Category Archives: Employment Policies and Agreements
One area of employment law that often trips up Minnesota companies is whether a worker should be considered an “employee” or an “independent contractor.” In general, independent contractors are considered to “be their own bosses.” In other words, because employers have less control over them, independent contractors are not subject to employment laws relating to wages, workplace health and safety, and withholding taxes. But the line between an independent contractor and an employee can be hard to draw, and federal and state agencies have been stepping up enforcement of the laws prohibiting misclassification of workers as independent contractors.
One mistake we frequently see is that when an agency, such as the U.S. Department of Labor or the Minnesota Department of Revenue, initiates an inquiry or enforcement action based on potential misclassification of a worker as an independent contractor, the company tries to respond informally, without involving their employment attorney. This can lead to unnecessary difficulties. For example, as the company tries to explain to the investigator why the worker is an independent contractor, the company may inadvertently provide information that the investigator can use against the company. Or, the company may not understand the impact of the investigation—misclassification can result in significant taxes, fines, or other liabilities. And, the company may not know the best practices for how to resolve the dispute. The last thing the company needs is for the result of one agency’s investigation to spur other agencies into undertaking their own investigation. Briggs and Morgan, P.A. has experience working with the Minnesota Department of Revenue and other relevant agencies to conclusively resolve misclassification inquiries.
Usually, the agency looks at a variety of factors to determine whether it believes the classification is correct. A company’s honest belief or good faith intent regarding classification of its workers as independent contractors is generally irrelevant, which is why so many companies may face liability for misclassifications. Instead, the agency will look at certain factors regarding the relationship between the worker and company. Another factor often working against the company is that the agency has an interest in finding an employee-employer relationship, so the scales may often tip in that direction when there is uncertainty.
Takeaway: When an employer receives notice of an investigation relating to misclassification of a worker as an independent contractor, it should not try to respond on its own—that can often make the situation worse. Instead, the employer should contact its employment law counsel right away so that a response strategy can be developed.
Last week the Eighth Circuit Court of Appeals held in Ayala v. CyberPower Sys. (USA), Inc. that an employee’s compensation agreement did not modify his status as an at-will employee. No. 17-1852, 2018 WL 2703102, at *1 (8th Cir. June 6, 2018). In Ayala, the plaintiff entered into an agreement with defendant CyberPower that detailed the salary and bonus structure for his position as Executive Vice President of CyberPower. The agreement provided that it “outlines the new salary and bonus structure to remain in place until $150 million USD is reached. It is not a multiyear commitment or employment contract for either party.” The plaintiff was terminated before sales reached $150 million.
In 2015, the plaintiff sued CyberPower for breach of contract, claiming that the agreement secured his employment until the $150 million sales threshold was met. CyberPower argued that the agreement did not modify the plaintiff’s status as an at-will employee, so it had the right to terminate him at any time. The United States District Court for the District of Minnesota agreed with CyberPower and dismissed the lawsuit. The plaintiff appealed.
On appeal at the Eighth Circuit, the court stated that there is a strong presumption under Minnesota law in favor of at-will employment, and to alter the plaintiff’s status as an at-will employee, CyberPower “must have ‘clearly intended’ to do so by entering the Compensation Agreement.” Because the agreement stated that it only governed compensation and did not create a multi-year employment contract for either party, the court held that the plaintiff’s employment was at-will. Importantly, the court stated that “Minnesota law does not require a clear statement to continue at-will employment—it presumes such employment.”
Takeaway: This decision is a win for employers who have at-will employees, as it reiterates the strong presumption under Minnesota law in favor of at-will status, even if the employment agreement is silent on the issue. Employers should still be cautious, however, when drafting compensation agreements to ensure they are not unintentionally creating employment for a definite term.
The Minnesota Legislature has been considering H.F. 4459, “a bill for an act clarifying the definition of sexual harassment” under the Minnesota Human Rights Act (MHRA). The bill would amend Minn. Stat. § 363A.03, subd. 43, which defines sexual harassment in employment, education, housing, and public service contexts.
Currently, Minnesota courts require that sexual harassment be “severe or pervasive” to be actionable under the MHRA. See Rasmussen v. Two Harbors Fish Co., 832 N.W.2d 790, 796 (Minn. 2013). This definition of actionable sexual harassment also mirrors the definition of sexual harassment under Title VII of the Civil Rights Act of 1964.
The proposed bill would add language to Minn. Stat. § 363A.03 providing that “an intimidating, hostile, or offensive environment … does not require the harassing conduct or communication to be severe or pervasive.” If passed, the amendment would apply to sexual harassment claims after August 1, 2018.
If the bill is successful, it will arguably lower the bar for actionable claims in Minnesota which could in turn significantly increase the number of claims faced by employers. Recent reports state that the bill is stalled in the Senate due to concerns from the business community.
Takeaway: Stay tuned for updates to Minnesota’s sexual harassment law. If you want to express concerns about this proposed legislation, contact your legislators.
In 2016, the Equal Employment Opportunity Commission (EEOC) proposed and then approved a new EEO-1 Form for the collection of certain workforce data. In particular, the new form would require all employers with 100 or more employees, and federal contractors with 50 or more employees, to now annually report certain pay and hours worked data, in addition to data regarding workforce ethnicity, race, and gender. This new form was set to become effective with a March 31, 2018, filing date deadline.
The required submission of compensation data was received by employers with expected controversy. In addition to the increased administrative burden, employers recognized that the compensation data could be used by the EEOC to charge and investigate allegations of discriminatory practices.
Well, those employer concerns are now tabled. On August 29, 2017, the Office of Management and Budget (OMB), issued a Memorandum to the EEOC Acting Chair, Victoria Lipnic, stating that OMB is “initiating a review and immediate stay of the effectiveness of those aspects of the EEO-1 form that were revised on September 29, 2016.” In doing so, OMB noted that the EEOC had released data file specifications for employers to use in submitting the new data, but these specifications were not part of the prior public comment process and were not accounted for in previous burden estimates. Further, the OMB Memorandum stated:
OMB has also decided to stay immediately the effectiveness of the revised aspects of the EEO-1 form for good cause, as we believe that continued collection of this information is contrary to the standards of the PRA (Paperwork Reduction Act). Among other things, OMB is concerned that some aspects of the revised collection of information lack practical utility, are unnecessarily burdensome, and do not adequately address privacy and confidentiality issues.
So for now employers should continue to use the prior EEO-1 form, rather than the new form. The March 31, 2018, filing deadline remains the same.
Takeaway: OMB has stayed indefinitely the EEOC’s use of its new EEO-1 form. Employers should instead continue to submit data under the prior form.
Given the length of discrimination litigation and the sometimes shortness of life, the following question can arise: Will an employment discrimination claim go on if the person bringing the claim dies while the claim is pending? A recent federal case for the circuit governing Minnesota employers addressed this question as to Americans With Disabilities Act claims.
In Guenther v. Griffin Construction Co., 846 F.3d 979 (8th cir. 2017), the U.S. Court of Appeals for the Eighth Circuit held that the ADA claim of an employee who died while the ADA charge was pending survived his death and his estate could carry on with the claim. State claim survival laws did not control this federal ADA claim and the U.S. Court found that “federal common law” allowed survival of the claim. The Court pointed to the fact that a disability can involve a terminal condition (as here) and so it seemed that that claim’s survival was intrinsic to ADA protections and to the deterrence goals of the ADA.
Minnesota employers already are subject to certain types of discrimination claim survival statutes, (for example, special damages under Minnesota Human Rights Act claims survive death) and now the Guenther case establishes that federal ADA claims can continue through the decedent’s estate.
Takeaway: The law of survival of claims is complicated, but Minnesota employers can anticipate that a claimant’s death will not necessarily end a claimant’s pending discrimination charge or suit. That’s a fact of life, so to say.
The 2017 Regular and Special Sessions ended with an almost record lack of impact for Minnesota employers. There were no changes to Minn. Stat. § 181.01 et seq the state general employment statute or Minn. Stat. § 363.01, the State Human Rights Act. Stability is a good thing.
The one potential change – a law that would have restricted municipalities from setting their own workplace standards (such as regarding sick leave) was vetoed by Governor Dayton as promised.
Takeaway: Minnesota Employers do not need to update policies or handbooks due to any changes in state law coming out of this legislative session. Now, that’s good news!
The United States Department of Labor (DOL) issued a press release on June 7, 2017, announcing the withdrawal of two significant guidance statements issued during the Obama Administration.
In July 2015, the DOL released Administrator’s Interpretation No. 2015-1 regarding the potential misclassification of employees as independent contractors. This guidance emphasized the applicability of the economic realities test to determine proper classification under the Fair Labor Standards Act (FLSA) and noted that most workers are employees under the FLSA’s broad definitions.
In January 2016, the DOL released Administrator’s Interpretation No. 2016-1 emphasizing the potential applicability of joint employer status. This guidance analyzed both horizontal and vertical joint employment. Horizontal joint employment generally involves the relationship between related corporate entities, such as a parent company and a subsidiary. Vertical joint employment generally involves the relationship between unrelated companies upon both of which the employee may be economically dependent. The DOL emphasized that joint employment should be defined expansively under the FLSA.
Despite withdrawing both of these guidance statements (they are no longer posted on the DOL website), the press release stated that the DOL will continue to fully and fairly enforce all laws within its jurisdiction.
Takeaway: By withdrawing its previously issued guidance on independent contractors and joint employment, the DOL may be signaling more relaxed enforcement in these areas. Nonetheless, employers should continue to follow applicable law in assigning independent contractor status and assessing joint employer responsibility.
A “Pre-emption” or a uniform labor standards bill is a reaction in the Minnesota Legislature to the passage of sick time ordinances in Minneapolis and St. Paul. The idea is that Minnesota Employers’ obligations to employees regarding time-off and other similar obligations should be the same state-wide out of principles of fairness in competition and conformity. Also, the burden to metro-area employers in the current ordinances could well be altered or at least reduced if pre-emption bill passed by which state law pre-empts local ordinances and state-wide views pre-empt metro views of good public policy regarding private employer sick leave obligations.
A pre-emption bill is working its way through the legislature in these final session days, but the report “from the front” is that Governor Dayton will veto any pre-emption bill that makes it to his desk.
Takeaway: Minnesota Employers should prepare for the continued existence of different paid time-off standards throughout the State.
A distinguishing characteristic of employment discrimination claims in their short statute of limitations – for Minnesota Human Rights Act claims the statute is only 12 months. Defamation claims are two years and tort and breach of contract claims are six years, so a one year limitation period is very favorable to employers. Doubtless, the Minnesota Legislature (like Congress with Title VII and its 300 day limitation period) saw employment discrimination claims as volatile and problematic enough to set a short time to make a claim. And many a claim has fallen on a count to the 365th day between the alleged discriminatory act and the filing of a charge.
A recent Minnesota Supreme Court case highlights a nuance to the hard and fast rule of 365 days. There is built into the statute a tolling period for any internal arbitration process or “conciliation”:
The running of the one-year limitation period is suspended during the time a potential charging party and respondent are voluntarily engaged in a dispute resolution process involving a claim of unlawful discrimination under this chapter, including arbitration, conciliation, mediation or grievance procedures pursuant to a collective bargaining agreement or statutory, charter, ordinance provisions for a civil service or other employment system or a school board sexual harassment or sexual violence policy. – Minn. Stat. 363.28, subd. 3(b).
In Peterson v. City of Minneapolis, the plaintiff brought an age discrimination claim through an internal report and the defendant employer started an internal investigation under a Workforce Policy that contemplated possible resolution. While the trial courts found otherwise, the Minnesota Court of Appeals and ultimately the Minnesota Supreme Court concluded that the internal process constituted “alternative dispute resolution” of the “conciliation” type that suspended the statute. While there was no neutral involved or actual mediation discussions, the Court found that the intentions of the Workforce Policy and possibility of resolution constituted “conciliation” under the tolling provision of the statute.
For Minnesota Employers, this means that the protection provided by the short statute of limitations can be affected by an internal “alternative dispute resolution” process. To offset this potential uncertainty, either there should be no alternative dispute process as defined by Peterson as part of the internal investigation or, if there is, there should be a distinct end so the added tolled period can be accurately calculated. The statute has certain reporting provisions as well.
Takeaway: Like a referee in a Minnesota United football game, the Minnesota Courts will simply add to statute of limitations “regulation time” any tolled period. Minnesota Employers doing internal investigations should be savvy to this and consult with legal counsel about how best to know if a process likely tolls the one year period or design the process so there is no tolling or its impact is short.
Companies that have employees in various states often seek uniformity in developing employment agreements by using choice of governing law and venue provisions based on the state in which the company is headquartered or registered. For example, a Minneapolis-based company might select Minnesota law to govern its employment agreements, even though some of those employees are located in other states.
Employers who seek this consistency should be aware of a new California law which provides that employees who primarily reside and work in California cannot as a condition of employment be required to (1) adjudicate outside of California a claim arising in California or (2) be deprived of the substantive provisions of California law with respect to a controversy arising in California. This law applies to contracts entered into, modified, or extended on or after January 1, 2017.
Any provision of a contract violating this new prohibition is voidable at the request of the employee, after which any disputes will be governed by California law and will be adjudicated in California. This option to void contrary choice of law or venue provisions does not apply to contracts in which the employee was in fact individually represented by legal counsel in negotiating the terms of the agreement. A court may award reasonable attorney fees to an employee who must enforce their rights under this new law.
Takeaway: Employers based outside of California should be aware that contracts with California employees with choice of governing law and venue provisions outside of California are voidable and should measure expectations accordingly.
Employees will on occasion negligently perform their duties and as a consequence can often be discharged. But what about any damages caused by their negligence? Who pays the bill for that?
This issue was recently decided by the Minnesota Court of Appeals which held that the employer was not allowed to seek damage payment from the employee. First Class Valet Services, LLC v. Gleason, No. A16-1242 (Minn. Ct. App. March 20, 2017).
In First Class, the employee twice negligently caused damage to customer cars in his position as a parking valet. After reimbursing the car owners for their damages, the company filed a negligence lawsuit against the employee seeking to recover those payments. While prior Minnesota common law suggested that an employer could bring a claim against an employee to recover such payments, the Minnesota Court of Appeals determined that the valet company’s claim was barred by its duty to indemnify the employee for the negligent performance of his duties.
In 1993, the Minnesota Legislature enacted Minn. Stat. § 181.970 which generally requires an employer to defend and indemnify its employee against damages if the employee was acting in the performance of his duties. Although this statute did not expressly abrogate the common law rule, the First Class court held that the common law was indeed abrogated by necessary implication. The court reasoned that indemnification means to “hold harmless” in all respects and that permitting the employer to bring a claim against the employee might lead to the absurd result of the employee circularly seeking indemnification from the company regarding its own claim.
Takeaway: If a claim for damages results from an employee’s negligent performance of his or her job duties, and the employee is not guilty of intentional misconduct, willful neglect of the duties of their position, or bad faith, then the employer is statutorily obligated to indemnify the employee. As a result, an employer claim against the employee to recover payment of those negligently caused damages is barred by the duty to indemnify.
Moving beyond earned sick leave and safe time ordinances, it is very likely that this year the Minneapolis and St. Paul City Councils will take on the possibility of a $15 minimum wage ordinance. Such a municipal minimum wage exceeds state ($7.75 for small employers and $9.50 for large employers) and federal ($7.25) minimum wage, of course. The municipal earned sick leave and safe time ordinances passed by both cities in 2016 were the first wave in a national movement for employee rights that began in other major cities (such as San Francisco and Seattle) where the $15 minimum wage was then the next wave. Indeed, a task force on the $15 minimum wage ordinance has just formed in Minneapolis. State minimum wage initiatives stalled out in the last legislature sessions, so the major municipalities are taking the initiatives.
Arguments in favor of the $15 an hour minimum wage ordinances sound in quality of life and attraction of entry level employees in a high employment rate economy. And although $15 an hour may not be a realistic living wage, especially for a family, it reduces the need of low wage employees to work several jobs, creating a very human reason for metropolitan areas to have a higher minimum wage. Indeed, many Twin Cities metropolitan area employers already pay a minimum of $12 plus an hour, so the change is not extreme.
And the possibility of such ordinances passing as a second wave of employee rights municipal legislation has likely increased with the employer community’s inability to hold back the first wave sick leave and safe time ordinances in 2016. Having spent a lot of effort unsuccessfully in 2016 in broad opposition to the first wave, it is a strong possibility that employers opposing the second wave of the $15 minimum wage in 2017 will need to focus their efforts on exemptions and credits. Tip credits, student work study, training wages, gradual phase-in periods are examples of such possible exemptions in the ordinances that reduce the impact of this next wave.
Takeaway: Minneapolis and St. Paul employers are wise to anticipate in their business models, budgets for payroll and benefits and staff planning the passage of a $15 municipal minimum wage ordinance and follow closely the passage and specific provisions of this next wave of employee-protection ordinances. You don’t want to wind up like the old story of King Canute who tried to order the waves to hold back (unsuccessfully). Minnesota Employer will keep you updated.