How An Employee Can Lose Their Exempt Status

There has been a lot of litigation in California concerning the exempt status of various categories of employees, with plaintiffs’ attorneys filing class action after class action seeking to recover four plus years of overtime compensation stemming from employers allegedly misclassifying employees as exempt from overtime compensation. Typically, these claims are premised on an argument that the employees’ job duties (as opposed to the amount or manner of compensation paid to the employees) do not meet the test for exemption. A decision hand down today by a California Court of Appeal serves as a reminder that failure to pay exempt employees on a salary basis also destroys exempt status, even if the employees’ job duties satisfy the test for exemption.

In Negri v. Koning & Assoc., the plaintiff was an insurance adjuster who was paid $29 per hour for his work. He did not have any guaranteed and predetermined minimum salary that he would be paid regardless of hours worked. In actual practice, the plaintiff always worked at least 40 hours per week and was paid $29 per hour for each of those hours worked (and more if he worked more than 40 hours). Thus, the employee’s total compensation each week was far more than double the minimum wage (the minimum threshold amount of compensation to qualify for exempt status generally in California). Nonetheless, the employee sued his employer, claiming he was improperly classified as exempt and was owed overtime compensation. [He alleged he typically worked over 60 hours per week.] The employer argued the employee was properly classified as exempt based on his job duties and compensation. The trial court ruled in favor of the employer, citing federal authorities generally determining that insurance adjusters are exempt administrative employees. The employee appealed.

The appellate court reversed, but wisely did not want to touch the issue of whether the employee’s job duties met the test for the administrative exemption in California. [California courts have been all over the map on interpretation and application of the administrative exemption as to claims adjusters and as to many other categories of employees.] Instead, the court analyzed whether the employee’s compensation met the salary basis test necessary for exempt status. The court explained that payment on a salary basis requires that an employee be paid a guaranteed predetermined amount (of at least twice the minimum wage) that is not subject to reduction based on quantity or quality of work. The court held that the employer’s method of paying this employee did not meet this salary basis test because the employee was simply paid hourly without any guaranteed minimum salary. Thus, hypothetically, if the employee worked only a few hours in a week, his total compensation would be less than double the minimum wage because there was no guaranteed minimum salary in place. The employer argued that this hypothetical scenario never happened and that the employee always worked and was paid for at least 40 hours and so there was no “actual reduction” based on quantity worked. As such, the employer argued that the salary basis test was still satisfied as to this employee. The court disagreed and held that there must be a guaranteed minimum salary in place in order for an employee to be deemed paid on a salary basis and qualify for exempt status. The court clarified that it is permissible for an employer to pay an employee compensation over and above the guaranteed minimum without destroying exempt status, but there must at least be a guaranteed minimum in place in the first instance.

This case serves as a cautious reminder for employers who pay exempt employees using hourly forms of compensation. While this is generally permissible, there must be an agreement in place that the employee will receive a guaranteed minimum salary of at least double the minimum wage (California employees) for full-time employment. Otherwise, exempt status can be successfully challenged, with back overtime owed (typically at an alarming overtime rate given the higher rate of compensation paid to employees classified as exempt).

Employee Rights Poster to Join the Union Ruled Invalid!

Last week the D.C. Circuit Court of Appeals issued its ruling in a case brought by several employer groups seeking to challenge the legality of the NLRB rule requiring employers to post an employee rights poster informing employees of their rights under the NLRA to unionize, among other things. As employers will recall, the NLRB had postponed the effective date of the posting requirement several times pending various court challenges to the legality of the required poster. The NLRB then gained a victory before a District of Columbia district court, which held that the poster was lawful. Employer groups appealed to the D.C. Circuit Court of Appeals, which temporarily enjoined the NLRB from implementing the posting requirement until a ruling on the merits of the appeal. Last week, the Court of Appeals reversed the district court decision and held that the NLRB’s posting rule violated employers’ free speech rights and was, therefore, unlawful. For now, employers remain free of any obligation to post the NLRB employee rights poster.

The “Employee Tricked Me Into Firing Her” Defense

The NLRB continues to issue decisions about whether an employer can lawfully terminate employees based on social media activity, and whether workplace policies violate the law protecting employees’ rights to engage in protected concerted activity. However, last week’s decision in In re Design Technology Group, LLC had an interesting twist.

Three sales employees were discussing several work-related issues in person, and their discussion continued on Facebook. Among the complaints made were about how the store manager treated them and other store employees. The store manager later learned about the complaints, and subsequently fired the employees. At the hearing, the employer made much about the fact that the employees were “giggling and smiling” at the termination meeting, and that Facebook posts after the meeting suggested that the employees were happy to have been fired, and perhaps even set up the circumstances in order to get fired and sue the employer.

Adopting the ALJ’s decision, the NLRB was not persuaded by the employer’s defense:

The judge correctly rejected the Respondent’s ‘discharge conspiracy’ theory. The Respondent contends that the Facebook postings were not protected because the employees had ‘no honest and reasonable belief’ that the purpose of their conduct was for the mutual aid and protection of employees’ and that instead, the employees ‘schemed to entrap their employer into firing them.’ The judge found the conspiracy theory to be ‘nonsensical,’ and we agree. There is no credible evidence that the employees’ actions were undertaken to entrap the Respondent into committing an unfair labor practice. But even if the employees were acting in the hope that they would be discharged for their Facebook postings, the Respondent failed to establish that the employees’ actions were not protected by the Act.

Employer Take Away: What should you as an employer take away from this development?

The NLRB says that entrapment is not a valid defense to a proposed violation of employees’ rights to engage in protected concerted activity. That is, if the employees did engage in protected concerted activity under the National Labor Relations Act, it does not matter if they did so for the purpose of getting fired.

It remains to be seen whether an “entrapment”-like defense to these cases will gain any traction in later cases. For the time being, it would behoove you to focus less on the motives of the employees engaging in certain conduct, and more on whether the conduct itself is protected, before deciding to take some adverse action because of the conduct.

Minimum Wage Update!

California’s Legislature is considering AB10 this session, which would increase California’s minimum wage from the current $8 per hour to $8.25 per hour next year, to $8.75 per hour in 2015, and to $9.25 per hour in 2016. Beginning in 2017 and thereafter, the minimum wage would be automatically adjusted upward based on the state’s inflation rate. Recent legislative efforts to increase California’s minimum wage rate have failed and it is not clear whether this bill will fare differently. However, the bill did recently pass the Assembly Labor and Employment Committee. California’s minimum wage is already one of the highest in the country. Only a handful of states have minimum wage rates higher than California’s.

On the federal level, legislation has also been introduced to raise the federal minimum wage from the current $7.25 per hour to $8.20 per hour three months after the legislation is passed, to $9.15 per hour one year after the legislation is passed, and to $10.10 per hour two years after the legislation is passed. Starting the third year after the legislation is passed, the federal minimum wage would be automatically adjusted upward based on the Consumer Price Index. The federal legislation, known as the Fair Minimum Wage Act of 2013, would also increase the minimum wage for tipped employees over the next three years from $2.13 per hour to 70% of the minimum wage.

We will post developments on this and other employment-related legislation here.

Employer Hit With Unpaid Vacation Wages Even Though Union Agreed Vacation Was Properly Paid Under CBA

California employers should all be aware that California law requires employers to pay out all accrued, but unused, vacation pay immediately upon termination of employment. In other words, use it or lose it policies and/or policies that provide for forfeiture of vacation on termination of employment are illegal in California. Employers who fail to timely pay vacation wages on termination of employment are liable not only for the actual amount of unpaid vacation wages, but also for “waiting time penalties” of a full day’s regular wages for each day the payment is late, up to 30 days. There is, however, an exception to the rule prohibiting a forfeiture of vacation wages for unionized employees if the collective bargaining agreement “otherwise provides” (meaning it provides for something other than full payment of all vested vacation upon termination of employment). Recently, a California court interpreted this exception narrowly to hold that a collective bargaining agreement (“CBA”) must “clearly and unmistakably” specify that vested vacation does not need to be paid in order for a waiver to be found. In other words, an implied waiver or a waiver inferred from the totality of the circumstances (such as the past mutual practice of the union and the employer) is not good enough. The case is Choate v. Celite Corp..

In the Choate case, the employer granted its employees between one and five weeks of vacation annually. At the beginning of each year, the employer calculated the yearly vacation allotment based on an employee’s length of service and the number of hours the employee worked the year before. Under the CBA, employees terminated from employment were entitled to “receive whatever vacation allotment is due them upon separation.” Both the union and the employer understood this provision to mean that employees were entitled to be paid for the vacation time already allotted to them for the year of their termination, but not for any vacation time they had accrued toward the next year’s allotment by virtue of having performed a certain number of hours of work. The employer paid out vacation in accordance with this understanding. Notwithstanding the apparent agreement of the union and the employer as to the interpretation of the CBA’s vacation provision, a group of terminated employees sued for unpaid vacation wages and waiting time penalties.

The court held that the employer owed the pro rata vacation wages earned during the termination year because the CBA did not “clearly and unmistakably” waive employees’ right to receive those vacation wages. The court held that it was not sufficient that the union had for years agreed with the employer’s interpretation of the vacation provision. Although the court held that the vacation wages were owed, the court held that the employer did not owe waiting time penalties because the employer’s failure to pay was not “willful.” The court held that the employer reasonably believed that the wages were not owed based not only on the union’s agreement but also on conflicting case law, some of which suggested that an implied waiver standard was proper.

Employers with unionized employees who do not pay out all accrued, unused vacation on termination of employment should ensure that the applicable CBA clearly and unmistakably waives this entitlement.

Federal Case: Cannot Tell Employees to “Keep it Confidential”

I have been continually advising employers (California) that under the California Labor Code it is illegal to tell employees to “keep it confidential” when investigating complaints of workplace harassment. Now the Feds have jumped on board.

The National Labor Relations Board (NLRB) decided in Banner Health System dba Banner Estrella Medical Center and James A. Navarro, Case No. 28-CA-023438, that an employer’s blanket rule requiring employees to maintain the confidentiality of pending internal company investigations violated the employees’ Section 7 right to discuss discipline or disciplinary investigations involving their fellow employees. Admittedly, employers will be concerned that the NLRB’s position complicates an employer’s ability to protect the integrity of an ongoing investigation. Nevertheless, I recommended that employers outside of California should treat each investigation on an individualized basis and that employers should document its specific business rationale for requesting employee confidentiality during an investigation. California in my opinion does not permit such a luxury.

The NLRB’s Division of Advice issued a Memorandum regarding this issue. In Verso Paper, NLRB Div. of Advice, No. 30-CA-89350, 1/29/13 [released 4/16/13] Associate General Counsel Barry J. Kearney advised that the employer maintained an overbroad rule requiring employee confidentiality to maintain the integrity of all internal investigations. The company’s Code of Conduct specifically provided:
Verso has a compelling interest in protecting the integrity of its investigations. In every investigation, Verso has a strong desire to protect witnesses from harassment, intimidation and retaliation, to keep evidence from being destroyed, to ensure that testimony is not fabricated, and to prevent a cover-up. To assist Verso in achieving these objectives, we must maintain the investigation and our role in it in strict confidence. If we do not maintain such confidentiality, we may be subject to disciplinary action up to and including immediate termination.

Reviewing this policy, Mr. Kearney reiterated the Board’s position from Banner Health that an employer must show more than a generalized concern with protecting the integrity of its investigations. “Rather, an employer must ‘determine whether in any give[n] investigation witnesses need[ed] protection, evidence [was] in danger of being destroyed, testimony [was] in danger of being fabricated, and there [was] a need to prevent a cover up.” Thus, according to Kearney, a blanket rule prohibiting employee discussions of ongoing investigations is unlawful because it does not require the employer first to demonstrate a particularized need for confidentiality in any given situation. He therefore advised the NLRB’s Region 30 Director to issue a complaint against the employer in the absence of settlement.
In a footnote to his Memorandum, Mr. Kearney provided employers with a safe harbor policy that would avoid the potential Section 7 pitfalls. Specifically, he noted that the first two sentences of the employer’s rule lawfully set forth a legitimate interest in protecting the integrity of its investigations and then recommended modifying the remainder of the rule to lawfully advise employees that:
Verso may decide in some circumstances that in order to achieve these objectives, we must maintain the investigation and our role in it in strict confidence. If Verso reasonably imposes such a requirement and we do not maintain such confidentiality, we may be subject to disciplinary action up to and including immediate termination.

Keeping all of the above in mind, in my opinion telling employees to keep it confidential within the context as noted above, is a slippery slope. Besides, we all know it really does not matter! Employees will talk so why put yourselves at risk.

Federal Recordkeeping Regulations Regarding Employment Records

These recordkeeping regulations require covered entities to retain personnel and employment records that employers make or use in the course of their business. The specific requirements of these regulations are set forth below.

A. All Personnel and Employment Records made or used (including, but not limited to, requests for reasonable accommodation, application forms submitted by applicants, and records dealing with hiring, promotion, demotion, transfer, lay-off or termination, rates of pay, compensation, tenure, selection for training or apprenticeship, or other terms of employment) must be preserved for the following periods:

1. Private employers must retain such records for one year from the date of making the record or the personnel action involved, whichever occurs later, but in the case of involuntary termination of an employee, they must retain the terminated employee’s personnel or employment records for one year from the date of termination.

2. Educational Institutions and State and Local Governments must retain such records for two years from the date of the making of the record or the personnel action involved, whichever occurs later, but in the case of involuntary termination of an employee, they must retain the terminated employee’s personnel or employment records for two years from the date of termination.

B. Other Records must be retained for the following periods:

1. Labor Unions which are “referral unions” must retain all membership and referral records (including applications for same) for a period of one year from the date of making the record.

2. Apprenticeship Committees that control apprenticeship programs must retain all apprenticeship records, including, but not necessarily limited to, requests for reasonable accommodation, test papers completed by applicants, and records of interviews, for a period of two years from the date of making of the record.

C. Records Relating to a Charge of Discrimination

Where a charge of discrimination has been filed under Title VII, the ADA, or GINA, or where a civil action has been brought by the Commission or the Attorney General, the respondent private employer, state or local government employer, educational institution employer, labor union, or apprenticeship committee must retain all records related to the charge or action until final disposition of the charge or action. The date of final disposition means the date of expiration of the statutory period within which the aggrieved person may bring an action in a U.S. District Court or, where such an action has been brought, the date on which such litigation is terminated.

Note: This information came directly from the EEOC website.

Genetic Characteristics is an Emerging Minefield of Litigation

As many of you know, this is the required year to conduct the mandatory harassment seminar for all employers with 50 or more employees. During these seminars it has become clear that managers are not aware of the new protected class under the “Genetic Information Nondiscrimination Act” otherwise known as “GINA.” Genetic characteristics are now under a protected class.

Two years ago the EEOC published the regulations to the employment provisions of GINA, the Genetic Information Nondiscrimination Act. According to the EEOC, GINA has 4 stated purposes:
1. To prohibit the use of genetic information in employment decisions;
2. To restrict employers and others from requesting, requiring, or purchasing genetic information;
3. To require that employers maintain genetic information as a confidential medical record, with strict limits on disclosure; and
4. To provide remedies for individuals whose genetic information is acquired, used, or disclosed in violation of the Act.

1.
GINA does not just cover employees’ genetic information. It also covers the genetic information of relations as attenuated as great-great-grandparents, great-great-grandchildren, and first cousins once-removed (the children of first cousins).

2.
GINA is intended to be a broad anti-discrimination statute. It not only prohibits discrimination against employees on the basis of genetic information in hiring, firing, compensation, terms, conditions, or privileges of employment, but also harassment on the basis of genetic information, and retaliation where an individual opposes any act made unlawful by GINA, files a charge of discrimination or assists another in doing so, or gives testimony in connection with a charge.

3.
GINA’s prohibition against the request of genetic information about an employee or family member includes Internet searches in a way that is likely to result in obtaining genetic information, even if the information is publicly available. However, if an employer “inadvertently learns genetic information from a social media platform which he or she was given permission to access by the creator of the profile at issue” (such as an employee who posts family medical history on his Facebook wall, and his supervisor, with whom he is a Facebook friend, sees it), GINA has not been violated. Employers are similarly protected for genetic information employees inadvertently disclose during casual “water cooler” conversations.

4.
GINA permits employers to obtain genetic information as part of employer-provided health or genetic services, such as voluntary wellness programs. While the regulation do not define “voluntary,” they do provide that employers can offer certain financial incentives to employees without stripping the wellness program of its voluntariness.

5.
GINA requires that employers keep all genetic information confidential, stored in separately maintained confidential medical files, consistent with the medical information storage obligations of the ADA. There is, however, a grandfather provision for genetic information obtained before November 21, 2009. Employers need not strip that information from non-confidential files.

Take heed! With the rising cost of healthcare, employers seeking to avoid such costs are trying to get “creative.” This area is an emerging minefield of deception that could be costly.

New FMLA Rules, Posters, and Forms

The DOL recently issued its final regulations regarding expansion of military caregiver and qualifying exigency leave and regulations affecting flight crews. These new rules take effect this Friday, March 8. We covered these rules when they were initially proposed by the DOL.

The updated forms are available at http://www.dol.gov/whd/fmla/2013rule/militaryForms.htm, and the updated poster is available at http://www.dol.gov/whd/regs/compliance/posters/fmlaen.pdf.

What are the changes?

Most employers will need to be concerned only with the changes to leave available for military family members, and should review their FMLA policies and practices to ensure compliance with these new rules. Employees may take leave to care for the injuries of veterans who have left service within the past five years. Leave is also available for injuries that preexisted military service but were aggravated in the line of duty. (Before, employees could only take leave for current service members whose injury occurred in the line of duty in the first instance.) Qualifying exigency leave has also been expanded, allowing leave for employees whose qualifying family members serve in the regular Armed Forces as well as the National Guard and Reserves, requiring in both cases a foreign deployment. Qualifying exigency leave is also expanded to 15 days for qualifying family members of service members on rest and recuperation leave.

The DOL’s rules also incorporate new eligibility and recordkeeping requirements for airline flight crew members, which should be closely reviewed by affected employers.

What do employers need to know about the FMLA forms and poster?

As part of its final rule issuance, the DOL also updated its FMLA model forms regarding military family leave and required poster to be used starting March 8, 2013. Although employers are not required to use the DOL’s forms, many employers do. (However, if you use the DOL’s forms, we recommend you add GINA “safe harbor” language.) All FMLA-covered employers must post the DOL’s FMLA poster in a conspicuous place. Covered employers who also have FMLA-eligible employees must also provide a copy of the FMLA poster to employees as part of the employee handbook or in a handout provided to employees upon hire.