Category Archives: legal issues

Gaming the Gainsharing System

This is just a guess, but I’m going to say the mood throughout Whole Foods break rooms is less than festive this holiday season.

And if the claims made in a new lawsuit prove to be true, you couldn’t really blame the grocery store chain’s employees for not getting into the spirit this year.

Last week, one current and one former employee from a Whole Foods store in Washington, D.C. filed a federal class-action lawsuit claiming the Austin, Texas-based company “engaged in a nationwide scheme to strip hard-working employees of earned bonuses in order to maximize [its] own profit.”

More specifically, plaintiffs Michael Molock and Randal Kuczor assert that a group of managers gamed Whole Foods’ gainsharing program to avoid paying automatic bonuses to departments that came in under budget for the year, as reported by the Washington Post.

According to the lawsuit, the gainsharing program is intended to enable employees in such departments to share in surpluses. The plaintiffs claim, however, that Whole Foods avoided paying by shifting labor costs to other departments without properly accounting for it, as well as by creating “fast teams” comprised of employees who float from one department to another.

The complaint also alleges that company executives knew of the “illicit practice of shifting costs,” which the suit says has impacted as many as 20,000 past and present Whole Foods employees.

In a statement, Whole Foods acknowledges that some sort of bonus program manipulation took place, while maintaining that it was confined to a relatively small number of its stores. Nevertheless, Whole Foods says it is investigating the matter. And, as the Post reports, the organization has already terminated the nine managers known to have been involved.

The plaintiffs are asking for more than to see a few managers fired. The suit seeks $200 million in punitive damages and triple unpaid wages, among other relief, according to the Post.

“Defendants intentionally manipulated the program and illicitly engaged in a nationwide corporate practice of ‘shifting labor costs’ in order to pad its profits,” the suit claims, alleging that this “unlawful” maneuvering effectively wiped out surpluses in certain departments, “thereby robbing hard-working employees of earned bonuses.”

High Anxiety for Plan Sponsors

It’s still unclear whether the incoming Trump administration will take aim at the Department of Labor’s new fiduciary rules, which are slated to go into effect on April 10.  As Joseph Urwitz, a partner in McDermott Will & Emery’s Boston office, told us late last month: “While it’s not possible to predict the future, the new Congress and president may overhaul, eliminate or at the very least delay implementation of the fiduciary rule. Time will tell whether or not any of these moves will come to pass.”

thinkstockphotos-468426388But what we do know is that litigation continues to be very much on the minds of plan sponsors.

This fact received further support earlier this week, when Cerulli Associates, a global research and consulting firm, released the findings of a study—titled “The Cerulli Report: U.S. Retirement Markets 2016”—that found more than half (57 percent) of more than 800 401(k) plan sponsors questioned are concerned about potential litigation.

While much of the litigation has targeted large plans with deeper pockets, the research found that smaller plan sponsors are also paying attention to today’s litigious environment.  Nearly one-quarter of small plan sponsors—those less than $100 million in 401(k) assets—describe themselves as “very concerned” about potential litigation.

As most of you know (and the Cerulli report points out), fee-related lawsuits, in particular, have been something of a theme in 2016, putting added pressure on plan sponsors to find ways to reduce fees. “Plan-sponsor-survey results show that the top two reasons for which 401(k) plan sponsors choose to offer passive (indexed) options on the plan menu are because of ‘an advisor or consultant recommendation’ or because they ‘believe cost is the most important factor,’ ” according to the Cerulli press release. But there is also no denying that lowering the risk of litigation factors into the decision making as well.

The Cerulli report suggests that the rash of litigation that has occurred in recent times is stifling innovation. Jessica Sclafani, associate director at Cerulli, notes that “plan sponsors feel they have little to gain by appearing ‘different’ from their peers due to the risk of being sued. This mindset can make plan sponsors reluctant to adopt new products … .”

The Zenefits Saga Continues

It appears Zenefits woes are continuing—and if the predictions of one consultant are correct, they aren’t likely to end anytime soon.

Yesterday, Washington State Insurance Commissioner Mike Kreidler ordered Zenefits to “cease free distribution of its employee benefits software, noting the tactic violates Washington state insurance law against inducements,” his office’s statement reads.zenefitslogo

Washington is said to be the first state to take action against the company for violating inducement laws. Under an agreement with Kreidler, Zenefits can challenge the order within 90 days.

The state took issue with the fact that Zenefits required clients to designate it as its broker of record and then collected insurance commissions from the products it sold in order for them to access its free software.

“The inducement law in Washington is clear,” Kreidler said. “Everyone has to play by the same rules.”

Following the announcement, Zenefits’ General Counsel Josh Stein posted the following on the company’s website

“Today, Zenefits has reached a compromise agreement with the Washington Office of the Insurance Commissioner (OIC) on how Zenefits will price its services in Washington State.  Beginning January 1, at the order of OIC, Zenefits may no longer provide free software services in Washington. As a result, Zenefits will charge all Washington state customers $5 per employee per month for our core HR product.”

Stein went on to say …

“The Washington viewpoint is a decidedly minority view. Since its founding, Zenefits has had conversations with regulators about our business model, which includes some free HR apps. Many states have looked into the issue and concluded that free software from Zenefits is not a problem; in fact, it’s in the interest of consumers. Only one state other than Washington has disagreed.  Utah’s department of insurance tried to force Zenefits to raise prices for consumers, and Utah’s state legislature and governor quickly took action, passing a bill to clarify that its rebating statute should not be interpreted to prohibit innovative new business models that deliver value to consumers.”

Earlier today, I spoke with Rhonda Marcucci, partner and consultant in Gruppo Marcucci, a Chicago-based HR and benefits technology consulting firm.

Zenefits has created its own regulatory scrutiny reputation for the rest of its life, Marcucci told me. In this case, she said, “I don’t think it is driven so much by the brokers but by the insurance departments who are extremely angry about the licensing piece—so that now invites more scrutiny in other places. Brokers may have brought it to [the attention of insurance regulators], but the way I look at this, Zenefits is a regulatory penalty box—and they will be, I think, forever.”

Marcucci noted that every state, except for California, has some kind of no rebating or inducement laws for transactions. But that doesn’t necessarily mean that every employer is following the law.

At the end of day, she said, states typically base their decision on enforcing these laws by “who screams the loudest.”

As far as Zenefits is concerned, Marcucci said, it’s realistic to expect that other states might follow Washington’s lead, especially those states with difficult regulatory insurance environments such as New York.

‘Persuader’ Ruling Helps Employers

Barack Obama hasn’t yet turned the Oval Office over to Donald Trump, but already one of his administration’s signature pro-labor rules has been scrapped. Not by the new president, but by a federal court.

Gavel banging
Gavel banging

U.S. District Judge Sam Cummings  in Lubbock, Texas, on Nov. 16 made permanent an earlier temporary injunction halting the Department of  Labor’s controversial “persuader rule.” That rule, announced in April, expanded an existing requirement for employers  to disclose in government filings when they hire legal counsel to combat unionization drives. Under the new rule, disclosure was necessary even if those lawyers only provided advice on how companies should persuade workers to oppose representation. It was one of several pro-labor rules or standards set recently by Obama-administration agencies, including the DOL, EEOC and NLRB.

“It’s a good result,” says Jeff Londa, a Houston-based labor and employment attorney with Ogletree Deakins who led the legal effort to set aside the rule.  As a result, “We’re back where we were.”

Business groups that joined several states in seeking the order included the National Federation of Independent Business, whose members are generally small employers.

But larger companies also will benefit from Wednesday’s ruling, Londa says. Though more likely than small firms to  have their own attorneys on staff,  larger employers still “typically go to outside counsel” for training and advice on company policies  “when there’s a lot on the line” in a major union organizing campaign, Londa says.

The “persuader”rule had  stirred widespread objections not only from employers, but also from lawyers, who said it breached the attorney- client privilege.

The Labor Department had filed an appeal with the Fifth Circuit after Cummings issued a preliminary injunction on June 27. That appeal is now mooted b this week’s permanent injunction, Londa says. That means “it would clearly be on the shoulders of a new administration” to appeal again  — unlikely, given Trump’s position on the Obama administration’s labor regulations. And given the GOP’s strong showing in Senate and House races on Election Day, Congress is not likely to intervene to revive the “persuader” rule, he notes.

“The inclination of the new Congress would probably be against the new rule,” Londa says. “I’m not sure they would get involved.”

 

 

 

NLRB: Grad Students Are Employees

In a 3-1 decision, the National Labor Relations Board has ruled that graduate students working as research and teaching assistants at Columbia University are statutory employees covered by the National Labor Relations Act.

As the Washington Post reports, the ruling overturns a 2004 Brown University decision, in which the NLRB said graduate students engaging in collective bargaining “would undermine the nature and purpose of graduate education.”

The decision, which clears the way for these grad students to join or form unions, opens the door “to the full panoply of rights provided under collective bargains, and the effect will change the relationship between private sector universities and their students,” Joseph Ambush, a Boston-based attorney who filed the brief on behalf of the schools involved in this case (and who represented Brown in 2004), told the Post.

Philip Miscimarra, who offered the lone dissenting opinion in the Columbia case, voiced concerns that allowing students to collectively bargain could “wreak havoc” on their education, given the potential for strikes and lockouts, according to the paper.

That’s not all the decision could do.

Earning recognition as employees means that grad students working in teaching or research capacities “can bargain for larger stipends and better health coverage, especially if they have children,” according to the Post. “It also means they can get basic protections, such as unpaid leave.”

The ruling “could be huge,” says Laura Hung, a doctoral candidate in anthropology at American University. Hung, now working as an adjunct professor, told the Post that she’s making roughly the same salary (around $19,000) that she earned as a teaching and research assistant in her most recent academic year.

“The vast majority of my colleagues are swimming in student debt,” notes Hung, adding that her wages are “barely enough” to cover her $1,000 rent each month, and “certainly not enough” to pay for the health insurance offered by the university.

“The way things are right now obligates students to take out large amounts of debt to eat and live,” continues Hung. “There are students who are not going to find jobs that pay enough to pay that back.”

This struggle is real among young workers outside of academia as well. Pay attention, employers.

As HRE notes in an upcoming feature in our Sept. 2 print issue, the number of recent grads buckling under the weight of massive student loan debt is only growing. Recent data from the Plan Sponsor Council of America, for instance, finds 69 percent of students graduating college in 2011 and 2012 borrowed money to finance their educations, compared to 49 percent of 1992 and 1993 college graduates.

Some employers are recognizing this trend, and are responding. As we report in the aforementioned Sept. 2 piece, for example, Nvidia Corp. is helping its youngest workers start off their careers on the right financial foot.

Designed to help employees repay student loans up to $30,000, the Santa Clara, Calif.-based technology company’s Student Loan Repayment program is open to all full- or part-time employees who have graduated within the past three years and are working 20 or more hours per week and provides monthly reimbursement up to $500 or the worker’s monthly payment amount, whichever is less.

Applicable to various types of loans—Federal Perkins loans, private student loans and subsidized Stafford loans, for instance—the repayment program also helps employees who go back to school for an advanced degree.

Beau Davidson, vice president of human resources at Nvidia, describes the effort as a “bridge program” geared toward helping recent grads transition into the working world.

“This kind of assistance might help them get started in an apartment, put a down payment on a car, and get themselves situated and ready to work,” says Davidson. “It’s one less stressor to worry about.”

Supporters of E-Cigs Fight Back

There’s some real pushback under way to what I was thinking had become a generally agreed-upon vice worth eradicating from our streets, public arenas and workplaces: e-cigarette vaping.

470456691--vapingMy eyebrows were raised on Friday when I came across this release from the National Center for Public Policy Research announcing an amicus brief that had just been filed by the NCPPR and TechFreedom in support of an earlier challenge to the Food and Drug Administration’s war on vaping.

Specifically, the initial challenge that got a major boost on Friday was filed by Nicopure Labs, a manufacturer of e-cigarette liquid, against the FDA’s Deeming Rule, which was finalized in May. That rule would force e-cigarette manufacturers to undergo an expensive and time-consuming premarket tobacco-application process unless their products were on the market prior to the predicate date of Feb. 15, 2007. As the NCPPR release puts it:

“The high cost of the application process means most e-cig businesses will be forced to shut down, eliminating choices of dramatically safer alternatives to combustible cigarettes, which will leave smokers with fewer options to compete against the most harmful form of nicotine consumption, [again,] combustible tobacco.”

It also states that:

“The FDA’s Deeming Rule fails to consider the scientific evidence readily available to the agency regarding the safety and the public health benefits of e-cigarettes.”

Is it just me or is this the first time you’ve read anything about the “public health benefits of e-cigarettes”?

I love how this guy, Tom Remington, on his blog post, compares  choosing between e-cigs and tobacco to choosing between Donald Trump and Hillary Clinton. Mind you, I’m not 100-percent sure what position he’s taking here (something tells me he’s anti e-cigs … and don’t ask me to even hazard a guess as to who he plans to vote for), but his quote is pretty fun:

“Having a discussion about whether or not e-cigarettes are more healthy than real tobacco-product cigarettes is akin to deciding which crook, Hillary or Donald, should get your vote. Would you rather die from e-cigarettes or from tobacco? Would you rather get screwed and further forced into slavery by Hillary or Donald?”

For a much more complete and sobering look at why clamping down on the e-cigarette business isn’t necessarily a good thing for health but IS a big victory for Big Tobacco, read this opinion piece on the Washington Post site by Jonathan Adler. Here’s just one compelling thought to come away with, as Adler writes it:

“With the new FDA rule, Big Tobacco is getting just what it wanted. … [A]s a consequence of the FDA rule, the e-cig market will shrink, and Big Tobacco will be in a better position to dominate what’s left. A vibrant competitive market will be replaced with a cartel, much like the one we see in the cigarette market.”

So what does all this have to do with HR? Probably not as much as other topics we’ve raised here, but I do know many of you are grappling with your smoking policies, and many of you have opted to lump vaping in with the rest of your organization’s prohibited activities.

I guess this might just give you something more to think about as you go about drafting or enforcing such a policy … like who’s hands you might be playing into(?) Or where the real truth lies(?) If, indeed, these things are so much healthier than cigarettes, for all concerned, and can help move the quitting process along, are you sure you want to deny your employees any and all access(?)

Maybe just put all this in your pipe and smoke it(?) (Sorry.)

Eliminating the ‘Mad Men’ Mind-set

Less than two weeks from today — August 15 — federal contractors that work with the U.S. government will need to comply with modernized rules when it comes to sex discrimination in the workplace.

According to the Office of Federal Contract Compliance Program’s fact sheet, the revisions will bring the “guidelines from the ‘Mad Men’ era to the modern era,” as well as protect women and men from discrimination on the job.

The U.S. Department of Labor is publishing new sex discrimination regulations that update – for the first time in more than 40 years – the department’s interpretation of Executive Order 11246 to reflect the current state of the law and the reality of a modern and diverse workforce.

“Updated rules on workplace sex discrimination will mean clarity for federal contractors and subcontractors and equal opportunities for both men and women applying for jobs with, or already working for, these employers,” the department said in a release.

“We have made progress as a country in opening career opportunities for women that were, for decades, the province of men. Yet, there is more work that lies ahead to eradicate sex discrimination. This is why it is important that we bring these old guidelines from the ‘Mad Men’ era to the modern era, and align them with the realities of today’s workplaces and legal landscape,” said director of the Office of Federal Contract Compliance Programs Patricia A. Shiu.

The final rule updates OFCCP’s sex discrimination regulations to make them consistent with current law. It makes explicit the protections against compensation discrimination; sexually hostile work environments; discrimination based on pregnancy, childbirth or related medical conditions; and discrimination based on unlawful sex stereotypes, gender identity, and transgender status. The regulations also promote fair pay practices.

The rule implements Executive Order 11246, which prohibits companies with federal contracts and subcontracts from discriminating in employment on the basis of sex.

But before the new rules take place, says Brett Draper, a partner at Alston & Bird’s labor and employment group:

“[E]mployers should review current policies to determine what changes should be made to processes in order to keep up with new regulations and ensure compliance.”

The new rules add to the growing employment obligations imposed on federal contractors through various guidelines and regulations, adds Clare Draper, also a partner with the law firm.

“While the OFCCP seeks to minimize discrimination in the workplace through these expanded requirements, the burden on businesses to comply grows as well. Businesses should take immediate action to protect themselves from exposure that can arise through OFCCP compliance reviews, class actions and other legal actions.”

Don’t Get Blindsided by Family-Leave Laws

Ever wonder what a typical case of family-responsibility discrimination involving elder care might look like? Consider this 538047854 -- elder carescenario laid out in a piece by Tom Spiggle that posted on the Huffington Post in June:

“You have an elderly parent who suffers from Alzheimer’s. He requires continuous care. You have worked at the same job for five years with a strong, positive work history. To better care for your father, you move him out of assisted living into your house. A paid caregiver takes care of him during the day, but leaves at 6, which means that you have to be home then.

“Your performance at work remains strong, but you are no longer able to take part in the informal after-work get-together frequently arranged by your boss. After missing these for a month, your boss stops by your office to ask why. You tell him. He responds ‘How long will this go on?’ You tell him maybe years. After this, things change at work. For no apparent reason, your boss begins to criticize your work. At one point, HR puts you on a performance-improvement plan.

“Although you do everything they ask and more, nothing seems good enough. One day, your father falls at your house, breaking an arm. You have to leave work early to get to the hospital and miss work the next day. You call HR, letting them know what happened and put in for [Family and Medical Leave Act] leave to cover the absence. When you return, the axe falls; you get fired. The last communication you receive from your boss is an email: ‘I’m sorry it had to end like this. You will be missed. I hope that this gives you the time that you need with your father.’

“That would be discrimination under the Family Medical Leave Act and the Americans with Disabilities Act.

Granted, his piece speaks primarily to employees, but there are some nuggets worth reviewing for employers, such as a little-known fact (little known by me anyway) that some bosses seem fine and accommodating with the first child, “but their attitude is that one child should have been enough,” writes Spiggle, an employment lawyer and founder of the Spiggle Law Firm, based in Arlington, Va.

(Note to anyone reading this who considers this a familiar occurrence in his or her organization: Time for some manager training!)

Here’s another nugget: Employees claiming they were discriminated against or weren’t accommodated under family-leave law have much stronger cases if they ask for the law’s protection while they’re still working for you. Spiggle elaborates (remember, this is directed at employees, so interpret between the lines):

“Let me give you an example. Suppose that your boss says that you are a shoo-in for a promotion. Before things become official, you announce your pregnancy. Next thing you know, the promotion goes to a man who is your junior. When you confront your boss, she shrugs and says, ‘Them’s the breaks. Next round.’ Let’s suppose things only go downhill from there and you get fired, even though your performance remained unchanged.

“Here’s the thing: If you had complained about being skipped over for the promotion because you were pregnant before you were fired, you’d have a second claim of retaliation, which is easier to prove and gives you more leverage.

“There’s also a chance that, by reporting your concerns, you might get the problem fixed. Sometimes companies do the right thing when they learn that a rogue manager is violating the law. By reporting what happened, you give the company a chance to fix it.”

Probably the most telling piece of information he shares though — as does Mark McGraw in this HRE Daily post from May — is the fact that the number of family-responsibility-discrimination cases are going way up. McGraw and Spiggle both cite a report, Caregivers in the Workplace: Family Responsibilities Discrimination Litigation Update 2016, showing a 269-percent increase in the number of family-responsibility-discrimination cases between 2006 and 2015.

Many of our HREOnline.com news analyses have also mentioned this increase and the fact that far too many employers still don’t seem to get it when it comes to proactively turning that trend around.

Consider this a reminder, then, to get your anti-family-caregiver-discrimination house in order. And make sure you’re up on the nuances involved, including who has what rights and when — and precisely what this form of discrimination looks like.

The Cost of Not Accommodating Caregivers

Some employers “still aren’t getting it when it comes to discriminating against employees with family responsibilities.”

So says Joan C. Williams, founding director of the Center for WorkLife Law at the University of California, Hastings College of the Law, in a recent statement highlighting findings from a new UC Hastings study.

And, judging by some of the statistics found in said study, it’s hard to argue that she has a point.

The report, Caregivers in the Workplace: Family Responsibilities Discrimination Litigation Update 2016, analyzed 4,400 family responsibilities discrimination cases that were filed in the United States between the years 2006 and 2015.  Report author Cynthia Thomas Calver looked at employees’ claims alleging discrimination based on their status as a pregnant woman, mother, father, or a caregiver for a sick or disabled family member or an aging or ill parent, and found a 269 percent increase in the number of such cases filed in that 10-year span, compared to the prior decade.

While you’re digesting that number, chew on these facts and figures to emerge from the UC Hastings report:

  • Claims for FRD have been filed in every U.S. state.
  • Cases involving eldercare have increased 650 percent in the last 10 years.
  • Pregnancy accommodation cases have gone up by 315 percent.
  • Though the number of claims remains small, suits in which an employer is alleged to have denied accommodations or discriminated against an employee because she was breastfeeding or needed to express milk during the workday has risen by 800 percent.
  • Male employees have brought 55 percent of spousal care cases, 39 percent of eldercare cases, 38 percent of FMLA cases and 28 percent of childcare cases.
  • A clear majority of employees are succeeding with family responsibilities discrimination suits, with workers winning 67 percent of the FRD claims that went to trial from ’06 to ’15.

Naturally, these claims are hitting American employers pretty hard in the wallet. FRD litigation cost U.S. companies $477 million over the past decade (compared to roughly $197 million from 1996 to 2005), according to the WorkLife Law report, which suggests that the actual amount is “likely to be significantly higher, as many settlements are confidential.” These figures “also fail to capture the ripple effects of discrimination, including employee attrition and related replacement costs, damage to the company’s public reputation and reductions in the morale and productivity of all employees.”

The report also lays out some steps for preventing family responsibilities discrimination within the organization, such as providing supervisor training, adopting anti-discrimination policies that include family responsibilities, activating HR-run oversight programs and ensuring that the company’s procedures for responding to employee complaints address FRD.

In the aforementioned statement, Calvert, a senior advisor to the Center for WorkLife Law, stresses the importance of adapting to America’s evolving workforce and families, and the cost of failing to do so.

“Until employers adjust to the realities of families with all adults in the paid workforce and a significant growth in the number of older Americans who need assistance from their adult working children, it’s unlikely we’ll see a decrease in the number of cases filed.”

New Trade Secrets Law: The HR Angle

It’s incredibly rare these days for a proposed law to receive near-unanimous backing in the U.S. House and Senate but, by George, our nation’s politicians managed to pull off this miraculous feat recently, which culminated with President Obama affixing his signature yesterday to the Defend Trade Secrets Act.

The new law puts trade secrets on par with patents, copyrights and trademarks, which are already protected under federal law. The Defend Trade Secrets Act provides a “uniform set of rules for trade secret protection” throughout the United States (although it does not replace trade secret laws passed by individual states). The upshot is that companies whose trade secrets were violated in multiple states can now file suit in a federal court rather than trying to determine which state may (or may not) provide the best legal remedy.

Trade secret claims have long been a key component of employee non-compete agreement lawsuits, writes Chris Marquardt, a partner at Alston & Bird’s labor and employment law group. For this reason, the new federal law “not only gives employers another tool to protect their confidential business information, but will also likely shift many routine employment-agreement lawsuits into the federal court system,” he writes.

Employee non-compete agreements can vary widely from state to state and the new law is written in such a way as to recognize that “the statute should not override state laws” on such agreements, Marquardt writes. However, he adds, “only time will tell how broadly federal courts interpret the new law and how willing they are to use it to prevent employees from accepting new jobs in competition with a former employer.”

Brett Coburn, also a partner with Alston & Bird, writes that one of the less-frequently discussed aspects of the new law is one that will impact nearly all employers: “The law grants both criminal and civil immunity under both federal and state trade secrets laws to individuals who disclose a company’s trade secrets to the government” if the person has reason to suspect that a legal violation has occurred. It also requires employers to notify employees of this immunity “in any agreements that govern the use of trade secrets or other confidential information.”

To ensure compliance, Coburn writes, HR leaders and legal counsel will need to reexamine their company’s restrictive covenant and nondisclosure agreements, as well as policies regarding the protection of confidential information and employee whistleblower activities.