Kullman Firm Newsletter

Ninth Circuit Court of Appeals Eliminates Salary Histories As Permissible Factor For Pay Differences Under The Equal Pay Act

On April 9, 2018, the U.S. Court of Appeals for the Ninth Circuit (covering California and eight other western States and Guam and the Northern Mariana Islands) held that an employee’s or applicant’s salary history is not a permissible “factor other than sex” that could justify a pay disparity as an affirmative defense to an Equal Pay Act claim.  Given that historical pay disparities between men and women have existed for so long, the Ninth Circuit reasoned, “It is inconceivable that Congress, in an Act the primary purpose of which was to eliminate long-existing ‘endemic’ sex-based wage disparities, would create an exception for basing new hires’ salaries on these very disparities [that] are not only related to sex but caused by sex.  To accept the [defendant’s] argument would be to perpetuate rather than eliminate the pervasive discrimination at which the Act was aimed.”

While some might label the Ninth Circuit’s decision as simply another liberal interpretation by a far-left court, the decision does have an underpinning in U.S. Supreme Court law and other circuit courts of appeals, including the Fifth and Eleventh Circuits.  These courts have rejected the “market forces theory,” which sought to justify pay disparities on the basis that women would be willing to accept lower salaries because they will not find higher paying jobs elsewhere.  In an Eleventh Circuit case, which was decided in 1988, the court held that “prior salary alone cannot justify pay disparity” between men and women and rejected the employer’s policy of not requiring employees that transferred into a new position to take a salary reduction.

Given the increased focus today on Equal Pay Act claims, and the recent efforts by some municipalities and states, including California, Delaware, Massachusetts, Oregon, Puerto Rico, New York City, San Francisco, Albany, NY, and Philadelphia, to prohibit employers from inquiring about an applicant’s salary history during the hiring process, employers should be very wary of potential claims that wage rate or salary histories simply perpetuate disparities when they are used to calculate or implement new wage levels for new hires, transfers and promotions.

Supreme Court Declines To Enter Fray On Extended Leaves Of Absence As A Reasonable Accommodation Under The ADA

On April 2, 2018, the U.S. Supreme Court declined to review a decision of the Seventh Circuit Court of Appeals that affirmed a trial court’s summary judgment in favor of an employer that refused to grant an employee’s request for a two-month extended leave in addition to the 12 weeks of leave that had already been provided under the FMLA.  The Seventh Circuit concluded that “a long-term leave of absence cannot be a reasonable accommodation” because “an extended leave of absence does not give a disabled individual the means to work; it excuses his not working.”  The Seventh Circuit rejected the argument advanced by the employee, a position that has long been advanced by the EEOC, that the duration of the leave is irrelevant so long as it is likely to enable the employee to do his job when he returns.  Other U.S. Courts of Appeals have vacillated on the length of extended leave that could be considered reasonable as an accommodation under the ADA.  Some Circuits, for example, have opined that six months’ extended leave is generally too long.  Others generally have said that periods of one, two or three months may be a reasonable accommodation.  The Seventh Circuit, however, remains the most restrictive as evidenced by its reasoning that “the FMLA protects up to 12 weeks of medical leave, recognizing that employees will sometimes be unable to perform their job duties due to a serious health condition. In contrast, the ADA applies only to those who can do the job.”  Generally, the Supreme Court’s refusal to accept a case for appeal is often perceived as its tacit approval of the underlying decision—in this case, the Seventh Circuit’s opinion.  It remains to be seen whether other Circuit Courts of Appeals will gravitate towards the Seventh Circuit’s views following the Supreme Court’s refusal to hear argument in the case.

U.S. Supreme Court Abandons Rule That FLSA Exemptions Must Be Construed Narrowly

On April 2, 2018, the U.S. Supreme Court issued a groundbreaking decision in an FLSA exemption case that may provide benefits to employers for years to come. The U.S. Department of Labor has always taken the position that exemptions set forth in the FLSA must be interpreted narrowly according to the strict language of the FLSA.  While the case was limited to “service advisors” at car dealerships, the Supreme Court’s rejection of the rule of narrow interpretation as applied to service advisors will likely have far ranging effects for the DOL’s “narrow interpretation” of other statutory exemptions.

Enacted in 1938, the FLSA requires employers to pay overtime to covered employees who work more than 40 hours in a week. But the FLSA exempts many categories of employees from this requirement.  Salesmen, mechanics and service advisors at car dealerships have long been among those exempted.

From 1978 to 2011, Congress made no changes to the exemption, despite amending the FLSA dozens of times, and the DOL also continued to acquiesce in the view that service advisors are exempt.  In 2011, however, the DOL reversed course. It issued a rule that changed its interpretation of FLSA language and excluded service advisors from those exempted.

Following the regulatory change made during the Obama administration, numerous service advisors filed both single plaintiff and collective actions challenging car dealerships’ pay practices for service advisors.  After winning a motion to dismiss a collective suit by service advisors in district court, Encino Motorcars appealed to the Ninth Circuit, which reversed the district court’s order dismissing the case because it found the express language of the FLSA “ambiguous” and concluding that the statute should be interpreted narrowly.

On appeal to the Supreme Court, the 5-4 majority justices found that “the FLSA gives no textual indication that its exemptions should be construed narrowly,” and “‘there is no reason to give them anything other than a fair (rather than a ‘narrow’) interpretation.”  The Court found flawed any notion that the remedial purposes of the FLSA must be pursued “at all costs.”  Truly, good things come to those who wait.

New FMLA Forms On The Horizon

The FMLA forms issued by the DOL that are currently being used by employers are set to expire May 31, 2018.  It is unknown at this time whether the DOL will issue new forms with substantive changes or whether it will simply give the soon-to-expire forms a new expiration date.  Stay tuned!

Joint Employment Analysis:  Where Are We?  What Day Is It?

In today’s competitive business world, many companies have utilized contract labor providers to manage fluctuations in workforce staffing levels without dealing with the pain and hassle of hiring and firing full-time, part-time or temporary employees. The use of such contract employees, however, may raise several issues as to which company, the ultimate employer or the contract labor company, is the real employer and whether both companies may in fact be joint employers.  Joint employment may also be an issue in franchise/franchisee operations or when two companies that are related by common control or ownership share the services of some or all their workforce, such as shared human resource or accounting functions.

In wage-hour situations, the joint-employment question can be a real concern when the Department of Labor (DOL) determines that contract employees are owed backpay for unpaid overtime or violations of the minimum wage law.  When the staffing company is unable to pay the wages owed for whatever reason, a finding of joint employment means that the DOL can come after the ultimate employer, i.e., you, for the unpaid wages.  This may also include liquidated damages, interest and assessed penalties.

In the National Labor Relations Board (NLRB) context, if a company utilizes an outside contractor to perform services that are necessary to the company’s performance of its business, such as maintenance or industrial contractors, delivery service providers, human resource outsourcing contractors, etc., control by the company over the terms, conditions and performance of employment by the contractor’s employees could lead to a determination of joint employment and, if the contractor’s employees are organized, the union representing those contractor’s employees could potentially demand a seat at the bargaining table not only with the contractor but also the ultimate user of those contract services.

While each agency’s test has varied slightly from one another, the DOL and the NLRB for the past 30 years or more generally found joint employment to exist when the ultimate employer, i.e., the one whose business operations relied on the joint employees’ daily toils, exercised “direct and immediate” control over the workers’ daily activities in the areas of scheduling, discipline, hiring/firing, payroll, etc.

During the Obama administration, the DOL issued an Administrator’s Interpretation, and the NLRB issued its Browning-Ferris decision, both of which broadened the test for joint employment to include “indirect” control.  Thus, even if the ultimate employer had the right to control the terms and conditions of contract employees’ work but did not exercise that right, a finding of joint employment could still be found.

With President Trump’s election came a friendlier regulatory environment for businesses.  On June 7, 2017, the DOL, headed by the newly confirmed Secretary of Labor, Alexander Acosta, rescinded the 2016 Administrator’s Interpretation.  For now, so long as a Republican is in the White House, the notion of “indirect” control will no longer be a factor in joint employment determinations by the DOL.

Likewise, in December 2017, the NLRB, in Hy-Brand Industrial Contractors, overturned the Board’s controversial Browning-Ferris decision.  At the same time, the NLRB asked the DC Circuit Court of Appeals to remand the Browning-Ferris decision back to the Board for further proceedings consistent with its new decision in Hy-Brand.

But the fog of uncertainty caused by the quickly shifting NLRB decisions did not lift for long.   Based in part on a report from the NLRB’s Inspector General that determined Board Member William Emanuel should have recused himself from participating in the Browning-Ferris case due to the fact that his former law firm represented a staffing company in the underlying Browning-Ferris decision, the NLRB disqualified Emanuel and vacated its December 2017 decision in Hy-Brand because that later case involved the same legal arguments advanced and argued by Leadpoint in Browning-Ferris.  So, for now, the Obama NLRB’s Browning-Ferris decision remains good law.

On April 5, NLRB General Counsel Peter Robb excoriated the Board for vacating the Hy-Brand decision without giving Member Emanuel the opportunity to decide whether to recuse himself rather than disqualifying him from participating in the decision.  Indeed, the first step in the typical conflict of interest situation is for a Board member to be the first to consider whether to recuse himself or herself.  Stressing that important difference, Robb called the Board’s decision “a seemingly unique event in Board history.”

On April 6, the day following Robb’s announcement, the DC Circuit Court of Appeals decided to retain jurisdiction over BFI’s appeal of the Board’s Browning-Ferris decision, citing what it called “extraordinary circumstances.” Although the DC Circuit retained appellate jurisdiction over the case, the court stayed further proceedings pending the Board’s reconsideration of its Hy-Brand decision.

What happens at the Board in Hy-Brand at this point is entirely up in the air.  When the Board vacated its decision in Hy-Brand due to the perceived conflict of interest by Emanuel, Republican Chairman Marvin Kaplan sided with the two Democratic Board members.  Thus, even with Republican John Ring’s confirmation by the Senate on April 11, the Hy-Brand decision, which overturned Browning-Ferris, could be reversed on reconsideration by the Board if Kaplan remains sided with the Democrats.  And if Emanuel recuses himself from the Hy-Brand decision on reconsideration, the Board would still be split 2-2, leaving Browning-Ferris as valid Board law.  Another possible end to the conflict would be for the Board to take up another case involving joint employment that would not pose a conflict of interest for any of the Republican Board members.  Even then, it looks like the DC Circuit may very well be called upon to resolve the issue, but that will not happen anytime soon