Proudly Presents Its

32nd Annual Labor & Employment Seminar

Half-Day Seminars:

Lynchburg: October 1st Danville: October 8th

Charlottesville: October 10th Richmond: October 17th

Full Day Seminar:

Roanoke: October 22nd

 

 

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About Woods Rogers

The history of Woods Rogers PLC, one of Virginia’s most established law firms, is intricately intertwined with the economic development of Virginia itself. Founded in 1893 in Roanoke, VA, Woods Rogers is a full service law firm serving clients in Virginia, the Mid-Atlantic, throughout the Southeast and elsewhere. Our attorneys represent more than twenty-five, highly integrated practice areas. Our professionals provide legal solutions to an array of industries, representing a cross-section of the economy of the geographic areas we serve. Our services and solutions are custom-tailored to meet the varied requirements of major corporations, small and mid-sized businesses, entrepreneurs and start-up ventures and individuals.

The Woods Rogers culture has been based on a firm belief that knowledge of client needs and communication are the key elements to establishing multi-generational relationships. By “partnering” with our clients, we are able to understand their current and long-term needs and provide counsel, guidance and solutions that anticipate and adjust to meet the client’s ongoing objectives.

We strive to maintain a proactive approach by providing our clients with information on the latest legal developments and explaining how those changes will affect their business environments. This allows us to function as an extension of the client’s team and enables us to transcend the traditional attorney/client relationship and develop a partnership based on measurable value.

It has been a long-held tradition at Woods Rogers to be active in civic and community affairs. Since our inception, our professionals have maintained the belief that the communities which we serve have been generous to us, and we have a corporate responsibility to give back. In any given year, we contribute both time and money to more than one hundred organizations serving various constituencies in the communities in which we practice.

 

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Labor & Employment Practice Group

Woods Rogers' Labor and Employment Law Group is a leader in its field and is committed solely to management concerns. We offer relentless support and commitment toward all client goals and dedicate ourselves to providing the best communication and comprehensive research. The Labor & Employment Law Group has many years of combined expertise allowing it to provide quality and value to clients in all aspects of workplace law.

Employment Litigation Defense

Discrimination and Harassment

Wage and Hour

Wrongful Discharge

Unemployment/Workers’ Compensation

EEOC and DOL Representation

Employee Benefits

Labor Law Representation

Union Avoidance and Decertification

Collective Bargaining

Grievances and Arbitrations

Strike-Related Activities

NLRB Proceedings

Employment Law Counseling

Applications and Handbooks

Non-Compete Agreements

Employment Contracts

Business Immigration

Affirmative Action Issues

DOT and OSHA Compliance

Employee Benefits Issues

Training Seminars

HR Audits

The group serves management in virtually all commercial sectors, from Fortune 100 to emerging high-tech enterprises, ranging from two to more than 25,000 employees.

 

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Corporate and Business Law

Businesses are faced with rapid changes in technologies and increased competitive pressures. Growing and protecting your business and its assets in a changing environment is crucial to success.

Woods Rogers’ Corporate and Business Law Group of nearly two dozen attorneys serves almost all commercial sectors and specializes in providing representation related to:

Administrative & Regulatory Law

Antitrust & Trade Regulation Counseling

Business Operations

Business Succession Planning

Corporate Services

Education

Employee Compensation

Export & Import Regulations

Mergers & Acquisitions

Nonprofit Organizations

Public Utilities & Energy

 

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Litigation

The trial lawyers of Woods Rogers concentrate their practices in commercial litigation representing business and industry.

The Litigation Section of Woods Rogers is structured into a number of subsections to enable us to provide to our clients attorneys who have experience in various types of cases. An individual trial lawyer may handle a case in many of the areas identified, or teams may be created for a particular action where a broad range of experience is needed for the case.

When any suit is undertaken by Woods Rogers, the case is matched to the lawyer or team of lawyers best suited to handle the case. This decision is made in consultation with the client after assessing the complexity, risk, case schedule and the client’s goals and desires.

Woods Rogers makes extensive use of computer support in handling its cases and relies on Paralegal support to organize and carry out many case-handling tasks. We use Summation® as our primary case-handling software, and take full advantage of other available technologies for case preparation and trial presentation.

Woods Rogers handles cases throughout Virginia routinely in both state and federal court and handles cases state wide and elsewhere around the country. The types of cases Woods Rogers handles for commercial clients from business and industry include:

Antitrust

Appellate

Commercial Litigation

Construction Law

Insurance Coverage

Intellectual Property

Medical Malpractice

Products Liability

Transportation

General Civil Litigation

Professional Liability

 

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Full Day Seminar Agenda

8:30 - 9:30 Legal Update What's Hiding Under Your Bed?

9:30 – 10:25 Strange Case of the NLRB, DOL, and EEOC Jekyll or Hyde?

10:30 - 10:45 Break 10:45 - 11:45 Safeguarding Your Assets 11:45 - 12:50 Lunch 1:00 - 1:30 Immigration What You Don't Know CAN Hurt You!

1:30 - 2:30 Face Your Fears: The ACA is Here 2:30 - 3:30 Organizational Change Trick or Treat?

3:30 - 3:45 Break 3:45 - 4:30 The Beast is Lurking How to Handle Troublesome Employees

4:30 Q&A Session

 

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Half Day Seminar Agenda

8:30 - 9:00 Legal Update What's Hiding Under Your Bed?

9:00 – 10:00 Strange Case of the NLRB, DOL, and EEOC Jekyll or Hyde?

10:00 - 10:15 Break 10:15 - 10:45 Safeguarding Your Assets 10:45 – 11:15 Face Your Fears: The ACA is Here 11:15 – 11:45 Organizational Change Trick or Treat?

11:45 – 12:15 The Beast is Lurking How to Handle Troublesome Employees

12:15 Q&A Session

 

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TABLE OF CONTENTS

LEGAL UPDATE: WHAT'S HIDING UNDER YOUR BED? ..................................................................................... 1 

I.  THE UNITED STATES SUPREME COURT .................................................................................................. 2 

II.  THE FOURTH CIRCUIT ................................................................................................................................ 7 

III.  VIRGINIA SUPREME COURT ....................................................................................................................... 9 

STRANGE CASE OF THE NLRB, DOL, AND EEOC: JEKYLL OR HYDE? ................................................................. 11 

I.  THE UNITED STATES DEPARTMENT OF LABOR (“DOL”)....................................................................... 12 

II.  THE NATIONAL LABOR RELATIONS BOARD (“NLRB”) ........................................................................... 26 

III.  SOCIAL MEDIA DEVELOPMENTS ............................................................................................................. 33 

IV.  USE OF ARREST AND CONVICTION RECORDS IN EMPLOYMENT DECISIONS .................................. 37 

V.  THE AMERICANS WITH DISABILITIES ACT ............................................................................................. 46 

VI.  OTHER DEVELOPMENTS .......................................................................................................................... 54 

SAFEGUARDING YOUR ASSETS ..................................................................................................................... 57 

I.  INTRODUCTION ......................................................................................................................................... 58 

II.  NON-COMPETE AGREEMENTS ................................................................................................................ 58 

III.  NON-SOLICITATION AGREEMENTS ......................................................................................................... 69 

IV.  NON-DISCLOSURE AGREEMENTS .......................................................................................................... 73 

V.  ENFORCEMENT AND DEFENSE OF RESTRICTIVE COVENANTS ......................................................... 76 

IMMIGRATION: WHAT YOU DON'T KNOW CAN HURT YOU! ......................................................................... 79 

I.  E-VERIFY .................................................................................................................................................... 80 

FACE YOUR FEARS: THE ACA IS HERE! ........................................................................................................... 87 

II.  THE ACA: A SUMMARY ............................................................................................................................. 88 

III.  EMPLOYER COVERAGE REQUIREMENTS .............................................................................................. 90 

IV.  EMPLOYER REPORTING REQUIREMENTS ........................................................................................... 100 

V.  APPLICATION FOR EXCHANGE COVERAGE ........................................................................................ 103 

VI.  OSHA AND THE AFFORDABLE CARE ACT ............................................................................................ 107 

ORGANIZATIONAL CHANGE: TRICK OR TREAT? ........................................................................................... 113 

I.  HR CONSIDERATIONS IN MERGERS, ACQUISITIONS AND BUSINESS CONSOLIDATIONS ............. 114 

II.  RIF CONSIDERATIONS ............................................................................................................................ 120 

III.  WARN ACT CONSIDERATIONS .............................................................................................................. 124 

THE BEAST IS LURKING: HOW TO HANDLE TROUBLESOME EMPLOYEES ...................................................... 137 

I.  HOW TO GUARD AGAINST HIRING THE BEAST? ................................................................................. 138 

II.  HOW TO TAME THE BEAST: COACHING AND COUNSELING AND PROGRESSIVE DISCIPLINE ..... 140 

III.  HOW TO GET RID OF THE BEAST WITHOUT GETTING BITTEN: SIX DANGER SIGNALS ................ 144 

ATTORNEY BIOGRAPHIES ........................................................................................................................... 149 

 

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Legal Update: What's Hiding Under Your Bed?

The Supreme Court, the Fourth Circuit, and Virginia state courts have decided cases that could haunt your business if you aren't aware of the changes. Sleep soundly knowing that your

business is on the right track and how to avoid costly setbacks in the current legal climate.

Presented By:

Thomas R. Bagby

RJ Lackey

 

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The Supreme Court, the Fourth Circuit, and Virginia state courts have decided cases that could haunt your business if you aren't aware of the changes. Sleep soundly knowing that your business is on the right track and how to avoid costly setbacks in the current legal climate.

I. THE UNITED STATES SUPREME COURT

A. TITLE VII

1. “But For” Retaliation Standard

University of Texas Southwestern Medical Center v. Nassar, 133 S.Ct. 2517 (2013). The university medical center (University), that is part of the University of Texas system, specializes in medical education. It has an affiliation agreement with Parkland Memorial Hospital (Hospital), which requires the Hospital to offer vacant staff physician posts to University faculty members. Nassar, a physician of Middle Eastern descent who was both a University faculty member and a Hospital staff physician, claimed that Dr. Levine, one of his supervisors at the University, was biased against him on account of his religion and ethnic heritage. He complained to Dr. Fitz, Levine's supervisor. After he arranged to continue working at the Hospital without also being on the University's faculty, he resigned his teaching post and sent a letter to Fitz and others, stating that he was leaving because of Levine's harassment. Fitz, upset at Levine's public humiliation and wanting public exoneration for her, objected to the Hospital's job offer, which was then withdrawn.

Nassar filed suit, alleging two discrete Title VII violations. First, he alleged that Levine's racially and religiously motivated harassment had resulted in his constructive discharge from the University, in violation of 42 U.S.C. § 2000e-2(a) of Title VII, which prohibits an employer from discriminating against an employee "because of such individual's race, color, religion, sex, and national origin" (referred to as status-based discrimination). Second, he claimed that Fitz's efforts to prevent the Hospital from hiring him were in retaliation for his complaining about Levine's harassment, in violation of §2000e-3(a), which prohibits employer retaliation "because [an employee] has opposed . . . an unlawful employment practice . . . or . . . made a [Title VII] charge." The jury found for Nassar on both claims. The Fifth Circuit vacated as to the constructive-discharge claim, but affirmed as to the retaliation finding on the theory that retaliation claims brought under §2000e-3(a) – like §2000e-2(a) status-based claims – require only a showing that retaliation was a "motivating factor" for the adverse employment action, not its "but-for" cause. It found that the evidence supported a finding that Fitz was motivated, at least in part, to retaliate against Nassar for his complaints about Levine.

 

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The Supreme Court held that Title VII retaliation claims must be proved according to traditional principles of "but-for" causation, not the "motivating factor" test. In defining the proper causation standard for Title VII retaliation claims, the Court presumed that Congress incorporated tort law's causation in fact standard - i.e., proof that the defendant's conduct did in fact cause the plaintiff's injury – absent an indication to the contrary in the statute itself. The Supreme Court concluded that Title VII retaliation claims require proof that the desire to retaliate was the "but-for" cause of the challenged employment action. Lessening the causation standard could contribute to the filing of frivolous claims, siphoning resources from efforts by employers, agencies, and courts to combat workplace harassment.

2. Supervisor Must Be Empowered to Take Tangible Employment Actions

Vance v. Ball State Univ., 133 S.Ct. 2434 (2013). Under Title VII, an employer's liability for workplace harassment may depend on the status of the harasser. If the harassing employee is the victim's co-worker, the employer is liable only if it was negligent in controlling working conditions. In cases in which the harasser is a "supervisor," however, different rules apply. If the supervisor's harassment culminates in a tangible employment action (i.e., "a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significant different responsibilities, or a decision causing a significant change in benefits," Burlington Industries, Inc. v. Ellerth, 524 U.S. 742), the employer is strictly liable. But if no tangible employment action is taken, the employer may escape liability by establishing, as an affirmative defense, that (1) the employer exercised reasonable care to prevent and correct any harassing behavior and (2) that the plaintiff unreasonably failed to take advantage of the preventive or corrective opportunities that the employer provided.

Vance, an African-American woman, sued her employer, Ball State University (BSU), alleging that a fellow employee, Saundra Davis, created a racially hostile work environment in violation of Title VII. The District Court granted summary judgment to BSU. It held that BSU was not vicariously liable for Davis' alleged actions because Davis, who could not take tangible employment actions against Vance, was not a supervisor. The Seventh Circuit affirmed.

The Supreme Court held that an employee is a "supervisor" for the purposes of vicarious liability under Title VII only if he or she is empowered by the employer to take tangible employment actions against the victim. The answer to the question presented in this case is implicit in the characteristics of the framework that the Court adopted in Ellerth and Faragher, which draws a sharp line between co-workers and supervisors

 

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and implies that the authority to take tangible employment actions is the defining characteristic of a supervisor.

This approach will not leave employees unprotected against harassment by co-workers who possess some authority to assign daily tasks. In such cases, a victim can prevail simply by showing that the employer was negligent in permitting the harassment to occur, and the jury should be instructed that the nature and degree of authority wielded by the harasser is an important factor in determining negligence. The definition adopted accounts for the fact that many modern organizations have abandoned a hierarchical management structure in favor of giving employees overlapping authority with respect to work assignment.

B. FEDERAL ARBITRATION ACT

1. Enforceability of Non-Compete Agreement Must Be Decided By Arbitrator, Not Court

Nitro-Lift Technologies, L.L.C. v. Howard, 133 S.Ct. 500 (2012). This dispute arose from a contract between Nitro-Lift Technologies, L.L.C., and two of its former employees. Nitro-Lift contracts with operators of oil and gas wells to provide services that enhance production. Howard and Schneider entered into a confidentiality and noncompetition agreement with Nitro-Lift that contained the following arbitration clause:

Any dispute, difference or unresolved question between Nitro-Lift and the Employee (collectively the "Disputing Parties") shall be settled by arbitration by a single arbitrator mutually agreeable to the Disputing Parties in an arbitration proceeding conducted in Houston, Texas in accordance with the rules existing at the date hereof of the American Arbitration Association. Howard and Schneider quit and began working for one of Nitro-Lift's competitors. Claiming that Howard and Schneider had breached their noncompetition agreements, Nitro-Lift served them with a demand for arbitration. Howard and Schneider then filed suit in the District Court of Johnston County, Oklahoma, asking the court to declare the noncompetition agreements null and void and to enjoin their enforcement. The court dismissed the complaint, finding that the contracts contained valid arbitration clauses under which an arbitrator, and not the court, must settle the parties' disagreement. The Oklahoma Supreme Court ordered the parties to show cause why the matter should not be resolved by application of Okla. Sta. Tit. 15, §219A (West 2011), which limits the enforceability of noncompetition agreements. Nitro-Lift argued that any dispute as to the contracts' enforceability was a

 

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question for the arbitrator. It relied for support – as it had done before the trial court –on several Supreme Court's cases. The Oklahoma Supreme Court held that despite the Supreme Court cases on which the employers relied, the "existence of an arbitration agreement in an employment contract does not prohibit judicial review of the underlying agreement." The Oklahoma Supreme Court declared that its decision rested on adequate and independent state grounds. The U.S. Supreme court vacated the state court decision. In doing so, the Supreme Court stated that state courts, rather than federal courts, are most frequently called upon to apply the Federal Arbitration Act (FAA), 9 U.S.C. §1 et seq., including the Act's national policy favoring arbitration. It is a matter of great importance, therefore, that state supreme courts adhere to a correct interpretation of the legislation. Here, the Oklahoma Supreme Court failed to do so. By declaring the noncompetition agreements in two employment contracts null and void, rather than leaving that determination to the arbitrator in the first instance, the state court ignored a basic tenet of the Act's substantive arbitration law. The Oklahoma Supreme Court's decision disregards the Court's precedents on the FAA. That Act, which "declare[s] a national policy favoring arbitration," Southland Corp. v. Keating, 465 U.S. 1, 10 (1984), provides that a "written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." This principle requires that the decision below be vacated. The trial court found that the contract contained a valid arbitration clause, and the Oklahoma Supreme court did not hold otherwise. It nonetheless assumed the arbitrator's role by declaring the noncompetition agreements null and void. The Oklahoma Supreme Court, however, must abide by the FAA, which is "the supreme Law of the Land."

C. 2013-14 Term – Pending Labor and Employment Cases

1. Sarbanes-Oxley Act – Private Contractor Whistleblower Protections

Lawson v. FMR, LLC, No. 12-3, cert. granted, 133 S.Ct. 2387 (2013). The Supreme Court will decide whether the whistleblower protections of the Sarbanes-Oxley Act ("SOX") apply to employees of privately held contractors and subcontractors of public companies.

 

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FMR is a publicly traded company. Lawson and Zane were employees of FMR's privately held subsidiaries. After allegedly being retaliated against for reporting mistakes and misconduct involving mutual funds, Lawson and Zane brought suit against FMR alleging it had violated SOX, which prohibits publicly traded companies from discriminating against an employee for lawfully engaging in certain protected activity. The Supreme Court granted the petition for certiorari and will decide whether employees of private companies who contracted or subcontract with public companies are covered under SOX.

2. Labor Management Relations Act – Neutrality Agreement

Unite Here Local 355 v. Mulhall, No. 12-99, cert. granted, 133 S.Ct. 2849 (2013). The Supreme Court will decide whether an employer violates Section 302 of the Labor Management Relations Act (LMRA), 29 U.S.C. § 186, by agreeing to remain neutral, grant the union limited access to its property, and recognize the union upon a showing of majority support, in exchange for the union agreeing not to picket, boycott, or impose any other economic pressure upon the employer's business. The circuits are split on this issue.

3. Fair Labor Standards Act – "Donning and Doffing"

Sandifer v. U. S. Steel Corp., cert. granted 133 S.Ct. 1240 (2013). The Supreme Court granted review to clarify the meaning of "changing clothes" as it is used in Section 203(o) of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 203(o). The statute provides that employees shall not be compensated for "any time spent in changing clothes or washing at the beginning or end of each workday which was excluded from measured working time … by the express terms of or by custom or practice under a bona fide collective-bargaining agreement applicable to the particular employee." The statue does not define "clothes" or "changing clothes." Employees at U.S. Steel brought a collective action under the FLSA claiming they should have been paid for time spent changing into their work clothes and traveling back and forth to the locker room.

4. National Labor Relations Act – Recess Board Appointments

NLRB v. Noel Canning, No. 12-1281, cert. granted, 133 S.Ct. 2861 (2013). The Supreme Court will decide the validity of President Obama's 2012 intrasession recess appointments to the National Labor Relations Board ("NLRB"). On January 4, 2012, while the Senate was in a pro forma session, a time when a single senator sometimes appeared in chambers every third day, President Obama appointed Sharon Block, Terence F. Flynn, and Richard F. Griffin to the NLRB.

 

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The D.C. Circuit decided that the President's recess appointments to the NLRB were unconstitutional because the Constitution's Recess Appointments Clause only allows appointments during intersession congressional recesses (i.e., the period between one congress and the next), and only when such vacancies arise during such recess. Since the D.C. Circuit issued its opinion in Noel Canning, the Third and Fourth circuits also have held that the three intrasession appointments were unconstitutional. Because all recess appointments to the NLRB during the Obama Administration have been intrasession, the Supreme Court's ruling could invalidate more than 1,200 published and unpublished decisions.

II. THE FOURTH CIRCUIT

A. AMERICANS WITH DISABILITIES ACT (ADA)

1. Sleepless Lawyer May Not Recover

Anderson v. Discovery Communications, LLC, 2013 WL 1364345 (4th Cir. April 5, 2013). From August 2004 to January 2007, Discovery employed Anderson as an attorney in Discovery's Legal Department. Although Anderson received praise for her strong technical, legal, and drafting skills, her annual performance reviews repeatedly indicated needs for improvement in areas such as "effectively organizing, planning, and prioritizing work," working on her demeanor and tone, and in developing her interpersonal skills with both colleagues and clients. In October 2006, Anderson became ill and visited a doctor, who advised her that she may have a sleep impairment. Anderson requested and was granted FMLA leave during which time she consulted with her personal physician, Dr. Cullen, and a sleep specialist, Dr. Tucker. The physicians determined that Anderson's laboratory and sleep test results were normal, and excluded sleep apnea as a diagnosis. Because Anderson reported she was only sleeping between two and four hours each night, the physicians concluded she likely suffered from "fatigue," "sleep deprivation," and "insomnia." Anderson returned to Dr. Cullen, and based on Anderson's statements indicating that her overall condition was improving, Dr. Cullen recommended that she return to full duty with her hours restricted to 8 hours per day. In two follow-up appointments with Dr. Tucker, Dr. Tucker indicated that he placed "no restrictions" on Anderson's ability to work, and that he had no reason to believe she was "significantly impaired" at that point.

 

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When she returned to work, Anderson asked her supervisors to be allowed a maximum 8-hour work day. At her request, Anderson submitted a proposal, but only committed to work in the office between 11 a.m. and 4 p.m. She also stated she would not track her personal, break, or lunch time or account for her specific workload unless other members of the group also were required to do so. Anderson's supervisors reviewed the proposal and denied her request, stating that the proposal would not enable her to perform the responsibilities of her job, which included a 40-hour minimum work week, presence in the office during core business hours, and flexibility to work outside those hours as transactions required. On January 3, 2007, Discovery informed Anderson that her employment was terminated. The Fourth Circuit held that the evidence did not support the conclusion that she was "substantially impaired" at the time Discovery terminated her employment. Anderson's own doctors recounted that during their appointments with her in late November and mid-December, Anderson stated that her condition had "improved since time off" and that despite getting "much less sleep than what she had historically," she "awakes feeling fully refreshed," was "functioning normally," and was not "feeling any functional impairment as a result" of getting less sleep. In addition, Anderson's sleep test results were "normal" and she slept "more than seven hours." Dr. Tucker specifically indicated that as of Anderson's appointment with him on December 19, there was no bases "from a sleep standpoint" to place Anderson on disability because her functioning was not significantly impaired as of late November.

B. THE NATIONAL LABOR RELATIONS ACT (NLRA)

1. NLRB's Workers' Rights Notice Invalid

Chamber of Commerce v. NLRB, 2013 WL 2678592 (4th Cir. June 14, 2013). The National Labor Relations Board (the "NLRB" or the "Board"), after notice and comment, promulgated a rule that required employers subject to the NLRA to post an official Board notice informing employees of their rights under the Act. Any employer failing to post the notice would be subject to: (1) a finding that it committed an unfair labor practice; (2) a tolling of statutes of limitation for charges of any other unfair labor practices; and (3) a finding of antiunion animus that would weigh against it in any proceedings before the Board The Chamber of Commerce of the United States and the South Carolina Chamber of Commerce sought review of the rule. The district court determined that in promulgating the notice-posting rule, the Board exceeded its authority, in violation of the Administrative Procedure Act (the "APA").

 

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The Fourth Circuit agreed that the rule-making function provided for in the NLRA, by its express terms, only empowers the Board to carry out its statutorily defined reactive roles in addressing unfair labor practice charges and conducting representation elections upon request. Indeed, there is no function or responsibility of the Board not predicated upon the filing of an unfair labor practice charge or a representation petition. The Court further noted that Congress, despite having enacted and amended the NLRA at the same time it was enabling sister agencies to promulgate notice requirements, never granted the Board the statutory authority to do so. The Fourth Circuit therefore held that the Board exceeded its authority in promulgating the challenged rule.

III. VIRGINIA SUPREME COURT

VanBuren v. Grubb, 284 Va. 584, 733 S.E.2d 919 (Va. 2012). VanBuren was employed as a nurse by Virginia Highlands Orthopedic Spine Center, LLC. Soon after she joined Virginia Highlands, VanBuren was subjected to sexual harassment by her supervisor, Virginia Highland's owner Dr. Stephen Grubb. He would "hug her, rub her back, waist, breast and other inappropriate areas, and attempt to kiss her." Dr. Grubb suggested during a closed-door meeting that VanBuren leave her husband so she "could accept his love for what it was and what it could be." A few days later, Dr. Grub called VanBuren into his office and asked whether she planned to stay with her husband. When she responded in the affirmative, he fired her. VanBuren filed suit in federal court, asserting a claim for gender discrimination against Virginia Highlands under Title VII, and asserting a claim for wrongful discharge against Dr. Grubb and Virginia Highlands. As to the latter claim, she alleged she had been discharged from Virginia Highlands because she had refused to engage in criminal conduct – specifically, adultery in violation of Code § 18.2-365 and open and gross lewdness and lasciviousness in violation of Code § 18.2-345. The district court granted the motion to dismiss as to Dr. Grubb, "conclud[ing] that, were the Virginia Supreme Court to directly address this issue, it would find that wrongful discharge claims by an employee are cognizable only against the employer and not against supervisors or co-employees in their individual capacity." VanBuren appealed to the Fourth Circuit. The Fourth Circuit determined it could not predict with confidence how the Virginia Supreme Court would rule as to whether a wrongful discharge claim is cognizable against an individual such as Dr. Grubb. The Fourth Circuit accordingly certified the question to the Virginia Supreme Court, and the Supreme Court accepted the case. The Supreme Court exercised its discretion to restate the question as follows:

Does Virginia law recognize a common law tort claim for wrongful discharge in violation of established public policy against an individual who was not the

 

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plaintiff's actual employer but who was the actor in violation of public policy and who participated in the wrongful firing of the plaintiff, such as in the capacity of a supervisor or manager?

Because Grubb was her supervisor and owner of the company, the Supreme Court concluded that, if her allegations are proven, he too should be subject to liability, just as he would be had he engaged in any other tortious conduct. Limiting liability to the employer would follow a contract construct. Wrongful discharge, however, is an action sounding in tort. The Supreme Court concluded that Virginia recognizes a common law tort claim of wrongful discharge in violation of established public policy against an individual who was not the plaintiff's actual employer but who was the actor in violation of public policy and who participated in the wrongful firing of the plaintiff, such as a supervisor or manager.

 

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Strange Case of the NLRB, DOL, and EEOC: Jekyll or Hyde?

These agencies have spent the past year making some interesting changes. Find out how union-friendly the NLRB'S focus on non-union employers, where DOL priorities lie, how to

handle gender identity issues, gender compensation discrepancies, and how far your social media policies can go. We'll also make sure you leave with a checklist covering wage and hour

issues, background checks, ADA accommodations and recruitment/hiring barriers, to make sure that you stay on track all year long. You decide, Jekyll or Hyde?

Presented By:

Victor O. Cardwell

Dudley F. Woody

Frank H. Hupfl, III

Elizabeth Hope Cothran

 

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I. THE UNITED STATES DEPARTMENT OF LABOR (“DOL”)

A. Who They Are

The stated Mission of the DOL is “[t]o foster, promote, and develop the welfare of the wage earners, job seekers, and retirees of the United States; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits and rights.”

B. What They Do

The Department of Labor (DOL) administers and enforces more than 180 federal laws. These mandates and the regulations that implement them cover many workplace activities for approximately 10 million employers and 125 million workers. The following is a brief description of the areas enforced by DOL that are most commonly applicable to businesses, job seekers, workers, retirees, contractors and grantees.

1. Wages & Hours - The Fair Labor Standards Act (“FLSA”)

2. Workplace Safety & Health

The Occupational Safety and Health Act which is administered by the Occupational Safety and Health Administration (“OSHA”)

3. Workers’ Compensation

4. Employee Benefit Security

Employee Retirement Income Security Act (“ERISA”); Comprehensive Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and the health care portability requirements on group plans under the Health Insurance Portability and Accountability Act (“HIPAA”)

5. Unions & Their Members - The Labor-Management Reporting and Disclosure Act (“LMRDA”)

6. Employee Protection

7. Uniformed Services Employment and Reemployment Rights Act (“USERRA”)

8. Employee Polygraph Protection Act

9. Garnishment of Wages - Consumer Credit Protection Act (“CPCA”)

 

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10. The Family and Medical Leave Act (“FMLA”)

11. Veterans’ Preference

12. Government Contracts, Grants, or Financial Aid

13. Migrant & Seasonal Agricultural Workers

14. Mine Safety & Health

15. Construction

16. Transportation

17. Plant Closings & Layoffs

C. FLSA DEVELOPMENTS

1. Vulnerable Workers

a. Overview

2013 saw—and 2014 will likely mirror—the DOL's continued effort to concentrate enforcement against businesses that employ "vulnerable" workers. The DOL identifies vulnerable employees as those workers who operate in industries that typically utilize subcontracting, franchising, temporary employment, independent contracting, and other contingent workforce characteristics. The DOL also considers young workers, agricultural workers, workers with disabilities, and those workers employed in situations in which the applicable federal labor law does not provide them with opportunities to pursue remedies on their own accord as "vulnerable."

b. Recent Activity

If the recent case law is any indication, the DOL intends to make good on its promise to ramp up enforcement in these industries.

In July 2013, the DOL secured a $275,000 judgment in back wages and liquidated damages against an agricultural employer on behalf of 174 workers.

Three Boston-area restaurants agreed in June to pay a combined total of $205,380 in back wages and liquidated damages to 13 kitchen employees after the DOL found violations of the FLSA's overtime and record-keeping provisions.

 

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In July 2013, the DOL filed lawsuit against a New Jersey grocery store for violation of child labor provisions of the FLSA after a 17-year-old minor suffered the amputation of his right arm below the elbow when it was crushed by a meat grinder he was operating in the store. DOL investigators found that the minor used, operated and handled a meat grinder daily as part of his job duties in the butcher section of the store, in violation of the FLSA’s Hazardous Occupations Order No. 10. The DOL is seeking a penalty of $40,000 for the violation.

A produce storage and packaging facility agreed to pay $498,604 in back wages and liquidated damages following a DOL investigation. The DOL determined that the Company utilized a temporary employment agency and improperly failed to compensate the temporary workers for all hours worked.

2. Misclassification of Workers

a. Overview

The misclassification of workers as independent contractors continues to be an area that the DOL is cracking down on in 2013, and expect to see the same in 2014. The IRS, DOL, and state governments are now cooperating to reduce the misclassification of workers. The stakes at risk are high: the DOL estimates that approximately 30% of employers incorrectly classify their workers as independent contractors or improperly exempt. The IRS has also made the issue a priority, noting a recent Government Accountability Agency report finding that it costs the government agency billions of dollars a year in tax revenue. "Misclassification of workers as independent contractors is a serious threat to their livelihood. Misclassifying workers also undercuts responsible employers who must compete with unscrupulous employers who do not obey the law," said acting Secretary of Labor Seth D. Harris. "The Department of Labor is committed to ensuring that employees are classified properly so that they receive both the pay they rightfully earn and the protections to which they are entitled — including minimum and overtime wages, family and medical leave, and unemployment insurance."

b. Test for Independent Contractor

The IRS has issued its 20 factor test that they will use in analyzing whether a worker should be classified as an employee rather than an independent contractor. Those factors are:

 

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i. Does the company provide instructions on how the job

should be performed, when it should be performed and where it should be performed?

ii. Training provided by the company;

iii. Providing services as a contractor that are similar to or integrated with the tasks performed by employees;

iv. Clerical and administrative support provided by the company including paying, hiring and supervising assistants;

v. Requiring the personal service and prohibiting delegation or subcontracting by the contractor;

vi. A long-term continuing relationship;

vii. The company sets the hours that the individual works;

viii. Requiring the individual to work full-time for the company;

ix. Requiring the individual to work only on the company’s premises;

x. Requiring the individual to perform tasks in a certain order;

xi. Requiring the individual to provide oral or written reports to management;

xii. Payment by the hour, day or month or on a commission basis;

xiii. Payment by the company of all expenses incurred by the individual;

xiv. Tools and equipment provided by the company;

xv. Little or no investment by the individual in his or her “business”;

xvi. Little or no risk on the part of the individual with respect to profit or loss;

xvii. Working exclusively for the company;

 

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xviii. Absence of advertising or other public promotion of the individual’s services or otherwise making the individual’s services available to the public;

xix. Right of the company to terminate the individual “at will”; and

xx. Right of the individual to terminate the relationship without penalty.

3. Recent Activity

This year has seen large payouts for employers who attempt to improperly classify employees as independent contractors. The DOL has been aggressively pursuing misclassification claims on both a regional and national scale. The DOL recently secured a $1.3 million verdict on behalf of 14,000 current and former employees against an international provider of directory assistance and enhanced information services. The Court found that the company misclassified employees as independent contractors and paid employees a piece rate based on the number of leads they responded to, without regard to the number of hours they worked. In May, the DOL obtained a consent judgment from a Kentucky-based internet service installation company in the amount of $1,075,000 on behalf of 196 employees. The federal court hearing the case found that the company had misclassified 77 employees as independent contractors and denied those employees and others overtime compensation under the Act. In late 2012, a Woodbridge, Virginia construction company agreed to pay $101,007 in back wages to 120 employees after the DOL found that the company misclassified employees as independent contractors and failed to pay them proper overtime.

D. Administrative Interpretations

Recently the Wage and Hour Administrator has decided to issue Administrator Interpretations when determined, in the Administrator’s discretion, that further clarity regarding the proper interpretation of a statutory or regulatory issue is appropriate. The Administrator believes that these “Administrative Interpretations” will better serve the greater good than addressing “fact-specific requests for opinions letters.” What you don’t know is that those “Administrative Interpretations” will provide you with little to no force or effect in the teeth of a wage and hour investigation like a well-timed opinion letter once would have done.

 

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1. ADVANCED FMLA (Family and Medical Leave Act of 1993) ISSUES

E. Recent Developments

On March 8, 2013, a Final Rule requiring several changes to the FMLA regulations became effective, including military caregiver leave for a veteran, qualifying exigency leave for parental care, and the special leave calculation method for flight crew employees. The changes to the FMLA include:

Under Qualifying Exigency Leave, "covered military member" includes members of the National Guard, Reserves, and Regular Armed Forces;

Under Qualifying Exigency Leave, "active duty" is now "covered active duty" and requires deployment to a foreign country;

Under Qualifying Exigency Leave, eligible employees may take leave to care for a military member’s parent who is incapable of self-care when the care is necessitated by the member’s covered active duty;

Under Qualifying Exigency Leave, an eligible employee may take up to 15 calendar days for Rest and Recuperation;

Under Military Caregiver Leave, "covered servicemember" includes covered veterans who are undergoing medical treatment, recuperation, or therapy for a serious injury or illness;

Under Military Caregiver Leave, a "covered veteran" is an individual who was not dishonorably discharged during the five-year period prior to the first date the eligible employee takes FMLA leave to care for the covered veteran;

Increased coverage for "serious injuries" related to both current servicemembers and covered veterans;

Changes in certification requirements for Qualifying Exigency and Military Caregiver Leave.

F. General Provisions of the Act.

Provides eligible employees the right to take unpaid leave, or paid leave if it has been earned, for a period up to 12 weeks in any 12 month period. Up to 26 weeks are available for the care of a covered service member recovering from a serious illness or injury sustained in the line of duty on active duty.

 

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G. Application.

Covers employers with 50 or more employees for each working day during each of 20 or more calendar weeks in the current or preceding calendar year who engage in commerce or any industry affecting commerce.

H. FMLA – Qualifying Leave.

1. Unpaid leave, or paid leave if earned, for a period up to 12 workweeks in any 12 month period for:

Birth of a child or the placement of a child for adoption or foster care

Serious health condition of a family member

Employee’s own serious health condition

2. New Law adds 2 new categories of leave:

Military Caregiver Leave (also known as Covered Servicemember Leave)

Family members of covered servicemembers can take 26 weeks to care for a covered servicemember with a serious illness or injury incurred in the line of duty on active duty. (Family Member = spouse, son, daughter, parent or next of kin) Qualifying Exigency Leave must provide 12 weeks of leave for qualifying exigencies arising out of the fact that the employee’s spouse, son, daughter, or parent is on covered active duty, has been notified of an impending call or order to covered active duty, or is incapable of self-care when the care is necessitated by the member's covered active duty. Available to family members of a member of the National Guard, Reserves or Armed Forces.

Qualifying Exigencies include:

i. Issues related to short notice deployment;

ii. Military events and related activities;

iii. Certain childcare and related activities;

iv. Making or updating financial or legal arrangements;

v. Attending counseling;

 

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vi. Take up to 15 days leave to spend during short term leave;

vii. Post deployment activities;

viii. Any other event that employee and employer agree.

3. Employers Covered by the FMLA.

Engages in commerce

Employs 50 or more employees for each working day for 20 or more calendar workweeks

Any employee whose name appears on the payroll will be considered employed each working day of the calendar week

Employees on leave are counted

4. Who is Eligible?

Employed by employer for at least 12 months Employed for at least 1,250 hours of service during preceding 12-

month period Employed at work site where 50 or more employees are employed

within 75 miles of work site

I. Requirements:

1. For birth of a son or daughter, and to care for the newborn child

Leave may be taken before the date of birth of a child (husband v. father)

Biological, adopted, foster child, stepchild, legal ward or child of a person standing in loco parentis

Must be taken within one year

 

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2. To care for employee’s spouse, son, daughter or parent with a serious health condition

Physical and psychological care Family member is unable to care for his or her own self Needed to fill in for others caring for family member Spouse defined by state law DOL clarified “son and daughter” to include those individuals

standing in loco parentis. A legal or biological relationship does not need to exist.

J. Serious Health Condition.

1. Means an illness, injury, impairment, or physical or mental condition that involves either:

Any period of incapacity or treatment connected with inpatient care (i.e. overnight stay) in a hospital, etc. or Continuing treatment by a health care provider which includes any period of incapacity (i.e. inability to work, attend school, etc.) due to:

A health condition (including treatment and recovery) lasting more

than 3 consecutive days and any subsequent treatment or incapacity relating to the same condition that also includes:

Treatment two or more times by or under supervision of a health care provider (New Rule – 2 visits must occur during the period of incapacitation, both must occur w/in 30 days and the first must be w/in 7 days); or

One treatment by a health care provider with a continuing regimen of treatment (New Rule – visit must occur within 7 days); or

Pregnancy or prenatal care; or

A chronic serious health condition which continues over an extended period of time, requiring periodic visits to health care provider and may involve periods of incapacity (New Rule – must be 2 or more visits per year); or

 

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A permanent or long-term condition for which treatment may not be effective (terminal cancer) or

Any absences to receive multiple treatments for restorative surgery or for a condition which would likely result in a period of incapacity of more than 3 days (chemotherapy or radiation treatments for cancer)

K. FMLA Limits.

1. How much leave an employee may take:

12 workweeks during any 12-month period

New Rule - Military Caregiver Leave = 26 weeks

2. Employer may choose the method for measuring the 12-month period, but it must be consistently applied to all employees

3. Special provisions for married employees and birth of a child

a. If both spouses want to take leave – they are limited to a 12-week period between the two of them

b. If only a portion of the 12-week period is used, each spouse is entitled to the remaining portion of the 12 weeks for other FMLA related reasons

L. Intermittent Leave.

1. For birth or placement of a child - employee may take intermittent leave only if the employer agrees

2. Own health condition, to care for a sick family member and the new Military leave

a. Old Rule -No limit to size of leave increments;

b. New Rule – no greater than the shortest period of time that the employer uses to account for other forms of leave (e.g., one hour).

3. Employer may transfer employee to “alternative position” with equivalent pay/benefits to better accommodate employer

 

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M. Payment for Leave.

1. Generally, leave is unpaid

2. Employee may choose to substitute paid leave for FMLA leave

3. Employer may require employee to substitute paid leave for FMLA leave

4. New rule simplifies by eliminating distinctions between leave

N. Benefits While on Leave.

1. Same benefits provided to employee prior to taking leave must be maintained during leave

2. Employee health care premiums must continue to be paid by the employee

3. Employee would pay any increase or decrease of premiums while on leave

4. Employer’s obligation to maintain insurance ends if payment is more than 30 days late

5. Employer may recover employee’s share of payments missed

6. Employee is entitled to any changes to plans/benefits

O. Rights on Returning to Work from Leave.

1. Employee is entitled to return to same or equivalent position

2. No greater right to reinstatement

3. Entitled to unconditional pay increases that occurred during leave

P. Interference with FMLA Rights.

1. Prohibited actions:

Interference with the exercise of an FMLA right

Discharge

Discrimination

Retaliation

 

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Q. Employer Notice Requirements.

1. General Notice – New rule has combined notice requirements into one general notice requirement:

Must be posted in conspicuous place and must distribute to all employees via handbook or written policy. Electronic Posting is OK.

2. Eligibility/Rights and Responsibilities Notice:

All employees who apply for FMLA must be given eligibility notice stating whether employee is eligible. 5 days of first request of year.

3. Designation Notice

Is it FMLA Qualifying?

5 Days of determination

R. Employee Notice Requirements.

1. Foreseeable Need

30 days’ advance notice

Employer may waive

2. Not Foreseeable

Must provide notice as soon as practicable

Verbal Notice

Anticipated timing and duration of leave

Usual and customary notice and procedural requirements for leave (Before shift)

Employee need not mention FMLA when requesting leave but

calling in sick is not sufficient

 

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S. Certification.

1. 4 types:

Employee’s own health condition;

Health condition of family member;

Serious injury or illness of a covered service member for Military Caregiver Leave; and

Qualifying exigency for Qualifying Exigency Leave.

2. An employer may require that an employee’s request for leave be supported by a certification

Written notice

Provide notice within time frame requested by employer (15 days + 7 days)

3. Second opinion

4. Recertification – every 6 months or when extension requested

5. Supervisors cannot talk directly to health care provider

6. Cannot ask for more information than what is contained on form

7. Fitness for duty reports – can be specific – can employee perform essential functions of the job?

T. Waivers.

1. Employees may not waive FMLA rights prospectively

2. Retroactive waiver is OK

3. Light duty?

U. Methods to Limit FMLA Abuse

1. Use DOL Approved Forms.

 

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The DOL has produced draft forms for an employer’s use when managing FMLA leave. These forms are not required, but you should seriously consider utilizing them since they help guide you to provide all necessary information and to require all useful information from employees.

2. Form WH-381 – Notice of Eligibility and Rights & Responsibilities

This form is used as your first response to an employee when the employee requests, or the employer has determined, that FMLA is or may be appropriate.

3. Certification of health care provider

You should provide the appropriate certification of health care provider with the Notice of Eligibility and Rights form. There are multiple certification forms depending upon the nature of the leave requested.

Form WH-380-E – Certification of Health Care Provider for Employee’s Serious Health Condition

Form WH-380-F – Certification of Health Care Provider for Family Member’s Serious Health Condition

Form WH-384 – Certification of Qualifying Exigency for Military Leave

Form WH-385 – Certification for Serious Injury or Illness of Covered Service member

4. Form WH-382 – Designation Notice

5. Be sure to have employee document and categorize every absence

In intermittent leave situations, the absence pattern can become very confusing. Have the employee fill out a form with regard to every absence which indicates whether or not it is FMLA, vacation, sick or other form of absence. In that fashion, the employee cannot claim that some of the absences previously scheduled as FMLA absence were not, in fact, FMLA. Additionally, if you discipline the employee for absences other than FMLA absences, the employee will be unable to argue that the discipline was inappropriate and as a result of inclusion of an FMLA absence.

6. Require that employees use paid leave while on FMLA leave.

7. Review completed medical certifications carefully.

 

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8. If they are inconsistent or incomplete, return them to the employee for completion utilizing the designation notice Form WR-382.

9. After giving the employee an opportunity to cure deficiencies, the employer may contact the health care provider for purposes of clarification and authentication.

Only certain employer representatives may make this contact and it may require employee permission.

10. Require fitness for duty certifications.

Provide employee with a job description or copy of job duties to be provided to the certifying physician.

11. Consider second or third opinions if questions remain.

II. THE NATIONAL LABOR RELATIONS BOARD (“NLRB”)

A. Who They Are:

The National Labor Relations Board is an independent federal agency that protects the rights of private sector employees to join together, with or without a union, to improve their wages and working conditions.

B. What They Do

Conduct Elections - The National Labor Relations Act provides the legal framework for private-sector employees to organize bargaining units in their workplace, or to dissolve their labor unions through a decertification election. Investigate Charges - Employees, union representatives and employers who believe that their rights under the National Labor Relations Act have been violated may file charges alleging unfair labor practices at their nearest NLRB regional office. Facilitate Settlements - When a charge is determined to have merit, the NLRB encourages parties to resolve cases by settlement rather than litigation whenever possible. Decide Cases - On the adjudicative side of the NLRB are 40 Administrative Law Judges and a Board whose five members are appointed by the President and confirmed by the Senate.

 

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Enforce Orders - The majority of parties voluntarily comply with orders of the Board. When they do not, the Agency’s General Counsel must seek enforcement in the U.S. Courts of Appeals. Parties to cases also may seek review of unfavorable decisions in the federal courts.

C. Recent Developments

1. Board Nominations

On July 30, 2013, the United States Senate voted to fill all five seats on the National Labor Relations Board. The Senate's vote means the Board will have a full slate of confirmed members for the first time in more than a decade. Republicans Harry I. Johnson III and Philip A. Miscimarra and Democrats Kent Hirozawa and Nancy Schiffer were confirmed for first-time membership on the Board. The Senate also voted to confirm current Board Chairman Mark Gaston Pearce for a second term. His first term was set to expire on August 27, 2013. Johnson and Miscimarra are both former partners at large law firms focusing on management-side representation. Schiffer is a former associate general counsel of the AFL-CIO, and Hirozawa has been serving as chief counsel to Pearce prior to being nominated. The vote marks the end of a rough year for the NLRB. Since July 2012, the normally five-member Board has had only had three members, which is enough to maintain a quorum. But the status of three members was uncertain after a federal appeals court declared the appointments unconstitutional in January 2013. Those three members, Sharon Block, Terence F. Flynn and Richard Griffin Jr., went on the NLRB Board as recess appointments on January 9, 2012. The traditional process for filling NLRB vacancies is for the president to send nominations to the Senate and then the Senate confirms those nominations. However, when the Senate stalled and failed to take action on his nominees, President Obama used a constitutional provision that allows the president to put members on the Board without confirmation when the Senate is in recess. The Senate was on break when Obama made the recess appointments; however, the Senate body wasn’t in an official recess because it remained in pro forma session. During a pro forma session, the Senate must take some action at least every three days, despite the fact that most senators are not present.

 

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The administration argued that the Senate was for all purposes in recess, but the U.S. Court of Appeals for the District of Columbia Circuit ruled that the recess appointments were invalid because the Senate wasn’t in an official recess. In a decision in May, the Third Circuit for the U.S. Court of Appeals joined the D.C. Circuit in ruling that the appointments were unconstitutional. The Fourth Circuit for the U.S. Court of Appeals ruled similarly in July. The NLRB petitioned the U.S. Supreme Court to review the appeals court’s decision, and in June, the high court agreed to hear the case. The Court is expected to issue a definitive ruling on the issue sometime in 2014. The Supreme Court's expected decision in 2014 could have far-reaching implications for both employers and employees. The most important, and significant, of which is the potential invalidation of the hundreds of decisions issued by the NLRB since President Obama's recess appointments on January 4, 2012 up to the July Senate confirmations. These decisions have included several controversial decisions concerning social media, employee discipline, and employee confidentiality rules.

2. Recent Developments: NLRB General Counsel

The pro-employee composition of the NLRB continues with the recent nomination of Richard Griffin Jr. as general counsel of the NLRB. Griffin, a former lawyer for the International Union of Operating Engineers, has been an NLRB board member since January 2012, when President Obama used recess appointments to install him and two other board members. The NLRB General Counsel, which serves as a kind of "prosecutor," would place Griffin in one of the most important positions on the Board. The General Counsel is tasked with conducting investigations and prosecution of unfair labor practices and with the general supervision of the NLRB field offices in the processing of cases.

3. Recent Developments: Notice Posting

The Fourth Circuit Court of Appeals for the United States recently joined the D.C. Circuit in rejecting the NLRB's rule regarding notice posting. In a June 2013 decision, the Fourth Circuit held that the NLRB had exceeded the limited powers Congress provided to the Board under the National Labor Relations Act. The unanimous panel of judges observed that other statutes that compel notice postings—the FMLA, Title VII, the ADA, the Railway Labor Act—all contained specific statutory provisions authorizing such notices. Unlike those other statutes, the Court found no provision in the Act that requires

 

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a notice-posting rule. Specifically, the court held that Section 7 of the NLRA, which lists rights protected by the Act, does not provide authority to issue the notice-posting rule because these rights are not functions or provisions to be carried out. Additionally, although the court acknowledged that the Board has the authority to define what constitutes an unfair labor practice under Section 8(a)(1) of the Act, it held that this provision does not give the Board authority to "enact the unprecedented rule at issue here." The Fourth Circuit explained that the Board cannot act under the NLRA until after an unfair labor practice charge or representational matter is filed. Therefore, the court reasoned that the Act did not permit the Board to independently impose a duty on employers to post notices without a case-by-case determination pursuant to an unfair labor practice remedy or prior to a representation election. Currently, employers are not required to post the NLRB’s notice. Like the D.C. Circuit’s decision, the Fourth Circuit’s decision does not affect federal contractors’ duty to post a similar notice, since the authority for that notice comes from an Executive Order and a resulting Department of Labor regulation. The NLRB has requested additional time to consider whether to appeal the Fourth Circuit’s decision to the full Fourth Circuit or appeal directly to the Supreme Court.

 

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4. The NLRB Process

a. Protected Concerted Activity

The right to engage in certain types of concerted activity was written into the original 1935 National Labor Relations Act’s Section 7, which states that: “Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, and shall also have the right to refrain from any or all such activities.” That right has been upheld in numerous decisions by appellate courts and by the U.S. Supreme Court over the years. Traditionally, unless the workforce was already unionized or unionization was an imminent or constant threat, the NLRB did not enter an employer's mind. Recently, however, the NLRB’s agenda has significantly changed with serious implications for non-union employers. 2013 has seen the NLRB using the NLRA’s Section 7 right to prosecute non-union employers. The motivation behind the Board's change in attitude should come as no surprise, considering that 90 percent of workers in the U.S. are employed in non-union workplaces. The NLRB's former Acting General Counsel Lafe Solomon has previously announced the Board's intention to aggressively review employer policies and procedures that “chill” concerted activity. Using these broadly interpreted Section 7 rights, the NLRB has issued rulings that impact employers—both union and non-union—in all areas of management. The Board's recent decisions have dealt with provisions contained in arbitration agreements, at-will disclaimers in handbooks, and social media policies, to name a few. In almost every case, it is the employee’s right to act in concert with other workers in response to employer policies that gives the NLRB its purported authority. “A right only has value when people know it exists,” said NLRB Chairman Mark Gaston Pearce. “We think the right to engage in protected concerted activity is one of the best kept secrets of the National Labor Relations Act, and more important than ever in these difficult economic times. Our hope is that other workers will see themselves in the cases we’ve selected and understand that they do have strength in numbers.”

 

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b. "Chilling" Protected Concerted Activity

Riverside, California Telecommunications Provider 21-CA-039546 The Board found that the Company maintained four unlawful work rules. These rules contained unlawful restrictions on employee communications with the media regarding labor disputes and unlawful restrictions on employee communications with NLRB agents. The Board additionally found that the respondent’s confidentiality rules unlawfully restricted employees from discussing their wages, discipline, performance ratings, and other terms and conditions of employment, as well as unlawfully prohibited protected employee communications with third parties such as union representatives and governmental agencies. San Francisco, California Technology Firm 20-CA-035511 The Board found that the employer violated the NLRA by maintaining a Wage and Salary Disclosure rule in its handbook prohibiting the disclosure of wages or compensation to any third party or other employee. The Board also found that an additional handbook rule, the Confidential Information Security rule, violated the Act. Miami-Dade County, Florida Security Company 12-CA-026644 A security firm violated the NLRA where it discharged two security officer employees who had made complaints about their working conditions, including: the fact that security guards were forced to work 6-hour shifts in the summer heat without shade or shelter, issues with their uniform, and safety concerns related to firearms the security officers wore. The Board held that such complaints qualified as protected concerted activity. Farmer's Branch, Texas Telecommunications Provider 16-CA-062433 The Board held that a telecommunications provider violated the Act where its social media policy prohibited employees from making "disparaging or defamatory comments about [the company]." Further, the Board invalidated a portion of the company's employee policy that banned employees from engaging in negative electronic discussion during "Company time."

 

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Los Angeles, California Medical Provider 21-CA-039086 A hospital was determined to have violated Section 8(a)(1) where it disciplined four employees who violated a work rule that imposed restrictions on when employees could enter the hospital. The Board held that the policy was unlawfully broad, because it improperly interfered with the employees' ability to engage in activities, implicating Section 7 concerns. Wallington, Connecticut Medical Provider 34-CA-013008 A hospital improperly issued a written warning against an employee for insubordination where the employee engaged in a loud argument with a supervisor. The Board found that the content of the employee/nurse's argument—seniority issues and medication reports—was protected activity because it concerned the other nurses in the group. Moreover, the Board also found a violation of the NLRA where a member of HR advised the supervisor and employee during a meeting to keep the written warning confidential over the weekend while the parties worked through the issue. The Board held that the HR's direction infringed on the employee's Section 7 rights to discuss her terms and conditions of employment.

III. SOCIAL MEDIA DEVELOPMENTS

A. Reasons Employers Have Social Media Policies

1. Defines for employees acceptable and unacceptable practices and content beyond an employer’s electronic communications or email/internet policy

2. Prohibits internal and external conduct (where permissible)

3. Emphasizes importance of conduct at all times

B. Content of Social Media Policy

1. Similar to email and internet usage

2. Important distinction – activity does not have to involve use of company property or on company time

 

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C. The National Labor Relations Act (“NLRA”) and its Impact on Social Media Policies

1. The NLRB has been cracking down on social media policies and disciplinary action resulting from violation of such policies under the argument that employers are disciplining or terminating employees for posting about “protected concerted activities” under the NLRA.

2. Section 7 of the NLRA guarantees an employee the right to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

3. Section 8(a)(3) of the NLRA prohibits employers from discouraging “labor organization” defined as “any organization of any kind . . . in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work.”

4. According to the NLRB, an employer’s social media policy will be in violation of Section 8(a)(1) of the NLRA and deemed unlawful, if it is found “to interfere with, [or] restrain . . . employees in the exercise of the rights guaranteed in section 7” of the NLRA.

Even if the policy does not explicitly restrict Section 7 protected activities, the policy may still be deemed unlawful by the NLRB if employees would reasonably construe the policy’s language to prohibit Section 7 activity.

5. According to the most recent report on social medial policies by the

NLRB, the key question in evaluating social media policies, is whether restrictions “would reasonably be construed to chill the exercise of Section 7 rights” by employees under the NLRA.

6. According to the report, “unlawfully overbroad” provisions include:

a. Prohibiting release of confidential information (company, customer, employee) except on “need to know” basis

The reason it is deemed unlawful is because it could “reasonably be interpreted as prohibiting employees from discussing and disclosing information regarding their own conditions of employment, as well as the conditions of employment of employees other than themselves—activities that are clearly protected by Section 7.”

 

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b. Prohibiting disclosure of non-public company information on any public site, requiring that employee posts are completely accurate and not misleading.

According to the NLRB, “the term ‘completely accurate and not misleading’ is overbroad because it would reasonably be interpreted to apply to discussions about, or criticism of, the Employer’s labor policies and its treatment of employees.”

c. Prohibiting employees from posting “offensive, demeaning, abusive or inappropriate" remarks.

According to the NLRB, this prohibition covers “a broad spectrum of communications that would include protected criticisms of the Employer’s labor policies or treatment of employees.” This requires employees to report any unsolicited or inappropriate electronic communications.

d. Cautioning employees to “think carefully” about friending colleagues

The NLRB felt the language was unlawfully overbroad because it would discourage communication among co-workers. Prohibiting comment by employees on legal matters The NLRB stated that “We found that the prohibition on employees’ commenting on any legal matters is unlawful because it specifically restricts employees from discussing the protected subject of potential claims against the Employer.”

7. Lawful provisions include:

a. Requiring employees to observe copyright and intellectual property laws

b. Prohibiting employees from online bullying or harassment

c. Prohibiting employees from posting in the employer’s name or in manner that could be attributed to the employer

d. Requiring a disclaimer that the opinions expressed are those of employee, not the company

i. The key to those provisions deemed lawful by the NLRB appears to be that “in context, employees would understand that these provisions did not prohibit Section 7 activity.” (emphasis added).

 

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e. Recent decisions

An employer ran afoul of the NLRA by firing employees for posting comments on Facebook. Several employees made disparaging comments toward a co-worker’s statement that the employer “do[esn’t] help our clients enough.” The Board held that the employer violated the NLRA when it fired the employees for criticizing their co-worker’s job performance because “explicit or implicit criticism by a co-worker of the manner in which they are performing their jobs is a subject about which employee discussion is protected by [the NLRA].” An employer violated the NLRA where it terminated three employees who had engaged in posting messages on Facebook that were critical of a supervisor Specifically, the employees had posted complaints about a manager who had refused to allow them to leave work early. The employees cited concerns about having to walk through a purportedly dangerous neighborhood after working late. The Board held that these discussions were protected concerted activity under the Act concerning terms and conditions of employment. The service staff of a catering company was in the process of taking a vote on union representation when a staff member got upset by what he perceived as harassment by his manager. During a break, the employee went to the bathroom and posted on Facebook: “Bob is such a NASTY M***** F****R don’t know how to talk to people!!!!! F**k his mother and his entire f*****g family!!!! What a LOSER!!!! Vote YES for the UNION.” Various co-workers responded to the post. The company fired the employee after learning about the post. An administrative law judge of the NLRB held that the employer violated Section 8(a)(1) of the NLRA. The judge found the post constituted protected activity because it was part of an ongoing sequence of events involving employee attempts to protest and remedy what they saw as rude and demeaning treatment by their managers. The post was also “concerted” because it was activity undertaken on behalf of a union.

8. The Report also included a sample Social Media Policy that the

NLRB deemed lawful.

The sample policy is so permissive; many employers are waiting to see whether the courts weigh in on these issues before adopting any policy at all.

 

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IV. USE OF ARREST AND CONVICTION RECORDS IN EMPLOYMENT DECISIONS

A. INTRODUCTION

The EEOC issued lengthy enforcement guidance on the issue of the use of arrest or conviction records in making employment decisions in April of 2012. In its report, the EEOC concluded that African-American and Hispanic men are disproportionately arrested and incarcerated as compared to the general population. As a result, the EEOC concluded that conviction of a crime cannot serve as an automatic bar to employment, because of the potential for adverse impact on minorities.

Consequently, unless federal or state law makes certain crimes a “barrier crime,” such as is the case with some positions in the healthcare field, a conviction should be a bar only if it is job related and only where the crime was committed in near proximity to the time application is made.

B. RECENT DEVELOPMENTS

1. Recent EEOC Suits Against Employers Based on Use of Criminal Convictions

In June 2013, the EEOC announced that it was filing suit against BMW Manufacturing Co., LLC over their use of criminal background checks in the hiring process. The EEOC alleged that BMW disproportionately screened out African- Americans from jobs, and that the policy was not job related and consistent with business necessity. The claimants were employees of a subcontractor that provided logistic services to BMW in its South Carolina facility. The logistics services included warehouse and distribution assistance, transportation service and manufacturing support. Since 1994, BMW had a criminal conviction policy in place that denied facility access to employees and employees of contractors with certain criminal convictions. BMW's policy had no time limit with regard to the convictions and the company did not perform an individualized assessment of the nature and gravity of the crimes, or the nature of the applicant's positions. The case is currently pending in a South Carolina federal court. Also in June, the EEOC announced that it had filed a nationwide lawsuit based on discrimination against Dollar General Corp. The EEOC alleged that Dollar General conditioned all of its offers on criminal background checks, which resulted in a disparate impact against African-Americans. According to the EEOC, one of the applicants who had filed a charge with the EEOC was given a conditional employment offer, although she had disclosed a six-year-old conviction for possession of a controlled

 

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substance. Her application also showed that she had previously worked for another discount retailer as a cashier-stocker for four years. Nevertheless, her job offer was allegedly revoked because Dollar General's practice was to use her type of conviction as a disqualification factor for 10 years. This EEOC is currently pursuing its claim against Dollar Store.

2. Responses to EEOC Enforcement

In a letter issued shortly after the EEOC's announcement, attorneys general from nine states criticized the lawsuits against BMW and Dollar General as "misguided" and directed the EEOC to drop the lawsuits. The attorney generals went further, recommending that the agency rescind the enforcement guidance it issued in 2012. “We believe that these lawsuits and your application of the law, as articulated through your enforcement guidance, are misguided and a quintessential example of gross federal overreach. Our states urge you to reconsider your position and these lawsuits,” said the chief legal officers — all Republicans — of West Virginia, Utah, South Carolina, Nebraska, Montana, Kansas, Georgia, Colorado and Alabama. The attorneys general said they were worried that the EEOC's real goal wasn't to correctly apply the law, but to expand Title VII protection to former criminals, adding that Congress can amend the law if it intends to shield ex-criminals from employment discrimination. In addition, the letter took issue with the practical impact of the EEOC's treatment of Title VII and criminal background screening, and cautioned that requiring employers to spend more time and money on the individualized screening of applicants at a time when businesses are already burdened by regulations was a bad idea.

3. Arrests

The fact of an arrest does not establish that criminal conduct has occurred. Arrests are not proof of criminal conduct. Many arrests do not result in criminal charges, or the charges are dismissed. Even if an individual is charged and subsequently prosecuted, he is presumed innocent unless proven guilty.

An arrest, however, may in some circumstances trigger an inquiry into whether the conduct underlying the arrest justifies an adverse employment action. Title VII calls for a fact-based analysis to determine if an exclusionary policy or practice is job related and consistent with business

 

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necessity. Therefore, an exclusion based on an arrest, in itself, is not job related and consistent with business necessity.

Employers should not assume that the applicant committed the offense because arrest records alone do not necessarily mean that the applicant has committed a crime.

Employers should allow the applicant the opportunity to explain the circumstances of the arrest and make a reasonable effort to determine whether the explanation is reliable.

Another reason for employers not to rely on arrest records is that they may not report the final disposition of the arrest (e.g., not prosecuted, convicted, or acquitted). Arrest records also may include inaccuracies or may continue to be reported even if expunged or sealed.

Although an arrest record standing alone may not be used to deny an employment opportunity, an employer may make an employment decision based on the conduct underlying the arrest if the conduct makes the individual unfit for the position in question. The conduct, not the arrest, is relevant for employment purposes.

In summary, arrest records themselves, regardless of the seriousness of the crime, should not be used as the sole basis for denying employment. An employer may question an employee or perspective employee about the facts and circumstances surrounding the arrest and consider those circumstances in determining whether or not it is appropriate to hire the individual.

4. Determining whether a criminal conduct exclusion is job related and consistent with business necessity

To establish that a criminal conduct exclusion that has a disparate impact is job related and consistent with business necessity under Title VII, the employer needs to show that the policy operates to effectively link specific criminal conduct, and its dangers, with the risks inherent in the duties of a particular position.

Two circumstances in which the Commission believes employers will consistently meet the “job related and consistent with business necessity” defense are as follows:

a. The employer validates the criminal conduct screen for the position in question per the Uniform Guidelines on Employee Selection Procedures (Uniform Guidelines) standards (if data about criminal conduct as related to subsequent work performance is available and such validation is possible); or

 

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b. The employer develops a targeted screen considering at least the nature of the crime, the time elapsed, and the nature of the job (the three Green factors), and then provides an opportunity for an individualized assessment for people excluded by the screen to determine whether the policy as applied is job related and consistent with business necessity.

The individualized assessment would consist of notice to the individual that he has been screened out because of a criminal conviction; an opportunity for the individual to demonstrate that the exclusion should not be applied due to his particular circumstances; and consideration by the employer as to whether the additional information provided by the individual warrants an exception to the exclusion and shows that the policy as applied is not job related and consistent with business necessity.

Depending on the facts and circumstances, an employer may be able to justify a targeted criminal records screen solely under the Green factors. Such a screen would need to be narrowly tailored to identify criminal conduct with a demonstrably tight nexus to the position in question. Title VII thus does not necessarily require individualized assessment in all circumstances. However, the use of individualized assessments can help employers avoid Title VII liability by allowing them to consider more complete information on individual applicants or employees, as part of a policy that is job related and consistent with business necessity.

It will be a rare situation when an employer can validate the exclusion of a potential employee based on the uniform guidelines on employee selection procedures referenced above. The employer will, instead, need to rely on the Green factors which were developed in the case of Green v. Missouri Pacific Railroad, 549 F.2d 1158 (8th Circuit, 1977). Those factors are discussed in detail below.

5. Convictions

a. Detailed Discussion of the Green Factors and Criminal Conduct Screens

The Green factors provide the starting point for analyzing how specific criminal conduct may be linked to particular positions. The three Green factors are:

i. The nature and gravity of the offense or conduct;

 

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ii. The time that has passed since the offense, conduct and/or completion of the sentence; and

iii. The nature of the job held or sought.

b. The Nature and Gravity of the Offense or Conduct

Careful consideration of the nature and gravity of the offense or conduct is the first step in determining whether a specific crime may be relevant to concerns about risks in a particular position. The nature of the offense or conduct may be assessed with reference to the harm caused by the crime (e.g., theft causes property loss). The legal elements of a crime also may be instructive. For example, a conviction for felony theft may involve deception, threat, or intimidation. With respect to the gravity of the crime, offenses identified as misdemeanors may be less severe than those identified as felonies.

c. The Time that Has Passed Since the Offense, Conduct and/or Completion of the Sentence

Employer policies typically specify the duration of a criminal conduct exclusion. While the Green court did not endorse a specific timeframe for criminal conduct exclusions, it did acknowledge that permanent exclusions from all employment based on any and all offenses were not consistent with the business necessity standard. The court noted that the plaintiff might have survived summary judgment if he had presented evidence that “there is a time at which a former criminal is no longer any more likely to recidivate than the average person . . . .” Thus, the court recognized that the amount of time that had passed since the plaintiff’s criminal conduct occurred was probative of the risk he posed in the position in question.

Whether the duration of an exclusion will be sufficiently tailored to satisfy the business necessity standard will depend on the particular facts and circumstances of each case. Relevant and available information to make this assessment includes, for example, studies demonstrating how much the risk of recidivism declines over a specified time.

d. The Nature of the Job Held or Sought

Finally, it is important to identify the particular job(s) subject to the exclusion. While a factual inquiry may begin with identifying the job title, it also encompasses the nature of the job’s duties (e.g., data entry, lifting boxes), identification of the job’s essential functions,

 

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the circumstances under which the job is performed (e.g., the level of supervision, oversight, and interaction with co-workers or vulnerable individuals), and the environment in which the job’s duties are performed (e.g., out of doors, in a warehouse, in a private home). Linking the criminal conduct to the essential functions of the position in question may assist an employer in demonstrating that its policy or practice is job related and consistent with business necessity because it “bear[s] a demonstrable relationship to successful performance of the jobs for which it was used.”

In summary, you generally cannot (absent a separate legal requirement) automatically provide that conviction of certain crimes will be an absolute bar to employment. In each case, an individualized assessment should be made and documented which considers the type of the offense and its seriousness, the length of time that has passed since the offense and the nature of the job. The employer should be prepared to show that the relationship of these factors is such that the conviction represents a legitimate reason for disqualifying the employee. As part of this process, the employer should generally share the information with the employee or potential employee and give that employee an opportunity to explain any additional facts and circumstances which might be relevant.

6. Examples of Criminal Conduct Exclusions that Do Not Consider the Green Factors

A policy or practice requiring an automatic, across-the-board exclusion from all employment opportunities because of any criminal conduct is inconsistent with the Green factors because it does not focus on the dangers of particular crimes and the risks in particular positions. As the court recognized in Green, “[w]e cannot conceive of any business necessity that would automatically place every individual convicted of any offense, except a minor traffic offense, in the permanent ranks of the unemployed.”

7. Targeted Exclusions that Are Guided by the Green Factors

An employer policy or practice of excluding individuals from particular positions for specified criminal conduct within a defined time period, as guided by the Green factors, is a targeted exclusion. Targeted exclusions are tailored to the rationale for their adoption, in light of the particular criminal conduct and jobs involved, taking into consideration fact-based evidence, legal requirements, and/or relevant and available studies.

 

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Depending on the facts and circumstances, an employer may be able to justify a targeted criminal records screen solely under the Green factors. Such a screen would need to be narrowly tailored to identify criminal conduct with a demonstrably tight nexus to the position in question. Title VII thus does not necessarily require individualized assessment in all circumstances. However, the use of individualized assessments can help employers avoid Title VII liability by allowing them to consider more complete information on individual applicants or employees, as part of a policy that is job related and consistent with business necessity.

While the EEOC acknowledges the possibility that automatic targeted exclusions may be acceptable, they should be utilized with great care because you can expect significant scrutiny from the EEOC.

8. Individualized Assessment

Individualized assessment generally means that an employer informs the individual that he may be excluded because of past criminal conduct; provides an opportunity to the individual to demonstrate that the exclusion does not properly apply to him; and considers whether the individual’s additional information shows that the policy as applied is not job related and consistent with business necessity.

The individual’s showing may include information that he was not correctly identified in the criminal record, or that the record is otherwise inaccurate. Other relevant individualized evidence includes, for example:

i. The facts or circumstances surrounding the offense or conduct;

ii. The number of offenses for which the individual was convicted;

iii. Older age at the time of conviction, or release from prison;

iv. Evidence that the individual performed the same type of work, post-conviction, with the same or a different employer, with no known incidents of criminal conduct;

v. The length and consistency of employment history before and after the offense or conduct;

vi. Rehabilitation efforts, e.g., education/training;

vii. Employment or character references and any other information regarding fitness for the particular position; and

 

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viii. Whether the individual is bonded under a federal, state, or local bonding program.

If the individual does not respond to the employer’s attempt to gather additional information about his background, the employer may make its employment decision without the information.

9. Convictions as proof of the crime

A record of a conviction will usually serve as sufficient evidence that a person engaged in particular conduct, given the procedural safeguards associated with trials and guilty pleas. However, there may be evidence of an error in the record, an outdated record, or another reason for not relying on the evidence of a conviction. For example, a database may continue to report a conviction that was later expunged, or may continue to report as a felony an offense that was subsequently downgraded to a misdemeanor.

The Commission recommends that employers not ask about convictions on job applications and that, if and when they make such inquiries, the inquiries be limited to convictions for which exclusion would be job related for the position in question and consistent with business necessity.

10. Less discriminatory alternatives

If an employer successfully demonstrates that its policy or practice is job related for the position in question and consistent with business necessity, a Title VII plaintiff may still prevail by demonstrating that there is a less discriminatory “alternative employment practice” that serves the employer’s legitimate goals as effectively as the challenged practice but that the employer refused to adopt.

11. Positions subject to federal prohibitions or restrictions on individuals with records of criminal conduct

In some industries, employers are subject to federal statutory and/or regulatory requirements that prohibit individuals with certain criminal records from holding particular positions or engaging in certain occupations. Compliance with federal laws and/or regulations is a defense to a charge of discrimination. However, the EEOC will continue to coordinate with other federal departments and agencies with the goal of maximizing federal regulatory consistency with respect to the use of criminal history information in employment decisions.

 

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12. Security clearances

The existence of a criminal record may result in the denial of a federal security clearance, which is a prerequisite for a variety of positions with the federal government and federal government contractors. A federal security clearance is used to ensure employees’ trustworthiness, reliability, and loyalty before providing them with access to sensitive national security information. Under Title VII’s national security exception, it is not unlawful for an employer to “fail or refuse to hire and employ” an individual because “such individual has not fulfilled or has ceased to fulfill” the federal security requirements. This exception focuses on whether the position in question is, in fact, subject to national security requirements that are imposed by federal statute or Executive Order, and whether the adverse employment action actually resulted from the denial or revocation of a security clearance. Procedural requirements related to security clearances must be followed without regard to an individual’s race, color, religion, sex, or national origin.

13. Positions subject to state and local prohibitions or restrictions on individuals with records of certain criminal conduct

States and local jurisdictions also have laws and/or regulations that restrict or prohibit the employment of individuals with records of certain criminal conduct. Unlike federal laws or regulations, however, state and local laws or regulations are preempted by Title VII if they “purport[] to require or permit the doing of any act which would be an unlawful employment practice” under Title VII. Therefore, if an employer’s exclusionary policy or practice is not job related and consistent with business necessity, the fact that it was adopted to comply with a state or local law or regulation does not shield the employer from Title VII liability.

Although compliance with a state or local statute or regulation is not an automatic defense to an EEOC claim, in the vast majority of circumstances, an employer should abide by the relevant state and local requirements.

C. EMPLOYER BEST PRACTICES

The following are examples of best practices for employers who are considering criminal record information when making employment decisions.

1. General

Eliminate policies or practices that exclude people from employment based on any criminal record.

 

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Train managers, hiring officials, and decision makers about Title VII and its prohibition on employment discrimination.

2. Developing a Policy

Develop a narrowly tailored written policy and procedure for screening applicants and employees for criminal conduct.

Identify essential job requirements and the actual circumstances under which the jobs are performed.

Determine the specific offenses that may demonstrate unfitness for performing such jobs.

Identify the criminal offenses based on all available evidence.

Determine the duration of exclusions for criminal conduct based on all available evidence.

Include an individualized assessment.

Record the justification for the policy and procedures.

Note and keep a record of consultations and research considered in crafting the policy and procedures.

Train managers, hiring officials, and decision makers on how to implement the policy and procedures consistent with Title VII.

3. Questions about Criminal Records

When asking questions about criminal records, limit inquiries to records for which exclusion would be job related for the position in question and consistent with business necessity.

4. Confidentiality

Keep information about applicants’ and employees’ criminal records confidential. Only use it for the purpose for which it was intended.

V. THE AMERICANS WITH DISABILITIES ACT

A. ADA Considerations in Hiring and Recruiting Decisions

1. Overview

The EEOC has issued enforcement guidance on medical inquiries and examinations under the ADA. The EEOC’s guidelines underscore the fact

 

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that the ADA’s provisions dealing with disability-related inquiries and medical examinations are designed to reduce the chance of discrimination against individuals with hidden disabilities. Prior to the ADA, employers were generally free to question applicants about past illnesses, workers' compensation injuries and days lost from work due to illness. Congress determined that if an employer possessed this type of information before the applicant was offered a job, the applicant could not determine whether she was denied the job because of her disability or because of a non-medical criterion. Thus, the ADA mandates that an employer not inquire about the existence, nature or severity of a disability and not conduct medical examinations until the employer provides a conditional job offer to the applicant. This forces the employer to make a decision based on the applicant's non-medical qualifications devoid of consideration of the applicant's disability.

2. Offer vs. Post-Offer Stage

Under the ADA, the scope of permissible inquiry turns heavily on whether the inquiry occurs in the pre-offer stage or the post-offer stage. In the pre-offer stage, an assessment of the applicant’s non-medical qualifications is expected. The employer may inquire about an applicant’s ability to perform specific job-related tasks. However, disability-related inquiries and medical examinations are prohibited at this stage. In the post-offer stage, an employer may require medical examinations and seek disability-related information if it does so for all other entering employees in the particular job category.

3. Disability-Related Inquiries

The EEOC guidelines provide a list of some commonly acceptable (and unacceptable) pre-offer inquiries. Any inquiry likely to elicit information about a disability is prohibited; however, assessing an applicant's ability to perform specific job functions is acceptable. The following are some illustrative questions that the EEOC indicates are not disability-related and are thus acceptable at the pre-offer stage:

i. Can you maneuver through four-foot diameter underground sewer tunnels for five hours per day with or without reasonable accommodation?

ii. Can you maneuver through four-foot diameter underground sewer tunnels for five hours per day with or without reasonable accommodation?

 

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iii. Please describe or demonstrate how you would perform these marginal and essential job functions;

iv. Can you lift three-pound boxes in order to load paper into the copy machine?

v. Can you meet the attendance requirements of this job? How many days were you absent from work last year?

vi. Do you have the required licenses to perform this job?

In contrast, some examples of prohibited pre-offer disability-related inquiries are:

i. Do you have AIDS or asthma?

ii. Can you lift, walk and stand?

iii. How many days were you sick last year?

iv. Have you ever been injured on the job? Have you ever filed a workers’ compensation claim?

v. What prescription drugs are you currently taking?

The EEOC guidelines do provide, however, that employers may ask limited questions about reasonable job-related accommodations in the initial job interview, and before a job offer is made, if the applicant’s disability is visible or apparent to the interviewer, or the applicant voluntarily discloses a hidden disability and/or that he or she needs reasonable accommodation. A few examples of permissible pre-offer questions in such a scenario include:

vi. What type of reasonable accommodation will you need?

vii. Who makes the type of equipment that you will need?

viii. How often will you need breaks?

ix. How long must your break be?

x. However, such questions must be job-related.

 

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4. Medical Examinations

Medical examinations are prohibited in the pre-offer stage. However, physical fitness tests which do not include medical monitoring; and tests for illegal drug use are generally not considered to be “medical examinations”: In determining whether a test is medical, the EEOC will analyze the following factors:

i. Whether the test is administered by a health care professional or trainee;

ii. Whether the results of the test are interpreted by a health care professional or trainee;

iii. Whether the test is designed to reveal an impairment or the state of an individual's physical or psychological health;

iv. Whether the test is given for the purpose of revealing an impairment or the state of an individual's physical or psychological health;

v. Whether the test is invasive;

vi. Whether the test measures physiological or psychological responses as opposed to performance of a task;

vii. Whether the test is normally done in a medical setting; and/or

viii. Whether medical equipment/devices are used for the test.

B. Reasonable Accommodations under the ADA

1. Overview

The ADA requires an employer to provide reasonable accommodation to an employee or job applicant with a disability, unless doing so would cause significant difficulty or expense for the employer. A reasonable accommodation is any change in the work environment (or in the way things are usually done) to help a person with a disability apply for a job, perform the duties of a job, or enjoy the benefits and privileges of employment.

There are three categories of “reasonable accommodations”: (a) changes to a job application process; (b) changes to the work environment, or to

 

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the way a job is usually done; and (c) changes that enable an employee with a disability to enjoy equal benefits and privileges of employment (such as access to training).

a. Types of Reasonable Accommodation

There are many examples of how an employer can provide an employee with a reasonable accommodation. A reasonable accommodation might include: making the workplace accessible for wheelchair users; providing a reader or interpreter for someone who is blind or hearing impaired; job restructuring; providing unpaid leave; providing a modified or part-time schedule; modifying a workplace policy; or reassignment.

While the federal anti-discrimination laws don’t require an employer to accommodate an employee who must care for a disabled family member, the Family and Medical Leave Act (“FMLA”) may require an employer to take such steps.

b. Undue Hardship

An employer need not afford a requested reasonable accommodation if to do so would constitute an “undue hardship.” An undue hardship is defined as “requiring significant difficulty or expense.” This means that the accommodation would be too difficult or too expensive to provide, in light of the employer’s size, financial resources, and the needs of the business.

An employer may not refuse to provide an accommodation just because it involves some cost. However, an employer does not have to provide the exact accommodation the employee or job applicant wants. If more than one accommodation works, the employer may choose which one to provide. The appropriateness of a reasonable accommodation and whether the request constitutes an undue hardship is generally a factual question and depended on the circumstances of the particular case.

c. Requesting Reasonable Accommodation

i. How should an employee/applicant request a reasonable accommodation?

The individual must let the employer know that s/he needs an adjustment or change at work for a reason related to a medical condition. An individual may use “plain English” and need not mention the ADA or use the phrase “reasonable accommodation.” Requests for reasonable accommodation

 

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do not need to be in writing, though an employer may choose to write a memorandum or letter confirming the request.

ii. What should an employer do after receiving a request for reasonable accommodation?

When the disability and/or the need for accommodation is not obvious, the employer may ask the individual for reasonable documentation about his/her disability and functional limitations.

The employer and the individual with a disability should engage in an informal process to clarify what the individual needs and identify the appropriate reasonable accommodation. The employer may ask the individual questions that will enable it to make an informed decision about the request. This includes asking what type of reasonable accommodation is needed.

iii. Must an employer provide the reasonable accommodation that the individual wants?

The employer may choose among reasonable accommodations as long as the chosen accommodation is effective (i.e., it removes the workplace barrier at issue). The employer may offer alternative suggestions for reasonable accommodations to remove the workplace barrier in question. If there are two possible reasonable accommodations, and one costs more or is more difficult to provide, the employer may choose the one that is less expensive or easier to provide, as long as it is effective.

iv. How quickly must an employer respond to a request for reasonable accommodation?

An employer should respond promptly to a request for reasonable accommodation. If the employer and the individual with a disability need to engage in an interactive process, this too should proceed as quickly as possible. Similarly, the employer should act promptly to provide the reasonable accommodation.

d. Other Reasonable Accommodation Issues

i. Exceptions to the Reasonable Accommodation Requirement

 

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An employer's responsibility to provide a reasonable accommodation is not absolute. An employer never has to eliminate an employee's primary job responsibility as a reasonable accommodation. Similarly, an employer is not required to lower production standards that are applied to all employees, though it may have to provide reasonable accommodation to enable an employee with a disability to meet them.

An employer never has to excuse a violation of a uniformly applied conduct rule that is job-related and consistent with business necessity. For example, an employer never has to tolerate or excuse violence, threats of violence, stealing, or destruction of property. An employer may discipline an employee with a disability for engaging in such misconduct if it would impose the same discipline on an employee without a disability.

ii. Disclosure of Reasonable Accommodations to Employees

Employers should never inform other employees that someone is receiving a reasonable accommodation. The ADA specifically prohibits the disclosure of medical information except in certain limited situations, which do not include disclosure to coworkers.

An employer may respond to a question from an employee about why a coworker is receiving what is perceived as “different” or “special” treatment by emphasizing its policy of assisting any employee who encounters difficulties in the workplace. The employer also may find it helpful to point out that many of the workplace issues encountered by employees are personal, and that, in these circumstances, it is the employer’s policy to respect employee privacy. An employer may be able to make this point effectively by reassuring the employee asking the question that his/her privacy would similarly be respected if s/he found it necessary to ask the employer for some kind of workplace change for personal reasons. Employers might also find it helpful to provide all employees with information about various laws that require employers to meet certain employee needs (e.g., the ADA and the Family and Medical Leave Act), while also requiring them to protect the privacy of employees.

If an employer knows that an employee has a disability, it may ask whether he/she needs a reasonable

 

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accommodation when it reasonably believes that the employee may need an accommodation. An employer also may ask an employee with a disability who is having performance or conduct problems if s/he needs reasonable accommodation.

2. Limits On Providing Reasonable Accommodations

An employer never has to provide any reasonable accommodation that causes undue hardship, meaning significant difficulty or expense. Undue hardship refers not only to financial difficulty, but to reasonable accommodations that are unduly extensive or disruptive, or those that would fundamentally alter the nature or operation of the business. Every request for reasonable accommodation should be evaluated separately to determine if it would impose an undue hardship, taking into account:

a. The nature and cost of the accommodation needed;

b. The overall financial resources of the business; the number of persons employed by the business; and the effect on expenses and resources of the business;

c. The impact of the accommodation on the business.

If cost is an issue, an employer should determine whether funding is available from an outside source, such as a state rehabilitation agency, to pay for all or part of the accommodation. In addition, the employer should determine whether it is eligible for certain tax credits or deductions to offset the cost of the accommodation. Also, to the extent that a portion of the cost of an accommodation causes undue hardship, the employer should ask the individual with a disability if he/she will pay the difference. An employer cannot claim undue hardship based on employees’ (or customers’) fears or prejudices, or because providing a reasonable accommodation might have a negative impact on employee morale. Employers, however, may claim undue hardship where a reasonable accommodation would be unduly disruptive to other employees’ ability to work. For example, an employer is not required to modify the work hours or provide leave to an employee with a disability if doing so would prevent other employees from performing their jobs. Such an accommodation would constitute a significant disruption to the operations of the employer and therefore be an undue hardship.

 

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In the event that an employee cannot provide a fixed date of return, in some situations the employer is justified in denying leave. If an employer is able to show that the lack of a fixed return date imposes an undue hardship, then it can deny the leave. Undue hardship could result if the employer can neither plan for the employee’s return nor permanently fill the position. In other situations, an employer may be able to be flexible.

VI. OTHER DEVELOPMENTS

A. GENDER PAY DISCRIMINATION

2013 marked the 50th anniversary of President John F. Kennedy's signing of the Equal Pay Act of 1963. The Equal Pay Act was one of the very first pieces of legislation to address gender-based pay disparities. On average, women today earn roughly 77 cents for every dollar that men earn, which is a 17 cent increase on the dollar since the Equal Pay Act was enacted. At his second inaugural address this January, President Obama made reference to the Equal Pay Act, remarking "[O]our journey is not complete until or wives, our mothers and daughters can earn a living equal to their efforts." At his State of the Union address on February 12, 2013, the President again referenced the Act, asking Congress to "declare that women should earn a living equal to their efforts and finally pass the Paycheck Fairness Act this year." The EEOC has heard the President's call loud and clear. In the EEOC's Strategic Enforcement Plan (FY 2013-2016), the Commission prioritized the enforcement of equal pay laws, and committed to enhanced enforcement of equal pay laws to eliminate compensation systems and practices that discriminated based on gender. If the past year is any indication, it is likely that the EEOC will make good on its promise. In fiscal year 2012, the EEOC received over 4,100 charges of gender-based wage discrimination, and obtained over $24 million for claimants of gender-based wage discrimination through administrative enforcement efforts and litigation.

B. TRANSGENDER DISCRIMINATION

1. Overview

Issues relating to the Lesbian, Gay, Bisexual, and Transgender (“LGBT”) community, specifically gender discrimination and gender identity, have been in the forefront of many recent political and legal discussions. Specifically, new legislation, the Employment Non-Discrimination Act ("ENDA"), has been proposed in the United States Congress that would

 

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prohibit discrimination in hiring and employment on the basis of sexual orientation or gender identity by civilian, nonreligious employers with at least 15 employees.

In 2013, both transgender-inclusive versions of the ENDA bill was introduced in both the United States House of Representatives and in the United States Senate. On July 10, 2013, the Senate Health, Education, Labor & Pensions Committee approved ENDA by a 15-7 vote.

Title VII broadly prohibits discrimination by employers on the basis of many protected categories, including sex. However, sexual orientation is not expressly prohibited under Title VII. In addition, discrimination on the basis of transsexualism or gender identity are is not expressly protected under Title VII.

Although discrimination on the basis of transsexualism is not expressly protected under Title VII, 32 states, including the District of Columbia, have implemented at least one kind of workplace nondiscrimination law or administrative policy that protects gay and transgender workers from discrimination. To date, the Commonwealth of Virginia has not passed non-discrimination laws or policies protecting transgender employees.

The EEOC's decision in Mia Macy v. Eric Holder, EEOC Appeal No. 0120120821 (April 20, 2012); 2012 WL 1435995 (E.E.O.C.) represents the Commission's position that discrimination against an individual because that person is transgender (also known as gender identity discrimination) is discrimination because of sex.

2. Recent Developments

In April 2012, the EEOC issued a landmark opinion in Mia Macy v. Eric Holder, recognizing transgender discrimination in the workplace as a cognizable cause of action for transgender persons under Title VII's prohibition against sex discrimination.

On July 8, 2013, the Department of Justice, to which the case above was remanded after the EEOC's ruling last year, issued a final decision finding Macy faced discrimination when she applied for a job with the Bureau of Alcohol, Tobacco, Firearms & Explosives. The DOJ's decision requires the Bureau to offer Macy the position she applied to, along with back pay and benefits, including interest. The DOJ also awarded compensatory damages, attorney's fees and required the Bureau to take corrective measures to ensure such discrimination did not occur again.

In another case in July, a transgender claimant reached a settlement in a case against a Maryland federal contractor. Little information is known about the case due to the provisions of the settlement agreement. The

 

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settlement was reached after the EEOC conducted an investigation into the matter and later issued a letter finding cause and notice of right to sue.

Given the recency of the decision in Macy and the settlement in the Maryland case, employers must be mindful that the EEOC is ramping up its investigations into allegations by employees of transgender discrimination.

 

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Safeguarding Your Assets We'll share lessons learned from recent unfair competition cases and how you can apply them

to your business. We will also shine light on other legal traps like enforcing employee agreements and protecting your intellectual property. These tools will help you safeguard your

business and its confidential information.

Presented By:

Nathan A. Evans

Joshua F.P. Long

John B. Rottenborn

 

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I. INTRODUCTION

The term “unfair competition” is used frequently in the business world to describe all manner of business practices. From an employment law perspective, however, the term is relatively narrow in scope and generally arise from the use of various agreements between the employer and employee such as non-compete agreements, non-solicitation agreements and non-disclosure agreements. Unless otherwise agreed, however, after the termination of the employment relationship, an employee has no duty not to compete with his former employer. Similarly, a former employee may use general information concerning the method of business of his former employer and the names of customers the employee retains in his memory. As a result, to combat what employers perceive to be unfair competition, employers use a variety of restrictive covenants to protect confidential information and prevent employees from capitalizing on exposure to customers and prospects. As discussed below, these restrictive covenants are heavily scrutinized by the courts, and experience has demonstrated that such scrutiny is only increasing. Despite is relatively narrow scope this area of the law continues to evolve with each new court decision that is issued. In 2011, the Virginia Supreme Court reversed itself by a 6-1 vote striking down a non-compete provision that it had earlier upheld as enforceable. This decision reflected what many consider to be a growing hostility by the Virginia Supreme Court toward non-compete provisions. Indeed, as of that time, the Virginia Supreme Court had invalidated non-compete provisions in the last five cases that came before it. In 2012, the Virginia Supreme Court (finally) upheld a non-compete provision prohibiting a government subcontractor from working on a specific government project. This latest decision may not represent a new trend in favor of enforcement in the employment context, however, because the non-compete at issue was between two companies and not with an individual employee (and thus there was no risk of restricting an individual’s ability to earn a livelihood). Moreover, the non-compete was narrowly tailored to cover only one government project (and thus the government subcontractor could work on hundreds of other jobs in the same sector using the same operating system). This paper will cover this ever evolving world by discussing each of the three types of agreements as well as other unfair business practices that might impact the employment arena.

II. NON-COMPETE AGREEMENTS

Non-compete agreements (a/k/a “covenants not to compete”) protect against competition for a specified length of time and within a specified geographic area. Employers use these agreements to restrict the competitive activities of their former employees in those markets in which they compete. Non-compete agreements are used to prevent former employees from utilizing their specialized skill in a similar manner on behalf of a competitor. They focus on activities within a particular time period and within a specified geographic area.

 

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Any examination of a non-competition agreement in Virginia must begin with the understanding that “covenants in restraint of trade are not favored, will be strictly construed, and, in the event of an ambiguity, will be construed in favor of the employee.” Modern Environments, Inc. v. Stinnett, 263 Va. 491, 493 (2002). When analyzing a non-competition agreement, the court considers whether its scope is greater than necessary to protect a legitimate business interest, whether it is harsh and oppressive in preventing the employee from earning a living, and whether the restraint violates public policy. These considerations are applied to the contract’s restricted activities, duration, and geographic scope. Simmons v. Miller, 261 Va. 561, 580-581 (2001). The employer bears the burden of proving that the restraint is reasonable under the facts of the case. Simmons, 261 Va. at 581 (citing Blue Ridge Anesthesia v. Gidick, 239 Va. 369, 371-72 (1990)). Finally, the enforceability of such clauses is a question of law to be determined by the court. Simmons, 261 Va. at 581. To be enforceable, the employer must demonstrate that (i) the restraint, from the standpoint of the employer, is no greater than necessary to protect some legitimate business interest; (ii) the restraint, from the standpoint of the employee, is not unduly harsh and oppressive in curtailing the employee’s legitimate efforts to earn a livelihood; and (iii) the restraint is reasonable from the standpoint of sound public policy. It is important to bear in mind that these three factors are viewed collectively. So, for example, in practice, the longer the temporal extent of the restriction, the greater the scrutiny the other restrictions will receive. An example of how the courts construe these restrictions collectively and how the law in this area is continually changing is Home Paramount Pest Control Companies, Inc. v. Shaffer et al., 282 Va. 412, 718 S.E.2d 762 (2011). In Home Paramount, the Virginia Supreme Court struck down a non-compete provision despite having a very narrow geographic restriction (limited to any city or county that the employee had worked) and temporal component that was previously approved (2 years) on the grounds that the restrictions on job functions was too broad. What made Home Paramount such a remarkable decision, however, is that the identical non-compete was previously upheld by the Virginia Supreme Court in 1989 in Paramount Termite Control Co. v. Rector, 238 Va. 171, 380 S.E.2d 922 (1989). In reversing its previous holding, the Virginia Supreme Court stated it had “incrementally clarified” the law of non-competes since the earlier Paramount case and that it was no longer possible to uphold the language in question. Another illustration of how courts construe the restrictions collectively is Advanced Marine Enter. v. PRC, 256 Va. 106, 118 (1998), where the Supreme Court of Virginia upheld a prohibition against working for or soliciting customers of the former employer within 50 miles of any of its 300 offices worldwide and stated “[i]n the context of the brief time period involved [8 months] and the narrow definition of prohibited services, the geographic restriction does not pose unreasonable restraint on departing employees.” See also Connors v. Excalibur Cable Com., 2000 WL 33969984, at *2 (Va. Cir. 2000) (granting preliminary injunction and finding “non-competition provision is reasonable as to time – 730 days after termination - and place - within a 100 mile radius of ‘any job [employer] has under negotiation or contract’”); Global One Com. v. Ansaldi, 2000 WL

 

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1210511, *1-3 (Va. Cir. 2000) (granting preliminary injunction and finding noncompetition agreement with 9 month prohibition on employment with any competitor “in the international telecommunications industry in one or more of the countries in which [employer] has an office” was not “unduly oppressive” in duration and “reasonable” in “geographic extent” because employer “is an international telecommunications provider. It deals with primarily Fortune 200 companies to provide services throughout the world.”)

A. Scope of restricted activities

The scope of activities from which the employee may be prohibited must be narrowly limited to those areas of the business in which the employee engaged while employed by the former employer, or to those areas of business in which the employer is involved and to which the former employee can direct competitive conduct with a new employer. Following are examples of impermissible restrictions on scope of activities:

• Roto-Die, Inc. v. Lesser, 899 F.Supp. 1515 W.D.Va. (1995): restriction

against being an “employee” of any trade or business involved “in the manufacture or sale of ... rotary tooling or mechanically milled or engraved rotary tooling” was held to be void for lack of a “functional limitation” on prohibited activities.

• Richardson v. Paxton Co., 203 Va. 790 (1962): restriction on salesman’s ability to “directly or indirectly, either as a principal, agent or servant, ... enter or engage in any branch of marine or industrial supplies, equipment, services business” was held to be too broad and encompassing activities in which the salesman did not engage for the former employer.

• Motion Control Systems, Inc. v. East, 262 Va. 33 (2001): language held overbroad because it included language stating that “business similar” currently includes businesses that made “motor, motor drives and motor controls.”

• Simmons v. Miller, 261 Va. 561, 580-581 (2001): language “any similar business” overbroad because employer imported only one brand of cigars grown and manufactured in the Canary Islands.

• Modern Environments, Inc. v. Stinnett, 263 Va. 491 (2002), language prohibiting a former employee from being employed in any capacity by a competitor of the employer was over-broad and unenforceable.

The Simmons and Motion Control Systems cases warrant further discussion due to their analysis of the “business similar” rule. In Simmons, the Supreme Court of Virginia struck down “business similar” language for being too general. At issue in Simmons was a covenant not to compete that provided that;

 

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for a period of three (3) years after this termination or expiration of the Agreement, Employee shall not directly or indirectly, own, manage, control, be employed by, participate in or be connected in any manner with ownership, management, operation, or control of any business similar to the type of business conducted by Employer at the time this Agreement terminates.

The employer in Simmons was engaged in the import of one particular brand of cigars grown and manufactured in the Canary Islands. The non-compete clause restricted “any business similar to the type of business conduct by [the employer,]” which the court concluded was "considerably broader” than the employer’s business. It is noteworthy that the court did not address this issue with any explicit citation or even veiled reference to its prior line of cases approving “business similar” language. In any event, the non-compete clause at issue was doomed because, as the court noted, the clause was without any geographical limitation, despite the defined geographical parameters of the employer’s business. In the final analysis, the court held that

upon consideration of the lengthy duration of the restriction, the expansion of restricted functions, and the lack of any geographical limitation, . . . the restrictive covenant was greater than necessary to protect the legitimate business interests of [the employer], and unduly harsh and oppressive in curtailing [the employee’s] legitimate efforts to pursue her livelihood. As an unnecessary and unreasonable restraint of trade, the non-competition clause is offensive to the public policy of the Commonwealth and is not enforceable.

In Motion Control, just two months after Simmons, the Supreme Court of Virginia’s opinion suggests that an attempt to make “similar business” language more specific paradoxically may render it overbroad in some circumstances. At issue in that case was a clause that provided:

[T]he Employee agrees that for a period of two years after termination of their employment with the Company in any manner whether with or without cause, the Employee will not within a one hundred (100) mile radius of the Company’s principal office in Dublin, Virginia, directly or indirectly, own, manage, operate, control, be employed by, participate in, or be associated in any manner with the ownership, management, operation or control of any business similar to the type of business conducted by the Company at the time of the termination of this Agreement. The term “business similar to the type of business conducted by the Company” includes, but is not limited to any business that designs, manufactures, sells or distributes motors, motor drives or motor controls.

As in Simmons, the court emphasized the hurdles an employer faces in seeking to enforce such clauses:

 

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Covenants not to compete are restraints on trade and accordingly are not favored. The validity of a covenant not to compete is determined by applying not only the general principles of contract construction, but also legal principles specifically applicable to such covenants. The employer bears the burden to show that the restraint is reasonable and no greater than necessary to protect the employer’s legitimate business interests. The restraint may not be unduly harsh or oppressive in curtailing the employee’s legitimate efforts to earn a livelihood and must be reasonable in light of sound public policy. As a restraint of trade, the covenant must be strictly construed and, if ambiguous, it must be construed in favor of the employee.

The two-year restriction and the geographic scope of the covenant were not in issue on appeal. Addressing only the scope of restricted activities, the court declined to enforce the non-compete clause because it “prohibits employment in any business, for example, that sells motors, regardless of whether the motors are the specialized types of brushless motors sold by [the employer].” It was of no moment to the court that the restrictive language defining “business similar” actually was inserted into the agreement upon the suggestion of the employee. Because the court found that the covenant imposed restraints that exceeded those necessary to protect the legitimate business interests of the employer, it held the covenant unenforceable.

B. Temporal Restriction

No time limitation whatsoever will render the restriction impermissibly perpetual. See Rochester v. Rochester Corp., 316 F.Supp. 139 (E.D.Va. 1970), aff’d in part, rev’d in part, 450 F.2d 118 (4th Cir. 1971). In most cases, it will be difficult for an employer to justify a restriction of greater than 1-2 years, although cases in the past have enforced longer restrictions. Following is a non-exhaustive survey of some of the decisions upholding a variety of temporal restrictions (bearing in mind that one can find cases striking similar temporal restrictions as excessive):

• Roto-Die, Inc. v. Lesser, 899 F.Supp. 1515 (W.D.Va. 1995): 5 year restriction on director of sales & marketing for a tooling manufacturer.

• New River Media Group v. Knighton, 245 Va. 367 (1993): 1 year

restriction on disc jockey. • Blue Ridge Anesthesia v. Gidick, 239 Va. 639 (1990): 3 year prohibition

on salesman & servicemen. • Paramount Termite Control v. Rector, 238 Va. 171 (1989): 2 year

restriction on pest control employees.

 

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• Roanoke Engineering Sales v. Rosenbaum, 223 Va. 548 (1982): 3 year restriction on building supply salesman.

• Foti v. Cook, 220 Va. 800 (1980): 2 year restriction on accountant. • Meissel v. Finley, 198 Va. 577 (1956): 5 year restriction on partner in

insurance firm. • Worrie v. Boze, 191 Va. 916 (1951): 2 year restriction on dance instructor.

C. Geographic Scope

The absence of a geographic restriction will render the non-compete world-wide and unenforceable. See Simmons v. Miller, 261 Va. 561 (2001); Roto-Die, Inc. v. Lesser, 899 F.Supp. 151 (W.D.Va.1995). Restrictions targeting areas of “hopeful” business without a geographic restriction are likewise unenforceable, Alston Studios v. Gress & Assocs., 492 F.2d 279 (4th Cir. 1974), as are restrictions against “any competition” with no geographic limitation. Rochester v. Rochester Corp., 316 F.Supp. 139 (E.D.Va. 1970). Following are decisions upholding various geographic limitations:

• New River Media Group v. Knighton, 245 Va. 367 (1993): restriction on

disc jockey’s competition within 60 air miles of employer’s broadcast station.

• Blue Ridge Anesthesia v. Gidick, 239 Va. 369 (1990): prohibition on

employment with competitive firms in the territories (4 states) serviced by salesman and servicemen.

• Paramount Termite Control Co. v. Rector, 238 Va. 171 (1989):

geographic limitation based upon the counties “in which the Employee was assigned.”

• Roanoke Eng. Sales v. Rosenbaum, 223 Va. 548 (1982): geographic limit

defined by the “territory covered by” Roanoke Engineering Sales Company.

• Meissel v. Finley, 198 Va. 577 (1956): fifty miles for partner in insurance

firm. • Worrie v. Boze, 191 Va. 916 (1951): twenty-five miles for dance

instructor.

 

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D. Non-Competes in Connection with Sale of Business

It is generally recognized that restrictive covenants associated with business purchase agreements receive less scrutiny than those arising merely out of an employment relationship. The Supreme Court of Virginia has observed in this regard that “the scope of permissible restraint is more limited between employer and employee than between sellers and buyers . . . . Richardson v. Paxton Co., 203 Va. 790 (1962); see also Centennial Broadcasting v. Burns, 2006 WL 2850640 (W.D.Va. 2006) (applying “relaxed standards” in connection with sale of business and enforcing 5 year restrictive period), aff’d, 254 Fed. Appx. 977 (4th Cir. 2007); Roto-Die, 899 F.Supp. at 1519 (observing that “the scope of permissible restrictions increases” when the sale of a business is involved).

E. The Latest Development: Non-Competes Between Two

Companies

In Preferred Sys. Solutions, Inc. v. GP Consulting, LLC, 284 Va. 382, 2012 Va. LEXIS 160 (Sept. 14, 2012), the Virginia Supreme Court upheld a non-compete provision prohibiting a government subcontractor from working on a specific government project. Considering the function, geographic scope and duration, the Virginia Supreme Court found that the non-compete was enforceable, despite the lack of a specific geographic limitation, because it (1) was limited to work in support of a particular program (the BSM program) run by a particular government agency (the DLA) and limited to the same or similar types of information technology support offered by the government contractor and (2) had a duration of only 12 months. When comparing this case to the Virginia Supreme Court’s earlier decision in Home Paramount Pest Control Companies, Inc. v. Shaffer et al., 282 Va. 412, 718 S.E.2d 762 (2011), it should be noted that in Preferred Sys. Solutions the non-compete was executed between two companies and not with an individual employee. There was no risk of restricting an individual’s ability to earn a livelihood). Moreover, the non-compete was narrowly tailored to cover only one government project. As the Virginia Supreme Court pointed out, the government subcontractor could work on hundreds of other jobs in the same sector using the same operating system). Preferred Sys. Solutions also discussed whether non-competes that prohibit “indirect competition” are presumptively unenforceable. The Virginia Supreme Court declined to issue a bright-line rule, but suggested that prohibitions on indirect competition may be greater than necessary to protect a legitimate business interest and thereby invalid. The Virginia Supreme Court did, however, note that non-competes that are otherwise permissible in scope and restrict direct competition by indirect means are enforceable.

 

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Five Lessons To Be Learned From Preferred Sys. Solutions:

The Virginia Supreme Court is capable of enforcing a non-compete provision.

Given the facts and holding, this likely does not represent a trend towards enforceability at least in the employment context.

A non-compete is more likely to be enforced where it prohibits clearly defined work.

A non-compete is more likely to be enforced where it prohibits working for specific clients rather than broadly prohibiting competitive activities in the marketplace.

“Indirect competition” issues are on the horizon.

F. Drafting Tips

As noted above, non-compete agreements are strictly construed against the employer. Drafters must carefully strike the correct balance between the interests of the employer, the employee and the public. Drafters should err on the side of being too narrow, instead of being too broad.

1. Describe the Business

Identify the nature and extent of the company’s business including a general overview of products or services. Include recitals noting the importance, secrecy, and sensitivity of business information. Recite the competitive nature of the industry. Identify the geographic reach of the company’s business. Recite the employer’s plans to expand business – functionally or geographically, if true.

2. Describe the Employee

Identify the nature of the employee’s position within the company, including territories assigned to the employee. Describe company-provided training or education for employee, if applicable. Emphasize the extent to which the employee will be given access to sensitive business information.

3. Narrowly Tailor Restrictions

Identify when the covenant not to compete is triggered - termination for any reason, with or without cause. Specifically identify all restrictions imposed - scope of services, time and geography. Be certain the

 

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restrictions closely fit a legitimate interest of the employer and are no broader than necessary to protect legitimate interests. Drafters should restrict competition only in the lines of business in which the employee actually performed work and in those geographic areas where the employee held responsibility and presumably could cause the greatest competitive harm. The agreement should recite that the covenant is not intended to restrict the employee from performing work in roles that are not competitive with the employer. The greatest drafting danger often lies in the scope of restricted activities, as noted above and as illustrated by Omniplex World Services Corp. v. US Investigations Services, Inc., 270 Va. 246 (2005). The non-compete at issue in Omniplex provided that “Employee shall not . . . (i) accept employment, become employed by, or perform any services for Omniplex’s customer for whom Employee provided services or for any other employer in a position supporting Omniplex’s customer, if the employment or engagement requires Employee to possess the same level of security clearance . . . . relied on during his employment with Omniplex . . . .” The court found that under the provision at issue, the employee would have been prohibited from working for any business that provides support of any kind to the agency, not only security staffing businesses that were in competition with Omniplex. Thus, for example, the non-competition agreement would have precluded the employee from working as a delivery person for a vendor that delivered materials to the agency if such security clearance was required to enter an agency installation even though the vendor was not a competing staffing service. Because the prohibition was not limited to employment that would be in competition with Omniplex, the court found that the covenant was overbroad and unenforceable.

4. If the Non-Compete Is Incorporated into a General Employment

Agreement, Carefully Review the Termination Provisions

Non-compete clauses incorporated into employment agreements typically are triggered upon termination of employment. Ensure that employment termination provisions do not jeopardize the enforceability of the non-compete, as illustrated by a recent Supreme Court of Virginia case. See Greenbrier Obstetrics and Gynecology, P.C. v. Leao, Record No. 080072 (Va. January 1, 2009) (unpublished). In Leao, the employee entered into a three-year employment agreement with Greenbrier. The agreement provided that it “may be terminated by either employee or employer without cause and without any further obligations upon sixty (60) days advance written notice.” (Emphasis added). The agreement also contained a covenant not to compete, which provided that “for a period of two (2) years following termination of employment . . . employee shall not, directly or indirectly, own, manage, participate in, be employed by, or

 

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maintain any interest in any medical practice which practices obstetrical or gynecological medicine within a twenty (20) mile radius of the current office of employer.” The covenant not to compete also included a severability clause that stated that the non-compete provision “shall be severable from the other provisions contained in this Agreement, and employer shall not be barred from enforcing employee’s covenant by reason of its breach of any other provision of this Agreement.” The employee provided Greenbrier with 60 days advance written notice that she was terminating the agreement due to medical reasons. Addressing the enforceability of the non-compete, the court determined that, viewing the contract as a whole, the “without any further obligation” language in the termination provision and the severability language in the covenant not to compete created an ambiguity. The court went on to say that “[i]n the event of an ambiguity in the written contract, such ambiguity must be construed against the drafter of the agreement.” Applying this principle, the court held that the employee’s sixty days advance written notice terminated the entire agreement, which included, and thus terminated, the covenant not to compete.

5. Require Disclosure of and Adherence to Prior Obligations

Prudent employers will inquire of all prospective employees whether they have non-compete or other restrictive agreements that may limit their ability to be employed. Drafters should include a provision in non-compete agreements that require employees to disclose any such agreements, to certify that they are not subject to non-compete or other restrictive agreements with previous employers that would prohibit or restrict their employment, and that they understand they are not to disclose trade secrets and other confidential and proprietary information gained from their previous employment. Such provisions could help to avoid employer liability for tortious interference claims, like the one at issue in James, Ltd. v. Saks Fifth Avenue, Inc., 2005 WL 603131 (Arlington Cir. Ct.), rev’d, 272 Va. 177 (2006). In James, Ltd., James, a high-end men’s clothing retailer, filed suit against Saks, a competitor in the same mall, after Saks hired its leading salesman. James alleged that Saks interfered with its non-compete agreement with its salesman and engaged in a conspiracy to injure its business. The evidence showed that the salesman removed confidential information from James, including customer lists, while still employed by James and that Saks was aware of his actions. Following a bench trial, the court awarded compensatory damages in excess of $1,000,000, plus attorneys’ fees and costs. The Supreme Court of Virginia ultimately reversed the judgment, concluding that James failed to carry its burden of

 

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proof of causation on the lost profits claim, but the case is instructive from a cautionary perspective nonetheless.

6. Include an Assignability Clause

In today’s world, mergers and acquisitions are commonplace and often not expected at the time non-compete agreements are consummated. Non-compete agreements, particularly where incorporated into employment agreements, are deemed contracts for “personal services” have been held non-assignable absent express agreement otherwise. See, e.g., & Reynolds v. Hardee, 932 F.Supp. 149 (E.D.Va. 1996), aff’d, 133 F.3d 916 (4th Cir. 1997). It also is extremely important explicitly to reference any such agreements in the business sale documents to effectuate the assignment. See, e.g., McGladrey & Pullen v. Shrader, 62 Va. Cir. 401 (Rockingham Cir. Ct. 2003) (holding that non-compete was not conveyed in sale of business and successor therefore had no standing to enforce the agreement).

7. Include Choice of Law, Jurisdiction and Venue Provisions, As Well

as an Authorization for Injunctive Relief

Doing so will to help ensure a convenient and, if possible, friendly forum. Courts typically will enforce choice of law provisions but only if there is a legitimate basis for the choice of law and the law is not contrary to the public policy. See, e.g., Wellmore Coal Corp. v. Gates Learjet Corp., 475 F.Supp. 1140 (W.D.Va. 1979). Also, be certain to include provisions authorizing immediate injunctive relief upon breach, as well as other legal remedies

8. On the Other Hand, Be Careful about Including Arbitration Clauses

Drafters may be enticed by the speed and relative informality of arbitration proceedings as enforcement mechanisms. But beware - the employer probably will be stuck with the arbitrator’s decision whether it is legally correct or not. Subsequent appeals to the judicial system may be futile, as demonstrated by a recent Supreme Court of Virginia case. Cotton Creek Circles, LLC v. San Luis Valley Water Co., 279 Va. 320 (2010) involved a business contract that went to arbitration after one party contended the other party had breached the non-competition clause. The arbitrator created a carve-out to the non-compete that allowed the defendants to continue their competitive activities. The plaintiffs filed a motion in the circuit court to vacate the arbitration award, arguing that the arbitrator exceeded its powers by disregarding the terms of the non-compete clause. The circuit court denied the motion and the plaintiffs appealed to the Supreme Court of Virginia. The Supreme Court affirmed the circuit court’s affirmation of the arbitrator’s decision, holding that a party’s

 

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disagreement with an arbitrator’s decision did not provide adequate grounds for vacating an arbitration award. “[P]arties may not seek a ‘second bite at the apple’ because they desire a different outcome.” In addition, the Court observed that even if the arbitration panel erred in its interpretation of the non-compete clause, that error does not provide a basis for vacating the panel’s award. Arbitrators do not exceed their powers simply by misinterpreting a contract.

9. Include a Provision Noting Ability of Employee to Seek Legal

Counsel

Consider including a provision allowing and noting the ability of the employee to seek legal counsel of his/her own prior to executing. This does not mean that the employer must negotiate the agreement, but it could help to defeat an argument that the employee did not understand the meaning of the agreement. Bear in mind that the Supreme Court of Virginia was not swayed by the fact that the employee actually negotiated some of the provisions in the Motion Control Systems agreement that were deemed overbroad.

III. NON-SOLICITATION AGREEMENTS

Non-solicitation agreements protect against calling on or soliciting customers (and, in some cases, prospective customers). Non-solicitation agreements are generally less onerous than covenants not to compete, receive lesser scrutiny by the courts, and typically are more enforceable. Non-solicitation agreements are customer/prospect-focused restrictions and do not require a geographic scope. Too often attorneys enter the courtroom seeking to enforce a covenant against soliciting a company’s customers without giving careful thought to the actual scope of its specific prohibitions. Some attorneys assume that because the restriction prohibits only the solicitation of customers, and not competition generally, the court will enforce it without serious scrutiny. Drafters of such provisions are well-advised to remember that covenants prohibiting customer solicitation are subject to the same analysis as full-scale non-competition agreements, and they are accordingly evaluated for overbreadth in terms of time and scope with similar scrutiny. In particular, the manner in which the agreement defines the class of “Restricted Customers” is of critical importance. If the restriction is too broad, courts will not enforce it. Accordingly, drafters must ensure that the employer has a provable protectable interest in the class of customers it seeks to wall off from former employees. To maximize the chance of enforcement, drafters should consider the following limitations on non-solicitation covenants.

 

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A. Limit the Restriction to Customers of Whom the Employee Has Knowledge

The definition of “Restricted Customers” should include only those customers with whom the employee had a meaningful business relationship or about whom the employee acquired material confidential information. A non-solicitation clause that covers all the company’s customers is subject to attack for overbreadth if the employee can show that the provision prohibits her from soliciting customers with whom she had no relationship and acquired no confidential information. See, e.g., BB&T Insurance Services, Inc. v. Thomas Rutherfoord, Inc., 80 Va. Cir. 174 (Richmond Cir. Ct. 2009) (refusing enforcement of non-solicitation provision because it prohibited the former employee from selling insurance products to anyone who had ever purchased BB&T insurance, regardless of whether the former employee had interacted with those customers); Lasership, Inc. v. Watson, 79 Va. Cir. 205, (Fairfax 2009) (invalidating non-solicitation clause that applied to all customers invoiced by the company within the prior year on the grounds that the employee could not possibly know the identity of those customers).

B. Ensure the Employer Can Identify its Customers

Attorneys must scrutinize carefully the word “customer” itself and ensure the employer knows who its “customers” are. Imagine that an employee’s “customer list” includes entities that have not purchased a product or service from the employer for five years. In some industries, five years between business-client interactions is relatively commonplace; in others, a company that has not engaged in a transaction with a customer for five years indicates that the relationship has been long expired. In the non-compete context, the Virginia Supreme Court has made clear that definitions of “competitor” are overbroad and unenforceable if they sweep within their scope companies that are not really competitive with the enforcing employer. See Motion Control Systems, Inc. v. East, 262 Va. 33 (2001). The same analysis applies to definitions of “customer” that include entities or individuals that are not really “customers.” To address this risk, attorneys should examine how their clients define their “customers.” If the client has an internal protocol that allows for a clear definition and determination of active customers, a non-solicitation clause that uses the terms “customer” or “client” without further definition is probably acceptable. But in many companies, so-called “customer lists” are nothing more than marketing lists that forever expand but never contract. In these cases, non-solicitation clauses should define “Restricted Customers” as those entities that have purchased a product or service, or have engaged in some other material business interaction with the employer, within a defined period (one or two years, for example) prior to the employee’s termination.

 

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C. Be Mindful of the Passage of Time During the Restricted Period

Attorneys should ensure that any “Restricted Customer” is one for whom the employer has a protectable interest at the time the former employee engages in the prohibited solicitation. Attorneys should be mindful that while the non-solicitation covenant becomes active at the time of the employee’s termination, it restricts the employee’s conduct for twelve, eighteen or even twenty-four months following termination. The impact of the duration of the “Restricted Period” becomes particularly evident in light of the preceding paragraph. Specifically, combining a two-year “look back” period applicable to the definition of “Restricted Customer” with two-year “Restricted Period” means that a former employee may find himself prohibited from soliciting an entity that, nearly two years after he has left his employer, has not purchased a product or service from the employer for four years. This may be entirely reasonable in some cases, but not in others. Attorneys must recognize and consider this aspect of the clause during the drafting process and ensure that the breadth of the period is intended and justifiable rather than an unintentional byproduct of drafting. Similarly, an employer must carefully consider whether its definition of “Restricted Customer” sweeps in entities that were not the employer’s customers at the time the employee was terminated or that have since fired the employer through no fault of the departed employee. For example, imagine a non-solicitation clause with an 18-month “Restricted Period” that defines “Restricted Customer” to include entities that purchased a product or service from the employer “within one year prior to the employee’s termination or at any time during the Restricted Period.” Such provisions are relatively common, but they are unlikely to be enforced, because they prohibit the employee from soliciting entities that become customers of the employer after the employee has been terminated, even if those entities are already customers of the employee’s new employer. The converse also creates problems for the enforcing employer, when the definition of “Restricted Customer” continues to apply to entities that, following the subject employee’s departure, have discontinued their business relationship with the employer. For these reasons, some attorneys elect to define “Restricted Customer” with what might be called a “double trigger” – namely, a “Restricted Customer” is an entity that was a customer of the employer at the time of the employee’s termination and is a customer of the employer at the time of the prohibited solicitation.

D. Be Careful with “Prospective Customers”

Attorneys should be hesitant to draft clauses that prohibit former employees from soliciting the employer’s “prospective customers,” as the phrase can cover an unintentionally large number of people and entities in which the employer has no reasonable protectable interest, thus rendering the restriction grossly overbroad. In Phoenix Renovation Corp. v. Rodriguez, 439 F.Supp.2d 510, 521-22 (E.D.Va. 2006), for example, the Court refused to enforce a non-solicitation clause

 

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prohibiting the employee from providing competitive services to “any present or prospective customer or client of the Company,” reasoning:

“[T]he Court construes the phrase “prospective customer or client” to cover anyone in these thirty-eight states [in which Phoenix does business] who might call upon Phoenix in the future to perform polybutylene pipe replacement services, or, in other words, any household in these thirty-eight states that has polybutylene pipe.”

Id. at 521-22. Because Virginia courts recognize that the proper scope of a restrictive covenant depends on the particular facts of the case, restrictions on “prospective customers” are not unenforceable per se. Before including such a restriction, however, attorneys must ensure that the term is defined as narrowly as possible to cover only those entities in which the employer and the individual employee have made a material investment and with which the employee had direct contact. See, e.g., Brainware, Inc. v. Mahan, 2011 WL 3734456 *6 (E.D.Va. August 24, 2011) (denying motion to dismiss claim for breach of non-solicitation agreement that applied to “clients . . . or prospective clients . . . which were contacted, solicited or served by the Employee while employed by the Company” on the grounds that the universe of restricted customers and prospective customers was “centered on [the employee’s] own activities.”).

E. Prohibit Only “Competitive” Solicitation

Finally, too often, attorneys overlook the fact that customer solicitation restrictions are, in fact, restrictions on competition that are defined by customer rather than geographic territory. Accordingly, solicitation of customers may be prohibited only if the solicitation is for a competitive purpose. Non-solicitation provisions that prohibit former employees from soliciting the employers customers “for any purpose,” or that use similar language, will often be rejected because they prohibit non-competitive activity. In Daston Corp. v. MiCore Solutions, Inc., 80 Va. Cir. 611 (Fairfax Cir. Ct. 2010), for example, the Court refused to enforce an agreement prohibiting an employee from providing services to any of his former employer’s clients if he had provided “substantially similar or related services” during his employment. The court held that the phrase “substantially similar or related services” was not only vague, but also barred “not only direct competition with Daston, but also the provision of services that are merely ‘related’ to the services provided by Daston.” See also Kantor v. Martin, 59 Va. Cir. 485 (Fairfax 1991) (invalidating non-solicitation restriction because it was not limited to the solicitation of competitive business”). Thus, attorneys must take care to ensure that such provisions prohibit only solicitation of customers “in competition with the employer.”

 

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IV. NON-DISCLOSURE AGREEMENTS

Non-disclosure agreements (“NDAs”) protect the employer’s confidential, proprietary and trade secret information – information that is not generally known to the public and which gives the employer a competitive advantage. Employers use these agreements to safeguard valuable information that helps to distinguish the employer from its competitors. Companies with valuable trade secrets, technical information, and the like typically insist upon these agreements at the outset of employment whether the employee is engaged in sales, marketing activities, or customer contact functions of any kind. Developing confidential and proprietary business information and client lists involves a considerable investment of the employer’s time and resources. Employees acquire or are given access to confidential and other proprietary business information, or the employees personally contact the employer’s customers in the course of business. The employer’s investment can be lost or totally undermined if departing employees can use this information and take customers with them. As one court has stated, “[i]nformation such as customer lists, exact market share, market size, current technology, technological projects and progress, and plans for market expansion, if disclosed to competitors, would destroy a company’s ability to compete.” Roto-Die, Inc. v. Lesser, 899 F.Supp. 1515, 1518 (W.D.Va. 1995). One unfortunate byproduct of the extraordinary effort and analysis that goes into drafting enforceable non-compete agreements is that non-disclosure covenants often get too little attention. Some attorneys – and their clients – believe that NDAs are enforceable regardless of the circumstances or the language used, when in fact, NDAs are subject to analysis and evaluation similar to that used to assess non-compete and non-solicit agreements. Take the following NDA, for example: “All information related to the Company, its customers, and its business generally is strictly confidential and may not be used or disclosed by the employee for any purpose.” This clause misses the mark in a number of ways, most notably that much (in fact, most) of the information it purportedly protects – “all” information “related to” the company, its customers and its business – is not even remotely confidential. The clause covers information about the company and its clients that the company has likely posted on its website or included in its marketing brochures; it covers information that public companies have filed with the SEC, including detailed financial information and executive salaries; and it covers information about the industry generally that employees likely obtained over the course of long careers rather than from their employer. In short, the clause is too broad and thus unenforceable. See, e.g., Lasership, Inc. v. Watson, 79 Va. Cir. 205 (Fairfax 2009) (invalidating as a matter of law a non-disclosure agreement that prohibited the employee from “disclos[ing] to any person ... any information concerning ... the business of Lasership” because it covered information was not confidential or proprietary).

 

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The NDA is, in many ways, the most important clause in a company’s restrictive covenant, but it is often the clause that gets the least amount of evaluation and analysis during drafting. Attorneys must give these provisions as much consideration and care as the more prohibitive non-competition and non-solicitation restrictions, and they should keep at least three key points to keep in mind when drafting.

A. Limit Confidentiality Clauses to “Confidential” Information

The definition of “Confidential Information” should not cover information that is already public or widely known in the industry or that the employer otherwise has no interest in keeping secret. One effective way of accomplishing this when drafting is to include a provision that carves out or exempts certain information from the definition, such as the following:

“Confidential Information” does not include (i) information that is or becomes publicly available other than through any act or omission of the Employee in breach of this agreement; (ii) information that was in the possession of the Employee prior to his/her employment by the Company; (iii) information that is received in good faith by the Employee from a third party that was lawfully in possession of such information and had the right to disclose it to the Employee; (iv) information that is disclosed pursuant to any applicable government regulation or a judicial order by a court of competent jurisdiction; or (v) the Employee’s general skill, training or knowledge.

An exemption clause such as this one will insulate most NDAs from many challenges that the restriction is too broad. See, e.g., id. (“The protection afforded to confidential information should reflect a balance between an employer who has invested time, money, and effort into developing such information and an employee’s general right to make use of knowledge and skills acquired through experience in a field or industry for which he is best suited.”).

B. Ensure the NDA Gives More Protection than the Virginia Uniform

Trade Secrets Act

Notwithstanding the foregoing section, the NDA should not tip too far in the other direction. Sometimes NDAs prohibit employees from using or disclosing only the Company’s “trade secrets.” “Trade secrets,” of course, refers to the definition of “trade secrets” set forth in the Virginia Uniform Trade Secrets Act, Va. Code §§59.1-336, et seq.:

“Trade secret” means information, including but not limited to, a formula, pattern, compilation, program, device, method, technique, or process, that:

 

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Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and

Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Although the VUTSA provides employers protection against misappropriation of trade secrets whether or not their employees have executed an NDA, the statutory protection is not nearly as far-reaching as some employers think. See, e.g., McKay Consulting, Inc. v. Rockingham Mem. Hosp., 665 F.Supp.2d 626, 634-35 (W.D.Va. 2009) (document containing idea for new reimbursement structure was not a trade secret, despite its value to the company, because since idea had been based on understanding of widely-disseminated information, was readily ascertainable, and could have been independently formulated by competitor); MicroStrategy, Inc. v. Business Objects, S.A., 331 F.Supp.2d 396, 425-26 (E.D.Va. 2004) (confidential document describing features of unreleased new product was not trade secret because “mere knowledge” of a feature of software that will soon be release is of not of sufficient competitive value). Thus, attorneys drafting NDA should ensure that “Confidential Information” is defined in a manner that is broad enough to sweep within its definition sensitive business information that may not otherwise be protected by the VUTSA. The broader – but not too broad – definition can be invaluable in litigation. In Decision Insights, Inc. v. Sentia Group, Inc., 416 Fed. Appx. 324 (4th Cir. 2011), for example, the Fourth Circuit vacated the District Court’s grant of summary judgment on the plaintiff’s claims for breach of a non-disclosure agreement, rejecting the District Court’s conclusion that the claims failed because the plaintiff had failed to prove that the information in question qualified for “trade secret” protection under the VUTSA. The appellate court reasoned:

“[The] breach of contract claims do not require a finding that the materials at issue qualify as a trade secret, because the respective nondisclosure clauses apply to “any confidential or proprietary information ... owned or used by” [the plaintiff]. This contractual language is broader than the definition of a “trade secret” under the [Virginia Uniform Trade Secret] Act and, thus, the nondisclosure language may apply to the software code and other proprietary materials at issue even if those materials are not covered by the Act. Id. at *7

C. Expand the Scope of Former Employees’ Obligations

Finally, the employee’s obligations should include not only a covenant against disclosure, but also promises (i) not to use the information for any purpose; (ii) to

 

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take reasonable precautions to protect the information from disclosure; (iii) to notify the employer promptly in the event of a disclosure and to cooperate in the employer’s efforts to mitigate the resulting damage; and (iv) to return any documents or files containing confidential information at the time employment ends. Such a clause gives an employer taking action against a former employee several options for finding the employee in breach of her agreement.

V. ENFORCEMENT AND DEFENSE OF RESTRICTIVE COVENANTS

Depending on the circumstances, employers in Virginia may find themselves in the position of needing to enforce or defend restrictive covenants. When enforcing a restrictive covenant against a former employee, Virginia employers should use the following strategies with assistance of counsel:

Act quickly if violations are suspected and consider seeking immediate judicial

relief;

Identify and preserve the former employee’s hard and electronic files and devices;  

Review and preserve all of the former employee’s email or other means of stored communications;

Consider presenting evidence of the restrictive covenant to the new employer and advise of intent to seek immediately judicial relief; and  

Evaluate potential claims against new employer for tortious interference, conspiracy and/or trade secret misappropriation.

When considering hiring a new employee with a restrictive covenant, Virginia employers should use the following strategies with assistance of counsel:

Request a copy of and review the restrictive covenant to understand its scope

and assess its potential enforceability.

Consider not hiring the individual or at least placing the individual in a position that clearly would not violate the restrictive covenant;  

If you make the business decision to hire the individual despite the restrictive covenant, ensure that the individual does not possess any confidential or proprietary information belonging to a former employer, make clear that no such information shall be provided, and document this understanding. In the event that the individual is holding any confidential or proprietary information or property belonging to a former employer, instruct the individual to return it immediately and document that he or she has done so;

 

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Consider having the individual retain separate legal counsel;  

Consider attempting to negotiate a resolution with the former employer that restricts the individual’s duties or otherwise resolves the dispute.

A. CONCLUSION

Employers in Virginia face a number of obstacles in seeking to enforce restrictive covenants. Covenants in restraint of trade are not favored, will be strictly construed against the employer, and, in the event of an ambiguity, will be construed in favor of the employee. Moreover, the employer bears the burden of proving that the restraint is reasonable. Over the past 50 or more years, a number of fairly settled principles have emerged and continue to be refined. More often than not, judicial guidance comes in the wake of ruling that restrictive covenants are not enforceable. The courts in Virginia continue to display a decided reluctance to enforce all but the most narrowly tailored covenants. Drafters using “cookie-cutter” off-the-shelf form agreements run the significant risk that their agreements will be unenforceable. Drafters should consult with their clients to learn the precise nature of their businesses and restrict competitive activities only to the narrowest extent necessary to protect legitimate business interests.

 

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Immigration: What You Don't Know CAN Hurt You!

Immigration reform promises to bring many changes to existing law, but what, when and how are still up in the air. However, there appears to be at least one common component no matter the proposal offered. That is that E-Verify becomes mandatory. Like the I-9 process, E-Verify

seems so simple, yet there are dangerous traps for the unwary.

Presented By:

Anthony H. Monioudis

Joshua R. Treece

 

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I. E-VERIFY

An electronic employment verification program designed as purely voluntary that traces its genesis to immigration reform from 1996 (the Illegal Immigration Reform and Immigrant Responsibility Act of 1996) may, through immigration reform 18 years later, morph into mandated activity on the part of every employer in the United States. The program is E-Verify and mandatory usages is one component of the comprehensive immigration reform proposed by President Obama earlier this year as well as in the immigration reform bill passed by the U.S. Senate in July. The House of Representatives, which, while controlled by the Republican Party, has been very vocal on the issue and would like to see E-Verify become mandatory, has so many issues with the Senate's bill that it refuses to consider it at all and will – or may -- address immigration reform in piecemeal fashion. This, of course, leaves the status of comprehensive immigration reform in limbo, but the handwriting appears to be on the wall that E-Verify, at some point, is going to become mandatory.

A. History

By way of a brief history lesson, from 1996 to 2004, the electronic employment verification program was in "Pilot Project" status being tested, in one form or another, in a few select states. Then, in 2004, one version was selected and it was expanded to all fifty states. In 2007, the program was renamed "E-Verify" and a campaign to encourage use began in earnest. Then, in 2008, by Executive Order, almost all employers serving as contractors to the federal government had to use E-Verify resulting in the first official mandated use. A number of states then jumped on the E-Verify bandwagon by compelling, to one degree or another, that, as a matter of state law, employers in those states to use E-Verify. (For a list of states with one form of E-Verify obligations or another, go to: http://cis.org/e-verify-at-the-state-level.) Virginia has joined that list to a certain extent through a two-step process. First, by requiring all state agencies to utilize E-Verify as to December 1, 2012 for all new hires, and, second, taking a page from the Federal-Contractor Rule, compelling, as of December 1, 2013, that certain contractors with state agencies must use E-Verify in order to be awarded contracts. The failure to do so will result in debarment from any work with a state agency for up to a year. Affected contractors are those with work or service contracts worth $50,000.00 or more and average employment of 50 individuals over the last 12 months. Verification through E-Verify is limited to newly-hired employees. In its current quasi-voluntary, quasi-mandatory state, E-Verify does not supplant or eliminate the I-9 process and requirements. And, in President Obama's proposal and the approved Senate bill, that does not change. The I-9 paperwork still needs to be completed and it is information and documentation provided by way of the I-9 that employees must use is utilized for E-Verify purposes. When E-

 

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Verify is in play, the employee must provide his/her Social Security Number in section one. Otherwise, providing such information is optional.

B. Summary

For an employer to utilize E-Verify, a Memorandum of Understanding with the Department of Homeland Security must first be signed. There is some training involved and then I-9 information received for a new hire is entered electronically where is it first checked against the Social Security Administration's database. If information in that database is insufficient for the purpose, a query is automatically sent to USCIS as to the person's authorization to work in the United States. Only three possible responses can be received by the employer:

Confirmation that employment is authorized;

tentative nonconfirmation (TNC);

final nonconfirmation (FNC).

If confirmation is received, the new hire can be employed. If a FNC is received, the new hire cannot be employed and must be terminated. If a TNC is received, a series of time-sensitive notices and obligations come into play to allow for further investigation/clarification during which time the new hire is to remain employed. Ultimately a confirmation or FNC will be issued. In 2013, the summary findings of four separate surveys with regard to E-Verify were published and covered: 1) user satisfaction; 2) employer agents and their clients; 3) accuracy of the E-Verify findings; and 4) the E-Verify experience under Arizona's law mandating usage. Almost simultaneously came a number of press releases from the Office of Special Counsel for Immigration-Related Unfair Employment Practices within the Civil Rights Division of the Department of Justice (OSC) touting actions and results against employers for improprieties under E-Verify as well as an article in an American Bar Association publication warning of areas of risk exposure to employers under E-Verify. Then, in August 2013, The Wall Street Journal ran two opposing views with regard to E-Verify.

C. What does this mean for employers? The Bright Side.

All this, especially if E-Verify is to become mandatory, begs the question: for employers, is E-Verify more of a trick or more of a treat? Let us start with the treats. The surveys reflect that the majority of users of E-Verify have been pleased with their experience (87%) and would continue to use E-Verify even if not compelled to do so (62%). Many – 79% -- reported no direct costs in setting up E-Verify operations and 83% reported no direct annual costs to maintain E-Verify. The Photo Matching feature – currently limited to photos in

 

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U.S. passports and on U.S. passport cards, permanent resident cards and employment authorization documents, but being expanded, slowly, to DMV photos from some states – received good marks in terms of providing assistance to prevent fraud (61%). A slightly higher percentage – 67% – wanted more documents included for Photo Matching. Interestingly, the data also suggests that that employers mandated to use E-Verify tend to do a better job with regard to compliance when compared to those that voluntarily signed up. From an accuracy standpoint, the data indicate that E-Verify has improved its accuracy rates with regard to issuances of FNCs. For 2009 (last full year analyzed), the accuracy rate was 94%. And, when USCIS was asked to perform a secondary review, FNC accuracy was 90% as compared to 58% without this secondary review. The top four problems resulting in TNCs (covering 80% of TNCs) were identified, which led to initiatives to address and resolve. They are:

Inability to confirm U.S. citizenship status when such is attested to on the I-9 (35%);

SSA name mismatch (33%);

Inability to located worker's I-94 number (7%); and

USCIS name mismatch (5%).

The latest version of the I-9 that came out earlier this year included specific redesigns to allow E-Verify to capture more information and utilize that information to locate I-94 numbers. It also added a database to search, the Arrival and Departure Information System (ADIS). As noted previously, E-Verify is working to expand the list of documents with photographs that can be used for Photo Matching. The E-Verify Web Interface was redesigned to take advantage of improved navigational tools to further ease of use and maximize efficiency. A working group was established and is dedicated to developing recommendations for existing forms to improve the recordation of names, especially complex surnames. And the manner in which USCIS captures names versus how Social Security does is being studied to determine if improvements can be made. USCIS has recognized that certain groups of noncitizens, such as those legally in the United States through Temporary Protected Status (TPS), may have higher TNC rates when compared to the norm and it is endeavoring to draw up a plan that could allow for automatic verification of such workers. Matching algorithms are being studied to determine how to improve name matching and what further data might be beneficial toward that end. In addition to improvement in training (noted and appreciated in the survey results), USCIS launched Self Check, a tool that allows workers to check their own verification status as it may exist in the databases utilized prior to applying

 

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for a job. Thus, if a problem is identified, efforts at redress can be undertaken outside the tight timeframes that E-Verify allows. USCIS also launched E-Verify Connection, monthly online publication designed to keep employers and the public abreast of all developments and issues touching upon E-Verify. And, in July of this year, courtesy of the new line on the I-9 for e-mail addresses for employees, if a TNC is to be issued, not only will it go to the employer, but it will simultaneously be transmitted to the employee, thereby maximizing the time for action and minimizing lost time in the communication process. This does not, however, mean that employers are free from their notice obligations in a TNC situation. The biggest gripe, as reflected in the survey information, is the inability to use E-Verify to prescreen would-be hires with the survey results revealing that that attribute would be extremely beneficial to employees. The data suggests that there has been an uptick is such activity anyway with 9% of employers (as of 2010) admitting to such action.

D. What Does This Mean for Employers? The Dark Side

Which makes this point a good segue to the tricks portion of the question posed. Recall that, prior to engaging in E-Verify, a Memorandum of Understanding must be executed. Among the understandings addressed in that document, three are pertinent here:

Employers can only use E-Verify with regard to newly-hired employees (one exception is in the Federal-Contractor scenario, when certain existing employees are to be checked through E-Verify);

Employers cannot use E-Verify to prescreen job applicants; and

Employers are to abide by the requirements of Title VII of the Civil Rights Act of 1964 and the antidiscrimination provision Section 474B of Immigration and Nationality Act.

The temptation to prescreen is there. Indeed, 9% of employers using E-Verify admit to doing so, which, by itself, suggests that the true number may be higher. Lest employers think that no harm can come from prescreening because who will ever know, or that E-Verify is the perfect means for conducing audits on the legal work status of an employer's entire work force, USCIS has expanded its Monitoring and Compliance Branch which utilizes behavioral algorithms to detect patterns of potential program misuse. From an Orwellian viewpoint, Big Brother is watching, 24/7. A second area of temptation has to do with the receipt of a TNC and how both handle. An employer is supposed to immediately inform the employee of the TNC and his or her right to contest as well as the time parameters involved.

 

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During this time period, the employee is to be kept on the payroll and continue with any training involved. It is not hard to envision an employer's analysis here that a TNC is likely to convert to an FNC, so why continue to invest in a bad asset (the employee)? Employers may thus think that it is better to not share the TNC information in whole or in part and just cut the employee loose. Or perhaps, instead, delay training or reduce the wages offered. In an independent study of 2009 data, it was determined that 37% of employers took some form of adverse action against an employee with a TNC, including 17% who restricted work assignments, 15% who delayed training and 2% who reduced pay. All are no-nos and USCIS, in an effort to combat and educated employees as to their rights, developed the Employee Rights Toolkit and launched and Employee Hotline so employees could report complaints about E-Verify misuse. Once a complaint is received, OSC becomes involved. Whereas OSC is without authority to monitor E-Verify usage for misuse, once informed it will investigate to determine if a discriminatory incident occurred and will use its position to ensure compliance with the requirements under E-Verify. One such complaint received and investigated involved a community college in Arizona and its practice of requiring the completion of a "Non-U.S. Citizen Employee Tax Data Form" in addition to the I-9 by non-U.S. citizen applicants. This form demanded specific immigration-related information and additional documents for which there was no corresponding demand upon U.S. citizens. It turned out that, during an eighteen-month period, 247 non-citizens were compelled to complete this form. In lieu of litigating further, the community college paid $45,760.00 in civil penalties and $22,123.00 in back pay. United States v. Maricopa County Community College District, Case No. 10B00099 (OCAHO). Two press releases from OSC in 2013 report settlement of discrimination charges of $25,000.00 in civil penalties in one matter and $83,600.00 in civil penalties plus $20,000.00 in back pay in another. Prescreening and unauthorized reverification through E-Verify can create vulnerability to an employer not only on the basis of the terms of the Memorandum of Understanding and the E-Verify procedures, but such action can rise to the level of discriminatory conduct as well. And potential exposure for race, ethnicity or national origins claims can be high when, with regard to a TNC, certain employees are treated differently from others. Photo Matching is another area of concern where the treat of the function could turn into a bad trick and create exposure for civil fines and other damages. This is because the documents for which the photo matching function is available are still limited to selected categories. If presented with one form of identification that is not useful for Photo Matching, should an employer ask instead for a different type of identity document that would allow for Photo Matching, the employer will

 

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have just crossed the line into document abuse. Recall that the I-9 rules apply. If an approved List A, B or C document is tendered it has to be accepted for inspection and recordation of pertinent information. An employer can not suggest which document(s) to produce, being limited, instead, to production of or reference to the list of approved documents on the last page of the I-9. For employers with union employees, where use of E-Verify is not mandated by law, but is purely voluntary, use of E-Verify affects the terms and conditions of employment and, therefore, is subject to collective bargaining. Pacific Steel Casting Co., Case No. 32-CA-25763, 2012 WL 6085159 (N.L.R.B.G.C. Feb. 6, 2012). Because Pacific Steel did not engage with the local union, under the terms of its settlement agreement, it not only had to end its E-Verify enrollment, but had to reinstate all employees terminated for E-Verify results with full back wages and benefits. Perhaps, then, a determination of whether E-Verify is a trick or a treat or a combination of both depends on the use made of E-Verify and adherence to all its requirements and protocols. If faithfully obeyed, E-Verify could very well be a treat. However, an inadequate understanding of the rules in play and the failure to treat every worker the same could quickly create exposure and headaches resulting in an unhappy trick.

E. Perspective on E-Verify: Two Opposing Views

To help ponder your own views, check out two pieces that appeared on Op-Ed pages of the Wall Street Journal. The first, on August 2, 2013, was by John H. Cochrane, a Professor of Finance at the University of Chicago Booth School of Business. He rails about the implication that "every American will have to obtain the federal government's prior approval in order to earn a living" and worries that mandatory E-Verify could be a launching pad for further, more intrusive government action and programs. Thus, on August 11, 2013, Rep. Ken Calvert (R. Calif.) replied by describing E-Verify as common-sense legislation "that helps save jobs for American workers." He dismisses Cochrane's concerns as "unfounded and irrational." Access to both pieces can be found at http://online.wsj.com/article by following the links therein.

 

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Face Your Fears: The ACA is Here!

No more hiding in the shadow; the Affordable Care Act is here. Let us help clarify this new reality and how compliance affects your bottom line. Our attorneys will share some of their

strategies, and help you navigate the upcoming year with confidence, not fear.

Presented By:

Neil V. Birkhoff

Joshua R. Treece

Stephen A. Burt

 

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II. THE ACA: A SUMMARY

A. What is the ACA?

Beginning in 2010, the ACA requires existing and new individual market and group health plans to satisfy certain requirements, such as coverage of dependents up to age 26, no pre-existing condition limitations, and no annual or lifetime limits. Effective in 2014, the ACA expands coverage through a series of provisions:

Individual mandate: Requires all Americans, with a growing list of exceptions, to maintain a minimum level of health coverage or pay a penalty.

Insurance exchanges: Creates state-based health insurance Exchanges and provides premium tax credits (PTCs) to help eligible individuals purchase health coverage.

Medicaid expansion: Allows, but does not require, states to expand Medicaid coverage. * Delayed until 2015, the Employer Mandate requires employers with 50 or more full-time equivalents (FTEs) to offer coverage to full-time employees (and their dependents) or pay penalties (taxes) if an employee obtains Exchange coverage and a PTC.

B. The Supreme Court's Affirmation of the ACA, or When a Penalty is a Tax

The U.S. Supreme Court has ruled that the ACA’s individual mandate is a constitutional exercise of Congress’ taxing power.

The Supreme Court, however, determined that the federal government could not withhold Medicaid funding to force states to comply with Medicaid expansion.

Employers in a state that does not expand Medicaid may face greater risk of ACA penalty taxes because lower-wage employees, who would have been eligible for Medicaid, may be entitled to the premium tax credit for Exchange coverage.

 

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C. Key effective dates for employers

2014 (Coverage expansions take effect) State-based exchanges Individual mandate and premium tax credits Medicaid expansion Other insurance market reforms Health insurers’ fee Reinsurance fee

2015

Employer mandate Employer reporting to the IRS (due by 1/31/2016)

2017

States may open Exchanges to large group market 2018

40% excise tax on high-cost health plans 2020

Medicare Part D donut hole closed 2010

Immediate health insurance individual market reforms Medicare Part D “donut hole” relief begins

2011

Drug manufacturers’ fee Limitation on OTC drugs for FSAs/HSAs/HRAs Increased tax on non-medical withdrawals from HSAs

2012

Reporting value of health benefits on Form W-2 (due by 1/31/2013) PCORI fee

2013

Increase Medicare payroll tax by 0.9% on earned income Impose 3.8% tax on unearned income Eliminate deduction for retiree drug costs covered by Medicare Part D subsidy Excise tax on medical devices Fair Labor Standards Act notices $500,000 compensation deduction limitation for health insurance issuers

 

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III. EMPLOYER COVERAGE REQUIREMENTS

The ACA does not require an employer to offer health coverage. A “large employer,” however, may be subject to a penalty tax if at least one full-time employee receives a premium tax credit for Exchange coverage and the employer: Fails to offer coverage to full-time employees (and their dependents) (IRC Section 4980H(a)); or Offers coverage to full-time employees that does not meet the ACA’s “affordability” or “minimum value” standards (IRC Section 4980H(b)).

A. Calculation of Tax Penalties

1. Penalty for no coverage – IRC Section 490H(a)

If a large employer does not offer coverage to their full-time employees and their dependents, employers face a penalty of: $2,000 x the total number of full-time employees if at least one full-time employee is receiving a premium assistance tax credit

2. Penalty for unaffordable coverage – IRC Section 4980H(b)

If a large employer offers coverage to its full-time employees and their dependents but the coverage is unaffordable to certain employees or does not provide minimum value, the employer faces a penalty of: The lesser of $3,000 x the number of full-time employees receiving a premium assistance tax credit or $2,000 x the total number of full-time employees

Employers who do not offer coverage may subtract the first 30 workers when calculating their liability for tax penalties under IRC Section 4980H(a). Penalties under Section 4980H(b) are capped not to exceed an employer’s potential penalties under Section 4980H(a).

 

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B. Is your company a "large employer"?

Any employer with 50+ full-time equivalents is considered a large employer. For each calendar month of the preceding calendar year, employers must: Calculate full-time employees (including seasonal); (30+ hrs/wk/month) Full-time equivalents (FTEs): aggregate number of hours worked by non-full-time employees (including seasonal) ÷ 120 Add the number of full-time employees and FTEs calculated in steps (1) and (2) for each of the 12 months in the preceding calendar year. Add the monthly totals and divide by 12. If the average exceeds 50 FTEs, determine whether the seasonal employee exception applies (see below). Seasonal employee exception: If an employer’s workforce exceeds 50 full-time employees for 120 days or fewer during a calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days (four calendar months, for this purpose only) were seasonal employees, the employer would not be an applicable large employer. If the seasonal exception does not apply, the employer is an applicable large employer for the current calendar year. “Large employer” status is measured on a controlled group basis (IRC Section 414) Employees of a controlled group of corporations, partnerships or proprietorships under common control, and affiliated services groups are counted together to determine large employer status.

C. ACA's Definition of a Full-Time Employee

Full-time employee: An employee who works on average 30 hours per week, per month. If an employee is hired for or promoted to a position that the employer classifies as or reasonably expects to be full-time, the employee will be eligible for the employer’s health plan after the applicable waiting period (not to exceed 90 days). The Department of Treasury on August 31, 2012, issued Notice 2012-58 that provides guidance modifying and expanding on prior guidance for determining which employees are considered full time. The Notice states that employers can rely on this guidance at least until January 1, 2015.

 

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D. IRS Safe Harbor Methods to Determine Full-Time Employee

Status

The Department of Treasury provides a “look-back/stability period” safe harbor as a measuring period for employees where it cannot be determined if the employee is reasonably expected to work on average at least 30 hours per week. If the employee is determined to be full time during the measuring period, then the employee is treated as full time during a subsequent stability period in which coverage must be offered. Specific safe harbor methods are provided for ongoing employees, and newly hired variable hour and seasonal employees. Through at least 2014, employers are permitted to use a reasonable, good faith interpretation of “seasonal employee” for purposes of this notice.

E. Ongoing Employee and Full-Time Status Determination

Employers can choose a standard measurement period of three to 12 months for ongoing employees, after which employees determined to be full time would be eligible for coverage during an associated stability period equal to or greater than the look-back period. The associated stability period cannot be less than six months. Employers may use measurement periods and stability periods that differ either in length or in their starting and ending dates for the following categories of employees:

Collectively bargained employees and non-collectively bargained employees

Salaried employees and hourly employees

Employees of different entities

Employees located in different states

F. Newly Hired Variable Hour, Seasonal Employees: Are They Full Time?

Employers can use an initial measurement period to determine the status of newly hired variable hour or seasonal employees.

 

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Notice 2012-58 definition: A “new employee is a variable hour employee if, based on the facts and circumstances at the start date, it cannot be determined that an employee is reasonably expected to work on average at least 30 hours per week” over the initial measurement period. The associated stability period for newly hired variable hour or seasonal employees must be the same length as the stability period for ongoing employees. Once an employee who has been employed for an initial measurement period, also has been employed for an entire standard measurement period, the employee must be tested for full-time status, beginning with that standard measurement period, at the same time and under the same conditions as other ongoing employees.

G. Optional Administrative Period to Determine Full-Time Status

Notice 2012-58 provides for an optional administrative period not to exceed 90 days between the standard measurement period and the associated stability period to determine which employees are eligible for coverage, and to notify and enroll them. For ongoing employees, the notice states that the administrative period will overlap with the previous stability period to avoid creating any gaps in coverage. For newly hired variable hour or seasonal employees, the combined length of the initial measurement period and administrative period is effectively limited to no more than 13 months (from extending beyond the last day of the first calendar month beginning on or after the first anniversary of the employee’s start date).

H. Determination of Full-Time Employee Status and the Penalty

Taxes

Employees may be eligible for a premium tax credit or cost-sharing reduction through an Exchange during the look-back period (and initial administrative period) when coverage is not available. Employers will not be liable for the penalty taxes under IRC Section 4980H if they comply with the standards for the measurement and stability periods.

I. 90 Day Waiting Period Limitation

PHSA section 2708 (incorporated into ERISA and IRC) provides that any waiting period for coverage may not exceed 90 days. Notice 2012-59 (issued simultaneously by Treasury, DOL and HHS) confirms that a “waiting period” is

 

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defined as the period that must pass under plan terms before coverage for an employee who is otherwise eligible to enroll becomes effective. That Notice provides that:

An employer may use a reasonable period to make an eligibility

determination when it cannot be determined that a newly hired employee is reasonably expected to regularly work that number of hours per period.

A reasonable period is the measurement period (up to a 12-month look-back period) to determine whether a variable hour employee or a seasonal employee is considered full-time.

Other conditions for eligibility under the plan are permissible as long as the conditions do not avoid compliance with the 90-day waiting period. Example: A cumulative hours of service requirement of no more than 1200 hours for part-time employees may be utilized before the 90-day waiting period applies.

J. If Your Company Offers Coverage, Which Employees Can Get Tax Credits?

Employers will face tax penalties if the coverage they offer is unaffordable or is not of minimum value to employees with household income between 100% and 400% of the federal poverty level, and the employees receive a tax credit for Exchange coverage. If an employee is enrolled in an eligible employer-sponsored plan, regardless of the cost or value of the plan, such employee will be ineligible for a premium tax credit. Medicaid-eligible employees will not be eligible for tax credits. Therefore, employers will not face tax penalties for those employees.

K. The "Affordability" Standard

General rule: Employee’s share of the self-only premium for the employer’s lowest-cost plan that provides minimum value cannot exceed 9.5% of household income or the employee may be eligible for a premium tax credit to purchase Exchange coverage. Treasury-proposed safe harbor: No employer penalty if the employee’s share of the self-only premium for the employer’s lowest-cost, minimum value plan does not exceed 9.5% of the employee’s current W-2 wages from the employer.

 

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This safe harbor clarifies that an employer must offer coverage to employees and dependents, but that the affordability test is based on employee contribution to self-only coverage. Employers unable to utilize the safe harbor will still be able to utilize the general rule, which is based on 9.5% of household income.

L. The "Minimum Value" Standard

Minimum value A health insurance plan fails to provide minimum value if “the plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs.”

Generally understood to be a 60% actuarial value test (percentage of medical expenses – deductibles, co-insurance, co-payments, etc. – paid for by the plan for a standard population and set of allowed charges).

Large employers are not required to offer Essential Health Benefits. The Departments of Treasury and Health and Human Services have issued a request for comments on several approaches to determining whether an employer plan provides minimum value. Treasury-HHS proposal for establishing a “standard population” measure: Minimum value for large employer plans will be measured against a standard population. The data used to develop this “standard population” will be a large set of commercial claims data purchased by HHS that reflects typical self-insured employer plans. Employers are not required to provide any specific category of benefits, but minimum value will be determined in comparison to a standard population and claims data set that is driven by the provision of four core categories of benefits including; Hospital/ER services, physician/mid-level, practitioner care, pharmacy benefits, and lab/imaging services.

M. Government Help Calculating Minimum Value

Treasury and HHS have proposed three distinct options for determining minimum value on a pass/fail basis. All three options are linked by the standard population/claims data set.

1. Play-or-Pay Proposed Regulations

Set plans must offer benefits used in the MV calculator (See http://cciio.cms.gov/resources/regulations/index.html)

 

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a. Medical

i. Emergency room services

ii. All in-patient hospital services

iii. Primary care visit to treat an injury or illness (exc. Well baby, preventive, and x-rays)

iv. Specialist visit

v. Mental/behavioral health and substance abuse disorder outpatient services

vi. Imaging (CT/PET Scans/MRIs)

vii. Rehabilitative speech therapy

viii. Rehabilitative occupational and rehabilitative physical therapy

ix. Preventive care/screening/immunization

x. Laboratory outpatient and professional services

xi. X-rays and diagnostic imaging

xii. Skilled nursing facility

xiii. Outpatient facility fee (e.g., ambulatory surgery center)

xiv. Outpatient surgery physician/surgical services

b. Drug

i. Generics

ii. Preferred brand drugs

iii. Non-preferred brand drugs

iv. Specialty high-cost drugs

2. Set plans that are deemed to meet 60% actuarial costs

a. Plan One

i. $3,500 integrated medical and drug deductible

 

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ii. 80% plan cost sharing

iii. $6,000 max out of pocket limit for EE cost sharing

b. Plan Two

i. $4,500 integrated medical and drug deductible

ii. 70% plan cost sharing

iii. $6,400 max out of pocket limit for EE cost sharing and;

iv. $500 HAS ER contribution

c. Plan Three

i. $3,500 medical deductible

ii. No drug deductible

iii. 60% medical cost sharing

iv. $6,400 max out of pocket limit for EE cost sharing

v. 75% drug cost sharing

vi. Drug co-pays of $10/$20/$50 for 1st, 2nd, and 3rd prescription drug tiers

vii. 75% co-insurance for specialty drugs

3. Minimum Value (MV) Calculator

Allows an employer to input in-network cost-sharing features (i.e., deductibles, co-payments, coinsurance, out-of-pocket limits) of their health plan for different categories of benefits into an online calculator. Employers would not be able to use the MV calculator if they have “non-standard” features, such as atypical quantitative or cost-sharing limits on the four core benefit categories.

4. Safe-Harbor Checklist

Allows an employer to perform an “eyeball test” and see if their plan design features meet one of several design-based safe harbors, such as a high-deductible health plan with an employer-provided HSA. In order to utilize this option, an employer would be required to cover all four core categories of benefits and services and could not have non-standard

 

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features. Each safe harbor checklist would describe the cost-sharing attributes of a plan that apply to the four core categories.

5. Actuarial Certification

Allows an employer to use a certified actuary to determine whether a plan meets minimum value. Plans with nonstandard features, such as atypical quantitative limits on the four core benefits, will need to use this method for determining MV.

6. HSAs and HRAs

The Administration has proposed to credit only an “appropriate portion” of the amounts contributed by an employer to an HSA or made available to an employee under an HRA in the calculation of minimum value. This “appropriate amount” would be adjusted so that the employer only receives the same credit for HSA or HRA contributions as it would receive for the same amount of first dollar coverage.

N. Additional Employer Coverage Requirements

1. Auto-enrollment

Employers with at least 200 employees must auto-enroll full-time employees into coverage if no election is made. Implementation of this requirement has been delayed until regulations are issued.

2. Essential Health Benefits (EHBs)

Essential health benefits apply to products sold in the individual and small group markets, both inside and outside state insurance Exchanges. Although large group plans are not required to offer the essential health benefits package, large group plans are prohibited from imposing lifetime or annual limits on any essential health benefits that they do offer.

3. The ACA described EHBs as consisting of 10 benefit classes:

Ambulatory patient services

Emergency services

Hospitalization

Maternity and newborn care

 

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Mental health and substance use disorder services, including behavioral health treatment

Prescription drugs

Rehabilitative and habilitative services and devices

Laboratory services

Preventive services and wellness services and chronic disease management

Pediatric services including oral and vision care

O. The ACA and Part-Time Employees

Large employers are not required to offer coverage to part-time employees (those who work less than 30 hours per week per month). For large employers who offer coverage to part-time employees:

The application of the limitation of 90-day waiting period prior to coverage applies. Notice 2012-59 states that other conditions for eligibility under the plan are permissible as long as the conditions do not avoid compliance with the 90-day waiting period. Example: A cumulative hours of service requirement of no more than 1200 hours for part-time employees may be utilized before the 90-day waiting period applies

Certain insurance market reforms apply, such as preventive care without cost sharing, and no annual and lifetime limits on Essential Heath Benefits.

IV. EMPLOYER REPORTING REQUIREMENTS

1/31/2013: Employers begin reporting the value of employer-sponsored health insurance on employees’ form W-2.

3/1/2013: Notice to current employees under FLSA §18B; to all new hires after this date (“In accordance with regulations”).

10/1/2013: Open enrollment in Exchanges begins.

1/1/2014: Major coverage expansion takes effect.

1/31/2016: Mandatory reporting for large employers under IRC §6056. Reporting for health insurance issuers, government agencies, employers that sponsor self-

 

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insured plans, and other persons that provide minimum essential coverage to an individual under IRC §6055 is mandatory.

A. W-2 Reporting on Health Coverage Value

Employers who issue at least 250 forms W-2 in a year must report the cost of certain group health coverage on employees’ forms W-2 issued after January 1, 2013. Group health coverage included in the reporting:

Major medical

Health Flexible Spending Arrangement for the plan year in excess of employee’s cafeteria plan salary reduction for all qualified benefits

Hospital indemnity or specified illness (insured or self-funded), paid through salary reduction (pre-tax) or by employer.

Domestic partner coverage included in gross income.

Employers must begin collecting information in 2012. Reporting is for informational purposes only and does not affect the tax treatment of employer-sponsored health coverage.

B. Employer Requirements to Provide Notice of Coverage Options

(FLSA)

“In accordance with regulations” to be issued by the Department of Labor, employers who are subject to the Fair Labor Standards Act must provide a written notice to employees:

of the existence of an Exchange, including a description of the services provided by such Exchange, and the manner in which the employee may contact the Exchange to request assistance;

if the employer plan’s share of the total allowed costs of benefits provided under the plan is less than 60% of such costs (minimum value standard), that the employee may be eligible for a premium tax credit and a subsidy if the employee purchases a qualified health plan through the Exchange; and

if the employee purchases a qualified health plan through the Exchange, the employee may lose the employer contribution (if any) to any health

 

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benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.

Employers are required to provide this notice to current employees on March 1, 2013, and to new employees on the date of hire thereafter.

C. Employer Reports of Minimum Essential Coverage (IRC Section

6056)

Large employers subject to IRC §4980H will be required to report to the IRS:

Length of any waiting period

Months during the year for which coverage was available

Monthly premium for the lowest-cost option under the plan

Applicable large employer’s share of total allowed cost of benefits under the plan

The name, address, ad TIN of each full-time employee during the calendar year and the months (if any) during which such employee (and any dependents) were covered under any such health benefits plans

Such other information as the Secretary may require.

In addition, employers must provide statements to individuals, including

the name and address of the person required to submit the return, (including phone number of the information contact) and information included in return with respect to the individual.

This requirement has been delayed until January 31, 2016, with a report due by January 31 each year thereafter.

D. Reporting Enrollment in Health Insurance Coverage (IRC Section 6055)

Under IRC §6055, health insurance issuers, employers that sponsor self-insured plans, government agencies, and other persons that provide minimum essential coverage to an individual, beginning in 2015, will report to the IRS:

Name, address, tax ID number of insured and all others covered under the

policy

 

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Dates of coverage during the calendar year

Whether coverage is a qualified health plan (QHP) offered through an Exchange

For QHPs offered through an Exchange, the amount of cost-sharing subsidies or premium assistance tax credits received

For employer-sponsored coverage:

Name, address and employer ID number of the employer maintaining the plan

The portion of the premium paid by the employer

If the coverage is a QHP in the small group market offered through an Exchange (SHOP Exchange)

Under IRC §6055, health insurance issuers, employers that sponsor self-insured plan, government agencies, and other persons that provide minimum essential coverage to a individual also will provide statements to individuals, including:

The name and address of the person required to submit the return,

including phone number of the information contact

Information included in return with respect to the individual

First report is now due January 31, 2016, with a report due by January 31 each year thereafter. IRC §6055 also requires the Treasury Secretary – acting through the IRS and in consultation with the Secretary of HHS – to send a notification to each individual who files an individual income tax return and who is not enrolled in minimum essential coverage. Such notification shall contain information on the services available through the Exchange operating in the State in which such individual resides. The notice must be sent no later than June 30 of each year.

V. APPLICATION FOR EXCHANGE COVERAGE

For individuals seeking premium tax credits or subsidies for Exchange coverage because they assert that employer-sponsored coverage is unaffordable or is not of minimum value, the employee must provide to the Exchange:

The name, address, and date of birth for each individual who is to be covered by

the plan.

 

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The individual’s Social Security number (if applicable) and any identifying

information with respect to the individual’s immigration status (to be determined by the Treasury Secretary in conjunction with the Secretary of Homeland Security).

The name, address, and employer identification number (if available) of the employer.

Whether the enrollee or individual is a full-time employee and whether the employer provides such minimum essential coverage.

If the employer provides such minimum essential coverage, the lowest cost option for the enrollee’s or individual’s enrollment status and the enrollee’s or individual’s required contribution under the employer-sponsored plan.

If an enrollee claims an employer’s minimum essential coverage is unaffordable, the employee also must provide:

His/her taxpayer identification number.

His/her tax filing status.

The number of individuals for whom a deduction is allowed under IRC §151, including the taxpayer and the taxpayer’s spouse.

The modified gross income of the taxpayer and of all individuals for whom a deduction is allowed under IRC §151 who are required to file a tax return.

Other information prescribed the Secretary in regulation to determine whether the taxpayer is eligible for a credit or subsidy.

The taxable year to which the above information relates, or (if applicable) the fact that such information is not available.

Per HHS’ March 27, 2012, Final Rule on Establishment of Exchanges and Qualified Health Plans; Exchange Standards for Employers (CMS-9989-F), the inaugural open enrollment in Exchanges runs from October 1, 2013, through March 31, 2014. In subsequent years, open enrollment will run from October 15 through December 7.

Exchanges also must provide special enrollment periods to facilitate enrollment for special circumstances including:

Qualified individuals who lose minimum essential coverage.

 

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Qualified individuals gain dependents or become dependents through marriage, birth, adoption, or placement for adoption.

Individuals who were not previously a citizen, national, or lawfully present individual gains such status.

Individuals are determined newly eligible or newly ineligible for advance payments of the premium tax credit or has a change in eligibility for cost sharing reductions, regardless of whether such individual is already enrolled in a qualified health plan.

A 2,000 page Act and 10,000+ pages of regulations: What's the Big Deal?

 

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VI. OSHA AND THE AFFORDABLE CARE ACT

All employers know that the Occupational Health and Safety Administration (OSHA) has provided protections to employees by establishing programs, policies and procedures aimed at creating safe and healthy working conditions for all U.S. workers. However, not very many employers know that OSHA regulations also address whistleblower protections. If a worker files a complaint – “blows the whistle” - or brings to light a safety issue or health code violation, his or her employer is prohibited from retaliating against that employee. Starting in 2014, employees across the nation will have additional protections when they blow the whistle for reporting conduct that the employee “reasonably believes” violates provisions under Title 1 of the Affordable Care Act.

A. Affordable Care Act Whistleblower Protections

Title 1 of the ACA deals with providing quality healthcare coverage for all Americans through such means as premium tax credits and premium cost reductions for individuals, and penalties for large employers that do not offer qualifying coverage. Title 1 also includes a variety of other provisions, such as nondiscrimination rules, employee notice provisions and employer reporting obligations. Unfortunately, some employers may violate the ACA either inadvertently or in an effort to cut costs. Such violations may affect employees’ rights and employees are urged to bring violations to the attention of OSHA officials. Even if employers fully comply with the ACA, employees will receive whistleblower protection if they report an act or omission that the employee “reasonably believes” violates the ACA—even if no violation has occurred. With recent whistleblower protection changes, private and public sector employees will have increased protection from retaliation for reporting ACA Title 1 violations and from discrimination for engaging in other protected activity. . The expanded rules protect employees who:

Report acts or omissions that the employee reasonably believes violate

Title 1

Receive federal health insurance income tax credits

Receive health plan cost sharing reductions

Provide information, testify or participate in proceedings regarding alleged violations

Refuse to participate in activities that may violate Title 1 provisions

 

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B. Retaliation and Discrimination Against Employees

Employers may unlawfully retaliate or discriminate against employees in a variety of ways. Acts of unlawful retaliation and discrimination may include such actions as:

Demotion or reassignment to a less desirable position

Denial of overtime, benefits or promotion

Harassment, intimidation or threatening behavior

Reduction in pay or hours

Wrongful discharge or termination

Taking adverse action against an employee because he/she received a health care tax credit or cost sharing reduction

If an employee believes he or she is the subject of retaliatory action or discrimination by an employer, OSHA provides a formal complaint procedure. A complaint must be filed within 180 days of the alleged violation and OSHA officials then investigate the allegations. If a decision is rendered in favor of the employee, OSHA may require his or her employer to right the wrong committed against the worker, and OSHA can order reinstatement, back pay, compensatory damages, and/or award costs and attorneys’ fees to the worker.

 

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C. OSHA FACT SHEET SUMMARY

This document provides the interim final regulations governing the employee protection (whistleblower) provision of section 1558 of the Affordable Care Act, which added Section 18C of the Fair Labor Standards Act, to provide protections to employees of health insurance issuers or other employers who may have been subject to retaliation for reporting potential violations of the law’s consumer protections (e.g., the prohibition on denials of insurance due to pre-existing conditions) violating the 90 day waiting limit for health coverage eligibility, etc.) or affordability assistance provisions (e.g., access to health insurance premium tax credits and cost sharing reductions). The interim rule sets out an "employee friendly" burden of proof. A complaining employee must demonstrate, by a preponderance of the evidence, direct or circumstantial, that the protected activity was a motivating factor (not the motivating factor) in the alleged retaliatory action. The employer then has the burden to show, by clear and convincing evidence (a higher standard than a preponderance of the evidence), that the business would have taken the same action in the absence of the protected activity. This standard adopts the “mixed-motive” analysis of Title VII jurisprudence, but, under Title VII, the employer does not have the burden to show, by clear and convincing evidence, that it would have taken the same action without regard to the employee’s protected status; it merely has the burden of production and persuasion by a preponderance of the evidence. Thus, under the interim rule, and if, and when, it does become final, employers will find it more difficult to defend ACA retaliation claims than the typical employment discrimination case.

 

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Organizational Change: Trick or Treat?

In today's uncertain business climate, change is not only possible, it's inevitable. Let us provide a new perspective on layoffs, mergers, restructuring, and how you can navigate organizational

change to minimize the "tricks" and maximize the "treats".

Presented By:

Thomas M. Winn, III

Russell T. Schundler

Daniel C. Summerlin

 

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I. HR CONSIDERATIONS IN MERGERS, ACQUISITIONS AND BUSINESS CONSOLIDATIONS

Due diligence in connection with business transactions traditionally has focused on the target company’s financial and business resources. In today’s litigious climate, the target’s human resources issues are an important aspect of due diligence. Thorough evaluation of such issues is critical to uncovering not only threatened and actual claims, but also latent liability issues that may not be so obvious upon a superficial review of assets and liabilities. The following sections serve as a checklist of issues both to identify potential and actual liabilities but also put the acquiring company on notice of potential stumbling blocks to a smooth operational transition.

A. EMPLOYMENT-RELATED DOCUMENTS AND INFORMATION

1. Employee Information

a. Number of Employees (Jurisdictional Coverage)

i. Number of full-time salaried non-exempt employees

ii. Number of full-time hourly non-exempt employees

iii. Number of part-time salaried exempt employees

iv. Number of part-time salaried non-exempt employees

v. Number of part-time hourly non-exempt employees

b. Nature and Extent of Contingent Workforce

i. Number of temporary workers; identity of temporary agency(ies) utilized; copies of documentation relating to procurement of temporary workers (e.g., contracts with agencies, job requests); evaluation of “employee” status.

ii. Number of independent contractors; identity of contractors; copies of documentation relating to procurement of independent contractors (e.g., contracts); evaluation “employee” status.

iii. Number of leased employees; identity of lessors; copies of documentation relating to procurement of leased employees (e.g., contracts); evaluation “employee” status.

 

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c. Employee Data

i. Prepare a roster of employees by location and FLSA category (exempt, nonexempt, hourly, salaried) identifying: name, title, date of hire, salary/wage, date of birth, classification, earnings, job grade, beginning unit, department/function, benefits elected, EEO-1 category

ii. An organizational chart of the Company's management and a division chart listing the total number of employees broken down by major types of job classifications.

iii. Obtain a report on absenteeism and turnover rates

iv. Assess labor market conditions

v. Assess employee morale

2. Assemble and Review All Relevant Documentation

a. Contracts

i. Obtain copy of all written employment agreements

ii. Obtain a copy of all consulting agreements

iii. Determine whether any oral contracts exist and obtain a written description of employment terms and benefits where employment is pursuant to oral contracts

iv. Obtain a copy of all non-competition, confidentiality, non-disclosure, intellectual property and trade secret agreements

b. Immigration Issues

i. Verify I-9 forms for employees

ii. Obtain copies of correspondence, notices, memoranda of telephone contact or other communication from or to the U. S. Immigration and Naturalization Service

iii. Obtain copies of documents relating to validity of H-1B (Specialty Occupation) and L (Intracompany Transferee) or other Visas

 

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c. Policies and Training

i. Obtain a copy of all personnel manuals, employee handbooks, supervisor or administrative manuals, and all general personnel policies and procedures.

ii. Ascertain all development, training, or apprentice programs for employees

iii. Obtain a copy of all required and regularly posted notices (e.g., Harassment, FMLA, Workers' Comp., EEO, etc.)

d. Equal Employment Opportunity

i. Determine coverage (number of employees, government contracts)

ii. Obtain a copy of all Affirmative Action Programs, as well as any documentation concerning any internal compliance reviews or governmental audits of such programs

iii. Obtain latest EEO-1 Report

iv. Obtain copies of all policies and posted notices concerning discrimination, harassment, and complaint procedures

e. Family and Medical Leave Act

i. Determine coverage

ii. Obtain copy of FMLA policy, notices, form letters, certifications and other documentation utilized in complying with FMLA.

iii. Assess potential eligibility of contingent workforce

iv. Obtain information on any employees currently on FMLA leave, either continuous or intermittent, and a record of each employee’s FMLA leave record within the last twelve (12) months

f. Consolidated Omnibus Budget Reconciliation Act (COBRA)

i. Obtain copies of all COBRA Notices and a list of persons to whom notices were furnished during the last eighteen (18) months

 

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g. Wage and Hour Issues

i. Determine wage scales of hourly employees over the last three (3) years, including wage information for each hourly paid job classification and the number of hourly paid employees in each such position at each year end.

ii. Obtain the salary schedules of salaried employees over the last three (3) years, including salary information for each salaried job classification and the number of salaried employees in each such position at each year end.

iii. Review any job descriptions and evaluate exemption of employees classified as exempt.

iv. Obtain a copy of timekeeping and payroll records, including model time sheet or card for hourly and salaried non-exempt employees.

v. Obtain report of overtime utilization by job classification.

h. Worker Adjustment and Retraining Notification Act (WARN)

i. Determine coverage

ii. Identify any plant closings or mass layoffs during the last five (5) years

iii. Determine if WARN will be implicated by pending transaction and who will handle appropriate WARN notification

i. Workplace Safety

i. Obtain copies of Material Safety Data Sheets (MSDS)

ii. Obtain copies of OSHA 300 reports, citations, charges, or settlement agreements of OSHA matters within last five (5) years.

j. Substance Abuse

i. Determine coverage of Department of Transportation Drug and Alcohol Testing Regulations

ii. Determine coverage of Drug Free Workplace Act

iii. Obtain a copy of all policies and procedures for substance abuse screening, treatment, and discipline.

 

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iv. Obtain a copy of Employee Assistance Program (EAP) documents.

k. Copies of all existing or anticipated employee and officer benefit plans, profit sharing plans, bonus plans, pension plans, retirement plans, and any other written company policies relating to employee benefits, including:

i. Copies of Summary Plan Descriptions

ii. Copies of all filings with DOL or IRS (Form 5500's) for last 3 years

iii. Copies of any determination letters issued by the IRS

l. Review applicable insurance agreements (e.g., workers’ compensation, EPLI, etc.)

B. LABOR RELATIONS

1. Union Status

a. Obtain copy of current collective bargaining agreement, along with side or letter agreements

b. Determine major bargaining demands made within the last negotiating cycle

c. If collective bargaining negotiations are pending, obtain a description of the current status, major issues, contract deadline, and strike or lockout possibility

d. Obtain information and copies of all documents relating to any strikes, lockouts, work stoppages, slowdowns, picketing, boycotts or other concerted work refusals, as well as a list of any legal actions involving any such work stoppage

e. Obtain copies of all pending grievances and arbitration decisions for the current and last three (3) cycles of the collective bargaining agreement

f. Copies of all unfair labor practice charges filed against the Company and documentation regarding the outcome of such litigation

 

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2. Non-Union Status

a. Obtain a summary, including copies of all relevant documents, of union organizing activity in the last ten (10) years, including any petition for NLRB elections, demands for recognition, card-signing campaigns, and any other evidence of union organizing.

b. Determine whether other organizing activity at other Company facilities

i. A list of any facilities where union activity has been observed or is deemed likely.

ii. For each such facility, a description of the nature of the operation, the employee groups which are objects of union activity, the nature of the activity observed, and identity of the union involved.

c. Any other organizing activity in industry?

d. Any other organizing activity in region?

C. ASSESSMENT OF PENDING AND PAST LITIGATION

1. Pending Matters

a. A copy of all charges or complaints

b. A copy of any answers filed

c. A copy of any decisions by a federal, state or local court or agency, or arbitrator

d. Summary and status of the case(s)

e. The issues involved in the matter

f. The potential liability

2. Types of Cases

a. Labor practice charges (NLRB)

b. Charges or complaints before any government agency, or court, or discrimination based on race, sex, religion, national origin, age, or disability or other protected classification

 

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c. Charges or complaints before OSHA or any similar state agency alleging violations of statutes or regulations relating to safety and health.

d. Workers’ compensation claims

e. Contested unemployment compensation claims

f. Claims alleging violations of federal, state or local wage and hour laws

g. Claims alleging abusive or unjust discharge

h. Claims arising under ERISA or other claims involving pension and/or welfare rights

i. Veterans reemployment claims (USERRA)

j. Suits for violation of labor or employment contracts

k. Court actions to confirm or vacate labor arbitration awards

l. Injunction actions relating to labor and employment matters (e.g., trade secret, unfair competition litigation)

m. Any other charges, complaints or actions which relate to labor, employment or personnel matters

3. Closed Matters

Obtain copies of any settlement agreements, consent decrees and/or judgments by federal, state or city courts or agencies within the past ten (10) years.

4. Threatened Litigation

Obtain a statement of any charges, complaints or court actions which have been threatened during the past year, including the issues likely to be raised, the current status and the potential liability. Review letters prepared in response to auditor’s requests for infraction regarding pending or threatened litigation.

II. RIF CONSIDERATIONS

A. Economic Objectives

1. Necessity for RIF

 

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2. Number of affected employees

3. Affected departments/jobs

4. Selection criteria

5. Projected time frame

6. Operational/administrative and other costs of implementing RIF

7. Necessity of retaining employees until RIF date

B. Selecting the Method for Downsizing

1. Hiring freeze vs. displacements

2. Transfers

3. Elimination/consolidation of positions

4. Exit incentives

5. Exit incentives followed by or concurrent with involuntary layoffs

6. Retention bonuses during RIF period

C. Selection of Employees for RIF

1. Who are the decision-makers

2. Forms used/procedural safeguards for selection

3. Legitimate basis for selecting particular employees

a. Examine personnel files, performance evaluations, written discipline records, attendance records, memoranda concerning performance, supervisor's records.

b. Evaluate job descriptions.

c. Operational needs

d. Compare work available after RIF with qualifications of candidates for RIF

e. Forced ranking

4. Are employees represented by a union

 

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5. Is seniority recognized

6. Bumping rights

7. Transfer opportunities

D. Legal Risks

1. WARN Act

2. Breach of Contract

a. Employment contracts vs. at-will

b. Employee handbook or other personnel policy issues

c. Oral or other assurances of job security

3. Will the RIF affect any whistle-blowers or give rise to public policy issues

4. Will the RIF affect any person whose pension or retiree benefits are about to vest

5. Will the RIF affect any person on FMLA, workers' compensation or other form of leave

6. Will the RIF have an adverse impact on any protected group of individuals or could it otherwise be viewed as discriminatory

a. Title VII

b. ADEA

c. ADA

7. Union organizing issues

E. Exit Incentives

1. Morale issues

2. To whom should they be offered

3. Window of time to accept

4. Age discrimination issues

5. Document voluntary nature of incentives

 

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6. Availability of benefits to employees who announce retirement prior to availability of exit incentive

F. Potential Benefits That May Be Offered

1. Severance pay

2. Early retirement enhancement

3. Social Security supplements

4. Special vesting of retirement benefits

5. Outplacement services

6. Factors to consider when selecting type of benefit

a. Affordability

b. Should benefits vary by age

c. ERISA issues

d. Tax issues

e. OWBPA issues

f. COBRA issues

G. Seeking Releases

1. Does release make it more likely an employee will seek counsel

2. Do incentives provide sufficient consideration for release

3. Are you required to seek OWBPA-complying release

4. What state-specific requirements may be necessary to secure release

5. ERISA issues

H. Implementing the RIF

1. Designation of RIF decision-making team and allocation of specific responsibilities

2. Implementation and documentation

 

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3. Time frame

4. Maintaining the secrecy of the program until implementation

5. New documentation/administrative forms

6. Integrating RIF with existing termination/layoff policies

7. Communication of the program

8. Handling individual terminations

9. Securing Company property from selected employees

10. News release

III. WARN ACT CONSIDERATIONS

A. GENERAL PROVISIONS

WARN offers protection to workers, their families and communities by requiring employers to provide notice 60 days in advance of covered plant closings and covered mass layoffs. This notice must be provided to either affected workers or their representatives (e.g., a labor union); to the State dislocated worker unit; and to the appropriate unit of local government.

1. Employer Coverage

a. General

i. Employers are covered by WARN if they have 100 or more employees, not counting employees who have worked less than 6 months in the last 12 months and not counting employees who work an average of less than 20 hours a week.

ii. Private, for-profit employers and private, nonprofit employers are covered, as are public and quasi-public entities which operate in a commercial context and are separately organized from the regular government.

iii. Regular Federal, State, and local government entities which provide public services are not covered.

 

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b. Related Entities

When determining coverage, independent contractors and subsidiaries that are wholly or partially owned by a parent company may be treated as part of the parent or contracting company depending on their particular relationship. The WARN regulations instruct the courts to consider the following factors in making this determination:

i. Common ownership;

ii. Common directors and/or officers;

iii. De facto exercise of control of one entity by the other;

iv. Unity of personnel policies emanating from common sources; and

v. Dependency of operations.

2. Employee Coverage

a. Employees Protected by WARN

Employees entitled to notice under WARN include hourly and salaried workers, as well as managerial and supervisory employees, who are terminated or laid off for more than 6 months or who have their hours reduced more than 50% in any 6-month period as a result of a plant closing or mass layoff. This definition includes:

i. Employees who may reasonably be expected to experience an employment loss as a result of a proposed plant closing or mass layoff.

ii. If the employer has a seniority system that involves bumping rights, the employer should use its best efforts to give notice to the workers who will actually lose their jobs as a result of the system. If that is not possible, then an employer must give notice to the incumbent in the position being eliminated;

iii. Workers who are on temporary layoff but have a reasonable expectation of recall.

iv. This includes workers on workers’ compensation, FMLA, medical, maternity, or other protected leave.

 

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v. Part-time workers.

vi. These workers do not count when determining whether there has been a plant closing or mass layoff but they are entitled to receive WARN notice if there is one.

b. Employees Not Protected By WARN

The following classes of employees do not enjoy the protections of WARN:

i. Strikers or workers who have been locked out in a labor dispute;

ii. Workers working on temporary projects or facilities of the business who clearly understand the temporary nature of the work when hired;

iii. Business partners, consultants, or contract employees assigned to the business but who have a sepa-rate employment relationship with another employer and are paid by that other employer, or who are self- employed;

iv. Regular federal, state, and local government employees.

c. Employees Not Counted Under WARN

When determining whether or not an employer's layoff or plant closing falls within the WARN requirements, the following employees are not counted:

i. Part-time workers;

ii. Workers who retire, resign, or are terminated for cause;

iii. Workers who are offered a transfer to another site of employment within a reasonable commuting distance if:

a) The closing or layoff is a result of a relocation or consolidation of all or part of the employer’s busi-ness; and

b) The transfer involves no more than a 6-month break in employment.

3. Workers who are offered a transfer to another site of employment outside of a reasonable commuting distance if:

 

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a. The closing or layoff is a result of a relocation or consolidation of all or part of the employer’s business;

b. The transfer involves no more than a 6-month break in employment;

c. The worker accepts the offer within 30 days of the offer or the closing or layoff, whichever is later.

B. WHAT TRIGGERS NOTICE

1. Plant Closing

A covered employer must give notice if an employment site (or one or more facilities or operating units within an employment site) will be shut down, and the shutdown will result in an employment loss (as defined later) for 50 or more employees during any 30-day period. This does not count employees who have worked less than 6 months in the last 12 months or employees who work an average of less than 20 hours a week for that employer. These latter groups, however, are entitled to notice (discussed later).

2. Mass Layoff

A covered employer must give notice if there is to be a mass layoff which does not result from a plant closing, but which will result in an employment loss at the employment site during any 30-day period for 500 or more employees, or for 50-499 employees if they make up at least 33% of the employer's active workforce. Again, this does not count employees who have worked less than 6 months in the last 12 months or employees who work an average of less than 20 hours a week for that employer. These latter groups, however, are entitled to notice (discussed later).

3. What is an "Employment Loss"

The term "employment loss" means:

a. An employment termination, other than a discharge for cause, voluntary departure, or retirement;

b. A layoff exceeding 6 months; or

c. A reduction in an employee's hours of work of more than 50% in each month of any 6-month period.

 

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4. Window Period

An employer also must give notice if the number of employment losses which occur during a 30-day period fails to meet the threshold requirements of a plant closing or mass layoff, but the number of employment losses for 2 or more groups of workers, each of which is less than the minimum number needed to trigger notice, reaches the threshold level, during any 90-day period, of either a plant closing or mass layoff. Job losses within any 90-day period will count together toward WARN threshold levels, unless the employer demonstrates that the employment losses during the 90-day period are the result of separate and distinct actions and causes.

The Preamble to the WARN Act regulations gives an example of 90-day aggregation. It suggests that an employer should look ahead and behind 90 days to determine whether separate but related events would trigger cover age. Below is a specific example of a situation in which 90-day aggregation might apply under WARN.

DAY 1 Company has 180 employees

DAY 2 Company terminates 30 employees (150 is now the number for WARN computations)

DAY 31 Company terminates 29 employees (now 121 remaining employees)

DAY 60 Company terminates 6 employees (115 remaining employees)

DAY 90 Company terminates 5 employees (110 remain)

Assuming no notice was given, the company is liable to all 70 employees who were terminated because the mass layoff threshold has been reached through separate actions that did not occur for separate and distinct causes within this 90-day period. All employees terminated within the 90 days have suffered a mass layoff and are entitled to 60 days’ notice before the date of termination. For this purpose, the date on which the company size is measured is Day 1. (Note that aggregation periods are rolling and the second layoff starts a second 90-day period where the applicable workforce is 121 workers.)

 

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C. SPECIAL RULES ASSOCIATED WITH SALE OF BUSINESSES

1. General Principles

When all or part of a business is sold, even if it is an asset sale, WARN applies. If a covered plant closing or mass layoff occurs, the employer - the seller or buyer - responsible for giving notice depends on when the event occurs. The seller must give notice for a covered plant closing or mass lay-off that occurs before the sale becomes effective. The buyer must give notice for a covered plant closing or mass layoff that occurs after the sale becomes effective. Employees of the seller automatically become employees of the buyer for purposes of WARN. That means that even though there is a technical termination of employment when employees stop working for the seller and start working for the buyer, the technical termination does not trigger WARN.

In a situation involving the sale of part or all of a business, the following requirements generally apply.

a. In each situation, there is always an employer responsible for giving notice.

b. If the sale by a covered employer results in a covered plant closing or mass layoff, the required parties (discussed later) must receive at least 60 days' notice.

c. The seller is responsible for providing notice of any covered plant closing or mass layoff which occurs up to and including the date/time of the sale.

d. The buyer is responsible for providing notice of any covered plant closing or mass layoff which occurs after the date/time of the sale.

e. No notice is required if the sale does not result in a covered plant closing or mass layoff.

f. Employees of the seller (other than employees who have worked less than 6 months in the last 12 months or employees who work an average of less than 20 hours a week) on the date/time of the sale become, for purposes of WARN, employees of the buyer immediately following the sale. This provision preserves the notice rights of the employees of a business that has been sold.

 

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2. Sale of Business Where Purchaser Elects to Keep All or Most of the Employees

A technical reading of the WARN statute would appear to suggest that the seller would have an obligation to provide notice to its employees 60 days in advance of the sale. According to the regulations, however, WARN notice is only required where the employees have in fact experienced an actual employment loss. This seems to hold true even after the sale.

As noted above, when employees are merely shifted from one employer to another as the result of a sale, WARN’s notice requirement is not triggered merely because employees are technically “terminated” by the seller. Under WARN, such an event is not a “plant closing” or "mass layoff" and employees do not suffer an “employment loss.” See, e.g., Wiltz v. M/G Transport Services, Inc., 128 F.3d 957 (6th Cir. 1997); Headrick v. Rockwell International Corp., 24 F.3d 1272 (10th Cir. 1994).

3. Sale of Business Where Purchaser Elects to Purchase Assets, But Does Not Accept Employees

As noted above, whoever is the employer at the time of the plant closing is responsible for giving notice. In Burnsides v. MJ Optical, Inc., 128 F.3d 700 (8th Cir. 1997), cert denied, 523 U.S. 119 (1998), the seller terminated all employees and closed down the plant on the date of the sale, so the buyer had no reason to give the employees notice. The buyer did not automatically hire the Seller’s employees, buy the Seller’s facility, conduct any operations there, or take on any of the Seller’s receivables or liabilities. The Eighth Circuit indicated that that the sale of assets with no transfer of employees to the buyer results in an “employment loss” in and of itself that triggers WARN’s notice requirements on the seller. The court observed that other courts have held that there is no exemption from providing WARN notice in asset sales when there is no transfer of any employees into the purchaser’s employment along with the purchased assets. See Oil, Chem. & Atomic Workers Int’l Union v. CIT Group/Capital Equip. Fin., Inc., 898 F. Supp. 451, 457 (S.D. Tex. 1995). The Court concluded that even if the sale involved a “‘sale of part or all of an employer’s business within 2101(b), responsibility for giving notice never passed to [the buyer] because the plant closing occurred on the sale’s effective date.” 128 F.3d at 702. The business simply shut down on the sale date.

The more interesting question is whether WARN event occurs in an asset sale if the buyer rehires enough of the seller’s employees such that the 50 employee threshold necessary to show an employment loss is not present. In Dingle v. Union City Chair Co., 16 I.E.R. Cases 60 (W.D. Pa.

 

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2000), the court held that even in the context of an asset sale, unless 50 or more employees are not rehired by the buyer, there is no WARN event.

D. EXEMPTIONS

1. Closing of Temporary Facility or Completion of Particular Project

An employer does not need to give notice if a plant closing is the closing of a temporary facility, or if the closing or mass layoff is the result of the completion of a particular project or undertaking. This exemption applies only if the workers were hired with the understanding that their employment was limited to the duration of the facility, project or undertaking. An employer cannot label an ongoing project "temporary" in order to evade its obligations under WARN.

2. Strikers

An employer does not need to provide notice to strikers or to workers who are part of the bargaining unit(s) which are involved in the labor negotiations that led to a lockout when the strike or lockout is equivalent to a plant closing or mass layoff. Non-striking employees who experience an employment loss as a direct or indirect result of a strike and workers who are not part of the bargaining unit(s) which are involved in the labor negotiations that led to a lockout are still entitled to notice. An employer does not need to give notice when permanently replacing a person who is an "economic striker" as defined under the National Labor Relations Act.

E. WHO MUST RECEIVE NOTICE

1. Chief Elected Officer of the Exclusive Representative(s) or Bargaining Agency(s) of Affected Employees

a. In other Words, Unions Representing Employees

b. What Must the Notice Include?

i. The name and address of the employment site where the plant closing or mass layoff will occur, and the name and telephone number of a company official to contact for further information;

ii. A statement as to whether the planned action is expected to be permanent or temporary and, if the entire plant is to be closed, a statement to that effect;

iii. The expected date of the first separation and the anticipated schedule for making separations; and

 

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iv. The job titles of positions to be affected and the names of

2. Unrepresented Individual Workers who May Reasonably Be Expected to Experience an Employment Loss

a. Also includes:

This includes employees who may lose their employment due to "bumping," or displacement by other workers, to the extent that the employer can identify those employees when notice is given. If an employer cannot identify employees who may lose their jobs through bumping procedures, the employer must provide notice to the incumbents in the jobs which are being eliminated. Employees who have worked less than 6 months in the last 12 months and employees who work an average of less than 20 hours a week are due notice, even though they are not counted when determining the trigger levels.

b. Notice Must:

i. Be written in language understandable to the employees;

ii. Contain a statement as to whether the planned action is expected to be permanent or temporary;

iii. State the expected date when the layoffs will commence and the expected date when the individual employee will be separated;

iv. Indicate whether "bumping rights" exist; and

v. State the name and number of a company official to contact for more information.

3. State Dislocated Worker Unit and the Chief Elected Official of Local Government

a. For example, Mayor or Chairman of Board of Supervisors and VEC

b. What Must Notice Include?

i. The name and address of the employment site where the plant closing or mass layoff will take place;

ii. The name and phone number of a company official to contact for more information; and

 

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iii. The expected date of the first separation and the number of affected employees.

F. FORM AND CONTENT OF NOTICE

1. No Particular Form Required

However, all notices must be in writing. Any reasonable method of delivery designed to ensure receipt 60 days before a closing or layoff is acceptable.

2. Notice Must Be Specific

Notice may be given conditionally upon the occurrence or non-occurrence of an event only when the event is definite and its occurrence or nonoccurrence will result in a covered employment action less than 60 days after the event.

3. Content

The content of the notices to the required parties is listed in section 639.7 of the regulations, which is summarized in the section above.

4. Extension of Notice

Additional notice is required when the date(s) or 14-day period(s) for a planned plant closing or mass layoff are extended beyond the date(s) or 14-day period(s) announced in the original notice.

5. Record

No particular form of record is required. The information employers will use to determine whether, to whom, and when they must give notice is information that employers usually keep in ordinary business practices and in complying with other laws and regulations.

G. SERVING WARN NOTICES ON EMPLOYEES

1. Method of Delivery

You must deliver notice in a reasonable manner so affected employees will receive the written notice at least 60 days before separation. Including this notice with employees’ paychecks or giving verbal notice will not meet these requirements. If you decide to mail the notice, it is not effective until it is received. Therefore, you must send the notice prior to the start of the 60-day period.

 

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2. Waiver Invalid

Employers cannot require employees to waive their rights to WARN notification. Therefore, employers cannot require employees to agree not to sue based on a lack of notice. However, employees may voluntarily and knowingly waive any claims under WARN in exchange for something of value such as additional severance pay or extended health benefits above and beyond what is provided for by WARN.

H. NOTIFICATION PERIOD

1. General Rule

Notice must be timed to reach the required parties at least 60 days before a closing or layoff. When the individual employment separations for a closing or layoff occur on more than one day, the notices are due to the representative(s), State dislocated worker unit and local government at least 60 days before each separation.

If the workers are not represented, each worker's notice is due at least 60 days before that worker's separation.

2. Exceptions

If an employer provides less than 60 days advance notice of a closing or layoff and relies on one of the following three exceptions, the employer bears the burden of proof that the conditions for the exception have been met. The employer also must give as much notice as is practicable. When the notices are given, they must include a brief statement of the reason for reducing the notice period in addition to the items required in notices.

a. Faltering Company

This exception, to be narrowly construed, covers situations where a company has sought new capital or business in order to stay open and where giving notice would ruin the opportunity to get the new capital or business, and applies only to plant closings;

b. Unforeseeable Business Circumstances

This exception applies to closings and layoffs that are caused by business circumstances that were not reasonably foreseeable at the time notice would otherwise have been required; and

 

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c. Natural Disaster

This applies where a closing or layoff is the direct result of a natural disaster, such as a flood, earthquake, drought or storm.

d. Bankruptcy

Generally WARN applies if an employer declares bankruptcy either before or after ordering a plant closing or mass layoff. Of course, the unforeseeable business circumstances and faltering company exceptions discussed below may be applicable to bankruptcy situations. In addition, WARN does not apply to a trustee that is winding up the business.

I. ENFORCEMENT

1. Private Right of Action

Enforcement of WARN requirements is through the United States district courts. Workers, representatives of employees and units of local government may bring individual or class action suits. In any suit, the court, in its discretion, may allow the prevailing party a reasonable attorney's fee as part of the costs.

2. Penalties

a. Liability to Affected Employees

An employer covered by WARN that orders a plant closing or mass layoff in violation of WARN is liable to each aggrieved employee who suffers an employment loss as a result of the plant closing or mass layoff for:

i. Back pay for each day of violation up to a maximum of sixty

(60) days;

ii. Up to sixty (60) days of benefits under an employee benefit plan, including the cost of medical expenses incurred during the employment loss that would have been covered under an employee benefit plan if the employment loss had not occurred; and

iii. Attorney’s fees and costs.

b. Offset

The employer's liability may be reduced by such items as wages paid by the employer to the employee during the period of the

 

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violation and voluntary and unconditional payments made by the employer to the employee.

c. Civil Money Penalties

An employer who fails to provide notice as required to a unit of local government is subject to a civil penalty not to exceed $500 for each day of violation. This penalty may be avoided if the employer satisfies the liability to each aggrieved employee within 3 weeks after the closing or layoff is ordered by the employer.

J. OTHER APPLICABLE STANDARDS

Some states and local governments have adopted plant closing and/or mass layoff laws. These laws may not reduce an employer’s obligation under WARN, and some place additional obligations on employers covered by WARN. Moreover, certain of these laws place the same or additional obligations imposed by WARN on employers not covered by WARN, such as smaller employers. Virginia currently does not have any such additional law. Employers must consider whether such laws may apply when affected employees work in other states beyond Virginia.

 

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The Beast is Lurking: How to Handle Troublesome Employees

We've heard almost every bump in the night story, so let us share some lessons learned. Don't shudder when you hear "coaching and counseling", "progressive discipline", or "reasonable accommodations". Let us show you strategies to tame even the most difficult beasts in your

office.

Presented By:

Agnis C. Chakravorty

Patice L. Holland

 

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Over the last few years, we have used this session to educate with regard to the I-9 process and requirements with extensive discussion on how to prevent and remedy errors. With civil fines and criminal actions on the rise, we have sought to raise awareness as to the exposure I-9 issues can create and offer insights into the approaches currently in play by ICE and how it seeks to calculate the level of civil penalties based upon a matrix it developed. Today we offer an overview of recent decision of how the Office of the Chief Administrative Hearing Officer has addressed claims of I-9 violations and civil fine calculations including the elements that are most important in the decision-making process. At the conclusion of this overview, we hope to discuss real-life situations experienced by the group and the possible remedies and/or consequences in light of these recent decisions. I. HOW TO GUARD AGAINST HIRING THE BEAST?

A few short years ago, an employer could ask virtually any question during a job interview. This is no longer the case. Federal discrimination statutes prohibit discrimination based on protected statuses and as such eliciting information on such a status could lead to claims of discrimination if the applicant is not hired. In other words, if you do not know about a status there can be no discrimination. Knowledge of the status can lead to liability. There also may be state law implications, such as the risk of a court finding an implied contract of employment. A. Some General Tips

1. Prepare for the interview beforehand by establishing job requirements for the vacant position. Define the skills needed to meet these job requirements.

2. Review all applications before beginning interviews, ranking applicants in order of preference as well as red-flagging any vague or suspect areas regarding background or job experience.

3. Do not write comments on original applications, as these applications and any comments thereon may be discoverable and could subsequently be used against you should litigation arise down the road.

4. Look for gaps in employment history, educational background, etc.

5. Take notes, but be careful as to the content of your comments.

6. Explain to the applicant the duties and responsibilities of the available position and ask if the applicant can meet these job requirements.

7. Avoid improper questions regarding an applicant's race, sex, religion, marital status, national origin or disability. For example:

 

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a. Avoid all questions which might elicit information about an applicant's religious affiliation. Where weekend work is required, simply ask if the applicant is able to work the days in question.

b. Do not ask questions relating to an applicant's sex. Avoid questions regarding pregnancy and/or child care when interviewing female applicants. Do not ask questions regarding marital status.

The EEOC has published specific guidelines regarding permissible pre-employment inquiries and examinations under the ADA. See Section B below. Employers should familiarize themselves with these guidelines prior to interviewing applicants.

8. Don't ask questions which seem neutral but can garner illegal information:

a. “When did you graduate high school” could show age.

b. “Are you a citizen” is improper, whereas are you legally eligible for employment is proper.

c. “Do you have a driver's license” could get you in trouble with the EEOC unless driving is an essential function of the job. Rather, if you are worried about reliability ask if the employee can meet your attendance requirements. In other words, an employer does not need to have a car in order to be able to get to work.

d. Arrest (not conviction) data is impermissible. Convictions must be related to job in question in order to bar employment.

9. Don't ask questions which are not job related, i.e., education where education is not essential function of job.

10. Advise applicants of the next step in the selection process and follow up with each applicant interviewed, where possible, as this tends to soothe hurt feelings and relax heightened expectations for those individuals who are ultimately not hired.

11. In order to protect the at-will employment relationship, avoid making any recruitment statements about job security and “permanent” or “continued” employment.

12. Keep alert. Frequently, the interviewees' responses will provide clues about questions you would like to ask, but can't.

13. Don't ask about employee's beliefs on unions.

 

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14. Beware of the EEOC's position on an employer's consideration of criminal background record information in employment screening:

a. The EEOC's position is that employers, as a best practice, should eliminate policies or practices that exclude people from employment based on any criminal record; and

b. If an employer is asking questions about a criminal record, the employer should limit those inquiries to records for which exclusion would be job-related for the position in question and consistent with a business necessity.

II. HOW TO TAME THE BEAST: COACHING AND COUNSELING AND PROGRESSIVE DISCIPLINE

A. General

1. Most managers erroneously believe that annual reviews are the only time for the manager and the employee to discuss performance issues. Managing, however, is a day-to-day process, and employees should know where they stand as to performance throughout the year.

2. Waiting for once a year to discuss deficiencies does not allow employees to understand the deficiencies as clearly (time erases memory), and, more importantly, does not allow the employees to work on any deficiencies which could be corrected. Thus, more often than not, employees leave annual reviews feeling let down or slighted. Those “failed expectations” — believing that everything is going well because of a lack of communication with the reality of a negative review — are the source of discontent and eventually lawsuits.

3. In order to manage effectively and efficiently, supervisors should:

a. Discuss deficiencies during the year as they occur;

b. Keep proper documentation;

c. Provide specific goals and recommendations as to what is expected and what is needed for acceptable performance.

Just as poor performance must be communicated throughout the year, so should exceptional performance. In other words, do not be afraid to pat an employee on the back for a job well done.

 

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B. Managing People is Tough

1. The toughest job may be to manage people.

The legal background requires managers to do more than just have a legitimate reason for their decisions. We must be ready to prove ourselves and defend our decisions in federal and state courts and agencies.

a. Federal court judges and juries

b. State court judges and juries

c. National Labor Relations Board

d. Equal Employment Opportunity Commission

e. U. S. Department of Labor

f. Virginia Department of Labor

g. Virginia Human Rights Commission

h. And others . . .

2. How to Manage

There is no fail-safe formula for managing employees. Every person and relationship is different and thus will require different management techniques and skills. However, the following are critical to effectively manage:

a. Be even-handed.

b. Be consistent.

c. Apply reasonable rules.

3. The Performance/Annual Review

While the annual review should not be the only time during a year an employee receives feedback, it is critical. Remember, for such a review to work, it must be fair and honest. Thus, if an employee is performing adequately, do not say that he/she is “average.” The only way an employee will know (and a court will later accept your decision) about his/her standing is by an accurate appraisal.

 

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4. Essential Ingredients of the Review

a. Timing of Review — Standard Intervals.

b. Person(s) Performing the Review.

c. Review and Approval of the Review.

d. Standard Forms.

e. Opportunity for Feedback.

f. Clear Future Expectations.

5. Key Preparation Questions

What happened that caused me to form that opinion or judgment regarding this particular standard of performance?

When it happened, who was there, how do I know, where did it happen and finally does it matter, and, if so, why?

6. Proper Conduct of the Review

After the evaluation is completed and approved, proper conduct of the review with your employees is vital. The art of obtaining a proper blend of frankness with optimism is the key to success with employee evaluations.

7. Support and Appreciation

Tell the employee what he/she does correctly. Let the employee know that you appreciate him/her for what he/she does right. Do not fabricate nice things about the employee. There must be at least one nice thing you can say about each employee. If not, this should be a termination interview.

8. The Lowdown

Tell the employee what he or she does incorrectly, giving specific examples and providing possible solutions. Let the employee respond to each comment. Let the employee know what is specifically expected, including goals/quotas. Let the employee know the consequences of failure. The key to this step is candor and clarity.

9. Encouragement

Inform the employee that you have every confidence that he/she will overcome the difficulties mentioned and that you are sure they will not

 

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arise again. This leaves the evaluation on an upbeat note and the employee is motivated to do a better job.

10. Documenting Discipline

The supervisor must keep records of each offense an employee commits, the decision made regarding the offense, and the reasoning involved for potential justification in the future.

Regularly kept records include the following: time cards; production tallies; archival data; written complaints from members, advocates, and collaterals; examples of unsatisfactory work; and written summaries of disciplinary conferences.

Juries believe what is documented; they tend to disregard oral testimony. Consequently, employers should document deficiencies and sub-standard conduct wherever possible. In documenting a problem, remember that you need to write the document in terms a person not familiar with your business and terms associated with the business will understand. Thus, proper documentation requires in common sense, plain terms, and easy to read handwriting:

a. what happened;

b. why it happened;

c. why it is bad;

d. what steps are needed to correct behavior;

e. punishment/ramifications; and

f. consequences of future failure.

PRACTICAL POINT: If you have not documented for past problems, consider discussing previous discussions concerning sub-standard conduct in the latest disciplinary note. Moreover, oral warnings can be documented with a memo to the file if busy schedules prevent frequent documentation of troublesome conduct.

11. Evidence Problems

a. Memory and recollection fade as time passes and the agency or judicial process is lengthy (even within the statutes of limitations).

b. Consistency between events and incidents is complicated by the numbers of people and the lapse of time. What does inconsistency show?

 

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c. Completeness becomes more difficult as time passes.

d. Detail can lend credibility to every encounter.

e. Significant events are those we can recall or record.

f. Veracity and character are always at issue. Why should a jury believe you?

g. Motive, when you are "put on trial," is always an issue.

h. DOCUMENTATION can solve many of these problems prospectively.

i. YOU are the front line WITNESS and you will be held RESPONSIBLE for a fair and TRUTHFUL EVALUATION. No one can testify for you.

III. HOW TO GET RID OF THE BEAST WITHOUT GETTING BITTEN: SIX DANGER SIGNALS

A. Evaluation of adverse employment decisions

1. Termination usually requires us to avoid bad facts.

There are six (6) danger signals:

FIRST SIGN: Long Service

The longer a discharged employee's service, the more suspect a sudden termination will seem and the more sympathetic a jury will be to the employee.

SECOND SIGN: History of Satisfactory/Good Performance

When long service is combined with a documented record of satisfactory performance, regular receipt of merit raises and/or promotions, the more difficult it becomes to "justify" the employee's termination.

THIRD SIGN: Lack of Documentation

Absence of documentation in personnel files for the alleged reasons for termination is suspect, especially if the employer conducts regular written performance evaluations for others.

 

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FOURTH SIGN: Sudden Changes in Performance Evaluations

A sudden and unexplained deterioration in an employee's performance evaluation occurring just prior to discharge may suggest that the employer is seeking to fabricate a pretextual or unjustified basis for termination. If the abrupt deterioration or sudden and unexpected discharge occurs shortly after an employee's assertion of rights, refusal to act contrary to public policy or having filed charges, testified against his employer or engaged in any other statutorily protected activities, chances are very good that a jury would find the employee has been a victim of retaliatory discharge.

FIFTH SIGN: Departure from Personnel Policies

Juries are very unforgiving of employers who fail to follow their written or customary discipline and discharge personnel policies. An employer's failure to follow such policies will not only give a discharged employee the opportunity to claim a breach of "contract," but will, at the very least, undermine the employer's justification and/or nondiscriminatory explanation for the employee's termination.

SIXTH SIGN: Disparate Treatment

From the standpoint of defending employment discrimination charges and wrongful discharge claims, an employer must be particularly watchful to avoid the disparate treatment of employees. Thus, even if an employee's performance can be described as inadequate or his conduct as wrongful in an abstract sense, if any employer has not treated similarly situated employees consistently, a jury will be quick to find that the termination was discriminatory and/or wrongful.

2. Avoidance of the Dangers

Avoidance of all six danger signals can be measured in your performance appraisal system but evaluations, appraisals and counseling are also valuable personnel management tools. The goal is to both prove your legitimate business reason for your decision (to avoid lawyers) and to provide each employee a fair and honest measure of performance to standards which are clearly understood. a. Feedback is essential to managing people effectively.

Minimal flashbacks can be achieved by reducing surprise elements.

 

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Maximum motivation can be achieved by providing clear expectations and appropriate positive encouragement.

Avoidance of failed expectancies...

Avoidance of confusion and mixed signals...

b. Chronicle success and warn of future failure in time to turn it to your advantage.

Avoidance of the appearance of favoritism

Avoidance of surprises...

c. Consistency can only be achieved through common standards and standard forms. Inconsistency is the hobgoblin of employment litigation.

d. Measurement of performance to standards will determine human resource decisions while providing the first line of defense to sustain your judgment as a front line manager.

Avoidance of mixed motives...

Avoidance of wrong motives and circumstantial evidence of illegal motives.

Be on time because your employees expect and deserve it. Failed expectations produce poor morale and often lead to adverse legal actions started in anger and for revenge. This is the day of "I've been treated unfairly and I know my rights...."!

 

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Woods Rogers Office Locations:

Roanoke Office

10 South Jefferson Street, Suite 1400

Roanoke, Virginia 24011

Telephone 540.983.7600

Facsimile 540.983.7711

Richmond Office

Riverfront Plaza, West Tower

901 East Byrd Street, Suite 1550

Richmond, Virginia 23219

Telephone 804.343.5020

Facsimile 804.343.5021

Danville Office

341 Main Street, Suite 302

Danville, Virginia 24543

Telephone 434.797.8200

Facsimile 434.797.8214

Charlottesville Office

123 Main Street, Suite 500

Charlottesville, VA 22902

Telephone 434.220.5685

Facsimile 434.220.5687