Is Employee “Free Speech” A Constitutional Right?

“Free Speech,” or “First Amendment Rights,” is a fundamental concept of modern society, but in the employment context, it has its limitations.

First and foremost, an employee of a private corporation cannot assert that restrictions on the employee’s verbal and non-verbal conduct violate his or her First Amendment rights.  That is for the simple reason that the First Amendment restricts governmental action, not the actions of private individuals or private corporations.  A public employer needs to observe the public employer’s First Amendment rights since it is a government entity.  But for a private employer, the First Amendment has no application.

Only if an employee’s verbal or non-verbal conduct impacts other statutory protections does his or her freedom of speech become an intelligible concept in the employment context.  For example, the NLRB has made clear that private employer restrictions on employee criticism of employers are limited as potential restrictions on the right to protected, concerted activity guaranteed employees under the National Labor Relations Act.  Another example of a “free speech” issue for a private employer would be a restriction on what an employee can or cannot say in response to a suspected illegality or violation of company policy since that could implicate Whistleblower Act protections.  In some cases, certain restrictions on speech could raise discrimination concerns.  But the common variety complaints that an employee may have about employer workplace restrictions on personal discussions, political talk, or other opinions do not fall under the category of constitutionally-protected First Amendment rights.

Takeaway:  When an employer is confronted with an employee complaining that his or her “First Amendment” or “Constitutional Free Speech” rights have been violated, unless the employer is a public employer, the employee has not raised a legal right.  Only if the verbal or non-verbal speech restrictions at issue tie into other employee legally-protected conduct does the concept of “free speech” have any workplace relevance.  If it comes up, the employer should exercise its “right to counsel” and talk it through with an employment lawyer.

Significant Changes To IRS Determination Letter Program

 On July 21, 2015, the Internal Revenue Service announced significant changes to the determination letter program for qualified retirement plans.  The IRS, in Announcement 2015-19, made it official that it will be ending its long-standing practice of issuing determination letters for individually-designed qualified plans, except in the case of a plan’s initial determination letter, or upon a plan termination.

This change is effective immediately with respect to “off-cycle” determination letter applications, and is effective January 1, 2017 for all other determination letter applications.  In other words, the IRS will still issue determination letters for individually-designed plans that are in “Cycle E” (plans sponsored by employers whose EIN ends in 0 or 5), provided the application is submitted no later than January 31, 2016, and for individually-designed plans that are in “Cycle A” (plans sponsored by employers whose EIN ends in 1 or 6), provided the application is submitted no earlier than February 1, 2016 and no later than December 31, 2016.  In addition, the IRS will continue to issue determination letters for individually-designed plans upon their initial qualification, or upon their termination.

Prior to this announcement, in order to rely on the protections afforded by a favorable determination letter, individually-designed qualified plans generally were required to be restated and submitted to the IRS for a new determination letter every five years, based on changes made to the determination letter program back in 2007.  However, that program of 5-year remedial amendment cycles will be essentially ended as a result of the most recent announcement.  It should be noted, however, that this announcement does not make any direct changes to the determination letter program with respect to qualified plans that are in the form of a pre-approved plan.  Those plans still are subject to the rules under Revenue Procedure 2007-44.  As such, those plans are generally required to be restated according to a 6-year cycle, with the current 6-year cycle running from May 1, 2014 – April 30, 2016.

There are a number of outstanding issues that still need to be addressed by the IRS regarding this announcement.  Chief among them is how to determine the remedial amendment period for individually-designed plans after December 31, 2016, and how these changes affect the rules under other IRS programs, including the Employee Plans Compliance Resolution Program.  The IRS is requesting comments on these issues and will issue further guidance at a later date.

Takeaway:  As a result of the changes announced by the IRS to its determination letter program, plan sponsors should no longer submit an application for a determination letter for an individually-designed plan, unless it is for the plan’s initial qualification, the plan’s termination, or the “on-cycle” submission for a Cycle E or Cycle A plan.  In addition, sponsors of individually-designed plans may want to consider moving the plan to a pre-approved plan, especially since the IRS recently began allowing certain defined benefit pension plans and employee stock ownership plans to be adopted in the form of a pre-approved plan.

Do Employees Have a Right under the NLRA To Wear Shirts That Say “Inmate” and “Prisoner” While Working?

No – a federal appeals court recently rejected the argument that the National Labor Relations Act (NLRA) protects an employee who wears a shirt that says “inmate” or “prisoner” while working.

In Southern New England Telephone Co. v. NLRB, the court addressed the issue of whether an employer could prohibit employees who entered customers’ homes from wearing union shirts that said “inmate” on the front and “prisoner of AT&T” on the back. Nos. 11-1099, 11-1143 (D.C. Cir. July 10, 2015). The NLRB had previously decided that the employer’s prohibition was a violation of the employees’ rights under Section 7 of the NLRA. In reversing the NLRB’s decision, the court stated that “common sense sometimes matters in resolving legal disputes” and that the employer’s prohibition of the inmate/prisoner shirts “seems reasonable.”

Although the NLRA ordinarily does not permit an employer to prohibit employees from wearing union apparel at work, there is a “special circumstances” exception to that rule. Under the special circumstances exception, a company may “lawfully prohibit its employees from displaying messages on the job that the company reasonably believes may harm its relationship with its customers or its public image.” The employer bears the burden of proving this exception applies based on a reasonable belief that the message may damage customer relations — even in the absence of evidence of actual harm.

When the NLRB first addressed this case, it decided that the special circumstances exception did not apply because the shirts “would not have been reasonably mistaken for prison garb.” The D.C. Circuit Court of Appeals disagreed and held that this was an unreasonable application of the special circumstances exception. Instead, the court recognized that “[n]o company, at least one that is interested in keeping its customers, presumably wants its employees walking into people’s homes wearing shirts that say ‘Inmate’ and ‘Prisoner.’” The court also emphasized that the employer’s prohibition of the shirts was lawful because it was limited to employees who interact with customers or who work in public.

Takeaway: Although an employer usually cannot prohibit employees from displaying union messages while working, the special circumstances exception allows an employer to do so when there is a reasonable belief that the message may damage customer relations or the company’s public image.

DOL Issues New Guidance Regarding Independent Contractors

On July 15, 2015, the U.S. Department of Labor released new guidance regarding the classification of workers as either independent contractors or employees under the Fair Labor Standards Act (FLSA). Here’s what employers need to know about the new guidance:

The DOL’s new guidance explains that whether an individual is an employee or an independent contractor under the FLSA is based on a multi-factor “economic realities” test. The DOL emphasizes that this standard is different from the common law “control” test utilized by most states.

The guidance explains that the “economic realities” test must be applied in view of the FLSA’s broad “suffer or permit” standard for determining compensable work. Under this standard, an individual is considered to be employed and subject to the FLSA if the employer “suffers or permits” him or her to work. The DOL argues that because this standard is broad, “most workers are employees under the FLSA.”

The guidance identifies six factors that are relevant to determining whether an individual is an employee under the economic realities test. These factors include the following:

  1. Is the work an integral part of the employer’s business?
  2. Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
  3. How does the worker’s relative investment compare to the employer’s investment?
  4. Does the work perform require special skill and initiative?
  5. Is the relationship between the worker and the employer permanent or indefinite?
  6. What is the nature and degree of the employer’s control?

According to the DOL, these six factors should not be analyzed mechanically or in a vacuum, and no single factor, including control, should be overemphasized.

Takeaway: Misclassification of employees as independent contractors carries potential risks and liabilities, including minimum wage, overtime, taxes, unemployment benefits, and workers’ compensation. Companies that utilize independent contractors should monitor ongoing legal developments in this area and ensure that they are in compliance.

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Second Circuit Rejects DOL’s 6-Factor Test For Unpaid Interns

The Second Circuit Court of Appeals recently issued a decision rejecting the 6-factor test developed by the U.S. Department of Labor to determine whether an individual is an employee entitled to wages or a trainee for whom no payment is required.

In Glatt v. Fox Searchlight Pictures, Inc., a group of unpaid interns who worked on the sets of the movies Black Swan and 500 Days of Summer argued that they were employees who should have been paid the minimum wage and overtime under the Fair Labor Standards Act (FLSA).  The district court initially agreed with the plaintiffs based on the DOL’s well known 6-factor test.

The Second Circuit disagreed.  First, the court held that the DOL’s 6-factor test was not entitled to deference because it was based on the DOL’s interpretation of a judicial decision, not a statute.  Then the court held that the court should have applied the “primary beneficiary” test instead of the DOL’s 6-factor analysis.  Under this test, the inquiry should have focused on “whether the intern or the employer is the primary beneficiary of the relationship.”

The court explained that the primary beneficiary test has two components.  First, it focuses on “what the intern receives in exchange for his work” – i.e., the benefit to the trainee.  Second, it focuses on the “economic reality as it exists between the intern and the employee.”  The court further explained that applying the test can be difficult because it “requires courts to weigh a diverse set of benefits to the intern against an equally diverse set of benefits received by the employer without specifying the relevance of particular facts.”  Accordingly, the court identified the following non-exhaustive list of factors to aid courts in applying the primary beneficiary test:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands‐on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The court emphasized that the primary beneficiary test was flexible and that the final determination must be based on the totality of the circumstances.

Because the lower court applied the DOL’s 6-factor test instead of the primary beneficiary test, the Second Circuit reversed and remanded the lower court’s decision.  The Second Circuit also held that because individualized questions relating to the plaintiffs predominated over common questions, the lower court erred by certifying the plaintiffs’ proposed Rule 23 class and conditionally certifying the plaintiffs’ proposed FLSA collective action.

Takeaway:  The Second Circuit’s decision in Glatt is good for employers because it rejects the DOL’s rigid 6-factor test in favor of a more flexible standard.  It also suggests that it may be difficult for unpaid interns to obtain class or collective relief given the highly individualized nature of the inquiry.

California Labor Commissioner Holds That Uber Drivers Are Employees, Not Independent Contractors

A recent decision by the California Labor Commissioner’s Office has held that drivers for Uber, the popular online ride-hailing service, are employees of the company rather than independent contractors.

In Berwick  v. Uber Technologies, LLC, the office ordered Uber to pay Barbara Ann Berwick $4,152.20 in expenses and other costs for the roughly eight weeks she worked as an Uber driver in 2014. Case No. 11-46739 (Cal. Lab. Comm. June 3, 2015). Ms. Berwick filed a complaint with the Labor Commissioner alleging that Uber did not sufficiently pay her for her time. Determining whether she was an employee or independent contractor was critical to the hearing officer’s holding that the company had to pay her for certain expenses.

In California, as in Minnesota, courts use a multi-part analysis to determine whether someone is an employee or an independent contractor, considering factors such as whether the person performing services is engaged in an occupation or business distinct from that of the principal, whether the work is a part of the regular business of the principal or alleged employer, and the alleged employee’s investment in the equipment or materials required.

Uber argued that is drivers are independent contractors because they use their own vehicles, set their own working hours, and are never required to accept any particular assignment. Uber said it was “nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business of transportation.”

The hearing officer did not find that convincing. “The reality . . . is that Defendants are involved in every aspect of the operation,” she said. The officer noted, among other aspects of Uber’s business:

Defendants vet prospective drivers, who must provide to Defendants their personal banking and residence information, as well as their Social Security Number. Drivers cannot use Defendants’ application unless they pass Defendants’ background and DMV checks.

Defendants control the tools the drivers use; for example, drivers must register their cars with Defendants, and none of their cars can be more than ten years old. . . .  Defendants monitor the Transportation Drivers’ approval ratings and terminate their access to the application if the rating falls below a specific level . . . .

While Defendants permit their drivers to hire people, no one other than Defendants’ approved and registered drivers are allowed to use Defendants’ intellectual property. Drivers do not pay Defendants to use their intellectual property.

Uber has appealed the ruling.

Takeaway:  Companies who use independent contractors as part of the new “sharing economy” should keep track of this case and regularly evaluate whether their independent contractors are improperly classified.

What Employers Need To Know About the DOL’s New Proposed Salary Basis Rules

On July 6, 2015, the U.S. Department of Labor published its long-anticipated proposed new rules establishing a significantly higher minimum weekly payment amount for the “white collar” exemptions to the minimum wage and overtime rules under the Fair Labor Standards Act (FLSA).  Here’s what employers need to know about the proposed new rules:

Rather than the current minimum weekly amount of $455 per week or $23,660 per year, the minimum weekly pay amount for an employee to qualify as exempt under the FLSA would increase as follows:

  • Executive employees will need to paid at least $970 per week on a salary basis;
  • Administrative employees will need to be paid at least $970 per week on a salary basis or a fee basis;
  • Creative professional or learned professional employees will need to be paid at least $970 per week on a salary basis or fee basis;
  • Computer employees will need to be paid at least $970 per week on a salary basis or fee basis; and
  • The minimum annual salary for the “highly compensated employee” exemption will be revised upward from $100,000 per year to $122,148 per year.

The $970 weekly minimum is equal to an annual salary of $50,440 per year.  This amount was calculated by taking the 40th percentile for weekly wages for salaried workers in 2013 ($921 per week or $47,892 per year) and adjusting it to account for inflation.  The proposed regulations will also mandate additional annual adjustments of the minimum payment requirements to account for inflation on an ongoing basis.

The proposed new minimum weekly payment amount for these FLSA exemptions more than doubles the current minimum weekly amount.  The DOL is currently accepting written comments on the proposed new rules through September 4, 2015.  After that, the DOL will issue a final rule perhaps in late 2015 or, more likely, some time in 2016 to implement the new requirements.

Takeaway:  Employers should start preparing for the DOL’s new salary basis rules to go into effect.  In general, exempt employees who are currently paid less than $970 per week will either need to receive a raise to satisfy the new rules, or they will need to start tracking their hours worked and receiving time-and-a-half pay for overtime.


Court Decertifies FLSA Collective Action Based on Alleged Meal Period Violations

A federal court recently decertified a proposed FLSA collective action based on allegedly uncompensated work performed during meal periods.

In Aguilera v. Waukesha Memorial Hospital, Inc., a group of certified nursing assistants and housekeepers alleged that their employer subjected them to a common policy of requiring them to perform unpaid work during their meal breaks.  No. 13-C-1245 (E.D. Wis. June 18, 2015).  After the court conditionally certified the proposed FLSA collective action, the employer moved to decertify the collective action on the grounds that the employees were not “similarly situated,” as required by 29 U.S.C. § 216(b).

Of the 26 plaintiffs who opted-in to the collective action, only 17 submitted declarations in which they asserted that they were required to monitor communication devices during their meal periods.  They also asserted that because they could not remove their communications devices from the employer’s premises, they believed that they could not leave the employer’s premises during the meal periods.  In contrast, one of the plaintiffs testified during her deposition that she rarely received calls during her meal periods and that she understood that she could leave the premises.  The other eight plaintiffs did not submit any evidence to the court.

The court determined that the case could not proceed as a collective action under the FLSA.  The court stated that “there is no hospital-wide policy that dictates how or how often a housekeeper or CNA must use his or her communication device during a meal period,” and that, instead, “[s]uch usage seems to vary based on shift, department, and supervisor.”  The court determined that “there is simply no way to resolve the claims of each class member without independently establishing the facts that apply to that plaintiff and then determining whether his or her use of a communication device during a meal period qualified as work.”  The court further explained that:

Even if the experiences of some of the other class members were similar to the experiences of the named plaintiffs, such that the jury needed to answer the question of whether how they used their communication devices during meal periods qualified as work only once, at the very least the other class members would need to testify to establish that they used their communication devices in the same way as the named plaintiffs. And almost certainly every class member will have had at least slightly different experiences, which means that the jury will likely need to separately determine for each class member whether his or her use of a communication device during a meal period qualified as work.

Because of the individualized inquiry that would be required for each plaintiff, the court held that the claims could not be resolved on a representative basis.  However, even though the case could not proceed as a FLSA collective action, the court held that the 17 plaintiffs’ meal break claims could be joined and tried together as separate individual claims.

Takeaway:  Demonstrating the individualized issues that will need to be determined for FLSA claims – such as meal period claims – is helpful to defeating certification of an FLSA collective action.

Are Male Strippers Exempt From the FLSA As Creative Professionals?

No – the U.S. District Court for the Northern District of Georgia recently rejected the argument that male strippers qualify as exempt “creative professionals” under the Fair Labor Standards Act (FLSA).

In Henderson v. 1400 Northside Drive, Inc., a group of male strippers sued an adult nightclub, which they alleged misclassified them as independent contractors and, as a result, failed to pay them the minimum wage required by the FLSA.  No. 1:13-CV-3767-TWT (N.D. Ga. June 19, 2015).  One of the defenses that the employer raised was that, even if the strippers were employees, they were exempt from the FLSA as creative professionals.  To qualify as a “creative professional,” an employee must be (i) compensated on a salary basis or fee basis at a rate of not less than $455 per week; and (ii) his or her primary duty must be the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.  29 C.F.R. § 541.300.

The Henderson court rejected the employer’s creative professional argument, finding that “little creativity is required to be a dancer at the Club.”  The court noted that the evidence showed that original dance moves were not a requirement for the job and that many of the strippers did not know how to dance.  The court further found that hiring decisions were based primarily on the applicants’ looks and that no special training was required.  As a result, the court determined that the strippers’ jobs did not require sufficient creativity to qualify as exempt creative professionals.

Takeaway:  The Henderson case is part of broad trend of wage and hour lawsuits in the adult entertainment industry.  Employers who operate adult nightclubs should ensure that they pay their dancers in accordance with the requirements of the FLSA.

Does a Supervisor’s Use of the Words “Historically” and “Old School” Prove Age Discrimination?

No – the Eighth Circuit Court of Appeals recently rejected a plaintiff’s argument that his supervisor’s use of the terms “historically” and “old school” constituted direct evidence of age discrimination.

In Wagner v. Gallup, Inc., the plaintiff sued for age discrimination after his employer terminated his employment. No. 14-2746 (8th Cir. June 12, 2015). In support of his claims, the plaintiff cited a recorded phone call with his younger supervisor shortly before his termination. During the conversation, the supervisor questioned how the company could push the plaintiff to think about his work in a different way than he had done “historically but kind of pushing forward a more creative thought process for our clients.” The supervisor also encouraged the plaintiff to consider whether references he made while working with clients to a previous book he published were truly relevant to the client’s business problems or whether it might “feel like old school.”

When analyzing the supervisor’s comments, the court held that the words “were not uttered in a vacuum but rather must be placed in context.” In context, the court explained that the supervisor used the word “historically” as a temporal reference to things that had been done in the past. The court also explained that the supervisor used the words “old school” to refer to ideas that may not be relevant to a particular situation, not as a reference to the plaintiff. Accordingly, the court held that the comments did not establish direct evidence of age discrimination.

Takeaway: Sometimes plaintiffs attempt to use isolated words out of context to try to establish their claims. The Wagner case is good for employers because it supports the proposition that courts should analyze comments in context, not in isolation.

Don’t Forget: The Minimum Wage in Minnesota Will Increase On August 1, 2015

On August 1, 2015, the minimum wage will increase again for Minnesota employers. Here’s what employers need to know about the minimum wage increase that will soon take effect:

  • Large Employers: “Large employers” – whose gross annual volume of sales made or business done is $500,000 or more – will need to pay a minimum wage of at least $9.00 per hour.
  • Small Employers: “Small employers” – whose gross annual volume of sales made or business done is less than $500,000 – will need to pay a minimum wage of at least $7.25 per hour.
  • Exception for Employees Under the Age of 18: “Large employers” may pay employees under the age of 18 a lower minimum wage of at least $7.25 per hour.
  • Exception for Employees Under the Age of 20: During the first 90 days of employment, any employer may pay an employee under the age of 20 a lower minimum wage of at least $7.25 per hour.
  • Exception for Certain Summer Work Travel Employees: An employer that is considered a “hotel or motel,” “lodging establishment,” or “resort,” as defined by Minnesota law, may pay a lower minimum wage to employees working under a summer work travel exchange visitor program nonimmigrant visa if the employer also provides a food or lodging benefit to the employee. The minimum wage rate for these employees will be $7.50 per hour.

See Minn. Stat. § 177.24.

Takeaway: Employers should prepare for the new minimum wage increase that will take effect on August 1, 2015.