Varying LGBT Laws Underscore Importance of Local Employment Laws (Updated)

By Robert G. Chadwick, Jr., Managing Member, Seltzer Chadwick Soefje & Ladik, PLLC

Until recently, North Carolina law broadly prohibited discrimination in private employment on the basis of “sex”, and did not foreclose a private right of action by an aggrieved person. On March 23, 2016, this law was amended to change “sex” to “biological sex”, and to expressly foreclose a private right of action based upon any protected category, including race, religion, color, national origin, age or handicap. The new legislation also purports to supersede and preempt any local government ordinance which conflicts with this amendment.

Along with a November 3, 2015 voter defeat of a Houston anti-discrimination ordinance, the new North Carolina law is a setback for LGBT (Lesbian, Gay, Bisexual & Transgender) advocates who had enjoyed previous success in obtaining legal protections from bias in private employment. For three important reasons, these events have also served to highlight the inconsistency of employment laws to which private employers with multiple locations can be subject.

No Express LGBT Obligations Exist for Private Employers under Federal Law

As long as they employ the requisite number of employees, private employers may not discriminate against applicants or employees based upon age, race, color, national origin, citizenship, religion, disability, genetic information or military service. No such express protections exist for sexual orientation or sexual identity. First introduced in Congress in 1994, the Employment Non-Discrimination Act (“ENDA”), seeks to add sexual orientation and gender identity to the list of federally protected categories. To date, the ENDA has not received the requisite support of Congress for passage.

Merely being gay or transgendered, therefore, does not entitle an applicant or employee to seek remedies for discrimination under federal law. Indeed, most federal courts have rejected arguments that sexual orientation and gender identity are federally protected categories. Remedies for discrimination under federal law, therefore, are available only if a claimant shows membership in one of the protected categories listed above.

In this regard, the Equal Employment Opportunity Commission (“EEOC”) interprets the prohibition against sex discrimination in Title VII of the Civil Rights Act of 1964 (“Title VII”) to implicitly include both sexual orientation and gender identity. Specifically, the agency has maintained Title VII protects gay and transgendered individuals who can demonstrate they were subject to discrimination, not because they are gay or transgendered, but because their conduct does not conform to traditional male or female stereotypes. The first lawsuits by the agency alleging sexual orientation discrimination were filed in March 2016.

Obviously, proving that an employer was motived by a specific gender stereotype presents an evidentiary hurdle which would not otherwise be faced if discrimination based upon sexual orientation or gender identity was expressly proscribed by federal law. Accordingly, such claims have met with mixed results in federal court.

 LGBT Obligations for Private Employers Vary By State

Nineteen states and the District of Columbia have laws expressly barring discrimination by employers based upon sexual orientation and gender identity: California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, Oregon, Rhode Island, Utah, Vermont and Washington. Three states have laws making unlawful discrimination in private employment based upon sexual orientation: New Hampshire, New York and Wisconsin.

Texas is one of 28 states which have no express statewide protections for private employees based upon sexual orientation or sexual identity. The other states are Alabama, Alaska, Arizona, Arkansas, Florida, Georgia, Idaho, Indiana, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Montana, Nebraska, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Virginia, West Virginia and Wyoming.

Absent a preemptive State law, LGBT Obligations for Private Employers May be Also Imposed by Municipal Ordinance

Even where statewide protections exist, some municipalities have enacted their own LGBT anti-discrimination ordinances for private employers. These municipalities include Baltimore, Boston, Chicago, Denver, Los Angeles, Milwaukee, Minneapolis, New York, San Francisco and Seattle.

That a state has no express protections for private employees based upon sexual orientation or sexual identity, moreover, does not necessarily mean that employers in the state can breathe easy. In many of the 28 states listed above, municipalities have enacted LGBT ordinances which cover private employers. These municipalities include Atlanta, Cincinnati, Cleveland, Columbus, Detroit, Indianapolis, Kansas City, New Orleans, Orlando, Philadelphia, Phoenix, Pittsburgh, St. Louis and Tampa.

In Texas, Austin, Dallas, Fort Worth and Plano have each enacted a LGBT ordinance which includes prohibitions not otherwise imposed by federal or state law. As long as they employ the requisite number of employees, private employers in these cities may not discriminate against applicants and employees on the basis of sexual orientation; gender identity is also protected in the Austin, Fort Worth and Plano ordinances.

In North Carolina, however, the ability of municipalities to enforce ordinances barring LGBT discrimination by private employers has now been thwarted by the amendments passed on March 23, 2016. An ordinance passed by a municipality in the future barring any type of discrimination in private employment is thus subject to dismissal due to preemption by state law.

Takeaway For Private Employers

Especially for private employers with multiple locations, familiarity with state and municipal laws is critical to a complete understanding of all the legal obligations owed to employees. Varying LGBT obligations is but one example of how such obligations can differ by locality.

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Will New DOL Overtime Rules Result in a Spike in Collective Actions?

By Robert G. Chadwick, Jr., Managing Member, Seltzer Chadwick Soefje & Ladik, PLLC

The financial stakes in a collective action under the Fair Labor Standards Act (“FLSA”) dwarf many other types of employment litigation. These stakes entail personal liability for an employer’s leaders.  These stakes are predicted to skyrocket in 2017 when new overtime rules unveiled on May 16, 2016 by the U.S. Department of Labor  (“DOL”) become effective.  U.S. businesses, as well as their individual leaders, should thus be concerned about their vulnerability to a potential spike in FLSA collective actions in 2017.

For a multitude of reasons, collective actions under the FLSA, which governs minimum wages and overtime pay, have long held a unique appeal for plaintiff’s attorneys. First, the starting point for a collective action can be a suit brought by a single plaintiff brought on behalf of himself and “others similarly situated.” To join the suit, other potential claimants need only (1) show they are similarly situated to the plaintiff, and (2) file a written consent with the court. This procedure differentiates collective actions from class actions which generally have more complex procedural requirements.

Second, with only a minimal showing, a court will assist plaintiff’s counsel in notifying all potential claimants of the opportunity to join the collective action. This assistance generally includes an order directing the employer to provide the names and addresses of current and former employees who fit the definition of “similarly situated. This assistance also entails approval of a written notice to be mailed to potential claimants and/or posted on employee bulletin boards at the employer’s workplaces. An approved notice typically consists of a description of the suit, the right to join the suit, the procedure for joining the suit, and the rights against retaliation protected by the FLSA.

Third, the financial stakes of a FLSA collective action can be astronomical, especially if the number of plaintiffs is in the hundreds or thousands. The Act allows for the recovery of unpaid wages going back two years for all violations, and three years for willful violations. The Act also allows for the recovery of double (or liquidated) damages and attorney’s fees for successful claimants. An employer sued under the FLSA also bears the cost of defending the collective action.

Fourth, predicting the outcome of a FLSA collective action can often be elusive. The analysis of whether a claimant has been paid in accordance with the Act can be fact-intensive and/or dependent upon ambiguous standards. The burden of proof as to the primary issue in dispute, moreover, is not always be borne by the plaintiffs. Indeed, the burden of proving that a plaintiff is exempt from the minimum and overtime pay requirements of the Act is borne by the employer. The cost of meeting this burden can, itself, be astronomical.

Fifth, the FLSA allows for an employer’s agents to be named individually as defendants in a collective action. Naming an agent as an individual defendant in a FLSA collective action is perceived by many plaintiff’s attorney as a viable strategy for (1) obtaining, in return for a settlement, incriminating testimony by the agent regarding the employer, or (2) pressuring the agent to reach a settlement on behalf of the employer. Agents routinely named as defendants for these purposes include chief executive officers, chief financial officers, corporate counsel, human resources officials, and immediate supervisors.

Finally, a large settlement may be a bitter pill for an employer to swallow but may ultimately be a better alternative to costly and protracted litigation which the employer may lose. In February 2015, for instance, Publix Supermarkets, Inc. agreed to pay $30 million dollars to settle a collective action brought by 1,580 current and former department and assistant department managers seeking overtime pay under the FLSA. Apparently Publix determined a $30 million settlement was preferable to the cost of meeting and/or losing the burden to prove the department and assistant department managers were exempt from the overtime requirements of the Act.

Ultimately, therefore, the determination by a plaintiff’s attorney to file a FLSA collective may not be primarily based upon actual evidence of violations of the Act. Rather, the determination may be primarily based upon facts indicating the employer is vulnerable to a FLSA collective action. Such facts may entail inadequate time-keeping procedures, or inadequate proof that employees are actually performing exempt duties under the Act.

Lest there be any doubt about the appeal of FLSA collective actions, statistics released in March 2016 by the Administrative Office of the U.S. Courts (“AOUSC”) confirm that more federal suits claiming FLSA violations –8,781 – were filed during the 12-month period from September 30, 2014 through September 30, 2015, than any comparable 12-month period in recorded history. It is anticipated even more FLSA suits will be filed during the 12-month period from September 30, 2015 through September 30, 2016.

So why may there be a spike in FLSA suits in 2017 when the new overtime rules unveiled this week by the DOL become effective? The answer is that the new rules will significantly tighten the overtime pay exemptions currently in place for administrative, executive, professional, computer and outside sales employees. The projected impact of the new rules is that approximately 4.2 million workers will no longer qualify for these exemptions. History shows the last time the DOL modified the rules governing these overtime pay exemptions in 2004, the affect on FLSA suits was swift and dramatic. According to AOUSC statistics, FLSA suits rose 31.5% during the 12-month period from September 30, 2003 through September 30, 2004, and another 12% during the 12-month period from September 30, 2004 through September 30, 2005. Apparently, the uncertainty provided by untested rules supplies yet another appealing reason for a plaintiff’s attorney to file suit.

So what does a potential spike in FLSA suits mean for employers? The stakes of being vulnerable to collective actions will rise even higher. For such employers, it may no longer be adequate to conduct audits of compensation procedures through human resources professionals, measured against the requirements of the FLSA. Rather, it may be necessary to conduct audits of compensation procedures through legal counsel, measured against the requisite evidentiary burdens and stakes of a collective action. Otherwise, the only question which the employer may face in 2017 is as to the size of the settlement check to write to plaintiff’s counsel.

Remember Microsoft: The Need for Effective Risk Management as to Contract Employees

By Robert G. Chadwick, Jr., Managing Member, Seltzer Chadwick Soefje & Ladik, PLLC

The number of workers supplied to businesses by staffing agencies has been steadily increasing for some time. According to the American Staffing Association, “[e]very day staffing businesses send three million employees to work in America’s offices, factories, hospitals, warehouses and other worksites –virtually every place that people work, staffing employees are on the job.” The Bureau of Labor Statistics predicts this number will reach four million by 2022.

The reasons for a company to forego regular employees in favor of staffing agency employees include flexibility, time, cost and expertise. For many companies, these benefits offset the mark-up charged by staffing agencies.

As companies have learned over the years, however, a staffing agency arrangement does not necessarily determine who the legal employer of a contract worker is. Depending upon the situation, a contract worker may be legally regarded as an employee of the staffing agency, an employee of the host company, or both. If the host company is the contract worker’s sole or joint employer, it is not necessarily shielded by the staffing agency arrangement from potential liability to the worker under applicable employment laws. Furthermore, if the host company is the worker’s sole or joint employer, it must include the worker when determining whether it employs the requisite number of employees to be subject to certain employment obligations.

One of the more infamous examples of the legal risks faced by companies who use staffing agency employees is Vizcaino v. Microsoft Corp., a federal class action brought in 1992 alleging improper denial of benefits under the software company’s Employee Stock Purchase Plan (“ESPP”). The claimants, however, were not regular employees of Microsoft. Instead, the potential class was made of thousands of workers classified by the company as independent contractors (sometimes called freelancers) or temporary agency employees (also called temps). Protracted litigation resulted in a court opinion that the freelancers and temps were common law employees of Microsoft, which was sufficient to be participants in the company’s ESPP. In 2000, Microsoft agreed to pay $97 million to settle the class action.

In recent years, federal government agencies have raised the legal stakes even further for companies who use procure workers through staffing agencies. On April 29, 2013, the Occupational Safety & Health Administration (“OSHA”) launched the Temporary Worker Initiative as part of “a concerted effort using enforcement, outreach and training to assure that temporary workers are protected from workplace hazards.” According to OSHA News Releases, more than 50 citations addressing temporary workers have been issued by the agency against “host employers” and/or “staffing agencies” since April 29, 2013.

On August 27, 2015, a decision by the National Labor Relations Board (“NLRB”) in Browning-Ferris Indus. Of California, Inc. found its previous joint employer standard had failed to keep pace with “the recent dramatic growth in contingent employment relationships.” The NLRB announced a new standard, which is currently pending review by the D.C. Court of Appeals, which makes it easier to show that client companies are joint employers of workers supplied and paid by staffing agencies. The new standard paves the way for joint collective bargaining responsibility for a client company and staffing agency as to contract workers.

On January 20, 2016, the Wage & Hour Division of the U.S. Department of Labor (“DOL”) released an Administrator’s Interpretation which identifies scenarios under which a business and a staffing agency can share joint responsibility to pay minimum and overtime wages to staffing agency employees. The DOL also published a new Fact Sheet addressing joint employer coverage under the Family & Medical Leave Act.

There are other potential liabilities undertaken by companies with contract employees. As early as 1997, the Equal Employment Opportunity Commission (“EEOC”) published guidance as to the application of federal employment discrimination laws to contingent workers placed by temporary employment agencies and other staffing firms. This guidance was updated by the EEOC in 2000 to address the unique issues presented by the Americans with Disabilities Act.

Even as they enjoy the benefits of staffing agency arrangements, therefore, companies must be mindful to manage the legal risks presented by such arrangements. The terms of the written contract with a staffing agency are certainly a good starting point, but should not be the sole focus, of this risk management process. Even a well-drafted contract cannot insulate a company from (1) responsibilities which cannot legally be delegated or indemnified by contract, (2) non-monetary judgments or decrees, (3) the risk of insolvency of the staffing agency, or (4) the up-front expenses which may need to be incurred to enforce the contract.

The degree of control possessed over contract workers may also be addressed by a company but, again, should not be over-valued as a risk management option. Separate management structures by a host company and staffing agency were insufficient to foreclose a finding of joint employer responsibility in the NLRB’s decision in Browning-Ferris Indus. of California. The “ultimate” right of control as to the workers was found to still lie with Browning-Ferris.

Rather, to be effective, a company’s risk management efforts as to contract workers must be similar to the risk management efforts applicable to its regular employees. Specifically, the company must adopt processes which empower and protect the company through interactions and communications with the workers. For a potential legal claim, these interactions and communications may ultimately be the difference between a finding in favor of the worker and a finding in favor of the company. Similarly, for a union-organizing campaign, these interactions and communications may be the difference between a union victory and a union defeat.

The threat of increased government scrutiny and legal liability may not diminish the growing popularity of staffing agency arrangements. History, however, teaches that blindly reaping the benefits of staff agency arrangements without managing the risks of such arrangements can have dire financial consequences. Remember Microsoft.