D.C. Circuit Upholds the DOL’s New Rules Regarding the FLSA Companionship Exemption

In January of 2015, new rules issued by the U.S. Department of Labor went into effect regarding the “companionship exemption” from the FLSA’s minimum wage and overtime rules. Overall, the new rules narrowed the scope of the exemption. The D.C. Circuit Court of Appeals recently found that the new rules are valid exercises of administrative authority and overturned a lower court’s order that vacated certain portions of the rules.

In Home Care Association of America, et al. v. Weil, a group of trade associations challenged two key components of the DOL’s rules regarding the companionship exemption. No. 15-5018 (D.C. Cir. Aug. 21, 2015). First, the plaintiffs challenged the DOL’s rule that states that third-party employers of employees engaged in companionship services may not avail themselves of the exemption. 29 C.F.R. § 552.109. Second, the plaintiffs challenged the DOL’s narrower definition of “companionship services,” which defines the term to include the provision of care – such as meal preparation, driving, light housework, managing finances, assistance with medications, and arranging medical care – but only if those activities do not exceed 20% of the total hours worked. 29 C.F.R. § 552.6. Under the new rules, the remainder of the time is supposed to be devoted to “fellowship and protection” activities, such as conversation, reading, games, crafts, going on walks, running errands, and accompanying the person to appointments or social events to monitor the person’s safety and well-being.

The district court initially found that both of the challenged provisions were unlawful. The district court reasoned that excluding employees of third-party employers and limiting care activities to 20% or less of work hours contravened the plain terms of the statute.

The D.C. Circuit Court of Appeals disagreed and held that both of the provisions of the new DOL rules were entitled to Chevron deference. The court based its analysis primarily on the Supreme Court’s decision in Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158 (2007). In Coke, the Supreme Court held that the text of the FLSA does not specifically answer the third-party employment question and that the legislature had granted authority to the DOL to decide the issue. The court concluded that the Supreme Court’s decision in Coke precluded the challengers’ arguments concerning third-party employment.

With respect to the DOL’s rule limiting care activities to 20% or less of work hours, the court held that it did not have jurisdiction to decide the issue. The court reasoned that because the third-party employer exclusion was valid, none of the plaintiffs were eligible for the companionship exemption. As a result, none of the plaintiffs suffered any harm from the 20% limitation and did not have constitutional standing to address the issue.

Takeaway: Unless there is a successful appeal to the U.S. Supreme Court, the DOL’s new companionship exemption rules are valid and enforceable.

Another Federal Circuit Court Rejects Telecommuting as a Reasonable Accommodation

Another federal circuit court of appeals recently rejected the argument that telecommuting was required as a reasonable accommodation for a disabled employee.

The Sixth Circuit Court of Appeals made waves in 2014 when it concluded that telecommuting was required as a reasonable accommodation for an employee.  Then in early 2015, the Sixth Circuit reversed its previous holding through an en banc review and concluded that telecommuting was not a reasonable accommodation.  In that decision, the Sixth Circuit held that “regularly attending work on-site is essential to most jobs, especially the interactive ones.”

In Doak v. Johnson, the D.C. Circuit reached a similar conclusion to the Sixth Circuit’s en banc analysis.  No. 14-5053 (D.C. Cir. Aug. 18, 2015).  In Doak, the plaintiff worked as a program analyst, whose job duties included monitoring the budget, making procurement requests, and attending in-person meetings with her co-workers.  The plaintiff also suffered from hypothyroidism, depression, and migraines that caused her to miss a significant amount of work on an unpredictable basis.  After exhausting her FMLA leave, the plaintiff requested various accommodations, including a late start-time of 11:00 a.m. (everyone else started between 6:00 and 8:00 a.m.) and telecommuting.  The employer denied the late start-time and telecommuting requests on the grounds that the plaintiff’s position required her to interact frequently with various co-workers and that the accommodations did not allow her to perform those job functions.  Later, the employer terminated the plaintiff due to her ongoing inability to work a regular schedule, and the employee sued.

The D.C. Circuit Court of Appeals agreed with the employer that the plaintiff’s proposed accommodations would not enable her to perform the essential functions of her job – particularly, her ability to be “present in the office to participate in interactive, on-site meetings during normal business hours and on a regular basis.”  The court found that there was strong evidence that being present during regular working hours was an essential function of the plaintiff’s job and that the plaintiff did not present any evidence to the contrary.  As a result, the court upheld the dismissal of the plaintiff’s claims on summary judgment.

Takeaway:  Although telecommuting may be a reasonable accommodation for a disabled employee in certain circumstances, it is generally not a reasonable accommodation when in-person attendance is an essential function of the employee’s job.

Eighth Circuit Reverses NLRB Order Requiring Reinstatement of Employee Who Threatened a Co-Worker

The Eighth Circuit Court of Appeals recently reversed a decision by the National Labor Relations Board (NLRB), which held that an employer acted unlawfully by firing an employee who threatened a co-worker.

In Nichols Aluminum LLC v. NLRB, the employer fired an employee for making a threat to a co-worker shortly after the employee participated in a union strike. Nos. 14-3001, 14-3202 (8th Cir. Aug. 13, 2015). The employee participated in a strike that began on January 20, 2012, and lasted until April 6, 2012. After the strike was over, the employer asked the participating employees to sign a no-strike pledge and agree that they would not “strike again over the same dispute.” The employer also reviewed its longstanding “zero tolerance” workplace violence policy with the employees, which prohibited “harassing, disruptive, threatening, and/or violent situations or behavior” and warned that employees could be terminated for a first offense.

About two weeks after the strike ended, the employee made a threatening “cut throat” gesture towards another co-worker. The co-worker reported that the employee gave him a “death stare” while making the gesture and that he understood it to mean “I’m going to cut your throat.” The employer fired the employee, and the employee subsequently filed an unfair labor practice charge. The charge asserted that the employer unlawfully discriminated the employee for his participation in the strike in violation of the National Labor Relations Act (NLRA).

Initially, the administrative law judge (ALJ) found the employee’s charge to be without merit, reasoning that the employer “reasonably construed” the employee’s behavior as a serious threat. The NLRB disagreed, however, and found that the employee’s termination violated the NLRA. The NLRB emphasized that the no-strike pledge and the timing of the leave constituted evidence of anti-union animus. The NLRB further reasoned that the employer “failed to show it would have fired [the employee] regardless of his participation in the strike.”

On appeal, the Eighth Circuit reversed the NLRB’s determination on the grounds that the NLRB applied the wrong legal standard. The Court explained that under the Wright Line legal standard, the NLRB’s General Counsel must first prove that an employee’s protected conduct was a “substantial or motivating factor in the adverse action.” If and only if the General Counsel can make that showing, the burden shifts to the employer to show that it would have taken the same action for a legitimate, nondiscriminatory reason regardless of the employee’s protected activity.

The court explained that to prove anti-union animus is a “substantial or motivating factor in the adverse action,” simple animus toward the union is not enough. Although hostility towards the union is a factor that should be considered, the court stated that “general hostility toward the union does not itself supply the element of unlawful motive.” The court concluded that the NLRB misapplied the Wright Line standard and did not hold the General Counsel to its burden of providing that discriminatory animus towards the employee’s protected conduct was a “substantial or motivating factor” in the termination decision. Accordingly, the court refused to enforce the NLRB’s order.

Takeaway: The Nichols Aluminum LLC decision is a good reminder that the NLRB does not have the last word on labor law matters. When the NLRB reaches decisions that seem contrary to common sense (like this one or this one or this one), an appeal to a federal circuit court may be an effective means of recourse.

Can Employers Require Job Applicants To Pay For the Costs Of Background Checks?

Generally no – Minnesota law provides that, unless specifically authorized by law, no employer or prospective employer may “require an employee or prospective employee to pay for expenses incurred in criminal or background checks, credit checks, or orientation.”  Minn. Stat. § 181.645.

The primary exception for the rule is for teachers.  Minnesota law allows a school hiring authority to require any individual who applies to work in a school to pay for the cost of his or her legally required background check with the Bureau of Criminal Apprehension.  Minn. Stat. § 123B.03, subd. 1.

Takeaway:  Unless specifically authorized by law, employers in Minnesota may not require applicants to pay for the costs of their background checks.

Is a Parent Company The Employer of a Subsidiary’s Employees?

On occasion, an aggrieved employee of a subsidiary may seek to assert claims not only against their employer, but also against related entities including the parent company.  The Minnesota Federal District Court recently reviewed, and dismissed, such a claim in Sasorith v. Detector Electronics Corporation, Civ. No. 14-5045 (D. Minn. July 22, 2015).

In Sasorith, the plaintiff claimed that she had been sexually harassed by a co-worker at the subsidiary.  In part, her lawsuit claimed that the parent company was also liable for this alleged harassment because it knew or should have known that she was being harassed.  On a motion to dismiss, the court rejected this claim because the employee did not establish an employment relationship with the parent company.

As stated by the court:  “There is a strong presumption that a parent company is not the employer of the subsidiary’s employees.” (quoting Brown v. Fred’s Inc., 494 F.3d 736, 739 (8th Cir. 2007)).  Sasorith failed to overcome this presumption by showing that the parent company dominated the subsidiary’s operations to the extent that the two entities actually operated as one or that the parent company controlled individual employment decisions of the subsidiary.  As a result, the court dismissed the claims against the parent company.

Takeaway:  While a strong presumption in the law exists to protect a parent company from employment claims by subsidiary employees, a parent company seeking to avoid liability should ensure that it does not appear to dominate employee relations of its subsidiary.  The employment relationships at the subsidiary level should operate independently and outside of the control of the parent company.

Should Employers Offer Up To One Year of Paid Parental Leave?

According to reports, Netflix recently adopted a policy that will allow employees to take unlimited paid parental leave within the first year after a child is born or adopted.  The new policy is part of a broader trend among employers to attract and retain talent by offering generous parental leave benefits.  Netflix’s Chief Talent Officer explained the new policy by stating that “Netflix’s continued success hinges on us competing for and keeping the most talented individuals in their field.”

Other companies, particularly in the tech field, also offer parental leave benefits that exceed the requirements of federal or state law.  For example, Facebook allows new parents to take up to four months off, and Apple allows mothers to take up to 14 weeks off and their partners to take up to 6 weeks off.

The primary benefit of these policies is that they help employers recruit and retain employees, particularly women – which has been difficult for some tech employers to achieve.  After Google increased its parental leave from 12 weeks to 18 weeks, the company reported that mothers were leaving the company at half the rate they did previously.

On the other hand, the downsides include increased costs for the employer and a potential decrease in productivity.  When employees take paid leave, the employer must either hire a temporary replacement or re-allocate the employee’s work responsibilities to others, increasing those other employees’ workloads.  Given these concerns, not all employers may be able or willing to offer parental leave benefits as generous as the new Netflix policy.

Takeaway:  Offering generous parental leave benefits is one method of recruiting and retaining employees, but whether it is right for a particular company depends on a variety of factors.

USERRA Leave: The “Most Favorable Treatment” Requirement

The Uniform Services Employment and Reemployment Rights Act (“USERRA”) requires that a USERRA leave be given the “most favorable treatment” to any “comparable leave” provided by the employer.  20 C.F.R. § 1002.150.  Since most USERRA leaves are unpaid, this “most favorable treatment” requirement raises questions when an employer offers different types of paid leave.  If an employer gives two days’ paid leave for a bereavement leave, does an employee on a USERRA leave have the right to two days’ pay?

The key concept is “comparability” – an imprecise term, indeed.  USERRA does provide some refinement:

If the non-seniority benefits to which employees on furlough or leave of absence are entitled vary according to the type of leave, the employee must be given the most favorable treatment accorded to any comparable form of leave when he or she performs service in the uniformed services. In order to determine whether any two types of leave are comparable, the duration of the leave may be the most significant factor to compare. For instance, a two-day funeral leave will not be “comparable” to an extended leave for service in the uniformed service. In addition to comparing the duration of the absences, other factors such as the purpose of the leave and the ability of the employee to choose when to take the leave should also be considered.

20 C.F.R. § 1002.150 (emphasis added).  Thus, points of comparability are the duration, purpose, and timing of other leaves.  While a paid sabbatical leave may be comparable, a two-day bereavement leave is not.  But the USERRA comparability requirement is far from fully developed.  Failure to comply can result in a complaint to the U.S. Department of Labor and the risk of enforcement penalties.

Takeaway:  An employer who voluntarily provides pay for otherwise unpaid leaves needs to keep an eye on the USERRA comparability requirement.  A good resource for checking your thinking on comparability is the web page and helpline for the U.S. Department of Defense, Employer Support of the Guard and Reserve Office (ESGR).

Can You Fire An Employee For Threatening to Kill Co-Workers?

Yes – a sincere belief that an employee made threats of violence is perhaps one of the strongest defenses available to claims for wrongful termination.  A recent decision from the Ninth Circuit illustrates this principle well.

In Mayo v. PCC Structurals, Inc., the Ninth Circuit Court of Appeals rejected claims for disability discrimination asserted by an employee who made threats of violence in the workplace.  No. 13-35643 (9th Cir. July 28, 2015).  The employee made multiple threatening comments.  He told one employee that he felt “like coming down with a shotgun and blowing off” the heads of a supervisor and a manager.  He told another employee that he planned to “take out management.”  On another occasion, he said that he wanted “to bring a gun down and start shooting people.”  After these threats were reported, the employer terminated the employee.

In his lawsuit, the employee alleged that the employer discriminated against him on the basis of his disability, major depressive disorder.  The court dismissed the employee’s claim for failure to establish a prima facie case because the employee could not establish that he was a “qualified individual with a disability.”  The court explained that:

An essential function of almost every job is the ability to appropriately handle stress and interact with others.  And while an employee can be qualified despite adverse reactions to stress, he is not qualified when that stress leads him to threaten to kill his co-workers in chilling detail and on multiple occasions (here, at least five times).  This vastly disproportionate reaction demonstrated that Mayo could not perform an “essential function” of his job, and was not a “qualified individual.” This is true regardless of whether Mayo’s threats stemmed from his major depressive disorder.

Takeaway:  Employers do not need to tolerate threats of violence in the workplace even if they result from a disability.  As the court explained in Mayo, federal and state anti-discrimination laws do not “require employers to play dice with the lives of their workforce.”

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.