Yesterday evening, the Honorable Amos L. Mazzant of the U.S. District Court for the Eastern District of Texas issued a preliminary injunction barring the Obama Administration’s implementation of new regulations regarding overtime eligibility for certain workers making less than $47,476 per year. Under the regulations promulgated by the United States Department of Labor in late May, the minimum salary level for executive, administrative, and professional employees to be treated as exempt from the Fair Labor Standards Act’s overtime requirements was to be increased from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). These regulations were slated to take effect December 1, 2016.

Judge Mazzant’s ruling – which, by its terms, applies nationwide to all employers – is subject to appeal and the Department of Labor released a statement last night that the agency is reviewing its legal options. Regardless, both President-Elect Donald Trump and leadership for the incoming Republican-controlled Congress have previously signaled an intent to modify, or to completely scrap, the new overtime regulations in the coming legislative session.

As a practical matter, Judge Mazzant’s ruling leaves employers who have prepared, or were preparing, to comply with the new overtime rules in a bit of a lurch. In short, employers are best served to maintain the status quo until we have more regulatory certainty. We advise employers that have already re-classified affected employees as non-exempt, or bumped compensation to comply with the increased salary threshold, not to revert to prior practices (at least until legal wrangling over the new overtime regulations comes to a more final resolution). At the same time, we advise employers who have not yet implemented changes complying with the new rules to delay implementation pending the outcome of legal process.

FLSA exemption determinations are often fact-intensive, frequently carry practical implications for workplace dynamics, and are regularly the subject of litigation. Accordingly, we recommend that you consult with legal counsel on any significant change to your business’s or organization’s approach to wage and hour matters.

Walter | Haverfield will issue additional guidance as this story further develops. For more information on this or other employment law issues, please contact one of our Employment lawyers.

George J. Asimou is an associate in the Labor and Employment Services Group of the Cleveland-based law firm of Walter | Haverfield LLP.

Ever since Ohio’s Constitution was amended in 2006, Ohio’s minimum wage correlates with the rate of inflation for the twelve months prior to September. The Ohio Department of Commerce has calculated the rate of inflation and determined that based on the consumer price index (CPI), Ohio’s minimum wage rates will slightly increase in 2017.

Ohio’s minimum wage is currently $8.10 per hour for regular hourly employees. The minimum wage for tipped employees is $4.05 per hour. 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 law does not apply to (i) employees at smaller companies whose annual gross receipts are $299,000 or less per year or to (ii) 14 and 15-year-olds. The Ohio minimum wage for these employees is $7.25 per hour because the Ohio wage for these employees is tied to the federal minimum wage. The federal minimum hourly wage is currently $7.25. In Cleveland, City Council voted to let voters decide in a special election whether or not to increase the minimum wage to $15.00 per hour. The $15.00 amount would be phased in over a period of time. The special election will be held May 2, 2017.

The new Poster is available by clicking here.

Patricia F. Weisberg is a partner in the Labor and Employment Services Group of the Cleveland-based law firm of Walter | Haverfield LLP.

Department of Labor Penalties Increasing with Inflation Adjustments

The Department of Labor (DOL) announced interim final rules on June 30, 2016, to adjust its civil penalties for inflation. Increased penalties became effective on August 1, 2016, and apply to violations that occurred after November 2, 2015.

Increase Aims to Advance the Effectiveness and Deterrent Effect of Civil Penalties

The DOL issued the final rules pursuant to the Federal Civil Penalties Inflation Adjustment Improvements Act of 2015. The DOL is required to increase its penalties to keep pace with inflation. The final rules establish initial adjustments to catch-up penalties that have not been adjusted in years or even decades. Starting in 2017, the DOL will adjust its penalties for inflation before January 15 each year.

The adjusted penalties are intended to effectively punish employers who do not comply with federal laws and to deter noncompliance. The DOL estimates the adjusted penalties could result in up to $140 million in additional penalties assessed annually against noncompliant employers.

Penalty Adjustments

The DOL’s final rules do not address every penalty assessed by the DOL. However, the majority of penalties assessed by the Employee Benefits Security Administration (EBSA), Mine Safety and Health Administration (MSHA), Occupational Safety and Health Administration (OSHA), Office of Workers’ Compensation Programs (OWCP), and Wage and Hour Division (WHD) are affected by the final rules.

A complete list of the adjusted penalties can be accessed here.

Among the increased penalties are the following:

• OSHA Violations. OSHA’s maximum penalties increased by 78%. The penalties for “serious,” “other than serious,” and posting violations increased from $7,000 to $12,471. The minimum penalty for willful or repeated violations increased from $5,000 to $8,908 and the maximum penalty increased from $70,000 to $124,709.
• Minimum Wage and Overtime. The penalty for willful violations of the Fair Labor Standards Act’s minimum wage and overtime provisions increased from $1,000 to $1,894 per violation.
• Worker’s Compensation. Maximum penalties for violations of federal workers’ compensation laws more than doubled.
• H-2B Guest Worker Program. The maximum penalty for violations of the H-2B guest worker program increased from $10,000 to $11,940 per violation.
• ERISA Form 5500. The maximum penalty for failure to file a Form 5500 increased from $1,100 per day to $2,063 per day.
• Notice of 401(k) Automatic Contributions. Failure to provide notice to participants of a 401(k) plan with an automatic contribution arrangement increased from a maximum penalty of $1,000 per day to a maximum of $1,632 per day.

Guidance for Employers

Many of the adjusted penalties reflect an increase in the maximum penalty the DOL could assess for a violation. Although the DOL has the discretion to impose penalties less than the maximum, noncompliant employers should expect to face increased penalties for violations occurring after November 2, 2015. Employers should review their wage and hour practices, I-9 verification policies, benefits compliance, and safety protocols to verify that they are following applicable federal laws.

In May the Defend Trade Secrets Act (DTSA) took effect, expanding federal protection of trade secrets that are stolen or exposed by improper means. Trade secrets are defined as valuable, confidential information that provides a competitive advantage by not being generally known in the market. DTSA’s passage was welcomed by U.S. companies, which value their trade secrets in the trillions of dollars.

Sens. Orrin Hatch (R-UT) and Chris Coons (D-DE) co-sponsored the legislation, which passed the Senate unanimously and the House by an overwhelming vote of 410-2. Boeing, Johnson and Johnson, 3M, Google, and General Electric were among the many companies that lobbied for DTSA’s enactment. In signing the legislation, President Obama remarked that DTSA “allows us not only to go after folks who are stealing trade secrets through criminal actions, but also through civil actions, and hurt them where it counts in their pocketbook.” Notably, DTSA is intended to supplement, not displace, existing state laws designed to protect trade secrets.

DTSA authorizes trade secret owners to bring suit in federal court regardless of where the parties reside or how much money is at issue if a trade secret is acquired or exposed by improper means. Victimized trade secret owners may recover their actual loss plus additional damages based on the benefit the other party gained by stealing the secret, as well as attorney’s fees.

Additionally, DTSA provides a unique remedy allowing the court to seize property to prevent the dissemination of a trade secret when the accused is likely to destroy, move, hide, or otherwise make the material inaccessible. Under many state laws, a trade secret owner may recover stolen blueprints or demand the surrender of surreptitious photographs or recordings. But DTSA is unique because it allows a court to seize and hold property without prior notice to the accused party. In the event of a wrongful seizure, DTSA permits an injured party to recover lost profits, cost of materials, loss of good will, reasonable attorney’s fee, and punitive damages arising from a seizure conducted in bad faith.

In addition to various civil remedies, DTSA increases the criminal fine from a maximum of $5 million to the greater of $5 million or three times the value of the stolen trade secret. It also establishes trade secret theft as a predicate offense supporting a claim under the Racketeer Influenced and Corrupt Organizations (RICO) law. A successful RICO claim could result in an award of up to triple damages and 20 years in prison.

Like preexisting state laws, DTSA obligates the owner of a trade secret to take “reasonable measures” intended to guard the confidentiality of the trade secret. “Reasonable measures” is not defined in the statute but includes items such as a locked room, security guards, confidentiality agreements, and the like.

Lastly, under DTSA, individuals who report trade secret theft to a government official, or who disclose a trade secret in a complaint filed under seal, may be protected from civil and criminal liability. DTSA imposes an obligation on employers to notify employees, including contractors and consultants, of the immunity. The employer may provide the required notice in an agreement with the employee or by cross-referencing a policy that explains the immunity. If an employer fails to give notice of the immunity, then the employer may not recover punitive damages or attorney’s fees from the employee whistleblower in an action brought under DTSA.

Questions and concerns relative to trade secrets and their protection should be discussed with legal counsel experienced in trade secret law.

Darrell can be reached at 216-928-2896 or e-mail dclay@walterhav.com.

“When Free Speech Collides with Policies,” also appeared in the September/October 2016 issue of Cities and Villages magazine.

Is a government employer permitted to discipline an employee for behavior it believes an employee has engaged in? What if that employer is mistaken about said behavior? And what happens when the behavior is potentially constitutionally protected political activity? Unfortunately, these are scenarios that occur more often than many people might believe.

A recent United States Supreme Court case—Heffernan v. City of Paterson, New Jersey—sheds some light on how the courts view these issues.

In 2005, Heffernan was a detective reporting to the Police Chief in the Paterson Police Department. The Chief and Heffernan’s direct supervisor were appointed to their positions by the incumbent Mayor who was facing a challenge for his reelection from Lawrence Spagnola. Although Spagnola and Heffernan were “good friends”, Heffernan was not involved with the re-election campaign.

As a favor to his bedridden mother, Heffernan went to a distribution point to pick up a larger Spagnola sign to replace a smaller one stolen from her yard. While there, Heffernan spoke with Spagnola’s campaign manager and staff. Other members of the Paterson police force saw Heffernan with the sign in hand and observed him talking with the campaign staff and, of course, the word spread quickly throughout the department.

Heffernan was demoted from detective to patrol officer the next day and assigned a “walking post,” clearly as punishment for what appeared to be “overt involvement” in Spagnola’s campaign. Since Heffernan was not involved in the campaign, but rather was picking up the sign for his mother, his supervisors made a factual mistake.

Heffernan sued the City in federal court claiming that his demotion was a violation of his First Amendment right to free speech and was in response to mistaken conduct. This raises multiple legal issues.

Generally, an employee cannot be subject to adverse employment action for supporting a particular political candidate. However, both the U.S. District Court and the Third Circuit Court of Appeals found that Heffernan was not deprived of his First Amendment right to free speech because he had not claimed to have engaged in any speech that could be protected and such action must be based on an “actual, rather than perceived exercise of constitutional rights.” Heffernan appealed the decision to the United States Supreme Court.

In reversing the Third Circuit Court of Appeals and remanding the case, the Supreme Court focused on the City’s reason for demoting Heffernan – the belief that he engaged “in political activity that the First Amendment protects.” The Court looked at the employer’s reason for the demotion, not the fact that the employer was wrong about the type of activity being engaged in by the employee. The employee’s unassailable assertion that he was not involved in the campaign and not actually exercising speech did not matter. Of importance to the Court was the fact that the employer thought the employee was engaged in protected political activity stating “the government’s reason for demoting Heffernan is what counts here.” The Court found that the demotion did deprive Heffernan of a right “secured by the Constitution.”

Justice Breyer, writing for the majority, noted that “[T]he discharge of one tells the others that they engage in protected activity at their peril.” The Court found that, if an employer thinks the employee has engaged in protected activity, whether or not the employer is correct or mistaken, can cause “the same kind, and degree, of constitutional harm.”

Since there was some evidence that the adverse employment action against Heffernan was based upon a “different and neutral policy prohibiting police officers from overt involvement in any political campaign,” the case was sent back to the lower court to decide the constitutionality of that policy and the employer’s actions.

As this case demonstrates, government employers should exercise caution in taking action against employees where First Amendment issues may be involved. Consultation with legal counsel prior to taking action where an employee’s First Amendment rights may be involved could avoid costly litigation down the road.

Sara Fagnilli can be reached at 216-928-2958 or e-mail sfagnilli@walterhav.com.

The Equal Employment Opportunity Commission (EEOC) raised the penalty for employers who fail to properly post required workplace notices under Title VII, the Americans with Disabilities Act (ADA), and Genetic Information Non-Discrimination Act (GINA) from $210 per violation to $525 per violation, effective July 5, 2016.

Employers Must Post Notices Under Title VII, ADA, and GINA

Employers are required to post notices describing the relevant provisions of Title VII, the ADA, and GINA in a prominent and accessible place where notices to employees are usually posted. The notice requirement applies to employers with 15 or more employees, including educational institutions and state and local governments, as well as all federal contractors and subcontractors.

Increased Penalty Intended to Promote Compliance with Notice Requirement

The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 requires the EEOC to adjust penalties consistent with inflation. Adjusting the 1964 penalty of $100 for inflation would result in an inflation-adjusted penalty of $765 for 2016. However, the EEOC may not increase the penalty by more than 150% in a year, which means the EEOC could only raise the penalty from $210 to $525 this year.

Expectations and Guidance for Employers

The new fee took effect on July 5, 2016 and the penalty does not apply to violations issued before July 5. Because the current penalty is lower than the inflation-adjusted penalty, employers can expect another significant penalty increase in 2017, and minor adjustments to the penalty each year following.

Employers should regularly review their postings to check that the postings are both current and properly placed to ensure compliance with the notice requirement.

House Bill 523 legalizes medical marijuana in Ohio, but the substantial policy change has minor implications for Ohio employers, for now.

The legislation, signed by Governor Kasich on June 8, authorizes a licensed physician to recommend medical marijuana to an individual diagnosed with one or more of 20 qualifying conditions or diseases. An individual with a valid recommendation may legally consume medical marijuana dispensed as oil, edibles, and patches. Smoking and growing marijuana are prohibited under House Bill 523. Starting on September 6, 2016, the possession and authorized consumption of medical marijuana will not be prosecuted.

House Bill 523 establishes a Medical Marijuana Control Commission to regulate medical marijuana dispensaries, training and qualification of physicians, and the licensing of growers. Until Ohio’s dispensaries are up and running, Ohioans must travel to other states to obtain medical marijuana.

Effect on Employers

House Bill 523 minimally impacts Ohio employers. The legislation sets forth clear safeguards that allow employers to maintain drug-free workplace programs and reasonable human resources policies. The law does not distinguish between public or private employers. Ohio employers are protected by the following provisions of the law:

• Employers are not required to permit or accommodate an employee’s use, possession, or distribution of medical marijuana;
• House Bill 523 does not authorize an employee to sue his or her employer for an adverse employment action taken related to medical marijuana. Additionally, employers may refuse to hire, discharge, discipline, or otherwise take adverse employment action against an individual due to his or her use, possession, or distribution of medical marijuana;
• Employers may establish or maintain a formal drug-free workplace program. An employer may still discharge an employee for just cause if the employee uses medical marijuana in violation of the employer’s drug-free workplace policy. Moreover, the employee will be ineligible for unemployment compensation if the termination resulted from a violation of the employer’s drug-free workplace policy;
• The Administrator of Workers’ Compensation may still grant rebates and discounts on premium rates to employers that participate in a drug-free workplace program; and
• An employer maintains the right to defend against workers’ compensation claims where use of medical marijuana contributes to or results in injury.

As employees begin to more openly use marijuana under Ohio’s medical marijuana law, issues arising under state and federal disability discrimination laws are likely to complicate decisions involving hiring, discipline, and discharge regarding use of marijuana under policies prohibiting drug use in the workplace. Consequently, employers may at some time in the future be required to accommodate the medical condition that underlies the medical marijuana use under the Americans with Disabilities Act (ADA) and Ohio’s anti-discrimination laws by allowing an employee to use medical marijuana in certain cases.

What should employers do now?

Employers should review and update their formal drug-free workplace programs and their human resources policies to specifically address medical marijuana. Employers now have the option, however, to treat medical marijuana similar to the way they treat the use of legally prescribed drugs.

Individuals may legally use medical marijuana in a few months. Employers should aim to revise their policies, or to at the very least contemplate how to manage employees’ medical marijuana use, before House Bill 523 takes effect. If you have any questions about revising your employment policies or about how the new legislation might affect you, please contact one of our employment attorneys for additional guidance.

The U.S. Department of Labor Wage and Hour Division (DOL) published the highly anticipated final rule revising the overtime regulations today. The rule revises the regulations defining which white collar workers are eligible to receive overtime pay for hours worked over 40 in a workweek under the Fair Labor Standards Act (FLSA). The final rule, which increases the annual salary threshold for white collar workers from $23,660 to $47,476 or from $455 to $913 per week, is more than double the current minimum salary for the overtime exemption but is less than the anticipated increase, which was proposed to be $50,440 per year or $970 per week. As expected, the rule includes, for the first time, an automatic-escalator for the salary threshold to keep pace with inflation.

The final rule also sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to $134,004 – the annual equivalent of the 90th percentile of full-time salaried workers nationally. The DOL explained that this threshold “was designed to ease the burden on employers in identifying overtime eligible employees since it is more likely that workers earning above this high salary perform the types of job duties that would exempt them from overtime requirements.”

The final rule also establishes an “automatic-escalator,” which is a mechanism for the DOL to automatically update the salary and compensation levels of the rule every three years to maintain the levels at the 40th percentile of full-time salaried workers in the lowest income region of the country. The DOL states that the purpose of the escalator is to ensure that the rule continues to provide useful and effective tests for exemption. The three-year adjustments will occur on January 1, beginning in 2020.

The DOL, however, offered some relief for employers. The final rule does not include any changes to the duties test. The DOL also made it clear that employers may count bonuses and commissions toward as much as 10% of the salary threshold.

As we reported earlier, this is all part of President Obama’s agenda to raise wages and increase the number of employees eligible for overtime pay. It will surely have a considerable impact on employers and employees.

While it is expected that business groups will urge their legislators to defund or otherwise block the rule, employers should begin preparing now for the new rule if they haven’t already. The clock is ticking – employers will have until December 1, 2016 to comply with the new rule.

The DOL Fact Sheet addressing the new rule can be viewed here.

On May 11, 2016, nearly two hundred public employees and members of the business community gathered at Lorain County Community College to help the Ohio EPA explore ways to repurpose material dredged from Lake Erie’s harbors. The “Dredged Material: Make It Your Business – Digging up Ideas Workshop” included brainstorming sessions where participants debated new ideas for using dredged material and overcoming the financial, technical, and regulatory obstacles to such use.

Each year, 1.5 million cubic yards of material is dredged from the federal navigation channels along Ohio’s Lake Erie shoreline to allow the movement of commodities and vessels. Historically, dredged material, which is typically comprised of loose sand, clay, silt and soil particles, was treated as a waste and either disposed of in a specialized landfill or dumped in the open waters of Lake Erie. Due to the passage of Ohio Senate Bill 1 in 2015, however, open-lake disposal will be prohibited after July 1, 2020. This gives the Ohio EPA less than five years to find alternative environmentally-friendly ways to use, recycle, or otherwise dispose of the material.

At the May 11, 2016 workshop, Ohio EPA Director Craig Butler’s opening remarks made clear that protecting Lake Erie from contamination and over-sedimentation is a priority, but that finding alternate uses for dredged sediment poses a unique challenge. Governments and businesses already use the material for beach/near shore nourishment, habitat creation or restoration, landscaping, road construction, landfill cover, and brownfield and other land reclamation. Other industrial uses include making useful products such as topsoil, concrete and concrete-based goods, brick, block and other construction materials. The challenge is to find additional productive and economically beneficial ways to use the material.

The Ohio EPA is developing a regulatory program which is expected to include a business-friendly permitting process and incentives to encourage the use of dredged material. Once issued, the proposed rules will be subject to formal public comments and a hearing before being finalized. Interested parties are encouraged to participate in the rulemaking process.

As part of the State’s push to develop innovative uses for dredged sediment, grant money is being offered by the Ohio Lake Erie Commission for projects that develop business models for utilizing dredged material, removing economic barriers to such use, increasing public awareness and acceptance of the value and/or potential uses of dredged material, or developing processes for intercepting and capturing sediment to minimize the need for dredging. Grant applications must be submitted by June 10, 2016. If you would like further information regarding this funding opportunity or the use of dredged materials as a potential low cost substitute for fill material in construction projects or other applications, please contact Leslie G. Wolfe at (216) 928-2927 or lwolfe@walterhav.com.

You can read more about the Ohio EPA’s Lake Erie Dredged Material Program here.

On April 26, 2016, the United States Department of Labor (DOL) issued a guide to assist employers required to comply with the Family and Medical Leave Act (FMLA). This guide is similar to the guide issued several years ago for employees. The guide is 76 pages long and is quite comprehensive. A copy of the guide is available here.

The guide is a good tool for employers and serves as notice as to how the DOL views certain issues arising under the FMLA. The guide includes seven chapters:

1. Covered employers under the FMLA and their general notice obligations;
2. When an employee needs FMLA leave;
3. Qualifying reasons for leave;
4. The certification process;
5. Military family leave;
6. During an employee’s FMLA leave; and
7. FMLA prohibitions.

The guide also includes a section titled “Did you know?,” which addresses some of the more technical provisions of the FMLA.

While the guide may assist employers in understanding some of the complexities of the FMLA, it does not have the force of law. Rather, the guide is a reflection of the DOL’s position on particular issues. Accordingly, it is important to seek assistance from legal counsel to distinguish between the DOL’s position and the law.

The DOL also published a new FMLA poster which is available here. The new poster contains most of the same information published on the previous poster, although it is organized differently. Employers should post the new poster in a conspicuous place where employees and applicants for employment can see it.