Allyn & Fortuna LLP
Diana Uhimov, July 31, 2015
The Second Circuit made two business-friendly rulings on July 2, 2015 in the closely watched proposed class action cases involving interns that claimed they should have been classified as employees. The Court of Appeals struck down a trial court decision that determined two unpaid interns were employees covered by the Fair Labor Standards Act and New York Labor Law in the wage case, Glatt et al. v. Fox Searchlight Pictures Inc. It also upheld a ruling that denied certification in another unpaid intern case against the Hearst Corp. The issue before the appeals court was when an unpaid intern would be entitled to wages as an employee under the Fair Labor Standards Act. The court found that unpaid internships are permissible as long as the intern benefited from the learning experience of the job more than the employer benefited financially from the intern’s work.
The named plaintiffs in the Fox suit, Eric Glatt and Alexander Footman, had worked on the set of “Black Swan.” In 2011, they brought an action claiming that Fox was engaging unpaid interns to take advantage of the free labor and keep costs down. The district court’s June 2013 decision in the Fox case found that the interns should have been considered employees under federal law and were entitled to at least the minimum wage, together with other benefits and protections. Its decision relied on a six-part test advocated by the U.S. Department of Labor, which deems an intern to be an employee if their employer gains an “immediate advantage” from their labor. The appeals court, however, rejected the DOL test adopted by the district court in classifying the plaintiffs as employees as “too rigid”.
The three-judge panel in the Fox opinion stated that the DOL—which appeared as amicus curiae in support of the plaintiffs—test is basically an interpretation of the U.S. Supreme Court’s 1947 decision in Walling v. Portland Terminal Co., and that interpreting judicial decisions is not within the scope of the agency’s role. The panel instead ruled that the proper inquiry was whether the intern or the employer was the primary beneficiary of their relationship based on the totality of the circumstances. The court set forth seven non-exhaustive factors to consider when assessing when a worker qualifies as an employee under the FLSA. Those considerations include:
(1) Whether there is a clear understanding that there is no expectation of compensation;
(2) Whether interns receive training similar to what would be received in educational setting;
(3) To what the degree the internship is connected with a formal education program;
(4) How well the internship accommodates the intern’s academic commitments by corresponding to the academic calendar;
(5) The extent to which the length of time of the internship is limited to the period in which the intern is provided with beneficial learning by the internship;
(6) Whether the intern’s work complements, rather than replaces the work of paid employees while providing a significant learning experience to the intern; and
(7) The level of understanding that the internship does not entitle the intern to a paid job when the internship ends.
The Second Circuit noted in its opinion that the rulings do not rule out the possibility that the plaintiffs could succeed in claiming that they were misclassified as interns under the revised standard. Both cases were remanded back to the district court. On one hand, this outcome will make it more difficult for interns to prove that they should be considered employees. But the decision may be viewed as good for employees inasmuch as it suggests that interns who are not enrolled in an academic program should be considered employees. In addition, employers should reevaluate their unpaid intern policies to avoid assignment to interns of low-level tasks lacking any beneficial training.
By: Megan J. Muoio, July 24, 2015
On July 16, 2015, the U.S. Equal Employment Opportunity Commission (EEOC) issued a decision affirming that it considers sexual orientation to be covered by Title VII of the Civil Rights Act of 1964’s prohibitions against discrimination on the basis of sex. The decision, which was made 3-2 in an appeal brought by an employee of the Federal Aviation Administration who claimed that he was denied a promotion because he was gay, sets up a conflict between the EEOC and certain federal courts.
Title VII states that it is an unlawful employment practice “to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin.” While this section indisputably prohibits employment decisions made because of an employee’s sex (commonly interpreted by the EEOC and the federal courts as the employee’s gender), it has not been applied to employment decisions based on an employee’s sexual orientation. While various state and local laws prohibit discrimination in employment on the basis of sexual orientation, there is no such analogous provision in the federal Civil Rights Act. Federal courts have traditionally held that Title VII contains no explicit reference to sexual orientation, which reflects Congress’s intent not to extend Title VII’s employment protections to gay, lesbian, and bisexual employees.
Despite the fact that the EEOC itself has previously held that Title VII does not include sexual orientation, the EEOC’s decision marks a turnaround in the agency’s interpretation of Title VII. In the decision issued on July 16th, the EEOC held that there was sufficient support for its new position, which it claims has “developed over time.” The EEOC argued that discrimination on the basis of sexual orientation is essentially discrimination on the basis of one’s sex. By way of illustration, the EEOC described the situation of a heterosexual male employee versus a homosexual male employee: if the homosexual male employee was fired because he displayed a picture of his partner, who is a man, the employment decision would technically be based on gender since the employer would be discriminating against the male employee for not having a female significant other. This rationale tracks the EEOC’s previous holdings that sex and sex stereotyping are both covered by Title VII, meaning that discrimination against an employee who is a woman and discrimination against a man who does not express his gender in a typical fashion (here, by engaging in a homosexual relationship) are both prohibited under Title VII’s provision against sex discrimination.
The EEOC also argued that it has previously held that discrimination based on one’s association with a protected class can been read into the provisions of Title VII, even though these associations are not included in the plain text of the statute. For example, the EEOC has held (and the federal courts subsequently recognized) that a person who has been discriminated against on the basis of a relationship or friendship with a person in a protected class, such as race, would be entitled to Title VII’s protections against discrimination on the basis of race. The EEOC analogized the association argument to sexual orientation, and found that employees who are discriminated against on the basis of their sexual orientation are essentially discriminated against because they associate with or engage in relationships with members of a particular sex.
This decision by the EEOC is non-binding on the federal courts, many of which will disregard the EEOC’s decision and continue to deny Title VII protection for claims of discrimination on the basis of sexual orientation. If enough circuit courts of appeal follow the EEOC’s decision, however, a circuit court split could result. In such a circumstance, the dispute could end up before the Supreme Court, unless the issue is resolved by federal legislation clarifying the terms of Title VII with respect to sexual orientation first. Recently, with the attention given to gay rights in the wake of the Supreme Court decision legalizing gay marriage nationwide, increased attention has been paid to the proposed Employment Non-Discrimination Act (ENDA), which has been proposed in Congress as an amendment to the Civil Rights Act of 1964 since 1974 and would prohibit discrimination on the basis of sexual orientation in employment. Although ENDA has not been passed by Congress, it will continue to be proposed in the future and it is anticipated that increased protections for LGBT individuals may result from the Supreme Court’s recent decision.
Nicholas Fortuna, July 15, 20015
The Wage and Hour Division of the U.S. Department of Labor issued a guidance memorandum last week using an expansive definition of an employee to curb misclassifications of employees as independent contractors. According to the Department of Labor, the Fair Labor Standards Act (FLSA) defines persons as employees if they “suffer or permit to work” or are considered an employee under the “economic realities” test. In other words, is the worker genuinely in business for himself as determined by the six factors discussed in the Department of Labor’s guidance?
The Department of Labor is concerned that employees misclassified as independent contractors do not receive the required benefits and protections, such as minimum wage, overtime pay, unemployment and worker’s compensation insurance, and workplace protections. Misclassification also results in lower tax revenues for government.
Different from the common law control test, which determines whether a worker is and employee based on the employer’s control over the worker, the economic realities test of the working relationship is a more expansive approach to who is considered an employee. The FLSA’s standards broaden the scope of employment relationships. In fact, the FLSA’s statutory definitions, including “suffer or permit,” rejected the common law control test that was prevalent at the time.
To determine whether a worker is an employee or an independent contractor pursuant to the FLSA, courts use an “economic realities” test, which focuses on whether a worker is economically dependent on the employer or in business for himself. A worker who is economically dependent on an employer is “suffered or permitted to work” by the employer. Following this approach, most workers would be considered employees.
The “economic realities” test is the consideration of a number of factors to determine if a worker is truly in business for himself or an employee. The determination is fact specific to each situation.
Factors Considered:
1. Is the work an integral part of the employer’s business?
A worker is more likely to be an employee under the FLSA if they perform the primary work of the employer. An independent contractor’s work is unlikely to be integral to the employer’s business.
2. Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
If it is the worker’s business, then his managerial skill will often affect opportunity to obtain additional work from other parties, thereby enhancing profit. Conversely, poor management may lead to a loss.
3. How does the worker’s relevant investment compare to the employer’s investment?
Considering the nature of the worker’s investment, and comparing it to the employer’s investment, helps determine whether the worker is engaged in an independent business. Courts have found if there is a substantial difference in relative investments between the worker and employer that leans toward finding the worker is an employee. . For example, according to some courts, tools and equipment are not necessarily a business investment that indicates the worker is an independent contractor.
4. Does the work performed require a special skill or initiative?
A worker’s business skills, judgment, and initiative, not his technical skills, will aid in determining whether a worker is economically independent. Again, the courts look to see if the worker’s business acumen enhances his ability to make a profit, not whether he is particularly good at performing a task.
5. Is the relationship between the worker and employer permanent or indefinite?
Permanency or indefiniteness in the worker’s relationship with the employer suggests that the worker is an employee.
6. What is the nature and degree of the employer’s control?
To qualify as an independent contractor, the worker must control the meaningful aspects of the work performed. For example, if the employer determines the means and methods of performance, the location and time of performance, that would lean towards finding the worker is an employee.
Whether a worker is an employee under the FLSA is a legal question determined by the economic realities of the working relationship. Following the Department of Labor’s expansive view of who is an employee will result in most workers being considered employees under the FLSA.
Paula Lopez, July 6, 2015.
On Friday, June 26, 2015, the U.S. Supreme Court ruled in a 5-4 decision written by Justice Anthony Kennedy (and joined by Justices Ginsburg, Sotomayor, Kagan and Breyer) that the right to marry is a fundamental right protected by the Fourteenth Amendment. The Supreme Court’s decision in Obergefell et al. v. Hodges, et al. means that all states are required to license a marriage between couples of the same sex and to recognize out of state same-sex marriages.
The Supreme Court’s decision reversed a ruling from the Sixth Circuit Court of Appeals that upheld same-sex marriage bans in Michigan, Kentucky, Tennessee, and Ohio. In deciding to hear the case, the Supreme Court limited its review to two issues: (i) whether the Fourteenth Amendment requires a state to license a marriage between two people of the same sex; and (ii) whether the Fourteenth Amendment requires a state to recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out-of-state.
The consistency offered by the decision will help streamline the way multi-state employers administer their employee benefits by no longer having to keep track of which states have legalized same-sex marriages and where and when their employees’ marriages were performed.
The immediate impact of the Obergefell decision on employers will be seen through possible changes to offered spousal benefits and leave policies. For instance, employers may reconsider offering domestic partner benefits if they also offer spousal benefits since the Court’s ruling permits employees in all states to marry. Nevertheless, employers who offer spousal benefits to opposite-sex spouses will now be required to extend those benefits to same-sex spouses.
In addition, employers considering leave requests under the Family Medical Leave Act in states that have refused to implement the Department of Labor’s final rule modifying the definition of marriage to include same-sex spouses whose marriages were valid in the state they were celebrated should tread carefully in light of the Obergefell decision. Arkansas, Louisiana, Nebraska and Texas had obtained an injunction staying enforcement of the DOL’s final rule. The Obergefell ruling will likely result in lifting the injunction, which means that employers in these states will need to extend family leave rights to employees seeking leave to care for same-sex spouses.
While the Court’s decision did not discuss whether an individual’s sexual orientation is a protected characteristic or its impact on employment related discrimination claims, it did, in two instances, refer to sexual orientation as an “immutable” characteristic. Recognizing sexual orientation as an “immutable” characteristic, similar to race and gender, could lay the ground work for future plaintiffs seeking to have courts apply a heightened scrutiny to claims of discrimination based on sexual orientation.
While the Employment Non-Discrimination Act (ENDA), which would extend employment discrimination protections to LGBT individuals, has lingered in Congress without success, the Obergefell decision could create traction in favor of proponents of the law. Therefore, employers need to stay apprised of changes in federal, state and local anti-discrimination regulations which could be amended to provide for enhanced protections based on sexual orientation or gender identity. It is also important for employers to keep in mind that in states and localities that do not afford protections based on sexual orientation but do prohibit discrimination based on marital status, Obergefell could result in an increase in claims by employees in same-sex marriages who believe they have been discriminated against by their employer based on their marital status. In addition, employers may see an increase in agency enforcement actions as a result of the Court’s decision.
While the Supreme Court’s decision in Obergefell has finally resolved the issue of the constitutionality of same-sex marriage, significant uncertainty remains as to the total impact of the Court’s decision in the employment context and beyond. Employers should remain vigilant to changes in the laws and keep their policies updated.
Megan J. Muoio, July 2, 2015
On June 10, 2015, the New York City Council passed the Fair Chance Act, New York City’s version of “ban the box” legislation which eliminates the use of check boxes on job applications that ask about past convictions. The Act addresses the issue of the use of criminal records in the hiring process, which has come under increasing scrutiny because of the concern that applicants who are asked to disclose their criminal background are excluded from being considered for employment at the application stage of the job process. The bill’s lead sponsor, City Council Member Jumaane Williams hailed the Fair Chance Act as employment legislation that was also a criminal justice bill because it would raise the near-permanent barrier against employment for individuals with criminal records and permit those with criminal histories to reenter the workforce.
The Equal Employment Opportunity Commission provided guidance on the issue in 2012. The guidance requires that employers demonstrate that if they make hiring decisions based on conviction records, those decision must be directly job-related and that all applicants are individually assessed with respect to the position for which they are applying. New Jersey, as well as five other states, Washington, D.C., and greater than 100 other cities and municipalities have already passed “ban the box” legislation.
Mayor Bill de Blasio signed the Fair Chance Act on June 29, 2015. The legislation, which applies to all New York City employers with four or more employees, goes into effect on October 27, 2015. Under the Act, employers cannot state that employment is based on an applicant’s arrest or criminal conviction record and cannot advertise that an applicant’s arrest or criminal conviction history will limit the applicant’s eligibility for employment. Generally, employers cannot ask about criminal background information prior to hiring, but are also prohibited from conducting searches of publicly available records or conducting Fair Credit Reporting Act background searches in order to ascertain arrest and conviction information about applicants.
There are several narrow exceptions to the Fair Chance Act. Employers may make criminal background inquiries of applicants for positions in law enforcement; positions for which state, federal, or local law requires a background check be performed; or positions that are susceptible to bribery or that involve safeguarding people vulnerable to abuse (to be defined by the New York City Commission of Citywide Administrative Services).
Under New York City’s law, employers are permitted to make inquiries about an applicant’s criminal background before hiring only after making a conditional offer of employment and if the employer provides detailed information about the background inquiry. In that situation, the employer can consider background information only if it establishes that there is a direct relationship between the criminal offenses and the specific employment sought, and that there is an unreasonable risk to specific members of the general public, their safety, welfare, or property. If the employer makes an employment decision based on the applicant’s criminal background information, the employer must provide the applicant with an analysis of the eight factors set out in Article 23-A of the New York City Correction Law, which prohibits unfair discrimination against a previously-convicted person. The eight factors are:
- Public policy encouraging the employment of people with prior criminal convictions;
- The specific duties and responsibilities necessarily related to the job;
- The bearing, if any, the criminal offense would have on the person’s fitness or ability to perform the job duties and responsibilities;
- The time elapsed since the criminal offense;
- The age of the person at the time he committed the offense;
- The seriousness of the criminal offense;
- Information regarding rehabilitation and good conduct;
- The legitimate interest of the employer in protecting property, safety and welfare.
If the employer conducts this analysis, withdraws the conditional offer, and provides the written analysis, the employer must then keep the position open for three days until the applicant responds. In order to enforce violations of the Fair Chance Act, individuals will have a private right of action or may seek enforcement through the New York City Commission on Human Rights.
New York City employers should review their hiring procedures from start to finish to ensure compliance with the Fair Chance Act. Employers should review the Act to determine whether any of the positions within their company fall into the exceptions. References to criminal background information as a factor in employment eligibility should be removed from job listings. Applications will also have to be revised to eliminate all questions and check boxes regarding applicants’ criminal background. Hiring managers, recruiters, and human resources personnel should be trained to revise their interviewing procedures to ensure that criminal background information is not a subject of inquiry. They should also should be aware of the process for making a conditional offer and analyzing whether it is proper to request a criminal background check, and on how to make proper employment determinations based on the terms of the Fair Chance Act. Finally, they should be trained on how to provide proper analysis under Article 23-A and withdraw conditional offers of employment properly under the Act so that the employer is not subject to litigation.