Perhaps it is the end of racing season in Saratoga, but the federal employment agencies are certainly looking to hit the trifecta against independent contractors, franchisors, parent companies, and similar entities under the guise of expanding the definitions of employer and employment. First, a little background:  on April 28, 2014, the U.S. Senate confirmed David Weil as the new head of the U.S. Department of Labor’s Wage and Hour Division.  Before he was confirmed, Weil had published a book entitled The Fissured Workplace, a dense lament on the perceived evils of independent contracting and franchising, and companies that Weil claims attempt to "have it both ways" by not bearing responsibility for the workers from whom they ultimately benefit by virtue of the work performed.  It was thus not unexpected that Weil would seek to remedy those perceived evils during his tenure; however, the extent to which this philosophy has reached other agencies is surprising. Fast-forward to July 2015, during which Administrator Weil issued an Interpretation turning the classic test for independent contractor status on its head.  The central tenet used to be control -- does the company set the worker's hours, have the power to discipline the worker, supervise and direct the worker, etc., or instead does the company simply give the worker the contours of the job, and pay contingent on the acceptability of the work?  The new Administrator’s Interpretation, however, focuses on the "economic realities" of the work arrangement, and whether the worker is "economically dependent" on the company.  Most workers have some dependence on the source of the income, and therefore unless a worker has multiple sources of income to demonstrate that he or she is truly in business for himself or herself, many people who currently consider themselves to be independent contractors are now employees in the eyes of the Wage and Hour Division.  As Weil puts it in his interpretation:  "Thus, applying the economic realities test in view of the expansive definition of 'employ' under the Act, most workers are employees under the FLSA." But the Wage and Hour Division is not the only agency to get into the act.  On August 27, the National Labor Relations Board issued a controversial decision in the Browning-Ferris case, basically holding that a staffing agency, franchisor, or contractor that reserves the right to make decisions affecting a worker’s employment, even if the entity does not actually exercise that right, will likely be considered a joint employer.  In short, the NLRB is also seeking to follow Weil’s lead and fuse “the fissured workplace” to hold contractors and other types of entities responsible for possible employment violations under the guise of joint employment. Not to be outdone, OSHA is going for the trifecta.  Late last month, the International Franchise Association disclosed that it is receiving reports from its members that OSHA investigators are seeking information and documents during inspections to tie franchisors into those inspections in order to cite them as employers along with franchisees.  The IFA is concerned that OSHA is (at the behest of unions such as SEIU) looking to simply treat franchisors as employers regardless of the details of a franchisor-franchisee relationship.  Indeed, the IFA obtained a copy of an internal OSHA memo that shows that OSHA is looking to follow the WHD and NLRB’s lead.  The memo states, in part: "Issue Presented for OSHA: Whether for purposes of the OSH Act, a joint employment relationship can be found between the franchisor (corporate entity) and the franchisee so that both entities are liable as employers under the OSH Act. Ultimate determination will be reached based on factual information about the relationship between the franchisor and franchisee over the terms and conditions of employment.  While the franchisor and the franchisee may appear to be separate and independent employers, a joint employer standard may apply where the corporate entity exercises direct or indirect control over working conditions, has the unexercised potential to control working conditions or based on the economic realities.  As a general matter, two entities will be determined to be joint employers when they share or codetermine those matters governing the essential terms and conditions of employment and the putative joint employer meaningfully affects the matters relating to the employment relationship such as hiring, firing, discipline, supervision and direction." The IFA is seeking more information from OSHA via the Freedom of Information Act, and its full statement can be found here. In short, any entity with franchisees, independent contractors, or other vendors should be well aware that any investigation or inspection by the federal agencies tasked with enforcement of labor and employment laws -- the National Labor Relations Board, the U.S. Department of Labor’s Wage and Hour Division, and now, OSHA -- may seek to expand the investigation or inspection well beyond just the franchisee or contractor inspected, to any franchisor, parent company, or beneficiary of a contract for services.

In Browning-Ferris Industries of California, Inc., the National Labor Relations Board (“NLRB” or “Board”), in a 3-2 decision, expanded who may be considered a joint employer under the National Labor Relations Act (“NLRA” or the “Act”).  The Board’s decision significantly lowers the threshold for joint employer status, making it more likely that entities such as staffing agencies, franchisors, and contractors will be considered joint employers under the Act. A joint employer finding is significant because this means that an entity may be subjected to joint bargaining obligations and potential joint liability for unfair labor practices or breaches of collective bargaining agreements. Joint Employer Analysis Before Browning-Ferris Prior to the Board’s decision in Browning-Ferris, the standard for establishing joint employment was that both entities in question had to share the ability to control or co-determine essential terms and conditions of employment.  Hiring, firing, supervising, and directing employees were generally considered to be the essential terms and conditions of employment.  Board decisions further clarified that the type of control over the essential terms must be direct and immediate, and the alleged employer must have actually exercised that control -- it was not enough that it may have reserved some level of control through a contract.  Rather, the control had to be exercised in practice. Joint Employer Analysis After Browning-Ferris The Board significantly modified this approach in Browning-Ferris.  The Board’s stated new test, which sounds similar to the old test in words, but not in application, is that:

The Board may find that two or more entities are joint employers of a single work force if they are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms and conditions of employment.

The application of this test is where the Board makes sweeping changes.  The Board will now evaluate the evidence to determine whether an alleged employer affects the means or manner of employees’ work and terms of employment, either directly or indirectly.  In other words, the control no longer needs to be direct or immediate.  Additionally, the Board found that it is not critical that the entity actually exercise such authority so long as it possesses or reserves the right to do so. The Board also expanded on those items found to be “essential terms and conditions” beyond just hiring, terminating, supervising, and directing employees.  The Board included such things as dictating the number of workers to be supplied, setting work hours, controlling seniority and approving overtime, and assigning work and determining the manner and method of work performance. In short, the new test makes widespread changes by finding indirect control significant in establishing an employment relationship, not requiring that such control actually be exercised, and including more terms and conditions of employment as relevant in this analysis that were previously not considered to be “essential.” Applying the New Test in Browning-Ferris The issue before the Board in Browning-Ferris was whether Browning-Ferris, which operated a recycling facility, was a joint employer with LeadPoint, a staffing company that supplied employees to perform various work functions at the facility.  Under the Board’s old test, it is almost certain there would have been no joint employer finding.  LeadPoint set its employees’ schedules, engaged its own human resources manager to work at the Browning-Ferris facility, and had the sole responsibility to discipline, review, evaluate, and terminate its own employees.  In addition, LeadPoint employed an Acting On-Site Manager, three shift supervisors, and seven line leads to manage and supervise LeadPoint employees working at the facility. Nonetheless, applying the new test, the Board found sufficient evidence of direct and indirect control (relying on control both exercised and reserved by contract) to support its joint employer finding.  The Board relied on the following facts in making its determination:  Browning-Ferris gave LeadPoint supervisors fairly detailed directives concerning employee performance that the LeadPoint supervisors then communicated to their employees; Browning-Ferris set some conditions on hiring that LeadPoint was contractually bound to follow (must have appropriate qualifications and meet or exceed Browning’s own standard selection procedures and tests); Browning-Ferris had the authority to discontinue the use of LeadPoint employees; Browning-Ferris determined when overtime was necessary; and Browning-Ferris' contract with Leadpoint prohibited LeadPoint from paying its employees more than Browning-Ferris paid its own employees who performed comparable work. Takeaways and Potential Implications The primary change resulting from Browning-Ferris is that indirect control over terms and conditions of employment may now be enough to create a joint employment relationship.  Unfortunately, the Board’s decision fails to provide any real clarity on just how much indirect control may be sufficient to create such a relationship.  The two dissenting members take issue with how broad the majority’s decision appears to be, stating that “the number of contractual relationships now potentially encompassed within the majority’s new standard appears to be virtually unlimited.”  The dissent then lists the following examples:

• Insurance companies that require employers to take certain actions with employees in order to comply with policy requirements for safety, security, health, etc.;
• Franchisors;
• Banks or other lenders whose financing terms may require certain performance measurements;
• Any company that negotiates specific quality or product requirements;
• Any company that grants access to its facilities for a contractor to perform services there, and then continuously regulates the contractor’s access to the property for the duration of the contract;
• Any company that is concerned about the quality of the contracted services; and
• Consumers or small businesses who dictate times, manner, and some methods of performance of contractors.

The dissent’s list showcases the potential reach of the Board’s new test and the potential to significantly alter the landscape of how employment is understood under the NLRA. While employers wait for the Board to issue more decisions further delineating the scope of this test, there are some practical steps employers can take.  Employers can revise their contracts to clarify that control over terms and conditions of employment rests with the contractor, use as little detail as possible in directing the work of the contractor, and stay out of all hiring, firing, and wage-related decisions.  Alternatively, some employers may choose to wait to make any changes until this decision is eventually challenged in federal court.  Employers should discuss with counsel how to best respond to this change. Ultimately, because of the wide array of factual arrangements involving contingent workers, franchisees, and independent contractors, and the reality of business relationships, there will certainly be some situations where letting go of some level of operational control is not a practical option.  This must be weighed against the risk of being found to be a joint employer, and carefully evaluated when entering into and reassessing all business relationships.

Union Organizing Limited by Proactive Employee Engagement and Education

In advance of Labor Day in the U.S. and Labour Day in Canada, the Employment Law Alliance (ELA), the world’s largest network of management-side labor, employment and immigration lawyers, has released the results of its latest “Employer Pulse” survey on traditional labor issues. Bond, Schoeneck & King PLLC is a member of the Employment Law Alliance. The poll, conducted from mid-July to mid-August, surveyed ELA attorneys across the U.S. and Canada and yielded nearly 400 responses from all 50 U.S. states and each of the 10 Canadian provinces. Respondents were asked to identify both the stated reasons employees opt to join unions, and what they have found to be the “least accurate” claims unions have made to encourage membership. “Higher wages and/or benefits” and “Enhanced job security, including protection from layoffs” made the top five in both employee reasoning and inaccurate union representations, suggesting a significant gap between what workers perceive to be a benefit of unionization and the reality as witnessed by a set of highly experienced labor and employment attorneys. According to respondents, the top two reasons employees reject union membership are: 1) “Cost of dues exceeds value of membership, including objection to use of dues to support and promote union political agenda;” and 2) “Distrust of union leadership and recognition of unrealistic campaign promises.” One member commented, “I believe the real number one reason (that employees reject union membership) is that employees know and trust that their employer cares about them and runs the business looking out for both the employees' and owners’ long-term interests. An employer ‘runs on its record,’ and that means it cannot start ‘caring’ or ‘showing that it cares’ only when the union shows up.” Turning to specific issues, definitive answers emerged on the following:

• 83 percent of respondents noted that “quickie” or “ambush” election rules issued by the National Labor Relations Board (NLRB) will either “Greatly assist” or “Moderately assist” unions in their efforts to represent employees.

Regarding “quickie” or “ambush” elections, New Hampshire attorney Charles S. Einsiedler, Jr. of Pierce Atwood LLP offered, “Employers must proactively educate their workforce concerning what unions really can and cannot do, because the board’s new election rules leave insufficient time for employers to provide meaningful employee education once an election is scheduled.” Given that the poll’s data broadly indicates employees often choose unionization based on misrepresentations concerning enhanced wages, job security and elimination of unpopular supervisors, one respondent noted that inaccurate promises, combined with the natural reluctance of non-union employers to communicate with their workforce about unions and an “ambush” or “quickie” election, have the potential to greatly assist unionization efforts. They added that there is a genuine, economically material onus on companies to consider and prepare for this dynamic.

• 85 percent of respondents answered that NLRB rulings allowing unions to organize small or micro units of employees will either “Greatly assist” or “Moderately assist” unions in their efforts to represent employees.

• 76.5 percent of respondents answered that attempts, if successful, by the NLRB to expand and extend the joint employer test – particularly among franchisors and franchisees – will either “Greatly assist” or “Moderately assist” unions in their efforts to represent employees.

• 94.11 percent of Canadian respondents answered that, based on their experience and feedback received from clients and colleagues, the recent change from card-based certification to vote-based certification under the federal Canada Labour Code “Will greatly reduce” or “Will moderately reduce” the success rate of unions in Applications for Certification.

The group was somewhat split on the potential impact of the expansion of overtime eligibility recently announced by the U.S. Department of Labor, with 45 percent of respondents believing that the broadening “Will have limited impact” in terms of assisting unions in their organizing efforts and 38.5 percent answering that it will “Greatly assist” or “Moderately assist” unionization efforts. Overall, the importance of identifying and dealing with “unpopular,” “rogue” and – at times – unreasonable supervisors was stressed as one key ways to ensure a harmonious, union-free workplace. As one member put it, “Unfair treatment by management – or indifferent treatment – is the overwhelming reason why employees seek to unionize their workplace.” Having an engaged, educated and committed workforce was consistently cited as central to keeping unionization efforts at bay. One respondent noted, “Happy and engaged workers don't usually join unions.” Another offered a simple equation, “Poor management plus a lack of information about unions can often lead to a unionized company.” About The Employment Law Alliance: The Employment Law Alliance is the world's largest network of labor, employment and immigration lawyers. With specialists in more than 135 countries, all 50 states and each Canadian province, the ELA provides multi-state and multi-national companies with seamless and cost-effective services worldwide. On the web at: http://www.employmentlawalliance.com.

On August 21, the United States Court of Appeals for the District of Columbia Circuit upheld the U.S. Department of Labor’s revisions to the “companionship exemption” under the Fair Labor Standards Act, and reversed two decisions issued by the U.S. District Court for the District of Columbia that struck down those revisions.  The USDOL’s revised regulations eliminate the companionship exemption for home care workers who are employed by a third-party instead of by the patient or household, and greatly narrow the definition of “companionship services” for purposes of applying the exemption.  According to estimates provided by the USDOL, nearly two million formerly exempt home care workers will now be covered by the FLSA’s minimum wage and overtime requirements. In 2013, the USDOL significantly revised its FLSA regulations regarding the “companionship exemption,” which renders the minimum wage and overtime requirements inapplicable to “any employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves.”  As revised, the regulations prohibit third-party employers, such as home care agencies, from claiming that their employees are exempt from the federal minimum wage and overtime requirements, even if the employees are providing companionship services.  In addition, the revised rule greatly narrows the definition of “companionship services,” so that if an employee spends more than twenty percent of his or her time on the “provision of care,” the employee will be deemed not to be providing “companionship services,” regardless of whether the employee is directly employed by the family or by a third-party employer.  Under the regulations, “provision of care” means assistance with the activities of daily living. The Home Care Association of America challenged the revised regulations in federal court, contending that the USDOL had exceeded its authority in adopting the revised regulations.  The District Court agreed, and invalidated the regulations.  On appeal, the D.C. Circuit Court of Appeals reversed the District Court, holding that the USDOL had the authority under the FLSA to revise the regulations.  The Court further found that the USDOL’s decision to revise the regulations was “grounded in a reasonable interpretation of the statute” and was “neither arbitrary nor capricious.” Assuming that this decision stands and the USDOL’s revised regulations take effect, home care agencies will lose the benefit of the companionship exemption.  Direct care workers who provide services in a patient’s home must be paid at least the federal minimum wage (and in New York, the current higher minimum wage of $8.75 per hour).  In addition, home care agencies must pay home care workers overtime at one and one-half times the regular rate for hours worked in excess of 40 in a work week, unless the employee falls within one of the other FLSA exemptions.  The time spent traveling from one patient to another is considered to be compensable hours worked, and will count toward the 40-hour threshold.

It is not uncommon for employers to present restrictive covenants, such as non-competition, non-solicitation, or confidentiality agreements, to new employees in a stack of orientation paperwork.  A recent case from New York’s highest court reminds employers not only that it is important to narrowly tailor restrictive covenants, but also that it is worthwhile to take the time to explain the meaning of those agreements to new employees, and even provide new employees with some time to review them. In 2014, we posted a blog article on a New York Appellate Division (Fourth Department) case regarding the partial enforcement of an overbroad non-solicitation provision in an employment agreement.  In Brown & Brown, Inc. v. Johnson, the appellate court deemed the non-solicitation provision overbroad and unenforceable because it prohibited the former employee from soliciting any client of the firm, not just those with whom she developed a relationship while employed by the firm.  The firm sought to have the non-solicitation agreement partially enforced.  In other words, the firm asked the court to modify or “blue pencil” the covenant to make it enforceable. Significantly, the appellate court refused to blue pencil the overbroad agreement, citing the unequal balance of power between the employee and employer at the time the agreement was signed.  Thus, the entire non-solicitation provision was deemed unenforceable, allowing the former employee to solicit any former clients.  Given this decision, we cautioned employers to be wary of overreaching in a restrictive covenant, as it could result in a court refusing to enforce even a pared down version of the agreement. In June 2015, the Court of Appeals reversed the Appellate Division on the partial enforcement issue and sent the case back to the trial court to review the circumstances of the case.  According to the Court, the lower court should have taken a closer look at the facts and circumstances surrounding the signing of the non-solicitation agreement before deciding whether to simply strike the overbroad agreement.  The Court noted that the fact that the agreement was not presented to the employee, Johnson, until after she left her prior employment “could have caused her to feel pressure to sign the agreement, rather than risk being unemployed.”  Nevertheless, the mere fact that the agreement was a requirement of the job, and that the employee was not presented with the agreement until the first day of work was not enough alone to deny partial enforcement.  The Court cited other factors that would be considered to determine the partial enforcement issue:  whether the employee understood the agreement, whether it was discussed or explained to her, and whether she was coerced into signing it on the first day or could have sought advice from counsel or negotiated the terms. The latest lesson on restrictive covenants from New York’s highest court is clear:  they must be presented to employees in a non-coercive fashion.  If your restriction on an employee could be construed as overbroad, courts will consider the circumstances under which the agreement was provided to the employee when determining whether to modify or “blue pencil” it to make it enforceable.  To convince a court to do so, there must be facts showing that the employer took steps to minimize the inherent inequality in bargaining power between the employer and the employee.  While employers may be reluctant to negotiate the terms of these agreements, employers should consider sitting down to explain the meaning of a non-compete or non-solicitation agreement, leaving some time for the new employee to think over and review the agreement, and allowing the employee to seek counsel before signing it.

In a long-awaited decision issued on August 17, 2015, the five-member National Labor Relations Board (“Board”) unanimously shut down an attempt by Northwestern University’s scholarship football players to become the first group of college athletes to form a labor union.  This Board holding vacates the direction of election issued by an NLRB Regional Director in March 2014 and dismisses the representation petition filed by the College Athletes Players Association (“CAPA”), but does not address the fundamental issue of whether the players are “employees” under the National Labor Relations Act (“Act”).  Instead of deciding this issue, the Board declined to assert jurisdiction over this case based on its conclusion that it “would not promote stability in labor relations” and therefore would not effectuate the policies of the Act. The Board noted that it had never been asked to assert jurisdiction in a case involving college athletes, nor had there ever been a petition for representation of a unit of a single college team, or even a group of college teams.  The Board also pointed out that the players in this case did not “fit into any analytical framework” the Board had used in other cases involving college students (such as graduate student assistants or student janitors and cafeteria workers) because this case involved student athletes who receive scholarships to participate in what traditionally has been regarded as an extracurricular activity.  The Board also distinguished these scholarship players from professional athletes, because the scholarship players are required to be enrolled full time as students and meet various academic requirements.  The Board further observed that bargaining units in professional sports have never been limited to a single team’s players – they have always included the players of all teams in the entire league.  Therefore, the Board concluded that there was no precedent that required it to assert jurisdiction, and that it was free to exercise its discretion to decline jurisdiction over this case. In justifying its decision to decline jurisdiction, the Board explained that Northwestern is a member of the National Collegiate Athletic Association (“NCAA”), which has a “substantial degree of control over the operations of individual member teams, including many of the terms and conditions under which the scholarship players (as well as walk-on players) practice and play the game.”  Under these circumstances, the Board determined that its assertion of jurisdiction over only Northwestern and its scholarship football players would not promote stability in labor relations across the NCAA.  The Board further explained that Northwestern competes in the NCAA Football Bowl Subdivision (“FBS”), where 108 of the 125 member schools are public institutions that are not covered by the Act.  As a result, the Board does not have jurisdiction over the vast majority of the FBS teams.  In fact, the Board pointed out that because Northwestern is the only private school in the 14-member Big Ten Conference, it “cannot assert jurisdiction over any of Northwestern’s primary competitors.”  The Board cited this as an additional reason why its assertion of jurisdiction over only Northwestern and its scholarship football players would not promote stability and uniformity in labor relations. Although the Board’s exercise in restraint in this decision comes as somewhat of a surprise given this Board’s activism in expanding the reach of the Act, the Board made clear that its decision does not “preclude a reconsideration of this issue in the future,” and should be interpreted narrowly.  In fact, the Board seemingly opened the door for consideration of a broader proposed bargaining unit than scholarship football players at one university by stating that its decision is not intended to “address what the Board’s approach might be to a petition for all FBS scholarship football players (or at least those at private colleges and universities).”  So, the landscape of collegiate athletics will remain the same for now, but this may not be the last unionizing effort of student athletes that we see.

As we reported in an earlier blog post, the National Labor Relations Board issued the American Baptist Homes of the West (“Piedmont Gardens”) decision in December 2012, overturning more than 30 years of precedent shielding witness statements from disclosure.  In June 2014, however, the Supreme Court handed down the Noel Canning decision, in which it found that President Obama’s January 2012 Board appointments were invalid and thus the Board lacked the necessary quorum of three members to issue valid decisions from that date until August 2013 (when a full five-member Board was properly appointed).  As Piedmont Gardens was one of the Board decisions invalidated by the Noel Canning ruling, the Board issued an order setting aside the decision but retained the case on its docket. After reconsidering the case, the Board issued a decision on June 26, 2015, reaffirming its earlier decision.  In doing so, the Board overruled the blanket exemption -- first established by the Board’s 1978 Anheuser Busch decision -- that allowed employers to withhold witness statements in response to pre-arbitration requests for information.  Arguing that the Anheuser Busch rationale was “flawed,” the Board held that such statements are now subject to the same standard applicable to all other union requests for information:  an employer must furnish “relevant” information that is “necessary” to the union’s proper performance of its duties as collective bargaining representative. Under this new standard, an employer that seeks to withhold the production of witness statements on “confidentiality” grounds must first establish that:  (i) witnesses need protection; (ii) evidence is in danger of being destroyed; (iii) testimony is in danger of being fabricated; and (iv) there is a need to prevent a cover-up.  As the Board took pains to point out, “a legitimate and substantial confidentiality interest requires more than a generalized desire to protect the integrity of employment investigations.” If the required confidentiality showing can be made, the Board would then weigh the employer’s interest in confidentiality against the union’s need for the information.  Even if the Board finds that the confidentiality interest outweighs the union’s need, the employer cannot simply refuse to provide the information but “must seek an accommodation that would allow the [union] to obtain the information it needs while protecting the [employer]’s interest in confidentiality.” This decision places yet another unnecessary burden upon employers.  The Board cites no evidence that the old standard hamstrung unions in performing their collective bargaining duties.  Under Anheuser Busch, unions were still entitled to witness names and could conduct their own investigations.  Now employers can offer no assurance of confidentiality to employees, who will likely be more hesitant than ever to provide truthful accounts against their union brethren for fear of reprisal. In the wake of this decision, employers should reassess their investigatory methods, including best practices for preserving confidentiality, and avoid blanket rejections of union requests for witness statements.

There are many protected categories under the federal employment discrimination laws, but none of those laws mentions "sexual orientation" as a protected category.  Versions of the Employment Non-Discrimination Act ("ENDA"), which would explicitly prohibit employment discrimination on the basis of sexual orientation, have been introduced in almost every session of Congress since about 1994.  However, the legislation has never made it to the President’s desk. According to the Equal Employment Opportunity Commission ("EEOC"), federal legislation explicitly prohibiting employment discrimination based on sexual orientation is unnecessary because such discrimination is already prohibited under Title VII of the Civil Rights Act ("Title VII").  In a December 2, 2014 blog post, we wrote about a decision issued by the EEOC against a federal agency (the Bureau of Tobacco, Firearms and Explosives) holding that transgender discrimination is a form of sex discrimination prohibited by Title VII.  Therefore, it should come as no surprise that the EEOC has now also issued a decision against another federal agency (the Federal Aviation Administration) on July 16, 2015, holding that sexual orientation discrimination is also a form of sex discrimination prohibited by Title VII. In the case, an employee who worked for the Federal Aviation Administration alleged that he was passed over for a permanent position as a Front Line Manager because of his sexual orientation.  The EEOC determined that it had jurisdiction over the claim even though sexual orientation is not listed as one of the protected categories under Title VII, because “sexual orientation is inseparable from and inescapably linked to sex."  The EEOC further stated:  "A complainant alleging that an agency took his or her sexual orientation into account in an employment action necessarily alleged that the agency took his or her sex into account." The EEOC discussed a number of ways in which discrimination based on sexual orientation could be considered sex discrimination.  For example, the EEOC theorized that sexual orientation discrimination is a form of “associational discrimination on the basis of sex” because it involves an employee being treated differently based on his or her association with a person of the same sex.  The EEOC also opined that sexual orientation discrimination is sex discrimination because it “necessarily involves discrimination based on gender stereotypes" and is often motivated by a desire to enforce heterosexually defined gender norms. This recent EEOC decision was issued in the context of an appeal from a federal agency's decision, and is not binding on employers in the private sector.  However, the reasoning used by the EEOC in its decision suggests that it will likely exercise jurisdiction over discrimination charges filed against private sector employers alleging sexual orientation discrimination and could commence enforcement proceedings against private sector employers in sexual orientation discrimination cases.  As the EEOC noted in its decision, many federal courts (including the Second Circuit Court of Appeals, which is the federal appellate court that hears appeals from cases decided in the U.S. District Courts in New York) have already rejected claims that Title VII prohibits sexual orientation discrimination.  It remains to be seen whether any federal courts will be persuaded by the EEOC's interpretation of Title VII's sex discrimination provision and whether the Supreme Court will eventually address the issue. The EEOC's decision will also likely have less of an impact on employers in New York than on employers in some other states, because sexual orientation discrimination is already prohibited by the New York Human Rights Law ("NYHRL").  However, because Title VII includes punitive damages and recovery of attorneys' fees as potential remedies (and the NYHRL does not), it is possible that plaintiffs' lawyers may start asserting sexual orientation discrimination claims under both Title VII and the NYHRL in order to obtain federal court jurisdiction and to take advantage of the additional remedies under Title VII that are not available under the NYHRL. Employers in New York should periodically review their equal employment opportunity, anti-discrimination, and anti-harassment policies to make sure that they are in compliance with all applicable federal, state, and local laws.  Employers should also make sure that all employees -- especially managers who make hiring and other employment decisions -- are regularly trained regarding those policies.

On July 22, 2015, the Fast Food Wage Board (which was empaneled at the direction of Governor Cuomo to investigate and make recommendations regarding an increase in the minimum wage for employees in the fast food industry) passed a resolution recommending that the minimum wage for employees in the fast food industry be raised to $15.00 per hour.  The recommended increase will be phased in to take effect by December 31, 2018, in New York City, and by July 1, 2021, for the rest of the state.  Governor Cuomo has publicly applauded the Wage Board's recommendation, which will almost certainly be accepted and adopted by the Commissioner of Labor. Assuming the Commissioner of Labor issues an order accepting the Wage Board's recommendation, the fast food hourly minimum wage in New York City will increase to $10.50 on December 31, 2015, $12.00 on December 31, 2016, $13.50 on December 31, 2017, and $15.00 on December 31, 2018.  The fast food hourly minimum wage in the rest of the state will increase to $9.75 on December 31, 2015, $10.75 on December 31, 2016, $11.75 on December 31, 2017, $12.75 on December 31, 2018, $13.75 on December 31, 2019, $14.50 on December 31, 2020, and $15.00 on July 1, 2021.  At this point, the minimum wage for all employees is $8.75 per hour.  On December 31, 2015, the minimum wage will go up to $9.00 per hour for all employees except fast food employees, who will be entitled to the higher minimum wage recommended by the Wage Board. In the Wage Board's resolution, "fast food employee" is defined as any person employed or permitted to work at or for a fast food establishment where the person's job duties include at least one the following:  customer service, cooking, food or drink preparation, delivery, security, stocking supplies or equipment, cleaning, or routine maintenance.  The Wage Board's resolution does not contain any exemption for high school or college students, who often seek part-time jobs in the fast food industry and who generally are not trying to support themselves or their families on their income. The term "fast food establishment" is defined as any establishment in New York serving food or drinks:  (1) where customers order and pay for their items before eating, and the items may be consumed on the premises, taken out, or delivered; (2) which offers limited service; (3) which is part of a chain; and (4) which is one of 30 or more establishments nationally.  The definition includes a franchisee who owns and operates only one fast food restaurant in New York State, if the franchisor and all other franchisees of the franchisor own and operate at least 30 such restaurants nationwide. If the Commissioner of Labor adopts the Wage Board's recommendation as expected, the Commissioner's order could be subject to legal challenges based on its selective targeting of the fast food industry and potentially other grounds.  It remains to be seen whether this minimum wage increase for employees in the fast food industry will withstand judicial scrutiny.

On July 15, the U.S. Department of Labor's Wage and Hour Division ("WHD") issued Administrator’s Interpretation No. 2015-1, which provides guidance regarding the misclassification of employees as independent contractors.  According to the WHD Administrator's Interpretation, “most workers are employees” under the Fair Labor Standards Act ("FLSA"). The Administrator's Interpretation notes that the FLSA’s definition of “employee” is extremely broad and basic (“any individual employed by an employer”) and that to "employ" includes to "suffer or permit to work.”  The WHD explains that this definition was intentionally designed to create "as broad of a scope of statutory coverage as possible." In interpreting this broad definition, the WHD rejects the common law "control" test in favor of an “economic realities” test to determine employee or independent contractor status.  The economic realities test focuses on whether a worker is economically dependent on an employer (which would indicate an employment relationship) or in business for herself or himself, (which would indicate an independent contractor relationship).  The WHD evaluates the following six factors in making this determination, with no one factor being dispositive:

1. The extent to which the work performed is an integral part of the employer’s business.
2. Whether the worker’s opportunity for profit or loss depends on his or her managerial skill.
3. The extent of the worker’s investment compared to that of the employer.
4. Whether the work performed requires special business skills, judgment, and initiative.
5. Whether the relationship is permanent or indefinite.
6. The degree of control exercised by the employer over the worker.

According to the WHD, these factors should be evaluated in light of the broad definition of "employee" under the FLSA and the principle that the FLSA should be liberally construed to provide expansive coverage for workers. Misclassifying employees as independent contractors can result in a number of potentially expensive consequences, such as liability for minimum wage and overtime violations, unemployment insurance contributions, workers' compensation coverage, and unpaid employment taxes.  Therefore, organizations that have independent contractor relationships should examine those relationships closely to make sure that they do not cross the line into an employment relationship.  It is also worth noting that, although written agreements with independent contractors can be helpful, they are not dispositive in establishing an independent contractor relationship. Editor's Note:  Our thanks to Luke O'Brien, one of Bond's Summer Law Clerks, who helped prepare this article.

In two recent cases decided on July 2, the Second Circuit Court of Appeals held that in many instances, unpaid interns may not necessarily be employees covered by the Fair Labor Standards Act ("FLSA") and the New York Labor Law ("NYLL").  In both cases (Glatt v. Fox Searchlight Pictures and Wang v. The Hearst Corporation), plaintiffs who had obtained internships at major media companies argued that they were entitled to wage payments under the FLSA and NYLL; in addition, they sought to bring their claims as class and/or collective actions, which would drive up the costs of litigation and significantly increase the potential liability.  The Second Circuit adopted a standard that will likely make it more difficult for unpaid interns to establish employment status, and will likely make it more difficult for unpaid interns to litigate their FLSA and NYLL claims in a class or collective action. The Glatt and Wang decisions articulated two principles of great importance to employers considering internship programs.  First and foremost, the Second Circuit rejected a rigid six-point test promulgated by the United States Department of Labor to determine whether interns should be considered employees, and instead adopted a more nuanced test of employment status that examines whether the employer or the intern is the “primary beneficiary” of the relationship.  Second, the Court noted that because the circumstances of the internships at issue in the two cases were fact-specific, there is a high burden which plaintiffs must meet to show the requisite commonality to support a class or collective action. While these cases were pending in the Second Circuit, the college and university community was concerned that an important resource for experiential learning might be foreclosed if employers decided to discontinue their unpaid internship programs because of a concern about FLSA or NYLL liability.  Because of the potential impact on higher education, the American Council on Education (together with six other national consortia of colleges and universities) asked Bond attorneys Shelley Sanders Kehl and E. Katherine Hajjar to file an amicus brief arguing that the Court should consider the educational value of internships.  These arguments were adopted by the Court and featured prominently in its Glatt decision. The Court proposed the following seven (non-exhaustive) factors to be considered in determining who is the “primary beneficiary” in an internship placement, but also recognized that additional factors may be relevant:

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation;
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; and
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.

The Court explained that these considerations require “weighing and balancing all of the circumstances” and that a single factor will not be dispositive for a court to find that an intern is entitled to minimum wage.  The Court went on to observe that its decision reflects the “modern internship,” and the importance of internships in an intern’s formal education.  While the Court recognized that some internships may not pass muster under the primary beneficiary test, it established a protocol for designing internship opportunities that will qualify. This is good news both for interns and for employers, who will likely find it less risky to offer unpaid internships, providing real world experience to complement the formal education of today’s young adults.

The U.S. Department of Labor released its highly anticipated proposed rule on the Fair Labor Standards Act white-collar overtime exemptions today, along with a fact sheet summarizing the proposed rule.  The proposed rule more than doubles the salary requirement to qualify for the executive, administrative, professional, and computer employee exemptions from the current level of $455 per week to an amount that is expected to be $970 per week by the first quarter of 2016, and significantly increases the salary threshold to qualify for the "highly compensated employee" exemption.  The proposed rule also includes a procedure to automatically raise the minimum salary levels to qualify for the white-collar exemptions from year to year without further rulemaking.  The USDOL estimates that nearly five million employees who are currently classified as exempt will immediately become eligible for overtime pay if the proposed rule is adopted as the final rule. The USDOL is proposing to set the salary requirement to qualify for the executive, administrative, professional, and computer employee exemptions at the salary level equal to the 40th percentile of earnings for full-time salaried workers, and the salary requirement to qualify for the highly compensated employee exemption at the salary level equal to the 90th percentile of earnings for full-time salaried workers.  The USDOL used data compiled by the Bureau of Labor Statistics from 2013 in drafting the proposed rule, which provides for a minimum salary level of $921 per week to qualify for the executive, administrative, professional, and computer employee exemptions, and a minimum salary level of $122,148 per year to qualify for the highly compensated employee exemption.  However, the USDOL stated in its Notice of Proposed Rulemaking that it will likely rely on data from the first quarter of 2016 if the proposed rule is adopted, which will result in a projected minimum salary level of $970 per week to qualify for the executive, administrative, professional, and computer employee exemptions. The proposed rule does not include any proposed revisions to the outside sales exemption.  In addition, although there was some speculation that the duties requirements would also be revised to make the exemptions more restrictive, the USDOL's proposed rule does not include any revisions to the duties requirements to qualify for any of the white-collar exemptions.  However, the USDOL stated in its Notice of Proposed Rulemaking that it is nevertheless seeking comments on whether the duties tests are working as intended to screen out employees who are not bona fide executive, administrative, or professional employees.  So, there is still a possibility that the duties requirements could be revised based on comments received by the USDOL about the proposed rule. Employers should immediately begin to assess which employees who are currently classified as exempt will become non-exempt if the proposed rule is adopted as the final rule.