In 2010, two employees filed a claim against their former employer, Robert Half International, Inc., alleging that it violated the Fair Labor Standards Act (“FLSA”). In addition to individual claims, the plaintiffs brought a collective action on behalf of all other similarly situated employees. The plaintiffs, however, had signed employment agreements containing arbitration clauses, which generally required that any dispute arising out of their employment be submitted to arbitration. It was silent as to class-wide claims.

The employer filed a motion to compel the employees to resolve their claims through arbitration on an individualized basis. The court ordered the employees to submit their claims to arbitration but left for the arbitrator to decide whether the claims could proceed on a class basis. The arbitrator subsequently ruled that class arbitration was permitted under the agreements. The employer appealed and argued that the question of whether the employees could submit claims to arbitration on a class-wide basis is one to be decided by the courts, not an arbitrator.

The First Shoe

The Third Circuit agreed. The court first explained that it is generally the province of the courts to resolve “questions of arbitrability.” That is, courts have narrow authority to decide whether or not an arbitration clause applies to particular claims and/or particular parties. On the other hand, arbitrators decide all issues they have been authorized by the parties to resolve. This includes procedural questions, and in traditional litigation, questions of class are procedural in nature. So, in this case, the court was presented with the following question: when an arbitration clause is silent as to arbitration on a class basis, is the permissibility of class arbitration a “question of arbitrability” to be decided by the court, or is it a procedural question to be decided by an arbitrator?

In a precedential opinion issued in 2014, the Third Circuit held that it was a question of arbitrability reserved for the court, because it was an issue of whether the clause applies to particular claims and/or parties. With this ruling, the Third Circuit then remanded the case to the district court to determine whether the employment agreements authorized class arbitration. On remand, finding no explicit language in the arbitration clauses, and finding no other evidence to the contrary, the district court found that class arbitration was not permitted under the agreement. The employees appealed.

The Other Shoe (sort of)

In a non-binding decision issued at the end of January, the Third Circuit agreed that class arbitration was not permitted. First, the court recognized that “a party may only be compelled to submit to class arbitration if there is a contractual basis for concluding that the party agreed to do so.” Stolt-Nielsen S.A. v. AnimalFeeds Int’l, Inc., 559 U.S. 662, 684 (2010). To determine whether the parties agreed to class arbitration in this case, the court first looked for explicit language of authorization, noting that under Third Circuit precedent, “silence regarding class arbitrability generally indicates a prohibition.” Quillion v. Tenet HealthSystems Phila., Inc., 673 F.3d 221, 228 (3d Cir. 2012). It found no explicit language. Despite this finding and its precedent concerning the silence of class arbitration, the court did not stop there. It went on to look for implicit authorization elsewhere in the employment agreement. It again found nothing and affirmed that the agreement did not authorize class-wide arbitration.

While this ruling resolves this case and gives guidance moving forward, it does not definitively answer whether the absence of explicit language precludes class arbitration. To the contrary, the court’s analysis suggests that class arbitration could be inferred from other language in the employment agreement. So, going forward, to avoid a court making such an inference – one contrary to your true intent – inclusion of explicit language prohibiting class arbitration remains the best policy. However, you must be aware that the National Labor Relations Board takes the position that explicit prohibitions of class arbitration violate the National Labor Relations Act. Three courts of appeals, among other courts, have disagreed and overturned the Board’s position. Stay tuned, as the Supreme Court of the United States is set to resolve this question later this year.

A few weeks ago, a jury in New Jersey federal court found that Lockheed Martin discriminated against a former employee. The employee claimed that Lockheed violated federal and state laws by discriminating against him on the basis of age, including by paying him less than his younger co-workers. The jury’s award: $51.5 million ($1.5 million in compensatory damages and $50 million in punitive damages).  Although the claim was only partially based on unequal pay, and although the punitive damages award is constitutionally suspect (U.S. Supreme Court precedent holds that punitive damages should generally not be more than ten times the amount of compensatory damages), the award is indicative of an ever-emerging emphasis on pay equity.

Since January of 2016, several states have enacted equal pay statutes, and several others have pending legislation. California, New York, Maryland, and Massachusetts all have statues that prohibit pay discrimination on the basis of sex (Maryland’s also includes gender identity). Each of these statutes makes it easier for employees to establish pay discrimination claims, including requiring no proof of intent. One state, however, allows employers to establish an affirmative defense. Under Massachusetts’ statute, which is set to go into effect in July 2018, an employer has an affirmative defense if it completed a self-evaluation of its pay practices within three years of the claim, and it made reasonable progress toward eliminating pay differences revealed by the self-evaluation.

It is not just states that have turned their focus toward compensation. Our federal contractor subscribers – recognizing that Lockheed Martin is a federal contractor (the biggest, actually) – may find themselves wondering how aggressive the Office of Federal Contract Compliance Programs (OFCCP) has become with respect to compensation. If its lawsuit against Google is any indication, OFCCP has become quite aggressive. Typically, during a compliance audit OFCCP will require employers to provide compensation data for all current employees to ensure no disparity across races and genders. With Google, it went further. It demanded wage histories, changes in compensation, and employee contact information. When Google refused, OFCCP filed a lawsuit seeking an injunction and threatened to cancel all of Google’s federal contracts.

Finally, even if you are not in a state that has current or pending pay equity statutes, and even if you are not a federal contractor, employers may need to report compensation in the future. For employers with 100 employees or more, the Equal Employment Opportunity Commission has proposed to collect compensation data by sex, race, and ethnicity for each job category. Thus, starting in March 2018 – assuming no changes occur under the new Trump administration – those employers will be required to include compensation information in their EEO-1 report. According to the EEOC, this “will provide a much needed tool to identify discriminatory pay practices where they exist in order to ensure that fair pay practices are put in place.”

Considering all this momentum toward ensuring pay equity, compensation has possibly become one of employers’ greatest vulnerabilities.  Now may be the time to conduct an internal analysis – preferably one shielded by attorney-client privilege – to determine whether disparities exist within your compensation structure. Stay tuned for future podcasts, webinars, and seminars that will address this issue in part.

Just over thirty years ago, Congress passed the Immigration Reform and Control Act (“the Act”). It requires that employers verify the identity and work authorization of the people they hire. It also mandates that such verification be done on a form designated by the Attorney General. We know that form as the I-9. From time to time, the U.S. Citizenship and Immigration Service (USCIS) issues revised versions of the I-9. It did so again last November.

As we outlined in our original blog post, the new version, found here, contains a few modifications. First, it is designed to be more computer-friendly, with dropdown lists, calendars for filling in dates, and on-screen instructions – all useful in eliminating common errors discovered during audits. Additionally, it has prompts to ensure information is entered correctly, the ability to have multiple preparers, a dedicated area for additional information, and a supplemental page for the preparer. Finally, the new version changes Section 1. Instead of asking for “other names used” by the employee, it asks for “other last names used.”

While employers had the option to start using the new version immediately, they are required to start using the new version no later than January 22, 2017. On the lower left corner of the form, you will see that the form has a revision date of “11/14/2016 N.” The “N” denotes that after the effective date of the form, previous versions are no longer valid, and employers cannot use them to satisfy the requirements of the Act. In its news release about the update, the USCIS indicated that the new Form I-9 will become effective on January 22, 2017.

So, if you have yet to make the switch, now is the time. Keep in mind, however, that despite the implementation of the new form, employers must continue to comply with existing rules for storage and retention with respect to all previously completed forms.

Back on September 7, 2015, President Obama signed Executive Order 13706, which requires that certain federal contractors provide their employees up to fifty-six hours of paid sick leave per year. In February of this year, the United States Department of Labor issued proposed rules to implement the Executive Order, and it invited public comment on recommended changes. Our blog subscribers may remember that we posted an outline of the requirements under the proposed rules in March. You can find that blog post here. Following the submission of over 35,000 comments, the Department of Labor issued the final rules on September 30, 2016, leaving the proposed rules largely untouched. The final rules become effective on November 30th and apply to new contracts entered into after January 1, 2017 (except those unilaterally renewed by the government pursuant to a pre-negotiated option).

In the aftermath of last Tuesday’s election, we now know that Donald Trump will assume the Presidency on January 20, 2017. Your feelings about the outcome of the election aside, we know two important things about President-Elect Trump that are relevant to federal contractors: (1) he is of a political ilk quite different than President Obama; and (2) because of his contra political affiliation, he has promised to rescind most, if not all, of President Obama’s executive orders. So, with paid sick leave regulations set to go into effect, and a President-Elect who has promised to rescind such an order, what is a federal contractor supposed to do?

In short – comply with the regulations. Why? First, the regulations go into effect before President-Elect Trump is even sworn into office. Thus, the regulations will be binding on covered federal contractors and will have the same force and effect as all other regulations. Second, there is no certainty that President-Elect Trump will actually rescind Executive Order 13706. While he has spoken generally about rescinding President Obama’s executive orders, he has not specifically referenced the paid sick leave order. Indeed, during his campaign, President-Elect Trump announced a plan for six weeks of paid maternity leave. Such a plan would largely be at odds with rescinding Executive Order 13706, which requires paid leave be permitted for the same purpose. Third, assuming he does actually intend to rescind Executive Order 13706, it is not likely to happen early in his presidency. He has published his plan for the first one-hundred days of his term; paid sick leave is not on list.

Although federal contractors should comply with the regulations, contractors may want to reevaluate their compliance strategy in the short term. For example, the regulations provide that contractors must allow employees to accrue up to fifty-six hours of paid sick leave over the course of a year. Alternatively, a contractor, in lieu of calculating the accrual of paid sick leave, can simply give employees all fifty-six hours at the beginning of the year. Both methods have pros and cons. The accrual method has administrative costs associated with tracking hours worked, but the regulations allow a contractor to limit the number of hours an employee has available for use. The up-front method has no administrative cost for tracking hours, but the regulations provide that contractors cannot limit the number of hours an employee has available for use. A contractor, considering the long-term costs and benefits, may choose, for example, to select the up-front method because the cost associated with the accrual method, for them, outweighs the benefit of limiting the availability of use. But the same may not be true in the short term. Thus, given the potential that the Executive Order may ultimately be rescinded in the next few years, a different strategy may be appropriate.

So, if you are a federal contractor that employs any of the 1.2 million employees that will ultimately be covered by the regulations, you should continue to plan, prepare, and implement your compliant paid sick leave policy. But, while you continue that process, it may be worth taking the time to reevaluate your strategy.

In a recent decision, the National Labor Relations Board confronted the issue of whether it has jurisdiction over The Pennsylvania Virtual Charter School (PVCS) – a school formed pursuant Pennsylvania’s Charter School Law. In addressing the issue, the Board was confronted with two questions: (1) whether the school was exempt from the National Labor Relations Act (the “Act”) as a political subdivision; and (2) if the school was not exempt, whether the Board should nevertheless exercise its statutorily-granted discretion to decline jurisdiction. It answered both questions with a resounding “no.”

Political Subdivision Exemption

Political subdivisions are excluded from the list of “employers” subject to the Act. According to the Supreme Court of the United States, an entity is a “political subdivision” if it was created directly by the state, so as to constitute departments or administrative arms of government, or it is administered by individuals who are responsible to public officials or to the general electorate.

Applying this test, the Board held that PVCS was not created directly by the Commonwealth of Pennsylvania, but was a created by private individuals that formed a non-profit corporation. To reach this conclusion, the Board asked whether PVCS was created by a governmental entity, legislative or judicial act, or public official. It found that the answer was no. The Board found it largely irrelevant that: (1) the school’s charter was – as it must be under the Charter School Law – issued by the Pennsylvania Department of Education; (2) PVCS received ninety-seven percent of its funding from the Commonwealth of Pennsylvania; and (3) the Charter School Law places employees of cyber charter schools within Pennsylvania’s public employee labor relations system.

Moreover, the Board found that PVCS was not administered by individuals who are responsible to public officials or the general electorate. Under this prong of the political subdivision test, the Board examined if the administrators are individuals appointed by, or subject to removal procedures applicable to, public officials. PVCS’ board of trustees were appointed and removed pursuant to the school’s bylaws. The bylaws provided that sitting board members appoint and remove other board members, and only board members appoint and remove administrators. Under the Charter School Law the board members are statutorily deemed “public officials.” The Board held that despite the Charter School Law’s designation of the board members as “public officials,” they were not public officials for purposes of the Act. It reasoned that “PVCS’ board was created and governed by its internal bylaws (the first board was selected by the private citizens . . .) and is a self-perpetuating entity.” Accordingly, the Board found that PVCS was not administered by individuals responsible to public officials or the general electorate and was not a political subdivision.

Declination of Jurisdiction

Having concluded that PVCS was not exempt as a political subdivision, the Board finally examined whether it would nevertheless exercise its discretion to decline jurisdiction. PVCS argued that the Board should decline jurisdiction because cyber charter schools do not have a substantial effect on commerce and exercising jurisdiction would supplant state control. The Board found that PVCS had 3000 students, it had an operating budget in the millions of dollars each year, and it was only one of fourteen cyber charter schools in Pennsylvania. As a result, the Board determined that there was sufficient impact on commerce to justify maintaining jurisdiction. Additionally, the Board concluded that its jurisdiction would not supplant state control because charter schools are not state schools, but an alternative permitted by the Commonwealth of Pennsylvania. As such, it held that PVCS should be subject to the same federal regulations as other private employers.

It is noteworthy that the Board reached the same conclusion with respect to charter schools in New York. You can find the full PVCS opinion here. You can find the New York opinion here.

Our regular blog subscribers will note that we have routinely commented on the Board’s increasing efforts to expand its jurisdiction. This is yet another instance. Why does this matter? Even though your business may not be a charter school, it is a reminder that the Board is continuing its aggressive expansion of the Act.