Employment Law - September 2017

by Manatt, Phelps & Phillips, LLP
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Manatt, Phelps & Phillips, LLP

In This Issue:

  • More Obama-Era Policies—Pay Data Collection, Overtime Rule—Fall
  • Court Finds Wellness Regs Too Sick to Stand
  • Denial of Lateral Transfer Can Be Adverse Employment Action
  • NLRB Upholds Retailer’s Rules on Confidential Customer Information
  • Ninth Circuit Punts Search Case to California Supreme Court

More Obama-Era Policies—Pay Data Collection, Overtime Rule—Fall

Why it matters

Continuing the rollback of Obama-era policies, the Equal Employment Opportunity Commission (EEOC) hit pause on the collection of Employer Information Report (EEO-1) pay data and the battle over the Department of Labor’s (DOL) white collar overtime exemption rule came to an end. Last year, the EEOC proposed a revision to the EEO-1 report that would require private employers with at least 100 employees to report pay data about their workers. Although the requirement was set to begin next March, the agency announced the new rule is on hold following a decision by the Office of Management and Budget to stay the rule pending further review. As for the overtime rule—which would have doubled the salary threshold for those covered by the executive, administrative and professional exemption—a U.S. district court judge granted summary judgment in favor of the states and business groups challenging the rule. The DOL then moved to dismiss its appeal of an earlier order in the case, effectively ending the litigation. However, the agency had previously released a request for comment on the rule, keeping alive the possibility of changes to the overtime exemption.

Detailed discussion

In January 2016, 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 final rule added pay information to the reporting requirements, with employers required to provide the total number of full- and part-time employees within pay bands and gender, race and ethnicity categories on the current EEO-1 form. Employers were also to tally and report the total hours worked by all the employees in each pay band.

Originally, the pay information was supposed to be added to the reports as of Sept. 30, 2017. But after more than 300 comments were filed on the first draft of the agency’s plan, the EEOC tweaked the final rule to extend the start date until March 31, 2018.

Now the obligation has been put on hold.

In late August, the acting chair of the EEOC announced that she received a memorandum from the administrator of the Office of Information and Regulatory Affairs (OIRA) indicating that the Office of Management and Budget (OMB) “is initiating a review and immediate stay of the effectiveness of the pay data collection aspects” 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,” the OIRA wrote.

“The EEOC remains committed to strong enforcement of our federal equal pay laws, a position I have long advocated,” Acting Chair Victoria Lipnic said in a statement. “Today’s decision will not alter EEOC’s enforcement efforts. … Going forward, we at the EEOC will review the order and our options. I do hope that this decision will prompt a discussion of other more effective solutions to encourage employers to review their compensation practices to ensure equal pay and close the wage gap.”

In the interim, the previous version of the EEO-1 form remains in effect during the OMB’s review process.

A second—and equally controversial rule—also came to a recent halt. In May 2016, the Department of Labor (DOL) published the final regulations updating the so-called white collar exemptions to the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA).

Pursuant to the final rule, the agency increased the minimum salary threshold from $455 per week (or $23,660 per year) to $913 per week (or $47,476 per year), equal to the 40th percentile of weekly earnings for full-time salaried employees working in the lowest-wage census region.

Before the final rule could take effect as scheduled on Dec. 1, 2016, a coalition of 21 states filed suit, seeking a preliminary injunction. After reviewing the history of the FLSA and the white collar exemption (also referred to as the “EAP exemption,” for executive, administrative or professional capacity), U.S. District Court Judge Amos L. Mazzant granted the injunction.

The DOL sought interlocutory appeal to the U.S. Court of Appeals, Fifth Circuit, but the January 2017 change in federal administration slowed down the process.

Things sped up after Judge Mazzant issued a new ruling on Aug. 31, 2017, granting summary judgment in favor of the states and a coalition of 56 business groups. The final rule’s revision to the minimum salary threshold exceeded the DOL’s authority, the court found.

“[I]t is clear Congress defined the EAP exemption with regard to duties,” the judge wrote, and the “updated salary-level test under the Final Rule does not give effect to Congress’s unambiguous intent.” The DOL “has used a permissible minimum salary level as a test for identifying categories of employee Congress intended to exempt,” but the final rule “would essentially make an employee’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level,” the court said.

“This is not what Congress intended with the EAP exemption,” Judge Mazzant wrote. “Congress unambiguously directed the Department to exempt from overtime pay employees who perform ‘bona fide executive, administrative, or professional capacity’ duties. However, the Department creates a Final Rule that makes overtime status depend predominantly on a minimum salary level, thereby supplementing an analysis of an employee’s job duties.”

Given this change, the court concluded that the final rule was not based on a permissible construction of the FLSA and that the DOL exceeded its authority.

A few days later, the Department moved for voluntary dismissal of the earlier appeal as moot, likely ending the litigation.

Changes to the white collar exemption remain a possibility, however. In July, the agency published a request for information on potential updates to the exemption. Comments are due by Sept. 25.

To read the OIRA memorandum, click here.

To read the EEOC statement, click here.

To read the opinion in Nevada v. DOL, click here.

To read the DOL’s motion, click here.

Court Finds Wellness Regs Too Sick to Stand

Why it matters

Siding with the American Association of Retired Persons (AARP), a D.C. federal court judge found the Equal Employment Opportunity Commission’s (EEOC) wellness rules with regard to the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) were arbitrary and capricious under the Administrative Procedures Act. The agency issued the final rules in March 2016 with the intent of providing greater clarity to employers regarding how the statutes apply to workplace wellness programs. But the AARP challenged the new rules, arguing that they violated antidiscrimination provisions found in both the ADA and GINA by forcing nonparticipating employees to effectively pay a penalty in the form of higher insurance premiums than those who elect to share their disability and genetic information with employers. Granting summary judgment in favor of the AARP, the court expressed concern that vacating the rules would “cause potentially widespread disruption and confusion,” instead remanding the rules to the EEOC for reconsideration without vacating them entirely.

Detailed discussion

With the goal of providing greater clarity to employers about the application of the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) to workplace wellness programs consistent with the Health Insurance Portability and Accountability Act (HIPAA), the Equal Employment Opportunity Commission (EEOC) published a pair of final rules last year.

HIPAA prevents health plans and insurers from discriminating on the basis of “any health status related factor,” but allows covered entities to offer “premium discounts or rebates” on a plan participant’s copayments or deductibles in return for that individual’s compliance with a wellness program. Employers have struggled with the collection of employee health information, however, as the data often implicates the ADA and/or GINA. Both statutes permit such collection for wellness programs as long as participation by the employee is “voluntary,” an undefined term.

The new rules established that employer wellness programs are “voluntary,” even if ADA- or GINA-protected information is required to be disclosed, provided the program does not impose a penalty for nonparticipation, or an incentive for participating, that is more than 30 percent of an employee’s health insurance premium.

In response, the American Association of Retired Persons (AARP) filed suit, noting that the new rules were a stark departure from the prior EEOC position, which had maintained that employee wellness programs implicating confidential medical information were voluntary only if employers did not condition the receipt of incentives on an employee’s disclosure of ADA- or GINA-protected information.

Further, the rules violated the antidiscrimination provisions in both the ADA and GINA by forcing nonparticipating employees to effectively pay a “penalty” in the form of higher insurance premiums than those who elect to share their disability and genetic information with employers, the AARP argued. The 30 percent threshold permits a penalty so substantial as to make an employee’s participation involuntary, the AARP told the court, at an average cost of $1,800 to $5,200 per year.

Applying the two-step analysis found in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., U.S. District Court Judge John D. Bates agreed with the AARP that the EEOC failed to offer a reasoned explanation for the creation of the 30 percent threshold.

The parties agreed that the meaning of “voluntary” as used in the ADA and GINA is ambiguous, but the court declined to defer to the EEOC’s chosen interpretation of the term. Some level of incentives may be permissible under the statutes, but “the agency has not provided a reasoned explanation for its interpretation,” the court said, with “nothing in the administrative record that explains the agency’s conclusion that the 30 percent incentive level is the appropriate measure for voluntariness.”

Using 30 percent to harmonize its rules with HIPAA’s 30 percent incentive cap was not a sufficient reason, Judge Bates found. HIPAA’s cap was adopted “in a different statute based on different considerations and for different reasons,” and the agency “does not appear to have considered the purpose of the ADA vis-à-vis HIPAA here, or the way in which the 30 percent incentive level operates in the context of the ADA.”

Other reasons for the threshold were similarly “deeply flawed,” the court said, with an unclear reference to “current insurance rates” and support on a single comment letter backing the 30 percent level that contained “largely conclusory statements.”

In addition, the EEOC failed to consider factors relevant to its choice of the 30 percent level, Judge Bates said. “Having chosen to define ‘voluntary’ in financial terms—30 percent of the cost of self-only coverage—the agency does not appear to have considered any factors relevant to the financial and economic impact the rule is likely to have on individuals who will be affected by the rule,” he wrote, such as potentially doubling the cost of health insurance for those who refuse to provide protected information.

“At around $1,800 a year, this is the equivalent of several months’ worth of food for the average family, two months of child care in most states, and roughly two months’ rent,” the court said, referencing the many comments filed expressing concern that the 30 percent level “was likely to be far more coercive for employees with lower incomes, and was likely to disproportionately affect people with disabilities specifically, who on average have lower incomes than those without disabilities.”

Neglecting to consider such a significant problem “again demonstrates the EEOC’s failure to engage meaningfully with the text and purpose of the ADA,” the court wrote.

While recognizing the need for the EEOC’s rules, the court said the agency was unable to justify its decision on how it interpreted the term “voluntary.” “While the court acknowledges that some arbitrary line drawing may be necessary in determining where to set the incentive level, the agency must still point to some evidence in the record that reasonably supports where it chose to draw the line, and it must also respond to ‘substantial criticisms’ of that choice,” the court said. “That has not been the case here.”

Although the court granted the AARP’s motion for summary judgment, the remedy proved tricky given the consequences of vacatur. The rules have already been in force for eight months, and employees who received incentives from their employers would presumably be obligated to pay them back; those who chose to disclose their protected medical information cannot make it confidential again, the court recognized.

Given that vacating the rules in their entirety “appears likely to cause potentially widespread disruption and confusion,” Judge Bates remanded the rules to the EEOC for reconsideration “for the present,” assuming the agency can address the rules’ failings in a timely manner.

To view the opinion in AARP v. EEOC, click here.

Denial of Lateral Transfer Can Be Adverse Employment Action

Why it matters

Denying an employee a lateral transfer can be an adverse employment action, the U.S. Court of Appeals, D.C. Circuit recently held, vacating an earlier panel decision. An employee of the U.S. Department of Housing and Urban Development (HUD), Samuel Ortiz-Diaz, observed what he believed to be a discriminatory work environment, with a supervisor who referred to Hispanic employees as the “hired help,” for example. Ortiz-Diaz asked for a lateral transfer out of the D.C. office where he worked, but his request was denied, despite the fact the agency had a policy of permitting such transfers and other, nonminority employees had their requests granted. He sued, and a district court granted summary judgment in favor of HUD, holding that the denial of a lateral transfer request was not an adverse employment action. Although the D.C. Circuit initially affirmed, the three-judge panel then sua sponte decided to reconsider the case, vacating the initial opinion and reversing the summary judgment ruling. In a new opinion, the court concluded that the denial of an employee’s request for a lateral transfer could be a materially adverse action under Title VII, reversing and remanding the case.

Detailed discussion

Samuel Ortiz-Diaz began his career with the U.S. Department of Housing and Urban Development (HUD) in the Hartford, CT, office, transferring to Washington, D.C., in 2009 with the hopes of enhancing his career prospects. There, Ortiz-Diaz observed what he believed was a discriminatory work environment fostered by a supervisor.

The supervisor referred to Hispanics as “hired help,” said that all Latinos “look alike,” and involuntarily transferred Ortiz-Diaz and an African-American investigator to Mississippi in the wake of Hurricane Katrina over Ortiz-Diaz’s protest, even though nonminority investigators who protested were not transferred. Ortiz-Diaz also learned of discrimination complaints filed against the supervisor by other workers.

Concerned about his future prospects, Ortiz-Diaz requested a transfer to Hartford or Albany pursuant to HUD’s no-cost voluntary transfer program. Involved in the approval process was the allegedly discriminatory supervisor, who denied both requests without explanation. Ortiz-Diaz resigned a few months later and filed a Title VII lawsuit.

A district court judge granted HUD’s motion for summary judgment, ruling that denial of a lateral transfer did not constitute an adverse employment action under the statute. On first review, the U.S. Court of Appeals, D.C. Circuit affirmed. But the three-judge panel then sua sponte decided to reconsider the case and vacated its opinion.

After a second pass at the case, the panel reversed summary judgment in favor of the employer and remanded the case.

“Ortiz-Diaz’s allegation of harm, that he was denied a transfer away from a racially and ethnically biased supervisor to a non-biased supervisor more likely to advance his career, falls within Title VII’s heartland,” the court said. “Although lateral transfers to different positions within a Department offering the same pay and benefits are ordinarily not changes in the ‘terms, conditions, or privileges of employment,’ a discriminatory denial of a lateral transfer away from a biased supervisor can certainly be actionable under Title VII, given the adverse impact on the employee’s potential for career advancement.”

Nothing in the court’s precedent required a contrary result, the panel noted, and other circuits have reached a similar conclusion, including the First, Second and Seventh.

The plaintiff’s Title VII claims “involve far more than a mere dislike of” the supervisor, or a subjective preference to work in another office location, the court wrote. Instead, “Ortiz-Diaz proffered evidence that [the supervisor’s] bias against minorities would have hindered his career advancement if he remained at headquarters, and that a transfer to work under [another boss’s] supervisor would have improved the likelihood that his career could advance based solely on merit.”

Title VII promises Ortiz-Diaz “nondiscriminatory consideration for [a no-cost transfer] where consideration is held out as a privilege of employment,” the court added.

Further, the panel found that the plaintiff provided sufficient evidence to allow a reasonable juror to find in his favor, as he offered his statements about the opportunities available to him at the other offices and the statements made by the supervisor indicating his bias. In addition, HUD confirmed that other discrimination complaints had been made against the supervisor and a coworker filed an affidavit about the supervisor’s bias.

“[I]n the context of Ortiz-Diaz’s particular claim, it logically follows that the stronger his showing that [the supervisor] discriminated against him in denying the transfers, the stronger his claim that remaining with [the supervisor] at headquarters would have materially harmed his career,” the court said.

To read the opinion in Ortiz-Diaz v. U.S. Department of Housing and Urban Development, click here.

NLRB Upholds Retailer’s Rules on Confidential Customer Information

Why it matters

Macy’s rules prohibiting the disclosure of confidential customer information didn’t violate Section 8 of the National Labor Relations Act (NLRA), the majority of a panel of the National Labor Relations Board (NLRB) determined, and employees would not reasonably construe the rules as prohibiting their Section 7 activity. An administrative law judge (ALJ) held that Macy’s rules banning the use or disclosure of customers’ contact information obtained from the employer’s confidential records violated Section 8(a)(1). Employees have a general right to appeal to an employer’s customers for support in a labor dispute, the ALJ said. A divided panel of the NLRB reversed, finding that there were no allegations that the rules explicitly restricted Section 7 rights, were promulgated in response to union activity or had been applied to restrict the exercise of Section 7 rights. Further, employees would not reasonably understand the rules to restrict Section 7 activity, the majority wrote.

Detailed discussion

Included in Macy’s policies were restrictions on the use of confidential information and personal data. The rules defined “confidential information” as “any information, which if known outside the Company could harm the Company or its business partners, customers or employees or allow someone to benefit from having this information before it is publicly known,” with examples such as pricing strategies, business or marketing plans, and documents that show Social Security numbers or credit card numbers.

“Personal data” encompassed names as well as home and office contact information of customers, vendors, and present and former associates.

“We are all trusted to maintain the confidentiality of such information and to ensure that the confidential information, whether verbal, written or electronic, is not disclosed except as specifically authorized,” according to Macy’s policy. “Additionally, it must be used only for the legitimate business of the Company.”

An administrative law judge (ALJ) found that the rules violated Section 8(a)(1) of the National Labor Relations Act (NLRA), as they placed limits on the use of information regarding customers. Employees have a Section 7 right to communicate with customers regarding matters affecting their employment, the ALJ said, and the rules were unlawful because they restricted such communications.

But the National Labor Relations Board (NLRB) disagreed, reversing the ALJ.

“There is no allegation in this case that the rules at issue explicitly restrict Section 7 rights, have been promulgated in response to union activity, or have been applied to restrict the exercise of Section 7 rights, so the question is whether employees would reasonably understand the rules to restrict Section 7 activity,” the majority wrote.

While recognizing that “employees indisputably have a Section 7 right to concertedly appeal to their employer’s customer for support in a labor dispute,” the NLRB found that employees would not reasonably construe the rules to prohibit Section 7 activity.

The “confidential information” rule specifically defines the data to which it applies, and there was no argument that employees have a right to use customers’ Social Security and credit card numbers. As for the scope of “personal data” as defined by the rules, the NLRB pointed out it was limited to only customer names and contact information obtained from Macy’s own confidential records.

“The Act does not protect employees who divulge information that their employer lawfully may conceal,” the majority said. “Thus, the Board has repeatedly held that employees may be lawfully disciplined or discharged for using for organizational purposes information improperly obtained from their employer’s private or confidential records. Consistent with these cases, because [Macy’s] rules only restrict the use or disclosure of confidential customer contact information that the [employer] ‘has’ or ‘maintains,’ they are lawful.”

One member of the panel dissented, arguing that the majority’s interpretation allowed any customer information obtained by an employer and maintained in its files to become protected if so designated by the employer’s policy. The dissent also concluded that Macy’s rules would be reasonably understood by employees to prevent them from contacting customers to appeal for support in connection with their concerted, protected activities.

To read the decision and order in Macy’s, Inc., click here.

Ninth Circuit Punts Search Case to California Supreme Court

Why it matters

Is time spent on the employer’s premises waiting for and undergoing required exit searches of packages or bags voluntarily brought to work by employees purely for personal convenience compensable as “hours worked” within the meaning of California’s Wage Order No. 7? Finding no clear answer, the U.S. Court of Appeals, Ninth Circuit has certified this question to the California Supreme Court. Apple employees filed a putative class action seeking compensation for their time spent waiting for and undergoing the exit searches. A district court certified a class in the suit before granting Apple’s motion for summary judgment, holding that the time spent by the class members was not compensable “hours worked” under state law. The plaintiffs appealed. Unable to find clear controlling California precedent, the federal appellate panel certified the question to the state’s highest court, noting that its interpretation of the Wage Order will have “significant legal, economic, and practical consequences for employers and employees throughout the state.”

Detailed discussion

Five employees of Apple filed a wage-and-hour class action in California federal court, seeking compensation for time spent waiting for and undergoing exit searches pursuant to the employer’s policy. The “Employee Package and Bag Searches” policy states: “All personal packages and bags must be checked by a manager or security before leaving the store.”

Because they must clock out before undergoing a search, workers are not paid for the time spent waiting for and undergoing the exit searches. A district court certified a class of more than 12,000 current and former workers subject to the policy dating back to July 2009.

A few months later, however, the court granted Apple’s motion for summary judgment. The “ability to bring a bag into Apple’s stores is simply an optional benefit with a string attached—the requirement to undergo searches,” the judge wrote.

The plaintiffs appealed, but the U.S. Court of Appeals, Ninth Circuit was stumped. “California law provides no clear answer,” the panel wrote.

California Wage Order No. 7 provides that employers will pay each employee “for all hours worked” in the payroll period. As defined by the Wage Order, “hours worked” means “the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.”

As the class members argued, employees who bring a bag or package to work and must follow the search procedures are clearly under the “control” of the employer while waiting for and during the duration of the search, meaning they are entitled to compensation for their time.

But Apple countered that the search was not “required” as workers may avoid a search by declining to bring a bag or package to work.

Whether an activity is “required” is a flexible concept, the Ninth Circuit said, increasing the uncertainty.

“The case at issue involves only those employees who voluntarily brought bags to work purely for personal convenience,” the court wrote. “It is thus certainly feasible for a person to avoid the search by leaving bags at home. But, as a practical matter, many persons routinely carry bags, purses, and satchels to work, for all sorts of reasons. Although not ‘required’ in a strict, formal sense, many employees may feel that they have little true choice when it comes to the search policy, especially given that the policy applies day in and day out. Because we have little guidance on determining where to draw the line between purely voluntary actions and strictly mandatory actions, we are uncertain on which side of the line Plaintiffs’ claim falls.”

Adding to the conundrum: The “consequences of any interpretation of the Wage Order will have significant legal, economic, and practical consequences for employers and employees throughout the state of California, and it will govern the outcome of many disputes in both state and federal courts in the Ninth Circuit,” the panel noted. “We therefore submit that this question is worthy of decision by the California Supreme Court.”

To read the order in Frlekin v. Apple, 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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