DOL Proposed Overtime Regulations That Increase the Salary Threshold

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Employers should take note that the U.S. Department of Labor has at long last issued proposed rules regarding “white collar” exemptions from federal overtime requirements.  Currently, the exemptions may apply if certain duties tests are met and the employee is paid on a salary basis of at least $455 per week, which comes out to $23,660 annually, assuming that some work is performed in each of the 52 weeks in the year.  The proposed regulations would raise the salary threshold to $679 per week, which comes out to $35,308 annually. 

The proposed rules would replace the Obama-era rule that set the threshold salary amount to over $57,000.  A federal court permanently enjoined enforcement of that rule.  The proposed rules mark the first effort by the Trump administration to address the white collar exemptions.

The proposed rules do not address the duties tests, but do address a few other issues.  First, the salary threshold for highly compensated employees would be raised from $100,000 to $147,414, higher than the $134,004 threshold that the Obama era regulations tried to set.

Second, employees would be able to credit non-discretionary bonuses and incentive payments (e.g., commissions) toward the minimum salary level.

Third, the salary threshold would be revisited every four years.

If adopted, the final rules would go into effect in January 2020 and would result in an estimated 1,000,000 employees losing exempt status and thus becoming entitled to overtime. The Department of Labor set a 60-day comment period to give interested parties a chance to be heard on the proposed rules.  The final rules will be issued at some point after that.  Employers should pay close attention to the progress of the proposed rules because, if adopted, they will need to determine whether to increase salaries to meet the threshold or reclassify employees as non-exempt.

Keep in mind that many states have different, sometimes more favorable, salary threshold requirements.  Where there is a difference between state and federal law on wage and hour issues, the provision most favorable to the employee must be applied.

NLRB Revises Independent Contractor Standard

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On January 25, 2019, the National Labor Relations Board (the Board) issued a decision revising the standard for determining whether a worker is an independent contractor for the purposes of the National Labor Relations Act (NLRA).  SuperShuttle DFW, Inc. and Amalgamated Transit Union Local 1338, Case 16-RC-010963 [link].  The determination is important because only those workers who are employees—and not independent contractors—have rights under the NLRA. 

In SuperShuttle, the Board overruled a 2014 decision and returned to the use of the common law test to determine independent contractor status.  That test includes consideration of: 

  • The extent of control the employer may exercise over the details of the work;
  • Whether the worker is engaged in a distinct occupation or business;
  • The kind of occupation and whether the work is usually done under the direction of the employer or by a specialist without supervision;
  • The skill required in the occupation;
  • Whether the employer or the worker supplies the instrumentalities, tools and the place of work for the work to be done;
  • The length of time for which the worker is employed;
  • The method of payment—whether by the time or by the job;
  • Whether the work is a regular part of the business of the employer;
  • Whether the parties believe they are creating an independent contractor relationship;
  • Whether the employer is or is not in business.

The Board also made it clear that entrepreneurial opportunity—the worker’s opportunity for profit and loss—will be used as an overarching interpretive device in considering whether a worker is an independent contractor under the common law test.  As the majority of the Board explained, “[w]here a qualitative evaluation of common-law factors shows significant opportunity for economic gain (and, concomitantly, significant risk of loss), the Board is likely to find an independent contractor relationship.”

The Board then applied this revised test to the facts before it.  In SuperShuttle, a union filed a petition seeking to represent the SuperShuttle van drivers who transported passengers to and from area airports.  Each of the drivers had signed a franchise agreement with SuperShuttle that required the driver to pay a flat, one-time initial fee and then a flat weekly fee thereafter to maintain the franchise.  On these facts, the Board determined that the van drivers were in fact independent contractors.  The most significant factors were:

  • The drivers were required to provide their own vehicles and cover all costs of vehicle operation and maintenance;
  • The drivers were able to accept or decline trips booked by passengers;
  • The drivers paid a weekly franchise fee unconnected to the amount of the fares they collected and;
  • The drivers’ earnings were determined by how much they chose to work, how well the managed their expenses and how well they managed the process through which they selected fares.

The standard, of course, is fact-intensive and is applied on a case-by-case basis.  Nonetheless, the decision in SuperShuttle gives some guidance as to how the standard may be applied in the future. 

Employers should keep in mind that SuperShuttle articulates the standard applied by the Board with respect to independent contractor status under the NLRA.  Different laws, for example, unemployment and workers’ compensation laws, may have different standards that must be used to determine whether a worker is an independent contractor or an employee subject to that particular law.

Employers’ Obligations When Using Third Parties to Conduct Background Checks

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An employer’s use of third-parties to conduct employment background checks on prospective and existing employees triggers numerous obligations under the federal Fair Credit Reporting Act (FCRA).  The following is a brief overview of the primary employer obligations before, during, and after conducting a background check through third-party investigators.

Covered Entities and Reports

The FCRA applies to “consumer reporting agencies,” which covers nearly all third-party investigators and most employment background reports, called “consumer reports,” the investigators produce.  Consumer reports include, but are not limited to, credit reports, criminal history reports and driving records obtained from a consumer reporting agency. 

Pre-Background Check Obligations

Employers that want to obtain a consumer report for any employment purpose must first provide applicants and employees with a written disclosure stating their intent to obtain a consumer report and must receive written authorization from the applicant or employee before obtaining the consumer report.  The disclosure and authorization of rights must be all be stand-alone documents and may not be part of the employment application or any other document.  Neither of these documents should include notification or authorization required by any applicable state law—those should be placed in a separate document, consistent with the applicable law. 

Post-Background Check/Pre-Adverse Action Obligations

After receiving a consumer report from a consumer reporting agency, if an employer is considering adverse action based on information in a consumer report, the employer must provide the applicant or employee with a copy of the consumer report, a “pre-adverse action” letter explaining that the employer is considering taking adverse employment action based on information in the report and a written “summary of rights” under the FCRA prior to taking any adverse employment action.  The U.S. Bureau of Consumer Financial Protection regulates the content that must be included in the summary of rights and can be found here.  Employers should always ensure their written summary of rights is up-to-date by checking online for any updates.  

Although the FCRA does not specify the amount of time an employer must give an applicant or employee to correct information in the consumer report, five business days or more is considered appropriate. 

Adverse Action Obligations

If an employer does take adverse employment action, it must then provide notice to the applicant or employee and provide him or her with certain information required by statute, including another copy of the summary of rights.  The notice need not be provided in writing, but best practice is to do so for documentation purposes in the event of litigation. 

Violation of the FCRA

In the event of a willful violation of the FCRA, an applicant or employee is entitled to seek damages of $100 to $1,000 per violation, punitive damages, and attorneys’ fees.  If the violation occurred as a result of negligence, the applicant or employee is entitled to sue for any actual damages, plus attorneys’ fees.

State Laws

Some states have requirements in addition to those set forth in the FCRA.

The Bottom Line

This overview generally describes some of the key employer obligations under the FCRA, and is not intended as a detailed guide.  Employers should consult with legal counsel before implementing a background check program that calls for the background check to be performed by a third party. 

U.S. Supreme Court Holds Employers May Require Individual Arbitration of Employment Disputes

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In a case that began in Verona, Wisconsin, the U.S. Supreme Court held earlier this week that the National Labor Relations Act (“NLRA”) does not prohibit employment agreements requiring arbitration of grievances on an individual basis. See Epic Systems Corp. v. Lewis, No. 16-285 (May 21, 2018). Epic Systems extends a string of cases over the past decade upholding arbitration requirements over various challenges. See, e.g., Stolt-Nielsen; Concepcion; Oxford Health Plans; Italian Colors.

The Federal Arbitration Act (“FAA”) generally requires enforcement of arbitration agreements—even those that prohibit participation in class actions by mandating arbitration on an individual basis. Epic Systems resolves a split among the federal appellate courts about whether contracts mandating individual arbitration of employment disputes violate the NLRA. After the National Labor Relations Board (“NLRB”) ruled in 2012 that that such contracts are inconsistent with the NLRA, the Sixth, Seventh, and Ninth Circuit Courts of Appeal followed suit, either deferring to the NLRB’s determination or independently reasoning to the same conclusion. The Second, Fifth, and Eighth Circuits, on the other hand, found such contracts enforceable.

Advocates for Lewis and other employees challenging individual arbitration agreements argued that class action waivers were unenforceable under the FAA’s “saving clause,” which prohibits enforcement of arbitration agreements that violate federal law. They argued that arbitration agreements prohibiting collective legal action violate section 7 of the NLRA, which allows workers “to bargain collectively . . . and to engage in other concerted activities for the purpose of . . . other mutual aid or protection.” 29 U.S.C. § 157. Alternatively, they suggested that even if the FAA’s “saving clause” does not apply, the NLRA “overrides” the FAA and makes individual arbitration requirements unlawful.

Advocates for employers, on the other hand, asserted that the NLRA and FAA do not conflict, arguing that neither the text nor the underlying purpose of the NLRA prohibit class action waivers. Alternatively, even if the NLRA and FAA did conflict, the employers argued that the FAA should control because it is the more specific statute, Congress had a history of specifically overriding the FAA only with express, clear language, and because “the enforceability of class waivers forms the core of the FAA, while such waivers are at most a peripheral concern of the NLRA.”

Decision

In a 5-4 decision written by Justice Neil Gorsuch, the Court rejected the employees’ arguments. First, the majority held the FAA’s “saving clause” was inapplicable. “[D]efenses that apply only to arbitration” do not trigger the “saving clause,” which “permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability.” Epic Systems, slip op. at 7 (internal quotation marks omitted). Given that the central challenge to the agreements was over “(only) the individualized nature” of the mandated arbitration procedure, not to the underlying validity of the provision requiring arbitration, the Court found the FAA’s “saving clause” did not apply. Id.

Second, the Court refused to view the NLRA as conflicting with and “overriding” the FAA. Longstanding precedent places a heavy burden on parties who argue that two federal statutes conflict and cannot be harmonized. See id. at 10. The majority found no “clearly expressed congressional intention” that the NLRA override the FAA regarding arbitration agreements, in contrast to examples where Congress unambiguously created statutory exceptions to the FAA’s general policy of enforcing arbitration agreements. Id. (quoting Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 533 (1995)). And it found no reason to defer to the NLRB’s statutory interpretation when that would impair the application of the FAA, which is beyond the NLRB’s subject matter expertise. See id. at 19–21.

Dissent

Justice Ruth Bader Ginsburg, writing for herself and three other Justices, dissented, calling the decision “egregiously wrong.” Id. at 2 (Ginsburg, J., dissenting). The dissent argues that the NLRA protects more than just traditional collective bargaining. This is consistent with Justice Stephen Breyer’s comment during oral argument that the NLRA represents “the entire heart of the New Deal.” Focusing on the phrase “other concerted activities for the purpose of . . . mutual aid and protection,” the dissent posits that the NLRA contemplates and protects the “right to engage in collective employment litigation.” Id. at 9 (Ginsburg, J., dissenting). It criticizes the majority’s reasoning in concluding that the NLRA did not protect collective employment litigation, pointing out the majority relied heavily on a canon of statutory interpretation, which it argues is appropriate only where congressional intent is unclear. See id. at 12 (Ginsburg, J., dissenting). Finding a clear congressional mandate to protect employees’ rights to act collectively, the dissent argues that resorting to canons of interpretation was improper and that the Court erred in construing the application of the NLRA so narrowly.

Take Away

Epic Systems Corp. v. Lewis makes clear that the NLRA does not invalidate collective legal action waivers in employment arbitration agreements, presenting employers with an even wider array of options when creating and implementing employee agreements. It also underscores that only in exceptional cases will another federal law invalidate an agreement to arbitrate. Combined with the Supreme Court’s other recent arbitration decisions, Epic Systems further cements the enforceability of arbitration requirements, even when the parties to such agreements lack equal bargaining power. Congress may revisit the policy decisions underlying the FAA, see id. at 6, 25 (Op. of the Court); id. at 2 (Ginsburg, J., dissenting), but unless and until that happens, employers have broad power to limit employees’ options in redressing complaints about the conditions of their employment.

Law Clerk Collin Weyers assisted with researching and writing this post.

The NLRB Creates a New Standard for Evaluating Workplace Rules’ Effect on the Right to Unionize

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In The Boeing Company and Society of Professional Engineering Employees in Aerospace, IFPTE Local 2001 the National Labor Relations Board (NLRB) articulated a new standard for determining whether employers’ rules and handbook provisions violate the National Labor Relations Act’s (NLRA) prohibition on rules that interfere with employees’ right to join labor organizations and bargain collectively. Cases 19-CA-09032, 19-CA-090948, and 19-CA-095926. The NLRB believes that this new standard will be easier to apply on a case-by-case basis, and will invalidate fewer “common-sense rules and requirements that most people would reasonably expect every employer to maintain.”

Background

In The Boeing Company, Boeing had a policy that banned the use of “devices to capture images or video” without a valid business need and camera permit (No-Camera Rule). The No-Camera Rule prohibited only the use of the camera–not the entire device–therefore employees were allowed to use cellphones and laptops on company property. The question before the Board was whether the No-Camera Rule violated the NLRA’s prohibition against employers interfering with employees’ right to unionize.

Section 7 of the NLRA guarantees employees the right to self-organize and join labor organizations. Section 8(a)(1) makes it an unfair labor practice for an employer to interfere with that right. Under prior law, if a rule did not explicitly interfere with employees’ right to unionize, the NLRB would consider whether: (1) employees would reasonably construe the language to prohibit Section 7 activity; (2) the rule was promulgated in response to union activity; or (3) the rule has been applied to restrict the exercise of Section 7 rights. Lutheran Heritage Village-Livonia, Case 7-CA-44877 (emphasis added). The administrative judge held that Boeing’s No- Camera Rule was unlawful because it failed prong (1) of the test; that is, employees would “reasonably construe” the rule to prohibit Section 7 activity.

NLRB Decision

The NLRB overruled the “reasonably construe” standard iterated in Lutheran Heritage and held that, under its new test, the No-Camera Rule was lawful. The NLRB listed many reasons why the test was insufficient. Among those reasons, was that the “reasonably construe” test “entails a single-minded consideration” in that it does not consider justifications for having the employer’s rule in place. The NLRB noted that the test created confusion for employers because outcomes were unpredictable, and that the test was based on the false premises that employees are best served by not having employment policies.

Under the NLRB’s new test, the first question is whether the rule would potentially interfere with the exercise of NLRA rights. If not, then the rule is lawful. If yes, then the NLRB considers (1) the nature and extent of the potential impact on NLRA rights, and (2) legitimate justifications associated with the rule. Then the NLRB will classify the rules it evaluates under this new standard into one of the three categories. Category 1 includes rules that are lawful because they don’t interfere with NLRA rights or the potential adverse impact on rights is outweighed by the rule’s justification. Category 2 includes rules that warrant individualized scrutiny in each case as to whether the rule would prohibit or interfere with NLRA rights, and if so, whether any adverse impact is outweighed by justifications. Finally, Category 3 includes rules that the NLRB designates as unlawful because they violate NLRA-protected conduct and are not properly justified.

As for Boeing, the NLRB determined that the No-Camera Rule fell under Category 1 because it only had a slight adverse impact on Section 7 activity and Boeing had legitimate justifications for the rule. Boeing has highly sensitive and classified information because it manufactures military aircrafts for the federal government.

Take-Away

The NLRB’s ruling affects union and non-union workplaces because non-union workplaces must also comply with the provisions in the NLRA prohibiting interference or restraint on collective bargaining and self-organizing. Therefore the ruling has a widespread impact. The new test is more employer friendly in that it gives weight to the reasoning behind implementing a workplace rule or policy.  Additionally, the categorization scheme should provide employers with more guidance in creating lawful work policies.

The case is available at: https://dlbjbjzgnk95t.cloudfront.net/0995000/995170/decision.pdf

WI Supreme Court Concludes Non-Compete Statute Applies to Non-Solicitation of Employees Agreement

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In Manitowoc Co. v. Lanning, 2018 WI 6, decided January 19, 2018, a 5-2 majority of the Wisconsin Supreme Court concluded that a non-solicitation of employees agreement (“NSE”) can be subject to scrutiny under Wis. Stat. § 103.465. Under the statute, enacted in 1957, any covenant by an employee “not to compete” with a former employer upon termination of employment is void in toto if the agreement imposes an unreasonable restraint in any respect. However, the divided opinions strongly suggest that the court is narrowing its view of the statute’s scope.

The lead opinion, authored by Justice Shirley Abrahamson and joined in by Justice Anne Walsh Bradley, trod a familiar path in non-compete cases. It frames two issues for review. One, was the NSE a “covenant … not to compete”? Two, if so, was any part of the NSE unreasonably broad, resulting in the entire covenant being void.

The lead opinion has little difficulty answering both questions in the affirmative. In doing so, it cites past precedents applying the statute to many restrictions other than an express agreement by an employee to refrain from future employment with a competitor. The lead opinion quotes Tatge v. Chambers & Owen, Inc., 219 Wis. 2d 99, 112, 579 N.W.2d 217 (1998), for the proposition that “it would be an exercise in semantics to overlook § 103.465 merely because [a provision] of the agreement is not labeled a ‘covenant not to compete,’” adding that the statute “has been applied to agreements viewed as restraints of trade.” 2018 WI 6, ¶ 5.

While the concurring opinion, authored by Justice Rebecca Grassl Bradley, and joined in by Justices Michael Gableman and Daniel Kelly, agreed that the NSE at issue in the case was subject to the statute, it strongly disagrees with the lead opinion’s analysis. The concurring opinion first criticizes the lead opinion for unduly relying on the court’s own case law interpreting the statute and failing to undertake a “textual analysis” of the statute. 2018 WI 6, ¶ 65.The concurring opinion states that in “abandoning this process, the lead opinion risks reading into Wis. Stat. § 103.465 imagined words derived from the court’s perception of the legislature's unspoken policies and purpose.” Id., ¶ 66.

What “imagined words”? Specifically, the concurring opinion focuses on the lead opinion’s reference to the NSE as a “restraint of trade” and its focus on the impact of the NSE on parties other than the employee and the employer. 2018 WI 6, ¶¶ 75, 76. This latter flaw, according to the concurring opinion, led the court to err in Heyde Cos., Inc. v. Dove Healthcare, LLC, 2002 WI 131, 258 Wis. 2d 28, 654 N.W.2d 830, by applying the statute to invalidate a “no hire” agreement between two employers, an agreement to which no employee was a party. The concurring opinion states flatly that Heyde “should be overruled as unsound in principle because its analysis is patently wrong,” and it then devotes significant analysis to explaining exactly why. Id., ¶¶ 78-81.

But despite its disagreement with the lead opinion’s view of the statute and its reliance on precedents applying the statute expansively, the concurring opinion reaches the same result in this case. It agrees the NSE was a “covenant … not to compete” because it restrained the employee, Lanning, from “engag[ing] in a particular form of competition,” i.e., “soliciting, inducing, or encouraging any Manitowoc employee from accepting employment with any Manitowoc competitor, thereby limiting Lanning in performing certain work—namely, recruitment for his new employer, a competitor of Manitowoc’s.” 2018 WI 6, ¶ 72. It rejects the analysis of the dissenting opinion, authored by Chief Justice Patience Roggensack and joined in by Justice Annette Kingsland Ziegler, as “internally contradictory,” in that it concluded the NSE was not a covenant not to compete under a strict reading of the statute, while at the same time stating that “the former employer will become a less effective competitor” due to the NSE not being enforceable.” Id., ¶ 74.

Once the lead and concurring opinions arrive at the conclusion that the NSE was subject to the statute, the outcome is clear. This NSE was afflicted by sins familiar to any attorney who has tried to enforce such agreements within the scope of the statute. It prohibited Lanning from soliciting “any” employee in any position with the company without regard to geographical location or personal familiarity with Lanning. 2018 WI 6, ¶¶ 46, 47, 56, 62. The lead opinion explicitly rejected Manitowoc’s argument that the statute should be applied on a “sliding scale” basis, with lesser scrutiny being given to an NSE because it was “less onerous” than a traditional not compete.” Id., ¶¶ 51-54. The concurring opinion made no reference to this argument, and presumably rejected it as contrary to its textual analysis of the statute.

So what can be drawn from this decision? Three thoughts:

First, an NSE can be treated as a non-compete subject to Wis. Stat. § 103.465, although the concurring opinion cautioned that “not every NSE provision necessarily falls under the purview of that statute.” 2018 WI 6, ¶ 65. The concurring opinion, however, makes no suggestions as to what circumstances might lead to the conclusion that a particular NSE is beyond the statute’s reach.

Second, given that the dissent joined with the concurrence in criticizing the lead opinion’s description of the statute as directed to “restraints of trade,” it appears there is a strong majority support on the court to overrule the Heyde Cos. case and it is likely only a matter of time before the court expressly does so.

Third, again, with the concurrence and the dissent in agreement that attention must focus on the text of the statute rather than expansive past precedents, it is reasonable to assume that, in future cases, employers will argue that Lanning favors a narrower, more textually focused application of the statute.

Multi-Month Medical Leave Not A Reasonable Accommodation Under the ADA

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The Court of Appeals for the Seventh Circuit recently held in Severson v. Heartland Woodcraft, Inc., 2017 U.S. App. LEXIS 181197*, 872 F.3d 476 (7th Cir. 2017) that a leave for medical purposes of two months or more is not a reasonable accommodation under the federal Americans with Disabilities Act (ADA).  In so doing, however, the Court left open the possibility that shorter or intermittent leaves might be, under appropriate circumstances.    

In Severson, the plaintiff took the full 12-week allotment of medical leave under the federal Family and Medical Leave Act (FMLA) due to back pain.  During his leave, he scheduled back surgery for day his FMLA leave expired.  Severson told the employer that he would not be able to work for two-to-three months after the surgery and requested non-FMLA medical leave for the recovery time.  The employer denied the request, given that Severson would be unable to perform any part of his job for several months.    

The court held that the employer’s decision did not violate the ADA.  The ADA, the court explained, is an anti-discrimination statute, not a medical-leave entitlement.  Id. at *3.  According to the court, the ADA is designed to prevent discrimination against a “qualified” individual, defined as a person who, “with or without reasonable accommodation, can perform the essential functions of the employment position.”  Id.  Thus, protection under the ADA is “expressly limited to those measures that will enable the employee to work.  An employee who needs long-term medical leave cannot work and thus is not a ‘qualified individual’ under the ADA.”  Id. (citing Byrne v. Avon Prods., Inc., 328 F.3d 379, 381 (7th Cir. 2003)).  Based on these considerations, the court determined that Severson was not a qualified individual under the ADA because the requested accommodation—a leave of two-to-three months—would not allow him to perform the essential duties of his job and thus was not reasonable.   

Employer Takeaway

Severson provides definitive guidance to employers in the Seventh Circuit with respect to employee requests for medical leave for two or more months, but only if the leave is not mandated by a medical leave statute like the federal FMLA or any state law counterparts.  While Severson also suggests that even a leave of more than a couple of weeks may not be a reasonable accommodation, employers should still proceed with caution in responding to requests for leave of less than two months because the reasonableness of the leave will turn on the particular circumstances of each request.  Employers also should keep in mind that Severson does not permit employers to deny extended leave mandated by another statute.  In such cases, of course, employers must provide the leave whether or not it would be considered a reasonable accommodation under the ADA. 

For additional guidance or questions related to employers’ responsibilities under the ADA, contact Meg Vergeront at (608) 256-0226.    

U.S. District Court Enjoins Proposed Overtime Regulations

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In Nevada v. United States Department of Labor, the United States District Court for the Eastern District of Texas determined that the U.S. Department of Labor (DOL) overstepped its administrative authority in issuing Fair Labor Standards Act (FLSA) regulations relating to overtime pay. 218 F. Supp.3d 520 (E.D. Tex. 2017). DOL wrote the regulations in response to President Obama’s instruction to the Secretary of Labor to “modernize and streamline the existing overtime regulations….” The court’s decision is good news for employers:  the regulations, if fully implemented, would have dramatically increased the number of employees eligible for overtime pay. 

FLSA Background

The FLSA requires employers to pay employees one and one-half times the employee’s regular rate of pay for all hours worked above forty in a given work week. However, employers do not have to pay overtime to employees who hold positions that fall within a regulatory exemption.  With respect to the executive, administrative and professional exemption, prior to the regulation at issue in this case, positions were considered exempt only if an employee in the position performs specified duties and is paid a salary of at least $455 per week, or $23,660 annually. 

At Obama’s prompting, the DOL revised the federal overtime regulations.  Had they gone into effect, they would have drastically raised the threshold salary amount to $913 per week, or $47,476 annually.  These figures would be updated automatically every three years. 

The Court’s Decision

Twenty-one states and fifty-five business groups sued the DOL seeking to invalidate the final rule. The plaintiffs argued that the overtime regulations exceeded the scope of DOL’s delegated authority.  The court considered whether the DOL’s interpretation was based on a permissible construction of FLSA.  The court analyzed the statutory text, and the plain meaning of the words “executive,” “administrative,” “professional,” and “capacity.”  Based on this analysis, the court determined that Congress intended the exemption to apply to employees who perform “executive, administrative, or professional capacity” duties.

The court found that the final rule will “effectively eliminate the duties test…” and is thereby a “salary-level only test,” which does not align with Congress’s intent.  The court explained that a lower minimum salary-level “screen[s] out the obviously nonexempt employees, making an analysis of duties in such cases unnecessary.”  A higher minimum salary-level “makes an employee’s duties…irrelevant if the employee’s salary falls below the new minimum.”  The court believed this ignored Congress’s intention to consider employees’ duties. Based on this determination, the court held that the DOL’s final overtime rule was unlawful.

Effect of the Court’s Ruling

The court’s decision enjoins the DOL from implementing the Obama-era rule.  Furthermore, the Trump administration did not advocate for the increased salary test on appeal of the lower court’s decision.  Therefore, regardless of the outcome on appeal, the Obama-era overtime rule will not go into effect, at least not during the current administration.  On July 26, 2017, the DOL published a Request for Information to gather public comments to aid in revising the rule.

Seventh Circuit Expands Title VII Coverage to Include Sexual Orientation Claims

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The Court of Appeals for the Seventh Circuit recently held in Hively v. Ivy Tech Community College, 853 F.3d 339 (7th Cir. 2017), that Title VII of the Civil Rights Act of 1964 prohibits discrimination on the basis of sexual orientation. In doing so, it overruled its own longstanding precedent and put itself in conflict with most other circuits.

The plaintiff in Hively was a former part-time professor at Ivy Tech Community College. She filed a suit under Title VII, claiming that Ivy Tech denied her application for full-time employment, and ultimately declined to renew her part-time contract, because she was openly gay. Title VII makes it unlawful for private sector and state and local government employers with at least 15 employees to discriminate on the basis of, among other things, a person’s sex. 42 U.S.C. § 2000e-2(a). Title VII does not list sexual orientation as a protected classification.

At the time Hively filed her suit, the Equal Employment Opportunity Commission (EEOC) and a majority of the federal appellate circuits were at odds as to whether Title VII’s prohibition on sex discrimination should be expended to reach sexual orientation discrimination. The EEOC took—and still takes—the position that Title VII should be read to include sexual orientation as a protected classification. At the time of the suit, however, 10 of the 12 federal appellate geographic circuits, including the Seventh Circuit, had ruled to the contrary. Relying on Seventh Circuit precedent, the district court granted Ivy Tech’s motion to dismiss Hively’s sexual orientation discrimination claim. Hively appealed.

A three-judge panel of the Seventh Circuit noted that the line between a gender non-conformity claim—a claim that is covered by Title VII—and a sexual orientation claim is hard to discern. Hively v. Ivy Tech Cmty. Coll., 830 F.3d 698 (7th Cir. 2016). Ultimately, however, the court followed precedent. It upheld the district court’s dismissal on the ground that Title VII does not apply to sexual orientation discrimination claims. Id. at 718.

The panel’s ruling, however, was not the final word. The Seventh Circuit elected to rehear the case en banc, meaning that all eleven judges on the court would rehear it. After consideration, the court rejected its prior rulings. Hively, 853 F.3d 339. Specifically, the court concluded that Hively’s claim was no different from successful gender non-conformity claims brought by women  who alleged discrimination resulted from their “failure to conform to the female stereotype (at least as understood in a place such as modern America, which views heterosexuality as the norm and other forms of sexuality as exceptional).” It explained that the line between a gender nonconformity claim and one based on sexual orientation “does not exist at all.” Thus, the court concluded that Title VII’s prohibition on sex discrimination included discrimination claims based on sexual orientation. The court, however, did not determine the merits of Hively’s claim, but sent the case back to the district court for further proceedings consistent with its ruling.

Given the split among circuits, it is likely that Congress or the Supreme Court will step in to address the issue. Stay tuned.

If you have questions on this case or on other employment related matters, contact Meg Vergeront at (608) 256-0226.

Under Unique Wisconsin Statute, Court Refuses to Enforce Covenant Against Poaching Employees

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One of your “big fish” executives leaves employment with your company and goes to work for a competitor. Soon, other employees are leaving. Surely not by coincidence, they join your former big fish, working for your competitor.

But your company had locked up Mr. Big Fish with a three-pronged agreement, which included a non-solicitation of employees (“NSE”) provision. Surely you can put a stop to this outrage.

Maybe, maybe not. In Manitowoc Co. v. Lanning, No. 2015AP1530, 2016 WL 4370181 (Wis. Ct. App. Aug. 17, 2016), the Wisconsin Court of Appeals held that the NSE could not be enforced because it was overbroad and therefore unenforceable under Wis. Stat. § 103.465. This statute, unique to Wisconsin, was enacted in 1957 to overrule Wisconsin Supreme decisions embracing the “blue pencil” rule, which allowed courts to rewrite restrictive covenants to limit their scope. The statute changed the landscape by providing “that such restrictive covenant imposing an unreasonable restraint is void and unenforceable even as to so much of the covenant or performance as would be a reasonable restraint.” Lakeside Oil Co. v. Slutsky, 8 Wis. 2d 157, 162, 98 N.W.2d 415 (1959). In other words, under Wis. Stat. § 103.465, if any part of the restriction imposed by a restrictive covenant is unreasonable, the entire covenant fails.

In Star Direct, Inc. v. Dal Pra, 2009 WI 76, ¶ 78, 319 Wis. 2d 274, 767 N.W.2d 898, the Wisconsin Supreme Court read the statute as providing for an independent analysis of covenants that were divisible, that is, the contract contained different covenants supporting different interests that can be independently read and enforced. In doing so, the court acknowledged that different types of covenants restricting post-employment activities were subject to the statute. Lanning breaks new ground in one respect. It is the first reported appellate case in the Wisconsin state court system to apply the statute to an NSE where the employer contested its applicability.

The Lanning court broadly construed the scope of the statute, stating “the NSE provision does not allow for the ordinary sort of competition attendant to a free market, which includes recruiting employees from competitors,” so it must comply with the statute regardless how it is labeled. Lanning, ¶ 17. Having concluded that the statute applied, the court of appeals had little difficulty concluding the clause was overbroad and unenforceable, given that it applied to the solicitation of “any” employee, whether or not the employee solicited posed any realistic competitive threat. The court therefore set aside the trial court’s award of $97,844.78 in damages, $1 million in attorneys’ fees, and $37,246.82 in costs in favor of the Manitowoc Company, the former employer, and remanded the case with instructions to enter summary judgment for Lanning, the former employee.

Lanning serves as a reminder that in drafting employment agreements, the employer should assume that any restriction on an employee’s post-employment conduct will likely be scrutinized under Wis. Stat. § 103.465. Accordingly, such restrictions should be tailored to the least restrictive means necessary to protect legitimate business interests. Absent care in the drafting process, your employer clients risk spending a great deal of money in a futile effort to enforce covenants intended to protect their businesses.

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