Reversal Against Employer in Overtime Pay Lawsuit Highlights Dangers of Misclassifying Employees as Independent Contractors

Shark_AboveAt a time when companies are increasingly using “independent contractors” rather than W-2 employees, the risks and liabilities for misclassification have never been higher. And it just got harder for Michigan and other Midwest employers who are accused of improperly classifying their workforce after a 3/26/2015 ruling from the Sixth Circuit Court of Appeals.

Specifically, Keller v. Miri Microsystems LLC, involved cable and satellite installers and whether they were properly classified as “independent contractors” or should have been classified as “employees.” The correct classification means the difference between being entitled to overtime pay under the Fair Labor Standards Act (FLSA) or not. This is because under the FLSA, only “employees” are entitled to overtime and minimum-wage compensation; Independent contractors do not enjoy FLSA’s protections. Businesses are liable to workers for overtime wages even if the company classifies an individual as an “independent contractor” who should be classified as in “employee.”

Determining Whether an Individual is an “Employee” or “Independent Contractor.”

In deciding whether an individual is truly an independent contractor or an employee subject to the FLSA, employers in the Sixth Circuit are subject to a judicial test referred to as the “economic realities test.” Under this test, the following six factors are applied to the employment relationship:

  1. The permanency of the relationship between the parties;
  2. The degree of skill required for the rendering of the services;
  3. The worker’s investment in equipment or materials for the task;
  4. The worker’s opportunity for profit or loss, depending upon his skill;
  5. The degree of the alleged employer’s right to control the manner in which the work is performed; and
  6. Whether the service rendered is an integral part of the alleged employer’s business.

Returning to the Keller v Miri Microsystems, the Court departed from a general rule that the application of these six factors to determine the employment status is a “question of law” to be decided by the judge, and not a “fact question” that must be decided by a jury. More often than not, employers and their attorneys believe they will be better off in terms of cost savings (because there is no trial) and the outcome (a favorable ruling) if a judge is deciding these issues and not a jury.

In doing so, the appeals court reversed the trial court’s dismissal and sent it back for trial for the jury to decided the issue. The Keller decision cited extensively to another cable and satellite installer case from the Eleventh Circuit Court Of Appeals (Scantland v. Jeffry Knight Inc.), which also closely scrutinized contested facts involving the “economic realities test” and reversed a dismissal in favor of the employer to allow the fact questions to be decided by a jury.

The Financial Impact of Misclassifying Employees as Independent Contractors.

The distinction between independent contractors and employees translates into enormous financial differences between the individuals involved and society as a whole, as well as significant financial liability to employers who get the classification wrong. See Employers Cannot Ignore Costly Risks of Mis-classifying Independent Contractors.

Consider for example that a 2000 study commissioned by the U.S. Department of Labor (DOL), found that between 10 to 30 percent of audited employers misclassified workers. Researchers found that misclassifying just one percent of workers as independent contractors would cost unemployment insurance trust funds $198 million annually. Also, a 2009 report by the Government Accountability Office (GAO) estimated that independent contractor misclassification cost the federal government $2.72 billion in revenues in 2006.

So even if the Keller and Scantland decisions do not signal a trend, there are significant financial incentives and pressures for employee/independent contractor misclassification issues to be closely scrutinized.

Is it that Difficult to Correctly Classify an Employee versus an Independent Contractor?

One of the frustrating issues facing employers and individuals when it comes to employee classification is why is it so difficult to make the correct classification? On this point, the dissenting judge in the appeal noted that the trial judge who originally decided the Keller decision in favor of the employer had previously denied summary judgment to an employer in a similar 2014 Michigan case involving individuals who installed cable television services. (Swinney v. AMcomm Telecomm., Inc.).

In other words, two similar cases, two conflicting results. This illustrates that every FLSA classification case evaluated under the six factors – an imprecise test to begin with – may end up with differing results when applying the law to the particular facts of the case. And for this reason, it is important for employers to carefully evaluate their employee/independent contractor classifications.

Employer Take-Aways.

Decisions like Keller will allow more scrutiny over an employer’s decision to classify an individual as an employee or independent contractor. And for Michigan and other other Midwest employers subject to the Sixth Circuit Court of Appeals jurisdiction, the Keller decision and similar cases should cause employers to carefully evaluate their use of classifying individuals as “independent contractor” rather than employees. Whether this is done intentionally to deny workers overtime pay, or due to a mistaken belief as to the appropriate classification, the end result is the same; costly litigation and financial liability for misclassification mistakes.

For more information about employee/independent contractor classification issues and other overtime issues under the Fair Labor Standards Act, contact Michigan employment attorney Jason Shinn. Since 2001, Mr. Shinn has worked with companies to address and document independent contractor and employee classifications, as well as litigating these and other employment related disputes, including overtime pay cases. in federal and Michigan courts.

A New Day for Pregnant Employee Workplace Accommodations – Understanding the New Framework

Pregnancy DiscriminationYesterday the U.S. Supreme Court issued the much anticipated opinion in a pregnancy discrimination claim, Young v . United Parcel Service.

For context, the claim in Young v UPS arose under the Pregnancy Discrimination Act (PDA). The PDA was added to Title VII (the gold-standard in terms of civil rights law prohibiting workplace discrimination) to overcome a prior Supreme Court ruling that allowed employers to treat pregnant female workers less favorably based on being pregnant.

There are two anti-discrimination provisions under the PDA: the first prohibits pregnancy bias as a form of discrimination based on sex; the second prohibits employers from treating female employees who become pregnant different than other employees who perform the same sort of work. And this second prohibition was at issue in the Young v UPS case.

The New Framework for Analyzing Pregnancy Discrimination Claims

In this regard, the specific issue in the case was relatively straight-forward and was framed as follows:

Whether, and in what circumstances, the Pregnancy Discrimination Act, 42 U.S.C. § 2000e(k), requires an employer that provides work accommodations to non-pregnant employees with work limitations to provide work accommodations to pregnant employees who are “similar in their ability or inability to work.

The U.S. Supreme Court’s answer to this question, however, was anything but straightforward. Specifically, in a 6-3 opinion, the Court came up with essentially a variation of the McDonnell Douglas analysis – a bedrock employment law shifting burdens test – that is to be applied to pregnancy accommodation claims. Under this test, a female employee who claims her employer discriminated against her because of her pregnancy and her employer must go through a sort of back-and-forth legal match with her employer as follows:

  1. The female employee must initially show that she is in the protected group, i.e., (i) she was pregnant; (ii) that she asked to be accommodated because she could not fulfill her normal job duties; (iii) the employer refused to accommodate her; and (iv) the employer did actually provide an accommodation for others who are just as unable, or unable, to do their work temporarily. In sum, this initial showing is focused on showing that the employer’s refusal to accommodate a pregnant employee was the likely result of intentional bias.
  2. If the employee successfully makes the preceding showing, the employer must respond by showing that its workplace policy was not biased against pregnant workers, but was a legitimate, non-discriminatory neutral policy. However, the Court specifically noted that the employer’s reason “cannot consist simply of a claim that it is more expensive or less convenient to add pregnant women to the category of those (“similar in their
    ability or inability to work”) whom the employer accommodates. If this showing is made by the employer, the legal burden shifts back to the employee.
  3. The employee must now show that the employer’s articulated neutral reason was not genuine, but only a pretext for bias. The employee can refute the employer’s reason by showing that the workplace policy puts a “significant burden” on female workers, and the policy is “not sufficiently strong” to justify that burden.

Practical Applications of the Pregnancy Discrimination Analysis

Our reading of the Court’s opinion is that at the end of the day, this last step in analyzing pregnancy discrimination claims essentially comes down to determining the negative impact an employer’s policy has on female workers, which is far different than requiring a plaintiff to show an intentionally biased policy. In support of this assessment, the Court reasoned:

The plaintiff can create a genuine issue of material fact as to whether a significant burden exists by providing evidence that the employer accommodates a large percentage of nonpregnant workers while failing to accommodate a large percentage of pregnant workers. Here, for example, if the facts are as Young says they are, she can show that UPS accommodates most nonpregnant employees with lifting limitations while categorically failing to accommodate pregnant employees with lifting limitations. Young might also add that the fact that UPS has multiple policies that accommodate nonpregnant employees with lifting restrictions suggests that its reasons for failing to accommodate pregnant employees with lifting restrictions are not sufficiently strong—to the point that a jury could find that its reasons for failing to accommodate pregnant employees give rise to an inference of intentional discrimination.

Justice Antonin Scalia and Justice Clarence Thomas joined in a dissenting opinion and Anthony M. Kennedy wrote a separate dissent. Both dissents argued that the majority simply made up an analytical framework that had no basis in the law. However, for anyone familiar with a Scalia dissent, a summary can never do the real thing justice; Here is an excerpt:

Faced with two conceivable readings of the Pregnancy Discrimination Act, the Court chooses neither. It crafts instead a new law that is splendidly unconnected with the text and even the legislative history of the Act. To ‘treat’ pregnant workers ‘the same . . . as other persons,’ we are told, means refraining from adopting policies that impose ‘significant burden[s]’ upon pregnant women without ‘sufficiently strong’ justifications … Where do the ‘significant burden’ and ‘sufficiently strong justification’ requirements come from? Inventiveness posing as scholarship—which gives us an interpretation that is as dubious in principle as it is senseless in practice.

Employer and Employee Take-Aways

The Court rejected the position pushed by advocates for the employer and the employee side of the equation. The end result was that female employees received less legal protections than argued for and employers fell short of avoiding claims of pregnancy bias they were pushing for. How this plays out remains to be seen as the U.S. Supreme Court sent the case back to the trial court to apply this newly minted framework so it will be interesting to see what result the trial court reaches.

In the meantime, the best piece of advice for employers I’ve seen on this issue comes from employment attorney Jon Hyman: “My practical take for handling pregnant workers remains unchanged. Unless you can unequivocally demonstrate that you’ve never provided an accommodation to a disabled worker, you should be prepared to offer the same to your pregnant workers.”

On a separate note, Justice Kennedy’s dissent is worth reading for its practical and brutal honesty about the issues pregnant women face in the workplace. Having represented parties on both sides of the issue, one cannot help but agree with what the Justice says, even if you disagree with what should or can be legally done. In his view:

… there is no showing here of animus or hostility to pregnant women. But as a matter of societal concern, indifference is quite another matter. There must be little doubt that women who are in the work force—by choice, by financial necessity, or both—confront a serious disadvantage after becoming pregnant. They may find it difficult to continue to work, at least in their regular assignment, while still taking necessary steps to avoid risks to their health and the health of their future children. This is why the difficulties pregnant women face in the workplace are and do remain an issue of national importance.

For more information about pregnancy discrimination and other workplace issues, contact Michigan employment attorney Jason Shinn. Mr. Shinn has been practicing in the are of federal and Michigan employment law for over 14 years, representing companies and individuals. His most meaningful work, however, is working with employers to meet their obligations under federal and Michigan employment laws in order to cultivate a culture where employees can succeed in the workplace.

Employee Manuals Need Spring Cleaning Thanks to the NLRB

Thanks to the National Labor Relations Board (the NLRB), companies need to add employee manuals to the list of things that need spring cleaning. Specifically, the NLRB’s Office of the General Counsel issued a 3/18/2015 report full of examples of how your company’s employee manual likely violates the National Labor Relations Act (NLRA).

Updating Employee Personnel ManualsFor background, any employee – whether in a union or non-union workforce – has rights under Section 7 of the NLRA. These rights generally protect an employee’s right to discuss wages, hours, and other terms and conditions of employment with fellow employees.

With this in mind, the NLRB’s General Counsel’s report can be considered the wind-up for the NLRB’s next round of enforcement directives – going after employers whose employee manuals or handbooks violate the NLRA. And if the NLRB is kicking the tires of your business, it is likely only a matter of time before it gets under the hood.

The full report is available here (NLRB Report of the General Counsel Concerning Employ Policies) and should be thoroughly assessed in relation to your company’s current employee policy manual. I can almost guarantee at least a few provisions in your employee manual likely violate the NLRB’s current understanding of Section 7 rights under the NLRA. However, a two areas of focus that jumped out as troubling are as follows:

Treatment and Handling of Confidential Business Information as a Violation of the NLRA

First, the treatment of the NLRB’s General Counsel towards confidential business information and how it is to be handled by employees will be problematic for most employers. In this regard, the General Counsel explained that

[A]n employer’s confidentiality policy that either specifically prohibits employee discussions of terms and conditions of employment— such as wages, hours, or workplace complaints—or that employees would reasonably understand to prohibit such discussions, violates the Act. Similarly, a confidentiality rule that broadly encompasses “employee” or “personnel” information, without further clarification, will reasonably be construed by employees to restrict Section 7-protected communications … In contrast, broad prohibitions on disclosing “confidential” information are lawful so long as they do not reference information regarding employees or anything that would reasonably be considered a term or condition of employment, because employers have a substantial and legitimate interest in maintaining the privacy of certain business information.

Clear as mud, right? Essentially it appears that the NLRB’s general counsel is trying to carve out two categories of “confidential information: “Business confidential information” that is unrelated to employee and personnel information may be appropriately regulated by employers’ policies and procedures; But policies that proscribe the treatment of “confidential information” involving or touching upon employee or personnel issues that an employer may wish to treat as confidential will likely violate the NLRA.

But this is where employers really need to be concerned: The distinction between what is permissible and what is not is somewhat anemic to begin with, and if your company’s policies are too broad or poorly worded, then whatever distinction existed may be obliterated. Consider the following examples the NLRB’s general counsel offered of employee manual provisions that would violate the NLRA:

  • Do not discuss “customer or employee information” outside of work, including “phone numbers [and] addresses.”
  • “Never publish or disclose [the Employer’s] or another’s confidential or other proprietary information. Never publish or report on conversations that are meant to be private or internal to [the Employer].”
  • “Discuss work matters only with other [Employer] employees who have a specific business reason to know or have access to such information.. .. Do not discuss work matters in public places.”
  •  “[I]f something is not public information, you must not share it.”

Again, the general theme for why the NLRB’s General Counsel believes these employee policy provisions violate the NLRA is the belief that they restrict disclosure of employee information and therefore are unlawfully overbroad.

Social Media Policies and Violations of the NLRA.

Second, the other area of concern employers should have is concerning their employee social media policies. Now if your company doesn’t have any social media policies, you’ve got another set of issues to deal with.

But here are a few examples that the NLRB’s general counsel found to violate the NLRA:

  • “[I]t is important that employees practice caution and discretion when posting content [on social media] that could affect [the Employer’s] business operation or reputation.”
  • “Never engage in behavior that would undermine the reputation of
    [the Employer], your peers or yourself.”
  • Do “not use any Company logos, trademarks, graphics, or advertising materials” in social media.
  • “Company logos and trademarks may not be used without written consent ….”
  • [You may not c]reate a blog or online group related to your job without the advance approval of the Legal and Communications.

According to the NLRB’s report, these rule examples were unlawful because “they contain broad restrictions that employees would reasonably read to ban fair use of the employer’s intellectual property in the course of protected concerted activity.”

Next Actions for Employers – Update the Company’s Employee Manual

We recently wrote about an employer whose improperly drafted employee personnel manual ended up costing the employer a trial win. See Flag on the Play: Court Takes Away Employer’s Victory Because of Mistake in the Employee Manual. But in case your HR department needs more, the NLRB’s most recent pronouncement on the subject of employee manuals should give employers reason to review their current employee personnel policies, procedures, and agreements. Otherwise, your company could be looking at expending costs and resources in responding to an unfair labor charge.

Minimally speaking, if an employers’ policies or procedures come within an area code of restricting employees’ use or disclosure of company information, then your company should expressly note that such restrictions are not intended to restrict Section 7 communications or other protected concerted activities protected by applicable law. Such language should not be considered a “silver bullet” that will save an otherwise overbroad employee restriction. But if coupled with a smartly drafted policy or restriction, it could be enough to avoid the NLRB’s scrutiny.

For more information about complying with federal or Michigan employment law, including implementing HR best practices and drafting employee manuals, contact employment attorney Jason Shinn. His law firm offers complete employment and HR packages that provide a solid game plan for start-up and growing businesses.

The Foundation of Michigan Non-compete Law

Foundation BlocksCrain’s Detroit, by Dustin Walsh, reported last week that this year marks the 30 year anniversary of arguably the most significant Michigan court opinion concerning non-compete agreements. See “30 Years Later, A Noncompete Ruling has Been Forged into Law.” The case referenced in this article comes from a January 17, 1985 Michigan Supreme Court decision in favor of employers who sought to restrict former employees from using client and business information after ending their employment.

The case actually involved two separate cases that were consolidated on appeal: Follmer Rudzewicz & Co. v. Kosco and Nolta-Quail-Sauer and Associates v Roche (1985). Kosco, the defendant former employee, was an accountant and in the other case, Roche was an insurance agent. Kosco’s employment agreement involved a three year limitation and Roche’s had a five year limitation period. Essentially both contracts required the former employees to pay a certain amount if they serviced their employer’s former customers within a three year time period following termination for Koche and five years for Kosco. The presumption underlying these provisions was that the former employees had access to their former employers’ confidential client information and presumably used such information to acquire the employers’ former customers.

At the time the Follmer case was decided, Michigan law considered all agreements where a person, co-partnership or corporation agreed not to engage in any employment or business, whether reasonable or unreasonable as against public policy and illegal and void. MCL 445.761. The defendant former employees claimed that this statute voided their post-employment restrictions. The Michigan Supreme Court disagreed and reasoned:

[T]he contractual provisions are not violative of the statute relied on by the defendants … The challenged contractual provisions seek to protect the employers from the use by their employees of information acquired in the course of their employment. While an employee is entitled to the unrestricted use of general information acquired during the course of his employment or information generally known in the trade or readily ascertainable, confidential information, including information regarding customers, constitutes property of the employer  and may be protected by contract  … An agreement requiring an employee to pay for using confidential information in obtaining the patronage of his employer’s customers does not violate the statute.

In essence, the Follmer/Nolta-Quail decision held the restrictions did not literally prohibit competition by a former employee but instead extracted some type of compensation or imposed some type of forfeiture on a former employee engaging in such competition based on the assumption that the former employee is paying for the value of the employer’s confidential information.

A few years later on December 28, 1987 the legislature enacted Michigan’s current non-compete law (MCL 445.774a) to clarify the legality of non-competition agreements in Michigan. The statute provides as follows:

An employer may obtain from an employee an agreement or covenant which protects an employer’s reasonable competitive business interests and expressly prohibits an employee from engaging in employment or a line of business after termination of employment if the agreement or covenant is reasonable as to its duration, geographical area, and the type of employment or line of business. To the extent any such agreement or covenant is found to be unreasonable in any respect, a court may limit the agreement to render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement as limited.

Since Michigan enacted its non-compete statute, such restrictions have become commonplace in almost every employment relationship. And certain such restrictions are understandable where a manager or employee could exploit a company’s confidential, trade secret, or proprietary information by jumping to a competitor. However, the use of non-compete restrictions can deteriorate into the absurd. Consider for example that the Jimmy John’s sandwich franchise routinely requires its low-wage sandwich makers and delivery drivers sign non-compete restrictions. See Jimmy John’s Makes Low-Wage Workers Sign ‘Oppressive’ Noncompete Agreements. Or consider Miller, Canfield, Paddock & Stone’s Christopher Trebilcock who believes the Jimmy John’s noncompete is a legitimate way for large companies to protect against competitors using “proprietary information.” In fact, Mr. Trebilcock believes that non-compete agreements can be legitimate for a company’s janitor: “A janitor, for example, can cause just as much trouble as a CEO because they have access to information — there could be documents with sensitive material on desks or in the trash.” Noncompetes Aren’t Just for High-level Executives Anymore (subscription required).

Closing Thoughts

It’s easy to question the wisdom of companies like Jimmy John’s or attorneys advocating the use of non-compete agreements for every employee in the organization regardless of where they are in the corporate hierarchy. Research suggest that such use has a negative impact on innovation (See Noncompete Agreements – A Hurdle to Employment and Innovation?). In fact, one Michigan legislature has recently proposed a bill that would significantly scale back the enforceability of non-compete agreements. The proposed legislation is an extreme response. But based on our experience representing non-compete lawsuits filed against former administrative assistants, back-office phone schedulers, and other entry level positions far removed from the sort of executive, management, or sales positions where non-compete agreements often make strategic and business sense, it is no wonder why politicians feel compelled to limit the adverse effect non-compete agreements have on innovation.

This doesn’t mean, however, that employers should not have non-compete agreements with their employees. Instead we encourage our business clients to use non-compete agreements but in a smart and strategic manner rather than indiscriminately. There are many reasons for taking a smart non-compete approach, including avoiding the expense of enforcing prospective violations against former employees who are not likely to pose a meaningful threat to the business and concerns about selective enforcement. See for example, Enforcing Noncompete Agreements: How to Avoid Wasting A+ Resources on the C- Employee.

In sum, non-competes are critical to business, but it is equally important to have a smart non-compete strategy tailored to your business instead of an across the board non-compete policy; The difference between the two is analogous to checkers and chess.

For more information about Michigan non-compete law, contact attorney Jason Shinn. Mr. Shinn routinely consults with employers about drafting and enforcing non-compete agreements. He also often collaborates with individuals to evaluate their obligations and rights under a non-compete agreements, including in relation to starting a business or taking a position with a competitor.

Is Your Non-Compete Agreement Enforceable? Depends on What Law Applies.

Fog-&-Uncertainty.jpgA recent Delaware court case invalidating an employer’s non-compete agreement provides a cautionary reminder for companies with operations and employees in multiple states.

Specifically, in Ascension Ins. Holdings, LLC v. Underwood (Delaware, Jan. 28, 2015) the company, Ascension was incorporated in Delaware, but headquartered in California. California was also where the employee, Roberts Underwood worked.

Their employment agreement contained a provision referred to as a “choice of law” provision. A choice of law provision specifies which state’s law will apply if (when) there is a dispute arising under the agreement. (For more information on how choice of law provisions affect non-compete disputes see Enforcing Non-compete Agreements – What Law Will Apply?).  In the Ascension case, the choice of law called for Delaware law to apply.

Similar to Michigan, Delaware law generally enforces employee non-competition agreements if certain conditions are met (i.e., reasonable in scope and duration and if the restrictions advance a legitimate business interest of the employer). However, California law generally does not enforce non-compete restrictions, unless the restrictions are made in connection with the sale of the business.

The Delaware court in resolving which state’s law would decide the issue noted that the parties’ relationship was based in California and the applicable contracts were negotiated and entered into in California. Further, the territory in which the defendant employee was to be restricted was in California. In light of those facts, the court rejected the plaintiff employer’s argument that Delaware’s preference for enforcing contractual obligations in the form of non-compete restrictions should trump California’s interest in not enforcing such restrictions.

Accordingly, the Delaware court concluded that “allowing parties to circumvent state policy-based contractual prohibitions through the promiscuous use of [choice-of-law] provisions would eliminate the right of the default state to have control over the enforcability of contracts concerning its citizens.” For these reasons, the court denied the employer’s request to enjoin the defendant former employee from working.

Employer Considerations

Companies are often organized in one state, with their headquarters or base of operations in another state with operations in other states. Such situations can set up a scenario like that above where the question of whether a non-compete agreement entered into by an employee will be enforceable in the state where the employee is working.

For this reason, it is important to understand the various state laws that may come into play when it comes to non-compete restrictions. With this knowledge, employers will be better able to compare whether one state or the other is more favorable with respect to enforcing restrictive non-compete restrictions and take appropriate steps to establish connections with the state chosen to govern the non-compete restriction.

For more information about non-compete restrictions, including whether your non-compete is enforceable, contact attorney Jason Shinn. Mr. Shinn routinely works with employers or sales representatives, executives, and other individuals in non-compete disputes.

Small and Fortune 100 Businesses – Same-Sex Marriage is Good for the Economy

same-sex coupleOver 370 companies, including small businesses and Fortune 100 companies, and business groups showed their support for same-sex couples seeking the right to marry by filing a brief in the same-sex marriage case Obergefell v Hodges pending before the U.S. Supreme Court.

Thirty-seven states and Washington, D.C. permit same-sex marriages under local laws or court decisions. However, a rogue opinion from the Sixth Circuit U.S. Court of Appeals (the federal circuit covering Michigan, Kentucky, Ohio and Tennessee) strayed from this trend and upheld same-sex marriage bans last year, thus opening the door for the U.S. Supreme Court to resolve the same-sex marriage issue once and for all (unless you are Alabama).

The full friend of the court, or amicus, brief filed by the companies and business groups (collectively the “Business Coalition”) is available here. The Business Coalition’s brief reads in part:

[Businesses] already operate against a complicated, uncertain, and frequently changing backdrop of laws and employment-related regulations that increase our administrative costs. Inconsistent state marriage laws impose an added economic burden on American businesses at an estimated cost of over one billion dollars per year. Discriminatory state laws force [Businesses] to implement inconsistent policies across the various jurisdictions in which we operate, our stated corporate principles of diversity and inclusion notwithstanding. Our ability to grow and maintain our businesses by attracting and retaining the best employee talent is hindered. The patchwork of state laws applicable to same-sex marriage thus impairs our business interests and employer/employee relations.

In 2013, our law firm argued in favor of Michigan recognizing same-sex marriage (“Sexual Orientation Discrimination and Michigan Law – Is it a Time for a Change?”). Similar to the reasons set forth in that article, the brief filed by the Business Coalition focused on economic reasons for why same-sex couples should be allowed to marry, rather than the social or civil rights implications raised by the same-sex couples. And the economic reasons in favor of recognizing same-sex couples is compelling.

But in addition to economic reasons, we also noted that providing same-sex couples equal access to marriage licenses was consistent with Michigan’s considerable history at being in front of protecting the rights of individuals. In this regard, we noted:

[T]here are enough economical and pro-business reasons to provide compelling reasons for why Michigan’s economy would likely benefit from restricting discrimination based on sexual orientation. And such a restriction would certainly be consistent with Michigan’s long-standing tradition of taking the lead in protecting individuals’ civil rights. In fact, going back to 1955 – almost a decade before the federal government passed the federal civil rights act – the Michigan legislature passed the Fair Employment Practices Act, which guaranteed the opportunity of Michiganders to gain employment regardless of race, color, religion, or national origin. Also, as early as 1983 the Michigan Department Rights Commission issued a statement that the state’s Civil Rights Act should be amended to prohibit discrimination based on sexual orientation.

Unfortunately, one of the prominent names listed as urging the U.S. Supreme Court to deny same-sex couples the right to marry, is Michigan’s Governor Rick Snyder. Truth be told, this is not likely a cause Governor Rick Snyder supports or cared to get behind in the first place given his pragmatic political approach and dogmatic focus on creating a thriving business climate in Michigan. In fact, this focus was embodied in Gov. Snyder’s 2014 campaign tagline, “Michigan is the Nation’s Comeback State” following significant job gains and other business development.

Even so, before the Business Coalition brief was filed, Michigan was at odds with the legal reasoning guiding the majority of the state and federal courts and legislatures addressing same-sex couples right to marry. Now, however, Michigan is clearly at odds with the sort of companies that it should be trying to attract. Hopefully Michigan can “comeback” from being on the wrong side of this issue.

FMLA Leave Extended to LGBT Couples

OnSame-sex_couple February 25, 2015 the U.S. Department of Labor issued its final rule revising the regulatory definition of spouse under the Family and Medical Leave Act (FMLA) so that eligible employees in legal same-sex marriages will be able to take FMLA leave to care for their spouse or family member, regardless of where they live. This change will go into effect on March 27, 2015.

The FMLA entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons.

The major changes under the DOL’s to the FMLA’s definition of spouse include the following:

  • The U.S. Department of Labor (DOL) has changed its focus from a “state of residence” rule to a “place of celebration” rule for the definition of spouse under the FMLA regulations. Now, the DOL will look to the law of the place in which the marriage was entered into, instead of the law of the state in which the employee resides. According to the DOL, this “place of celebration rule” allows all legally married couples, whether opposite-sex or same-sex, or married under common law, to have consistent federal family leave rights regardless of where they live.
  • Also, the DOL’s definition of spouse expressly includes individuals in lawfully recognized same-sex and common law marriages and marriages that were validly entered into outside of the United States if they could have been entered into in at least one state.

Here is a link to the full text of the final rule.

The DOL’s revision was in response to the 2013 the Supreme Court’s decision striking down section 3 of the Defense of Marriage Act (DOMA) as unconstitutional (United States v. Windsor). Specifically, this update to the FMLA now provides FMLA rights to all legally married same-sex couples consistent with the Windsor decision.

What the FMLA Update Means for Employers and Employees

For both employers and employees, it will be important to understand that leave and job protection rights available under the  FMLA now extend to all eligible employees in same-sex and common-law marriages, regardless of whether the employee’s state of residence permits same-sex or common-law marriage.

Employers should also review their FMLA policies and procedures and update them prior to the 3/27/2015 effective date to comply with the FMLA revision.

For more information about the FMLA, including complying with the newly issue revisions pertaining to same-sex couples, contact employment attorney Jason Shinn. Mr. Shinn is a Michigan licensed employment attorney.

Proposal Would Significantly Limit Use of Noncompete Agreements in Michigan

A proposed Michigan House Bill was recently introduced that would significantly limit the use of noncompete agreements (sometimes called covenants not to compete) in Michigan. Such agreements often restrict individuals from working for a competitor or other post-employment activities. Noncompete Restrictions

Specifically, State Represntative Peter Lucido (R) introduced HB 4198 on February 12, 2015, which has since been referred to the Committee on Commerce and Trade.
Under current Michigan law, noncompete restrictions between an employer and employee may be enforceable if certain conditions are met. Current Michigan law (MCL 445.774a) provides as follows:

An employer may obtain from an employee an agreement or covenant which protects an employer’s reasonable competitive business interests and expressly prohibits an employee from engaging in employment or a line of business after termination of employment if the agreement or covenant is reasonable as to its duration, geographical area, and the type of employment or line of business. To the extent any such agreement or covenant is found to be unreasonable in any respect, a court may limit the agreement to render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement as limited.

However, proposed HB 4198 would outright void a noncompete restriction between an employer and employee. Specifically, the proposed bill reads:

… any term in an agreement an employer obtains from an employee, contract laborer, or other individual that prohibits or limits the individual from engaging in employment is void.

HB 4198 would allow for noncompete restrictions in certain limited circumstances involving the sale of a business. More specifically, a purchaser of a business may obtain noncompete restrictions from the seller, principles, or officers of the business if it is in writing, entered into as a result of the sale, and at the time the sale takes place. Similar to current Michigan noncompete law, the noncompete restriction would still need to be reasonable as to its duration, geographical area, and the type of employment or line of business.

It is important to remember that this is only a proposed bill and one that has been referred to the Committee on Commerce and Trade (committees can often be legislative black holes). It is also likely to be a controversial bill given the impact it would have on businesses and employees. And let’s face it, anyone who has driven any distance on a Michigan road knows Michigan politicians have a difficult time passing legislation on issues with broad support, let alone contentious issues.

We will, however, continue to monitor this legislation. In the meantime, if you have any questions about Michigan noncompete law, contact attorney Jason Shinn. He represents both employers and employees in drafting and reviewing noncompete agreements, as well as litigating noncompete disputes.

Significant Drop in EEOC Lawsuits and Monetary Recovery in 2014 – Shouldn’t HR Get Some Credit?

EEOC discrimination According to records released in February by the U.S. Equal Employment Opportunity Commission, the agency had its lowest year in terms of monetary recovery since 1997 and other key numbers were also significantly lower. While there are a number of explanations offered for this reduction, including from the EEOC and employment attorneys, one explanation that is not getting mentioned is the role that employers and HR professionals have in this reduction. In this regard, HR professionals are increasingly aware of compliance issues and often proactively intervene when employment law compliance strays off the tracks.

EEOC 2014 Numbers

Going back to the EEOC’s numbers for fiscal year 2014:

  • The EEOC won the lowest monetary penalty since 1997;
  • Went 0-2 in jury trials; and
  • Filed half as many new lawsuits as it did a decade before.

To add further context to these numbers, EEOC lawyers filed 167 suits during fiscal year 2014. In contrast between 1997 and 2011, the EEOC filed an average of 370 lawsuits a year. Further, during the eight years of President George W. Bush’s administration, the EEOC obtained an average payout of $91 million per year as compared to just $22.5 million for 2014.

The EEOC notes that the drop in numbers was due in part to the government shutdown during the reporting period. Also, the National Law Journal, “Steep Drop in EEOC Lawsuits, by Jenna Greene, offers a number of other explanations for the 2014 drops as explained EEOC representatives and other employment attorneys.

Drop in Numbers Encouraging But Not a Reason to Get Lazy

The drop in 2014 numbers is encouraging, but employers shouldn’t get lazy in guarding against employment discrimination and other EEOC charges. For starters, there were still 88,778 charges of workplace discrimination filed with the EEOC.

Second, 2015 is shaping up to be a better year for the EEOC, at least according to the EEOC General Counsel, P. David Lopez. He notes that the agency is on track to post stronger results in 2015. Bolstering this conclusion, it is important to note that the EEOC has already won four of five jury trials to date.

Decline in HR Claims and the Role of HR

Going back to the National Law Journal’s article, a number of employment attorneys and EEOC representatives offer explanations for the 2014 drop in EEOC numbers. And certainly those explanations make sense and are likely to be a part of the lager narrative. But an equally important chapter in that narrative that is often overlooked is the increased sophistication and vigilance by HR professionals in with state and federal employment laws.

Our experience is that HR professionals are often on top of compliance matters and quick to identify issues in their infancy. In fact and without going into specifics of client matters, in the last quarter, we’ve had a number of opportunities to work closely with our business clients’ HR point person and in those instances the level of competency and attention to detail likely saved the company from becoming the wrong kind of EEOC statistic.  And (obviously) by being on top of the compliance side of employment laws, it means a company is going to increase the chance of successfully defending against an EEOC charge.

For more information about complying with federal or Michigan employment laws, as well as responding to an EEOC charge of investigation, contact employment attorney Jason Shinn.

 

 

 

When Does an Employer Have Notice of an Employee’s Need for Religious Accommodation?

CoExistAs an employment law nerd, I often get giddy when there is a meaty employment law issue being addressed by the U.S. Supreme Court (hopefully Justice Ginsburg took it easy on the sauce prior to oral arguments). But today I’m especially giddy because the Supremes are hearing arguments in the case captioned EEOC v. Abercrombie & Fitch Stores, Inc. The reason for the extra excitement is that I have a pending case that shares a central issue with the Abercrombie & Fitch.

Specifically at issue in the Abercrombie & Fitch case is whether an employer can be liable under Title VII of the Civil Rights Act of 1964 for refusing to hire an applicant or discharging an employee based on a “religious observance and practice” only if the employer has actual knowledge that a religious accommodation was required and the employer’s actual knowledge resulted from direct, explicit notice from the applicant or employee.

In a nutshell, a Muslim teen wore a black headscarf to her job interview with Abercrombie & Fitch. The headscarf would have violated Abercrombie & Fitch’s dress code (called the “Look Policy”). Among other things, the policy prohibits caps and black clothing. The Muslim teen, had worn a headscarf since she was thirteen because she believes it is required by her faith. An assistant manager later told a friend of the teen that she was not hired because of her headscarf.

Abercrombie & Fitch has taken the position that it didn’t violate federal anti-discrimination laws when it decided not to hire he headscarf would because it is up to the applicant or employee to make a company aware of a policy that conflicts with their religious beliefs.

The EEOC alleged that Abercrombie & Fitch had violated Title VII of the Civil Rights Act of 1964. That statute, in part, prohibits employers from refusing to hire someone because of her religious practices unless the employer can show that it would be an “undue hardship” to make allowances for the practice. The EEOC further contended that Abercrombie & Fitch should have made an exception to its “Look Policy” to accommodate the Muslim applicant’s religious beliefs. The trial court agreed with the EEOC, but that decision was appealed where Abercrombie & Fitch won with the Court ruling:

We reverse the district court’s grant of summary judgment to the EEOC. Abercrombie is entitled to summary judgment as a matter of law … Ms. Elauf never informed Abercrombie prior to its hiring decision that her practice of wearing a hijab was based on her religious beliefs and (because she felt religiously obliged to wear it) that she would need an accommodation for the practice, because of a conflict between it and Abercrombie’s clothing policy.

Bolstering the Court of Appeals decision is that fact that the EEOC’s policy materials encourage employers to actively engage in a dialogue with applicants or employees concerning their conflicting religious practice and possible accommodations that the employer might provide for it only after an employer is put on notice of the need for a religious accommodation.

The question to be answered, however, is what notice is sufficient and whether that notice must come from the applicant/employee. A decision in this case is not expected until later this year.

What will not change, however, is that once the need for a religious accommodation to the employer’s work rule or policy is made known to the employer, the burden rests on the employer to show that it could not accommodate the employee’s religious practice without undue hardship. Typically, religious accommodation suits involve religious conduct, such as observing the Sabbath, wearing religious garb, etc., that result in indirect and minimal burdens, if any, on employers or other employees. And while not always, more often than not, an employer can often accommodate such needs without too much inconvenience or unduly burdening other employees.

For more information about religious discrimination and accommodation, contact employment attorney Jason Shinn.

 

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