under the Bill, the affected employee and the New York State Department of Labor (NYSDOL) may now recover $250 per workday from delinquent employers, also subject to a $5,000 cap.

An employer facing sanctions for failure to provide compulsory wage notices or wage statements may still evade liability by proving: (1) that it made complete and timely payment of all wages to the affected employee(s), or (2) that it reasonably believed, in good faith, that it was not required to provide the notice or statement to the employee. The employer bears the burden of establishing each of these affirmative defenses.

Despite these affirmative defenses, employers should be sure to provide timely wage notices to new employees, and wage statements to new and existing employees alike. The penalties for noncompliance are now greater than ever.

Creation of New Successor Employer Liability

In addition to augmenting the WTPA, the Bill creates new successor liability for certain entities. Specifically, it provides that an employer similar in operation and ownership to an entity that previously committed labor law violations will be held accountable for the acts and liabilities of the predecessor entity. For purposes of the Bill, the successor employer will be deemed the “same employer” as its predecessor where “the employees of the new employer are engaged in substantially the same work in substantially the same working conditions under substantially the same supervisors, or if the subsequent employer has substantially the same production process, produces substantially the same products and has substantially the same body of customers.” We anticipate disputes regarding the inherent ambiguity of this language and its practical application.

The successor liability clause effectively precludes companies from restructuring operations, or dissolving and creating a new entity with the same business purpose, to sidestep wage-related liability. Entities can no longer merely switch names or corporate identities to elude the NYSDOL’s grasp.

Imposition of Individual Liability for Certain LLC Members

Consistent with its stated purpose of “provid[ing] additional protections for employees against wage theft,” the Bill amends the New York Limited Liability Company Law by specifying that the 10 members of a New York LLC with the largest ownership interests may be held personally liable for any unpaid wages. This provision echoes a similar obligation already embodied in the Business Corporation Law, pursuant to which employees may recover unpaid compensation from the 10 largest shareholders of a corporation.

However, in order to recover wages from an LLC member, an employee must first provide prior written notice to such member. In addition, any action to collect unpaid sums from an LLC member must be commenced within 90 days after “the return of an execution unsatisfied against the Limited Liability Company upon a judgment recovered against it.”

Like the creation of new successor liability, the amendment to the Limited Liability Company Law provides an avenue for employees and the NYSDOL to seek redress where an entity is dissolved or restructured, or where it simply attempts to eschew its wage payment obligations.

Increased Penalties for Repeat Wage and Hour Offenders

One of the Bill’s primary emphases is on preventing repeated violations of the wage and hour laws. For instance, if the NYSDOL issues an order directing payment of wages for a “repeated, willful, or egregious violation,” the errant employer must now report to the NYSDOL certain employee and wage data, which the department will in turn post on its website. The required data includes: (1) the number of permanent and temporary full-time and part-time employees, and the number of temporary staffing agency employees rendering services to the company; (2) the respective hourly pay rates of such employees; and (3) the number of hours worked by such employees during the relevant calendar period, organized in five-hour and 10-hour increments. Given that the Bill does not discern between exempt and nonexempt employees, compliance with the latter two requirements may prove especially challenging.

In another measure intended to deter recidivism, the Bill doubles the maximum civil penalty – from $10,000 to $20,000 – for employers found to have committed a second labor law violation within a six-year period.

It remains unclear how these provisions will affect employers who agree to settle administrative claims pending before the NYSDOL, or how they will affect the threshold decision of whether to settle. What is clear, however, is that employers should strive to avoid falling prey to these sanctions.

Contractors Must Provide Written Notice of Violations

Another statutory change intended to safeguard against wage theft is that construction contractors and subcontractors found to have violated the labor law must notify all of their respective employees of the violation(s). Notification must be made via paycheck attachment in a form and manner to be determined by the NYSDOL.

How Does This Affect My Company?

Once it takes effect February 27, the Bill presents a mixed bag for employers. On one hand, elimination of the annual wage notice requirement eradicates a significant administrative headache. On the other hand, the vast majority, if not all, of the remaining provisions of the Bill are employee-friendly, intending to deter violations – especially repeated violations – of New York’s wage and hour laws. To that end, expect the NYSDOL to waste little time effectuating its apparent mandate from the state legislature to vigorously prosecute wage and hour violations. Consequently, all New York employers, regardless of size, should immediately review their wage payments practices to ensure compliance with both the WTPA and the Bill.

Whistleblower Protection Around the World

This post was written by Séverine Martel, Marie Brunot, Claudia Röthlingshöfer, Jan Weißgerber, Desmond Liaw, Anita Wan, Michael Smith, Amy Ferrington, and Joel Barras.

Welcome to Reed Smith’s monthly global employment law blog post. This month’s post covers the protection afforded to whistleblowers around the world.

France

Under French law, employees cannot be sanctioned, dismissed or be subject to direct or indirect discriminatory measures (especially concerning salary, training, reclassification or appointment) for reporting in good faith suspected wrongdoing by their employer.

French companies are not obliged to adopt a written whistleblowing policy. However, whistleblowing procedures in France must comply with the principles set out by the CNIL (i.e., the French Data Protection Authority). These rules are primarily designed to protect employees from invasion of privacy, potential breaches of individual liberties, false denunciation and wrongful data management.

Any form of retaliation taken against an employee who has used a whistleblowing mechanism in good faith is deemed to be null and void. By way of exception to this legal principle, an employee may face a disciplinary sanction and even incur criminal liability should he or she report a violation in bad faith or with malicious intent.

Germany

There is no legislation relating specifically to whistleblower protection in Germany. The rights and duties of employees in this respect are determined by the general rules and obligations applicable to the employer-employee relationship. In short, employees must be loyal to their employer and protect its business.

German labour courts have considered the validity of sanctions that employers have applied to employees who have raised concerns with third parties outside of the company (such as police and public authorities), after escalating – or without trying to escalate – an issue with the employer first.

German courts have deemed terminations or sanctions based on whistleblowing actions as invalid, where employees have tried to address illegal behaviour of a colleague/superior internally without success before informing third parties outside the company. The courts have stated that any sanction violates the principle of protection against victimisation and retaliation, provided that the whistleblowing was justified. In such cases, dismissed employees must be reemployed.

The entire whistleblowing topic is still under development in Germany, and several Acts covering these issues have been discussed recently. As there is no clear legal regulation in place, there is still a lot of uncertainty as to which disclosures are protected.

Hong Kong

In Hong Kong, no legislation specifically offers whistleblower protection. To gain protection from having “blown the whistle”, an employee has to rely on other rights found in employment and anti-corruption legislation.

For instance, under the Employment Ordinance (Cap. 57), an employee who gives evidence in any proceedings regarding the enforcement of labour legislation, industrial accidents, or breach of work safety regulations, is protected from dismissal and discrimination. An employer who dismisses or discriminates against such a whistleblowing employee commits a criminal offence and is liable to pay a fine of HK$100,000 and/or compensation to the employee.

Further, a whistleblowing employee is protected from allegations of breaches of confidentiality in the following circumstances:

  • Where it is in the public interest to make the disclosure under common law
  • Where the disclosure is made under a Court Order or under the directive of a statutory inspector
  • Where the disclosure relates to suspected money laundering or other serious crimes, and is made under certain pieces of legislation to an “authorised officer” (e.g., a police officer, a member of the Customs and Excise Service, the Joint Financial Intelligence Unit)
  • Where the disclosure relates to corruption and bribery and is made under the Prevention of Bribery Ordinance (Cap. 201)

The Stock Exchange of Hong Kong Limited has amended its Corporate Governance Code to state that it is recommended best practice for all Hong Kong-listed companies to establish a whistleblowing policy, under which employees may raise concerns about possible improprieties in confidence. This is not compulsory, but listed companies that fail to comply must explain non-compliance in their annual report.

United Kingdom

In the UK, the Public Interest Disclosure Act 1998 (“PIDA”) protects whistleblowers in two respects:

  • Dismissal of employees will be automatically unfair if the reason, or principal reason, for their dismissal is that they have made a “protected disclosure”
  • Workers (a wider category of individuals than employees) are protected against being subjected to any detriment on the grounds that they have made a protected disclosure. “Detriment” is defined very widely and can include any circumstances in which a worker might reasonably take the view that they have been disadvantaged.

A whistleblower will only qualify for the protection described above where they have made a qualifying disclosure which is also a protected disclosure.

A qualifying disclosure for these purposes is a disclosure of information which, in the reasonable belief of the worker making it, tends to show that malpractice (e.g., a breach of a legal obligation regarding health and safety) has taken place, is taking place, or is likely to take place. Following reform in this area, a disclosure made on or after 25 June 2013 will only be a qualifying disclosure if the worker has a reasonable belief that the disclosure is in the public interest.

Whether or not a qualifying disclosure will amount to a protected disclosure depends upon the identity of the person to whom the disclosure is made. PIDA generally encourages disclosures to be made internally, to the employer, and further conditions apply to disclosures to third parties.

USA

U.S. law prohibits employers from taking adverse action against employees who engage in whistleblowing activities. Federal law specifically protects those employees who blow the whistle on environmental, workplace safety, and securities laws violations. Federal whistleblower laws also prohibit retaliation against employees who participate in governmental or administrative investigations into potential workplace law violations – even if that employee did not initiate the complaint.

The Occupational Health and Safety Act of 1970, for instance, protects workers from retaliation as a result of reporting/investigating health or safety violations in the workplace. Similar laws address specific industries or niche categories, such as commercial motor vehicle safety and environmental hazards.

The Sarbanes-Oxley Act of 2002 (“SOX”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 work in tandem to protect whistleblowers at all publicly traded companies. Employers at publicly traded companies are prohibited from taking adverse action against any employee in retaliation for that employee “initiating, testifying in, or assisting in any investigation or judicial or administrative action” related to the employer’s violation of the federal securities law. The SOX and Dodd-Frank whistleblower protections are particularly broad, encompassing adverse action taken even in minor part as a result of protected activity. Thus, even if an employee has committed an otherwise terminable offense, if that employee has also engaged in whistleblowing activity, he or she may be protected from adverse employment action.

In addition, many individual states have independent whistleblower statutes protecting employees of private companies. In New York, for example, both public and private employers are prohibited under state law from disciplining or taking retaliatory action against any employee who has disclosed or threatened to disclose policies or practices that violate the law or that otherwise threaten public health or safety.

What is an 'establishment' for collective redundancy consultation purposes?

This post was written by Eleanor Winslet.

The Advocate General has given a preliminary opinion in the case of USDAW & Wilson v Woolworths and others (“the Woolworths case”) on the question of whether there is a requirement to aggregate the number of employees across different locations to meet the thresholds for collective consultation obligations (in England and Wales, of 20 employees in a 90-day period).

Advocate General Wahl found that the meaning of “establishment”, for the purposes of calculating whether the threshold has been met, did not necessarily mean all affected locations owned by the employer. Instead, the Advocate General stated that an “establishment” is effectively a “local employment unit” which it is for a national court to determine.

Background

In England and Wales, collective consultation obligations arise where 20 or more dismissals are proposed at one “establishment” within a 90-day period (as set out in the Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”)).

The well-known Woolworths case relates to claims by former employees of the now insolvent retail group, that they should have been entitled to protective awards for failure to comply with collective consultation obligations. The approach taken by Woolworths was to consider whether there were 20 or more employees at one location and, if not, to take the view that collective consultation obligations did not apply.

The Employment Tribunal agreed that each store should be considered as a separate “establishment”. On appeal, the Employment Appeal Tribunal held that the provisions of TULRCA were incompatible with the European Directive from which they were derived. The reason for this is that the Directive does not refer to the need for employees to be based “at one establishment”.

The EAT therefore stated that the words “at one establishment” should be disregarded, meaning that the threshold of 20 employees may be met by calculating the number of dismissals for one employer across all locations. This could have a huge impact, particularly on larger businesses with a number of sites across the country, and could make collective consultation processes far more frequent.

The matter was appealed to the European Court of Justice (“ECJ”) to decide the point.

Questions asked to the ECJ

  • When calculating whether 20 or more employees are at risk of dismissal, does this relate to the number of employees in one establishment or across locations?
  • What is the meaning of an “establishment”?
  • Should the Directive be seen as having “direct effect”, i.e., be able to be relied on even if it was not properly put in place by the member state?
  • Would the member state be liable in circumstances where the employer was insolvent and could not satisfy the claim?

Advocate General’s position

Prior to the matter being considered by the ECJ, Advocate General Wahl set out his view on the case. Two other cases were linked with the Woolworths case and they were considered together.

On the question of whether proposed dismissals across location must be aggregated, he considered that the Directive did not confirm the position either way, and confirmed that it is for the member states to make a choice.

He stated that the meaning of “establishment” was a “local employment unit”. In the decision, the Advocate General referred to the importance of having protection in place where a large number of dismissals are to be made in the same local area (given the impact this would have on the local community and the limited jobs available in one location). This suggests that there should be some geographical limitation when assessing an establishment. The Advocate General also stated that a local employment unit could be determined by member states, and would be on the facts of each case.

The Advocate General declined to give an opinion on the questions relating to direct effect and liability of member states.

What does this mean for employers?

While it is not certain that the ECJ will follow the Advocate General’s opinion, this is usually the case.

A number of questions remain unanswered, but the good news for employers is that the decision suggests that when calculating the number of proposed dismissals, an “establishment” should relate to employees within the same general locality, even if this is not limited to one office or location.

When thinking about whether the collective consultation obligations should apply, employers should look at whether employees are located in such a way that they could be considered to be a “local employment unit”. Existing case law suggests that there should be a distinct entity in place with a degree of permanence and stability which has a structure in place to enable it to fulfill certain tasks (for example, a number of sites controlled by a regional management structure might be regarded as a “local employment unit”). It will be a question of fact whether employees across locations should be aggregated when assessing whether the 20-employee threshold is met.

Roses Are Red, Violets Are Blue, I'm Prepared to Deal with Office Romances, How 'Bout You?

This article was posted by Cindy Schmitt Minniti, Mark S. Goldstein, and Michael R. Kleinmann.

Valentine’s Day is a day of love and romance for many, often times between co-workers. For employers, it provides a fitting opportunity to re-examine workplace romance and sexual harassment policies. Indeed, there is no better time to ensure sure that your personnel policies adequately address office relationships, and more importantly the fallout from failed relationships. With Valentine’s Day fast-approaching, we have compiled a list of tips to safely guide employers through the office romance minefield.

Don’t Impose a Blanket Ban on Office Romances

Dealing with office relationships, and the associated gossip and fallout, requires employers to walk a delicate tightrope. An outright ban on workplace romances, however, is rarely effective and inadvisable from both a logistical and practical perspective.

The reality for most employers is that employees will fraternize, both during and after work hours, and, inevitably, some will develop romantic relationships. Accepting this reality and taking proactive steps to ensure that all employees enjoy a safe work environment will yield better results than attempting to altogether eliminate romances in the first place. Banning office romances may also mean that an employer will be forced to discipline and potentially discharge otherwise capable employees, lest the employer be accused of not enforcing its personnel policies.

Moreover, in some states, like California, an outright ban on workplace romances may be illegal insofar as it conflicts with an employee’s right to privacy outside of the office.

So What Can Employers do about Office Romances?

Although outright bans on office romances should be avoided, other personnel policies can shield or limit employers from legal exposure and protect their workforce. Some companies, for instance, implement policies that require disclosure of workplace relationships and attempt to limit any associated conflicts of interest (for example, by re-assigning an employee romantically involved with his/her supervisor). Policies that remind employees to maintain professionalism in the workplace – e.g., no blatant sexual behavior, kissing, or cuddling on the job – can also be effective. Whatever policies are ultimately adopted, extending them to encompass relationships not only between co-workers, but also between workers and vendors or contractors engaged by the company, is important.

So-called “love contracts” can also provide value. In essence, a “love contract” acknowledges that the employees are engaged in a consensual relationship, that the relationship will not interfere with the work environment, that no employment decisions will be affected by the relationship, and that both employees agree to abide by the company’s sexual harassment policy. Although not necessarily a panacea in the event a sexual harassment claim is filed, the “love contract” can help establish that, as far as the employer was aware, the relationship was consensual and the employees involved both had knowledge of the harassment policy.

Sexual Harassment Policies are a Must

Unfortunately, many workplace romances fail, sometimes leading to allegations of sexual harassment. In other instances, claims of harassment arise when one employee romantically over-pursues a co-worker. Because of this, sexual harassment policies are an absolute must for all employers.

Sexual harassment policies should be clear about the conduct they prohibit (if possible, provide examples) and also prescribe a clear complaint procedure for employees to lodge grievances. This procedure should identify specific individuals to contact in the event an employee believes that (s)he is being harassed. If feasible, an anonymous 1-800 hotline may also be effective to combat harassment. These avenues for complaint should be clearly communicated to all employees. Harassment policies should also establish a standard procedure for investigating complaints of wrongdoing.

Because an uncommunicated and unenforced sexual harassment policy does little good, training employees about harassment is critical. Indeed, it is strongly encouraged, and in many states legally required, that employees receive regular training on these issues (and Valentine’s Day provides a great opportunity to broach this subject). This training should touch upon all relevant company policies and legal requirements, and explain in detail the procedure for making a complaint. Wherever possible, conduct separate training sessions for managers and lower-level workers.

Finally, in the event a sexual harassment complaint is made, promptly investigate and effectively resolve the claims. If you discover evidence substantiating the complaint, take immediate action to correct the harassing behavior. These actions may absolve or at least reduce corporate liability.

Avoid Valentine’s Day Parties

As with other office holiday parties, employers considering whether to throw Valentine’s Day parties should proceed with caution. The most prudent approach, of course, is to simply not have a Valentine’s Day party – you save money, dodge possible headaches, and can just make the next company event that much better. If you do throw a party, reinforce your employment policies before the festivities begin, moderate the flow of alcohol at the party itself, and promptly investigate any post-party complaints of inappropriate behavior.

What Does This Mean for My Company?

Valentine’s Day evokes images of hearts, chocolate, and epic romances. For employers, however, it is an opportune time to re-visit your workplace romance and sexual harassment policies, and to remind employees about appropriate workplace behavior. Employers with concerns should contact counsel to discuss these and related matters.

No Union, No Worries? Reed Smith To Present Teleseminar Feb. 17

The NLRB’s recent actions have changed the labor landscape for non-union employers. The Board’s “quickie” election rule, set to go into effect April 14, 2015, will dramatically shrink the period of time employers have to respond to union organizing. And as a result of the NLRB’s recent decision in Purple Communications, employees may now usurp employer email systems for non-work-related communications.

On Tuesday, February 17 at 12 p.m. EST, John DiNome and I will present a teleseminar: “No Union, No Worries? What non-union employers need to know about the NLRB to stay non-union.” We’ll discuss practical steps that employers can take to protect themselves in the wake of the NLRB’s rulings. The program will cover:

  • Understanding the threat to non-unionized workplaces
  • Re-writing email and electronic-use policies in the wake of Purple Communications
  • Developing a union-avoidance strategy before an election petition is filed

This teleseminar is part of Reed Smith’s ongoing series, "What Employers Need To Know in 2015." We invite employers to register here.

N.Y. Wage Board Recommends Minimum Wage Increase for Tipped Workers

This post was written by Cindy S. Minniti and Mark S. Goldstein.

On January 30, the wage board convened by Gov. Andrew Cuomo to examine the state’s current tip credit structure recommended that the state increase the pre-tip minimum wage to $7.50/hour for all tipped workers. The board recommended that the increase take effect on December 31, 2015. The minimum wage increase would cause a corresponding reduction in the state’s tip credit, which permits businesses to pay tipped employees less than the minimum wage, provided that the employees earn enough gratuities to cover the difference. Currently, the minimum wage for tipped food service workers is $5/hour, and $5.65/hour for most non-food service workers. The wage board also recommended that the tipped minimum wage be reduced by $1/hour for tipped workers who make substantially more than the minimum wage as a result of their tips.

Gov. Cuomo has already signaled his support for the proposal, which awaits review by the Commissioner of the New York State Department of Labor. Stay tuned for further updates.

New York Employment Roundup: January 2015

This post was written by Cindy S. Minniti and Mark S. Goldstein.

Today’s New York employment law landscape is increasingly dynamic, with a constant stream of new legislation and judicial opinions. To keep our readers current on the latest happenings, we will share regular summaries of recent developments affecting Empire State employers. Here’s what happened in January 2015:

Proposal to Eliminate Tip Credit Voted Down

On January 8, a wage board convened by Gov. Andrew Cuomo to examine the state’s current tip credit structure rejected a proposal to eliminate the credit. The tip credit, critical to many hospitality industry employers, permits businesses to pay tipped employees less than the minimum wage, provided that the employees earn enough gratuities to cover the difference. The wage board has scheduled further meetings and hearings given the failed proposal. We anticipate that the board will report recommended changes, if any, to the current tip credit structure within the next few months.

Legislature Introduces Bill to Clarify Wage Theft Amendment

In June, we reported about a bill passed by the New York State Legislature that proposed significant changes to the state’s labor laws. Among other things, the bill eliminated the requirement that employers furnish annual wage notices to employees between January 1 and February 1. When the governor finally signed the bill December 29, 2014, he noted that it contained several “technical and substantive problems which the Legislature has agreed to address in additional legislation.”

Soon thereafter, on January 8, the legislature introduced the “additional legislation.” As the Governor alluded, it makes only ministerial corrections to the June bill. Perhaps most notable, it eliminates the newly created Wage Theft Prevention Enforcement Account, which was intended to offset the costs of enforcing the labor law with fines collected by the New York State Department of Labor. The June bill takes effect February 27, 2015, as will most of the provisions of the clarifying bill.

State Anti-Discrimination Law Bars Discrimination by Association

On January 14, a state appellate court permitted plaintiff Jeffrey Chiara to proceed with his claim of religious discrimination by association. Chiara alleged that his co-workers subjected him to anti-Semitic remarks throughout his employment. Chiara himself, however, is not Jewish, but is instead married to a Jewish woman. He therefore is not a member of the protected class at issue.

In a case of first impression, the court nevertheless held that the New York State Human Rights Law authorizes an individual to assert a claim for discrimination based upon his/her association with a member of a protected class (here, Chiara’s Jewish wife). In other words, the law not only prohibits discrimination against employees based upon the employees’ own protected characteristic(s) (e.g., age, gender, religion, disability), but also based upon the protected characteristics of individuals with whom the employees associate.

Federal Court Hears Argument in Intern Lawsuits

On January 30, the Second Circuit Court of Appeals heard oral argument in tandem appeals regarding the permissibility of company-sponsored unpaid internship programs. The court’s decision, due later this year, is expected to delineate when (if ever) a company must pay student (and other) interns. The court may also clarify whether and to what extent federal courts should defer to policy positions of the United States Department of Labor on this issue. A favorable decision for the interns will inevitably lead to a slew of new lawsuits.

An Introduction to Global Reductions in Force - Reed Smith To Present Teleseminar on January 29

Reductions in force – also known as collective redundancies – can be daunting for employers, both in dealing with employee issues and protecting the company from liability. On Thursday, 29 January 2015, my partners and I will present a primer on what employers need to know about redundancies in four key jurisdictions: the UK, France, Germany, and the United States. We’ll address:

  • What qualifies as a redundancy/RIF in each jurisdiction?
  • When is an employer required to consult with employees before a dismissal?
  • What happens if an employer wants to dismiss only some employees in a group?
  • Are employers required to consider alternatives to dismissal?
  • What payments are dismissed employees entitled to?
  • What liabilities could an employer face it if doesn’t comply with its obligations?

Joining me will be Reed Smith Labor & Employment partners Severine Martel in Paris, David McAllister in Pittsburgh, and Jan Weissgerber in Munich.

The teleseminar will be presented at two times to accommodate schedules: 9:00 a.m. ET / 2:00 p.m. GMT and 12:00 p.m. ET / 5:00 p.m. GMT. Employers are invited to register here for the time that best suits your schedule.

NY Governor Again Seeks to Raise Minimum Wage

In early 2013, New York Governor Andrew Cuomo signed a bill that incrementally increased the state’s minimum wage from $7.25 per hour to $9 between December 31, 2013, and December 31, 2015. Less than two years later, the governor has unveiled a new proposal to further increase the state’s minimum wage. Indeed, just weeks after New York's minimum wage rose to $8.75 per hour – $1.50 more than the federal rate – Governor Cuomo announced a plan to increase the minimum wage to $11.50 per hour in New York City by the end of 2016, and $10.50 throughout the rest of the empire state. The proposal is greatly at odds with the Governor’s comments made last spring that raising the City’s minimum wage above the rest of the state would cause a “chaotic situation.”

We anticipate that Democratic lawmakers will introduce legislation in the coming months to effectuate the Governor's proposal. Stay tuned for future updates as we learn more.

NJ Supreme Court Sets Tougher Test for Independent Contractor Classification

On January 14, 2015, the New Jersey Supreme Court (the Court) ruled that when determining whether an individual is an employee or independent contractor under the New Jersey wage laws—specifically, the NJ Wage Payment Law (WPL) and NJ Wage and Hour Law (WHL)—the broad “ABC” test used for making that determination under the NJ unemployment compensation statute shall govern. (The case is titled Hargrove v. Sleepy’s, LLC (Hargrove); a copy of the ruling is available here.)

This ruling represents a significant change for New Jersey employers and will likely have major impact. The ABC test imposes considerably stricter standards on employers than the tests used for assessing proper independent contractor classification under other employment laws. The Court’s adoption of the ABC test for NJ WPL and WHL claims also means that the same individual could lawfully be classified as an independent contractor under federal wage law (the Fair Labor Standards Act (FLSA)), but unlawfully be classified as an independent contractor under New Jersey state wage law. All employers with workers in New Jersey should be aware of this new Court ruling and factor it in when deciding how their workers should be classified.

The Court’s Decision

The Hargrove case involved Sleepy’s mattress deliverers whom Sleepy’s had classified as independent contractors—a relationship it memorialized formally in Independent Driver Agreements. Notwithstanding these agreements, plaintiffs filed suit against Sleepy’s alleging that it had misclassified them as independent contractors. Plaintiffs sought the benefits to which they would have been entitled under the New Jersey WPL and WHL had Sleepy’s classified them as employees.

Upon initial review of their claims in federal court, plaintiffs lost. The United States District Court for the District of New Jersey granted Summary Judgment to Sleepy’s, concluding that plaintiffs were properly classified as independent contractors pursuant to the test used for that determination under the Employee Retirement Income Security Act (ERISA). Plaintiffs appealed to the federal Third Circuit Court of Appeals, which then certified the following question of law to the NJ High Court: what test applies in determining employment status for purposes of New Jersey’s [WPL] and [WHL]?

Despite the lawsuit’s attracting significant interest from various private sector groups—with many filing “friend-of-the-court,” or “amici,” briefs to advocate for adoption of a variety of different, more employer-friendly tests that would have resulted in a narrower range of workers being deemed “employees” under the WPL and WHL—the NJ Court rejected all those proposed tests. Instead, the Court sided with the NJ Department of Labor (DOL) and its proposed test (the ABC test). The Court afforded weight to the DOL’s view that: (1) the WPL and WHL “work in tandem to provide a panoply of wage protections for employees,” (2) traditionally, the DOL had “interpreted and implemented both statutes using the ‘ABC’ test set forth N.J.A.C. 12:56-16.1,” and (3) the DOL had interpreted the WHL and WPL in the same manner since 1995, with its interpretations never before being challenged. Noting the similarity between the various statutes, the Court found it significant that the DOL’s implementing regulations to the WHL had specifically adopted the ABC test from unemployment compensation law.

The ABC Test

Under the ABC test, an individual is presumed to be an employee unless the entity engaging the individual can show all three of the following: (A) that the individual is free from the entity’s control or direction over the performance of the service, both by contract and in fact; (B) that the service provided is outside the usual course of business for which such service is performed, or that such service is performed outside of all the places of business of the entity; and (C) that the individual is customarily engaged in an independently established trade, occupation, profession or business.

Should the alleged “employer” entity fail to establish any of these requirements, the individual will be classified as an employee for purposes of the NJ wage laws.

What This Means For Employers

The ABC Test adopted by the Sleepy’s Court is far broader than those used to determine the propriety of independent contractor classification for purposes of several federal laws, including the FLSA. As noted, this means that individuals may be independent contractors under federal law, but employees under New Jersey law. Employers with independent contractors in New Jersey should reassess these relationships to make sure they meet the ABC test and, if in doubt, take steps to mitigate the risks associated with misclassification determination.

This article can also be viewed on Forbes.com.

Report: U.S. Department of Labor Proposal to Almost Double Minimum Salary for Exempt Employees

In March 2014, President Obama directed the U.S. Department of Labor (DOL) to update existing overtime regulations for so-called “white collar” employees under the federal Fair Labor Standards Act (FLSA). In response to the president’s mandate, the DOL is preparing a proposed regulation entitled “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees.” The proposal is expected to narrow the “white collar” exemptions and make more workers eligible for overtime pay under federal law.

Just as significantly, the proposed regulation will also increase the minimum weekly salary an employee must earn to qualify as exempt from the FLSA’s minimum wage and overtime requirements. Although it is unlikely that the DOL will unveil the formal proposal for at least a few weeks, there are credible reports that the DOL’s regulation will practically double the minimum salary for exempt employees: from slightly under $24,000 per year ($455 per week to be precise) to $42,000. Although several states’ laws already require higher weekly salaries than the FLSA’s current threshold, few jurisdictions have minimum salaries as high as the DOL’s anticipated proposal. In New York, for instance, exempt employees must earn $656.75 per week, or just over $34,000 per year.

Before it becomes final, the DOL's proposed regulation will be subject to a public comment period and finalization. Stay tuned for future updates as we learn more.

Post-termination restrictions in a nutshell - to what extent will they protect your global business?

This post was written by Michael SmithAmy FerringtonSéverine MartelMarie BrunotJan Weißgerber, Desmond Liaw, and Anita Wan.

United Kingdom

In the UK, a contractual term restricting an employee's activities after termination of employment will be void for being in restraint of trade and contrary to public policy, unless the employer can show that:

  • It has a legitimate proprietary interest that the term protects
  • The scope and duration of the protection sought goes no further than is reasonable, having regard to the interests of the parties and the public interest

Post-termination restrictions in employment contracts will be subject to greater scrutiny by the courts, when assessing enforceability, than covenants in commercial contracts or other scenarios where the parties are deemed to be of more equal bargaining power (for instance, in the context of a share sale or in partnership agreements).

The current list of potential legitimate interests includes protecting trade connections with customers, trade secrets, and other confidential information; the stability of the workforce; and the goodwill in a business. Avoiding competition per se is not a legitimate interest. Enforceability is determined on a case-by-case basis, and what is enforceable will vary between employees, depending on their roles and seniority. Where a court deems that a restriction is too wide, it will likely declare it void in its entirety, unless a minor amendment (known as “blue pencilling”) would render it reasonable.

France

In France, post-termination restrictions are quite common in the employment contracts of employees who have valuable business connections, or access to confidential information, or who hold senior responsibilities or sensitive positions.

Under French law, employees are not bound by a post-termination non-competition obligation and can work for a competitor provided that they don’t act unfairly in doing so.

Therefore, to prevent an employee from working for a competitor, a post-contractual non-competition covenant has to be inserted in the employee’s employment contract.

In France, the validity of non-competition clauses is subject to the following requirements:

  • That they are designed to protect the legitimate interest of the employer
  • That they are limited in time and space
  • That they do not prevent the employee from holding a position for which he is qualified
  • That they provide for financial compensation in consideration for the performance of the non-competition obligation. The amount of the financial compensation is usually fixed by the applicable collective bargaining agreement or, if not, must be fixed in the employment contract. It usually ranges between 25% and 100% of the employee’s gross monthly salary to be paid during the application of the clause.

Non-solicitation and non-poaching clauses have to be limited in time (usually no more than two years), but there is no legal obligation to provide financial compensation for these clauses to be valid, except when their scope is very broad and they could be considered as non-competition clauses.

An employee can also be bound by a confidentiality obligation under which he undertakes to keep in the strictest confidence all information, knowledge and data concerning the company and its activities. This clause has also to be limited in time, at least up until the information concerned becomes public.

Germany

From a German employment law perspective, ‘post-termination restrictions’ basically refer to non-competition and confidentiality obligations.

German statutory law does not provide for a general post-termination non-compete obligation and thus employees, as a rule, are free to compete with former employers. German statutory law only stipulates a non-compete obligation during the term of the employment and a limited confidentiality obligation.

In order to prevent employees from joining a competitor, the employer has to agree on a post-contractual non-compete covenant with the employee. Unlike in other European countries, post-contractual non-compete covenants in Germany are subject to a number of mandatory requirements. It is important for employers to comply with these requirements as the non-compete otherwise may not be valid and in the end may be unenforceable.

German statutory law, among others, requires any post-contractual non-compete covenant to be in writing bearing original signatures. Furthermore, German law contains limits on the territorial application and covered area of business. It also stipulates that non-compete covenants may not exceed a period of two years. Additionally, a non-compete covenant is only valid if it provides for a compensation of at least 50% of the employee's most recent remuneration. This compensation has to be paid to the employee for every month of the agreed term of non-competition.

Contrary to a general post-contractual non-compete covenant, a mere post-contractual non-disclosure agreement and non-solicitation agreement is valid without compensation. However, the line between a non-disclosure, non-solicitation and non-competition covenant is a fine one.

Hong Kong

In Hong Kong, there is no legislation governing the enforceability of post-termination restrictive covenants. As such, their enforceability will be determined by the Hong Kong courts in accordance with the principles that are well-established in common law.

The starting position is that all post-termination restrictive covenants are unenforceable as a matter of public policy. The courts will be prepared to enforce such covenants to the extent that (i) they are necessary to protect the legitimate interests of the employer, and (ii) they are reasonable in all the circumstances.

In assessing whether or not an employer has a legitimate interest to protect, the courts will consider the nature of the interest it is aiming to protect. For example, legitimate interests worthy of protection may include goodwill (e.g., customer connections), trade secrets, confidential information and workforce stability. Once a legitimate interest has been established, the employer must prove that the post-termination restrictive covenant only goes as far as reasonably necessary to protect that legitimate interest. Reasonableness is ordinarily considered by the courts in terms of (i) the scope of the activities restricted, (ii) the length of time of the restriction, and (iii) the geographical coverage of the restriction.

Evidently, there are no fixed guidelines to adhere to when drafting post-termination restrictive covenants. Their enforceability depends on, inter alia, the employee’s role and seniority, and whether the position requires that degree of restriction. The takeaway point is that extra care must be taken when drafting them, and they should always be tailored to the individual employee – after all, there is no “one size fits all” employment contract.

Reminder for N.J. Employers: Minimum Wage Hike Takes Effect January 1, 2015

As we start the New Year, New Jersey state employers should make sure they are prepared to pay more to minimum wage workers. Based upon the voter-approved amendment to New Jersey’s Constitution, which provides an annual cost of living increase to the state’s minimum wage – effective January 1, 2015, the statewide hourly minimum wage for employees will rise from $8.25 per hour to $8.38 per hour. Employers must ensure that all work performed by employees on and after January 1, 2015, is compensated at this increased rate.

California Employers Face Increased Liability When Using Staffing Agencies

This post was written by Julia Y. Trankiem and Barbra W. Diallo.

A California state law that became effective January 1, 2015, substantially undermines the business decision to utilize temporary workers. A significant number of California employers who use temporary workers must now share responsibility and liability with the staffing agencies that provided these workers when claims arise under any of the following:

  • The payment of wages
  • Failure to secure valid workers’ compensation coverage, or
  • Failure to comply with occupational safety and health requirements

Employers with fewer than 25 workers (including independent contractors) and nonprofit organizations, labor organizations, apprenticeship programs, motion picture payroll services companies, and hiring halls operated pursuant to a collective bargaining agreement are exempt from the law. All remaining private employers are susceptible to the law’s new dictates and cannot shift their legal liabilities to the staffing agency or waive them by contract.

The new law does not prohibit employers and staffing agencies from contracting and enforcing any “otherwise lawful remedies” for liability created by the other party. In addition, the law provides that it should not be interpreted to impose liability on an employer for the use of an independent contractor, or to change the definition of independent contractor.

Employee Notification Requirements
Prior to raising a claim under this new law, an individual must give at least 30 days' prior notice. As this requirement is vaguely worded, employers are advised to include notification procedures in their policies that identify designated supervisors or HR personnel eligible to receive such notice.

Anti-Retaliation Provision
Not surprisingly, the statute provides that neither the employer nor the staffing agency may take any adverse action against any individual who gives notification of violations or files a claim or civil action.

Agency/Department Inspections
Employers and staffing agencies can also expect and must promptly respond to requests by state enforcement agencies or departments seeking to inspect records to verify compliance.

With the potential for increased liability, employers should carefully review their policies and determine whether using staffing agencies is still a viable business model. Employers are also encouraged to seek legal counsel to discuss any questions regarding the new law.