The Fair Credit Reporting Act (“FCRA”) has been a fertile area for lawsuits against employers.  Recently, the Third Circuit Court of Appeals provided yet another warning for employers regarding compliance with the FCRA.  In Long v. SEPTA, the court held that an employer violates the FCRA when it fails to provide a copy of the applicable consumer report to prospective employees before taking an adverse employment action.  This decision serves as an important reminder of employer obligations under the FCRA and also provides clear and direct guidance on the steps an employer must take before it rejects an applicant on the basis of information contained in a consumer report or background check.

In Long v. SEPTA, SEPTA denied employment to three applicants who had been convicted of drug offenses.  Prior to making that decision, however, SEPTA did not send the plaintiffs copies of their background checks, nor did it send them notices of their rights under the FCRA.  The plaintiffs, in turn, filed a class action lawsuit, alleging that SEPTA violated the FCRA by taking an adverse employment action against them without providing copies of their background check reports or notices of their rights under the FCRA.

SEPTA argued that it made no difference whether the plaintiffs’ consumer reports were provided before or after its decision not to hire them because the reports were accurate.  Therefore, according to the employer, the plaintiffs suffered no legal injury under the FCRA.

The court rejected the employer’s argument and instead interpreted the statute based on its plain language as establishing two fundamental requirements: (1) that an employer must provide a consumer report and FCRA rights disclosure; and (2) that it must do so before it takes any adverse action.  The court explained that doing so “allows [the prospective employee] to ensure that the report is true, and may also enable him to advocate for it to be used fairly—such as by explaining why true but negative information is irrelevant to his fitness for the job.”  The court went on to note that the “required pre-adverse-action notice of FCRA rights provides the individual with information about what the law requires with regard to consumer reports….It helps ensure that reports are properly used and relevant for the purposes for which they are used.”

Accordingly, a prospective employee has the right to receive their consumer report and a description of their rights under the FCRA before an employer takes any form of an adverse action against them on the basis of information discovered in the report—regardless of how accurate the background check may be.  The court has made it explicitly clear that prospective employees have the right to know of and respond to such information prior to an employer’s adverse action.

If you have any questions regarding FCRA compliance, please contact any member of our Labor and Employment Practice Group.

The Occupational Safety and Health Administration (OSHA) has rolled back Obama-era guidance on safety incentive programs and post-accident drug testing. OSHA has a rule prohibiting employer retaliation against employees for reporting work-related injuries or illness. In its latest guidance (a memorandum published October 11, 2018), OSHA clarified that workplace safety incentive programs and post-accident drug testing do not violate that anti-retaliation rule. This differs from OSHA’s approach in previous guidance, where OSHA took the position that, in some circumstances, safety incentive policies and post-accident drug and alcohol testing could be a retaliatory practice for deterring employees from reporting work-related injuries and illnesses. OSHA has changed its course, but the latest guidance is still not a model of clarity.

Specifically, OSHA most recently stated that most incentive programs and instances of workplace drug testing are permissible. However, OSHA warned that such programs can be unlawful and retaliatory if they seek “to penalize an employee for reporting a work-related injury or illness rather than for the legitimate purpose of promoting workplace safety and health.” The new guidance supersedes any other interpretive documents, to the extent they are inconsistent.

Safety Incentive Programs

OSHA clarified and reinforced that incentive programs can be an important tool to promote workplace safety and health. Positive programs, such as those that reward workers for reporting near-misses or hazards or encourage involvement in a safety and health management system, are always permissible, according to the memorandum.

However, the line is less clear regarding rate-based incentive programs (e.g., rewards with a prize/bonus for an injury-free month) and negative action against an employee (e.g., withholding a prize/bonus because of a reported injury). OSHA’s position is that rate-based incentive programs are permissible so long as they are not implemented in a manner that discourages reporting. OSHA claims it would not cite the employer if the employer has implemented “adequate precautions” to ensure that employees feel that they are free to report an injury or illness. The question becomes whether the employer has “adequate precautions” to counterbalance any inadvertent deterrent effect under a rate-based incentive program.

Workplace Drug Testing

OSHA has provided more definitive guidance for drug testing. The following will be deemed permissible:

  • Random drug testing.
  • Drug testing unrelated to the reporting of a work-related injury or illness.
  • Drug testing under a state workers’ compensation law.
  • Drug testing under other federal law, such as a U.S. Department of Transportation rule.
  • Drug testing to evaluate the root cause of a workplace incident that harmed or could have harmed employees.

OSHA has clarified that if an employer chooses to use drug testing to investigate an incident, the employer should test all employees whose conduct could have contributed to the incident, not just the employee(s) who reported injuries.

The attorneys of the McNees Labor & Employment Group are ready to assist your Company with developing OSHA-compliant safety incentives and drug testing policies.

In an effort to combat opioid addiction, the Wolf Administration recently rolled out a set of opioid prescribing guidelines to assist health care providers treating workers’ compensation patients. Highlighting the need for reform, Governor Wolf stated: “[i]n 2017, there were more than 174,216 workers’ compensation claims made in Pennsylvania, and our state ranks third highest in the nation in the percentage of injured workers who become long-term opioid users.” The Administration reported that workers who received longer-term opioid prescriptions for work-related lower back injuries had a substantially longer duration of temporary disability.

Accordingly, it is no surprise that the average lost time claim for injured workers, prescribed with opioids, is 900% higher than injured workers who were not prescribed the drug. To improve these numbers, the Administration identified the following objectives for the guidelines:

  • To promote the delivery of safe, quality health care to injured workers;
  • To ensure patient pain relief and functional improvement;
  • To be used in conjunction with other treatment guidelines, not in lieu of other recommended treatment;
  • To prevent and reduce the number of complication caused by prescription medication, including addiction; and
  • To recommend opioid prescribing practices that promote functional restoration.

The guidelines include recommendations for the treatment of acute, sub acute, post-operative pain, and chronic pain. The Wolf Administration released a detailed seven-page instruction on how health care providers should approach treatment for such conditions. Generally, under the guidelines, opioid prescription should be done in combination with other treatment options, at the lowest dose, and for the shortest length of time possible.

While the Administration’s newly issued guidelines are an important step toward fighting opioid addiction in the Commonwealth, it is important to remember that they are just that—guidelines. They are not legally binding and are intended only to supplement, not replace clinical judgment. By following these guidelines, however, health care providers will play a significant role in promoting safe and effective treatment for injured workers so that they may return to work as soon and as safely as possible.

Should you have a question regarding this article, please feel free to reach out to a member of our Labor and Employment Group.

 

In a recent case, decided on June 19, the Supreme Court of Pennsylvania granted appeal to clarify the scope of subrogation reimbursement under the Pennsylvania Workers Compensation Act (the “Act”).

By way of background, the Act makes an employer liable for paying disability benefits and medical expenses of an employee who sustains an injury in the course of his/her employment, regardless of whether the employer was negligent. Under Section 319 of the Act, however, employers are entitled to reimbursement for certain expenses where a third party caused the employee’s injury. Specifically, an employer (or its insurance carrier) has the absolute right to collect the workers’ compensation benefits it paid if the employee recovers from the third party who caused the injury. This is known as subrogation.

The Supreme Court in its recent decision addressed the scope of the reimbursement under Section 319 of the Act. Section 319 states, in pertinent part:

Where the compensable injury is caused in whole or in part by the act or omission of a third party, the employer shall be subrogated to the right the employe…against such third to party to the extent of the compensation payable under this article by the employer; reasonable attorney’s fees and other proper disbursements incurred in obtaining a recovery or in effecting a compromise settlement shall be prorated between the employer and employe…Any recovery against such third person in excess of the compensation theretofore paid by the employer shall be paid forthwith to the employe…and shall be treated as an advance payment by the employer on account of any future instalments of compensation.

The critical question the Court addressed was whether the term “future instalments of compensation” encompasses both future disability benefits and payment of future medical expenses. In other words, the Court addressed whether an employer can credit the excess third part recovery against both future disability and future medical payments.

The Commonwealth Court, our intermediate appellate court, concluded that the term “instalments of compensation” encompasses both disability and medical expenses. The Commonwealth Court reasoned that since the objective of subrogation is to protect the presumably innocent employer from ultimate liability, the credit should apply to both medical expenses and disability benefits.

In its June 19th ruling, the Supreme Court disagreed. The Court’s assessment of the issue was in some ways quite straightforward, but it requires an understanding of how an employer must pay disability and medical expenses. The long and short of it is that disability benefits are required to be paid in installments, while medical expenses are not. Accordingly, the Court found that the term “instalments of compensation” under Section 319 spoke for itself and meant “compensation that is paid in installments” which can only include disability benefits, not medical expenses.

In a nutshell, the Court found that when a workers’ compensation claimant recovers proceeds from a third-party settlement under Section 319, the employer (or the insurance carrier) is limited to drawing down against that recovery only to the extent that future disability benefits are payable to the claimant.

What does this mean in plain language?

If the third-party recovery exceeds the employer’s accrued subrogation lien (workers’ compensation payments made prior to resolution of the third-party claim), the employer can treat the excess recovery (which will be paid to the employee) as a credit against future workers’ compensation payments. However, the credit may only be taken against future disability (aka wage loss or indemnity) benefits. There may be no credit taken against future medical benefits.

For this reason, employers looking to settle with an employee who has sustained a serious work injury that was caused by the negligence of a third party should proceed with caution! This is especially true when only the wage loss portion of the claim is resolved in the settlement and the medical portion is left open (either indefinitely or for some set time in the future). When resolving a claim in this way, employers must remember that no excess recovery credit can be taken against future medical benefits. This new reality should be factored into the valuation of the case.

If you need any assistance with subrogation rights or have any questions regarding this Article, please feel free to reach out to any member of our Labor and Employment group for assistance.

On June 6, 2018, Governor Wolf signed Executive Order 2018-18-03, which is designed to combat the gender pay gap in Pennsylvania. The Executive Order directs all state agencies under the governor’s jurisdiction to:

  • no longer inquire about a job applicant’s current compensation or compensation history at any stage during the hiring process;
  • base salaries on job responsibilities, position pay range, and the applicant’s knowledge, skills, competencies, experience, compensation requests, or other bona fide factor other than sex, except where compensation is based on:
      • a collective bargaining agreement;
      • a seniority system;
      • a system of merit pay increases;
      • a system which measures earnings by quantity or quality of production, sales goals, and incentives
  • clearly identify the appropriate pay range on job postings.

The Executive Order does expressly state that applicants are not prohibited from volunteering information about their current compensation level or salary history in negotiating a salary. However, no agency can request that an applicant disclose current salary or salary history information.

So why the need for the Executive Order? Some argue that by asking an applicant to reveal their current salary or salary history, employers are perpetuating pay inequality between men and women. The reasoning is that because women have been paid less than men historically, asking applicants their salary history and then basing salary determinations on prior pay information further continues the cycle of pay inequality.

While the Executive Order is only applicable to Commonwealth agencies under the Governor’s jurisdiction, it may signal a push to address the gender pay gap throughout Pennsylvania.

Please feel free to contact any member of the McNees Wallace & Nurick Labor and Employment Practice if you have any questions regarding this article.

President Trump recently signed into law Congress’ $1.3 trillion, 2,232-page omnibus budget bill.  Notably, tucked away on page 2,025 of the bill, Congress amended the Fair Labor Standards Act to address rules affecting tipped employees.  These rules have been a hot topic lately and there is a lot of misinformation floating around.  Here is what you need to know:

To recap, the FLSA requires employers to pay employees the minimum wage, currently $7.25 per hour for most employees.  In the restaurant industry, however, employers are allowed to count up to $5.12 per hour of employees’ tips against their total minimum wage obligation.  In other words, restaurants can pay tipped employees such as servers, bartenders, bussers, and runners as little as $2.13/hour plus customer tips.  The Department of Labor’s rules make it clear that employers cannot take this “tip credit” if the employer uses a tip pooling arrangement where any portion of tips are kept by the house, or if the restaurant requires employees to share tips with managers or employees who do not “customarily and regularly” receive at least $30 per month in tips (e.g., “back of the house” personnel such as cooks, dishwashers, etc.).  These basic rules are still in place.

What was not clear, until now, was whether the FLSA imposes any restrictions on tip pooling arrangements for employers who do not take the tip credit (i.e. pay their employees at least the minimum wage).  In 2011, the Obama administration said yes, tips could never be shared with managers or kitchen staff even if the restaurant paid the servers the full minimum wage and did not take advantage of the tip credit.  In 2017, the Trump administration, and several federal courts, said no, restaurants paying the full minimum wage could do whatever it wanted with customer tips.  The Trump Administration’s 2017 proposed regulation started a process aimed at reversing the Obama Administration’s 2011 regulation.

The 2018 Omnibus Budget Bill settles the tug of war.  Buried deep in the law is an easy-to-overlook provision relating to “Tipped Employees.”  The Tipped Employees provision establishes a compromise and permits tip splitting among and with non-supervisory, non-service employees (such as cooks and dishwashers) where no tip credit is taken. Otherwise, the amendment specifically prohibits employers from requiring employees to share their tips with the employer, including any managers or supervisors, whether or not the employer takes a tip credit. This is significant because it means that an employer can now violate the FLSA through an improper tip pooling arrangement even if it is paying employees the full minimum wage.

Employers who unlawfully keep any portion of an employee’s tips may now be liable to injured employees for the amount of tip credit taken and the amount of the tip unlawfully taken, plus an additional, equal amount as liquidated damages. Furthermore, the amendment authorizes the Secretary of Labor to assess a civil penalty of $1,100 per violation.

Ultimately, Congress’ new amendment means that, for now, employees who are paid at least the minimum wage in cash can be required to share tips with cooks, dishwashers, and other non-management, non-supervisory “back of the house” employees.  When deciding the right tipping strategy, restauranteurs should consult with legal counsel.  Particularly, tip pooling policies should be carefully reviewed with counsel before implementation to ensure compliance with all applicable federal and state requirements.

Please feel free to contact any member of the McNees Wallace & Nurick Labor and Employment Practice Group for assistance with labor and employment law issues and/or if you have any questions regarding this article.

Today, the United States Supreme Court has finally put to rest the issue of whether service advisors are exempt from the overtime compensation requirements of the Fair Labor Standards Act (FLSA).  You may recall an earlier post, discussing the law’s ambiguity in how auto dealers should classify service advisors under the Fair Labor Standards Act (FLSA).  It is an issue that has been before the Supreme Court twice now and a decision to clarify the standard has been much anticipated by auto dealerships across the country.

As a recap, the plaintiffs in Encino Motor Cars were current and former service advisors of a Mercedes-Benz dealership in California.  The service advisors sued the dealership for backpay, alleging that the dealership failed to pay them overtime compensation under the FLSA.  The dealership moved to dismiss the complaint, arguing that the service advisors were exempt from overtime under an FLSA exemption that applies to “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements.”

In a 5-4 decision, the Court found that auto service advisors are exempt under the FLSA’s overtime provisions because they are salesmen primarily engaged in servicing automobiles.  Specifically, the Court found that while the term salesman is not defined under the FLSA, it could be defined as “someone who sells goods or services.”  Because service advisors sell customers services for their vehicles, Justice Thomas, authoring the opinion, found that “a service advisor is obviously a ‘salesman.’”

The Court also found that service advisors are primarily engaged in servicing automobiles.  In particular, the court found that they “meet customers; listen to their concerns about their cars; suggest repair and maintenance services; sell new accessories or replacement parts; record service orders; follow up with customers as the services are performed (for instance, if new problems are discovered); and explain the repair and maintenance work when customers return for their vehicles.”  Notably, the Court found that “if you ask the average customer who services his car, the primary, and perhaps only, person he is likely to identify is his service advisor.”  For these reasons, the Court concluded that the service advisors are exempt from overtime compensation.

Please feel free to contact any member of the McNees Wallace & Nurick Labor and Employment Practice Group for assistance with labor and employment law issues and/or if you have any questions regarding this article.

Winter is coming…still.  Some parts of the state are expected to receive possible snow squalls as well as a potential rain/snow storm in the weeks to come.  Weather conditions such as these often create challenges with business closures and employee absences.  With that in mind, employers should consider the following issues that may arise due to inclement weather:

Are employers required to pay employees when the business is closed because of inclement weather?

If weather conditions cause an employer to shut down operations and close, non-exempt employees need not be paid for time they did not work because of the closing. On the other hand, exempt employees must be paid their salary for the week regardless of the business closure.  An employer may require that exempt employees use accrued paid time off (PTO).

Must employees be paid if they do not report to work due to inclement weather when the business is open?

Non-exempt employees need not be paid for the time they are absent from work.  An employer may, however, at its discretion, allow non-exempt employees to use PTO for the absence. Additionally, exempt employees need not be paid for a whole day’s absence due to inclement weather. An exempt employee absent for part of a day may be required to use accrued paid time off.  If the exempt employee has no accrued paid time off, however, his or her salary may not be docked for a partial day absence.

May an employee be disciplined or discharged for failing to report to work due to weather conditions when the business is open?

Generally, an employer may apply its normal attendance policy to weather related absences. However, there is one major exception. Under Pennsylvania law, an employer may not discipline or discharge an employee who fails to report to work due to the closure of the roads in the county of the employer’s place of business or the county of the employee’s residence, if the road closure is the result of a state of emergency. The law does not apply to the following jobs: drivers of emergency vehicles, essential corrections personnel, police, emergency service personnel, hospital and nursing home staffs, pharmacists, essential health care professionals, public utility personnel, employees of radio or television stations engaged in the gathering and dissemination of news, road crews and oil and milk delivery personnel.

Ultimately, to avoid confusion about how weather-related closures and absences will be handled, employers should have a written inclement weather policy in their employee handbooks.  The policy should be clear that employee safety is the main concern.  The policy should also be clear as to the employees’ responsibility to give notice if they cannot make it to work due to bad weather.

Please feel free to contact any member of the McNees Wallace & Nurick Labor and Employment Practice Group for assistance with labor and employment law issues and/or if you have any questions regarding this article.

In a recent change of position, the Department of Labor (“DOL”) has endorsed a new standard for determining when an unpaid intern is entitled to compensation as an employee under the Fair Labor Standards Act (“FLSA”).  We previously reported on an earlier DOL effort to tighten up the restrictions on the use of unpaid interns.  It looks like the DOL has decided to change course.

By way of further background, the United States Supreme Court has yet to address the issue, but several federal circuit and district courts have attempted to determine the proper standard to assess these situations.  Recognizing that internships are widely supported by the education community, these courts have sought to strike a balance between providing individuals with legitimate learning opportunities and the exploitation of unpaid interns.

In keeping with the rulings of the courts, the DOL, stated last Friday that “the Wage and Hour Division will update its enforcement policies to align with recent case law [and] eliminate unnecessary confusion among the regulated community…”

Accordingly, the DOL rescinded a 2010 Fact Sheet and adopted the primary beneficiary test, which considers the following factors to determine whether an intern or student is, in fact, an employee under the FLSA:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

No one factor is determinative and, therefore, the inquiry of whether an intern or student is an employee under the FLSA depends upon the unique circumstances of each case.  The Labor & Employment attorneys at McNees are ready to help employers with the analysis of whether the intern or the employer is the primary beneficiary of the relationship.

The United States Supreme Court will address again whether service advisors are exempt from overtime compensation requirements of the Fair Labor Standards Act (“FLSA”).

In a case involving several procedural twists and turns, the Supreme Court, for the second time, will hear Encino Motorcars, LLC v. Navarro.  That case involves five service advisors who were employed by a California Mercedes-Benz dealership.  In 2012, the employees sued the dealership, under the FLSA, after it refused to pay them overtime compensation.  The employees alleged, among other things, that as a part of their job duties, they were required to upsell customers for additional automobile services, but were not required to actually sell cars or perform auto repairs.  They further alleged that they were only paid by commission and were “mandated” to work from 7 a.m. to 6 p.m. at least five days a week.

The FLSA requires that employers pay employees overtime compensation equal to 1 and 1/2 times their regular rate for all hours worked in excess of forty per week, unless an exemption applies.  Section 213(b) of FLSA is at issue in this case and provides that overtime compensation is not required for an employee who is a “salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles…”

A California district court dismissed the case, but the Ninth Circuit Court of Appeals reversed that decision, finding that the service advisors were eligible for overtime compensation, as they did not fall within the meaning of a “salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.”  The Ninth Circuit rested its decision on a Department of Labor regulation, issued in April 2011, which the Supreme Court later found invalid.

In its first time reviewing the case, instead of determining the issue of whether the service advisors were qualified for the Section 213(b) exemption, the Supreme Court kicked the question back to the Ninth Circuit for reconsideration, instructing the lower court to rule without considering the Department of Labor’s regulation.  Although the Supreme Court side stepped the issue in 2016, Justice Thomas in a dissenting opinion joined by Justice Alito projected how they would resolve the issue, opining that Section 213(b) covered the employees.

After reconsideration, the Ninth Circuit again found that service advisors do not fall with Section 213(b) of the FLSA.  The Ninth Circuit’s ruling is at odds, as it acknowledged, with several other courts, including the Fourth Circuit, Fifth Circuit, and the Supreme Court of Montana.  Given this discrepancy, the Supreme Court will hear the case yet again to hopefully put this topic to rest by issuing a final resolution.

In the meantime, there is a clear ambiguity in how auto dealers should classify employees in service advisor type roles.  Until this case is resolved, auto dealers who wish to classify service advisors as exempt from overtime should consider the applicability of Section 7(i) of the FLSA.  That section provides an overtime exemption applicable to employees who are employed by a retail or service establishment and are paid primarily on a commission basis.