Employment Law

NLRB: Rulemaking May Be Solution to Joint Employer Standard

Why it matters

The National Labor Relations Board (NLRB or Board) announced that it is considering rulemaking to address the joint employer standard, launching the internal process necessary and adding the issue to its spring 2018 agenda. The complicated battle over the standard dates back to a 2015 NLRB decision in Browning-Ferris Industries of California, Inc. and continues through the Board’s decision earlier this year to vacate a subsequent standard reversal in Hy-Brand Industrial Contractors, Ltd. & Brandt Construction Co. after a new Board member failed to recuse himself. Now the NLRB has decided to take matters into its own hands. “Whether one business is the joint employer of another business’s employees is one of the most critical issues in labor law today,” NLRB Chair John F. Ring said in a statement. “In my view, notice-and-comment rulemaking offers the best vehicle to fully consider all the views on what the standard ought to be.” Two Board members disagreed, however, signaling that the controversy over the standard continues.

Detailed discussion

For several decades, the National Labor Relations Board (NLRB or Board) followed a single standard in evaluating the scope of joint employer liability. But in 2015, the Board adopted a controversial new standard in the Browning-Ferris Industries of California, Inc. decision.

In that case, the Board held that even when two entities have never exercised joint control over the essential terms and conditions of employment, and even when any joint control is not “direct and immediate,” the two entities will still be joint employers based on the existence of “reserved” joint control or based on indirect control or control that is “limited and routine.”

The employer appealed the decision to the U.S. Court of Appeals for the D.C. Circuit. While the case was pending, however, things got even more complicated with the subsequent Hy-Brand Industrial Contractors, Ltd. & Brandt Construction Co. case. There, an administrative law judge applied the Browning-Ferris standard to find that the two entities were joint employers for purposes of the National Labor Relations Act when they terminated a total of seven workers.

But when the employers appealed to the NLRB, the Board—featuring new members courtesy of President Donald Trump—took the opportunity to throw out the Browning-Ferris standard and establish a new test.

Although the decision was hailed by employers, the victory was short-lived. In a motion for reconsideration, for recusal and to strike, the charging parties requested that the NLRB vacate its decision and that Board member William J. Emanuel recuse himself. The NLRB’s Inspector General launched an investigation into whether Emanuel was required to recuse himself because his former law firm represented Leadpoint, another entity involved in the Browning-Ferris case.

After the Inspector General agreed Emanuel should have recused himself, the NLRB vacated its decision in Hy-Brand.

What now? Recognizing the position facing employers, the NLRB decided rulemaking presents a viable solution.

“The current uncertainty over the standard to be applied in determining joint employer status under the Act undermines employers’ willingness to create jobs and expand business opportunities,” NLRB Chair John F. Ring said in a statement. “In my view, notice-and-comment rulemaking offers the best vehicle to fully consider all views on what the standard ought to be. I am committed to working with my colleagues to issue a proposed rule as soon as possible, and I look forward to hearing from all interested parties on this important issue that affects millions of Americans in virtually every sector of the economy.”

To that end, the NLRB initiated the internal process necessary to consider rulemaking on the standard, adding the issue to the regulatory agenda. The announcement noted that two members of the Board—Lauren McFerran and Mark Gaston Pearce—did not support the rulemaking proposition and that any proposed rule would require approval by a majority of the five-member Board.

To read the NLRB’s filing in the Unified Agenda of Federal Regulatory and Deregulatory Actions, click here.

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More Employers Toss Confidentiality, Arbitration Provisions

Why it matters

Following the hot new trend in employment law, both Uber and Lyft announced they will no longer mandate confidentiality and arbitration provisions for passengers, drivers and employees who raise sexual assault and/or harassment claims. The #MeToo movement has spurred employers—notably, Microsoft, which was the first to declare that it had discontinued the use of such provisions—to drop both confidentiality and arbitration requirements in cases involving sexual harassment and/or assault. Lawmakers and regulators have also jumped on board, with a total of 56 attorneys general urging federal legislators to pass a bill that would prohibit the use of such provisions, which they argued create a “veil of secrecy” that perpetuates a culture of silence. It remains to be seen whether other employers will follow in the footsteps of Microsoft and the ride-sharing companies.

Detailed discussion

The #MeToo movement continues to impact employers, with high-profile announcements from Uber and Lyft that the companies will no longer use confidentiality and mandatory arbitration requirements for passengers, drivers and employees in claims involving sexual assault and/or sexual harassment.

“[W]e will no longer require mandatory arbitration for individual claims of sexual assault or sexual harassment by Uber riders, drivers or employees,” Uber Chief Legal Officer Tony West wrote in a blog post. “[S]urvivors will now have the option to settle their claims with Uber without a confidentiality provision that prevents them from speaking about the facts of the sexual assault or sexual harassment they suffered.”

The same day, Lyft made a similar change. “We agree with the changes [made by Uber] and have removed the confidentiality requirement for sexual assault victims, as well as ended mandatory arbitration for those individuals so that they can choose which venue is best for them,” according to the Lyft statement. “This policy extends to passengers, drivers and Lyft employees. The #MeToo movement has brought to life important issues that must be addressed by society, and we’re committed to doing our part.”

Other efforts to combat the use of such provisions have also made headlines. In December, Sens. Kirsten Gillibrand (D-N.Y.) and Lindsey Graham (R-S.C.) introduced the Ending Forced Arbitration of Sexual Harassment Act of 2017.

Senate Bill 2203 states that “no predispute arbitration agreement shall be valid or enforceable if it requires arbitration of a sex discrimination dispute,” defined as “a dispute between an employer and employee arising out of conduct that would form the basis of a claim based on sex under Title VII.”

The bill remains pending before the Senate Health, Education, Labor and Pensions Committee but received some high-profile backing when the National Association of Attorneys General sent a letter to the leadership of both the Senate and House of Representatives asking “for your support and leadership in enacting needed legislation to protect the victims of sexual harassment in the workplace.”

Many employers require that their employees, as a condition of employment, sign arbitration agreements mandating that sexual harassment claims will be resolved through arbitration instead of judicial proceedings, explained the AGs of all 50 states, the District of Columbia, and the territories of American Samoa, Guam, Northern Mariana Islands, Puerto Rico and the Virgin Islands.

But the use of such provisions perpetuates a “veil of secrecy,” which “may then prevent other persons similarly situated from learning of the harassment claims so that they, too, might pursue relief. Ending mandatory arbitration of sexual harassment claims would help to put a stop to the culture of silence that protects perpetrators at the cost of their victims.”

The attorneys general also praised Microsoft, which launched the trend of employers discontinuing the use of arbitration requirements with respect to sexual harassment claims.

In a blog post, Microsoft President and Chief Legal Officer Brad Smith said that he met with Sen. Graham to discuss Senate Bill 2203, and the company decided to endorse the legislation. “The easiest mistake any employer can make is to assume that ‘this could never happen here,’” he wrote. “While it’s natural to hope and believe that’s the case, one of the fundamental lessons of recent months is that people’s voices need to be heard if their problems are to be addressed.”

“We concluded that if we were to advocate for legislation ending arbitration requirements for sexual harassment, we should not have a contractual requirement for our own employees that would obligate them to arbitrate sexual harassment claims,” Smith wrote. “And we should act immediately and not wait for a new law to be passed. For this reason, effective immediately, we are waiving the contractual requirement for arbitration of sexual harassment claims in our own arbitration agreements for the limited number of employees who have this requirement.”

To read Uber’s announcement, click here.

To read Microsoft’s announcement, click here.

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Court Pays PAGA Plaintiff Victory in Wage Statement Challenge

Why it matters

A California federal court judge granted a Private Attorneys General Act (PAGA) plaintiff summary judgment in a wage and hour action challenging Walmart’s wage statements. After working for Walmart for eight years, Roderick Magadia charged the employer with Labor Code violations for failing to list all applicable hourly rates for overtime payments and neglecting to include pay period start and end dates on final wage statements. He moved for summary judgment on his claims that the wage statements did not comport with the requirements of Labor Code Section 226, and the court granted the motion, rejecting the employer’s argument that Magadia failed to exhaust his administrative remedies prior to filing suit. Further, the court was not persuaded that the calculation for overtime payments made retroactively based on incentive payments was “too complex” to be included on the wage statements, nor that Walmart should avoid liability because it provided a subsequent final wage statement that cured earlier noncompliance.

Detailed discussion

A nonexempt employee in Walmart’s San Jose, CA, store from June 2008 to September 2016, Roderick Magadia filed suit against the national retailer for violations of the state’s Labor Code along with a claim under the Private Attorneys General Act (PAGA). Specifically, he alleged Walmart ran afoul of Section 226 with errors on its wage statements.

When one of Walmart’s nonexempt California employees works overtime during a given pay period and earns “non-discretionary remuneration in the same pay period,” the employer pays an “additional overtime wage” that appears as “OVERTIME/INCT” on the worker’s wage statement (“INCT” is an abbreviation for incentive). The OVERTIME/INCT item is a lump sum and does not list an hourly rate or specify the hours worked.

Walmart pays its workers biweekly and provides them with wage statements that correspond to the particular pay period, listing the start and end dates of the pay period. Upon termination, employees receive a “Statement of Final Pay” that lists all wages being paid to them at the end of employment. The final pay statement does not include pay period start or end dates.

The failure to list an hourly rate for the OVERTIME/INCT payment violated Labor Code Section 226(a)(9), Magadia told the court, while the lack of pay period start or end dates on the final pay statement violated Section 226(a)(6).

Having already certified multiple classes in the lawsuit, U.S. District Judge Lucy H. Koh granted partial summary judgment in favor of the plaintiff on his PAGA claim.

The court first addressed Walmart’s threshold arguments against summary judgment. Walmart contended that the plaintiff could receive only one award of damages under Section 226(e) for each wage statement that violated the Labor Code even if the statement violated Section 226(a) in multiple respects.

But the court found the damages issues “not relevant at this point” as Magadia had moved for summary judgment only on his PAGA claim. “[A] PAGA plaintiff recovers civil penalties on behalf of the California Labor Workforce Development Agency (LWDA), instead of compensatory damages for injury suffered by the plaintiff,” the court explained, with the LWDA keeping 75 percent of any civil penalties imposed on the defendant. “[B]ecause Plaintiff’s PAGA claim only seeks penalties on the LWDA’s behalf, Plaintiff ‘need only prove a violation of Section 226(a), and need not establish a Section 226(e) injury.’”

Nor was the court persuaded by Walmart’s argument that Magadia did not fully exhaust his administrative remedies before initiating his action. Although the plaintiff filed his suit six days too early—after having provided notice to Walmart and the LWDA but before the statutory 65 days for exhaustion had run—the court excused his failure to exhaust because administrative exhaustion occurred after the suit began.

More than a year has passed since the plaintiff submitted notice to the LWDA, without any action by the agency, the court noted. “Thus, ‘the Court sees little reason to punish [Plaintiff] for acting too quickly once [he] had taken the requisite step of providing notice,’” the court wrote. “[T]he Court finds that Plaintiff’s failure to complete the 65-day exhaustion waiting period before filing Plaintiff’s PAGA claim does not bar adjudicating Plaintiff’s PAGA claim because exhaustion has subsequently occurred.”

Turning to the substantive issues, Judge Koh agreed with Magadia that Walmart violated both Section 226(a)(6) and Section 226(a)(9).

“California Labor Code section 226(a) provides that ‘[a]n employer … at the time of each payment of wages, shall furnish to his or her employee … an accurate itemized statement in writing’ that includes ‘(9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee …’”

Walmart’s wage statements did not include the overtime rate required by the Labor Code, the court said. The OVERTIME/INCT item lists earnings but does not include a rate of pay or hours worked. While courts have held that a wage statement does not violate the Labor Code if an employee can ascertain the required information by performing simple math, using figures on the face of the wage statement, that was impossible with Walmart’s OVERTIME/INCT item, the court found.

“Absent any indication as to what OVERTIME/INCT is, employees have no idea how it relates to regular overtime pay and how to use the OVERTIME/INCT sum to calculate the new overtime rate,” the court wrote. “Underscoring this point, [the employer’s] Regional Human Resources Director testified that the formula used to determine the OVERTIME/INCT sum did not appear on wage statements because it was ‘too complex.’ … The bottom line is that math cannot be simple if the employee does not know what math to apply. The OVERTIME/INCT item therefore does not satisfy section 226(a)(9).”

The employer also violated Section 226(a)(6), which requires that wage statements list “the inclusive dates of the period for which the employee is paid,” Judge Koh found, because the Statements of Final Pay do not specify pay period start or end dates. The fact that a terminated employee will later receive a statement that includes the necessary dates does not cure the noncompliant pay stub, the court said.

“Wal-Mart here provides the final on-cycle pay statement up to two weeks after the employee receives their check and Statement of Final Pay,” the court wrote. “Section 226(a) requires that a compliant statement be furnished ‘at the time of each payment of wages.’ Consequently, a wage statement can only be compliant—and thus can only cure a noncompliant wage statement—if it was provided when wages were paid. Wal-Mart’s compliant wage statement was not provided when the wages at issue were paid, which means it cannot cure the noncompliant Statement of Final Pay.”

To read the order in Magadia v. Wal-Mart Associates, Inc., click here.

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Last Chance to Register! Flash Update Webinar on Supreme Court Ruling

On May 21, 2018, the Supreme Court issued a significant decision for employers nationwide, effectively resolving a deep split among the circuits that followed the National Labor Relations Board’s D.R. Horton ruling in 2012. In a trio of wage and hour class actions, the divided Supreme Court held that employers may require employees, as a condition of employment, to enter into arbitration agreements that contain class or collective action waivers.

For a quick but deep dive into the ruling and the most crucial takeaways for employers, please join Manatt’s employment and labor attorneys for a complimentary webinar today at 12:00 p.m. PT (3:00 p.m. ET). Click here to register.

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In Case You Missed It: #MeToo Employment Law Webinar

The international #MeToo movement has shone a spotlight on sexual assault and harassment in the workplace, with real and immediate consequences for those caught in its wake. The vast reach of the movement is clear, with an estimated 1.7 million tweets across 85 countries relating in some way to the hashtag #MeToo. As women come forward in record numbers, companies are reporting an unprecedented increase in sexual harassment and employment misconduct claims across the board. In light of these developments, employers in all industries are feeling the pressure to respond proactively.

If you missed Manatt’s webinar offering practical guidance to employers regarding their policies and practices in the #MeToo era, please click here to access the audio recording and here to access the presentation materials.

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