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March 17, 2009
t's a new year, and there's a new administration in Washington, which means there's plenty of opportunity for challenges to your company's employment practices. Here are some ideas to help you avoid employment claims.
• If you are plagued with downsizing, fix your releases.
The playing field for workplace issues is going to be rocky as employees challenge their selection for termination. Regulations applicable to layoffs are highly technical, and systemic noncompliance makes an employer vulnerable to class actions.
Make sure the releases in your severance agreements will stand up. After all, you're paying good money for them, aren't you? Even if you think your old release is fine, it will be well worth your while to have it reviewed by outside counsel. You want to be sure that the agreement doesn't seek to release claims that are not waivable, such as indemnification claims (creating arguments that the release is void), and that inartful language doesn't nullify proprietary information, arbitration, indemnification or stock option contracts by providing that prior agreements have no further effect. Check for nondisparagement clauses that appear to bind even the receptionist ("Employee agrees not to disparage Company, and Company agrees not to disparage Employee"), which are beyond your powers.
Tightening up releases requires that your HR organization understand the basics of the federal Older Worker Benefit Protection Act or at least know when to consult with outside counsel. OWBPA requires compliance with highly technical requirements to obtain enforceable waivers of federal age discrimination claims for employees aged 40 and over who are protected by the Age Discrimination in Employment Act. Even sophisticated employers screw up OWBPA requirements mandating identification of the group of individuals considered for the layoff (the "decisional unit," which can invalidate disclosures if incorrectly defined) and disclosure of ages and job titles of those selected and not selected for layoff. If proper disclosures are not made, the release of age discrimination claims may be invalid. Other unfortunate mistakes include utilizing a 21-day instead of the 45-day review period required for group termination (defined as two or more employees).
In the case of large RIFs, check on your compliance with the Worker Adjustment and Retraining Notification Act. This federal law generally requires employers of 100 or more full-time employees to provide a 60-day notice period of plant closings (termination of 50 or more employees in a 30-day period) or mass layoffs (termination of either 50 or more employees at a site if that number equals at least one-third of the employee population at the site or 500 or more employees at a site). There are complex regulations regarding the aggregation of terminations, definition of a "site" and similar complications. Once again, expert review is important.
In California, it is important to ensure that terminating employees are paid all wages on the day of termination -- including all accrued vacation. If supervisors use data that is not complete on the termination date, the final check may not include vacation time that has accrued in the last week or two of work. It may not amount to much for the employee -- perhaps just a few dollars -- but it could mean big bucks for plaintiffs -- and, unfortunately, you -- when terminations are aggregated in a class action over a several year period and coupled with demands for willfulness penalties.
These issues, along with the developments discussed below, also suggest that you should resist cutting deeply into the ranks of skilled HR professionals as part of your layoffs. Without competent HR assistance, employers are likely to make costly mistakes in administering layoffs, investigating and responding to complaints and handling other thorny workplace issues.
• Get up to speed with the new administration.
The proposed Employee Free Choice Act, originally co-sponsored by President Obama before he left the Senate, has significant potential to increase unionization across America. It would amend the National Labor Relations Act by providing for unionization when workers sign authorization cards obtained by union organizers, in essence replacing the secret ballot election that has been the effective process since 1935. In addition, the bill would permit unions to force employers into a government-supervised mediation if a first contract is not reached in 90 days. And if agreement is not reached within the following 30 days, a government-appointed arbitrator would be empowered to set final contract terms. The bill is likely to pass given the Democratic control of the Senate and the president's co-sponsorship. However, Obama recently indicated that he would not make quick passage a priority now, saying "in terms of a timetable, if we are losing half a million jobs a month then there are no jobs to unionize."
The Lilly Ledbetter Fair Pay Act passed the House and the Senate and was signed into law by Obama on Jan. 29. The Ledbetter Act was introduced as a response to the decision in Ledbetter v. Goodyear Tire & Rubber Co., in which the Supreme Court held that a pay discrimination claim must be based on compensation decisions that occurred within the EEOC's charging period (180 or 300 days depending on the state) even if a decision made prior to that time impacted paychecks issued within the charge period. The new law amends Title VII, along with the ADEA, Americans with Disabilities Act and Rehabilitation Act, to specify that the charging period begins to run each time an employee receives a check that reflects discrimination, not just when the employer makes a discriminatory pay decision. The proposed Paycheck Fairness Act would require employers to justify pay differentials between men and women, prohibit retaliation for the sharing of salary information, allow compensatory and punitive damages without a showing of discriminatory intent, allow "opt out" rather than "opt in" procedures for class action litigation and require the Labor Department to take actions to eliminate pay disparities. What do these bills mean for you? In short, you now have an extra incentive to ensure that your pay practices are objective and gender-neutral.
Although not currently on the official White House agenda, the proposed Equal Remedies Act and the Civil Rights Act of 2008 would remove the current $300,000 cap on compensatory and punitive damages under Title VII. These changes seek to amend the Fair Labor Standards Act -- FLSA is the key federal wage legislation -- and the Equal Pay Act, and would also make arbitration clauses for statutory claims in employment contracts unenforceable. Sponsored by Sen. Edward Kennedy, a reintroduced version of these proposals should find easy support from the White House. This would result in a significant change in federal overtime litigation, give plaintiffs' counsel incentive to sue on a federal basis throughout the country and is another reason, along with those discussed below, to get your wage-and-hour house in order in 2009.
Last September, the ADA Amendments Act of 2008 was signed into law by President Bush. This law, which became effective on Jan. 1, amends the federal disabilities act by expanding the protection available under it. Employers with California facilities have long been operating with similar lowered burdens under California law.
• Remain vigilant about wage-and-hour issues.
The California Department of Industrial Relations reported that more than 44,000 wage-and-hour class claims were filed in California in 2008 -- and that number continues to rise. According to some of the most active -- some would use the term "litigious" -- plaintiffs' counsel in the area, there will be an ongoing focus in the year ahead on claims especially well-suited to group litigation. Plaintiffs' counsel are on alert for circumstances in which it appears that an employer is not paying for all work time, often described as off-the-clock or time-shaving cases. Don't think you are vulnerable? Don't be too sure. These lawsuits include situations in which work time is kept by computer but employees must still take a few minutes to get through the log-in process and clock in. Litigation has also been filed over employees' time spent after clocking out for security checks or similar delays, as well as other situations in which employees do not submit or are otherwise not paid for all work time.
Plaintiffs' counsel have also announced plans to focus on sales commission claims, such as circumstances in which an electronic program does not correctly compute amounts or when an employer makes changes, midstream, in the commission plan. Look for attention to the exempt status of low-level computer and IT workers as well as continued heated fights over financial and accounting positions. Also popular are California vacation cases, which contend that employers do not accurately calculate all vacation accrued up to the day of termination (as suggested above). And then there are those cases in which paychecks are not in strict compliance with California requirements, such as those requiring checks to specify "the name and address of the legal entity that is the employer" and list all deductions and net wages, and thus subject to significant penalties.
One of the worst developments to come out of the wage wars was the recent 9th Circuit holding in Sullivan v. Oracle, 547 F.3d 1177, that California wage laws applied to nonresident employees who travel to California on business. The Sullivan opinion held that travelers become covered by California's wage-and-hour laws during those trips. In February, however, the 9th Circuit issued an order vacating its Sullivan opinion and certifying the question to the California Supreme Court. In the meantime, what should you do about all the wage-and-hour peril? Check it and fix it. Review paycheck requirements -- even sophisticated vendors have violated the statute, a good reason, by the way, to include indemnification clauses in your vendor agreements. Communicate to your executive team the need for compliance review -- in privileged mode -- and get approval to audit the exempt status of employees in targeted positions, paycheck compliance, meal break policies and other practices that have led to massive settlements and verdicts in the wage-and-hour arena.
• Understand your obligations to the troops.
Military leave issues have always been complex. The U.S. Department of Labor has issued regulations under the Family and Medical Leave Act that involve military leave issues and that went into effect in January. Under these amendments, eligible employees will be able to take up to 26 work weeks of leave in a 12-month period to care for wounded personnel who incurred a serious injury or illness during active duty. The 12-month period begins when the employee starts using this caregiver leave, and 26 weeks is provided for each service member and for each injury or illness. These amendments cover more family members than otherwise provided for in the FMLA (i.e., next of kin rather than just father, mother, etc.).
The amendments also provide up to 12 weeks of unpaid leave to family members who are managing the affairs of National Guard and Reserve members who are called to active duty. Family members may use all or part of the regular allotment of FMLA leave for: (1) short-notice deployment; (2) military events and related activities; (3) child care and school activities; (4) financial and legal arrangements; (5) counseling; (6) rest and recuperation; (7) post-deployment activities; and (8) additional activities agreed to by the employer and the employee.
Given the economic crises and change in the political climate, 2009 promises to be another difficult year when it comes to employment issues. Take steps now to improve your processes and shore up defenses. It will be worth your time and your company's money.
Lynne C. Hermle is an employment partner in the Silicon Valley office of Orrick, Herrington & Sutcliffe.
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