The start of a new year is a great time for employers to look ahead for changes in the law that will affect their organizations. In this blog post, we will lay out some of the key issues that employers can expect to encounter in the year ahead.

  1. Exempt Salary Increases: On January 1, 2020, the Department of Labor’s updated “white collar” overtime exemption rule went into effect, increasing the minimum salary level for overtime exemption to $684 per week, or $35,568 per year. In addition, some states have minimum exempt salary levels that exceed the federal threshold. California, New York, Colorado, Maine, and Alaska are raising their state minimum threshold this year.
  2. Minimum Wage Increases: While Congress still has not enacted a federal minimum wage increase, states and localities across the country continue to implement new minimum wages in 2020. For example, the minimum wage is now $13/hour for California employers with 25 employees or more (and higher in some California cities); in New York City, the new minimum wage is $15/hour for employers with 11 employees or more.
  3. Independent Contractors: Independent contractor classification continues to be a hot topic in employment law across the country, with many states adopting the stringent “ABC Test” for independent contractors.
  4. Arbitration Agreements: Mandatory arbitration agreements are also seeing new challenges: California’s new law banning arbitration agreements in the employment setting was put on hold by a court at the last minute, but we can expect to see further developments in California and other states in the new year.
  5. Discrimination Laws: New discrimination and harassment laws targeting discrimination based on hairstyle (California), pregnancy (Oregon), and other characteristics will go into effect this year as well.
  6. Pay Equity: New laws in New York and New Jersey both go into effect in January 2020 that will prohibit employers from asking job candidates about their salary history. Other states (Washington state, Alabama, Maine, and Illinois) passed similar legislation last year, and more (Colorado, Georgia, Pennsylvania, and South Carolina) are looking to follow suit soon.
  7. Training Requirements: A variety of states, including New York, Delaware and Maine have already adopted sexual harassment training requirements, and others have adopted new sexual harassment training requirements with deadlines in 2020. In particular, Illinois’ new law requiring most employers to complete annual training went into effect January 1, 2020, and Connecticut now requires employers with three or more employees to provide sexual harassment training to all employees by October 1, 2020. California requires sexual harassment training for all employers but has extended the time for employers with five or more employees to provide training to January 1, 2021.
  8. Leave Laws: States and localities continue to pass generous paid family and medical leave laws. Eligible employees in Washington state will soon be entitled to take up to 18 weeks of paid family and medical leave per year. The District of Columbia is set to follow suit later this year. California, Connecticut, Massachusetts, New Jersey, New York, Oregon, and Rhode Island also have paid family leave laws.
  9. Marijuana and the Workplace: New Mexico and Oklahoma have become the latest to pass legislation prohibiting employers from discriminating against employees because of their status as registered marijuana users; and Nevada and New Jersey each have new laws preventing discrimination based on marijuana use. Meanwhile, New York City has passed an ordinance preventing most employers from conducting any pre-employment testing for marijuana or THC.
  10. Extra Payday Year: 2020 will be a 27-payday year for some organizations. Employers who pay bi-weekly on Fridays and had a payday on January 3, 2020, will have 27 paydays this year instead of the standard 26. 27-payday years occur once every 11 or 12 years for all bi-weekly payrolls, when the one-or two-day shortage of the standard 26 payday shortage catches up, causing a 27th payday to fall within the same calendar year. Employers with a 27th payday in their 2020 calendar should plan for how the extra payday will impact payroll deductions for health benefits, flexible spending accounts, and the cash flow impact the extra payday will have on their year.

Be sure to subscribe to HR Law Matters to stay up to date on these and other employment developments in the new year. As always, if you have any questions about the new developments in employment law and how they affect your organization, Troutman Sanders’ labor and employment attorneys are happy to assist you. Happy New Year!

Join Troutman Sanders at our San Francisco office on Thursday, January 16th for our annual MCLE day. We will discuss employment law updates for 2020, diversity and inclusion, data privacy and an update and review of the U.S. Supreme Court. Mark Payne, Kristalyn Lee, and Christopher Gelpi will discuss employment law updates for 2020. Our keynote speaker will be Jeena Cho, Partner at JC Law Group PC, and co-author of the best selling book, The Anxious Lawyer.

To learn more and to register for the San Francisco MCLE Day, please click here.

Beginning January 1, 2020, California law (known as AB 51) makes it a criminal misdemeanor for employers to require arbitration as a condition of employment. The law specifically prohibits mandatory arbitration of claims under the California Fair Employment and Housing Act (such as for discrimination, harassment, and retaliation) and claims for violations of the California Labor Code (such as for wage payment violations). AB 51 now has been temporarily enjoined pending a preliminary injunction hearing scheduled for January 10, 2020.

On December 6, 2019, the U.S. and California Chambers of Commerce and other national and state organizations filed a lawsuit against the State of California to block AB 51, asserting that this new law is preempted by the Federal Arbitration Act. (United States v. Becerra, Case No. 2:19-cv-2456 KJM DB.) In response to the plaintiff’s request for injunctive relief, the United States District Court for the Eastern District of California filed its Order on December 30, 2019, which prohibits California authorities from enforcing AB 51 until the Court decides whether to issue a preliminary injunction. That hearing is scheduled for January 10, 2020. Courts rarely issue such temporary restraining orders, and they do so only if the plaintiff appears likely to succeed on the merits. In issuing this injunction, the Court explained that in this case, “plaintiffs have raised serious questions regarding whether the challenged statute is preempted by the Federal Arbitration Act as construed by the United States Supreme Court.”

During the period of the injunction, California employers can continue to use valid arbitration agreements as a required condition of employment, but should closely monitor these legal developments and consult with counsel about the advantages and disadvantages of employment arbitration agreements, including how best to draft and implement them.

Now that Black Friday has passed and Christmas lights are up, the winter holiday shopping season is in full swing.  And while you may have survived or even avoided the perils of shopping for the best deals in frenzied environments, there is another type of shopping that lurks for employers: “forum shopping” by employees in wage-and-hour collective actions under the Fair Labor Standards Act (“FLSA”).

As the term suggests, forum shopping refers to the practice of shopping for a particular court or jurisdiction that will provide the most favorable outcome.  This litigation strategy has gained traction over the years by employees when filing wage claims against their employers.  But that practice may soon be limited.  In 2017, the United States Supreme Court in Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco County, 137 S. Ct. 1773 (2017), addressed the issue of forum shopping in a mass tort action consisting of over 600 plaintiffs, most of whom (592) were non-California residents.  Notably, the Court determined that a California state court lacked specific jurisdiction over the nonresident plaintiffs’ product liability claims because their injury from the product did not occur in California.  Jurisdiction over the state law claims at issue, the Court explained, requires “an affiliation between the forum and the underlying controversy, principally, [an] activity or an occurrence that takes place in the forum State.”

Though this decision was a huge victory for large companies that do business nationwide, the Supreme Court expressly left open the question of whether such limitation to forum shopping applies in federal court actions, including collective actions under the FLSA.  Federal district courts have weighed in on this issue and have reached opposite conclusions.  In one group, courts have declined to apply the decision in Bristol-Myers to FLSA collective actions, reasoning that unlike the mass tort state law claims at issue in Bristol-Myers, an FLSA collective action derives from a federal statute that was intended to address wage-and-hour practices nationwide.  According to these courts, applying Bristol-Myers to FLSA collective actions would go against congressional intent because Congress created the FLSA as a mechanism for employees to bring their claims on behalf of other, similarly-situated employees, regardless of whether they are in-state or out-of-state.

Nonetheless, other district courts have found that Bristol-Myers does apply in FLSA collective actions to divest courts of jurisdiction over the FLSA claims of out-of-state employees.  These courts reason that the FLSA does not provide for nationwide service of process and that an FLSA collective action, with its opt-in structure for plaintiffs, is similar to the mass tort action in Bristol-Myers.  In sum, while the district court split on this issue continues to grow, employers are left wondering if and when forum shopping in FLSA collective actions will end.

The answer may come soon.  As of now, two circuit courts (the Seventh Circuit and the District of Columbia Circuit) are considering whether Bristol-Myers applies in federal court actions.  See Florence Mussat v. IQVIA, Inc., et al., No. 19-1204, Oral Argument (7th Cir. Sept. 27, 2019); see also Molock, et al. v. Whole Foods Market, Inc., et al., No. 18-7162, Oral Argument (D.C. Cir. Sept. 25, 2019).  Whether they follow the reasoning of either group of district courts or come up with their own remains to be seen.  But during this winter holiday shopping season, a limitation to forum shopping in FLSA collective actions may be first on employers’ wish lists.

The number of I-9 audits is on the rise, but for many employers this is still unfamiliar territory. In this post, we will explore what happens next after Immigration & Customs Enforcement (ICE) has selected your company for an audit.

The Immigration Reform and Control Act requires employers to verify the work authorization status of their employees by completing the Employment Eligibility Verification Form (Form I-9). If your company is selected for an audit, ICE will serve a Notice of Inspection (NOI), which typically requests Forms I-9 (of current employees and former employees whose I-9’s fall within the required retention period), together with other supporting documentation such as payroll records or employee lists with hire/termination dates. Employers are given three business days to produce all requested items but may ask for an extension if needed.

Once ICE receives all Forms I-9 and supporting documentation, they review each I-9 for technical and substantive violations. ICE gives employers ten business days to correct any technical violations before assessing monetary fines. Substantive violations, however, cannot be remedied. Some examples of substantive violations include: 1) missing Form I-9 for an employee; 2) missing employee’s signature in Section 1, or signed late; 3) Section 1 completed late; 4) employee fails to attest to his/her immigration status; 5) if applicable, no A number (Alien number) provided in any of the documents or sections; 6) missing employer’s signature in Section 2, or signed late; and 7) untimely reverification of the employee’s status. Because these violations cannot be corrected once they have been made, it is extremely important for employers to audit their Forms I-9, gauge how many and what types of substantive violations are being committed, and come up with measures to avoid making these errors on future Forms I-9. Also keep in mind that, in addition to the above technical and substantive violations, employers who are deemed to have knowingly hired or continued to employ workers without proper documentation can face criminal charges and/or debarment, which will prevent the employer from being a federal contractor or receiving other government benefits.

Depending on the results of the audit, ICE will generally provide any of the following notices: Notice of Inspection Results; Notice of Suspect Documents; Notice of Discrepancies, Notice of Technical or Procedural Failures; Warning Notice; or Notice of Intent to Fine (NIF). When ICE issues a monetary fine, it considers the following five factors: 1) the size of the company; 2) the employer’s good faith effort to comply; 3) seriousness of the violation; 4) whether the violation involved unauthorized workers; and 5) history of previous violations. Upon receipt of a NIF specifying the I-9 violations, employers have an opportunity to negotiate a settlement with ICE. Alternatively, they can request a hearing before the Office of the Chief Administrative Hearing Officer (OCAHO) to contest the violations and fines imposed by ICE.

Depending on the outcome of the audit, the I-9 audit process can take 1-2 years to complete. Hopefully your business will come out of this ordeal with just minimal monetary fines that the company can afford. But reducing the impact of an audit largely depends on how much effort is put into reshaping the I-9 practice prior to an audit by ICE. It is in the interest of every business to take a look at their I-9 procedure and identify the areas that need to be changed– and to do so sooner than later.

Troutman Sanders will host an Employment and Privacy Law Seminar December 11th in our San Diego office and December 12th in our Orange County office. Both seminars will run from 8:00 – 10:00 a.m. and breakfast will be provided. Mark Payne, Chris Gelpi, Kristalyn Lee, and Sadia Mirza will discuss the new employment laws and developments affecting the workplace and the new California Consumer Privacy Act, including practical suggestions for compliance.

Changes coming to you for 2020 include the newly enacted CCPA’s broad privacy requirements and additional developments and risks related to independent contractor classification, wage and hour, leaves of absence, disability accommodation, immigration enforcement, harassment and discrimination, arbitration, pay equity reporting, among others.

To learn more and to register for the San Diego seminar, please click here.

To learn more and to register for the Orange County seminar, please click here.

The Trump administration’s tough stance on enforcing employer compliance continues.  Last year, there were a number of highly publicized raids, including the following:

  • Immigration and Customs Enforcement (ICE) arrested 364 individuals during 30-day enforcement visits in the following midwestern states: Illinois (134), Indiana (52), Kansas (43), Kentucky (60), Missouri (42), Wisconsin (33).
  • ICE conducted a worksite visit at a family-owned business in Texas with 500+ employees and arrested approximately 160 foreign nationals.
  • ICE served search warrants at various businesses in Nebraska and Minnesota resulting in the apprehension of 133 foreign nationals. The businesses where the warrants were served included a grocery store, restaurants, a private ranch, and a grain company.  According to ICE, these enforcement actions were part of a 15-month investigation based on evidence that these employers were knowingly employing unauthorized workers.
  • In June 2018, 200 federal officers raided an Ohio gardening and landscaping company. One hundred and fourteen foreign nationals suspected of being in the U.S. without lawful status were arrested.
  • Ninety-seven foreign nationals working at a meat processing plant in Tennessee were arrested on federal and state charges. This was a joint operation between the Homeland Security Investigations arm, the Internal Revenue Service, and the Tennessee Highway Patrol.  The government opened a case to investigate the business after the employer’s bank noticed large sums of money being withdrawn every week, supposedly to pay the unauthorized workers in cash.
  • ICE raided 98 7-Eleven stores in 17 states and the District of Columbia to issue Notices of Inspection and interview employees. The investigation led to 21 arrests.

This year, the overall trend has been consistent as in 2018.  In July, ICE issued Notices of Inspection to more than 3,000 companies.  The same month, ICE officers launched a series of raids in an effort to apprehend more than 2,000 undocumented migrants across the country.  The number of I-9 audit cases being submitted for review by the OCAHO (Office of the Chief Administrative Hearing Officer) confirms the increase in the number of audits and that the government will audit companies regardless of size, location, or industry.

  • For example, in March 2017, a cleaning services company was served with a Notice of Inspection. Of the 578 Forms I-9 produced by the employer, ICE found that 439 I-9 forms contained substantive violations, including untimely completion of 120 forms, missing I-9s for 224 employees, and failure to properly complete Section 1 and/or Section 2 of I-9 forms for 337 employees.  After taking into account the mitigating factors, the OCAHO ordered the employer to pay $1,161,143.20 in civil penalties.
  • In the case against Technical Marine Maintenance and Gulf Coast Workforce (issued December 2018), the OCAHO imposed a civil fine of $857,868 against these employers, finding that the companies engaged in unfair documentary practices against non-U.S. citizens, U.S. citizens, and lawful permanent residents. The fact that the companies were unwilling to cooperate with ICE during the audit was an aggravating factor.
  • In January 2017, a transportation service company of approximately 11 employees was selected for an audit. Based on its review of the company’s I-9’s, ICE proposed $21,506.10 in civil penalties.  The OCAHO considered the mitigating factors and reduced the amount to $4,500.
  • In December 2016, a cleaning services company was served with a Notice of Inspection. In July 2017, ICE issued a Notice of Intent to Fine in the amount of $44,315.60, and the OCAHO confirmed the monetary amount.
  • Two concrete service companies in southern California with the same owner were selected for an audit in January 2015. Company A had approximately 28 employees and Company B about 48. The OCAHO assessed a civil penalty of $5,500 against Company A and $11,325 against Company B, recognizing the fact that they are both businesses with less than 100 employees.

One of the factors considered when calculating civil fines is whether the employer acted on its own to mitigate or cure any I-9 violations prior to receiving a Notice of Inspection.  The best way to prepare for a visit from ICE is to proactively conduct internal audits of the I-9 forms, identify systematic issues leading to I-9 violations, and implement measures and educate the workforce.  Given the raids and penalties described above, these measures may be more important to many employers than ever before.

With Halloween just around the corner, many of us are preparing costumes, enjoying the fall chill in the air, and making plans for trick-or-treating.  But employers should be prepared for one “trick” announced by the federal Department of Labor a few weeks ago: on September 24, 2019, the federal Department of Labor announced a new rule under the Fair Labor Standards Act that it claims will make 1.3 million American workers “newly eligible for overtime pay.”

The DOL has been working to update this rule for quite some time. In fact, a prior attempt in May 2016 would have increased the minimum salaries required for executive, administrative and professional employees to remain exempt from overtime pay under the FLSA. But in August 2017, a federal court entered a final judgment against implementing that rule.  Not to be deterred, as we covered last year, in March 2019 the DOL tried again, releasing a version of another new rule for notice and comment.

After receiving more than 116,000 comments, the rule was finalized in late September and will go into effect January 1, 2020. The new rule increases the set thresholds for salaries applicable to employees who are exempt from the FLSA’s minimum wage and overtime pay requirements under the executive, administrative or professional employee exemptions. The new rule will also update the regulations to allow employers to count a portion of certain bonuses/commissions towards meeting the salary level. Importantly, though, the final rule does not change any of the existing job duties tests.

You can find the full text of the new rule here.  But in a nutshell: what has changed? The DOL is:

  • raising the “standard salary level” from the currently enforced level of $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker);
  • raising the total annual compensation requirement for “highly compensated employees” from the currently enforced level of $100,000 per year to $107,432 per year;
  • allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices; and
  • revising the special salary levels for workers in U.S. territories and the motion picture industry.

Finally, the DOL has clarified its intent to update the earnings thresholds more regularly in the future through notice-and-comment rulemaking – so more changes, more often, appear to be on the horizon.

Classification of employees is always a great topic on which to enlist the advice of your favorite Troutman Sanders labor and employment attorney, but the new rule provides a timely reminder to confirm that your classifications (and exemptions) are in good shape to avoid more “tricks” as you head into the new year.

On September 18, 2019, California Governor Gavin Newsom signed into effect the much-anticipated AB-5 Bill, which imposes heightened standards when assessing whether to classify workers as independent contractors rather than employees. AB-5 will drastically affect California employers with workforces heavily reliant on independent contractors by forcing them to re-classify independent contractors as employees subject to most of the compliance requirements under California law, ranging from withholding laws for taxes and statutory benefits to wage and hour laws. AB-5’s statutory presumption of employee status will increase compliance costs and burdens and potentially force employers to alter their business models, or risk liability for costly misclassification lawsuits.

Before the Dynamex decision discussed below, the standard for determining independent contractor status was based on the degree of control exercised by the company in the relationship with the worker, based on several multi-factor tests. The stronger the principal’s control over the worker or the manner and means of performing the work, the more likely the worker would be classified as an employee. These tests also considered other secondary factors, such as the level of skill required, the details of payment, or the length of time for the services.

AB-5 codifies the California Supreme Court’s 2018 ruling in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903, which established a presumption of employee status, for purposes of applying the requirements of the California Wage Orders, and gave employers the burden to prove otherwise under the “ABC” test. Under that test, a worker is presumed to be an employee unless all three of the following conditions are met to properly classify as an independent contractor:

(A) The individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and

(B) The service is performed outside the usual course of the business of the employer; and

(C) The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

While the “A” and “C” factors are similar to pre-existing tests for independent contractor status, the “B” factor is expected to be particularly challenging.

AB-5 codifies this standard under the Wage Orders, but also extends it, retroactively, to the Labor Code, Unemployment Insurance Code, and Workers’ Compensation Code. AB-5 provides specific exceptions for several categories of occupations and relationships, such as doctors, licensed professionals, commercial fisherman, and estheticians. Gig economy, entertainment, and trucking industry workers are notably omitted as an exception. Importantly, the exempt occupations remain subject to the pre-existing multi-factor tests for independent contractor status, which are also difficult to satisfy.

California employers should assess and implement the appropriate changes to ensure compliance by reclassifying independent contractors to employees where appropriate. The presumption of employee status means that these workers are now presumptively subject to complex wage and hour requirements under California law (such as minimum wage, meal and rest breaks, overtime pay, reimbursement of business expenses, on-call or reporting time pay, and time-keeping and record-keeping); statutory employment benefits such as paid sick leave, disability benefits, unemployment insurance, workers’ compensation and, depending on the number of employees, health insurance benefits under the Affordable Care Act. These are just some of the issues employers are expected to face with the passing of AB-5.

AB-5 and its codification of the “ABC” test are not as easy as 1-2-3. California employers should consult with counsel to determine whether and to what extent AB-5 applies to their workforce, and assess their employment policies and practices to implement any necessary changes.

To learn more, we invite you to attend Troutman’s Labor & Employment Section’s annual seminars in Orange County on November 6, 2019 or in San Diego on November 7, 2019.

On September 12, 2019, the California Supreme Court ruled that an aggrieved employee bringing a representative action under California’s Private Attorneys General Act (PAGA) cannot recover unpaid wages. In ZB N.A. v. Superior Court, the plaintiff, Kalethia Lawson, brought a lawsuit alleging a sole cause of action under PAGA. She based her PAGA claim on several underlying allegations of Labor Code violations, including failure to provide overtime and minimum wages, meal and rest periods, timely wage payments, complete and accurate wage statements and payroll records, and reimbursement of business-related expenses. In addition to the civil penalties available under PAGA, Lawson sought unpaid wages and premium wages under Labor Code Section 558. The employer moved to compel arbitration of Lawson’s claim for unpaid wages, arguing that unpaid wages are the kind of “victim-specific relief” that Lawson had agreed to submit to binding arbitration.

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