Department of Labor Clarifies Stance on Still-Pending Overtime Rule

By James Pieper

In 2016, a dramatic overhaul of the rules for eligibility and payment of overtime under the Fair Labor Standards Act (FLSA) was on the verge of taking effect before being halted by an injunction issued by a federal judge.

With a new administration taking over the Department of Labor, the status of the overtime revisions has been uncertain.  Nor was it known whether the Department would defend its authority to revise the rules in the subject litigation.

In a brief filed on June 30, the Department’s new leadership finally provided some clarity.  The Department defended its legal authority to adopt a new rule (as had been challenged by the plaintiffs), but did not defend the actual changes proposed by the prior administration.

Accordingly, although the rule remains in legal and administrative limbo, it is clear that it will not take effect in the form proposed in 2016.  Should the courts conclude that the Department does have authority to set the earning threshold (under which overtime must be paid to non-exempt employees) by administrative rule, then the new Department leadership will adopt a threshold lower than the amount of $47,476 that was set prior to the injunction.

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Department of Labor Withdraws 2016 Guidance on “Joint Employment”

By James Pieper

On June 7, 2017, new Secretary of Labor Alexander Acosta withdrew guidance provided under the prior administration by the Department of Labor’s Wage and Hour Division that had staked out a broader interpretation of when “joint employment” exists pursuant to the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

When two or more employers “jointly” employ an employee, the employee’s hours worked for all of the joint employers during the workweek are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due. Additionally, when “joint employment” is found to exist, all of the joint employers are jointly and severally liable for compliance with the FLSA and MSPA.

Under a traditional “common law” approach to employment, such “joint employment” would only exist if both employers are able to exercise “control” over the employee’s work.  The 2016 guidance sought to recognize “broader economic realities of the working relationship” and thus “cover some parties who might not qualify as [employees] under a strict application of traditional agency law principles.”

Accordingly, the guidance indicated that a number of scenarios that have not been historically considered “joint employment” – including, particularly, franchisee, staffing-agency and subcontractor relationships – might give rise to “joint employment” under the FLSA and MSPA, thus broadening the potential legal exposure for entities that had in the past not been considered joint employers.  The intent of the Department of Labor to implement such a broader interpretation is now withdrawn.

Although the action reduces some of the potential legal risk, particularly for franchisors and franchisees – who had actively sought the withdrawal of the guidance – the potential for “joint employment” remains a complex area requiring careful attention to potential penalties.

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New Minimum Wage Law in Iowa

Iowa enacted a new law, Iowa House File 295, that prohibits counties and cities from regulating certain employment matters that are regulated by the state. On a practical level, for employers, this will reduce some compliance burdens, including eliminating different minimum wage rates across the state. The law, which took effect on March 30, 2017, preempts city and county rules pertaining to minimum wage, employment leave, hiring practices, employee benefits, and similar matters that pertain to terms of employment. For example, Johnson County, Iowa, had a minimum wage of $10.10 an hour, but that has preempted with the new state law, which means the minimum wage in Johnson County is now $7.25 an hour. Now, regardless of the action taken by county or city government, including actions taken prior to the new Iowa law, the state law will preempt and govern practices by employers.

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Employers in Nebraska and Iowa Should be Aware of Changes in Pay Discrimination Lawsuits

A recent court case, stemming from an Iowa employer, may have a significant impact on how employers throughout Nebraska and Iowa view pay differential between employees. On April 3, 2017, the Eighth Circuit Court of Appeals ruled in Dindinger v. Allsteel, Inc., a case pertaining to gender based pay discrimination. In the ruling, the Court suggested that market forces and economic conditions, often used as an affirmative defense in pay discrimination claims, may not be sufficient as a defense without a clear connection. The result is that an employer may not be able to assert that economic conditions are the reason for pay differential between men and women without being able to show how the economic conditions caused the pay differential for the specific employees in question.

 

This case stems from an Iowa furniture manufacturer, where three female employees claimed gender based pay discrimination. As an affirmative defense, the business argued that market forces and economic conditions were the reason for the pay differential, not gender discrimination. This affirmative defense is often raised by employers and, generally, does not require a specific correlation between the economic condition and the employee. However, the Court in this case noted that to successfully argue the “factor other than sex” defense, the business must show how economic conditions directly resulted in the pay differential. For employers in the Court’s jurisdiction, including those in Nebraska and Iowa, an increased burden may exist when asserting the market forces affirmative defense and could necessitate taking action before any potential pay discrimination claims arise.

 

Employers should recognize the added challenge of defending pay discrimination lawsuits and, potentially, take preemptive action by auditing current pay and employment practices. A copy of the opinion can be found at the following link:  http://media.ca8.uscourts.gov/opndir/17/04/161305P.pdf

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Companies Accidentally Waiving Attorney-Client Privilege

In the digital age, most companies rely heavily on email to communicate, even with their attorney. Generally, attorney-client privilege will apply to these emails, but when the client forwards the email, questions about privilege can arise. As several cases in 2016 highlight, many employees will forward an attorney’s email without significant thought, but prior to forwarding the email, care should be taken to avoid inadvertently waiving privilege.

 

As highlighted by AU New Haven, LLC v. YKK Corp., No. 1:15­CV­3411­GHW, (S.D.N.Y. Sept. 28, 2016), when a company employee forwards an attorney communication to non-attorney employees, several rules will apply. As a default, generally, if the email is forwarded to employees of the company, the privilege will be retained. Similarly, if everyone receiving the email is deemed to have a common interest, even if not a direct employee, privilege is often retained. However, if one person doesn’t share the common interest, privilege is broken.  An example of broken privilege, in Newman v. Highland School District No. 203, 381 P.3d 1188 (Wash. 2016), the court refused to uphold privilege because the employee was no longer employed by the company. Thus, the court determined that privilege did not apply because the employee that received the communication was now a former employee.

 

Overall, these two cases highlight the fact specific nature of whether privilege is retained when an employee of a company forwards an email from the company’s attorney. Moreover, the determination of whether privilege was retained will be specific to the state. Thus, employees of a company receiving privileged communication should take steps to retain privilege, including having internal policies about forwarding emails from the company attorney.

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Department of Labor Delays Implementation of the Fiduciary Rule

Last year, the Department of Labor (“DOL”) issued a final rule, expanding the definition of a fiduciary, making many broker-dealers and insurance agents fiduciaries. This rule, issued April 2016, was set to become effective June 2016, but was then delayed until April 10, 2017, with certain provisions delayed until January of 2018. However, President Trump ordered a review of the new rule and the DOL issued another delay, of 60 days, to complete the review. With the delay, the expanded fiduciary definition will become effective June 9, 2017.

Under the rule, a person or firm that is deemed a fiduciary is required to act in the best interests of their clients. This includes an obligation to avoid conflicts of interests, or otherwise receive compensation that creates a conflict between the interests of the fiduciary and the client. The new rule poses several issues for certain professionals that will be deemed a fiduciary under the new rule. For example, sales commissions would be deemed a conflict of interest, creating an especially problematic situation for broker-dealers that engage in principal transactions with clients. However, the DOL recognized the issue and created several principal transaction exemptions, but the exemptions require additional burdensome steps. This issue, among others, are central to the review causing the rule to be delayed.

Despite this delay, and the DOL admitting the review will not be complete by June 9, 2017, the expanded definition of fiduciary will be implemented at the end of the 60-day delay. Therefore, broker-dealers, insurance agents, and others that will now be deemed a fiduciary, should be prepared for the additional requirements on June 9, 2017.

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New Year, New Requirements – Employers Must Now Use the New Form I-9

One of the changes the new year brought was a new version of I-9 Form.  Beginning on January 22, all employers should now use the newly revised version of the new I-9 Form for verifying employment eligibility.  The form may be found at https://www.uscis.gov/i-9

The latest version of the I-9 Form may be filled out on-line (although it still must be printed out, signed and retained).  The electronic version should help with reducing potential errors due to the new drop-down lists and on-line instructions.  The new I-9 Form can also simply be downloaded from the government website, if you would prefer.

As a reminder, employers are required to complete an I-9 Form for all new employees not later than the third business day of their employment.

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