Employment Law - July 2016 #2

by Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

In This Issue:

  • Take Two: EEOC Amends Pay Data Collection Proposal
  • Uniform Law Commission Finalizes Wage Garnishment Act
  • California Appellate Court Weighs in on Contract, Business Interference Claims

Take Two: EEOC Amends Pay Data Collection Proposal

Why it matters

Tweaking its initial plan, the Equal Employment Opportunity Commission (EEOC) released an updated proposal about the collection of pay data from employers. Earlier this year, the agency announced that as part of an effort to eliminate unequal pay, it would begin to collect aggregate data on pay ranges and hours worked from Employer Information Reports (EEO-1). After reviewing 322 comments on the proposal, the EEOC has published a revised version with some substantive changes. For example, the updated proposal would provide more time before the first data collection (pushing it from September 2017 to March 2018) and permit employers to use existing W-2 pay reports. In a statement, U.S. Secretary of Labor Thomas E. Perez backed the proposal. “Better data means better policy and less pay disparity,” he said. “As much as the workplace has changed for the better in the last half century, there are important steps that we can and must take to ensure an end to employment discrimination.” The EEOC also tried to alleviate concerns about data safety by providing for additional employee training, emphasizing that it has “successfully protected the confidentiality of EEO-1 data for over 50 years.” Interested parties now have until August 15 to comment on the updated plan.

Detailed discussion

In January, the Equal Employment Opportunity Commission (EEOC) proposed a revision to the Employer Information Report (EEO-1) that would require employers to report information about the wages paid to their workers.

Private employers with at least 100 employees (and federal contractors with 50-99 workers) are currently required to file an EEO-1 report sharing the number of individuals they employ by job category and by race, ethnicity, and sex. The report—delivered to the EEOC and the Department of Labor (DOL)—contains ten job categories, ranging from Executive/Senior-Level Officials to Service Workers.

Pursuant to the EEOC’s initial proposal, these employers would additionally submit pay data as of September 30, 2017. Each year, employers would provide the agency with their employees’ W-2 earnings for a 12-month period starting on October 1 and ending the following September 30. Within the ten EEO-1 job categories, the proposal would have 12 pay bands, starting at $19,239 and under and working up to $208,000 and over. So an employer would report that it employs ten African-American men who are Craft Workers in the second pay band ($19,240 to $24,439), for example.

More than 300 individuals and entities commented on the proposal, and the agency held a public hearing in March to gather additional feedback. Based on the input from industry groups, individuals, employers, members of Congress, civil rights groups, law firms, and academics, the EEOC then published an amended proposal on July 14.

The most marked changes were the extension of time for the first data report and the agency’s decision to allow the use of existing W-2 pay reports in lieu of having to create a second calendar year for the pay data collection (the October to September schedule). Pushing back from the September 2017 date, covered employers will now have an additional six months to submit their 2017 EEO-1 reports until March 31, 2018. “The EEOC is providing more time to employers … to change their EEO-1 recordkeeping and reporting,” the agency explained.

Going forward, each EEO-1 report will be due on March 31 of the following year to coordinate with employers’ end-of-year income reporting obligations. W-2 Box 1 income will be the measure of pay, based on a calendar year basis ending December 31. Employers will not have to calculate a special W-2 income figure for an EEO-1 reporting year of October 1 to September 30, a switch that “will ease reporting requirements for employers,” the EEOC said.

“The EEOC decided to use W-2 income after carefully considering feedback from stakeholders,” the agency explained. “Supplemental pay, such as overtime, premium pay, and bonuses, is increasingly common in business today, and the EEOC cannot overlook its importance in a pay survey. Supplemental pay can reflect discrimination in an employer’s decisions and policies, for example, discriminatory assignments for overtime and more lucrative shifts.”

To address concerns about the confidentiality of the data collected by the EEOC, the agency emphasized the steps it will take to protect such information. EEOC employees and officers are prohibited from making information public—including EEO-1 data—and any staff member who violates this ban is subject to criminal penalties. The agency directly imposes this confidentiality requirement on all of its contractors, it added, and only shares information with other agencies if they agree in writing to comply with the confidentiality requirements.

Additional training for EEOC employees will be provided, the agency noted, with enhanced technical assistance and support available for employers. The EEOC also stressed efforts with regard to data security, including the maintenance of “a robust cyber security and privacy program.”

What remains consistent between the two proposals? The employee thresholds for reporting pay data, the use of W-2 wages (and not base pay), the requirement to report the number of hours worked for both exempt and nonexempt employees, and the use of the same 12 pay bands and 10 job categories.

To read the revised proposal and view the proposed EEO-1 form to collect pay data, click here.

Uniform Law Commission Finalizes Wage Garnishment Act

Why it matters

In promising news for employers, the Uniform Law Commission finalized approval of the Uniform Wage Garnishment Act (UWGA). If adopted by the state legislatures, the UWGA would provide national uniformity for employers garnishing the wages of workers, with consistent legal definitions, court procedures, and forms. The Act would establish jurisdiction for a garnishment action to be initiated in the state where the employee works and clarifies that garnishments apply to payments made to independent contractors, protected by the applicable deduction maximum. Employers would receive a notice of failure to comply with a garnishment and would be provided with the opportunity to achieve compliance before being held liable for an error, with penalties capped at the amount of the garnishment per day.

Detailed discussion

“For a lot of companies, even relatively small businesses if they operate in more than one state, payroll is handled centrally rather than in individual offices,” the Wage Garnishment Act Committee of the Uniform Law Commission (ULC) explained in its mission statement. “Wage garnishments, however, are governed by widely varying law in all of the states, and this creates difficulties and inefficiencies in complying with wage garnishment orders.”

To alleviate such problems, the Committee spent three years studying and drafting a proposed law, releasing the Uniform Wage Garnishment Act (UWGA) for approval and enactment in all 50 states (plus the District of Columbia, Puerto Rico, and the U.S. Virgin Islands).

The proposed statute would decrease costs and risks for employers by providing national uniformity and consistency in handling wage garnishments.

Pursuant to the UWGA, jurisdiction would be established in the state of the employee’s principal place of work. This change—from the current possibility that garnishment actions can be initiated in any state where the employer is present, regardless of the employee’s location—limits the number of states to which an employer may need to answer.

The proposal establishes who must be served with the garnishment motion (an employer’s registered agent) and what the motion must include, including the name of the employee, the amount the creditor claims is owed, “information sufficient to identify the judgment on which the garnishment action is based,” and a notice for the employee that satisfies the UWGA. That notice, with an example in Section 308 of the proposed law, provides a worker with necessary information (how much is owed, what options are available) in a reader-friendly format.

Under the UWGA, payments to independent contractors for personal services are subject to garnishment and protected by the applicable deduction maximum. Drafters also included a calculation worksheet for employers, who may need to provide a copy to employees or creditors upon request. If an employer withholds earnings from more than one employee for the same creditor, the employer may combine the amounts in one payment to the creditor, so long as the amount attributable to each employee is specified.

The proposed law also placed boundaries on the extent of an employer’s liability. Prior to being held liable, an employer will receive a notice of failure to comply with a garnishment motion and will be given the chance to achieve compliance. Penalties under the UWGA range from $5 per day for failure to comply to the amount of the garnishment.

Employers are prohibited from discharging or taking other adverse action against an employee because of a garnishment or attempted garnishment, according to the UWGA.

To read the proposed UWGA, click here.

California Appellate Court Weighs in on Contract, Business Interference Claims

Why it matters

A California appellate court weighed in on intentional interference with contractual relations and prospective economic advantage in a suit brought by a terminated employee. Dan Popescu sued Apple, alleging the tech giant got him fired in retaliation for his resistance to Apple’s allegedly illegal anticompetitive conduct. A trial court judge dismissed the suit but the appellate panel reversed, writing that an employee whose at-will employment contract is terminated as a result of a third party’s interference need not allege that the defendant’s conduct was independently wrongful to state a contract interference claim. Neither did Popescu need to allege that he was directly harmed by an independently wrongful act as long as he claimed that Apple’s wrongful act interfered with his economic relationship with his employer, the court explained.

Detailed discussion

An aluminum engineering manager who developed cutting-edge alloys for high-tech customers, Dan Popescu was employed by Constellium. He received exemplary performance reviews and when the company was contacted by Apple for a new project, he was designated as the lead employee.

Apple was considering changes to the aluminum look and design of products including the MacBook, iPad, and iPhone. Popescu oversaw the project, which involved Constellium sharing a large degree of information with Apple, including its trade secrets regarding aluminum alloy manufacturing formulas and processing. Apple presented Constellium with a “Development Agreement” containing what Popescu felt were overly restrictive terms. He refused to sign.

At a meeting in Cupertino with Apple, Popescu again refused to sign the contract. He also inadvertently activated the recording feature of his smartpen, resulting in an Apple attorney confiscating the pen, insisting that Constellium launch an investigation into the incident, and requesting Popescu’s termination. When Popescu’s supervisors resisted, Apple appealed to the management of the private equity firm that owned Constellium.

Popescu was terminated for cause. According to his subsequent California state court complaint against Apple, he was then unable to obtain other employment in the aluminum alloy industry. Popescu alleged interference with contractual relations (contract interference) and intentional interference with prospective economic advantage (business interference).

He claimed that Apple wanted to use the Development Agreement to restrict competition in the smartphone market. By locking up suppliers with the agreement, Apple would be free to develop its own alloy body for its product, Popescu said, with anticompetitive effects on elite aluminum suppliers, consumer electronics companies, smartphone manufacturers, and consumers.

Not surprisingly, Apple moved to dismiss. A trial court granted the motion, holding that Popescu failed to state a cause of action for contract interference because his allegations demonstrated that he was an at-will employee, while his business interference claims failed because he did not allege that Apple had committed an independently unlawful act when it encouraged Constellium to launch an investigation into the recording incident.

An appellate panel reversed.

First tackling the claim of contract interference, the court rejected Apple’s argument that it could not be liable as it was “not a stranger” to the contract. Although a noncontracting party to Popescu’s employment, Apple had a legitimate interest in the scope or course of the contract’s performance, Apple said, based on its relationship with Constellium.

But the court was not persuaded. An extension of existing case law “to immunize a third party from tortious interference claims simply because the third party asserts some economic or other interest in a contract would significantly undercut the tort itself and the public policy underlying it,” the panel wrote. Apple’s relationship to the agreement between Constellium and Popescu “was wholly tangential,” the court added, holding that “even as a third party having some interest in the manner in which Popescu performed his employment agreement with Constellium, [Apple] is not immune from tort liability for interfering with his contract.”

Agreeing with the trial court that Popescu had an at-will employment relationship with Constellium, not a for-cause agreement, the panel said he could still state a contract interference claim despite a 2004 California Supreme Court decision, Reeves v. Hanlon. In that case, the court considered a claim by a former employer whose at-will employee was hired away by a new employer, ruling that because of the dual policy concerns of employee mobility and the promotion of legitimate competition, the former employer had to show that the new employer’s conduct in recruiting and hiring its at-will employee was independently wrongful.

“Those same policy considerations do not exist here,” the court said, distinguishing Reeves. “This case involves an employee—not his former employer—suing a third party for interfering with his employment agreement. We thus hold that Reeves does not require Popescu to allege or prove as part of his contract interference claim that Apple’s conduct in interfering with his at-will employment contract was independently wrongful.”

Since Reeves did not apply and the plaintiff alleged each of the elements of a contract interference claim, the court reversed dismissal of the cause of action.

Turning to the business interference claim, the panel explained that Popescu had alleged an independent wrongful act by the defendant beyond the fact of the interference itself when he stated in his complaint that Apple’s conduct in persuading Constellium to terminate him was “interconnected” with Apple’s larger goal of requiring Constellium to sign the Development Agreement and “thereby complete its fraud of Constellium, further misappropriate its trade secrets, obtain non-trade secret information and materials, and restrict competition in the smartphone market.”

Accepting the allegations as true as required at this stage in the litigation, the court said the anticompetitive acts alleged by Popescu—purported violations of the Sherman Antitrust Act, the Cartwright Act, and the Uniform Trade Secrets Act, among others—satisfied the pleading standards for the claim. Apple’s argument that the alleged conduct did not directly impact Popescu was irrelevant, the court added.

The wrongful conduct alleged does not have to be wrongful toward the plaintiff, the panel wrote: “[W]e find no sound reason for requiring that a defendant’s wrongful actions must be directed toward[] the plaintiff seeking to recover for this tort.”

With both causes of action back in play, the appellate panel remanded the case back to the trial court.

To read the opinion in Popescu v. Apple Inc., click here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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