As discussed in a previous blog post, the Fair Credit Reporting Act ("FCRA") expressly requires employers to provide applicants with a stand-alone disclosure and authorization form prior to obtaining a background check.  This form must be separate from the employment application, and cannot include any type of language attempting to release the employer from liability associated with obtaining the background check.  Unfortunately, many employers still fail to comply with this law by relying solely on a disclosure located on an employment application to inform applicants that they will be subject to a background check, or by attempting to include additional language on the disclosure.  A recent proposed class action lawsuit against Whole Foods Market California provides a reminder to employers to review their disclosure and authorization forms for FCRA compliance. The lawsuit accuses the employer of using an invalid form to obtain consent to conduct background checks during the employment application process.  Specifically, it is alleged that the employer relied on a background check consent that was included alongside several other consent paragraphs on an online employment application, and that the online consent form included a release of claims related to obtaining the background check.  If the employer is found to have used an invalid form, the consequences are significant, including invalidation of the consent, statutory damages in the amount of up to $1,000 for each applicant, costs and attorneys’ fees, and potential punitive damages. This lawsuit is a reminder that FCRA compliance makes good business sense, and that employers should periodically review their application and hiring forms and processes to ensure strict compliance.

On February 7, 2014, the Appellate Division, Fourth Department, issued a significant decision regarding restrictive covenants.  In Brown & Brown, Inc. v. Johnson, the plaintiffs terminated the defendant-employee and then sued her for violating non-competition and non-solicitation provisions in her employment agreement, which contained a provision stating that Florida law would govern.  The Fourth Department considered several issues, including:  (1) whether to enforce the Florida choice-of-law provision for the restrictive covenants; (2) whether employers can enforce restrictive covenants against employees who were involuntary terminated; and (3) whether the court must partially enforce an overbroad restrictive covenant where the agreement expressly provides for such partial enforcement. First, the Fourth Department considered the issue of whether the Florida choice-of-law provision in the agreement was enforceable.  The court noted that choice-of-law provisions are generally enforceable in New York as long as the chosen law:  (1) bears a reasonable relationship to the parties or the transaction; and (2) is not “obnoxious” to New York public policy.  The Fourth Department concluded that while Florida law met the first prong of this test, it failed the second prong.  The court explained that under New York law, restrictive covenants are enforceable if they are no greater than necessary to protect a legitimate interest of the employer, are not unduly harsh or burdensome to the employee, and do not injure or harm the public.  In contrast, Florida law does not permit courts to consider the hardship to the employee in determining whether to enforce a restrictive covenant.  Based on this difference, the Fourth Department ruled that the choice-of-law provision in the employment agreement was unenforceable, and proceeded to apply New York law to the dispute.  Significantly, the Fourth Department’s ruling did not depend on the specific facts of this case, so it is unlikely that the Fourth Department would enforce a Florida choice-of-law provision in any employer-employee restrictive covenants. Second, the Fourth Department considered defendants’ argument that plaintiffs could not enforce the restrictive covenants because they terminated the defendant-employee.  Defendants relied on a Court of Appeals decision which involved an agreement that employees would forfeit their benefits under pension and profit-sharing plans if they competed with their employer after the end of their employment.  The Court of Appeals held that the employer could not enforce the forfeiture-for-competition clause because the employees were involuntarily terminated without cause.  In Brown & Brown, the Fourth Department refused to apply the Court of Appeals decision to create a per se rule that an involuntary termination without cause always renders a restrictive covenant unenforceable. Third, the Fourth Department ruled that the non-solicitation covenant was overbroad and unenforceable because it prohibited solicitation of any clients of plaintiffs’ New York offices, regardless of whether the employee developed a relationship with those clients during her employment.  Plaintiffs argued that the court should partially enforce the covenant because plaintiffs only sought to prevent the defendant-employee from soliciting clients with whom she developed a relationship during her employment.  The Fourth Department disagreed and explained that partial enforcement is not justified where the covenant is imposed in connection with hiring or continued enforcement or where the employer knew the covenant was overbroad.  The court ruled that several factors weighed against partial enforcement in this case.  Specifically, the employee received the covenant upon hire and did not receive any benefit for signing the agreement other than continued employment.  In addition, the Fourth Department held that the employer was on notice that the covenant was overbroad based on existing case law.  Plaintiffs argued that partial enforcement was required because the employment agreement expressly provided for partial enforcement in the event that a court found the restrictive covenant unenforceable.  The Fourth Department disagreed and found that plaintiffs’ position would permit employers to use their superior bargaining position to impose unreasonable restrictive covenants without any real risk that courts would deem them unenforceable in their entirety. In light of this decision, New York employers should review any choice-of-law provisions governing their restrictive covenants.  If these provisions select Florida law or any other state laws that vary substantially from New York law, they may not be enforceable in the Fourth Department or other New York courts.  Employers should also review the scope of their restrictive covenants to determine whether they are overbroad under New York law.  Based on the reasoning set forth in the Brown & Brown decision, New York courts may sever any overbroad restrictive covenants in their entirety from agreements, even if there is a provision for partial enforcement.

On January 13, 2014, the Equal Employment Opportunity Commission (“EEOC”) announced it had reached a settlement with Founders Pavilion, Inc. (“Founders”), a former nursing and rehabilitation center located in Corning, New York.  In the lawsuit, the EEOC alleged that Founders violated the Genetic Information Nondiscrimination Act (“GINA”).  The lawsuit represented only the third time since GINA was enacted that the EEOC had brought a lawsuit against an employer in which it alleged that an employer violated GINA, and the first lawsuit in which the EEOC alleged that the discrimination was systemic. In EEOC v. Founders Pavilion, Inc., the EEOC alleged that Founders violated GINA because it conducted post-offer, pre-employment medical exams of applicants, in which it requested a family medical history from the applicants.  The EEOC also alleged Founders violated the Americans with Disabilities Act by firing an employee after it refused to accommodate her during the probationary period of her employment, and by firing two women because of perceived disabilities.  Further, the EEOC alleged that Founders violated Title VII by firing and/or refusing to hire three women because they were pregnant. After the lawsuit was filed, Founders ceased operating its business in New York and on or about January 9, 2014, entered into a five-year consent decree in which it agreed to settle the lawsuit.  Pursuant to the settlement, Founders agreed to establish a fund of $110,400 for distribution to 138 individuals who were asked to provide their genetic information.  Founders also agreed to pay $259,600 to five individuals who the EEOC alleged were fired or whom Founders refused to hire in violation of the ADA and Title VII.  In addition, Founders agreed that if it were to resume its business, it must post notices to notify its employees of the lawsuit and consent decree, as well as adopt a new anti-discrimination policy and provide anti-discrimination training to its employees. While the New York Human Rights Law has prohibited employers from discriminating against an employee on the basis of a predisposing genetic characteristic since 1996, GINA goes a step further and makes it unlawful for an employer to request or require employees to provide their own genetic information or the genetic information of family members.  Importantly, GINA and the corresponding regulations broadly define genetic information to include, among other things, genetic tests of the individual or family members and family medical history.  For a more detailed discussion of what is prohibited under GINA, see our blog posts on January 14, 2011, December 7, 2010, and November 19, 2009. In announcing the Founders settlement, the EEOC expressed its intent to continue pursing alleged violations of GINA against employers.  This settlement demonstrates the potential liability that an employer could face in the event that the employer violates a provision of GINA.  Since GINA and its regulations are relatively new, it is important for employers to consult with their legal counsel to ensure compliance.

The following article was published in Employment Law 360 on February 14, 2014. The Alex Rodriguez (“A-Rod”) saga is playing out like a classic Greek tragedy. With hubris-laced legal soliloquies and a sports media dutifully taking on its role as the Chorus, all that appears to be missing is the blind soothsayer.  But if justice is truly blind, then perhaps seeing the legal future for A-Rod merely requires referencing some ancient legal doctrines that are right before our eyes. With a mix of metaphor, the world watched as A-Rod took his swings at Major League Baseball, the Players Union, the Yankees, and just about anyone else he could blame other than himself.  As A-Rod now contemplates his next proverbial at-bat, the Yankees, in particular, possess a little-known legal weapon that we have not heard anyone talking about.  It is a legal doctrine that could dramatically shift the playing field and require A-Rod to not only forfeit all future contractual monies, but also provide restitution to the Yankees for all compensation and benefits earned during the years of his disloyal acts.  Enter Faithless Servant Doctrine. The mighty A-Rod, in a pure legal sense, is a New York employee like any other.  Every employee in New York owes a duty of loyalty to his/her employer.  The breach of that duty carries with it harsh, even Draconian consequences, including the forfeiture of all compensation, even deferred compensation that was paid to the employee during the period of disloyalty.  Consequently, A-Rod beware:  The Faithless Servant Doctrine, with its massive equitable forfeitures, may be centuries old, but it has recently seen a marked resurgence in New York with stunning results. In William Floyd Union Free School District v. Wright, a Long Island school district (which was represented by Bond, Schoeneck & King) used the Faithless Servant Doctrine to sue a former assistant superintendent and a former treasurer.  Both defendants pleaded guilty to grand larceny, admitting that they used their positions as school district officials to embezzle.  The school district sought to recover the compensation paid to the two employees during the period of their theft, plus any deferred compensation that would have been owed to the defendants in retirement. New York law regarding disloyal or faithless performance of employment duties allows the principal to recover “from its unfaithful agent any commission paid,” and “an employer is entitled to the return of any compensation that was paid to the employee during the period of his disloyalty.”  On the appeal of the William Floyd case, the Appellate Division affirmed the ordering of the full forfeiture of compensation paid to the employees during the time they were stealing from the school district.  The Appellate Division also ordered that the school district was permanently relieved of its obligation to pay contractual retirement benefits.  In language now cited in other cases, the Court held:  “Where, as here, defendants engaged in repeated acts of disloyalty, complete and permanent forfeiture of compensation, deferred or otherwise, is warranted under the Faithless Servant Doctrine.”  In addition to the benefits forfeiture and recovery of the stolen funds, the school district recovered more than $800,000 in previously paid compensation to one of the defendants. The William Floyd decision has appeared to breathe a new vitality into the Faithless Servant Doctrine.  Two such cases are of particular note.  In Astra USA Inc. v. Bildman, the Massachusetts Supreme Court interpreted and applied New York law, holding that New York’s Faithless Servant Doctrine permitted an employer to recover compensation it had paid to a high level executive who had been the subject of numerous sexual harassment complaints by other employees.  Under Astra, the doctrine can reach misconduct that does not involve theft or financial damages to the employer.  In upholding a multi-million dollar complete forfeiture the court aptly stated:  “For New York … the harshness of the remedy is precisely the point.” Just a few weeks ago, in Morgan Stanley v. Skowron, a New York federal court ordered the defendant, a former portfolio manager, to forfeit $31,067,356.76.  In Morgan Stanley, the defendant engaged in insider trading, which violated the plaintiff corporation’s Code of Conduct as well as federal securities laws.  In applying the forfeiture, the Court noted that the Faithless Servant Doctrine applies when an employee has either “breached his/her duty of loyalty or has engaged in misconduct and unfaithfulness that substantially violates the contract of service such that it permeates the employee’s service in its most material and substantial part.” Like the defendant in Morgan Stanley, A-Rod’s use of performance enhancing drugs – as found by an arbitrator with possible preclusive effect – substantially violated his contract of services in the “most material and substantial part.”  Put another way, insider trading – the ultimate unfair advantage in the securities industry – is no different in a legal sense than the use of performance enhancing drugs – the ultimate unfair advantage in professional baseball.  And the use of such drugs may not even be the sole extent of the disloyal conduct. If and when A-Rod chooses to step up to the plate again, it will be interesting to see if the Yankees and/or Major League Baseball bring out their new “closer.”

On February 12, 2014, President Obama signed an Executive Order requiring that all new federal contracts and subcontracts contain a clause specifying that the minimum wage to be paid to workers under those federal contracts and subcontracts must be at least $10.10 per hour beginning January 1, 2015.  The federal contracts and subcontracts covered by this Executive Order include procurement contracts for services or construction and contracts for concessions.  This new $10.10 minimum wage will also apply to disabled employees who are currently working under a special certificate issued by the Secretary of Labor permitting payment of less than the minimum wage. Beginning January 1, 2016, and annually thereafter, the minimum wage for federal contractors will be increased by the Secretary of Labor based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers, and rounded to the nearest multiple of five cents.  The Secretary of Labor is required to publish the new minimum wage at least 90 days before the new minimum wage is scheduled to take effect. For tipped employees, the hourly cash wage that must be paid by a federal contractor must be at least $4.90 beginning on January 1, 2015.  In each subsequent year, the federal contractor minimum wage for tipped employees will be increased by 95 cents until it equals 70 percent of the federal contractor minimum wage in effect for non-tipped employees.  If an employee’s tips, when added to the hourly wage, do not add up to the federal contractor minimum wage for non-tipped employees, the federal contractor will be required to supplement the employee's hourly wage to make up the difference. The Secretary of Labor is expected to issue regulations by October 1, 2014, to implement the provisions of the Executive Order.

The National Labor Relations Board ("Board") reissued a proposed rule today that would significantly shorten the timetable for union representation elections.  This same proposed rule (which has become known as the "quickie" or "ambush" election rule) was initially issued by the Board on June 22, 2011.  After the proposed rule was met with strong opposition from employer organizations, the Board issued a final rule on December 22, 2011, that was a scaled-down version of the proposed rule.  The final rule became effective on April 30, 2012.  However, on May 14, 2012, the U.S. District Court for the District of Columbia declared the final rule to be invalid because the Board lacked a quorum when it voted on the final rule.  The Board appealed the decision, but recently announced that it was withdrawing its appeal. As some had predicted, the Board's withdrawal of its appeal set the stage for its reissuance of the broader June 22, 2011, proposed rule.  The proposed rule:

• Establishes electronic filing of election petitions and other documents (intended to speed up processing);
• Requires pre-election hearings to begin seven days after a petition is filed (currently, pre-election hearings can begin up to two weeks after a petition is filed);
• Defers litigation of all “eligibility” issues if they involve less than 20% of the proposed bargaining unit until after the election (these issues would be decided post-election if needed);
• Eliminates pre-election appeals of rulings by Board Regional Directors; and
• Reduces the time in which an employer must provide an electronic list of eligible voters from seven days to two days.

If this proposed rule is implemented, it will significantly shorten the time period from the filing of a union representation petition to the date on which a representation election is held.  This creates a distinct advantage for the union, because it gives the employer less opportunity to counteract a union campaign which likely began well before the filing of the representation petition. Comments on the proposed rule from interested parties must be received on or before April 7, 2014.  After the comment period, the Board may revise the proposed rule, or may issue it as a final rule.  The Board’s decision to reissue the original proposed rule that was issued on June 22, 2011 (rather than the final rule that was issued on December 22, 2011) seems to indicate that the Board may not be willing to make significant changes before a final rule is issued.  However, it is likely that the final rule -- in whatever form it is issued -- will once again be challenged by employer organizations in federal court on the ground that the Board exceeded its rulemaking authority.

On January 27, 2014, the U.S. Supreme Court issued a unanimous decision clarifying the meaning of "changing clothes" under the Fair Labor Standards Act ("FLSA").  In Sandifer v. United States Steel Corp., the Supreme Court adopted a fairly broad definition of the phrase "changing clothes," which should provide employers with some comfort that provisions of a collective bargaining agreement excluding clothes-changing time from compensable hours worked will likely be applied to time spent by employees donning and doffing most forms of protective gear. In general, the FLSA requires employers to pay employees for time spent donning and doffing protective clothing and equipment, if the employer requires employees to wear such protective clothing and equipment, and if the employee must change into and out of the protective clothing and equipment at the work site.  However, Section 203(o) of the FLSA provides that such time is not compensable if the employer and the representative of the employer's employees have agreed to a provision in their collective bargaining agreement to exclude from hours worked "time spent in changing clothes or washing at the beginning or end of each workday." In Sandifer, a group of U.S. Steel employees contended that even though their collective bargaining agreement excluded time spent "changing clothes" from compensable work time, they should nevertheless be compensated for such time because many of the items they were required to wear were protective in nature.  The employees argued that the items they were required to wear should not be considered "clothes" under the FLSA because those items are intended to protect against workplace hazards.  The employees also argued that, by putting on those protective items over their own clothes (rather than substituting those protective items for their own clothes), they were not engaged in "changing" clothes under the FLSA. The Supreme Court refused to interpret the phrase "changing clothes" as narrowly as the employees urged.  With respect to the definition of "clothes," the Supreme Court examined the dictionary definition of the term that existed at the time Section 203(o) of the FLSA was enacted, and held that the term includes all items that are designed to cover the body and are commonly regarded as articles of dress.  The Supreme Court further held that the definition of "clothes" does not necessarily exclude items that are worn exclusively for protection, as long as those items are designed to cover the body and are regarded as articles of dress.  With respect to the definition of "changing," the Supreme Court again examined the dictionary definition of the term that existed at the time Section 203(o) was enacted, and held that the term can mean either substituting or altering.  Accordingly, the Supreme Court concluded that time spent by employees altering their garments by putting on and taking off articles of dress constituted "changing clothes" under the FLSA, and that the employees were not entitled to compensation for such time based on the exclusion set forth in the collective bargaining agreement. Applying these definitions, the Supreme Court considered 12 items of protective gear:  a flame-retardant jacket, a pair of pants, and a hood; a hardhat; a snood (which is a hood that covers the neck and upper shoulder area); wristlets; work gloves; leggings; metatarsal boots; safety glasses; earplugs; and a respirator.  The Supreme Court found that the first nine items qualified as "clothes," but the last three did not.  Thus, the Supreme Court was left to consider the question of whether courts should tally the minutes spent donning and doffing each item, in order to deduct the time spent donning and doffing the non-clothing items from non-compensable time.  Recognizing that "it is most unlikely Congress meant Section 203(o) to convert federal judges into time-study professionals," the Supreme Court stated that courts should analyze whether the time period at issue can, on the whole, be characterized as "time spent in changing clothes or washing."  The Supreme Court articulated a "vast majority" standard for courts to use in their analysis:

If an employee devotes the vast majority of the time in question to putting on and off equipment or other non-clothes items (perhaps a diver's suit and tank) the entire period would not qualify as 'time spent in changing clothes' under Section 203(o), even if some clothes items were donned and doffed as well.  But if the vast majority of the time is spent in donning and doffing 'clothes' as we have defined that term, the entire period qualifies, and the time spent putting on and off other items need not be subtracted.

The Supreme Court concluded that the employees of U.S. Steel spent a vast majority of the time in question donning and doffing items that fell within the definition of "clothes," and that their time was non-compensable under the terms of the collective bargaining agreement.  Although courts addressing this issue in the future will be bound by the broad definition of the phrase "changing clothes" set forth in the Supreme Court's Sandifer decision, courts will be left to analyze on a case-by-case basis whether employees spend a "vast majority" of the time in question donning and doffing items that qualify as clothes or non-clothes items.

On December 30, 2013, the New York State Department of Taxation and Finance issued a Technical Memorandum providing guidance on a new tax incentive for employers who employ students in New York and pay them the state minimum wage rate.  This tax incentive coincides with the three-stage state minimum wage increase.  The New York minimum wage rate increased to $8.00 per hour on December 31, 2013, and is scheduled to increase to $8.75 per hour on December 31, 2014, and $9.00 per hour on December 31, 2015. The minimum wage reimbursement credit took effect on January 1, 2014, and will end on December 31, 2018.  It allows eligible employers, or owners of eligible employers, to obtain a refundable tax credit equal to the total number of hours worked by certain students during the taxable year for which they are paid minimum wage, multiplied by the applicable tax credit rate for that year.  The tax credit rate is $.75 for 2014, $1.31 for 2015, and $1.35 for 2016 through 2018.  If during this time, the federal minimum wage is increased to more than 85% of New York’s minimum wage, the tax credit rates will be reduced to an amount equal to the difference between New York’s minimum wage and the federal minimum wage. An eligible employer is a corporation, sole proprietorship, limited liability company, or a partnership that is subject to certain New York taxes (i.e., personal income tax, franchise tax, etc.).  A student qualifies for the tax credit if the student is:

1. 16-19 years old;
2. employed in New York State;
3. paid at the New York minimum wage rate during some part of the tax year; and
4. enrolled full-time or part-time in an eligible educational institution during the period he or she is paid the New York minimum wage rate.

The educational institution does not have to be located in New York State, but it must maintain a regular faculty and curriculum, and must have a regularly enrolled student body in attendance where its educational activities are regularly carried on.  Examples of educational institutions include secondary schools, colleges, universities, and trade, technical, and vocational schools.  Correspondence schools, on-the-job training courses, and schools only offering courses through the Internet do not qualify as educational institutions. Employers must obtain documentation to verify that the individual is enrolled as a student at an eligible educational institution, and must make such documentation available to the Tax Department upon request.  Examples of acceptable documentation include:

1. a student identification card;
2. a current or future course schedule issued by the school;
3. a letter from the school verifying the student’s current or future enrollment; or
4. working papers (a Student General Employment Certificate – AT-19).

Employers should familiarize themselves with this new tax incentive, as many may employ students who qualify for the credit.  To the extent employers do employ such students, they should immediately verify the student’s status and obtain the appropriate documentation.  It is important to note that employers are prohibited from discharging an employee and replacing that employee with an eligible student in order to qualify for the tax credit.  Additionally, a student who is used as the basis for this tax credit may not be used by an employer as the basis for any other tax credit.

Employers who have employees in New York are required to issue annual notices under the Wage Theft Prevention Act ("WTPA") to all New York employees between January 1 and February 1, 2014.  This is the third year that the WTPA annual notice requirement has been in effect. As we have summarized in previous blog posts, the annual notice must contain the following information:

• the employee's rate or rates of pay (for non-exempt employees, this must include both the regular and overtime rate)
• the employee's basis of pay (e.g., hourly, shift, day, week, salary, piece, commission, or other)
• allowances, if any, claimed as part of the minimum wage (e.g., tips, meals, lodging)
• the regular pay day; and
• the name (including any "doing business as" name), address, and telephone number of the employer.

The annual notice must be provided to each employee in English and in the primary language identified by each employee, if the New York State Department of Labor ("NYSDOL") has prepared a dual-language form for the language identified by the employee.  At this point, the NYSDOL has prepared dual-language forms in Chinese, Haitian Creole, Korean, Polish, Russian, and Spanish.  The English-only and dual language forms created by the NYSDOL are available on the NYSDOL's web site.  If an employee identifies a primary language other than one of the six languages for which a dual-language form is available, the employer may provide the annual notice in English only.  Employers are not required to use the NYSDOL's forms, but employers who create their own forms must be sure that all of the information required by the WTPA is included. Employers are required to obtain a signed acknowledgment of receipt of the annual notice from each employee.  The acknowledgment must include an affirmation by the employee that the employee accurately identified to the employer his/her primary language, and that the notice was in the language so identified.  Signed acknowledgments must be maintained for at least six years.

In collective bargaining, a “final” proposal is often a term of art, used to signal the end of a party’s willingness to move.  However, negotiators frequently will continue to move even after a purportedly final offer.  In the view of the National Labor Relations Board ("NLRB"), “final” does not always really mean final.  Recently, the Fifth Circuit Court of Appeals agreed with the NLRB's view.  In Carey Salt Co. v. NLRB, the Fifth Circuit Court of Appeals affirmed the NLRB's holding that labor negotiations had not reached impasse, even though the union had asked for the company’s “final” proposal, the company had provided it, the union had rejected it, and the parties had thereafter confirmed that they were far apart. These facts, on their face, would seem to suggest that the parties had reached impasse, and that the company was therefore entitled at that point to suspend negotiations and implement its final offer.  However, the NLRB looked behind these facts, and concluded that the union, when it requested the company’s final offer, had not intended to bring negotiations to a halt.  The NLRB credited the union’s testimony that the union had wished only to poll its membership on the company’s position and continue bargaining.  The union’s negotiator testified – without significant rebuttal – that his request for a “final” offer had included the caveat that the parties negotiate further after receiving it.  Under these circumstances, the NLRB held, and the Fifth Circuit affirmed, that the company had prematurely seized on the final offer phraseology to declare impasse and to decline to meaningfully negotiate thereafter. This strategy had disastrous consequences for the company, not the least of which was that it was ultimately responsible for wages lost during an ensuing strike, which – as a result of the company’s premature cessation of negotiations and implementation of its final offer – was held to constitute an “unfair labor practice strike.”  Although the Fifth Circuit does not have jurisdiction over employers in New York, the Court's decision illustrates the treacherous waters that employers in any state must navigate when assessing whether impasse – always an evasive concept – has truly been reached.  The Fifth Circuit's decision includes a particularly scholarly recitation on the subject of impasse in collective bargaining, recounting and discussing precedent on this difficult issue. A second issue addressed in the case is whether, and under what circumstances, purportedly “regressive” proposals – i.e., company proposals that reduce previous terms or concessions – can be a factor in assessing “bad faith” bargaining on the part of the company.  The NLRB held that the company had bargained in bad faith by introducing so-called regressive proposals.  However, the Fifth Circuit rejected the NLRB's position, clarifying that regressive proposals are lawful as long as they are not designed or intended to avoid or frustrate bargaining.  The Fifth Circuit found no evidence that the regressive proposals had been deployed in a bad faith manner in this instance.  Therefore, the Court rejected the NLRB’s sweeping conclusion of bad faith based on these proposals alone.

In D.R. Horton, Inc., the National Labor Relations Board ("NLRB") held that a mandatory arbitration agreement between an employer and an employee that included a class action waiver was unlawful under Section 8(a)(1) of the National Labor Relations Act ("NLRA") because it prohibited the employee from engaging in concerted activity with other employees.  The NLRB's D.R. Horton ruling, which was the subject of a prior blog post, dealt a significant blow to employers who sought to manage their litigation risk by requiring employees to sign mandatory arbitration agreements and class action waivers as a condition of employment.  The Second Circuit Court of Appeals, in a separate case decided on August 9, 2013, expressly declined to follow the NLRB's D.R. Horton ruling and held that a class action waiver in an arbitration agreement was enforceable under the Fair Labor Standards Act ("FLSA").  Recently, the Fifth Circuit Court of Appeals rejected the NLRB's D.R. Horton ruling, holding that class action waivers contained in mandatory arbitration agreements do not violate the NLRA and are enforceable under the Federal Arbitration Act ("FAA"). The Fifth Circuit began its analysis by noting that the FAA requires arbitration agreements to be enforced according to their terms, with two exceptions:  (1) an arbitration agreement may be invalidated "upon such grounds as exist at law or in equity for the revocation of any contract" (commonly referred to as the FAA's "saving clause"); and (2) application of the FAA may be precluded by another statute's contrary congressional command.  The Court concluded that neither of these exceptions applied to preclude the enforceability of the class action waiver contained in the mandatory arbitration agreement. The Court stated that the saving clause "is not a basis for invalidating the waiver of class procedures in the arbitration agreement."  The Court then examined whether the NLRA contained a congressional command to override the provisions of the FAA, and found that it did not.  The Court found that the "NLRA does not explicitly provide for such a collective action, much less the procedures such an action would employ," and concluded that "there is no basis on which to find that the text of the NLRA supports a congressional command to override the FAA."  The Court also looked to the legislative history of the NLRA for evidence of a congressional command to override the FAA, and found no such evidence.  Finally, the Court determined that no congressional command to override the FAA could be inferred from the underlying purpose of the NLRA.  Accordingly, the Court held that the class action waiver in the mandatory arbitration agreement was valid and enforceable under the FAA. The Fifth Circuit recognized that every other Circuit Court of Appeals that considered the issue (including the Second Circuit, as noted above) either suggested or expressly stated that they would not defer to the NLRB's rationale, and held class action waivers in arbitration agreements to be enforceable.  The Court stated that it did not want to create a split among the Circuit Courts by enforcing the NLRB's D.R. Horton decision. Although the Court refused to enforce the NLRB's ruling that the class action waiver violated the NLRA, the Court agreed with the NLRB that the mandatory arbitration agreement violated the NLRA to the extent that it would lead an employee to believe that the filing of unfair labor practice charges was prohibited.  The employer argued that this was not the intent of the mandatory arbitration agreement, and that employees remained free to file unfair labor practice charges with the NLRB.  However, the Court nevertheless enforced the portion of the NLRB's order requiring the employer to clarify the language of the mandatory arbitration agreement to permit the filing of unfair labor practice charges. It remains to be seen whether the NLRB will ask the U.S. Supreme Court to review the Fifth Circuit's decision.  In the meantime, employers should consider whether arbitration agreements with employees containing class action waivers might be a useful tool to limit the risk and cost associated with employment-related litigation.

In a case dealing with the after-effects following the bankruptcy of clothing retailer Steve & Barry’s Industries, Inc., the Court of Appeals for the Second Circuit (which has jurisdiction over New York employers) has ruled, in Giuppone v. BH S&B Holdings LLC, on the analysis to be applied in determining whether nominally separate entities should be considered a single employer for purposes of coverage under the Worker Adjustment and Retraining Notification Act ("WARN"). The federal and state WARN laws generally require that employers provide employees with notice of employment losses due to a plant closing or mass layoff.  In Guippone, the Court resolved an open question in the Circuit concerning the test to be applied when analyzing the single employer issue.  The single employer issue is particularly important in the WARN context because an entity that is theoretically not the “employer” of the discharged employees – for example, an investment entity or corporate parent – may nevertheless become liable under WARN if a court determines that the “employer” and the related entity are a “single employer” for WARN purposes.  The “single employer” theory also may entangle a larger, related entity, where the employer of record is too small for purposes of coverage under WARN. In Guippone, the Court concluded that a five-factor test set forth in the regulations of the United States Department of Labor (“USDOL”) should be applied when analyzing the issue.  Those five factors are:  (1) common ownership; (2) common directors and/or officers; (3) de facto exercise of control; (4) unity of personnel policies emanating from a common source; and (5) the dependency of operations.  The Court held that the five factors are non-exclusive, with no one factor controlling and the absence of any factor not dispositive on the question of WARN liability. The Court largely affirmed the lower court’s ruling dismissing the case against certain related entities, based upon application of the USDOL factors.  However, it concluded that a question of fact existed with regard to the de facto exercise of control factor as applied to another related entity.  In particular, the Court focused on whether the evidence indicated that a related entity “was the decision-maker responsible for the employment practice giving rise to the litigation.”  Among the evidence cited by the Court was:

• the absence of a board of directors at the subsidiary;
• selection by the parent of the subsidiary’s management team;
• negotiation of the subsidiary’s financing by the parent’s board of directors; and
• a resolution passed by the parent’s board of directors “authorizing” the subsidiary “to effectuate the reduction in force.”

An employer considering any type of reduction in force should properly assess its potential obligations under the federal and state WARN statutes before implementing the reduction in force.  Furthermore, when assessing those obligations, an employer must consider whether it is a “single employer” along with other related entities to trigger coverage under WARN even if the employer by itself would not otherwise be covered under WARN.  Finally, an employer should pay particular attention to the degree of control exercised by a related entity over the reduction in force decision.