Whether You Knew It or Not, the NLRB Says You Just Might Be a “Joint Employer”

By Patrick J. Hoban*

Yesterday, in a 3-2 decision, the National Labor Relations Board (“NLRB”) reversed a 30-year old standard for determining joint employer status under the National Labor Relations Act (“NLRA”). In Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (Aug. 27, 2015)(“Browning-Ferris”), the NLRB considered whether a recycling company and the staffing agency it used to recruit, hire, supervise, and compensate contingent workers in its facility were joint employers for the purposes of collective bargaining. In a decision that has attracted significant national attention, the NLRB scrapped its longtime joint employer analysis and created a new joint employer test under which more companies that use staffing and subcontracting agencies to provide contingent workers will be deemed “joint employers” with the staffing and subcontracting agencies under the NLRA.

The circumstances at issue arise when a company (“User”) contracts with a staffing or subcontracting agency (“Supplier”) to provide contingent workers to perform a function the User’s employees do not perform. These arrangements may include providing temporary employees to fill short-term User needs, providing temporary employees who the User evaluates for full-time employment, or providing contingent workers on an ongoing basis to perform a task in support of the User’s operations (e.g., maintenance, housekeeping, processing). Although there is significant variation in these arrangements, the User generally sets staffing requirements and worker qualifications, and the Supplier recruits, hires, compensates, sets benefits for, and administers the employment of the contingent workers. The User typically pays a fee based on a total hourly cost of each contingent worker including compensation, benefits, and administrative costs. The Supplier may or may not provide on-site supervision of the contingent workers.

Since the early 1980s, the NLRB’s joint employer analysis focused on the extent of the actual control a User exercised over the contingent workers. To be deemed a “joint employer” with the Provider, the User had to actually exercise control over the contingent workers’ terms and conditions of employment in a “direct and immediate” manner. In other words, a User was not a joint employer if it merely exercised “limited and routine” supervision over contingent workers. Absent joint employer status, a User is not subject to a collective bargaining obligation or liability for unfair labor practices under the NLRA even if the Supplier is (and vice versa).

In Browning-Ferris, the NLRB determined that its former analysis was out of step with “changing economic circumstances.” The NLRB cited significant growth in contingent employment relationships and revised its standard to adapt to the “changing patterns of industrial life.”

The New “Joint Employer” Standard

Under the NLRB’s new standard, multiple entities are “joint employers” of a single workforce if (1) “they are both employers within the meaning of the common law” and (2) they “share or co-determine” matters governing the essential terms and conditions of employment. Central to both analyses is the “existence, extent and object” of a putative joint employer’s control.

Under the first prong, the “right to control” is the key and the NLRB will no longer consider whether the entity exercises that right. Therefore, if an entity reserves a contractual right to determine a specific term or condition of employment (e.g. ultimate discharge authority, job qualifications), it may have created a common law “employer” relationship with contingent workers whether it has ever exercised that right. Additionally, an entity that exercises even indirect control over terms and conditions of employment may meet the common-law employer standard (e.g., gives direction to the Supplier to discipline a contingent worker).

Under the second prong, the NLRB considers the variety of ways in which entities may “share or co-determine” the “essential terms and conditions of employment.” “Essential terms and conditions of employment” include wages, hours, hiring, firing, discipline, supervision, and direction. Evidence of an entity’s control over essential terms and conditions of employment includes: dictating the number of contingent workers supplied; controlling scheduling, seniority, and overtime; and assigning and determining the manner and method of work performance.

Through its Browning-Ferris decision, the NLRB abandoned the certainty over three decades of joint employer analysis precedent provided to most contingent worker agreements. The NLRB’s new standard will very likely impose NLRA bargaining obligations, unfair labor practice liability, and/or lawful economic protest activities (e.g., strikes, boycotts, picketing) on entities that previously were not considered joint employers by the NLRB. The decision stands to significantly affect a wide-range of common business relationships including user-supplier, lessor-lessee, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, and predecessor-successor. Additionally, as the dissent warned, the new standard may render smaller employers that lie outside the NLRA’s Commerce Clause-based jurisdiction subject to the statute’s terms.

Although the NLRB recognized the almost tectonic significance of the Browning-Ferris decision, it insisted that the new standard is in full accord with the purposes of the NLRA. As the majority summarized its decision:

It is not the goal of joint employer law to guarantee the freedom of employers to insulate themselves from their legal responsibility to workers, while maintaining control of the workplace. Such an approach has no basis in the [NLRA] or in federal labor policy.

Employers who participate in contingent worker, subcontracting, temporary worker, and/or franchise agreements should closely examine the new standard and reevaluate the terms, benefits, and potential risks of such agreements. The examination must include a realistic assessment of the control employers retain over the terms and conditions of the contingent workforce, the potential for NLRA-based liability and alternatives that will reduce the risk of a joint employer determination under the new standard. Additionally, companies with parent/subsidiary structures should examine the relative control reserved to component entities and the risks of joint employer status.

*Patrick J. Hoban, an OSBA Certified Specialist in Labor and Employment Law, practices in all areas of private and public sector labor relations. For more information about the Browning-Ferris decision or labor & employment law, please contact Pat Hoban | pjh@zrlaw.com | 216.696.4441

Z&R Attorneys Named Best Lawyers in America 2016

George Crisci, Jon Dileno, Jonathan Downes, and Stephen Zashin of the firm's Employment and Labor Group and Deanna L. DiPetta, Amy M. Keating, Jonathan A. Rich, and Andrew A. Zashin of the firm's Family Law Group were all named Best Lawyers in America in 2016. The firm congratulates these attorneys as well as all of its attorneys that contribute to the firm’s practice.

• George S. Crisci – Employment Law - Management, Labor Law - Management,  and Litigation - Labor and Employment
• Jon M. Dileno – Employment Law - Management
• Jonathan J. Downes – Employment Law - Management and Labor Law - Management
• Stephen S. Zashin – Labor Law – Management and Litigation - Labor and Employment
• Deanna L. DiPetta - Family Law
• Amy M. Keating - Family Law
• Jonathan A. Rich - Family Law
• Andrew A. Zashin - Family Law

Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Because Best Lawyers® is based on an exhaustive peer-review survey in which more than 39,000 leading attorneys cast almost 3.1 million votes on the legal abilities of other lawyers in their practice areas, and because lawyers are not required or allowed to pay a fee to be listed, inclusion in Best Lawyers® is considered a singular honor.

EMPLOYMENT LAW QUARTERLY | Volume XVII, Issue ii

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• Religious Accommodations and Bargaining – Why Collective Bargaining Agreements May Trump Accommodations
• EEOC: Transgendered Employees Can Use the Restroom of Their Choice
• Employee Performance Reviews Have Their Day in Court: How Employers Can Get the Most out of Employee Performance Reviews
• Courts Have Little Sympathy for Employer Mistakes in Complying with the Fair Credit Reporting Act
• Z&R SHORTS

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Religious Accommodations and Bargaining – Why Collective Bargaining Agreements May Trump Accommodations

By George S. Crisci*

A Federal Court recently affirmed an employer’s decision to discharge a janitor who claimed the employer discriminated against him on the basis of his religious belief. Bolden v. Caravan Facilities Mgmt., LLC, No. 1:14-CV-26-RLM, 2015 U.S. LEXIS 73619 (N.D. Ind. June 8, 2015). The employer, pursuant to a neutral, rotating schedule, assigned the plaintiff-employee janitor to work on six Sundays over a ten-week span. The employer had negotiated the schedule as part of the collective bargaining agreement (“CBA”) it entered into with the employee’s union. However, the employee, an ordained Baptist minister, did not work any of the scheduled shifts. He called off, did not appear, or traded shifts with another employee in order to observe the Sabbath. After the employer terminated his employment based on unsatisfactory performance, the employee sued, claiming the employer violated Title VII of the Civil Rights Act of 1964 (“Title VII”).

The Court found the employer did not violate Title VII by failing to accommodate the employee’s religious belief. Reasonable accommodations eliminate conflicts between religious practices and employment requirements. According to the Court, the employer provided a reasonable accommodation through two mechanisms. First, the employer utilized a neutral, rotating shift schedule that spread weekend work among the employees. Second, the employer permitted employees to trade shifts. The opportunity to trade shifts eliminated any conflict the neutral schedule created with an employee’s request for days off.

The Court also reasoned that any additional accommodation would impose an undue hardship on the employer. Employers do not have to incur more than a de minimis cost, in lost efficiency or higher wages, to accommodate an employee’s religious practice. Here, the Court considered the following accommodations: 1) making an exception to the neutral, rotating schedule by never scheduling the employee on Sunday; or 2) moving the employee to third shift. According to the Court, these options imposed more than a de minimis cost. If the employer did not change the employee’s schedule, the employer had to a) pay someone overtime to cover the shift (placing the burden on co-workers), b) work with one less employee (loss of productivity), or c) hire another employee (additional expense).

The CBA’s neutral, rotating schedule and seniority system played a significant role in the Court’s decision. Under the CBA, seniority determined shift selection. The employee worked second shift because he was one of the least-senior union members. Therefore, if the employer moved him to a different shift, it would violate the CBA and deny other employees their contractual rights. The employer had consulted with the union, but the union was unwilling to make an exception to the neutral, rotating schedule it negotiated.

Employers subject to CBAs should consider this decision when presented with requests for accommodations based on religious belief, particularly when those requests violate the CBA.

* George S. Crisci, an OSBA Certified Specialist in Labor and Employment Law, practices in all areas of labor and employment law. If you have questions about the impact of religious accommodations on your workplace, please contact George (gsc@zrlaw.com) at 216.696.4441.

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EEOC: Transgendered Employees Can Use the Restroom of Their Choice

By Andrew J. Cleves*

On April 1, 2015, the Equal Employment Opportunity Commission (“EEOC”) ruled that a federal agency discriminated against a transgendered employee when it prohibited the employee from using the common women’s restroom. Lusardi v. McHugh, Dep’t of Army, Appeal No. 0120133395, (EEOC Apr. 1, 2015). The employee presented as female and had not undergone medical procedures to transition from male to female. According to the EEOC, when the employer required the employee to use a single-user restroom, the employer committed sex discrimination in violation Title VII of the Civil Rights Act of 1964 (“Title VII”).

In its decision, the EEOC adopted a standard for determining the sex of transgendered individuals – how the employee identifies himself/herself. Specifically, the EEOC concluded “there is no cause to question that Complainant – who was assigned the sex of male at birth but identifies as female – is female.” Here, after the employee began transitioning her gender presentation, she reached a mutual agreement with her employer regarding bathroom use: she would use a single-user restroom instead of the women’s restroom until she had undergone surgery. The employer advocated this approach based on anticipated discomfort from other female employees. Subsequently, the employee used the women’s restroom when her designated restroom was out-of-order. A supervisor confronted the employee about this use, claiming the employee must prove she had undergone “the final surgery” before she could use the women’s restroom.

The EEOC concluded that the employer’s act of prohibiting the employee from using the women’s restroom constituted direct evidence of discrimination. Here, the employer admitted the employee’s transgendered status was the motivating factor for its decision to prohibit the employee from using the women’s restroom.

The EEOC also determined that restricting the employee from using the women’s restroom was an adverse employment action. According to the EEOC, “equal access to restrooms” constitutes a significant, basic condition of employment. Therefore, where a transgendered individual has begun living and working as a woman (or man), the employer must allow the employee access to the women’s (or men’s) restroom.

Finally, the EEOC rejected the employer’s arguments of 1) anticipated discomfort of female employees and 2) the employee-employer transition agreement. “Nothing in Title VII makes any medical procedure a prerequisite for equal opportunity.” The EEOC concluded an employer may not condition access to terms, conditions, or privileges of employment on completing certain medical procedures that the employer feels conclusively proves the individual’s gender identity. Even though the employee originally agreed to use the single-user restroom, employees cannot prospectively waive their Title VII rights.

This EEOC decision is not an anomaly or new trend. Rather, the EEOC has begun pursuing these types of sex discrimination cases with increasing frequency. In its most-recent Strategic Enforcement Plan, the EEOC identified “coverage of lesbian, gay, bisexual and transgender individuals under Title VII’s sex discrimination provisions” as a top enforcement priority. Additionally, as Zashin & Rich previously reported, the EEOC filed two sex-stereotyping, gender-discrimination lawsuits in September 2014. In these cases, the EEOC alleged the employer discriminated against the transgendered employee because the employee failed to conform to the employer’s “sex or gender-based preferences, expectations, or stereotypes.” On April 21, 2015, one court concluded the EEOC sufficiently stated a claim under Title VII and allowed the case to proceed. EEOC v. R.G. & G.R. Harris Funeral Homes, Inc., No. 14-13710, 2015 U.S. LEXIS 52016 (E.D. Mich. Apr. 21, 2015) In addition, the U.S. Court of Appeals for the Sixth Circuit, which covers Kentucky, Michigan, Ohio, and Tennessee, previously held that a transgendered individual presented a valid Title VII discrimination claim. Smith v. City of Salem, 378 F.3d 566 (6th Cir. 2004). On June 1, 2015, as Zashin & Rich recently highlighted, the Occupational Safety and Health Administration released a new best practice guide concerning transgendered workers’ use of workplace restrooms.

Given the EEOC’s increased emphasis on transgendered employees, employers must be cognizant of the protections Title VII and related state laws afford transgendered employees. In particular, employers should consider this EEOC decision when presented with employees transitioning their gender identity and employers should update their company handbooks and policies accordingly.

* Andrew J. Cleves, practices in all areas of labor and employment law. If you have questions about the impact of transgendered issues on your workplace, please contact Andrew (ajc@zrlaw.com) at 216.696.4441.

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Employee Performance Reviews Have Their Day in Court: How Employers Can Get the Most out of Employee Performance Reviews

By Sarah K. Ott*

Recently, the trial between Ellen Pao and her former employer, venture capital firm Kleiner Perkins Caufield & Byers (“Kleiner Perkins”), captivated the business and technology world. Pao, formerly a junior partner at the firm, sued Kleiner Perkins for gender discrimination and retaliation, seeking $16 million in damages. Pao argued that the firm’s culture prevented women from advancing into the more lucrative senior partner positions and that the firm retaliated against her after she filed the lawsuit, eventually terminating her employment. Kleiner Perkins asserted that Pao’s poor performance and inability to get along with colleagues prevented her from receiving a promotion and led to her discharge. On March 26, 2015, a California jury found for Kleiner Perkins on all counts. Since then, Kleiner Perkins has sought to recover close to $1 million in expenses incurred during trial from Pao, and a judge has tentatively ruled that Pao must reimburse Kleiner Perkins for about $250,000 in expenses. Pao recently filed a notice of appeal.

The lawsuit captured headlines in major newspapers and blogs because it pulled back a curtain on the inner workings of one of Silicon Valley’s most respected venture capital firms (known for funding Google and Amazon in their start-up days). From an employment law perspective, the trial highlighted some of the benefits and pitfalls of employee performance reviews. Both sides used Pao’s performance reviews as evidence, with Pao’s attorneys claiming they showed Kleiner Perkins’ bias against Pao, and the defense relying on them as records of her sub-par performance. In particular, Pao’s attorneys’ use of the performance reviews highlights the potential for reviews to backfire against the employer if not done well. Pao’s attorneys pointed to the reviews as evidence of retaliation, since she received poor performance reviews in the year after she filed her lawsuit (despite receiving far more positive reviews the year prior). They also used the performance reviews as evidence of discrimination, noting that Pao received conflicting feedback (advising her to be both more and less aggressive) and that her male peers who received similar comments were later promoted.

The trial serves as a reminder to employers on how to best use employee performance reviews to encourage better work from employees – and how to avoid potential legal pitfalls. Performance reviews can help employers by motivating employees to improve in certain aspects of their jobs or continue good work in other areas. They also create a written record showing that the employer counseled an employee on poor performance and track improvements (or lack thereof).

Abiding by the following tips will help employers more effectively use employee performance reviews:

• Common standards: create and adhere to the same standards so that every employee with the same job or role is evaluated based on the same criteria;
• Set goals: doing so sets a benchmark for the employer to evaluate that employee’s performance;
• Be specific: specificity helps employees understand the employer’s expectations and helps to prevent miscommunication;
• Use deadlines: informing employees of when they are expected to reach a goal creates a record of the employer treating the employee fairly; and
• Avoid personality critiques: rather than general criticism of an employee’s personality traits, employers should focus on specific instances when that trait created a problem.

Finally, to the extent that the employer can identify objective criteria, the review will be all the better.

* Sarah K. Ott practices in all areas of labor and employment law. For more information about conducting employee evaluations or other questions related to performance reviews, please contact Sarah (sko@zrlaw.com) at (216) 696-4441.

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Courts Have Little Sympathy for Employer Mistakes in Complying with the Fair Credit Reporting Act

By Drew C. Piersall*

The Fair Credit Reporting Act (“FCRA”) regulates the collection and use of consumer information, including employee background and credit checks, and requires employers that rely on third-party companies to conduct background checks to follow certain procedures in notifying the individual being checked. The requirements include the following:

• The employer must notify the individual that the information obtained in the background report may be used in the employer’s decision-making. The notice must be in a “stand-alone” format and may only have minimal additional information accompanying it.
• The employer must obtain the individual’s written permission to perform the background check. The permission form may be part of the notification document.
• For permission to obtain background reports throughout the individual’s employment, the employer must clearly state that intention on the permission form.
• In order to obtain an investigative report, including information on the employee or applicant’s lifestyle, personality, and reputation, the employer must inform the individual of his or her right to a description of the investigation and its scope.

The FCRA requires additional action from employers who take an adverse action based on the information learned from a background check conducted by a third-party company, such as deciding not to hire an applicant, revoking a job offer, or termination. Before taking the adverse action, the employer must provide the individual with a copy of the report and a document summarizing the individual’s rights under the FCRA and give the individual a meaningful opportunity to respond to the information.

Absent an adequate response and assuming the employer takes the adverse action, the employer must: (1) notify the individual of the adverse action; (2) provide the individual with specific credit score information from the report; (3) inform the individual of his or her right to obtain a free copy of the report within 60 days and dispute the information in the report; and (4) provide the contact information of the third-party company that compiled the report for the employer and explain that the third-party company did not make the decision to take the adverse action and cannot explain the reasons for the action. Employers also must destroy any background reports in a secure manner, such as by shredding them or permanently deleting electronic copies.

Despite the many requirements placed on employers by the FCRA, a spate of recent cases show that courts have little sympathy for employers who commit minor technical violations of the law, even when complying with the spirit of the law’s requirements. For example, a federal court in Virginia recently denied summary judgment to an employer who allegedly violated the FCRA when it failed to provide “stand alone” notice that it would be conducting a background check by including a liability waiver on the same document. Milbourne v. JRK Residential America, LLC, No. 3:12cv861, 2015 U.S. Dist. LEXIS 29905 (E.D. Va., Mar. 15, 2015). Other cases involve employers rescinding job offers based on information discovered through a background report before providing the job applicants with a meaningful opportunity to respond to the information. In one case, the employer revoked a job offer to an applicant based on erroneous information in a background report without giving the applicant a chance to challenge the report. Jones v. Halstead Management Co., LLC, No. 14-CV-3125, 2015 U.S. Dist. LEXIS 12807 (S.D.N.Y., Jan. 27, 2015). In another case, the employer rescinded a job offer after its receipt of an unfavorable criminal background report on an applicant without giving the applicant time to correct the inaccurate information with the consumer reporting agency before filling the position. Miller v. Johnson & Johnson, No. 6:13-cv-1016, 2015 U.S. Dist. LEXIS 4448 (M.D. Fla., Jan. 14, 2015).

In a more employer-friendly decision, a federal court in Massachusetts recently granted summary judgment for an employer despite the plaintiffs’ argument that the employer’s notice and request for authorization to conduct a background check did not limit itself “solely” to the disclosure because it included a short preamble regarding customer safety. Goldberg v. Uber Techs., Inc., No. 14-14264-RGS, 2015 U.S. Dist. LEXIS 44675 (D. Mass., Apr. 6, 2015). The court held the employer did not violate the FCRA by including “a few sensible words” about why the company chose to use background checks (i.e., customer safety). The court also found that the employer did not violate the FCRA by failing to notify the job applicant that it intended to make an adverse decision based on information included in the background report. The court found that the statute does not require advanced notice that the employer intends to take an adverse action – it merely requires providing the individual with the background report and a document stating the individual’s rights under the FCRA.

With FCRA cases seemingly on the rise, employers who use third-party companies to compile background information should review their background check policies and procedures. Failure to strictly comply with FCRA requirements can lead to costly litigation, including class action lawsuits brought on behalf of employees and applicants subject to the employer’s non-compliant background check policies and procedures.

* Drew C. Piersall works in the firm’s Columbus office and practices in all areas of labor and employment law. If you have questions about conducting background and credit checks or the FCRA in general, please contact Drew (dcp@zrlaw.com) at 614.224.4411.

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Z&R SHORTS

Congratulations!

Drew C. Piersall was selected to serve as the Chair of the Columbus Bar Association’s Labor & Employment Law Committee for 2015-2016. The Labor & Employment Law Committee meets on a monthly basis in the fall, winter and spring. In an effort to better serve clients and the legal profession, the Committee shares ideas and provides information on topics of concern to all who participate in the field of labor and employment law.

Jonathan Downes was inducted as a Fellow into the College of Labor and Employment Lawyers. The College of Labor and Employment Lawyers is an intellectual and practical resource for the support of the legal profession and its many audiences. The primary purpose of the College is recognition of individuals, sharing knowledge, and delivering value to the many different groups who can benefit from its value model.

Seminars

Thursday, July 16, 2015 at 10:30 am
Patrick M. Watts presents "2015 Legal Update" at 10:30 a.m. at the Lake/Geauga Area Chapter of the Society for Human Resource Management luncheon.

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Tuesday, September 22, 2015 at 1:00 pm
Jonathan Downes presents "Risk Management for Supervisors" for the Ohio Association of Chiefs of Police beginning at 1 p.m. at the Crowne Plaza Columbus North.
Crowne Plaza Columbus North | 6500 Doubletree Avenue, Columbus, OH

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Thursday, September 24, 2015 at 10:00 am
Jonathan Downes and Drew C. Piersall present "Negotiations – Post Recession and Impact of The Affordable Care Act" for the Ohio GFOA – Annual Conference & Membership Meeting to be held at the Hilton Netherland Plaza in Cincinnati.
Hilton Netherland Plaza | 35 West Fifth Street, Cincinnati, OH

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Friday, November 6, 2015 at 10:15 am
Patrick J. Hoban presents “Affordable Care Act” at 10:15 a.m. at the Ohio Conference for Payroll Professionals (OCPP) to be held at the Embassy Suites Hotel in Dublin, Ohio.

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Friday, November 6, 2015 at 10:15 am
Michele L. Jakubs presents “FLSA/Time and Attendance Best Practices” at 10:15 a.m. at the Ohio Conference for Payroll Professionals (OCPP) to be held at the Embassy Suites Hotel in Dublin, Ohio.

Department of Labor’s Proposed Rule Would Make Millions of Employees Eligible for Overtime

By Michele L. Jakubs*

The United States Department of Labor’s Wage and Hour Division recently announced a proposed rule that would change the Fair Labor Standard Act (“FLSA”) overtime rules by increasing the salary thresholds for exemptions under the FLSA. The proposed rule, if ultimately implemented, will have huge implications for employers.

The FLSA generally requires that employers pay employees for any time worked in excess of forty hours per week at a rate of one and a half times the employee’s regular rate. Contrary to some people’s belief, salaried employees are not automatically exempt from the FLSA’s overtime requirements. The law does, however, exempt so-called “white collar” employees and highly compensated employees from its overtime requirements. The proposed rule would significantly raise the salary threshold for those exemptions.

Currently, employees qualify for a “white collar” exemption by meeting three criteria: (1) the employee receives a fixed salary; (2) the salary meets the minimum threshold requirement of $455 per week, or $23,660 per year; and (3) the employee’s responsibilities primarily involve executive, administrative, or professional duties. Highly compensated employees who regularly perform one or more exempt duties and receive a salary of at least $100,000 per year are also exempt. The Department of Labor last updated the salary thresholds in 2004.

Prompted by President Obama, the Department of Labor seeks to raise the threshold amounts to $921 per week or $47,892 per year for the “white collar” exemptions and to $122,148 for highly compensated employees. Under the new rules, these thresholds would increase annually and for 2016 are projected to be $970 per week, or $50,440 per year. The threshold for highly compensated employees’ is also projected to increase in 2016. Of course, the increases would have a significant effect on businesses. The Department of Labor estimates that approximately 4.6 million employees would fall in the salary gap between the current thresholds and newly proposed thresholds. Absent an increase in these employees’ salaries, they would no longer meet an exemption and would be entitled to overtime for hours worked in excess of forty hours per week.

The Department of Labor is currently accepting comments on the proposed rule. The comment period will be closed in sixty days. Zashin & Rich will monitor any developments concerning the proposed rule closely.

*Michele L. Jakubs, an OSBA Certified Specialist in Labor and Employment Law, practices in all areas of labor and employment law and is particularly adept at handling wage and hour issues. If you have questions about how the Department of Labor’s proposed regulations may impact your company, please contact: Michele L. Jakubs | mlj@zrlaw.com | 216.696.4441

The Supreme Court Recognizes a Fundamental Right to Same-Sex Marriage

By Patrick J. Hoban*

In Obergefell v. Hodges, Case No. 14-556 (June 26, 2015), a five-justice majority of the Supreme Court held that the Due Process and Equal Protection clauses of the Fourteenth Amendment to the U.S. Constitution guarantee same-sex couples the fundamental right to marry under state law. The decision overturned last summer’s Sixth Circuit Court of Appeals decision which consolidated four actions and upheld state-law prohibitions on same-sex marriage in Michigan, Kentucky, Tennessee, and Ohio.

The Supreme Court based its decision upon the following analysis of law and tradition:

• Same-sex couples’ desire to participate in state-sanctioned marriage strengthens the societal institution;
• The historical concept of marriage has transformed with time;
• Marriage is a personal choice that is “central to the individual dignity and autonomy” and includes “intimate choices defining personal identity and beliefs” which the Constitution protects;
• “Two-person unions” and the “intimate association” they represent are a fundamental right;
• Same-sex marriage safeguards children and families by preventing the stigma and “humiliation” of the states’ refusal to recognize the individual choices upon which they are based;
• Marriage is a “keystone” of the Nation’s social order and, as a result, laws prohibiting same-sex marriages deny same-sex couples the “constellation of benefits” linked to marriage;
• Laws that prohibit same-sex marriage are unequal and deny same-sex couples from exercising a fundamental right;
• The right to marry is “a fundamental right inherent in the liberty of the person” and under the Due Process and Equal Protection clauses of the Fourteenth Amendment; and,
• Same-sex couples need not wait for legislative action before asserting a fundamental right.

The Court emphasized that “religions, and those who adhere to religious doctrines, may continue to advocate with utmost, sincere conviction that, by divine precepts, same-sex marriage should not be condoned” and that the First Amendment gives “religious organizations and persons” proper protection to “teach the principles that are so fulfilling and so central to their lives and faiths, and to their own deep aspirations to continue the family structure they have long revered.”

Each of the four dissenting justices filed separate opinions which criticized the majority for “legislating” and not adjudicating, “revising” the Constitution, “exault[ing] judges at the expense of the People,” and “usurp[ing] the constitutional right of the people to decide whether to keep or alter the traditional understanding of marriage.”

For employers, the key significance of the Court’s decision is the effect it will have on spousal benefits and administration of employee payroll taxes. Many employers, whether self-insured or fully-insured, already have extended health and other insurance benefits to same-sex spouses of their employees in recent years. However, employers who have not done so based on state-laws prohibiting the recognition of same-sex marriages must discuss changing health and other employment-based insurance benefits contracts to extend coverage to same-sex spouses. Additionally, employers must review their human resources practices to ensure that employees in same-sex marriages receive the same leave and other employment benefits as opposite-sex married employees and seek legal counsel as needed.

The Obergefell decision recognizes that some individuals with religious beliefs that reject same-sex marriage continue to enjoy the protection of the First Amendment with regard to “advocating” those beliefs. Of course, the First Amendment states that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.” At this time it is unclear whether the federal courts will recognize a “conscience objection” to the Obergefell decision under the Free Exercise clause of the First Amendment. Employers who may consider a policy or practice at odds with Friday’s decision must carefully consider the potential risks and seek legal counsel concerning such policies or practices.

*Patrick J. Hoban, an OSBA Certified Specialist in Labor and Employment Law, practices in all areas of private and public sector labor relations. Pat regularly counsels employers on LGBT issues. For more information about the Obergefell decision, labor & employment law, or any other workplace related issues, please contact Pat | pjh@zrlaw.com | 216.696.4441.

The Supreme Court Legislates New Life into the Affordable Care Act

By Patrick J. Hoban*

The Affordable Care Act (ACA) has created enormous administrative, operational, and financial challenges for public and private sector employers large and small. Since its enactment on March 23, 2010, the ACA has generated enormous controversy and questions about its legality. Yet, the ACA has survived and its mandates and regulations – including the Employer Mandate fines and reporting requirements – have required employers to expend time and resources to adapt, adjust, and prepare.

On June 25, 2015, the latest installment of the ACA saga came to a crescendo when the U.S. Supreme Court issued its long-awaited decision in King v. Burwell, Case No. 14-114 (Jun. 25, 2015). The sole issue before the Court was whether individuals who obtain health insurance coverage through a health insurance exchange “established by” the Federal Government and not by a “State” were eligible for ACA tax credits. Through an exercise of legal flexibility that delighted the ACA’s proponents and dazed its detractors, the Court upheld an Internal Revenue Service (IRS) regulation and interpreted the ACA to extend tax credits to individuals who obtain health insurance coverage through State or federally-established health insurance exchanges. If the Court had decided differently, the decision would have released employers in States that had not established Exchanges (35 of the 50 States – including Ohio) from the burdens of the Employer Mandate.

This is how we got here:

Background: Among its many, far reaching, and onerous provisions, the ACA requires that health insurance providers issue coverage to any applicant regardless of existing medical conditions. The ACA also requires insurers to adopt “community rating” for health insurance premiums which significantly restrict an insurer’s ability to set premiums based upon traditional actuarial factors. To guarantee that a sufficient number of relatively healthy individuals obtain coverage (and offset the costs of guaranteed issue and premium rate restrictions), the ACA further requires most individuals to purchase qualifying coverage or pay an annual “tax” (the Individual Mandate). With the goal of fostering a competitive marketplace for compliance with the Individual Mandate, the ACA introduced health insurance Exchanges – in short, online shopping forums for health insurance. The ACA provides that States may “establish” Exchanges for their citizens or, if a State elects not to, the Federal Government will establish “such Exchange” and operate it in the State.

To offset expected increases in health insurance premium costs generated by guaranteed issue, minimum essential coverage standards and rating limitations, the ACA created refundable, advanceble tax credits for individuals who earn between 100 and 400% of the Federal Poverty Line. To be eligible for an ACA tax credit, an individual must fall within the required income range, obtain coverage through an “Exchange established by the State,” and not have been offered group coverage by his employer.

In the years following the ACA’s enactment, 16 States and the District of Columbia established Exchanges at great cost to those States, and, through federal grants, the U.S. Treasury. The remaining 34 States (including Ohio) chose not to and the Federal Government established Exchanges to operate in those States. In 2013, the IRS issued a regulation interpreting the ACA to provide that tax credits were available to an individual who obtained coverage through an Exchange “established by the State” or established by the Federal Government. Accordingly, in 2014, the first year that tax credits were available, the IRS granted tax credits to qualifying individuals regardless of whether they obtained coverage through a “State established” or a federally established Exchange. The regulation was challenged in two separate actions on grounds that the ACA’s language clearly stated that only individuals who obtained coverage through an “exchange established by a State” were eligible for tax credits. In Halbig v. Burwell, 14-5018 (D.C. Cir. Jul. 22, 2014), the D.C. Circuit struck down the IRS regulation. On the same day, in King v. Burwell, 14-1158 (4th Cir. Jul. 22, 2014), the Fourth Circuit upheld the IRS regulation.

While the Obama Administration appealed the Halbig decision to the full D.C. Circuit for en banc review, the Plaintiffs in King appealed to the Supreme Court which accepted the case based on the split between the circuit courts. Notwithstanding the ACA’s myriad provisions affecting insurers, health insurance providers and individuals, employers – especially “Applicable Large Employers” (i.e., employers with 50 or more full-time employees or full-time equivalents) – had a dog in the fight.

Under the ACA’s Employer Mandate, Applicable Large Employers face fines of from $2,000 to $3,000 per year per full-time employee if they do not offer group health insurance coverage to full-time employees and their dependents that provides “minimum essential coverage” as established by the ACA, provides “minimum value” (pays for at least 60% of benefits costs), and is affordable (employee premium payments are less than 9.5% of their monthly compensation). Additionally, Applicable Large Employers are required to file multiple forms with the IRS (and provide copies to each employee) annually to verify employee access to coverage, employee premium payments, minimum value, and affordability. However, all of the Employer Mandate requirements were conditioned on a full-time employee’s eligibility for a tax credit for coverage obtained through an Exchange. In short, if an employee obtained coverage through a federally established Exchange and was not eligible for a tax credit, his employer would not be liable for Employer Mandate fines or reporting requirements (e.g., Ohio employers). A decision striking down the IRS tax credit regulation would have essentially nullified the Employer Mandate in Ohio and other States that did not establish Exchanges.

The Decision: In an opinion written by Chief Justice Roberts, the six-member Court majority first concluded that the phrase “established by a State” was ambiguous. It then determined that, because the issue of whether tax credits were available to individuals enrolled through federally-established exchanges was “key” to the operation of the ACA, Congress could not have intended to delegate authority to make that decision to the IRS. Then, based on analysis of the context of the ACA’s tax credit provisions, the Court held that the ACA’s overall purpose meant that tax credits had to be available under exchanges established by the Federal Government and not only those “established by the State.” The Court summarized its decision:

Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. [The ACA] can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt.

The majority also recognized that the procedure by which the ACA’s 900 pages were enacted resulted in “inartful drafting” because the Obama Administration and then Democrat Congressional majority “wrote key parts of the Act behind closed doors,” used a complicated budgetary process “which limited opportunities for debate and amendment,” and “bypassed the normal 60-vote filibuster requirement.” This process, the majority concluded, “does not reflect the type of care and deliberation that one might expect of such significant legislation.”

The Dissent: The dissenting opinion, written by Justice Scalia, rejected the majority’s conclusion that the phrase “exchange established by the State” was ambiguous. In short, the dissent contended that congressional intent is most clearly expressed through the plain language of the statute, and the plain language states that tax credits are not authorized for coverage through exchanges established by the Federal Government: “Words no longer have meaning if an Exchange that is not established by the State is ‘established by the State.’” Characterizing the majority’s interpretation as “jiggery-pokery,” the dissent accuses the majority of concocting ambiguity to “rewriting” the ACA based on its determination to correct the ACA’s structural flaws based on an understanding of its purpose that is contrary to its terms.

The dissent further objected to the majority’s reliance on the importance of tax credits to the overall structure of the ACA stating that, if denying tax credits to coverage through federally-established exchanges it would “only show that the statutory scheme contains a flaw, [and] would not show that the statute means the opposite of what it says.” Rejecting the majority’s “inartful drafting” rationale, the dissent asserted that “This Court . . . has no free-floating power ‘to rescue Congress from its drafting errors.” To this point, the dissent further stated:

This Court holds only the judicial power – the power to pronounce the law as Congress has enacted it. We lack the prerogative to repair laws that do not work out in practice, just as the people lack the ability to throw us out of office if they dislike the solutions we concoct. We must always remember, therefore, that “our task is to apply the text, not to improve upon it.”

****

Rather than rewriting the law under the pretense of interpreting it, the Court should have left it to Congress to decide what to do about the Act’s limitations of tax credits to state Exchanges.

What Do Employers Do Now: The King decision ends the most serious challenge to the ACA’s continued existence. Had the majority’s decision prohibited tax credits for coverage through federally-established exchanges, the ACA could not have survived without congressional action (unlikely) or the establishment of State exchanges by most of the 34 States that opted out. There are other, ongoing legal challenges to the ACA’s more limited provisions, and other potential challenges looming once the Employer Mandate takes full effect in January 2016. However, for now, employers must continue to identify their risks and obligations under the ACA by evaluating each employee’s “full-time” status under the ACA, determining whether to offer group coverage to “full-time” employees, confirm the “affordability” and “minimum value” of coverage offered, and comply with the bevy of reporting requirements arising under the ACA.

The Court has ruled and, while the political process may bring changes to the ACA in the next two years, the ACA is the law of the land.

Patrick J. Hoban, an OSBA Certified Specialist in Labor and Employment Law, practices in all areas of private and public sector labor relations. Pat regularly counsels employers on compliance with the ACA and has done so since 2010. Pat also frequently speaks on ACA issues. For more information about the ACA, labor & employment law, or any other workplace related issues, please contact Pat | pjh@zrlaw.com | 216.696.4441.

BNA's Health Law Reporter™ | Challenge to NLRB Election Rule Fails; Employers Urged to Prepare New Game Plan

June 11, 2015 | Lawrence E. Dubé and Peyton M. Sturges | Download PDF
Reproduced with permission from BNA's Health Law Reporter, 24 HLR 735 (June 11, 2015).
Copyright 2015 by The Bureau of National Affairs, Inc. (800-372-1033)

In a decision with significant implications for healthcare employers, a federal trial court June 1 found NLRB amendments to its representation case rules are neither unlawful nor arbitrary (Associated Builders & Contractors of Tex., Inc. v. NLRB, 2015 BL 174029, W.D. Tex., No. 1:15-cv-26, 6/1/15).

The U.S. District Court for the Western District of Texas rejected a challenge by a coalition of Texas business groups to the National Labor Relations Board's rules, dubbed by employers as ''quickie'' or ''ambush'' election rules, saying there was no evidence backing claims that the NLRB adopted the rule changes to favor organized labor. The plaintiffs also failed to demonstrate that they were entitled to an injunction blocking enforcement of the rule changes, the court said.

Health-care labor attorneys have followed the case, and a second pending in the U.S. District Court for the District of Columbia, closely because they have broad implications for hospitals and other health-care provider employers. The attorneys have warned that the rules make providers more vulnerable to union organizing efforts because they significantly expedite the holding of elections following the filing of a petition and tie an employer's hands in a number of respects that limit its ability to respond to a union organizing effort (24 HLR 506, 4/23/15).

Although the plaintiffs immediately filed an appeal with the U.S. Court of Appeals for the Fifth Circuit June 5 (No. 15-50497), attorneys told Bloomberg BNA that health-care providers and other employers shouldn't assume that the rules will eventually be struck down. Instead, employers should prepare now for the very real possibility that these rules are here to stay, they said.

High Stakes in Health Care.

Patrick J. Hoban, with Zashin & Rich, Cleveland, said the stakes for healthcare and other employers are high because the rules "significantly reduce the time employers will have to mount their own campaign and counter the misinformation that the union will have been feeding the employees for months prior to filing the petition." Combined with the added administrative and procedural burdens placed on employers in the first week after a petition is filed, "it will be a whole new ball game," he told Bloomberg BNA.

In addition to implementing a union avoidance strategy including regular employee training, Hoban advised employers to review and update their employee handbooks, particularly provisions regarding solicitation, distribution, posting, conduct and electronic mail use to comply with NLRB standards.

"In short, employers who would avoid unionization should essentially run a continuous union-avoidance program," he said.

Hoban also pointed to data recently released by the NLRB that document what many had feared: that implementation of the rule will lead to more petitions and a significant reduction in the number of days between the filing of a petition and an election.

His firm's review of the data shows:

• from April 14 to May 14, 2015, the NLRB received 280 election petition filings;
• this number is up from 212 representation petitions filed from March 13 to April 13, 2015 before the rule took effect;
• the monthly average of representation petition filings for 2012 and 2013 were 164 and 165 respectively;
• for representation petitions filed since April 14, 2015, elections are being scheduled for a median of 23 days after the petition was filed;
• in 2012 and 2013, elections were typically held 38 days after a petition was filed.

"For health-care organizations, pre-planning work can be staggering but it is critical to simply being able to play the game." —GREG ROBERTSON, HUNTON & WILLIAMS LLP, RICHMOND, VA.

The NLRA guarantees employers the right to oppose unionization and explain to their employees why unionization isn't in their best interests. But even though the trial court's Associated Builders & Contractors ruling found the rules weren't pro-union, "the data suggests otherwise," Hoban said.

Greg Robertson, with Hunton & Williams LLP, Richmond, Va., agreed that the decision, though not the final word, suggests health-care and other employers need to prepare for the new election rule's requirements and pace.

"While the ruling is a blow to the employer community's opposition to the new rules, it is not the end of the road," he said. He pointed to the plaintiff's filing of an appeal and the case pending in the federal court in Washington.

The court in the latter case, however, already denied a request for a temporary restraining order and expressed skepticism concerning the plaintiffs' claims at a May 15 hearing (24 HLR 654, 5/21/15).

"Ultimately, employers cannot count on the success of the legal challenges to the board's election rules in federal court," Robertson said. "Employers should remain proactive and prepared to run an effective campaign within a time frame that will likely become more constricted in the next few months," he added.

Robertson told Bloomberg BNA that the increased pace creates a real urgency from an employer standpoint and that a two week election process can be logistically challenging for employers who aren't adequately prepared. "For health-care organizations, pre-planning work can be staggering but it is critical to simply being able to play the game."

Even simple things can become a nightmare for health-care providers facing a short election cycle, Robertson said. He cited the employer's need to organize meetings with employees of one or more bargaining units in order to provide them with the employer's perspective but said it can be difficult if not impossible to assemble prospective bargaining unit members for such a meeting given patient care imperatives.

"Whether it is meetings with registered nurses, housekeeping, dieticians or some other prospective unit, health-care employers need to figure out in advance how they will organize these meetings without disrupting patient care," he said.

Election Rule Changes Now in Place.

In dismissing the case, the court rejected arguments of the Associated Builders and Contractors of Texas Inc. and other groups that claimed the board exceeded its power under the National Labor Relations Act by adopting rule changes that may limit parties from litigating some representation case issues until well after employees cast ballots on union representation.

"The New Rule grants significant deference to the Board and the Regional Directors in applying the very provisions Plaintiffs challenge," the court said. That fact made it very difficult for the groups to argue that the court should consider the NLRB rule changes invalid on the face of the regulation, the court added.

The board approved the rule changes (RIN 3142- AA08) in December 2014. The Senate and House disapproved the NLRB regulatory action (S.J. Res. 8), but President Barack Obama vetoed their Congressional Review Act resolution March 31, allowing the rule changes to go into effect April 14.

The rule changes require employers to respond to the filing with a statement of position before a pre-election hearing is opened by an NLRB regional office.

Under the amended rules, pre-election hearings are generally to be devoted only to issues necessary to determine whether an election should be conducted. Other issues, including the unit inclusion or eligibility of employees may be deferred to post-election proceedings if they affect a small percentage of a voting unit.

Lawsuit Challenged NLRB Rulemaking.

The Associated Builders filed the lawsuit Jan. 13, shortly after the U.S. Chamber of Commerce and allied groups filed their challenge in the U.S. District Court for the District of Columbia (Chamber of Commerce v. NLRB, D.D.C., No. 15-cv-9).

The Texas plaintiffs filed a motion for expedited summary judgment in their case, while the NLRB filed its own partial motion to dismiss and a motion for summary judgment. The court granted the NLRB motions and denied the business coalition's request for summary judgment.

The Texas groups argued that the rule improperly restricts employers' ability to litigate threshold issues before a union election, citing new requirements for preelection hearings and said the new rule is inconsistent with Section 9(c)(1) of the act, which provides for "an appropriate hearing upon due notice" before an election is held.

The court, however, found language in the new rule that grants great deference to the board and its regional directors in conducting pre-election hearings "significant."

Because the business groups were challenging the NLRB rule on its face, the court said, "even if the New Rule ordinarily limits the timing and scope of the preelection process, the deference granted a Regional Director to extend and expand those limits renders Plaintiffs' challenge unavailing."

The court said the plaintiffs had "not pointed to any binding authority which establishes the language of 29 U.S.C. § 159 prevents the Board from requiring the filing of a Statement of Position prior to a pre-election hearing, requires the Board to permit employers to introduce evidence concerning voter eligibility in a preelection hearing, or prevents the Board from delaying consideration of voter eligibility prior to an election."

Employee Privacy Argument Rejected.

The court also rejected the coalition's challenge to a new rule provision requiring an employer to release information, including the personal phone numbers and e-mail addresses, of employees in connection with an election proceeding.

The challengers said information could be misused by unions, but the court said the plaintiffs hadn't explained how employee privacy would be compromised under the new rule.

The court also wasn't persuaded by an argument that the rule change would result in accelerating elections and truncating the time for debate and discussion before a representation election.

The new rule gives regional directors responsibility for setting election dates and instructs them to consider "the desires of the parties, which may include their opportunity for meaningful speech about the election."

"[O]nce again," the court wrote, "in light of the fact that Plaintiffs raise a facial challenge to the New Rule, this discretion alone renders it virtually impossible for Plaintiffs to show the election period in every set of circumstances violates free speech."

The court further said the challengers failed to show that the NLRB rule changes were arbitrary or improper under the Administrative Procedure Act.

Judge Robert L. Pitman wrote the opinion.

Littler Mendelson PC represented the business groups. NLRB attorneys represented the board.