Paula Lopez, May 12, 2015.

On May 6, 2015, Mayor Bill De Blasio signed into law Bill A-261A, which amends the New York City Human Rights Law (NYC HRL) to prohibit employers, labor organizations and employment agencies from conducting credit checks as part of their hiring process and from discriminating against an applicant or employee based on credit history.  Although the new law provides for certain exemptions where employers are permitted to request and rely on credit-related information, the exemptions are limited.

Employers with four or more employees are covered under the law and independent contractors are counted as employees in determining the applicability of the law.  The law prohibits covered employers from requesting or using the “consumer credit history” of an applicant or employee for employment purposes or otherwise discriminating against applicants or employees with regard to hiring, compensation or the terms and conditions of employment.  The law broadly defines “consumer credit history” to include “an individual’s credit worthiness, credit standing, credit capacity or payment history” as reflected through consumer credit reports, credit scores or information obtained directly from an applicant or employee regarding their credit standing.

Employers are still permitted to request and consider credit-related information for applicants and employees in the following circumstances:

1.      When an employer is required under federal, state or local law to consider an individual’s consumer credit history for employment purposes (i.e. Financial Industry Regulatory Authority); and/or

2.      When hiring and employing individuals for the following positions:

a. Police or peace officers;

b. Position subject to background checks by the Department of Investigations,

c. Position having bonding requirements under federal, state or local law;

d. Non-clerical positions having access to trade secrets, intelligence information or national security information;

e. Positions having signatory authority over third-party funds or assets in excess of $10,000;

f. Positions having a fiduciary responsibility to the employer with authority to enter into financial agreements on behalf of the employer valued at $10,000 or more; and/or

g. Positions whose regular duties include modifying digital security systems to prevent the unauthorized use of the employer’s or clients’ networks or databases.

The law generally defines “intelligence information” as records and data compiled for the purpose of criminal investigation or counterterrorism. “National security information” includes any knowledge relating to the national defense or foreign relations of the United States, owned by, produced by or for, and is under the control of the U.S. government.  The definition of “trade secrets” triggering the exemption excludes general proprietary company information such as handbooks, policies, client, customer or mailing lists.  Instead “trade secrets” is limited to: (a) information whose economic value is derived from not being generally known or ascertainable by other people who can obtain value from its disclosure; (b) information that is subject to efforts which, under reasonable circumstances, maintain its secrecy; and (c) can reasonably be said to be the end product of significant innovation.

The enforcement of the law is governed by the enforcement provisions of the NYC HRL, which afford an aggrieved employee or applicant the right to file a complaint with the New York City Human Rights Commission or bring an action directly in court.  An employer found in violation of the law could be liable for back pay, front pay, reinstatement, compensatory and punitive damages, attorney’s fees and costs.   The law takes effect September 3, 2015.

Despite the various exemptions to the law, New York City’s law banning credit checks in employment is the most stringent, as compared to similar laws passed in other states and municipalities, such as California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, Washington, Chicago, and Madison, WI because, unlike many of the laws passed by these other states and municipalities, New York City’s law does not provide blanket exemptions for financial institutions or positions involving the handling of money, and creates a private cause of action.

Before the law goes into effect, New York City employers should reevaluate their policies to determine whether they need to modify their hiring process to exclude credit checks or to determine whether the positions they employ fall within one of the enumerated exemptions permitting the use of credit-related information for employment purposes.

By: Megan J. Muoio, May 4, 2015

On Wednesday, April 29, 2015, the Supreme Court issued a decision in Mach Mining LLC v. Equal Employment Opportunity Commission, which was argued before the Court in January 2015. The unanimous decision, written by Justice Kagan, was a win for the Equal Employment Opportunity Commission (EEOC) in its efforts to bring litigation after engaging in conciliation with employers and permitted federal courts a narrow review of the conciliation process.

A woman filed a charge of discrimination in violation of Title VII of the Civil Rights Act of 1964 against Mach Mining with the EEOC, claiming that Mach Mining had refused to hire her as a coal miner because of her gender. As part of its investigation of the alleged unlawful workplace practice, the EEOC initially received the charge from the woman and engaged in an investigation of the Mach Mining’s practices. The EEOC found reasonable cause to believe that the charge had merit, and was thus obligated by statute to attempt to “eliminate [the] alleged unlawful employment practice by informal methods of conference, conciliation, and persuasion.” The EEOC, in its discretion, could accept a settlement if the conciliation with Mach Mining was successful. In this case, the EEOC engaged in the required conciliation for approximately one year before communicating to Mach Mining that its conciliation efforts had been unsuccessful. In 2011, the EEOC filed suit against Mach Mining and alleged that the precondition to filing suit had been fulfilled. Mach Mining, in contrast, claimed as an affirmative defense to the action that the EEOC had failed to conciliate in good faith and thus was barred from bringing suit.

The District Court for the Southern District of Illinois sided with Mach Mining by holding that it had the power to review the EEOC’s conciliation efforts and investigate whether the EEOC made a “sincere and reasonable effort to negotiate.” This standard, which was advanced by Mach Mining at oral argument before the Supreme Court, would entail a searching inquiry by the courts into the EEOC’s practices and would grant the EEOC nearly no deference in its efforts. The Seventh Circuit Court of Appeals reversed and found for the EEOC by holding that conciliation was not subject to judicial review, which would grant the EEOC total discretion and would totally preserve any confidentially-disclosed information from the conciliation process.

On appeal to the Supreme Court, the parties staked out diametrically-opposed positions – either no deference for the EEOC or no judicial review of the EEOC’s conciliation. In its decision, the Court refused to take either extreme position, instead setting out a middle ground. The Court reviewed the statutory framework and found that, although the EEOC was provided significant leeway in pursuing the conciliation process, the EEOC was still required to meet certain minimum standards in doing so. First, the EEOC must communicate information about the claim to the employer so that the employer is aware of the practice that is being investigated. Second, the EEOC must provide the employer with the opportunity to discuss the matter and achieve voluntary compliance. The EEOC must meet these minimum standards and the courts are empowered to review the EEOC efforts to hold the agency accountable. After meeting the minimum standards set by the Court, the EEOC has considerable deference in determining how far it should go in the conciliation process.

The Court rejected Mach Mining’s argument that the EEOC must take specific steps in its conciliation efforts. Instead, the Court held that the scope of the judicial review would be “barebones” and would only seek to discover whether the EEOC communicated the allegedly discriminatory action being investigated and engaged the employer in an effort get the employer to voluntarily remedy the practice. In most cases, the Court held, a sworn affidavit from the EEOC would suffice and end the court’s review.

This decision, while not a total win for the EEOC, which sought the complete discretion to conduct conciliation without any judicial oversight, is still a defeat for employers. Had the Supreme Court required a searching and thorough judicial review the EEOC’s efforts, employers would have obtained a significant weapon with which to fend off or delay lawsuits brought by the EEOC. Employers would also have been put in a stronger negotiating position with respect to the EEOC if the agency was required to make objectively reasonable offers and avoid take-it-or-leave it conciliation efforts. Instead, as a result of the Court’s decision in Mach Mining, the EEOC maintains its dominant position in the conciliation process with employers going forward.

Nicholas Fortuna, April 27, 2015

On April 10, an en banc panel of the Sixth Circuit issued a decision stating Ford Motor Company did not have to grant an employee’s request to telecommute up to four days a week under the Americans with Disabilities Act (ADA), reversing an earlier decision in this case by a three judge panel. Importantly, however, the court did not eliminate telecommuting as a possible reasonable accommodation that employers must consider under the ADA; it only held that in this case Ford did not have to provide it.

The Equal Employment Opportunity Commission (EEOC) sued Ford under the ADA on behalf of Jane Harris, a resale buyer for Ford. The EEOC claimed that Ms. Harris, who had irritable bowel syndrome, should have been accommodated under the ADA and been permitted to telecommute up to four days a week. Ford successfully sought en banc review after 2-1-panel ruling against it in 2014.

The ADA requires an employer to reasonably accommodate a qualified individual with a disability in regard to job application procedures, hiring, advancement, compensation, job training, and other terms and conditions of employment. An employer is said to discriminate under the ADA if it does not make reasonable accommodations to known physical or mental limitations of an otherwise qualified individual with a disability. An employer does not have to make an accommodation if it can demonstrate that the accommodation would impose an undue hardship on the operation of the business.

Such a claim is analyzed under the following framework:

  1. The claimant must establish she is disabled;
  2. The claimant must be qualified for the position without the accommodation, and without an essential job requirement being eliminated.
  3. The employer bears the burden of proving that a challenged job criterion is essential, and therefore a business necessity, or that the proposed accommodation will impose an undue hardship upon the employer.

In the case with Ford, a determinative issue was whether requiring Ms. Harris to be in the same building with other workers was essential to her job function. Ford requires its resale buyers to be in the same location as stampers so they could meet on a moment’s notice. According to Ford, this high level of interactivity and teamwork is why a resale buyer’s regular and predictable attendance in the workplace is essential to being a fully functioning member of the resale team. The Sixth Circuit en banc panel agreed.

The general rule that regularly attending work on-site is essential to most jobs, especially interactive ones, comports with the ADA. Essential job functions are those that in the employer’s judgment are necessary to perform the job, as opposed to “marginal” job functions as defined by the EEOC regulations.  The court will look to how the employer described the job before the litigation began and its policies, and practices as evidence of what is an essential job function.

While the court did not require Ford to offer telecommuting as a reasonable accommodation, it made clear that in other circumstances an employer could be required to offer telecommuting under the ADA. If for instance, Ms. Harris only needed to telecommute one day a week and it was on a specified day, she would likely be entitled to the accommodation because Ford would have been able to rely on her presence on a regular and predictable basis. Alternatively, if a position is less interactive and most of the work is done independently, then telecommuting might be required. Whether an employer must offer telecommuting as a reasonable accommodation will be determined on a case by case basis using the analytic framework discussed above.

 

Diana Uhimov, April 20, 2015.

After an initial denial, a New York federal judge for the Southern District of New York granted permission last week to a group of former Gawker Media LLC interns’ to notify potential class members of a proposed action through social media, namely Facebook, Twitter, and LinkedIn.  The judge limited the approval by finding that “friending” class members on Facebook is too extreme.  The interns brought the proposed collective action, Mark et al. v. Gawker Media LLC et al., in 2013 under the Fair Labor Standards Act (FLSA) alleging unpaid or underpaid wages.  The FLSA provides standards for minimum wage, overtime pay and child labor provisions, and sets forth a collective action procedure, which permits the aggregation of hundreds or thousands of claims among employees that are “similarly situated.” Collective actions share some characteristics with class actions, but there are some distinctions. For instance, In FLSA cases, an employee must opt in, meaning that they must sign a document stating that they intend to be a part of the lawsuit, whereas in class actions, employees are presumed to be a part of the class and if they don’t want to participate in the lawsuit, they must opt out.

The group’s justification for this novel notification request was that email or mailing addresses for 55 known former Gawker interns are not available, but 27 of them are known to have a Facebook or Twitter account and 16 have a LinkedIn account. Gawker conceded that the lack of contact information justifies the use of alternative communication methods, but argued that that does not justify abandoning the other limitations on the notice process. It maintained that notice of a collective action should be a “one-time event,” rather than the unlimited “ongoing dialogue” the plaintiffs’ proposal would allow.

The previous request on April 9th was rejected by U.S. District Judge Alison J. Nathan for being overbroad. The judge ruled that notifying potential class members by posting notices on social media sites Tumblr and Reddit would publicize the allegations to individuals not connected to the suit rather than get the attention of individuals with opt-in rights.  It also supported Gawker’s objection to the use of proposed hashtags #fairpay and #livingwage, on the basis that they were “inflammatory”.

The modified request involved “following” known former interns on Twitter in order to send a direct private message, “friending” former interns on Facebook so that the message isn’t diverted to the user’s spam folder, and sending “InMail” messages to former interns on LinkedIn.  The court agreed to the proposed limitations for ensuring that the social media notices are in compliance with the general principle governing FLSA opt-in notices, but imposed two conditions on the request: (1) that they “unfollow” the former intern on Twitter if the intern does not opt in by the deadline of April 14; and (2) that they are not permitted to “friend” individuals on Facebook so as not to create an impression of an improper relationship with plaintiffs’ counsel. The judge additionally denied as overinclusive the interns’ request to send email notices to a list of internship applicants that may include individuals who didn’t actually serve as interns, stating that any individuals who accepted an intern position with Gawker could be identified through other methods.

Gawker is one of several businesses involved in the recent spate of wage litigation brought by interns. The plaintiffs claim that Gawker hired unpaid or underpaid interns to do work essential to its business, and lodged minimum-wage and record-keeping claims against it. According to the Department of Labor, there is an exception to the FLSA’s wage requirements for “trainees” whose work is intended for their own benefit. The standard for establishing whether an individual is an intern or an employee covered by wage law is currently before the Second Circuit in the appeals of Hearst Corp. and Fox Entertainment Group Inc.  This is the first time this approach to notifying class members was permitted.  The court instituted this novel approach to notice carefully to ensure that potential class members would get actual notice.

Paula Lopez, April 10, 2015.

On April 1, 2015 the Securities and Exchange Commission (“SEC”) brought its first enforcement action against an employer, KBR, Inc., because of the terms of a confidentiality statement it had employees sign during an internal fraud investigation relating to military contracts.    The SEC instituted the enforcement action against KBR under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and the rules and regulations it had passed as part of the Act’s implementation.

The SEC’s enforcement action was targeted at a confidentiality statement that KBR required employees to sign prior to being interviewed as part of an internal fraud investigation, which stated:

“I understand that in order to protect the integrity of this review, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during the interview, without the prior authorization of the Law Department.  I understand that the unauthorized disclosure of information may be grounds for disciplinary action up to and including termination of employment.”

The troublesome language in this provision is the threat of disciplinary action, including termination, if the employee were to disclose any of the matters involved in the fraud investigation with third parties and the requirement that employees obtain prior authorization from the company’s law department before making any disclosures.

Congress passed the Dodd-Frank Act after the financial crisis as a way to encourage whistleblowers to report likely instances of fraud and other misconduct in the financial industry.  The Dodd-Frank Act provides whistleblowers with financial incentives and offers them protection by prohibiting retaliation by their employers.  The SEC then issued rules and regulations relating to the implementation of the Dodd-Frank Act.  From this effort came Rule 21F-17 (a) prohibiting employers from interfering with their employees’ rights to communicate with the SEC about possible securities law violations.  Rule 21F-17 (a) states “[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement … with respect to such communications.”  The rule became effective on August 12, 2011.

According to the SEC’s Order and Findings in the KBR case, its investigation into KBR’s confidentiality statements did not reveal that any KBR employee was deterred from reporting likely violations to the SEC by the confidentiality statement they had signed or that KBR enforced the statements in a manner intended to prevent any employees from reporting to the SEC.  However, the SEC found that the language in the confidentiality statement violates Rule 21F-17(a) because it impedes communication between its employees and the SEC.

The SEC’s enforcement action against KBR was settled the same day it was announced.  The SEC accepted an Offer of Settlement made by KBR, the terms of which include an agreement from KBR to pay $130,000.00 penalty and to amend its confidentiality agreement to include a statement that makes it clear to its employees that nothing in the confidentiality statement prohibits them from reporting possible violations to any government agency or other entity and that no prior consent from the company is required before making such disclosures.  KBR also agreed to contact all KBR employees who had signed the confidentiality agreement between August 12, 2011 (the rule’s effective date) and the present and to provide them with a copy of the SEC’s order and the amendment to the confidentiality agreement.  As part of the settlement, KBR neither admitted nor denied any of the findings in the SEC order.

The SEC has made it clear that will not tolerate employers’ attempts to undermine the purpose of the Dodd-Frank Act and the SEC’s power to investigate financial fraud by requiring employees to sign agreements with secrecy provisions. The SEC’s whistleblower chief, Sean McKessy has also stated that it will not only go after employers using “creatively drafted” agreements intended to dissuade company whistleblowers from reporting to the SEC but also the in-house attorneys that drafted the agreements by revoking their ability to appear before the SEC.

The enforcement action against KBR is only the beginning of things to come.  As reported by the Wall Street Journal, the SEC has sent letters to various companies requesting to review copies of employment agreements, non-disclosure agreements, severance agreements, settlement agreements and other work-related agreements signed by employees since the Dodd-Frank Act was enacted.  This reflects the SEC’s intent not to limit its enforcement of Rule 21F-17(a) to contract provisions in pending investigations but to actively seek out and independently prosecute violations of this rule.

Some provisions that the SEC is likely to find violate Rule 21F-17(a) are provisions that threaten to take disciplinary action against employees for disclosing information to government agencies, prohibit employees from recovering financially in exchange for making disclosures, or require employees to obtain consent from the employer before disclosing information to governmental entities or other agencies. While employers are free to have their employees sign confidentiality agreements intended to protect legitimate business interests such as trade secrets or confidential business information, such agreements should be narrowly tailored so as not to have a chilling effect on the SEC’s goals of encouraging employees to disclose likely instances of financial fraud or on employees who wish to report on potential fraud or abuse.