This post was contributed by Adam R. Long, a Member in McNees Wallace & Nurick LLC’s Labor & Employment Practice Group in Harrisburg, Pennsylvania.

Many employers treat their sales employees as exempt from the Fair Labor Standards Act’s overtime and minimum wage requirements. Regardless of whether they pay them a salary, commissions, or some combination of both, employers often assume that all salespersons are exempt and not entitled to overtime. Depending on the circumstances, this assumption can be problematic and costly.

For example, a federal district court in Georgia recently approved the proposed settlement of an FLSA collective action brought against Russell Stover Candies by a class of "sales representatives." The plaintiffs in Carter v. Russell Stover Candies, Inc., No. 13-cv-1552 (N.D. Ga.) alleged that they and other sales representatives were misclassified as exempt and entitled to damages for unpaid overtime compensation. After the court conditionally certified a class of sales representatives, Russell Stover Candies agreed to pay $3.075 million to settle the collective action. The settlement included payment to 103 class members.

The FLSA and Pennsylvania Minimum Wage Act both contain overtime exemptions for bona fide outside sales employees and for employees paid commissions by retail or service establishments. Neither exemption will cover every employee labeled a salesperson, however. The outside sales exemption applies only if the employee’s primary duty is "making sales" and the employee is "customarily and regularly engaged away from the employer’s place of business." This exemption does not apply to "inside" salespersons, and sales made via telephone, mail, and the Internet do not qualify as outside sales. In addition, the commissioned employee exemption applies only to employees of "retail or service establishments" who are compensated in a manner that meets the exemption’s requirements. Simply paying an employee on a commission basis does not automatically make the employee exempt from the overtime requirements.

Misclassification of salespersons has been a fertile ground for both class-based litigation and DOL investigations in the last few years. To avoid such an unexpected and unpleasant experience, employers who treat sales employees as exempt should confirm that these employees qualify for one of the exemptions or consider making changes to their compensation practices.

This post was contributed by Adam L. Santucci, an associate in McNees Wallace & Nurick LLC’s Labor & Employment Practice Group in Harrisburg, Pennsylvania.

The National Labor Relations Board recently issued a somewhat surprising decision that provides useful guidance to employers facing employee misconduct. In Flex Frac Logistics, LLC, the Board found that an employee’s discharge for breaching the employer’s confidentiality policy was lawful, despite the Board’s finding that the confidentiality policy was unlawful.

In a prior decision, the Board found that the confidentiality policy was unlawfully overbroad because it prohibited or could be interpreted to prohibit employees from discussing wages, hours and other terms and conditions of employment. We have previously discussed with you the Board’s aggressive enforcement stance with respect to employer policies of all types. As part of that prior decision, the Board remanded to an Administrative Law Judge ("ALJ") the question of whether the employee’s termination pursuant to the confidentiality policy was also unlawful.

The ALJ held, and the Board affirmed, that the employer did not violate the National Labor Relations Act when it discharged the employee. Discipline pursuant to an unlawful policy is only unlawful if the employee violated the rule by engaging in protected activity under the Act, or by engaging in conduct that otherwise implicates the concerns underlying the Act. The Board found that even though the employee’s conduct implicated the concerns underlying the Act, her discharge was lawful because the employee deliberately betrayed the employer’s strong, expressly articulated confidentiality interests.

The Board noted that there was no dispute that the employer had a legitimate business interest in maintaining the confidentiality of the rates it charged its customers, and that the employer was harmed by the employee’s disclosure of that information. The Board found that it was clear that the employee was not discharged for engaging in protected activity but was instead discharged for deliberately violating the confidentiality policy. Importantly, the Board noted that the employer cited the employee’s interference with its operations as the reason for her discharge.

This decision was surprising to us given the Board’s strong defense of employee rights under the Act. But, as was previously discussed, there are some limits to the protections of the Act. The Flex Frac decision has a good discussion of the types of misconduct that will not be protected by the Act, even if the employer relied on an unlawful policy in taking disciplinary action against the employee.

Although helpful, employers should still work to ensure that their policies will withstand scrutiny under the Act, and that any disciplinary actions are carefully vetted for compliance.

This post was contributed by Gina E. McAndrew, a new associate in McNees Wallace & Nurick LLC’s Labor & Employment Practice Group in Scranton, Pennsylvania.

In a case which will interest public and private sector employers alike, American Federation of State, County and Municipal Employees, District Council 87 v. Pa. Labor Relations Bd., the Pennsylvania Supreme Court is poised to address important issues regarding the subcontracting of public sector bargaining unit work to private sector contractors.

The work in question is the work of the Luzerne/Schuylkill Workforce Investment Board ("WIB"), which was created under federal and state law to "increase local employment through the provision of educational training and services, which are paid for by federal funds." Previously, these duties were performed by the Luzerne County Workforce Investment Development Agency ("County Agency"), but the WIB decided to issue a Request for Proposals to explore whether a subcontractor should be hired to perform the services. The County Agency employees were represented by AFSCME (the "Union"), and the Union demanded to negotiate with the County regarding the potential subcontracting. The County did not respond to these demands and the WIB proceeded to issue the RFP.

The RFP indicated that the decision was subject to approval by both Luzerne and Schuylkill Counties’ Commissioners; however, the Commissioners did not act on recommendations forwarded by the WIB. The County Agency bid on these services, but was not recommended for or awarded either contract. The WIB proceeded to award contracts to bidders and enter into contracts with third-party contractors. Thereafter, the Union filed an unfair labor practice charge against Luzerne County for unilaterally subcontracting without bargaining.

A hearing examiner issued a Proposed Decision and Order, finding that the WIB was controlled by the County, and thus the County had committed an unfair labor practice. The hearing examiner determined that the chief elected officials directed the WIB to seek bids, the RFPs indicated the Commissioners had to approve the contracts, and that the WIB was required to act with the agreement of these officials on certain matters. However, the Pennsylvania Labor Relations Board reversed that decision, finding that the County did not control the WIB, as it was the WIB’s decision to subcontract, issue the RFPs, review bids, choose successful bidder(s) and enter into the contracts. As such, the Board found the County did not commit an unfair labor practice when a third party (WIB) made the decision to subcontract.

The Union appealed to the Commonwealth Court. In upholding the Board’s decision, the Court found no error in the Board’s factual conclusions that WIB independently decided to subcontract. The Court also noted that the County Agency attempted to retain its contracts by submitting a bid, as it had done at least once previously, and that the disbursement of funds was at the direction of the WIB. The Court held that although the chief elected official partners with the WIB to create a local plan and approves the budget, this does not mean that the local official controls the WIB. The Court concluded that WIB was "an independent third party not subject to the collective bargaining agreement" and its actions were "not attributable to the County."

However, the Court’s ruling was not unanimous. In his dissent, Judge Pellegrini, joined by Judge McGinley, opined that the Board erred in finding the County had not committed an unfair labor practice, as the County failed to negotiate to a bona fide impasse before subcontracting.  Judge Pellegrini disagreed with the majority’s ruling, reasoning that the WIB was part of County government, as its purpose was to "advise and assist" County officials and had no authority to enter into a contract authorizing the disbursement of funds; the County had control over the WIB based upon the facts of record, including that the RFPs indicated that decisions were subject to the Commissioners’ approval; and the WIB did not have a "separate legal status."

The Pennsylvania Supreme Court has agreed to hear this issue on appeal. The decision will likely have significant implications for public sector employers, and their various related and affiliated entities, as well as private sector organizations seeking to do business with these entities. Stay tuned for future updates on this important topic.

Earlier today, Harrisburg-based Federal District Court Judge John E. Jones, III, struck down Pennsylvania’s ban on same-sex marriage. In this landmark ruling, Jones concluded that "same-sex couples who seek to marry in Pennsylvania may do so, and already married same-sex couples will be recognized as such in the Commonwealth."

In 1996 Pennsylvania amended its Domestic Relations Code to limit marriage to opposite sex couples and prohibit the recognition of same-sex marriages. Today, that law was declared unconstitutional when Judge Jones held that "the fundamental right to marry as protected by the Due Process Clause of the Fourteenth Amendment to the United States Constitution encompasses the right to marry a person of one’s own sex" and that Pennsylvania’s gay marriage ban infringes upon that right. 

Judge Jones wrote that "certain citizens of the Commonwealth of Pennsylvania are not guaranteed the right to marry the person they love. Nor does Pennsylvania recognize the marriages of other couples who have wed elsewhere. . . . We now join the twelve federal district courts across the country which, when confronted with these inequities in their own states, have concluded that all couples deserve equal dignity in the realm of civil marriage."

Judge Jones also noted that "in over half of states including Pennsylvania, gay and lesbian individuals lack statewide, statutory protections against discrimination in housing and public accommodation, as well as in firing, refusal to hire, and demotion in private-sector employment." While Judge Jones’ ruling has no impact on state or federal employment discrimination laws, like last year’s United States Supreme Court decision in United States v. Windsor, this decision will have implications for Pennsylvania employers and their employee benefit plans.

Stay tuned to this blog for future updates.

This post was contributed by Stephanie Carfley, a Member in McNees Wallace & Nurick LLC’s Litigation and Injunction practice groups in Lancaster, Pennsylvania.

In a case of first impression for the appellate courts of this Commonwealth, the Pennsylvania Superior Court recently ruled in Socko v. Mid-Atlantic Systems of CPA, Inc. that language contained in an employment agreement entered into after commencement of employment, which indicated the parties’ "intent to be legally bound" was insufficient consideration to support a non-compete agreement. In reaching its decision, the Superior Court rejected the application of the Uniform Written Obligations Act ("UWOA"), which provides that a written agreement may not be avoided for lack of consideration if it contains language expressing the intent of the parties to be legally bound, in the context of an agreement containing a covenant not to compete. The Superior Court declined to follow the reasoning of a Pennsylvania federal court which previously had held that the UWOA applied to non-competition agreements and permitted enforcement of such agreements even in the absence of any additional consideration. In so holding, the Superior Court also clearly distinguished between the "valuable consideration" required to support a non-compete entered into after employment had commenced and the consideration that would support other types of contracts, i.e. continuation of at-will employment, contracts signed under seal and nominal consideration ($1.00).

The Superior Court’s ruling in Socko definitively resolves the issue of the insufficiency of "intent to be legally bound" language as consideration for a restrictive covenant agreement and offers employers and employees alike some clear guidance as to the "valuable consideration" required to uphold the validity of a non-compete entered into after the commencement of employment. Employers should keep this decision in mind when preparing non-compete agreements for current employees and when considering whether to hire an employee subject to a non-compete agreement.

This post was contributed by Tony D. Dick, an Attorney in McNees Wallace & Nurick’s Labor & Employment Practice Group in Columbus, Ohio.

Last month, in EEOC v. Ford Motor Company, the Sixth Circuit Court of Appeals (covering Tennessee, Kentucky, Ohio, and Michigan) held for the first time that employers may be required to permit employees to telecommute as a reasonable accommodation for a disability.  While the decision is not binding on employers in the Third Circuit (covering Pennsylvania, New Jersey, and Delaware), the case is significant for employers operating in the Sixth Circuit’s jurisdiction and beyond as it clearly signals a willingness to expand the traditional concept of what constitutes an employer’s “workplace” as modern technology continues to evolve.

Case Background

The plaintiff in the case, Jane Harris, worked as a “resale buyer” for Ford which essentially required her to act as an intermediary between steel suppliers and third-party companies that produced steel parts for Ford. According to Ford, while a significant amount of Ms. Harris’s work time involved communicating with steel suppliers and parts manufacturers over the phone and inputting information in Ford’s computer system, regular face-to-face interaction with other members of the resale team and steel suppliers was a necessary component of the position as well.

Unfortunately, the plaintiff suffered from Irritable Bowel Syndrome (“IBS”) which routinely caused her to experience fecal incontinence and have accidents at work. As a result of her IBS, the plaintiff eventually requested that she be permitted to work from home up to four days a week as an accommodation for her condition. Ford management subsequently determined that Ms. Harris’s request was not reasonable in light of the fact that her position regularly required in-person contact with her fellow employees and Ford clients and denied her request. However, Ford proposed several alternative accommodations, including moving her desk closer to the restrooms and transferring her to another job within the company that would be more suitable for telecommuting. Ms. Harris rejected both of these proposed alternative accommodations and instead filed a charge of discrimination with the EEOC. The EEOC eventually initiated a lawsuit on Ms. Harris’s behalf raising claims of disability discrimination and retaliation in violation of the Americans with Disabilities Act.

Words of Caution for Employers

In reversing the lower court’s grant of summary judgment in favor of Ford, the Sixth Circuit determined that the EEOC presented sufficient evidence that would allow a jury to conclude that Ms. Harris could perform the essential functions of her job from home. Although the Court recognized that regular attendance at the employer’s physical workplace is undoubtedly an essential function of most jobs, due to advances in technology, “attendance” can no longer be assumed to mean an employee’s actual presence at the physical workplace. As the Court noted, “[t]he world has changed since the foundational [federal appeals court] opinions regarding physical presence in the workplace were issued: teleconferencing technologies that most people could not have conceived of in the 1990s are now commonplace. Therefore, we are not persuaded that positions that require a great deal of teamwork are inherently unsuitable to telecommuting arrangements.” The Court went on to hold:

"When we first developed the principle that attendance is an essential requirement of most jobs, technology was such that the workplace and an employer’s brick-and-mortar location were synonymous. However, as technology has advanced in the intervening decades, and an ever-greater number of employers and employees utilize remote work arrangements, attendance at the workplace can no longer be assumed to mean attendance at the employer’s physical location. Instead, the law must respond to the advance of technology in the employment context, as it has in other areas of modern life, and recognize that the ‘workplace’ is anywhere that an employee can perform her job duties."

Takeaways

As the Sixth Circuit’s opinion makes clear, it is no longer the case that jobs suitable for telecommuting are extraordinary or unusual. As a result, employers should be extra cautious when an employee requests telecommuting as a reasonable accommodation and not dismiss the request out of hand. Rather, an employer should use the interactive process to discuss and explore with the employee the aspects of the job that the employer believes could not be performed satisfactorily or would not be workable in a telecommuting context. And, carefully record the employee’s agreement or disagreement with these issues. If the request is rejected, the employer should clearly spell out in writing which specific duties of the job make telecommuting impractical. In addition, employers may want to re-examine their job descriptions to ensure they clearly and accurately articulate how job duties are best carried out.

Previously we told you that the U.S. Equal Employment Opportunity Commission (EEOC) was suing an Alabama insurance company for allegedly discriminating against African American job applicants because the company’s grooming policy prohibited dreadlocks. Last week, an Alabama federal judge dismissed the EEOC’s intentional race discrimination claim that was brought against Catastrophe Management Solutions (CMS).

As you may recall, CMS made a conditional offer of employment to an African-American applicant provided that the applicant cut off her dreadlocks. CMS had a policy that stated "All personnel are expected to be dressed and groomed in a manner that projects a professional and businesslike image while adhering to company and industry standards and/or guidelines . . . hairstyles should reflect a business/professional image. No excessive hairstyles or unusual colors are acceptable…." When the applicant refused to cut her dreadlocks, CMS withdrew the offer. The EEOC alleged that CMS’s policy violated Title VII of the Civil Rights Act of 1964 because the policy was racially discriminatory and that CMS refused to hire the applicant because she was black.

Judge Charles R. Butler, Jr. concluded that the EEOC failed to allege sufficient facts to support a plausible claim of intentional discrimination, finding that one’s grooming habits are not immutable characteristics (such as sex or race) and are thus not protected by Title VII. The EEOC argued that the definition of race should encompass both physical and cultural characteristics. Judge Butler rejected this argument and cited numerous cases finding that hairstyles like dreadlocks and cornrows are not immutable characteristics unique to a particular race or group and are thus not protected by Title VII. Per Judge Butler, "A hairstyle, even one more closely associated with a particular ethnic group, is a mutable characteristic." However, Judge Butler made it clear that if the EEOC alleged that the policy was applied in a discriminatory manner (if for example the policy was only applied to African American applicants and employees), the EEOC could move forward with its claim. Employers with grooming policies should remember it is important that they enforce them equally and consistently across the board.

Recall that the applicant here never claimed she was wearing her dreadlocks because it was consistent with her religious beliefs. Had she made the claim, CMS likely would have had to allow the applicant to keep her dreadlocks because employers must reasonably accommodate an employee’s religious beliefs and practices unless the accommodation would be an undue hardship for the employer’s business operations.

Employee hairstyles continue to be a hot topic. For example, the United States Army recently released new regulations banning a number of hairstyles, prompting claims of race discrimination and the ire of many enlisted members. Stay tuned as the Alabama case is not the first "dreadlocks" case we have seen and it is likely not the last.

This post was contributed by Tony D. Dick, an Attorney in McNees Wallace & Nurick’s Labor & Employment Practice Group in Columbus, Ohio.

On Tuesday, the U.S. Supreme Court ruled unanimously (Justice Kagan recused herself) in United States v. Quality Stores, Inc., Case No. 12-1408 that severance payments made to employees who were involuntarily terminated are taxable wages under the Federal Insurance Contributions Act (FICA). The decision overturns a previous ruling from the Sixth Circuit Court of Appeals in favor of Quality Stores which was seeking a $1 million tax refund from the IRS based on its claim that severance payments were not covered by FICA.

At issue was the definition of “wages” under FICA. Under federal tax law, “wages” are defined as “all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash.” Quality Stores contended that its severance payments to its terminated employees fell outside the definition of “wages” and constituted supplemental unemployment compensation benefits (SUBs) which are not considered taxable under the Internal Revenue Code.

In support of this contention, Quality Stores pointed to 26 U.S.C. § 3402(o) – a statute which deals with income tax withholdings – which provides that SUBs “paid to an individual . . . shall be treated as if it were a payment of wages by an employer to an employee….” According to Quality Stores, this language established that SUBs were not actually wages, but were only to be treated "as if" they were wages for income tax withholding purposes and since FICA uses a substantially similar definition, SUBs should not be found to be wages for FICA tax purposes.

The Supreme Court ultimately disagreed with Quality Stores’ position. In the unanimous opinion written by Justice Kennedy, the Court held that FICA defines wages broadly as “all remuneration for employment,” and includes “not only work actually done but the entire employer-employee relationship for which compensation is paid.” This would include the severance payments at issue. In further support of its holding, the Court also referenced the legislative history of FICA and cited to 26 U.S.C. 3121(a)(13)(A) which exempts from “wages” severance payments provided “because of . . . retirement for disability.” The Court reasoned that the fact that FICA contained this and other exemptions was further support for the proposition that severance payments are wages. Otherwise, the exemption would be superfluous.

After the Sixth Circuit’s ruling in this case, many employers filed refund claims for FICA taxes previously paid on severance payments. Those claims are now moot. Any employer who stopped withholding FICA taxes on severance payments in reliance on the Sixth Circuit’s earlier ruling will likely need to amend previous returns to pay the outstanding FICA taxes.
 

Jennifer E. Will, a Member in McNees Wallace & Nurick LLC’s Labor & Employment Practice Group in Harrisburg, Pennsylvania was recently featured on WGAL News Channel 8 in a feature regarding employers’ rights to discipline employees testing positive for marijuana. Ms. Will commented on, among other things, an employer’s right to take action against an employee, even if marijuana use was legal, such as recreational use in states like Colorado.

 

//www.youtube.com/embed/wwwIbKimiyU?rel=0

Stop me if you have heard this one, an employee was upset about his pay rate…

Seriously, an employee upset about his pay was at the heart of a recent decision issued by the National Labor Relations Board that explored the protections afforded by the National Labor Relations Act ("Act"). The employee in question was hired to perform waterproofing duties on a project at a university in Ohio. The project was a public project, and therefore, it was covered by the applicable prevailing wage laws. The employee, however, was not happy about the prevailing wage rate that he received on the project, and essentially complained about his wage rate throughout the entire time he spent working on the project. In fact, as the foreman testified, the employee complained about basically everything during his brief tenure with the employer.

No Good Deed Goes Unpunished
According to the foreman, the employee "whined" and "complained" throughout the project about nearly everything. The employee apparently constantly voiced his opinion that the company was doing "everything wrong." (You may have heard that one before too!) As it turns out, the employee did receive some pay increases during the term of the project. However, he often told other employees about the wage increases, which led to some discontent and caused at least one long term employee to quit (apparently feeling that he should have also received wage increases even without having to complain). Eventually, the payroll clerk wrote the employee a note on his pay stub that stated, "Please keep your pay to yourself."

Under the Act, employees are permitted to engage in concerted protected activity. This includes discussions regarding terms and conditions of employment, such as wages. Accordingly, the Board quickly concluded that the handwritten statement on the pay stub was a direct restriction on protected activity, and therefore, a violation of the Act.

Some Bad Deeds need not be Forgiven
The employee was laid off at the end of the project, and proceeded to file multiple complaints against the company, including a complaint to the university that the work performed on the project was "shoddy." Before the Board, the employee argued that his termination was retaliation for engaging in protected activity, i.e. complaining about his wages. The company, however, argued that the employee was terminated because the project came to an end and it had no more work for the employee. The Board agreed with the company. The Board concluded that there was no evidence to suggest that the employee’s complaints about his pay were the reason for his lay off. The Board noted that the employee had received pay increases after he complained, and that several other employees were laid off at the conclusion of the project.

The employee also argued that the fact that the company failed to rehire him for other projects was in retaliation for his protected activity. The company argued that it would not rehire the employee because of the allegations that he made to the university regarding the quality of the company’s work. The Board actually sided with the company on this one, finding that its explanation was credible, and that the statements about the quality of work in this instance were not protected activity.

It seems that employers are regularly finding themselves in hot water with the Board as a result of overly restrictive policies and procedures. Even in situations like the present case, where there were obvious negative consequences following the employee’s discussion of his wage rate (another employee quit), the Board will find a violation of the Act. In fact, the Board noted that the motivation for the restriction on the employee’s conduct was "irrelevant."

Nonetheless, for some of us it is refreshing to be reminded that there are some limits to the protections of the Act. Indeed, not all "complaining and whining" is protected.