Employment Law

DOL Steers Middle Course With White Collar Exemption Proposal

After several years and much uncertainty, the Department of Labor (DOL) published a new proposed rule that would raise the annual minimum salary requirement for the Fair Labor Standards Act (FLSA) “white collar” overtime exemption to $35,308, or $679 per week.

The white collar exemption applies to executive, administrative, professional, outside sales and computer employees and excludes them from overtime compensation. The proposed increase reflects an almost 50 percent jump from the current level of $23,660 per year ($455 per week) but doesn’t reach the amounts proposed in a rule released during the Obama administration of $47,476 per year, or $913 per week. That rule was scheduled to take effect December 1, 2016.

Before the Obama rule could take effect, however, a coalition of 21 states filed suit and a federal court judge in Texas granted a preliminary injunction halting enforcement of the rule. The DOL sought interlocutory appeal to the U.S. Court of Appeals, Fifth Circuit, but the January 2017 change in federal administration slowed the process.

In August 2017, the DOL took a step back and released a request for information (RFI), seeking input on how to update the exemption. In addition to receiving more than 200,000 comments, the agency held six “listening sessions” on the issue around the country. Now the agency has released a new proposal, which provides for a salary level that represents a significant increase but that falls below the level that would have been established by the prior proposed rule.

Other key changes in the proposal include a commitment to review the salary threshold for updates every four years using notice and comment rule-making (a change from the Obama administration’s plan for automatic updates every three years) and permission for employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10 percent of the standard salary requirement.

The proposal would also increase the total annual compensation requirement for “highly compensated employees” from the current $100,000 to $147,414 per year (more than in the Obama-era rule, which set the amount at $134,004). No changes to the duties test were proposed by the DOL.

The agency estimated that 1.1 million currently exempt workers will be affected by the proposed rule, which is open for comment and expected to take effect in January 2020.

To read the DOL’s Notice of Proposed Rulemaking, click here.

Why it matters: Employers should begin to prepare for the change in exemption, reviewing the compensation of white collar employees to identify those who may be impacted by the new rule. Although the amounts have changed in the different proposals, the DOL clearly intends to increase the exemption. “Commenters on the RFI and in-person sessions overwhelmingly agreed that the 2004 levels need to be updated,” Keith Sonderling, acting administrator for the DOL’s Wage and Hour Division, noted in a statement.

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Iskanian Keeps PAGA Claim out of Arbitration, California Court Rules

The Supreme Court’s 2018 opinion in Epic Systems v. Lewis did not overrule the California Supreme Court’s decision in Iskanian v. CLS Transportation, a California appellate panel has ruled, reversing a trial court’s order to compel arbitration of a wage and hour suit.

Mark Correia and Richard Stow sued their former employer, NB Baker Electric, for a host of wage and hour violations, including a claim for civil penalties under the Private Attorneys General Act. Baker responded with a motion to compel arbitration pursuant to an agreement signed by both employees when they began working for the company. The agreement provided that arbitration shall be the exclusive forum for any dispute and prohibited employees from bringing a “representative action.”

The trial court granted the motion on all causes of action except the PAGA claim. Baker appealed, arguing that Iskanian is no longer binding because it is inconsistent with the Supreme Court’s subsequent decision in Epic Systems.

In 2014, the California Supreme Court decided Iskanian, upholding the general enforceability of class waivers in mandatory employment arbitration agreements. But the court also carved out an exemption for employees to bring representative actions under PAGA, holding that “an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.”

Last year, in a 5-4 decision, the justices held in Epic Systems that employers do not violate the National Labor Relations Act (NLRA) if they require class and collective waiver provisions in arbitration agreements that employees must sign as a condition of employment.

That holding trumps Iskanian, the employer told the California appellate panel, and permits the plaintiffs’ PAGA claim to be sent to arbitration.

But the panel disagreed. “Although the Epic court reaffirmed the broad preemptive scope of the Federal Arbitration Act (FAA), Epic did not address the specific issues before the Iskanian court involving a claim for civil penalties brought on behalf of the government and the enforceability of an agreement barring a PAGA representative action in any forum,” the court wrote. “We thus conclude the trial court properly ruled the waiver of representative claims in any forum is unenforceable.”

The Iskanian court reached its conclusion based on the unique nature of a PAGA claim as a qui tam-type action, the court said, and the “PAGA litigant’s status as ‘the proxy or agent’ of the state and his or her ‘substantive role in enforcing our labor laws on behalf of state law enforcement agencies.’”

Epic addressed a different issue, which pertained to the enforceability of an individualized arbitration requirement against challenges that such enforcement violated the NLRA, the court said, and did not consider the implications of a complete ban on a state law enforcement action.

“Because Epic did not overrule Iskanian’s holding, we remain bound by the California Supreme Court’s decision,” the panel held.

The court further rejected the employer’s contention that even if the representative action waiver was deemed unenforceable, the PAGA claim for statutory penalties remained subject to arbitration.

Without an agreement to arbitrate a claim, a court has no authority to order the claim to arbitration, the panel said, and the state did not consent to or sign the predispute agreement between the parties. Importantly, under the PAGA statutory scheme, an employee does not assume the proxy role until he or she is an “aggrieved employee.”

“When an employee signs a predispute arbitration agreement, he or she is signing the agreement solely on his or her own behalf and not on behalf of the state or any other third party,” the California appellate court wrote. “Thus, the agreement cannot be fairly interpreted to constitute a waiver of the state’s rights to bring a PAGA penalties claim in court (through a qui tam action by its deputized employee).”

Several other California state appellate courts have reached a similar conclusion based on Iskanian’s view that the state is the real party in interest in a PAGA claim. The court acknowledged contrary authority from federal courts in California, but found those decisions “unpersuasive.”

To read the order in Correia v. NB Baker Electric, Inc., click here.

Why it matters: The decision widens the divide between state and federal courts in California on the issue of the arbitrability of PAGA representative claims. Distinguishing the Supreme Court’s decision in Epic Systems and recognizing that federal courts have a conflicting perspective, the appellate panel found that Iskanian remains good law in the state and that the plaintiffs could not be forced to arbitrate their PAGA claims.

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IHOP Franchises Reach $700,000 Deal With EEOC Over Sex Harassment Charges

Allegations of sexual harassment and a purportedly illegal policy that discouraged employees from reporting such harassment will cost seven IHOP franchises $700,000 in a settlement with the Equal Employment Opportunity Commission (EEOC).

According to the lawsuit, the IHOP franchises in Nevada and New York implemented and enforced an unlawful sexual harassment policy that required employees who were sexually harassed by another worker to report the incident in writing within 72 hours to a national office or waive all rights to recovery.

In place since 2005, the policy prohibited submission of complaints to managers at locations where the employees worked and the harassment occurred, discouraging victims of sexual harassment from complaining and preventing local management from taking preventative or corrective measures, the EEOC said.

Further, the “onerous requirements” of the policy created an atmosphere where employees and managers “regularly and continuously engaged in sexual harassment,” the EEOC alleged in its Nevada federal court complaint. Harassment included unwanted touching, kissing and groping; propositions to engage in sexual intercourse; vulgar comments and name-calling; sending pictures of male genitalia and lewd text messages; and viewing pornography in the stores.

Those employees who reported and complained about the harassment faced retaliation in response, the agency said, with some having their hours reduced and others being terminated. The defendants repeatedly failed to take any form of corrective action, the EEOC added; in one instance, a general manager told a charging party to have intercourse with the cooks “to get better treatment.”

Pursuant to a consent decree approved by a Nevada federal court, the defendants will pay $700,000 to a class of female employees. The franchises also agreed to eliminate the 72-hour policy for reporting harassment, hire an outside monitor and provide extensive training on harassment and retaliation to all employees, including managers and supervisors.

The agreement prohibits future violations of Title VII’s prohibitions on discrimination, harassment and retaliation, and requires the defendants to establish and maintain a human resources department to carry out the terms of the decree.

To read the complaint in Equal Employment Opportunity Commission v. Lucinda Management, LLC, click here.

To read the consent decree, click here.

Why it matters: When announcing the settlement, the EEOC reminded employers that sexual harassment remains a persistent problem and that placing impediments on the ability of employees to complain—as the policy used by IHOP franchises allegedly did—only exacerbates the problem. “Employers should remember that they are responsible for creating an environment free of harassment,” director of the agency’s Las Vegas local office, Wendy Martin, said in a statement. “This includes empowering managers to address such conduct when they become aware of it.”

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New EEO-1 Forms in Effect, Thanks to D.C. Judge

Employers should prepare themselves for additional reporting requirements after a Washington, D.C., judge vacated the moratorium on the application of the Equal Employment Opportunity Commission’s revised EEO-1 form collecting pay data.

In 2016, the EEOC proposed a revision to the EEO-1 form that would require private employers with at least 100 employees (and federal contractors with 50–99 workers) to add pay information to the data reported, joining other data points such as race, ethnicity, sex and job category. The final rule instructed employers to provide the total number of full- and part-time employees within pay bands and gender, race and ethnicity categories; employers were also to tally and report the total hours worked by all the employees in each pay band.

The collection of pay data served a twofold purpose, the agency explained: The data would help employers evaluate their own pay practices to prevent pay discrimination and would further the federal government’s efforts to combat the problem. The EEOC published a Federal Register notice explaining that employers would provide the information either through online filing or by uploading an electronic file.

Later, the agency filed a second Federal Register notice seeking approval from the Office of Management and Budget for the revised EEO-1 pay data collection. The OMB granted its approval in September 2016. Subsequently, the EEOC released an instruction booklet as well as information about the revised form, including data file specifications for employers who planned to file using a data upload.

But with the change in federal administration, the rule was put on indefinite hold in 2017 when the EEOC chair announced she had received word from the OMB that it was “initiating a review and immediate stay” of the revised EEO-1 form.

“Among other things, OMB is concerned that some aspects of the revised collection of information lack practical utility, are unnecessarily burdensome and do not adequately address privacy and confidentiality issues,” OMB said, citing the subsequent release of data file specifications.

In response, the National Women’s Law Center and the Labor Council for Latin American Advancement filed suit. The workers’ rights groups argued that the OMB and its officials violated both the Administrative Procedures Act (APA) and the Paperwork Reduction Act (PRA), exceeding their statutory authority in reviewing and staying the revised pay data collection.

Ruling on cross motions for summary judgment, U.S. District Judge Tanya S. Chutkan sided with the plaintiffs. Under its own regulations, the OMB may review a previously approved collection of information only when “relevant circumstances have changed or the burden estimates provided by the agency at the time of initial submission were materially in error.”

“OMB has not shown that a relevant circumstance has changed or that the burden estimate provided was materially in error,” the court said. “Moreover, it has not shown good cause.”

The OMB’s assertion that the data file specifications released by the EEOC were not contained in the Federal Register—and thus deprived the public of an opportunity to comment on them—is “misdirected, inaccurate and ultimately unpersuasive,” the court wrote. “EEOC described in detail the information it proposed to collect. The government’s argument therefore focuses on a technicality that did not affect the employers submitting the data.”

OMB failed to explain “in any substantive way” why it believed that the revised EEO-1 was contrary to PRA standards, Judge Chutkan added. While agencies are free to change their existing policies, they must provide “a reasoned explanation for the change,” and OMB’s action in staying the EEOC’s pay data collection “totally lacked the reasoned explanation that the APA requires,” making it “arbitrary and capricious.”

OMB pointed to four letters it received after the EEOC posted details about the file specifications, but the court said one of the letters did not even discuss the file specifications and the others did not provide any analysis or state that the specifications would increase the burden on EEO-1 filers.

Mere speculation—or the speculation of commenters—cannot suffice for APA review purposes, the court said, and an agency must conduct a critical examination of comments on which it relies. Here, however, “the government has failed to demonstrate any likelihood that the data file specifications meaningfully increase the burden on employers.”

Concluding that the OMB’s stay of the EEOC’s pay data collection was illegal and its “deficiencies were substantial,” the court granted summary judgment in favor of the plaintiffs and vacated the stay of the revised EEO-1 form.

To read the memorandum opinion in National Women’s Law Center v. Office of Management and Budget, click here.

Why it matters: Employers should brace themselves for the new reporting requirements, as Judge Chutkan ordered that the previous approval of the revised EEO-1 form “shall be in effect.”

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