Sara FagnilliOn June 27, 2018, the United State Supreme Court in Janus v. AFSCME, overruled its 1977 decision of Abood v. Detroit Board of Education, and held that unions may not charge “agency fees” (known as “fair share fees”) to public employees who choose not to join the union. The Court found that payment of fair share fees by non-union members violates the First Amendment, which includes the right to be free from compulsion to engage in speech contrary to one’s beliefs.

The Court rejected a number of arguments in support of Abood. Notably, the Court dismissed the “risk of free riders.” That means the risk of non-union members utilizing union benefits without paying dues, finding that risk insufficient to overcome First Amendment concerns. The Court reasoned that unions could implement other strategies to cover the cost of grievance or arbitration representation for non-members, thereby eliminating that risk. Finally, the Court expressed little sympathy for any potential financial impact on unions who “have been on notice for years regarding this Court’s misgivings about Abood.”

The decision was not unanimous and Justice Kagan authored the dissent, which was critical of the majority’s failure to recognize the potential economic impact on unions when they are already not funded well enough to carry out their duties.

Public employers should consult with labor counsel to determine the best course of action regarding the impact of the Janus decision and how to handle fair share fees for non-union employees, which have now been found unlawful by the Supreme Court.

Sara Fagnilli is an attorney at Walter | Haverfield who focuses her practice on public law and litigation. She can be reached at sfagnilli@walterhav.com and at 216-928-2958.

 

 

Just when U.S. employers thought they could rely on a tighter, more favorable test for the determination of joint employer liability, the National Labor Relations Board’s joint employer saga lingers on – for now.

In December 2017, the NLRB reversed its prior Browning-Ferris Industries joint employer rule. The old Browning-Ferris rule was perhaps the most controversial decision from the Obama era NLRB. It stood for the proposition that a business could be deemed a “joint employer” and share liability with other entities if that business had even the ability to exert indirect control over those other entities.

The recent reversal of Browning-Ferris came by way of Hy-Brand Industrial Contractors, Ltd. The NLRB’s Hy-Brand ruling in December nullified Browning-Ferris and restored a standard whereby companies must have direct control over contractors, subsidiaries, and the like in order to be considered joint employers.

Employers across the country rejoiced, until a curveball was thrown late last month. On Feb. 26, the NLRB unanimously vacated its decision in Hy-Brand in response to a report from the NLRB’s inspector general (IG). The IG indicated that recently-appointed NLRB board member Bill Emanuel should not have participated in the case. It also concluded that Emanuel should have recused himself from Hy-Brand because Emanuel’s prior law firm represented Browning-Ferris’s contractor in the case before the board. The IG went on to note that Hy-Brand was essentially a continuation of the deliberations that took place in Browning-Ferris.

While the Obama-board joint employer rule may have achieved a reprieve for now, it is highly likely that another case similar to Hy-Brand will emerge which will result in a “clean” reversal of the Browning-Ferris standard. When and how that will occur is far from settled, but it is likely that the current NLRB has its sights set on abrogating the hot-button Browning-Ferris rule. Until then, Browning-Ferris is still the law of the land and employers must take notice to avoid joint employer liability.

Max Rieker is an attorney at Walter |Haverfield who focuses his practice on labor and employment law. He can be reached at mrieker@walterhav.com or at 216-928-2972.

 

 

“The past year has brought with it endemic and unsettled political questions in the world of labor and employment law – with more to come in 2018,” writes Walter | Haverfield attorney Max Rieker for Crain’s Cleveland Business.

 

The National Labor Relations Board (NLRB) recently reversed the joint-employer standard, and Walter | Haverfield attorney Max Rieker wrote about the change for the Council of Smaller Enterprises (COSE). His article was published in COSE’s e-newsletter, “Mind Your Business.”

 

The National Labor Relations Board’s recent noteworthy decision to reverse the joint-employer standard will likely impact a variety of industries and businesses nationwide.

That decision centers around the case of Hy-Brand Industrial Contractors, Ltd. On December 14, 2017, the NLRB ruled that two or more entities will be considered joint employers only if there is proof that one entity has actually exercised control over essential employment terms of another entity’s employees. The Hy-Brand standard also requires that this control be direct and immediate, rather than indirect or limited.

The NLRB’s ruling reverses the highly controversial Browning-Ferris standard. In 2015, the case of Browning-Ferris Industries stood the labor and employment world on its head by holding that a company, the company’s contractors and franchisees could all be lumped together and considered a single “joint employer” for purposes of the National Labor Relations Act.

This was true even if the company did not exert overt control over the terms and conditions of employment for a contractor’s or franchisee’s workers. Under Browning-Ferris, the NLRB could determine that a group of separate entities could be considered a joint employer if the primary company had even “indirect control,” or the ability to exert indirect control over the related companies. Why is this important? Under Browning-Ferris, the alleged wrongs of one company could be imputed to other separate companies if it was determined that even “indirect control” could have been exerted. Thus, joint liability could have been imposed upon all entities in a “joint employer” web.

The NLRB’s U-turn move with Hy-Brand is prompting labor and employment lawyers across the country to intently watch how future decisions will be impacted. The most notable case, which has been in active litigation before the NLRB for several years, deals with the fast food giant, McDonald’s, and the extent to which it exerts control over its franchisees. To date, the McDonald’s case has been one of the most costly and intensive cases in the history of the NLRB, including no less than 150 days of testimony. Observers are keenly aware that Hy-Brand may well affect this case and countless more to come.

Max Rieker is an attorney at Walter |Haverfield who focuses his practice on labor and employment law. He can be reached at mrieker@walterhav.com or at 216-928-2972.

 

 

On December 14, 2017, the National Labor Relations Board overturned a controversial 13-year precedent and issued a major decision relating to the legality and enforceability of certain employee handbook rules for employers nationwide.

This decision is likely to have far-reaching impact on the employer – employee relationship. With this NLRB action, a major constraint on employers’ ability to promulgate work rules has been significantly rolled back.

In 2004, the NLRB created a test for deciding whether portions of employee handbooks were legal. In Lutheran Heritage Village-Livonia 343 NLRB 646 (2004), the NLRB held that if “employees would reasonably construe” that the language in a work rule restricted the employees from banding together for a collective purpose, then the handbook provision would not be enforceable. This “concerted activity” shield was true for both unionized and non-unionized workplaces.

The “Lutheran Heritage test” was used by the NLRB to strike down many employee handbook provisions over the past several years. Those provisions included rules which prohibited employees from criticizing their employers on social media and rules which prohibited making recordings in the workplace. Shockingly, Lutheran Heritage was even used in a 2016 case to strike down aspirational handbook language which called upon employees to “maintain a positive work environment.”

During that same period, a minority of NLRB members often issued stinging dissents related to these contentious decisions, citing too great of an emphasis on employees’ rights and too little attention to the legitimate needs of employers to manage their workplaces.

On December 14, a 3-2 majority of the NLRB overturned the Lutheran Heritage standard. The vote in The Boeing Company and Society of Professional Engineering Employees in Aerospace, IFPTS Local 2001 was strictly along party lines. The Republican majority found the prior Lutheran Heritage test to be both complicated and onerous on employers.

Now, the NLRB standard for reviewing a challenged employee handbook provision will not be based on the “reasonably construed” language of Lutheran Heritage. Rather, the board will consider the “nature and extent” of the rule’s “potential impact” which may be adverse to employees’ rights under the National Labor Relations Act. Further, the NLRB will consider the “legitimate justifications associated” with the work rule. In other words, the legitimate need of the employer may now take precedence over employees’ right to act in a concerted manner, depending on the language of the work rule, the legitimacy of the employer’s need and the operative facts.

As a good end-of-year practice, and particularly in light of this major NLRB ruling, every employer should undertake the process of reviewing employee handbooks to determine what changes should be made going forward.

For any questions regarding the applicability of the new standard, please contact Max Rieker at 216-928-2972 or mrieker@walterhav.com.

As we approach the first anniversary of President Trump’s inauguration, there are some emerging takeaways as to his administration’s priorities with regards to labor and employment law. Here’s a quick rundown of what we can glean, one year later:

    • Show me your budget, and I’ll tell you what you value. The administration’s proposed budget for fiscal year 2018, released in late May, suggested a more limited role for federal regulators in the labor and employment space. For example, under the proposed Trump budget for FY18, the Department of Labor’s budget was slashed by about 20 percent. The National Labor Relations Board’s proposed budget was cut by six percent. The administration’s proposed FY18 budget also uniformly envisioned headcount cuts across agencies principally responsible for labor and employment law enforcement, including consolidation of certain functions. Put simply, less money and smaller staffs suggest a preference for more limited (or at least less activist) regulation. Many of these cuts have been rejected by Congress, but a president’s proposed budget reflects administration priorities. When Congress does get around to funding the government for FY18, enforcement funds will almost certainly be more limited.

 

 

 

    • Congress mulls its own changes. While Congress has largely focused on attempts to pass large pieces of the Trump administration’s agenda in other related policy areas (such as health care and tax reform), there are some limited labor and employment stirrings on Capitol Hill. Senator John Thune’s NEW GIG Act, which would clarify the test for independent contractor classification for tax purposes and provide limited safe harbor to employers who misclassify workers, was included in the initial version of the Senate tax bill. Senator Thune was named to the conference committee that will attempt to pass the final tax bill – so this proposal is worth following. The Save Local Business Act, which would clarify and limit the definition of joint employment under the Fair Labor Standards Act and the National Labor Relations Act, has passed the House and awaits consideration in the Senate. Also passed in the House and now awaiting Senate consideration is the Working Families Flexibility Act, which would allow comp time arrangements under the FLSA for private sector workers.

 

  • EEOC issues guidance on preventing workplace harassment. In late November, the Equal Employment Opportunity Commission published new informal guidance regarding workplace harassment, entitled “Promising Practices for Preventing Harassment.” A product of the EEOC’s Select Task Force on the Study of Harassment in the Workplace (which was initiated during the Obama administration), this guidance outlines a comprehensive set of suggestions on harassment prevention. That includes the suggestion that employers re-consider training methods to include civility and bystander training. With workplace harassment now part of the national zeitgeist, a review of this informal guidance is warranted.

George Asimou is an attorney with Walter | Haverfield and concentrates on labor and employment law. He can be reached at gasimou@walterhav.com or 216-928-2899.

 

“Fair share” union fees may very well be on their way out in the public sector. On September 28, 2017, the United States Supreme Court agreed to accept the case of Janus v. American Federation of State, County, and Municipal Employees (AFSCME). This case revisits the constitutionality of fair share fees being imposed upon an employee as a condition of employment.

The issue goes back to the seminal 1977 Supreme Court case of Abood v. Detroit Board of Education. In Abood, the unanimous court held that it was lawful for members of a bargaining unit – but who were NOT voluntary members of the applicable labor union – to be assessed a union fee as a condition of employment. The theory in Abood was that it is unjust to require unions to represent a minority of non-paying “free riders” within a bargaining unit who would then reap the benefit of the union negotiating and enforcing their labor contract. By law, unions are required to represent all members of a bargaining unit, including the processing of grievances for those who have not signed union membership cards.

Since Abood, both public sentiment and the opinion of justices have shifted. Many Supreme Court observers predicted that mandatory fair share fees to unions would be abolished with the early 2016 decision in Friedrichs v. California Teachers Association. That decision challenged fair share fees head-on based on First Amendment grounds.

However, the unexpected death of Justice Antonin Scalia a month before the Friedrichs decision was released resulted in a 4-4 deadlock. Therefore, the lower court decision to allow fair share fees was permitted to stand. Half of the justices in Friedrichs would have abolished fair share fees on the grounds that mandating any dues payments equates to mandating a worker’s speech.

Today, laws in 22 states, including Ohio, permit mandatory fair share fee payments from all those covered by a collective bargaining agreement, but who have opted not to join the union. There are currently about 11 million union employees in these 22 states. The other 28 states have “right to work” laws, which expressly prohibit requiring workers to join or financially support a labor union, unless those workers do so of their own volition.

The case now before the Supreme Court involves Mark Janus who is a child support specialist employed by the state of Illinois. He and a small group of others filed suit two years ago based on the same free speech arguments brought forth in Friedrichs. Janus objected to being required to pay $44 per month to AFSCME, which covers approximately 35,000 other state workers.

Many now view Janus v. AFSCME as the final blow to the 40-year-old Abood precedent. It is unlikely that Justices Roberts, Thomas, Alito and Kennedy will have had a change of heart on the same issue in the span of a year. It is highly likely that Justice Neil Gorsuch is poised to be the fifth vote necessary to strike down Abood. The Janus decision is due to be released in summer of 2018.

The practical impact of the likely outcome in Janus may not be felt immediately in the workplace. It has been estimated that as many as 30% of union members will cease paying union dues if the requirement is abolished. Consequently, an abolishment of fair share fee payments will ultimately weaken their ability to conduct business.

Unions are keenly aware of this dynamic. They will likely seek alternatives to existing and upcoming collective bargaining agreements in the short term in an attempt to contractually preserve fair share fees for as long of a period as possible.

Any questions on this topic can be directed to Max Rieker at 216-928-2972 or mrieker@walterhav.com.

 

Employers and employees should expect upcoming decisions by the U.S. Supreme Court to impact the workplace. Max Rieker, an attorney in our Labor and Employment group, writes about three potential landmark cases in Crain’s Cleveland Business.

An article by George J. Asimou was published in Crain’s Cleveland Business on August 6, 2017 and subsequently in Crain’s HR Guidebook. In this article, titled, “Americans are sick and tired of being sick and tired,” George discussed the Working Families Flexibility Act (H.R. 1180) and its bid to allow private sector employers to offer their employees the choice of paid time off instead of overtime compensation.

In an article written by reporter Lisa Roberson and published on August 1, 2017 in The Chronicle-Telegram (Elyria), Susan Keating Anderson was quoted extensively on the agreement which settled the Elyria firefighters’ union’s collective bargaining contract. The title of this article is, “Minimum staffing ruling means OT ahead for Elyria firefighters.”

Americans spend a lot of time at work. A recent study published by Bloomberg.com, in fact, suggests that the average American works almost 25 percent more hours than the average person in Europe. The raw numbers are about 258 more hours per year which averages out to about an hour more each week day. Comparing working life between countries in an apples-to-apples comparison can be tricky when considering the increasing frequency of remote work. Yet, most people would likely agree that Americans are putting in some real hours on the job.

With a new administration coming into office, there is plenty of speculation as to how workplace laws and regulations might change. While we’re all speculating, let’s consider a long gestating Republican initiative concerning work/life balance that just might become law during a Trump presidency—a re-introduction of compensatory time into private sector workplaces.

Compensatory Time (frequently referred to as comp time) is the practice of an employer providing future paid time off in lieu of immediately paying overtime wages for hours worked over 40 in a week. So, for example, if an employee classified as non-exempt under the Fair Labor Standards Act (FLSA) were to work 45 hours in a given work week, the employer and the employee could agree under a comp time scheme that the employee could bank 7.5 hours of paid leave time for future use. Public sector employers are likely familiar with comp time, as it is a common (and lawful) practice in the public sector. However, the FLSA currently only allows private employers to use comp time under very narrow and limited circumstances.

Congressional Republicans have been pushing the concept of making comp time schemes more broadly lawful for private sector employers for quite some time now. In 2013, the Working Families Flexibility Act was introduced and passed by the U.S. House of Representatives, before dying quietly in the U.S. Senate. The bill was re-introduced in the last Congress and, as the bill’s main proponents (in both the House and the Senate) will all return for the next Congress, it is likely to be re-introduced again. In addition, since President-Elect Trump’s nominee for Secretary of Labor, Andy Puzder (a fine Clevelander!), is a long-time advocate of FLSA reform and workforce flexibility, it is not unreasonable to believe a revamped Working Families Flexibility Act would be signed by President-Elect Trump.

The most recent version of the Working Families Flexibility Act placed a cap on comp time accrual at 160 hours a year. This is a lower cap than the FLSA currently imposes on public employers (240 hours for most public employees and up to 480 hours for safety and emergency forces). The latest iteration of the bill also required cash-out of unused comp time at year’s end. It is important to note that comp time arrangements (both currently for public employees and under the Working Families Flexibility Act’s proposed terms) must be voluntary, i.e. agreed-to ahead of time in writing either between employer and employee or between employer and a representative union.

Given that work/life balance is an enduring issue in the American workplace, employers should continue to evaluate policy tools by which employees can take a breather without unduly disrupting their employers’ operations.

Other (Less-Speculative) Wage and Hour Developments.

New FLSA Overtime Rules Remained Stalled: An injunction barring the implementation of new Department of Labor (DOL) regulations raising the minimum salary level for executive, administrative, and professional employees to be treated as exempt from the FLSA’s overtime requirements has been appealed by the DOL to the U.S. Fifth Circuit Court of Appeals. The Fifth Circuit agreed to hear the DOL’s appeal on an expedited basis but not before the new Trump Administration takes office. Again, the recent nomination of Andy Puzder (an outspoken foe of the new overtime regulations) as Secretary of Labor strongly suggests that this appeal will be abandoned and that the regulations will never be implemented (at least in their current form).

Ohio Minimum Wage Increases in 2017: As we previously reported, as of January 1, 2017, Ohio’s minimum wage will increase to $8.15 per hour for regular hourly employees. The minimum wage for tipped employees will increase to $4.08 per hour. Ohio’s minimum wage is currently $8.10 per hour for regular hourly employees. The minimum wage for tipped employees is currently $4.05 per hour.

Cleveland Minimum Wage Ballot Initiative Blocked: As we also previously reported, Cleveland voters were to decide in a special election in May whether to incrementally increase the minimum wage for businesses operating in Cleveland to $15.00 an hour. However, Governor John Kasich signed a bill prohibiting municipalities from passing minimum wage ordinances different from the state’s minimum wage.

George Asimou can be reached at 216-928-2899 or gasimou@walterhav.com.

The Private Sector.

Just before Thanksgiving, in a unanimous decision, the federal Sixth Circuit Court of Appeals ruled that local governments can enact right-to-work laws that will apply to private sector businesses and organizations whose labor relations are covered by the National Labor Relations Act (“NLRA”). Right-to-Work is shorthand for a law or ordinance that prohibits private sector collective bargaining agreements from making the payment of money to a labor union a condition of employment. The decision, United Autoworkers Union v. Hardin County, Ky., is now the law in Ohio, Kentucky, Michigan and Tennessee – the states that constitute the Sixth Circuit. Prior to Hardin, the NLRA was interpreted to reserve that right to the state government itself. Organized labor waged a furious, but ultimately futile campaign against the Hardin County law.

Ohio is bordered by three states that already have statewide right-to-work laws – Indiana, Michigan and West Virginia – and by a fourth state, Kentucky, that many labor observers expect to adopt one soon. To make themselves more attractive to business, cities and counties near these states are likely to be among the first adopters of a Hardin-type law or ordinance.

The Wall Street Journal reports that a similar case is underway in Illinois, which is in the Seventh Circuit in the federal scheme. If that case ever gets to the Seventh Circuit, which is likely because the stakes include untold millions of dollars in lost revenue for private sector labor unions, the result could be two neighboring federal Circuits that allow local right-to-work laws. On the other hand, if the Seventh Circuit answers the question differently than the Sixth Circuit did, the matter could land in the U.S. Supreme Court.

The Public Sector.

Public sector labor relations – police, fire, EMS, teachers, etc. – are covered by state law and not the NLRA. Consequently, there are dozens of different public sector labor relations statutes. Most state collective bargaining laws require public employees who work under collective bargaining agreements to either join the union and pay the dues the union charges or to opt out of union membership and pay to the union a fair share fee instead of dues. Each union must calculate its fair share fee in advance. Ohio’s Collective Bargaining Act requires fair share.

Recently, the fair share requirement was challenged under the U.S. Constitution in a California case known as Friedrichs v. California Teachers Association. That case made it to the U.S. Supreme Court, but was heard after Justice Antonin Scalia died and resulted in a 4-4, no-decision tie. There are several similar public sector cases in the works, but they will likely take several years to reach the Supreme Court, if any one ever does. However, right-to-work currently is a hot topic in labor law and given the November election results, Ohio and many other states are expected to tackle it in both the public and private sectors. As of December, 2016, Republicans outnumber Democrats 64 to 34 in the Ohio Assembly, and 23 to 10 in the State Senate.

Fred Englehart is a senior counsel attorney with Walter | Haverfield’s Labor and Employment Law group.

As seen in Crain’s Cleveland Business on December 08, 2016.

So here it is…yet another article on how the unexpected Trump presidency will affect business.andnbsp; This time the focus is on organized labor.

I wrote multiple articles over the past few years about how an emboldened National Labor Relations Board (NLRB) grew its reach and power under the protection of the Obama Administration.andnbsp; Naturally, we would expect the pendulum to swing in the opposite direction with a Republican president and largely Republican Congress.andnbsp; But this is no ordinary Republican president.andnbsp; And, this is no ordinary time for the NLRB.

Unlike healthcare reform which could take literally years for President-elect Trump to unravel, the impact on labor could be felt almost immediately after he is sworn in.andnbsp; Why?andnbsp; Because the terms of two NLRB board members have already expired, which means President Trump will be able to fill two of the five board seats in the near-term, subject only to the approval of his Republican Congress.andnbsp; Since one member of the existing board is Republican, that will provide a Republican majority quickly.andnbsp; In addition, the terms of the remaining three board members will expire in three years which means that, even if Trump only survives one term, he will still be in a position to have completely overhauled the NLRB.

Perhaps the most significant issue to watch is the joint and/or single employer analysis that was formulated by the NLRB in the Browning Ferris subcontracting decision. Currently, the NLRB is litigating an extension of that doctrine in the highly publicized McDonalds case which is attempting to classify the franchisees and McDonalds as either a joint or single employer. This case will not be decided by the NLRB until 2017 at best, and by then the Board deciding it is not likely to have a liberal majority. Franchisees, businesses that employ subcontractors, and businesses that employ temporary workers should pay extra attention to this issue.

Given the depth and breadth of the NLRB’s aggressive, pro-union decisions under President Obama, there is no shortage of decisions and/or rules changes that are adverse to employer interests and that may be directly in the sights of a pro-management NLRB. Among them are: the “ambush election” doctrine; the “micro unit” decision;andnbsp; a plethora of NLRB’s rulings regarding employee handbooks; the breadth of arbitration clauses; post-contract-expiration decisions; whether graduate students are employees, and the definition of supervisors.

Like most things involving the Federal government, however, many of these reversals will take time and the true impact will occur slowly.andnbsp; Under President-Elect Trump, we could also see smaller budgets for the NLRB, Equal Employment Opportunity Commission (EEOC) and the Department of Labor (DOL).andnbsp; That would mean employees would be more likely to have to file suits against employers on their own without agency support where permitted.andnbsp; Consequently, we would expect that to lead to fewer frivolous cases being filed, which is good news for employers.andnbsp; In the meantime, we can only watch to see what will happen and be ready to respond to major changes.

Marc J. Bloch is a partner in the Labor and Employment Services Group of the Cleveland-based law firm of Walter | Haverfield LLP.

Marc J. Bloch was recently interviewed by reporter Bruce Meyer, for an article which appeared in Rubber and Plastics News. In this piece, titled, “USW Working to Redefine Role in Rubber Sector,” Marc opined that labor unions in mature industries, such as rubber and steel, will have a difficult time remaining relevant in the coming years. Among other thoughts, Marc asserted that, “It’s a tough fight for the union. They don’t have the leverage any more.”

On January 20, 2016, the U.S. Department of Labor’s Wage and Hour Division (“WHD”) issued guidance for businesses where two or more separate entities each have relationships with the same workers. The guidance addresses when businesses will be considered to be joint employers and, therefore, may be jointly liable for violations of the Fair Labor Standards Act (“FLSA”) which governs employer pay practices. The guidance also impacts the calculation of overtime because time worked for separate entities may be added together in order to determine the amount of hours an employee works each week, thus giving rise to potential overtime claims.

The guidance was issued in the form of an Administrator’s Interpretation (“AI”) of the law. While it does not have the force and effect of the law, it does reflect the WHD’s position on the issue. Moreover, courts often rely on the WHD’s interpretation when making rulings.

The WHD guidance addresses what it calls “horizontal” and “vertical” joint employment scenarios. WHD states that joint employment may exist when two or more employers each separately employ an employee and are sufficiently related to each other with respect to that employee. The WHD calls this type of joint employment horizontal joint employment. In this scenario, an employee may perform separate work for each employer. The focus is on the relationship between or among the two or more employers.

The second type of joint employment is what WHD refers to as a vertical joint employment. This occurs when an employee of one employer is also economically dependent on another employer. This type of joint employment typically occurs when a company has contracted for workers that are directly employed by another business. This type of relationship might be one between a contractor and general contractor or a staffing agency and the business for which it provides employees.

Defining a Horizontal Joint Employer Relationship

In determining whether there is a horizontal joint employer relationship, the guidance sets forth facts that may be relevant when analyzing the degree of the association between, and sharing of control by, potential joint employers. These factors are:

  • Who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have common owners);
  • Do the potential joint employers have any overlapping officers, directors, executives, or managers;
  • Do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);
  • Are the potential joint employers’ operations intermingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for);
  • Does one potential joint employer supervise the work of the other;
  • Do the potential joint employers share supervisory authority for the employee;
  • Do the potential joint employers treat the employees as a pool of employees available to both of them;
  • Do the potential joint employers share clients or customers; and
  • Are there any agreements between the potential joint employers.

The guidance provides the following as an example of what it considers to be horizontal joint employment:

An employee is employed at two locations of the same restaurant brand. The two locations are operated by separate legal entities (Employer A and Employer B). The same individual is the majority owner of both Employer A and Employer B. The managers of each restaurant share the employee between the locations and jointly coordinate the scheduling of the employee’s hours. The two employers use the same payroll processor to pay the employee, and they share supervisory authority over the employee. WHD concludes that these facts are indicative of a horizontal joint relationship between Employers A and B.

Defining a Vertical Joint Employer Relationship

The focus in vertical joint employment cases is whether one employer is economically dependent on the other employer. The guidance suggests that when conducting a vertical joint employment analysis, WHD will rely on the economic realities test, which includes an analysis of multiple factors including the following:

  • Who directs, controls or supervises the work performed;
  • Who controls the employment conditions;
  • Whether there is a permanent or long-term relationship;
  • Whether the work is repetitive and rote (rote, repetitive and unskilled work indicates economic dependence);
  • Whether the employee’s work is an integral part of the potential joint employer’s business;
  • Whether the work is performed on the premises of the potential joint employer; and
  • Whether the potential joint employer performs administrative functions such as payroll and workers’ compensation insurance, providing necessary facilities and safety equipment, tools and materials.

WHD provides the following example of what it contends is a vertical joint employer relationship:

A laborer is employed by Company A, which is an independent subcontractor to Company B. Company A was engaged to provide drywall for the project. Company A hires and pays the laborer. Company B provides the training on the project, the necessary equipment and materials, workers’ compensation insurance, and is responsible for the health and safety of the worker. Company B also reserves the right to remove the worker from the project and both companies supervise the worker. WHD contends that these facts are indicative of a vertical joint employment relationship.

In addition to providing the guidance by way of the AI, WHD issued QandAs, diagrams, and new fact sheets [ Administrator’s Interpretation; Joint Employment AI Questions and Answers; Graphical Illustration of “Vertical” Joint Employment; Graphical Illustration of “Horizontal” Joint Employment; Fact Sheet-Joint Employment Under the FLSA and MSPA; Fact Sheet: Joint Employment and Primary and Secondary Employer Responsibilities Under the FMLA.] All of these items are available at the DOL website.

Employers Need to Carefully Consider Their Relationships or Face Consequences

The bottom line – businesses that are related in any manner need to take note of this important guidance. WHD has made very clear that joint employer relationships under the FLSA should be defined broadly. While the guidance issued by WHD does not have the force of law, courts often rely on WHD’s interpretation of the law when making decisions. Equally important is the signal that WHD intends to aggressively examine joint employment relationships when conducting investigations. A mistake in this area, intentional or not, may give rise to substantial economic and other consequences. There may be liability for joint employers for overtime, liquidated damages, penalties, attorneys’ fees, and even possible criminal charges.

On June 30, 2015, the U.S. Department of Labor (“DOL”) finally issued the proposed rule which will expand overtime pay and reduce the group of employees who qualify for exemptions under the Fair Labor Standards Act (“FLSA”). You will recall that in order to qualify for a white-collar exemption under the FLSA, an employee must be paid a fixed salary that meets the minimum threshold and the employee’s primary duty must be the performance of exempt work.

The proposed rule more than doubles the salary threshold for the white-collar exemptions (executive, administrative, professional, outside sales, and computer) from $455.00 to $921.00 a week ($23,660 to $47,892 annually) with a plan to increase the $921.00 to $970.00 a week ($50,440 annually) in the final version. The thresholds would be automatically updated annually under the new rule. There is also a proposed increase in the annual exemption for highly-compensated employees, from $100,000 to $125,148, with a yearly increase thereafter that is tied to a percentile. As such, each year employers would need to modify their payrolls to ensure that employees are properly classified as exempt.

The proposed rule also addresses bonuses and incentive payments, commission payments, and exclusions for benefits.

While no specific changes are proposed, the DOL also stated that it is considering whether changes to the “duties” tests for the exemptions are needed. It is asking for comments on that issue as well.

The DOL’s rule is only a proposal at this time.andnbsp;The proposed rule was published in the Federal Register on Monday, July 6, 2015. The public, including all employers, may comment on the proposal for a period of 60 days. Comments must be filed by September 4, 2015. The DOL will then issue a final rule which is likely to include variations from the proposed rule. Keep in mind, the public may not have the opportunity to comment on these variations.

WHAT SHOULD EMPLOYERS DO NOW?

For now, employers should consider working with Chambers of Commerce, Human Resources and business organizations to review the rule and submit comments to make their concerns heard.

Byandnbsp;David E. Schweighoefer andandnbsp;Lacie L. O’Daire

The laws requiring changes to health care and benefits provided by employers are either already in force or will be in force in the next year or two. The impact upon you and your business will be greatly dependent on the actions you take in 2013.

If you have fewer than 50 full-time employees (counting certain part-timers as full-time equivalents), then the new law does not affect you, except for changes that medical insurance companies will be making to all of their health plans which may impact your coverages and costs. However, if you do not currently provide health insurance, or it does not currently comply with new law requirements, you may choose to provide health insurance to your employees and receive tax credits from the federal government, through 2014, in order to reduce your costs. Regardless of what path a small employer chooses, however, the tax penalties and the requirement to offer health insurance will not apply to you. However, if you grow in the future and begin nearing that level of employment, there are some decisions which you will need to make, so it’s important to remain vigilant.

If you employ over 50 full-time employees, you need to pay attention and take immediate action. For this purpose, even if you don’t feel large, you are referred to as a “Large Employer” or an LE. If you are an LE and currently provide health insurance to your employees, you will be exempt from many of the new law requirements if you make no changes to your current plan. Your plan will be “grandfathered.” If you have a plan and you do not do any of the following, you can maintain your grandfathered status. The prohibited changes are:

  • You may not increase the employee cost over certain inflation-adjusted amounts, including co-pays, co-insurance and deductibles;
  • You may not reduce the employer contribution to the cost by more than 5%;
  • You may not significantly cut or reduce benefits; and
  • You may not add a new annual limit on benefits or tighten an existing annual limit (with at least one exception).

If you qualify as a grandfathered plan, you are exempt from some – but not all – of the new law requirements. You are exempt from the requirement to provide preventative care coverage, the additional patient protections in the selection of medical providers and in preauthorization, the requirement that premiums must not discriminate in favor of the highly-paid, the guaranteed coverage requirement, and the new non-discrimination rules on coverage under the plan for fully-insured plans.

However, even if you are grandfathered, you still must comply with the following requirements:

  • Extension of coverage to dependents (not spouses) up to age 26;
  • Elimination of lifetime and annual limits by 2014;
  • Elimination of pre-existing conditions exclusions;
  • Limits on rescissions of coverages in the case of fraud or intentional misrepresentations.

Therefore, you may find it important that you qualify to be grandfathered. We understand, though, that many insurers are telling their clients that they cannot be grandfathered, or that it will be too costly. If grandfathered status is important to you, we recommend that you shop carefully and be wary of some of the information which you are receiving. If you qualify as a grandfathered plan, be sure to avoid making the changes that are outlined above, since they could jeopardize your grandfathered status.

If you are an LE and do not have a grandfathered plan, your plan – beginning in 2014 – must meet all of the requirements set out above (there are 9, in case you are counting). If it does not, there are two sets of tax penalties that could potentially apply to you. In addition, even if you do comply, but at least one of your full-time employees seeks coverage from one of the exchanges, you could be subject to a penalty. One of these penalties is not onerous; in fact, some employers will choose to incur the penalty instead of paying for the coverage. The other could be quite onerous and needs your full attention.

There are a number of time-sensitive considerations that employers must monitor:

  • You could reduce the number of people who must be offered medical insurance under your health plan by strategically selecting a period of time – at least three months and not more than 12 months before 2014 – to test for full-time or part-time status. This is known as the “look-back” safe harbor.
  • A second consideration – if you are considering a merger, acquisition or re-structuring, and the principal purpose of the restructuring is to cover individuals under a grandfathered plan – is that the health plan you offer will lose its grandfathered status.

So what actions should be taken? Here are our recommendations:

  • Determine if you are an LE; if yes, go further;
  • Determine if you have a grandfathered plan, whether that is advantageous to you, and how to maintain grandfathered status;
  • If you are not, or will not, be grandfathered, then determine the cost of upgrading your current plan to meet the new law requirements; compare that with the penalty for not doing so and determine if you will comply;
  • If you are going to comply, then you still need to take steps to be sure that no employee who is offered comparable coverage goes to an exchange;
  • If you are not going to comply, determine how to pay the penalties;
  • Regardless of what action you take, you will have additional payroll reporting requirements; make sure that you understand and comply with them;
  • Check with your insurer to see if they are prepared to issue the new Statement of Benefits and Conditions; the format has been changed extensively, and all insurers must comply;
  • Review all notices to employees as they pertain to insurance plan changes well in advance of the new notice requirements, and remember to think of required board-level meetings or other decision-making processes that need to occur in time for proper notice of changes to employees.

The new law is extensive and there is no one-size-fits-all approach. Please contact us if we can assist you in making your decisions.