In recessionary times like these, employers often rely more heavily on independent contractors to avoid the personnel costs associated with hiring regular employees. Doing so, however, creates risks. Now is a good time to make the effort to determine whether your independent contractors are really independent contractors. Just don’t expect the answer to come easily.

The issue of who is properly classified as an independent contractor (as opposed to employee) has been giving employers headaches for decades. As the United States Supreme Court noted over 60 years ago: “Few problems in the law have given greater variety of application and conflict in results than the cases arising in the borderland between what is clearly an employer-employee relationship and what is clearly one of independent entrepreneurial dealing.” N.L.R.B. v. Hearst Publication, 322 U.S. 111, 121 (1944). It is little wonder that even the Supreme Court is troubled by this legal issue given the difficulties involved in the analysis. For starters, courts and government agencies (both state and federal) use different legal tests to make this determination. As a result, a single set of facts can produce different legal conclusions. Moreover, none of the tests utilized relies on definitive factors. As the Internal Revenue Service (“IRS”) states on its website, “[T]here is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.”

Although the issue is old, it has continued vitality. There has been a significant increase in litigation, government enforcement and legislation over the misclassification of independent contractors in recent years. It is equally clear that the focus on independent contractor misclassification, far from slowing down, will only continue to pick up steam. The remainder of this blog summarizes some recent developments demonstrating that employers need to be very careful when using independent contractors.
 

New York State’s Joint Enforcement Task Force on Employee Misclassification (“Task Force”), formed in 2007, continues to address, among other things, the problem of employers who inappropriately classify employees as independent contractors.  According to the Task Force’s most recent Annual Report, it has uncovered approximately 12,300 instances of employee misclassification resulting in more than $157 million in unreported wages. Partly in response to the Report, Senate Labor Committee Chairman George Onorato, D-Queens, and Senate Insurance Committee Chairman Neil Breslin, D-Albany, renewed their push for passage of a bill which would, among other things, levy fines of up to $5,000 per employee for any construction company that misclassifies its workers as independent contractors. The bill also creates a presumption of employment status in the construction industry unless certain factors are established.

On August 21, 2009, the Massachusetts Supreme Judicial Court held in Somers v. Converged Access, Inc. that an employee who has been misclassified as an independent contractor is entitled, under Massachusetts law, to recover any wages and benefits he proves he was denied because of his misclassification, including holiday pay, vacation pay, and overtime. In so doing, the Court rejected the employer’s argument that it should not have to pay any damages because had it known the individual was an employee instead of an independent contractor, it would have paid him a lower hourly rate than he received as an independent contractor.

New York Attorney General Andrew M. Cuomo, Montana Attorney General Steve Bullock, and New Jersey Attorney General Anne Milgram have announced their intent to sue FedEx Ground Package Systems, Inc. (“FedEx Ground”) for violations of state labor laws stemming from the Company’s alleged misclassification of its drivers as independent contractors. The Attorneys General claim that such misclassification deprives drivers of workers’ compensation and other labor and employment legal protections received by FedEx Ground’s employees.

In Mohel v. Commissioner of Labor, a decision dated November 17, 2009, the New York Industrial Board of Appeals found that drivers of a limousine service were employees as opposed to independent contractors under the “right to control” test used by the New York State Department of Labor.

Finally, Beginning in early 2010, the IRS will launch an audit initiative that will audit the federal tax returns of 6,000 companies to assess compliance with tax and labor regulations. As part of this audit, the IRS will examine independent contractor misclassification. The initiative was prompted, in part, by advice from the United States Government Accountability Office to the IRS and United States Department of Labor to step up efforts to reduce the misclassification of independent contractors.

 

On December 21, 2009, the President signed H.R. 3326, which includes the COBRA subsidy changes discussed in yesterday's blog entry. The enactment of this law means that by February 19, 2009, administrators of group health plans must issue a notice describing the COBRA changes to individuals who were eligible for the subsidy or who experience(d) a COBRA qualifying event at any time on or after October 31, 2009. This notice should describe:

• The extension of the maximum COBRA subsidy period from 9 months to 15 months;
• The extension to February 28, 2010, of the qualifying date for an involuntary termination entitling the COBRA qualified beneficiary to the COBRA subsidy as an "assistance eligible individual";
• The right of qualified beneficiaries whose COBRA terminated after October 31, 2009 (due to failure to pay the higher COBRA premium) to reinstate coverage retroactively by paying the subsidized premium (the 35% amount) by February 19, 2010, or by 30 days after the notice is provided, whichever is later;
• The right of assistance eligible qualified beneficiaries who paid the unsubsidized premium for COBRA for periods after October 31, 2009, to receive a refund or obtain a credit of the overpaid amount. (The administrator can choose the option it prefers: refund or credit).

Watch the U.S. Department of Labor website, www.dol.gov/cobra, for more information and, possibly, a model notice.
 

On Saturday, the Senate passed the 2010 Defense Appropriations Bill, which contains an extension of the ARRA subsidy for COBRA continuation of health coverage. The Senate Bill is identical to the House Bill, and the President is expected to sign the bill this week. That signature date is important because it is the "enactment date," which drives some of the payment and notice requirements described below.
 

The Appropriations Bill does the following with respect to the 65% COBRA subsidy:

• Individuals who are involuntarily terminated through February 28, 2010, will be eligible for the subsidy (the previous date was December 31, 2009);
• The maximum subsidy period is extended to 15 months from the original 9 months; 
• Individuals whose subsidized COBRA coverage has already ended (some may have ended during November, 2009) have 60 days from the date of enactment (or 30 days after the notice discussed in the next bullet point, if later) to pay the 35% subsidized premium amount and obtain retroactive coverage by the subsidized COBRA. If the full premium was already paid, the "overpayment" amount can be refunded or credited towards future coverage;
• Within 60 days of the enactment of the law, Administrators of group health plans must provide a notice describing the foregoing to individuals who were eligible for the subsidy or who experienced a COBRA qualifying event at any time on or after October 31, 2009;
• The bill also "fixes" a problem recently identified in Department of Labor Q&As: The subsidy will be available to individuals who have a COBRA qualifying event (involuntary termination) through February 28, 2010. The previous law said that a terminated employee had to be eligible for COBRA by the expiration date. This is a subtle difference, but it caused an earlier termination of the subsidy than had been contemplated by Congress.
   

Employers forced to implement voluntary separation or early retirement incentives to deal with the recent economic downturn sometimes make a no-rehire policy part of the package. There may be sound business reasons for doing so, for example, to avoid paying a salary to someone who was supposed to leave employment and is receiving separation or retirement benefits. However, employers who include a no-rehire policy as part of a separation incentive package run the risk of having to defend an age discrimination lawsuit if the policy is later applied to prevent a rehire. Recently, the Equal Employment Opportunity Commission ("EEOC") filed such a suit in federal court in New York. EEOC v. AT&T, Inc., Civil Action No. 09 Civ. 7323 (S.D.N.Y. 2009).

EEOC’s complaint alleges that, among other things, a no-rehire policy violates the Age Discrimination in Employment Act because it has an adverse impact on employees and applicants who are age 40 or older. The theory is that older employees are more likely to be denied employment under a no-hire policy because they are more likely to have accepted a voluntary separation or early retirement incentive.

Whether such a disparate impact claim is even available in the context of a failure to hire is open to question. However, EEOC has obtained a favorable decision on that issue from at least one other court. In EEOC v. Allstate Insurance, Co.,   (8th Cir. 2008), the United States Court of Appeals for the Eighth Circuit considered a similar “no-rehire” policy that applied to “employee-agents” who were terminated as part of a corporate reorganization. Allstate’s policy prohibited the rehire of any terminated employee-agent for one year or for so long as that employee was receiving severance benefits, whichever period was longer. Ultimately, the Eighth Circuit held that the “rehire” policy was an “employment policy” and not a “hiring policy,” and that the policy was therefore subject to a disparate impact challenge under the ADEA. Allstate reportedly settled the case for $4.5 million.
 

As we reported earlier this year, the Equal Employment Opportunity Commission (“EEOC”) has proposed regulations implementing the Americans with Disabilities Act Amendments Act (“ADAAA”). The EEOC published its proposed regulations in September, and the period for public comment recently closed on November 23, 2009. The EEOC will now evaluate the comments it has received and then issue final regulations, which may or may not include changes to the proposed rules.

Consistent with the intent of the ADAAA, the EEOC’s proposed regulations would broaden the definition of what constitutes a protected “disability” under federal law. The EEOC believes that this will have the effect of shifting the focus of litigation away from whether a person’s impairment is a covered “disability,” and to the issue of whether an employer has complied with its obligations under the law.

While many aspects of the proposed regulations appear to reasonably interpret the ADAAA, commentators have noted there are some provisions which, at least arguably, constitute overreaching on the EEOC’s part. Among the most controversial of these provisions are the following:

 

New List of “Per Se” Disabilities

Perhaps the most controversial element of the proposed regulations is the EEOC’s creation of what some commentators have called a “per se” list of protected disabilities. The ADAAA itself neither contains such a list, nor expressly authorizes the EEOC to create one. The EEOC claims its non-exclusive list does not preclude employers from undertaking an “individualized assessment” to evaluate a potential disability. At the same time, according to the agency, the list is intended to ensure this assessment “can be done very quickly and easily with respect to these types of impairments, and will consistently result in a finding of disability.”

Elimination of “Condition, Manner, or Duration” Analysis

The proposed regulations would redefine the term “substantially limits,” by eliminating the previous “condition, manner or duration” evaluation used by employers to determine whether an impairment substantially limits a major life activity. Instead, the regulations state this evaluation should be made on the basis of “common-sense” and “without resorting to scientific or medical evidence” by comparing an individual’s limitation to “the ability of most people in the general population.” (The ADAAA does not expressly address this issue, and the statute’s legislative history suggests that the drafters intended to preserve the “condition, manner, or duration” analytical device.)

“Major Life Activity” of “Working”

The proposed regulations would also alter the framework employers are required to use to analyze whether an impairment substantially limits the major activity of working. (The ADAAA is silent on this issue as well.) Specifically, under the proposed regulations, “an impairment substantially limits the major life activity of working if it substantially limits an individual’s ability to perform, or meet the qualifications for, the type of work at issue.” This new framework would replace current law which requires an inability to perform a “broad range” or “class” of jobs.

Less controversial, but nonetheless noteworthy, are the following provisions:

Expansion of “Major Life Activities” and “Major Bodily Functions” Lists

The proposed regulations would expand the list of “major life activities” found in the ADAAA, to include: sitting, reaching and interacting with others. Similarly, the proposed regulations would expand the ADAAA’s list of “Major Bodily Functions” to include: hemic, lymphatic, musculoskeletal, special sense organs and skin, genitourinary and cardiovascular.

Expansion of “Mitigating Measures” List

The proposed regulations supplement the ADAAA’s list of mitigating measures, which may not be considered in determining whether an individual has an impairment which substantially limits a major life activity, to include surgical interventions that do not permanently eliminate an impairment. However, EEOC takes the position that mitigating measures may be taken into consideration for other purposes, for example, to determine whether a reasonable accommodation is required or to determine whether an individual poses a “direct threat” in the workplace.

Although it is not known when the EEOC will issue its final regulations, Commissioner Constance Barker has stated it could be as early as March 2010. We will continue to monitor and report on any noteworthy developments.
 

The recently enacted National Defense Authorization Act for Fiscal Year 2010 amends the Family and Medical Leave Act (“FMLA”), by expanding the availability of “military caregiver leave” and “qualifying exigency leave.” The legislation does not include an effective date, so it is prudent for employers to adjust their workplace practices and policies now in order to comply with the new law. The coverage expansions are explained below.

Military Caregiver Leave Expanded to Cover Certain Veterans

The FMLA provides that eligible employees may take up to 26 weeks of job-protected leave in a single 12-month period to care for a “covered servicemember” with a serious injury or illness. The term “covered servicemember” was defined as a member of the Armed Forces, including a member of the National Guard or the Reserves, who is undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability retired list, for a serious injury or illness. The new law expands the definition of “covered servicemember” to include veterans who are undergoing medical treatment, recuperation, or therapy for a serious injury or illness and who were members of the Armed Forces, including the National Guard or the Reserves, at any time during the five years preceding the date on which the veteran undergoes such treatment, recuperation or therapy.

Military Caregiver Leave Expanded to Cover Preexisting Injuries

As noted above, the FMLA’s military caregiver leave provisions require that the covered servicemember have a “serious injury or illness.” Pre-amendment, the “serious injury or illness” must have been incurred in the line of duty on active duty in the Armed Forces. The recent amendments expand this definition to include illnesses or injuries that existed prior to the beginning of the covered servicemember’s active duty and were aggravated by service in the line of duty on active duty. With respect to a veteran who was previously a member of the Armed Forces, including the National Guard or the Reserves, a “serious injury or illness” is defined as “a qualifying injury or illness” that was incurred in the line of duty, or aggravated by service in the line of duty while on active duty in the Armed Forces and that manifested itself before or after the individual became a veteran.

Qualifying Exigency Leave Expanded to Cover Members of the Regular Armed Forces

The FMLA also provides eligible employees with up to 12 weeks of job-protected leave in a single 12-month period for a “qualifying exigency.” Until the most recent amendments, “qualifying exigency” leave was limited to eligible family members of individuals serving in the National Guard or Reserves. The most recent amendments expand the scope of “qualifying exigency” leave to include active-duty members in the regular Armed Forces. The covered military member must be on “covered active duty.” For servicemembers in a regular component of the Armed Forces, “covered active duty” means duty during deployment to a foreign country. For members of the National Guard or Reserves, it means deployment to a foreign country under a call or order to active duty.

The Secretary of Labor, in consultation with the Secretary of Defense and the Secretary of Veterans Affairs, is responsible for issuing regulations to implement the most recent amendments. It is not certain when those regulations will be issued.

 

As calendar year 2009 draws to a close, employers who do business with the federal government should examine whether they are required to have an annual affirmative action plan (“AAP”), and, if so, whether it is up to date. Executive Order 11246 (“EO 11246”) requires federal contractors and subcontractors who have 50 or more employees and at least one contract worth more than $50,000 to have an affirmative action plan, to update that plan annually, and to keep and analyze a wide variety of employment data during each plan year.  Section 503 of the Rehabilitation Act of 1973 and the Vietnam Era Veterans Readjustment Assistance Act of 1974 create additional affirmative action plan obligations related to veterans and individuals with disabilities. A covered contractor's failure to satisfy its AAP obligations is typically revealed through an audit by the Office of Federal Contract Compliance Programs (“OFCCP”).  OFCCP is part of the United States Department of Labor and is charged with enforcing EO 11246. OFCCP selects contractors for audit using its Federal Contractor Selection System, which utilizes a variety of neutral criteria. The ultimate sanction for failing to comply with AAP obligations is debarment from federal contracts.

What contracts are covered by EO 11246? In general, a covered contract is one whereby the contractor agrees to supply goods or services to a federal administrative agency or department. Special rules apply to banks and construction contractors. A subcontract is covered if the subcontractor furnishes supplies, services or property necessary for the performance of any one or more covered primary contracts, or if the subcontractor agrees to perform any portion of the covered contractor’s obligations to the government. Generally speaking, receipt of some form of federal financial assistance does not create a covered contract. However, employers should examine the terms of any federal agreements to ensure that the agreement itself does not require an affirmative action plan.

If you are required to have an affirmative action plan, the plan, or separate plans, must cover each of your establishments, even if only one establishment has the covered contract. OFCCP defines an establishment as a facility which produces goods or services such as a factory, office, store or mine. Although it is clear that all of a contractor’s establishments must have a plan even when only one has a federal contract, questions related to when a parent or subsidiary must have a plan simply because a related corporate entity has a covered contract can be more difficult to answer. Whether some or all of the entities must have an AAP turns on whether the corporate entities are truly separate, a question that is answered using a multifactor test. The most important factor is common control of labor and employee relations.
 

Without acknowledging that it is doing so, today the New York State Department of Labor ("DOL") changed its position on whether employers are required to use DOL’s form in order to comply with Section 195 of the Labor Law. Effective October 26, 2009, Section 195 requires employers to provide all new hires with notice of their wage rates, pay dates, and, if applicable, overtime rates. The statute also requires that employers obtain written acknowledgments from new employees confirming receipt of this information, which must conform to any "content and form" requirements established by DOL. Shortly after the effective date of the statute, DOL issued a problematic, highly controversial, one-size-fits-all form for providing that information, and mandated its use by employers for all classes of employees. Today, DOL reversed position by posting a notice on its website that states no particular form is required to comply with the statute and that DOL’s form is only a sample.   Employers may create their own forms, use the DOL sample, or adapt the DOL sample form.  The notice also states that DOL plans to come up with several different types of sample forms in the future, including a form for exempt employees.

Eighteen months after it was first signed into law by President Bush, Title II of the Genetic Information Nondiscrimination Act of 2008, also known as GINA, will take effect this Saturday, November 21, 2009. Title II prohibits employment discrimination based on genetic information, and imposes confidentiality obligations on employers who obtain such information.  Title II's requirements are described below.

 

In enacting GINA, Congress lauded the many advances in genetic research in recent years that may spur major medical breakthroughs in the detection, treatment and prevention of illnesses and diseases. It also found, however, that with this progress came increasing concern about the possible misuse of genetic information to discriminate in employment and health insurance coverage. As an example, Congress cited to legislation passed by some state legislatures in the 1970s mandating sickle cell anemia screening as a covert means of screening African-American applicants out of the workplace.

Employees appear to share Congress’s concern. In one national survey, 63% of participants indicated they would not take genetic tests for disease if the results could be accessed by their employers or health insurers. Another recent poll found 93% of respondents opposed to the use of genetic information by health insurers and employers.

Enacted in response to these growing concerns, Title II prohibits employers from using genetic information in making any decisions about hiring, firing, promotions or any other term or condition of employment. It also forbids employers from intentionally acquiring genetic information, imposes strict confidentiality obligations on those who do come into possession of such information, and prohibits retaliation against individuals who challenge acts made illegal by GINA or who have filed a charge or otherwise participated in an investigation, proceeding or hearing under the law. Although New York’s Human Rights Law has prohibited discrimination on the basis of genetic characteristics since 1995, the new federal law imposes restrictions not found in the state statute.

Title II’s protections extend to applicants, employees and former employees, and its restrictions apply to private and state and local government employers with 15 or more employees, employment agencies, labor unions, joint labor-management training programs, Congress and federal executive branch agencies.

Genetic Information
What is considered “genetic information” under the new law? The term encompasses not only information about an employee’s own genetic tests, but also information about the tests of the employee’s family members and the manifestation of diseases or disorders in those family members (i.e., family medical history). Covered “family members” can be those as distant as 4th degree relatives, including great-great grandparents and first cousins once removed. The term genetic tests generally refers to analyses of human DNA, RNA, chromosomes, proteins or metabolites that detect genotypes, mutations or chromosomal changes. Thus, a test to determine the likelihood that an individual will develop Huntington’s Disease is a genetic test and the results would constitute “genetic information” for purposes of GINA. On the other hand, information about the sex or age of a person is expressly carved out as not constituting genetic information.

Acquisition of Genetic Information
The new law imposes strict limitations on the acquisition of genetic information by employers. More specifically, employers are prohibited from requesting, requiring or purchasing genetic information about an employee or the employee’s family member except in very limited circumstances. One such exception, the so-called “water cooler” exemption, excuses employers who inadvertently learn genetic information. Examples may include a supervisor who overhears one employee tell another that her father has Alzheimer’s Disease or a manager who learns genetic information in response to a general health inquiry such as “how are you?” Another exception shields employers that acquire genetic information through responses to lawful requests for medical certifications under the federal Family and Medical Leave Act (“FMLA”) or similar state leave laws. Additional exceptions cover genetic information acquired through employer-offered health and genetic services, such as “wellness” programs, as well as to information obtained through commercially and publicly available sources such as newspapers or magazines. This last exception, however, does not apply to genetic information contained in medical databases or court records.

Notwithstanding these exceptions, Title II imposes a significant new restriction on the permissible scope of post-offer medical examinations. Although the Americans with Disabilities Act has for years allowed employers to require that all persons offered a position in a particular job category undergo a medical examination, they will no longer be permitted to obtain family medical history information or require that the individual submit to genetic testing as part of that examination.

Most importantly, regardless of whether the genetic information has been lawfully acquired or not, employers are strictly prohibited from using that information in making any employment-related decisions such as hiring, promotions, or termination.

Confidentiality
On top of its strict limitations on the acquisition of genetic information, the statute also imposes significant confidentiality obligations on employers that possess such information. First, genetic information must be treated as a confidential medical record. If the information is in writing, it must be maintained in a medical file separate and apart from other personnel information. The information may be maintained in the same file as medical information subject to the ADA’s confidentiality requirements. Notably, genetic information obtained through commercially or publicly available sources – for example, information about the cause of death reported in a newspaper obituary – need not be maintained in the separate medical file.

Additionally, GINA prohibits the disclosure of genetic information unless such disclosure is: (i) to the employee (or family member, in limited circumstances) at his or her written request; (ii) to an occupational or other health researcher conducting research in compliance with specific federal regulations; (iii) in response to a court order so long as disclosure is limited only to genetic information expressly authorized by the order and the affected individual is notified of the order and the content of the disclosure; (iv) to government officials investigating compliance with GINA, provided the information is relevant to the investigation; (v) to comply with certification provisions of the FMLA and related state family and medical leave laws; or (vi) to public health agencies, limited to family medical history information related to a contagious disease that poses an imminent hazard of death or life-threatening illness and where notice is also given to the employee of the disclosure.

Remedies
Remedies available for violations of Title II are the same as those available under Title VII. Unlike Title VII, however, GINA does not currently provide a cause of action for “disparate impact.” A commission will, however, be established six years after Title II becomes effective to review genetic science developments and to make recommendations to Congress as to whether a “disparate impact” cause of action should be added to the statute.

The Equal Employment Opportunity Commission (“EEOC”) has been charged with enforcing Title II. To that end, the EEOC issued proposed regulations in March 2009, but has yet to issue the final regulations. It has, however, issued an updated “EEO is the Law” poster to reflect the changes implemented by the new law. Employers have the choice of either printing and posting the new updated poster, printing and posting a supplemental poster  alongside the EEOC’s 2002 “EEO is the Law” or the Office of Federal Contract Compliance Programs 2008 “EEO is the Law” posters, or ordering a new poster through the EEOC Clearinghouse.
 

A recent determination by the United States Supreme Court serves as a reminder that dealing with strikes is a particularly dangerous activity for employers and requires careful planning and counsel at every step. In the midst of an economic strike in 1999, a Connecticut nursing home/assisted living facility made the decision to hire permanent replacements. Ten years later, the unfair labor practice case generated by hiring the replacements has finally come to a close with the United States Supreme Court refusing to hear the case, and leaving the employer with a back pay liability that could reportedly exceed $3 million. The saga of the case provides lessons on both an employer’s use of permanent replacements, and on the potential economic consequences of fighting an unfair labor practice charge.

As noted, the case began in 1999, when the employer, Church Homes, Inc., began hiring permanent replacement employees a month into a strike. Under federal labor law, an employer is permitted to hire permanent replacements for strikers involved in an economic strike. The strike was an economic strike, so permanent replacements were permitted, but what made this case different was the fact that Church Homes actively concealed its hiring of the replacements, bringing them on board without notice to the union or the strikers. It was not until several weeks later, after approximately 100 replacements had been hired, that the company revealed this fact during a mediation session. The union subsequently made an unconditional offer to return to work, but only 79 of the approximately 185 strikers were returned by the company. The company relied on its hiring of permanent replacements, as it is typically permitted to do in an economic strike situation, to deny reinstatement to the other strikers.

The union filed unfair labor practice charges against the company claiming that the employer’s hiring of permanent replacement workers was not for legitimate business reasons but rather was to punish the strikers and break the union. An Administrative Law Judge initially found merit in the charges and ruled against the employer. Church Homes appealed to the National Labor Relations Board. In a 2-1 decision the Board found in favor of Church Homes. The Board recognized the long standing right of an employer to hire permanent replacements during an economic strike and further found that the employer had no obligation to advise the union that it was hiring replacements. As a result, it concluded that the NLRB’s General Counsel had failed to carry its burden of proving that the employer acted unlawfully.

The Board’s decision was appealed to the United States Court of Appeals for the Second Circuit which, in 2006, reversed the Board’s decision. While the Court agreed that permanent replacements were appropriate in an economic strike and that there was no absolute obligation for an employer to notify a union in advance of the hiring permanent replacements, it concluded that active concealment of the hiring of replacements can support an inference of improper motive, absent proof of an affirmative legitimate reason for the secrecy. The Court remanded the case to the Board for further consideration.

On remand, the Board changed course and ruled against the employer. Finding a lack of credible evidence to support a legitimate reason for the employer’s secrecy, the Board concluded that “it would appear that the [Second Circuit] placed on the [employer] the burden of establishing a lawful motive for maintaining secrecy in the hiring of replacements.” Because the employer did not meet this burden, its failure to return the strikers to work because of the hiring of the replacements was found to be unlawful.

This second Board decision was affirmed on appeal back to the Second Circuit, which reinforced its prior conclusion that “the logical inference to be drawn from [the employer’s] secrecy, absent evidence of a legitimate purpose or credible explanation for the secrecy, was that [it] intentionally concealed its hiring of permanent replacements to remove Union members from its workforce and thereby break up the Union.” The employer subsequently sought review by the Supreme Court. Just a few weeks ago, the Supreme Court announced that it would not hear the case, finally bringing this saga to a close after nearly 10 years.

There are two significant lessons to be learned from this tortuous history. While the good news is that neither the Second Circuit nor the Board found that hiring permanent replacements in secrecy automatically proves improper motive, these decisions make clear that an employer must be able to articulate and document a legitimate business reason for the secrecy as part of its decision making process. The Court and the Board noted that concern over violence could be a legitimate justification for secrecy, but there must be credible evidence that such a fear is warranted. Presumably there could be other reasons which would support secrecy. But without credible contemporaneous evidence that such concerns in fact motivated the employer to maintain secrecy, an employer who does not provide advance notice of the hiring of replacements does so at great risk.

The second lesson of the case relates to the inordinate amount of time it can take to fully litigate unfair labor practice cases under the current statutory scheme. This case, with an Administrative Law Judge decision, two NLRB proceedings and two trips to the Second Circuit before a final rejection by the Supreme Court, took nearly 10 years. Recent reports indicate that potential back pay could exceed $3 million. Significant time delays mean that employers must either be prepared to face potentially enormous back pay exposure in their efforts to vindicate their rights, or prematurely forfeit their position on the merits because that potential liability is simply too great.
 

It has been one full year since President Obama’s historic election and we can all breath a collective sigh of relief that nobody in Washington is even talking about the Employee Free Choice Act, right? In addressing this question, I will invoke what I consider to be the greatest movie title of all time – Clint Eastwood’s 1966 epic spaghetti western, “The Good, the Bad and the Ugly.”

It is, of course, good news that the dreaded EFCA has not become law. To recap, the percentage of workers who are represented by labor unions in the United States has been declining for more than six decades from a peak of 34% in 1954 to just 12.4% in 2008. When government workers are taken out of the equation, unions now represent a mere 7.4% of the nation’s private sector workforce.

EFCA was designed to dramatically reverse this trend and restore organized labor to its glory days by amending the National Labor Relations Act in three critical ways: (1) replace secret ballot elections in union representation cases with card-check recognition; (2) require rapid agreement on an initial labor contract following unionization and impose binding arbitration if not settled within 90 days; and (3) ratchet up penalties and expand the use of injunctive relief for employer unfair labor practices.

Backed by tens of millions of dollars in political campaign contributions, endorsements and armies of volunteer workers from organized labor, President Obama was elected on a promise to sign EFCA into law upon passage by the Democratic controlled Congress. EFCA was expected to be a top priority for the new administration during its first year in office, and union-free employers began to brace themselves for the prospect of rapidly expanding unionization beginning as early as the summer of 2009. As we all know now, the Stimulus Bill, Health Care Reform, the war in Afghanistan, and the upcoming Cap and Trade debate have all taken precedence, pushing EFCA to the back burner. Moreover, the most controversial aspect of EFCA – card check – has reportedly been dropped because it lacks support from the 60 Senators needed to stop a Republican filibuster.

Now for the bad news, obvious though it may be. President Obama is not going anywhere for at least another 3 years. The one-party government in Washington will remain firmly in place at least through all of 2010 and most likely beyond. Organized labor has unprecedented influence in this White House and more clout in Congress than it has had in decades. President Obama’s appointees to fill the NLRB’s three vacant seats will undoubtedly be confirmed by the Senate in the upcoming year and begin to reverse a series of decisions under the Bush administration that were favorable to employers. The new Obama Board will lead an agency that is already filled with like-minded career bureaucrats.

Today’s top labor leaders know how to use the political process and they know how to run campaigns. They are ideologically committed and aggressive. Frustration over labor’s downward spiral has been building ever since President Reagan’s decision to fire striking air traffic controllers back in 1980. The new President of the AFL-CIO, Richard Trumpka, and key leaders within the rival labor coalition Change To Win (CTW), most notably SEIU’s Andy Stern, are powerful advocates for a resurgent labor movement.

And now for the ugly news. 2010 will be a watershed year for organized labor. Even without card check, the playing field will almost certainly be tilted dramatically in favor of union organizers. Under longstanding NLRB guidelines, when a labor organization files a petition to represent a group of non-union employees, an election must normally be held within 42 days. This is barely enough time to run an effective information campaign countering the union’s message which can be very attractive to the uneducated employee. When the EFCA debate does inevitably reach the front burner in the months ahead, at a minimum unions can expect to win stiffer penalties for employer unfair labor practices and fast-track elections, perhaps within 20 days, in lieu of card check. As a practical matter, such fast-track elections will be nearly as powerful a tool for union organizers as card check would be. Unless the employer was aware of the organizing activity well before the petition was filed and already had its counter campaign well underway, there will simply not be enough time to convince a majority of employees that unionization will not be in their best interests. Instead of winning slightly more than half of all representation elections, union win rates will likely surge to 70-80% or higher. Along with all the other cards that will soon be stacked in their favor, this will drive the national unionization rate substantially higher in the years ahead.
 

Our August 11, 2009, posting explained New York’s new law requiring employers to formally notify new hires of their rate of pay, overtime rate (when applicable), and regular pay date, and to obtain a written acknowledgment from the employee that such information was provided. The law applies to employees hired on or after October 26, 2009. As we noted in the August 11, posting, the amendment to Section 195 of the Labor Law provides that the acknowledgement must conform to any requirements set by the Commissioner of Labor. The Commissioner has now provided those requirements by way of an informational fact sheet for employers and employees, and through a standard acknowledgement form. According to the fact sheet, use of the new form is mandatory. The form requires the individual providing the information to certify that it is accurate, and warns that a knowingly false statement is punishable as a misdemeanor.

Employers should begin using the new form immediately. While the new form will no doubt be adequate for most new hires, it may be difficult to use for new employees who have more than one position and pay rate, who receive incentive compensation in addition to their hourly rate, or whose pay rate can vary (for example based on shift differential). In particular, it may be difficult to use the new form accurately for new employees who work under collective bargaining agreements, which can contain a variety of different pay rates and overtime rates. Employers who have questions about accurately conveying information when using the new form should consult with counsel.