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Top Five Legal Issues for Employers in 2010

January 6, 2010
Related Topics: Technology and the Law, Labor Relations, Wages and Hours, Featured Article, Technology
Fueled by negative economic conditions, substantial layoffs and salary reductions, employees are aggressively seeking relief through challenges to their employers’ policies and practices. While the financial prospects for 2010 show some signs of improvement, there is no question that employers will see a continued increase in the breadth and amount of litigation. The following is a review of the top five issues employers should monitor in 2010:

1. Wage-and-hour class action suits
In the last few years, wage-and-hour class-action lawsuits have moved to the forefront of employment litigation. The plaintiffs’ bar is scrutinizing employer compensation schemes. From financial services, health care, retail and manufacturing to carwashes and topless bars, no industry has been unaffected. Claims resulting in multimillion-dollar verdicts and settlements originally focused on misclassification and unpaid overtime. Due to lucrative rewards, however, most recently these class actions have expanded to claims for missed meal and rest periods, as well as to the recovery of business expenses:

Break periods. In California, employers are required to provide hourly employees with a 30-minute (either paid or unpaid) uninterrupted meal break for every five hours worked and a 10-minute rest break for every four hours. The meal break must begin prior to the end of the fifth hour and may not be waived unless the shift does not exceed six hours, and provided there is a mutual agreement, preferably in writing. An employer incurs an hour of pay as liability for every meal or rest period that it fails to timely provide an employee. That prospect, along with a determination by California’s Supreme Court that a three- or four-year statute of limitations applies, has resulted in enormous exposure and a groundswell of class-action litigation. This trend continues to intensify, not only in California but nationally on the grounds that interrupted unpaid meal periods violate the Fair Labor Standards Act.

Business expenses. Employees are often required to incur expenses to do their job. The most common examples involve travel expenses, mileage, laptops, mobile phones and BlackBerrys. In the retail and service industries, there has been a significant rise in cases involving uniforms and wardrobe requirements.

The case of Lewis v. Starbucks is an employer wake-up call. Store managers for the coffee chain claimed they regularly used their personal vehicles to perform work-related duties. They were told Starbucks does not reimburse for mileage as a matter of policy. Although Starbucks denied liability, it agreed to pay a $3 million settlement, a costly lesson for employers everywhere—especially in California, where plaintiffs’ attorneys are eager to remind workers that under state law, employers are required to reimburse them for expenses incurred in the performance of their employment duties. An employer cannot place an arbitrary cap or limit on expenses, and any waiver by an employee is void.

In another case, Stuart v. RadioShack, the U.S. District Court for the Northern District ruled that California employees have a right to be reimbursed for their work-related expenses notwithstanding compliance with internal reimbursement rules set by the employer.

Finally, there are the wardrobe cases. The FLSA does not allow uniforms, tools or other items that are considered to be primarily for the benefit or convenience of the employer to be included as wages. Thus, employers may not take credit for such items in meeting their obligations toward paying the minimum wage or overtime.

Consider what happened to retailers Polo Ralph Lauren, Foot Locker, Abercrombie & Fitch, Gap and Banana Republic.

The issue in these California cases was whether employers could require employees to wear a certain type of clothing—but not an actual uniform—without reimbursing them for their purchases. Thousands of store employees claimed they had been required to purchase the companies’ clothes in order to satisfy workplace dress codes. Each of the cases was settled for several million dollars. Employers that do not pay for required wardrobe risk substantial liability. Pending wardrobe cases outside California involve American Eagle Outfitters, Express, Fashion Bug and Lane Bryant.

What to do:
• Adopt explicit written policies regarding rest breaks and mandatory meal breaks and require that employees acknowledge in writing that they have read and understood them.

• Adopt explicit policies regarding expenses and make sure employees have read and understood them.

• Be explicit about job duties and instructions that may cause an employee to incur expenses.

• Reimburse employees for all expenses incurred that are necessary for them to perform their duties.

2. Retaliation arising out of discrimination
The hottest type of employment claim is not one based on race, religion, sex, disability or even age discrimination. It is one alleging that the claimant was treated differently for exercising rights under one or more of the various discrimination statutes. This different treatment can include any negative job action including demotion, discipline, firing, salary reduction or job or shift reassignment. According to EEOC data, retaliation claims now constitute 40 percent of the total EEOC charges filed.

Retaliation claimants, in general, are more likely to prevail at trial and recover significant damages because a lower standard of harm is required for them to prevail. Instead of showing that the employer engaged in conduct that materially adversely affected the employee, the U.S. Supreme Court lowered the standard, ruling in Burlington Northern v. White that any action by an employer that “well might have dissuaded a reasonable worker from making or supporting a charge of discrimination” could be deemed retaliatory.

In retaliation cases, jurors appear more willing to accept the plaintiff’s claim that a manager treated the plaintiff differently after the plaintiff accused the manager of discrimination or harassment. In a growing number of cases, plaintiffs have failed on their underlying discrimination claims yet prevailed on their retaliation claims.

One court described the problem this way, in the case Chen v. County of Orange:

“[T]he possibility of a retaliation claim creates the problem of conferring a de facto immunity on the complainant despite poor job performance or the meritlessness of any complaint. Consider a hypothetical of a ne’er do well employee who wants to manipulate the system to his or her advantage: ‘Not doing your job well? Ax about to fall? Never fear: file a discrimination claim, no matter how meritless. Your employer will be afraid to take any action because now you can sue for retaliation.’ ”

What to do:
The burden is on employers. They must be diligent and able to establish that the employment action at issue was contemplated prior to the alleged discrimination claim and carefully document prior performance problems and/or warnings. The paper trail is crucial in these instances.

3. The Employee Free Choice Act
The Employee Free Choice Act, as originally proposed in 2007, included major changes to union organizing law:

• It would allow “card-check” certification of unions, meaning that once a union gets a majority of employees to sign authorization cards, it will become their collective bargaining representative. Under current labor law, an employer has the right to insist on an NLRB secret-ballot election to determine whether employees wish to be union represented.

• If a union is certified and a contract is not reached within 90 days, either side could request mediation. If after 30 days of mediation there still was no contract, an arbitrator would be appointed to impose the terms of a binding two-year contract. Under current law, the parties are cannot be “forced” to agree to any union proposal, and once an agreement is reached it is subject to a ratification vote by the employees.

• The act would make existing law more punitive for employers found to have violated the National Labor Relations Act during a union-organizing campaign or contract negotiations. If an employer were to discharge or discriminate against an employee, the employer would be required to pay the employee triple back pay. Employers that willfully or repeatedly committed unfair labor practices would face fines of up to $20,000 per violation.

The revised bill, which is expected to be taken up by Congress early this year, would require shorter unionization campaigns and faster NLRB elections to determine whether employees wish to be represented by a union. While the card-check provisions are likely off the table, it would appear that the arbitration and punitive penalty provisions, which are strongly opposed by many employers, are still viable.

Most experts predict that the Employee Free Choice Act is likely to eventually pass in some form, with the focus in the coming months being the mandatory arbitration provision. Employers need to be ready to face increased union-organizing efforts.

What to do:
• Conduct a review of wage and benefit programs to ensure that no item lags far behind the norm in the area.

• Train supervisors to be alert for indications of union organizing (specifically, the soliciting of cards).

• Address such activity in a way that does not violate the NLRA.

• Formulate and prepare to communicate a campaign strategy (i.e., negatives of being in a union and positives of being union free).

4. Increasing challenges to retirement plan administration
Employee benefits are one of the most important parts of the compensation package offered by employers. Moreover, with $3 trillion-plus invested, ERISA pension plans remain the largest single source of private capital in the United States.

In the last few years, class-action plaintiffs’ firms have discovered that targeting these plans, using the Internet to attract plaintiffs and develop claims, has been highly lucrative. In the wake of the economic downturn, the trend is likely to accelerate, with particular focus on cases brought over “stock drop” complaints, in which ERISA plan members challenge the investment in an employer’s equities, and “plan administration” cases, involving claims over “excessive” advisory fees and other elements of plan administration.

Two recent cases show that the current legal climate is heating up. First, the 8th U.S. Circuit Court of Appeals reversed an October 2008 decision by a U.S. District Court to dismiss the complaint filed in Braden v. Wal-Mart Stores Inc. The plaintiffs alleged that fees associated with the plan’s 10 mutual funds resulted in losses of tens of millions of dollars in retirement savings. This decision may be an indication that judges will side with individual investors over excessive mutual fund fees in retirement plans. In a second case, Caterpillar Inc. announced it had reached a tentative $16.5 million settlement in a case over the fees it charged its 401(k) plan participants.

What to do:
• Prepare for an employer stock-drop case. Employers that have company stock in their plans should take steps to protect themselves.

• Plan documents should make it absolutely clear that including the employer stock in the plan is mandatory and not a matter of discretion for the plan fiduciaries.

• Administrators must be diligent in monitoring and evaluating plan fees and the plan’s investments.

5. Social networking and electronic media
Just as e-mail caused much workplace controversy in the 1990s, social networking sites and applications are causing similar anxiety today. Social media refers to the class of new digital applications such as Facebook, instant messaging and Twitter that seem to move information at the speed of light. These fast-evolving digital communications have one thing in common: Like diamonds, these communications are forever. They can never be permanently deleted, and preventing mass dissemination is almost impossible.

Nevertheless, for employers that face liability for negligent hiring and retention, accessing the wealth of information available on networking sites is becoming very common. It’s also considered prudent by some in order to satisfy due-diligence obligations that could stave off a negligent hiring or negligent retention case.

But using social networking technologies to screen applicants or check on employees may expose employers to potential legal risks. Social networking profiles often contain off-limits information such as photographs and personal data relating to age, sexual orientation, political beliefs or religious affiliations.

Use of information contained on these sites has subjected employers to claims of discrimination, violations of privacy rights, and violations of the federal Fair Credit Reporting Act and the National Labor Relations Act.

Specifically, if employers access employees’ sites prior to taking adverse employment action, it will be much more difficult to defend against discrimination claims. The Fair Credit Reporting Act and state laws generally allow social networking sites to be accessed, but the laws require an applicant’s or employee’s prior consent to conduct background checks. Employers must disclose if information obtained in the background check was the basis for an adverse employment decision.

In Pietrylo v. Hillstone Restaurant Group, a New Jersey company terminated a group of employees based upon the inappropriate content posted on a password-protected MySpace page. The former employees sued, and the company was subsequently found liable for illegally accessing the information.

Some states—including California, Colorado and New York—recently have enacted “off-duty conduct statutes,” restricting an employer’s ability to use lawful off-duty behavior for employment decisions. Privacy issues have also arisen when employers have used nefarious means to collect employee information posted on sites that are accessible only to authorized users.

As social media has moved into the mainstream, employers must consider how they will address the use of such technologies by their employees both inside and outside the workplace. The lines between personal and professional lives have blurred, opening new avenues for potential for employee misbehavior. Companies are confronting such situations as the bashing of the employer or supervisors on the Internet, online breaches of confidentiality and loyalty, cyber-stalking and cyber-harassment.

On December 14, 2009, the U.S. Supreme Court agreed to review the case City of Ontario et al. v. Jeffrey Quon et al., which involves the privacy of employee e-mail and text messages. A lower court had ruled against the city, finding that the federal Stored Communications Act and the Fourth Amendment required the employer to obtain a probable-cause warrant to access stored employee electronic messages.

What to do:
• Employers need to be careful with the employee information that they have accessed from sites maintained by employees or others.

• Employers should never seek to gain access to private postings by covert means.

• If employers want to curb the negative aspects of social networking, they should implement company policies and guidelines that clearly state what types of social media are allowed during work hours and what types are prohibited.

• Users should be required to differentiate between their personal and business identities.

• Employers should emphasize that company policies, such as those related to discrimination and harassment, apply when employees use social media.

• If employers choose to monitor employees’ online activities (assuming that the law in their state permits it), they should advise employees that their social media use may be monitored, whether such use is conducted during work or at home.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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