Allyn & Fortuna LLP
Nicholas Fortuna, May 17, 2017
On Monday, the Supreme Court ruled by a surprise 7-1 margin that the Federal Arbitration Act (FAA) preempts states from passing laws to restrict the use of arbitration. The decision came in Kindred Nursing Centers L.P. v. Clark, overturning the Kentucky Supreme Court which held that a general power of attorney does not authorize the holder to enter into arbitration agreements.
The wife and daughter of Joe Wellner and Olive Clark held a power of attorney with broad authority. When Joe and Olive moved to a nursing home operated by Kindred, the holders of the power of attorney completed all necessary paperwork. As part of the process, each signed an arbitration agreement on her relative’s behalf providing claims arising from the relative’s stay at the facility would be resolved through arbitration. After Joe and Olive died, their estates filed wrongful death suits against Kindred. Kindred sought to dismiss the cases arguing that the claims had to be arbitrated. The state courts ruled in favor of the estates and the U.S. Supreme Court reversed and found the FAA prevented the Kentucky state courts from blocking the enforcement of arbitration agreements.
The Court reiterated that an arbitration agreement may be invalidated only on generally accepted contract defenses, such as that the agreement was made under duress, or it lacked consideration. Those defenses, however, may not make it harder to form arbitration agreements than any other contract.
The Supreme Court’s decision was derived from the Court’s landmark ruling in AT&T Mobility LLC v. Concepcion, in which the Court held that the FAA prevents states from interfering with arbitration agreements. Concepcion was decided in a 5-4 decision. The Court has moved to near universal acceptance of the principles stated in Concepcion. The only dissent in Kindred came from Justice Clarence Thomas, who holds a longstanding view that the FAA does not apply to state courts.
The next big decision in this area will come later this year in three Supreme Court cases that will be consolidated. The National Labor Relations Board (NLRB) has ruled that employers who require workers to sign arbitration agreements waiving their right to file class actions as a condition of employment violate workers’ collective action rights under the National Labor Relations Act (NLRA), (known as the D.R. Horton rule). This conflicts with the FAA, which holds arbitration agreements valid unless the contract underlying them is illegal. There is a split between the circuits over the viability of the NLRB’s stance. The Seventh and Ninth Circuits have found the NLRA’s guarantee of worker’s right to engage in concerted activity supersedes the FAA, rendering an agreement to arbitrate which impedes on such rights unenforceable. The Fifth Circuit has said the NLRA does not override the dictates of the FAA.
The interaction between the FAA, a federal law, and state law – Kindred – will not necessarily indicate how the Court will decide the interaction of the FAA and the NLRA, both federal laws.
In the meantime, the Court’s decision in Kindred is considered a victory for employers.
Diana Uhimov, May 15, 2017
On May 15, 2017, New York City’s “Freelance Isn’t Free Act” (FIFA), N.Y.C. Administrative Code §§ 20-927 et seq., went into effect, impacting companies that hire independent contractors in New York City (NYC). This is the country’s first law shielding freelancers from nonpayment and it is likely that similar laws will be passed in other states given trends in the workforce toward the “gig economy”. FIFA aims to protect freelancers from non-payment and employer retaliation for exercising their new rights.
FIFA defines a freelancer as “any natural person or any organization composed of no more than one natural person, whether or not incorporated or employing a trade name, that is hired or retained as an independent contractor by a hiring party to provide services in exchange for compensation,” excluding certain sales representatives, legal practitioners and medical professionals. The law mandates that that employers enter into a written contract with all independent contractors retained to provide services valued at $800 or more.
The contract must set forth the services to be provided, the compensation to be paid, and the date that payment is due or the conditions that determine that date, such as completion of the task. Furthermore, the director of the newly-created Office of Labor Policy & Standards (OLPS) with the Department of Consumer Affairs (DCA) is empowered to issue regulations requiring additional contract terms. The director is also required to make sample contracts available for companies and the general public. Actions for violation of the contract requirement can be brought by freelancer plaintiffs within two years of a violation of this provision. If a plaintiff succeeds in proving this claim, they would receive statutory damages of $250 as well as reasonable attorneys’ fees and costs.
Under the act, the compensation provided for in the written contract must be paid either on or before the date set therein, or if not provided, no later than 30 days after the completion of the freelancer’s services under the contract. FIFA further states that, once a freelancer has commenced performance of the bargained-for services, the hiring party cannot require that the freelancer accept less compensation than the contract provides as a condition of timely payment. Freelancer plaintiffs can bring a civil action for unlawful payment practices within six years of a violation of this provision. A prevailing plaintiff could be entitled to double damages as well as reasonable attorneys’ fees and costs.
The anti-retaliation provision prohibits NYC businesses from denying a work opportunity to, discriminating against, or taking any action that penalizes a freelancer, or deters them from exercising any right secured by the act. Freelancers who allege a violation of this provision can commence a civil action within six years. If they succeed in proving their claim, freelancer plaintiffs are entitled to reasonable attorneys’ fees and costs, as well as statutory damages in the amount of the underlying contract.
There is also a procedure that allows freelancers to file complaints with the OLPS within two years of an alleged FIFA violation. The director will subsequently draft a certified letter to the employer within twenty days, explaining how the freelancer’s contract was allegedly breached. If a hiring party fails to respond to the complaint and the freelancer brings a civil action, there will be a rebuttable presumption that the hiring party committed the violations alleged in the complaint.
In addition to the private remedies imposed by the law, the city may commence a civil action where there is reasonable cause to believe that a hiring party is engaged in a pattern or practice of violations of the act. This type of action can result in the imposition of civil penalties of up to $25,000, paid into the general fund of the city.
NYC employers should familiarize themselves with the increased obligations and risks now associated with hiring independent contractors in NYC under the law. Although the director will provide model contracts as a resource for businesses, they will likely require additional language to mitigate liability and clarify undefined terms such as “completion” of services. Moreover, the act does not address the business’s recourse if the freelancer only partially performs, or if the performance is defective. Companies may also want to supplement the contract to ensure that settlement of disputes regarding performance, or a modification of a contract, is not precluded.
Paula Lopez, May 5, 2017.
In a challenge by a New Jersey law firm and the National Employment Lawyers Association to N.J.A.C. 12:17-2.1, a 2015 regulation passed by the Department of Labor and Workforce defining employee conduct that renders him or her ineligible to receive unemployment benefits following termination, the New Jersey Appellate Division ruled that the Department’s attempt to define “simple misconduct,” and distinguish it from behavior amounting to “severe misconduct” and “gross misconduct,” is arbitrary and capricious and therefore invalid.
A worker in New Jersey fired from their job can be disqualified from receiving employment benefits if it is determined that the termination was due to employment related misconduct. The disqualification period for simple misconduct begins the week of the termination and continues for the next seven weeks. After this period, the employee may be eligible to begin collecting unemployment benefits. For severe misconduct, an employee is ineligible for benefits indefinitely and will only become eligible to receive unemployment benefits in connection with the loss of a subsequent job if they worked in the new job for four weeks and earned six times the weekly benefit amount, and lost the new job through no fault of their own. Termination for gross misconduct (which is any conduct serious enough to constitute a crime), disqualifies an employee indefinitely and the employee can only become eligible after finding new employment and working in the new job for at least eight weeks, earning ten times the weekly benefit amount, and becoming unemployed through no fault of their own.
Despite having a tiered system for determining eligibility for unemployment benefits prior to the 2015 amendments, the Department of Labor and Workforce never defined the concept of “simple misconduct” to provide a clear distinction between mere negligence that should not disqualify an employee from receiving benefits, more deliberate conduct that amounts to simple misconduct, or more egregious severe or gross misconduct. The New Jersey Appellate Division called attention to this void in its decision in Silver v. Board of Review, 430 N.J. Super. 44 (App. Div 2013), in which it reversed an agency determination disqualifying a terminated employee from receiving unemployment benefits because there was insufficient evidence to support a finding that the employee engaged in “severe” misconduct or even simple misconduct.
In an attempt to fill the void highlighted by the Appellate Division in Silver, the Department of Labor promulgated regulations in 2015 containing the following definitions:
’Gross Misconduct’ means an act punishable as a crime of the first, second, third or fourth degree under the New Jersey Code of Criminal Justice…
’Misconduct’ means simple misconduct, severe misconduct, or gross misconduct.
’Severe misconduct’ means an act which constitutes ‘simple misconduct,’ as that term is defined in this section; (2) is both deliberate and malicious; and (3) is not gross misconduct.
’Simple misconduct’ means an act which is neither ‘severe misconduct’ nor ‘gross misconduct’ and which is an act of wanton or willful disregard of the employer’s interest, a deliberate violation of the employer’s rules, a disregard of standards of behavior the employer has the right to expect of his or her employee, or negligence in such degree or recurrence as to manifest culpability, wrongful intent, or evil design, or show an intentional and substantial disregard of the employer’s interest or of the employee’s duties and obligations to the employer.
In reviewing the validity of the regulation’s definition of “simple misconduct,” the Appellate Division noted that while “duly-enacted regulations start off with a presumption of validity, courts are empowered to set them aside where they are shown the be ‘unreasonable or irrational’“ because “[t]he public is entitled to be guided by regulations that are clear, understandable, and reasonably predictable in uniform application.”
Having applied the “narrow and deferential” standard of review by which courts commonly review an agency’s adoption of a regulation, the court found that the regulation’s definition of “simple misconduct” fails “to make [a] critical distinction between simple negligence, on the one hand, and intentional, deliberate, or malicious misconduct, on the other hand,” thereby conflating concepts of negligence with intentional acts to such an extent that discerning what behavior would amount to simple misconduct instead of the more egregious severe misconduct or gross misconduct is impossible to be “sensibl[y] understood or harmonized.” The court recognized the possibility that the Department was attempting to represent the concept of “gross negligence” into the definition of “simple misconduct” but rather than engage in “judicial surgery,” the court set aside the definition of “simple misconduct” as arbitrary and capricious without prejudice and afforded the Department 180 days to adopt a substitute provision. The court, on its own motion, stayed the decision for the 180-day period to avoid a disruption to New Jersey’s unemployment benefits program. However, while the Department undertakes to make the necessary clarifications, employers should be wary in challenging an employee’s eligibility to benefits under the existing definition of “simple misconduct.”
By: Megan J. Muoio, May 1, 2017
Employers should be apprised of several pieces of legislation currently pending in Congress which would affect paid leave policies for their employees. While it is unclear whether any of these bills will be passed by both the House and the Senate and then be signed into law, it is important for employers to be aware of pending legislation as it is being debated in Congress. These bills address the issue of paid family leave, which is currently available to 12% of U.S. workers. The paid leave policies are meant to supplement the existing federal Family and Medical Leave Act, which provides unpaid leave for covered employees who have been with the same employer for at least 12 months and worked 1,250 hours or more in the previous year.
The first bill is S. 337, the Family and Medical Insurance Leave (FAMILY) Act, which would create a family insurance program for all workers within the Social Security Administration. The FAMILY Act is modeled on successful state programs, such as the California Paid Family Leave program implemented in 2002. The federal program would apply to all employees, regardless of the size of the employer, the length of time an employee has been with their employer, or whether the employee works full time, part time, or seasonally. The employer and employee would each contribute 0.2% of the employee’s wages (or 2 cents for every $10 earned) from the employee’s paycheck into the trust fund maintained by the Social Security Administration. Employees would be entitled to up to 66% wage-replacement for 12 weeks in the event of a serious family or medical emergency. The FAMILY Act is sponsored by Democratic Senator Kirsten Gillibrand of New York and has several Democratic co-sponsors.
Another paid leave bill that is pending in the 115th Congress is H.R. 1180, the Working Families Flexibility Act, sponsored by Republican Representative Martha Roby from Alabama’s 2nd Congressional District. There is a coordinating bill pending in the Senate (S. 801), sponsored by Republican Utah Senator Mike Lee. This bill would amend the Fair Labor Standards Act to permit employees to choose paid time off as compensation for working more than 40 hours per week. Employees could bank up to 160 paid hours off in lieu of receiving compensation for overtime work.
Employee advocates caution that this scheme would provide incentives for employers to mandate overtime with the promise that time could be banked later. However, employees would need employer approval to use the banked compensatory time, which means that they may not be able to access paid time off in the event of a family emergency. The ability to bank time would only apply to full-time employees who have been with their employer for 12 months or more. In the event a request to use banked time is denied, the employee would have the right to “cash out” the time at the overtime rate, which the employer would have to comply with within thirty days. Another downside for employers is that employees who believe that their rights under the Act have been violated can sue in court and not the lower-cost administrative dispute systems through the Department of Labor.
Similar bills were introduced by Rep. Roby and Sen. Lee in the 113th and 114th Congress but did not make it to President Obama’s desk for signature either time. Now, however, with Republican control of the House, Senate, and Presidency, it is more likely that the Working Families Flexibility Act will become law. The Act is set to be voted on in the House this week.
Nicholas Fortuna, April 21, 2017
On April 6, 2017, Chamber of Commerce for Greater Philadelphia sued the City of Philadelphia to block the implementation of Philadelphia’s Wage Equity Ordinance, due to take effect in May. The Ordinance makes it unlawful for Philadelphia employers to ask about an applicant’s wage and benefit history to determine future wages. The law also prevents employers from retaliating against any candidate who fails to respond to a wage inquiry. This is the first legal action challenging a pay-history act. The action will consider how far governments can go in regulating commercial speech and may set up other cases against pay-history laws around the country.
The Chamber of Commerce asserts that Philadelphia’s ordinance violates the First Amendment of the U.S. Constitution. The action claims that the content-based and speaker-based restrictions on employer speech cannot survive court review.
The Chamber is arguing that the court should use the toughest standard of Constitutional analysis – strict scrutiny – because the limits the ordinance places on the all-important content and speaker communication violates the First Amendment right to free speech. The City will surely take the position that it is commercial speech which is subject to a lower level of review. The level of review chosen by the court will likely determine the outcome of the case.
The Supreme Court has established three approaches to analyze a statute to determine the constitutionality of the law. Strict scrutiny requires a compelling governmental interest that will be served by the legislation to pass muster. If the court applies a strict scrutiny analysis, the act will almost always fail to meet constitutional requirements. Under, intermediate scrutiny, the challenged law must further an important government interest by means that are substantially related to that interest. If the lowest level of review – rational basis – is used, the act usually survives.
The fight in this case will be around what level of review the court should use when considering the Philadelphia ordinance. Again, courts rarely find that any interest is compelling enough to justify a statutory restriction of a fundamental right. A lower level of scrutiny is used in circumstances where the rights effected are not considered as crucial.
Wage history has long been an essential tool in the hiring process. It identifies potential employees that employers can afford and helps formulate appropriate offers to applicants. According to Philadelphia (and other locations with similar laws), wage history should play no part in salary decisions because it only perpetuates gender-based wage disparities. 2015 U.S. Census Bureau data shows that women earn approximately 80 cents for every dollar their male counterparts earn.
Other states and cities with similar laws will likely be watching this case closely as its outcome will affect their validity. Massachusetts became the first place to enact pay-history legislation. New York City Council passed similar legislation which is awaiting the signature of the Mayor.