On April 30, 2018, a Philadelphia federal judge issued an opinion striking down a portion of Philadelphia’s salary history ban. Salary history bans have become increasingly common tools used by various cities and states around the country attempting to combat wage disparities that exist across genders, races, and ethnicities.  The Philadelphia law consists of two parts: (i) an inquiry provision, which addresses employers asking candidates about their salary history; and (ii) a reliance provision, which makes it illegal for companies to rely on salary history in making hiring decisions. The law, like many others around the country, provides punitive penalties for employers who violate the law, and harsher penalties for repeat offenders.

Judge Goldberg’s ruling struck down the inquiry provision on First Amendment grounds, but upheld the reliance provision. As a result, employers face an interesting dilemma.  Philadelphia employers are permitted to ask about an applicant’s salary history, but they are prohibited from relying on that information when determining wages or offering employment.

Even though the decision struck down part of the law, it may still be prudent for Philadelphia employers to refrain from asking applicants about their salary history. Any employer that asks candidates about their prior salary history during the hiring process might have a more difficult time proving that (i) it did not consider the salary history information during the hiring process, and (ii) any wage disparity that exists between protected classes was the result of permissible reasons, not due to past salary information.

Although this decision only affects Philadelphia employers, as more of these laws become enacted across the country, more will face challenges in court. Many of the decisions will turn on different factors, but other judges may look to Judge Goldberg’s ruling for guidance.  We’ll be sure to keep you up to date on the legal trends of the salary history bans, as well as any appeal that may result from this immediate decision.

Everyone knows that employers covered by the Age Discrimination in Employment Act (ADEA) cannot intentionally refuse to hire job applicants because they are 40 years old or older, and that it is generally unlawful to post a job advertisement that says “people over the age of 40 need not apply.” Such practices constitute impermissible “disparate treatment” under the statute.  But what about age-neutral hiring practices that may have a “disparate impact” on older applicants, such as posting advertisements for candidates with only “one to three years of experience,” or recruiting for entry-level professional positions exclusively on university campuses?  These and other common practices may also be unlawful, according to a recent decision by the U.S. Court of Appeals for the Seventh Circuit.

The Supreme Court held in Smith v. City of Jackson, 544 U.S. 228 (2005), that the ADEA prohibits employment practices that have a disparate impact on existing employees, unless the employer can prove that the practice is based on a “reasonable factor other than age.”  But whether the ADEA similarly protects job applicants from disparate impact remains unsettled.  The ADEA’s disparate impact provision (29 U.S.C. § 623(a)(2)) refers to “employees,” unlike the statute’s disparate treatment provision (29 U.S.C. § 623(a)(1)), which refers more broadly to “individuals.”  This difference led the Eleventh Circuit, sitting en banc, to conclude in Villareal v. R.J. Reynolds Tobacco Co., 839 F.3d 958 (11th Cir. 2016) (en banc), cert. denied, 137 S. Ct. 2292 (2017), that age-neutral recruiting practices that merely disparately impact older applicants do not violate the ADEA.

Parsing the statutory language differently, the Seventh Circuit on April 26, 2018, became the first federal court of appeals to hold that job applicants can, in fact, bring disparate impact claims under the ADEA. In Kleber v. CareFusion Corp., No. 17-1206 (7th Cir. Apr. 26, 2018), a divided panel reinstated the claim of a 58-year-old attorney with extensive experience who applied and was not selected for an in-house job advertised as requiring “3 to 7 years (no more than 7 years) of relevant legal experience.”

The Seventh Circuit’s ruling is potentially far-reaching, since other common hiring practices, including internship programs for recent graduates, and recruiting at colleges and universities, also have a tendency to disadvantage older workers. Whether these practices, or “experience caps” such as the one at issue in Kleber, can be justified by a “reasonable factor other than age” (RFOA) remains to be seen.  Under the EEOC’s regulations, the RFOA defense requires proof that a practice is “both reasonably designed to further or achieve a legitimate business purpose and administered in a way that reasonably achieves that purpose,” in light of all the circumstances, including the potential harm to older workers. 29 C.F.R. § 1625.7(e).

Kleber generated a lengthy majority opinion as well as a dissent, and CareFusion has petitioned the full Seventh Circuit for en banc review. Villareal produced no less than four separate opinions at the en banc stage.  Although the Supreme Court denied certiorari in Villareal, the circuit split created by Kleber, if it persists, makes it more likely that the Court will take up the question of disparate impact protections for older applicants under the ADEA in the future.

Kleber applies only within the Seventh Circuit (Illinois, Indiana, and Wisconsin).  However, one California district court has also held that job applicants can bring  disparate impact claims under the ADEA, see Rabin v. PricewaterhouseCoopers LLP, 236 F. Supp. 3d 1126 (N.D. Cal. 2017), and  the Equal Employment Opportunity Commission (EEOC), which has nationwide jurisdiction, has taken the same position.  Employers throughout the country should therefore examine their hiring practices to determine whether practices that tend to disadvantage older workers are supported by a legitimate business purpose and are otherwise reasonable.

California is the birthplace of many of the best-known apps credited – or blamed, depending on your point of view – with fueling the gig economy. But the California Supreme Court issued a ruling on April 30, 2018 that will make it extremely difficult for gig entities and others to treat workers as independent contractors.

The Court issued a lengthy opinion in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (Case No. S222732).  After describing the history and way in which “employees” and “employers” have been defined in California, the Court adopted a simplified test that tilts toward treating workers as “employees.”  The so-called “ABC test” presumes all workers are employees unless the business can demonstrate all of the following: (a) the “worker is free from the control and direction of the hirer in connection with the performance of the work” under the contract and in fact; (b) the “worker performs work that is outside the usual course of the hiring entity’s business;” and (c) the worker is “customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”

The test will effectively keep an independent plumber (and presumably, your outside counsel) from being considered an employee. But, in light of this decision, workers who perform tasks that are part of the company’s usual business operation will now mostly likely be considered an employee – obligating the company to comply with wage-and-hour requirements, unemployment insurance and workman’s compensation obligations, and employer-side taxes.

Prior to Dynamex, there had been disagreement in California over the proper test, but California courts (and federal courts sitting in diversity) generally applied a multifactor test that was broader than but similar to the federal economic realities standard.  All potentially relevant factors could be considered, in light of the totality of the circumstances, on a case-by-case basis.  The Supreme Court concluded that a more bright-line rule was in order, and so, California joins New Jersey and Massachusetts in creating a presumptive rule against independent contractor status.

The change means that thousands of California workers may now bring claims that they have been misclassified as independent contractors. And the economy that may take the biggest hit is California’s gig economy because it relies heavily on workers that are classified as independent contractors.

Whether in the gig economy or not, all California employers should take a hard look at the independent contractors currently providing services and determine whether they should be reclassified as employees in light of this groundbreaking decision.

A full copy of the Dynamex opinion can be found at: http://www.courts.ca.gov/opinions/documents/S222732.PDF

Last month, the U.S. Department of Labor (DOL) Wage and Hour Division’s Payroll Audit Independent Determination (PAID) program went into effect. The pilot program allows employers to quickly pay back wages to workers in full for any accidental overtime or minimum wage violations of federal law under the Fair Labor Standards Act (FLSA). We previously wrote about what questions the PAID program left open (here), and, at least for now, the question of how this would affect New York state law has been closed shut.

Shortly after the federal PAID program went into effect, New York Attorney General Eric Schneiderman released a strong statement to employers in New York that his office would “continue to prosecute labor violations to the fullest extent of the law, regardless of whether employers choose to participate in the PAID program.” He reasoned that State investigations into wage and hour violations would continue because “the PAID program allows employers to avoid any consequences for committing wage theft.”

New York and Federal law not only require employers to pay employees any unpaid wages, but the laws establish additional liquidated damage penalties on top of any unpaid wages. Employers who enroll in the PAID program may avoid Federal FLSA liquidated damages, but AG Schneiderman’s statement ensures that this won’t be the case for New York state labor law violations and vowed to continue bringing lawsuits for wage and hour violations under New York state law. Guidance on the U.S. DOL’s Wage and Hour Division’s website doesn’t provide any help, either, stating that any releases signed by employees in exchange for payment would be “limited to the potential violations for which the employer had paid back wages.”  In other words, any release of claims under the Federal PAID program likely would not cover New York Labor Law claims, and the New York Attorney General Schneiderman has made it clear that his office would investigate “to the fullest extent of [state] law.”

New York employers are officially on notice. By opting in to the Federal PAID program, New York employers may inadvertently open the back door to a New York State wage/hour investigation. Before making the decision to self-report, any employer with employees in the state of New York is urged to seek legal advice.

Employers and employees entering into separation or settlement agreements have traditionally agreed to nondisclosure clauses that prohibit disclosure of the agreement or the circumstances leading to its execution. Although these clauses have not previously been subject to much controversy and considered to provide valuable closure for employer and employee, the #MeToo movement has generated much criticism of such clauses when related to allegations of sexual harassment, arguing they have the detrimental effects of silencing victims and enabling repeat offenders.  This criticism has led to new trends in the law which discourage such nondisclosure clauses and agreements.

The most significant change so far is in federal tax law, which has created a disincentive to nondisclosure provisions in settlements of sexual harassment or abuse claims. Specifically, Congress’s recently enacted Tax Cuts and Jobs Act prohibits employers from deducting as a business expense (under Internal Revenue Code Section 162)  “(1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or (2) attorney’s fees related to such a settlement or payment.”

At the state level so far, California, New Jersey, New York, Pennsylvania and Washington have introduced legislation aimed at curtailing the use of nondisclosure provisions that restrict discussions or disclosure of workplace sex harassment. Each state proposal has its own specifics, but in general they render invalid the use or enforcement of non-disclosure provisions related to sexual harassment, either as part of any nondisclosure agreement, or in the context of settlement agreements, or both.  As of the date of this article, legislation is still pending in California, New York, and Pennsylvania, and New Jersey’s bill did not pass in the state’s last legislative session.  Washington’s bill was enacted into law on March 21, 2018 with an effective date of June 7, 2018 and covers nondisclosure agreements entered into as a condition of employment, but permits confidentiality provisions in settlement agreements.  The text of the Washington law can be found here.

Employers should stay up to date concerning applicable laws in connection with nondisclosure agreements. And when nondisclosure agreements exist, employers should remember that they may not interfere with an employee’s right to file a charge with or communicate with U.S. Equal Employment Opportunity Commission (“EEOC”).  Although a settlement agreement can bar an individual from seeking monetary or other individual relief at the EEOC, courts and the EEOC have invalidated agreement terms that interfere with an individual’s nonwaivable right as a matter of public policy to file a charge or otherwise communicate with the EEOC.

For more information or for any other employment matter impacting your business, please contact the authors of this article or the attorney you regularly work with at Hogan Lovells.

 

Last week, both houses of the New Jersey Legislature passed a sweeping equal pay bill that Governor Phil Murphy is expected to sign promptly. When passed into law, it will be one of the most strict equal pay statutes in the country.

The legislation—the “Diane B. Allen Equal Pay Act”—would be effective July 1, 2018, and would prohibit employers from compensating any employee “who is a member of a protected class” at less than the rate paid to employees who are not members of the protected class “for substantially similar work, when viewed as a composite of skill, effort and responsibility.”  The Act would allow employers to pay different rates of compensation only if the differential is made pursuant to a “seniority system” (which is not defined), a “merit system” (which also is not defined), or the employer makes a five-prong showing that includes:

  1. That the differential is based on non-protected factors, such as training, education or experience, or the quantity or quality of production;
  2. That such factors “do not perpetuate” compensation differentials based on protected characteristics;
  3. That each factor “is applied reasonably”;
  4. That such factors “account for the entire wage differential”; and
  5. “That the factors are job-related with respect to the position in question and based on a legitimate business necessity” and that “there are [no] alternative business practices that would serve the same business purpose without producing the wage differential.”

Compensation comparisons “shall be based on wage rates in all of an employer’s operations or facilities.” Further, employers would be prohibited from reducing the compensation of employees to comply with the Act.

The Act—broad, ambiguous and demanding—is virtually certain to increase equal pay litigation in New Jersey if and when it becomes law. With other states and localities likely to follow suit, employers should proactively evaluate their compensation structures to determine whether and why there are compensation differentials among similarly situated employees.

Since the rise of the #MeToo movement, employers are facing increased challenges – changed employee expectations, allegations of “old” harassment or renewed attention to previously “resolved” claims, and a heightened attention to such things as bullying, off-site conduct, and workplace romances.

Join our panel of Hogan Lovells lawyers for a discussion on what’s new in this area, as well as some of the thornier issues employers have long faced, including:

  • What constitutes harassment in the first place, and should employers be concerned about conduct that is not legally prohibited?
  • When alleged harassment occurs, who should investigate, and how do employers know when an outside investigator should be brought in?
  • What if an alleged victim does not want to cooperate?
  • Are an employer’s obligations different when a high-level manager or executive is accused?
  • How do you impose corrective action without over or under doing it?
  • In addition to policies and training, what best practices can help improve a workplace culture to prevent harassment?

The panel will take place on April 26, 2018, from 9:00 to 10:30 a.m. in Hogan Lovells’ Washington D.C. office. Registration, networking, and a light breakfast will begin at 8:30 a.m. CLE credit is pending.

Kindly RSVP by April 23, 2018.

We look forward to seeing you.

Agenda
8:30 a.m. – 9:00 a.m. Breakfast and networking
9:00 a.m. – 10:30 a.m. Panel Discussion

Contact

Trevor Godley
trevor.godley@hoganlovells.com

We blogged in February about two Seventh Circuit cases pending before the Supreme Court that would have given the Court the opportunity to provide guidance as to whether, and if so to what extent, the ADA requires employers to provide disabled employees who have exhausted their FMLA and other employer-provided leave with additional leave as a reasonable accommodation.  The Supreme Court recently denied review in both of those cases, so the issue will continue to percolate in the lower courts.  What does this mean for employers?  Given the unsettled state of the law, and as further explained in our prior blog, employers should continue to evaluate disabled employees’ requests for additional leave on a case-by-case basis.  The length of the leave request, whether the employee’s doctor can provide a reasonably certain return date, and the impact of the request on coworkers and operations are all relevant considerations.

We previously blogged about the requirements of Maryland’s new paid sick leave law, the Maryland Healthy Working Families Act. That law took effect on February 11, 2018, despite efforts by a number of lawmakers to delay it. As required by the law and in response to thousands of questions received, the Maryland Department of Labor recently issued a frequently asked questions document, three sample policies, and an employee notice poster available in English and Spanish.  The guidance provides information on topics such as how to count your employees to determine whether you meet the 15-employee threshold for mandatory paid leave (employers with fewer than 15 employees are required to provide only unpaid leave); how the law applies when you have part-time employees, or a collective bargaining agreement; and whether you can use a different method of leave accrual for different types of employees (the answer is yes).

The Department’s guidance should prove useful to employers in complying with Maryland’s new law. If you already have a sick leave policy in place, it should be carefully reviewed to ensure it meets all of the statutory requirements, and if it does not, you should amend it or add a new policy, accordingly. In addition, if you have other leave policies such as vacation leave, PTO, parental leave, or FMLA leave, your sick leave policy will need to be coordinated with your existing policies.  Employers should also bear in mind that the Department issued its guidance with the caveat that it is only preliminary; so continue to stay tuned for further developments, including potential regulations that may be promulgated by the Department.

In advance of the July 1, 2018 implementation of extensive amendments to the Massachusetts Equal Pay Act (“MEPA”), the Attorney General (“AG”) issued its Guidance on March 1, 2018. While the Guidance does not have regulatory effect, the state’s highest court, the Supreme Judicial Court, has generally afforded substantial deference to such statutory interpretations by enforcing authorities. Massachusetts was the first state in the country to pass an equal pay law and the 2018 amendments make MEPA one of the strongest pay equity laws in the country, intended to close the 84.3.% pay gap for working women in Massachusetts.

MEPA OVERVIEW

MEPA prohibits employers from paying different wages to employees of different genders who perform comparable work, unless variations are based on one or more of six statutory factors. MEPA defines “comparable work” as work that requires substantially similar skill, effort, and responsibility, and is performed under similar working conditions. An employer may not determine comparability based on job titles alone. Wages are defined as “all forms of remuneration for employment.”

MEPA also imposes three additional restrictions on employers. First, employers generally may not seek salary or wage history from prospective employees. Second, employers generally may not prohibit employees from discussing their pay or that of co-worker. Third, employers may not retaliate against any employee for an exercise of rights under MEPA. Further, salary history is not a defense to liability. Nor is intent to discriminate based on gender required to establish liability.

MEPA covers nearly all Massachusetts public and private employees and those with a primary place of work in the Commonwealth.

GUIDANCE HIGHLIGHTS

The Guidance sets forth and further defines the key terms for determining “comparable work” as follows:

  • “Skill” includes “such factors as experience, training, education, and ability required to perform the jobs.”
  • “Effort” is described as “the amount of physical or mental exertion needed to perform a job.”
  • “Responsibility” is explained as encompassing “the degree of discretion or accountability involved in performing the essential functions of a job, as well as the duties regularly required to be performed for the job.”
  • “Working conditions” mean “environmental and other similar circumstances customarily taken into account in setting salary or wages.” These can include physical surroundings and hazards. Working conditions may include the day or time of work, such as the types of scheduling differences that are taken into account in establishing shift differentials.

The Guidance defines that “substantially similar” means that skill, effort, and responsibility “are alike to a great or significant extent, but are not necessarily identical or alike in all respects.”

The Guidance sets forth and further explains the six statutory factors that employers may use to explain wage differentials between employees of different genders who perform comparable work:

  1. a seniority system;
  2. a merit system;
  3. a system which measures earnings by quantity or quality of production, sales, or revenue;
  4. the geographic location in which a job is performed;
  5. education, training or experience to the extent those factors are reasonably related to the job; or
  6. travel, if the travel is a regular and necessary condition of the job.

The Guidance explains MEPA’s statutory Affirmative Defense for “Good Faith” Self-Evaluation. A “complete defense” exists for employers have, within three years of a claim, conducted a legally sufficient self-audit of their pay practices, provided that the self-audit is reasonable in detail and scope, and the employer establishes that it has made reasonable progress towards eliminating any prescribed gender-based wage variations discovered in the audit. Even deficient self-audits done in good faith can prevent liability for double damages, but will not provide a complete defense to MEPA.

The Guidance explains that whether an evaluation is “reasonable in detail and scope” depends on the “size and complexity of an employer’s workforce,” in light of factors including “whether the evaluation includes a reasonable number of jobs and employees,” and is “reasonably sophisticated.” If disparities are not yet eliminated, the employer must show that they will be “in a reasonable amount of time.”

The Guidance includes resources for employers in appendices including 1) a guide for conducting self-evaluations, 2) a pay calculation tool, and 3) a checklist to consult when assessing whether existing policies and practices comply with MEPA. Employers should consult with counsel before conducting any self-evaluation which may be discoverable in litigation or in government investigations.

The Guidance can be found at:

https://www.mass.gov/files/…/03/…/AGO%20Equal%20Pay%20Act%20Guidance.pdf