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60th Annual Employee Benefits Conference (#IFEBP14) — Roundup


Beautiful Boston

Beautiful Boston


This past week, the International Foundation of Employee Benefit Plans (IFEBP) held its 60th Annual Conference in Boston, Massachusetts.  The Annual Conference brings together roughly 5,000 persons involved in the administration and service of “employee benefit plans.”  That term, of course, covers a lot of ground, e.g., single-employer to multi-employer plans; private to public sector plans; and pension to health-and-welfare plans.  Persons attending the Annual Conference include fund trustees, administrators, business managers, fund attorneys, fund accountants, fund actuaries, and investment managers and consultants, among others.  Conference courses and panels cover a wide range of topics, from the practical impact of the new Affordable Care Act (“ACA” or “Obamacare”) to pharmacy benefit management to guarding against fraud, waste and abuse in a fund’s health plans to crucial updates on labor and employment law and the areas of highest concern to the Department of Labor.

Below, I’ll share a few of the interesting factoids and tidbits that piqued my interest in various conference-classes.

  • DOL Audit Letters.  The DOL sometimes audits employee benefit funds, initiating the process through an Opening Letter, which includes a request for documents (or a subpoena).  Pay close attention to the “Program Number” that appears on the face of this letter.  For instance, a “48” or “52” audit carries a far different implication than a “53” audit, and should provoke a different level of concern.
  • DOL Nat’l Enforcement Priorities.  The DOL’s Employee Benefits Security Administration (“EBSA”) focuses its efforts on areas having the greatest impact on the protection of plan assets and participant benefits.  “Beginning in FY 2013, EBSA is strategically focusing more investigative resources on professional fiduciaries and service providers with responsibility for large amounts of plan assets and the administration of large amounts of plan benefits.”
  • Avoiding Fraud By Effective Segregation of Duties.1AICPA’s auditing standards define segregation-of-duties as “[a]ssigning different people the responsibilities of authorizing transactions, recording transactions and maintaining custody of assets [which] is intended to reduce the opportunities to allow any person to be in a position to both perpetrate and conceal errors or fraud in the normal course of his or her duties.”  There are strong reasons to avoid having one person initiate a transaction, approve that transaction, record that transaction, reconcile balances, handle assets and review reports.
  • Defined Contribution Plans Becoming More Prevalent.2A defined contribution plan is “[a] retirement plan in which a certain amount or percentage of money is set aside each year by a company for the benefit of the employee.”  The amount contributed is fixed, but the benefit is not.  Investopedia A recent survey finds that there are 2,741 multiemployer pension plans, of which 1,442 are defined benefit plans and 1,299 are defined contribution plans.  The majority of multiemployer plan participants (11,041,000 to 4,457,000) and assets $637 billion to $172 billion) remain in defined benefit plans.  DOL, ESBA, Private Pension Plan Bulletin, Abstract of 2011 Form 5500 Annual Reports, June 2013.
  • Marijuana and the Workplace.  Twenty-three states, and the District of Columbia, have passed legislation allowing the use of pot for medical purposes.  Unsurprisingly, this raises a host of new questions, such as whether an employee can be disciplined for using pot outside of work hours, in a state where such use is legal, and whether an employer must provide a reasonable-accommodation to an employee who are legal users of medical marijuana.
  • Sick Leave.  There is a growing trend of localities passing laws requiring paid sick leave, e.g., San Diago; New York City; Seattle; and San Francisco.  Massachusetts has a similar referendum on the November ballot this year.

This is just the tip of the iceberg; the Annual Conference is an invaluable educational tool for those who work with benefit plans.  And Boston hosting the conference gave me easy access to Finale, the spot for amazing late-night desserts on Columbus Avenue.  See the picture of their dessert-case below.  Yes, I basically ate my way through every Boston restaurant last week.  Yes, I’m heading to the gym now.  No, I did not bankrupt the “All You Can Eat” Seafood place.

Finale Dessert Case



References   [ + ]

DOL Delays Enforcement of Changes to the Companionship Exemption

Home Health Agency -- Services to Elderly

Traditionally, home care workers for the elderly and disabled have been “exempt employees,” who were not covered by the Fair Labor Standard Act.  In late 2013, the Department of Labor announced changes to the so-called “companionship exemption.”  Under the new rule, “direct care workers employed by third-party employers, such as home care agencies, will receive [the FLSA’s] minimum wage and overtime protection[s].”  The new rule will affect roughly two million workers, and it’s scheduled to take effect on 01.01.15 — which is right around the corner.

Earlier today, at the urging of disability rights groups and home health agencies, the DOL announced that it will delay enforcement of the new rule for a six month period.  So the rule itself will still go into effect on 01.01.15, but the DOL won’t enforce it until after 06.30.15.  And from 07.01.15 through 12.31.15, the DOL will exercise discretion in deciding whether to bring enforcement actions, taking into consideration the extent to which a home health agency has made good-faith efforts to bring its programs into line with the Final Rule.  This afternoon, the DOL issued a statement explaining its “time limited non-enforcement policy.”

The Department recognizes . . . that the implementation of the Final Rule raises sensitive issues. In particular, the Department has been committed to assisting the regulated community in considering methods of complying with the FLSA in a manner that avoids harmful impacts on the individuals who rely on home care. Additionally, the Department has historically provided compliance assistance prior to the enforcement of new regulations, and it will continue to focus on such assistance during the initial stages of implementing the Home Care Final Rule. Given the unique effects of this rule, the Department has been committed to providing extensive compliance assistance, reaching out to all 50 states individually and providing other varied technical assistance to States and other stakeholders. Therefore, the Department is announcing that between January 1, 2015 and June 30, 2015, it will not bring enforcement actions against any employer as to violations of FLSA obligations resulting from the Final Rule. . . . This initial non-enforcement policy will apply to all employers. During this six-month period, the Department will concentrate its resources on continuing to provide intensive technical assistance to the regulated community, in particular State agencies administering home care programs, regarding the Final Rule and the application of the FLSA to home care arrangements. Although the Department will not conduct formal investigations of potential FLSA violations during this time, any information received during this time period suggesting non-compliance with FLSA requirements will be used as an opportunity to provide additional technical assistance to States and other potential employers in order to facilitate efficient and effective implementation of the Final Rule.

Make no mistake, this is big news.  This short six-month window affords home care companies a final opportunity to update their practices, in anticipation of a rule the DOL will undoubtedly be rigorously enforcing.  If your company would be affected by the Final Rule and you haven’t yet prepared for it, now’s the time.



Independent Contracting in Healthcare (Alexander v. Avera St. Luke’s Hospital)

Doctor -- Independent Contractor

In our last post, we discussed the Wage and Hour Division’s continuing crackdown on “fissured industries,” i.e., industries that use techniques to make the employment relationship between the lead company and its low-wage workers more remote and less transparent.  One such technique is classifying personnel as independent contractors, rather than as employees.  But that’s not to say that all independent contractor relationships in the healthcare industry are a sham.  Far from it.

Last Tuesday, the Eighth Circuit issued Alexander v. Avera St. Luke’s Hospital, which provides a useful reminder about the value and vitality of independent contractor relationships in the healthcare field.  Now, to be clear, this case involved a physician, not the type of vulnerable worker that the WHD believes is victimized by fissured employment relationships.  But the case still carries valuable lessons for would-be employers.

In Alexander, a physician entered into a series of contracts with Avera St. Luke’s Hospital, to act as the Medical Director of its Department of Clinical and Anatomical Pathology.  These contracts — including the last one, signed in 2008 and called a “Pathology Services Agreement” — identified Dr. Alexander as an independent contractor.  But when the hospital terminated the arrangement in 2011, Dr. Alexander sued.  Dr. Alexander alleged he was really an Avera employee, and that he was fired after suffering a series of serious health complications over the prior few years.  The District Court ruled in the hospital’s favor, after concluding that Dr. Alexander was, in fact, an independent contractor, and therefore ineligible to sue under various federal anti-discrimination statutes.  The Eighth Circuit just affirmed the District Court’s ruling.

As the Court pointed out, no one factor determines whether someone is deemed an employee or a contractor.  But the Court mentioned a number of data-points that helped persuade it that the district court got it right.

  • Dr. Alexander’s contracts — stretching back to a point in time when he was assisting the then-Director of Pathology — identified him as “a professional physician working as an independent contractor,” and not as an employee.
  • The hospital had no authority to control the manner in which Dr. Alexander performed pathology services.
  • Dr. Alexander was responsible for paying all his federal and state taxes and withholdings, including Social Security taxes.
  • Dr. Alexander was responsible for securing and maintaining all required professional liability insurance.
  • In the event Dr. Alexander was unable to perform in his role for a sustained period of time, he had to arrange for, and pay, a substitute Director of Pathology until Dr. Alexander could resume his duties.
  • The hospital issued Dr. Alexander a 1099 tax form (for contractors), not a W-2 form (for employees).
  • Dr. Alexander, taking advantage of the opportunity afforded to him by the Pathology Services Agreement, also served as a medical director at the South Dakota State Public Health Laboratory.

Given these factors, the Eighth Circuit agreed that Dr. Alexander was, in fact, an independent contractor.  As a result, the Court found that Dr. Alexander could not sue for discriminatory treatment under the Americans With Disabilities Act, the Age Discrimination in Employment Act, the Family Medical Leave Act and South Dakota’s anti-discrimination statutes (The ADA, ADEA and FMLA “limit[ ] its protections to ’employees.’  Independent contractors are not covered.”).

Certainly, there were factors supporting Dr. Alexander’s argument, such as the fact that the hospital provided all necessary equipment, facilities, and non-medical assistants, and that it billed the patients and paid Dr. Alexander in equal monthly installments.  But it isn’t unusual to have contradictory factors in these cases.  That’s why courts view these matters in their totality and test them against economic-reality.  When that occurs, a court may find that a valid independent contracting relationship exists in the healthcare context.

DOL’s Focus on the Healthcare Industry (New Enforcement Statistics, 2009 — 2013)

WHD Statistics

The Department of Labor’s Wage and Hour Division just released aggregate data concerning its enforcement of federal wage-and-hour laws for 2009 — 2013.  Among the most interesting tidbits is the WHD’s continuing focus on the healthcare industry.  The number of cases brought by the WHD against health care companies to recover back-wages for employees have steadily risen, from 1,194 in 2010, to 1,502 in 2011, to basically holding steady at 1,463 in 2012, to 1,622 in 2013.  And the amounts recovered by the WHD have been eye-opening, topping 10 million in each of FY2010 to FY2013.

Why the focus on healthcare companies?  It’s largely based on the DOL’s focus on “fissure industries,” which are, according to the WHD, “those sectors that increasingly rely on a wide variety of organizational methods that have redefined employment relationships.”  These new organizational methods include subcontracting, third-party management, franchising, independent contracting, as well as “other contractual forms that alter who is the employer of record or make the worker-employer relationship tenuous and less transparent.”  Healthcare companies, like home health agencies, have liberally used these methods — especially independent contracting relationships with their nurses and therapists — for years, and the DOL has taken notice.

The federal government wants to put an end to misclassification of workers as independent contractors and has the health care industry in its sights.  Earlier this year, the United States Department of Labor (DOL) and the Treasury Department announced an interagency “Mislcassification Initiative.”  The Initiative involves millions of dollars, new personnel, targeted audits, and even training of OSHA investigators to spot misclassification problems and “rewards” for states that are the most successful in finding and correcting misclassification.  The DOL is planning on an additional 4,700 investigations targeting problem industries.  Home health care is specifically listed as one of those “problem industries.”  All employers in the health care industry should be on guard.

There is little reason to believe the WHD will stop focusing on healthcare companies any time soon, especially now that David Weil is the WHD’s new Administrator.  Dr. Weil has written extensively about the impact of fissured workplaces on the US’s regulatory systems.  For instance, he’s argued that “[t]he direct, two-party relationship assumed in federal and state legislation and embodied in traditional approaches to enforcement no longer describes the employment situation on the ground [for low-wage workers].”  In key business sectors — like healthcare — Dr. Weil sees the employment relationship becoming “fissured,” i.e., the businesses that really occupy the market “have become separated from the actual employment of the workers who provide goods or services.”

Dr. Weil argues that this fissuring has major implications for the enforcement of US employment laws.

The fundamental changes in employment relationships require a revised approach to enforcement, one that is built on an understanding of how major sectors of the economy employing large numbers of vulnerable workers operate and then using those insights to guide enforcement strategy.  Just as the forces driving compliance with labour standards have changed, so must the strategies that agencies employ to improve conditions.

Put differently, if you operate a home health agency and your nurses or therapists are technically independent contractors, but they walk-and-talk like your employees, you are not beyond the reach of Dr. Weil’s WHD.  Indeed, you may be in the agency’s cross-hairs.  Now is the time to carefully examine your practices, to better prepare you in the event of an agency audit or other enforcement action.  What Benjamin Franklin said long ago is still true today: “An ounce of prevention is worth a pound of cure.”

Arbitration Clauses and the FLSA, Part III (Filing Charges with the EEOC)

Discrimination Claims 2011

Increasingly, federal courts are enforcing mandatory arbitration clauses written into employee contracts and handbooks.  Employers have taken notice of this.  As of 2003, roughly a quarter of private-sector, nonunion employees were required to arbitrate employment disputes.  It’s a growing trend; the same article observes that, nowadays, more employees are covered by arbitration clauses than by collective bargaining agreements.

And the federal government has taken notice of that, by taking steps to limit the use of employment-related arbitration agreements.  In late July, President Obama signed Executive Order 13673, entitled “Fair Pay and Safe Workplaces,” which prohibits companies holding federal contracts from forcing their employees into mandatory arbitration to resolve workplace disputes.1”Agencies shall ensure that for all contracts where the estimated value of the supplies acquired and services required exceeds $1 million, provisions in solicitations and clauses in contracts shall provide that contractors agree that the decision to arbitrate claims arising under title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment may only be made with the voluntary consent of employees or independent contractors after such disputes arise.  Agencies shall also require that contractors incorporate this  same requirement into subcontracts where the estimated value of the supplies acquired and services required exceeds $1 million.”  And a few days ago, the EEOC sued Doherty Enterprises Inc. — which operates Applebee’s, Panera Bread, and other restaurant concepts — for using an arbitration clause in a job-application to prevent applicants or employees from filing discrimination charges with federal agencies.

The Complaint, filed on September 18th in the Southern District of Florida, alleges that Doherty “condition[s] employment on its applicants’ and/or employees’ agreement to sign an Arbitration Agreement that prohibits the filing of charges of discrimination with the EEOC and FEPAs [Fair Employment Practices Agencies].”  The arbitration language appears at the bottom of Doherty’s job application form.  It requires prospective employees to promise that any employment-related claims or disputes, “which would otherwise require or allow resort to any court or other governmental dispute resolution forum . . . shall be submitted to and determined exclusively by binding arbitration.”  That does seem to get very close to explicitly saying that an employee must arbitrate claims that he or she would normally take to the EEOC.  Tellingly, the arbitration agreement preserves an employee or applicant’s ability to turn to a few federal agencies with complaints under certain specific circumstances.

[claims] based on tort, contract, statutory, or equitable law, or otherwise, (with the sole exception of claims arising under the National Labor Relations Act which are brought before the National Labor Relations Board, claims for medical and disability benefits under applicable state and/or local law) shall be submitted to and determined exclusively by binding arbitration.

By authorizing employees and applicants to take certain kinds of complaints to certain federal agencies, the arbitration agreement implies that employees and applicants are not free to take other kinds of complaints to other federal agencies (like the EEOC).2There’s a Latin phrase that seemingly applies here: Unius Est Exclusio Alterius (“the express mention of one thing excludes all others.”).

The EEOC’s position is reasonable.  The agency’s purpose is to enforce federal anti-discrimination laws; the EEOC can’t do that if aggrieved employees or job applicants are prevented from filing complaints or even communicating with it.  It’s early in the case, though, and Doherty’s response will be an important moment.

Still, there are two important questions we can ask at this juncture.  Would it be enough for Doherty to simply remove the offending language from its arbitration agreement, or must Doherty issue new agreements, expressly stating that employees and applicants are free to file charges and communicate with the EEOC and all other federal agencies?  And if the answer is the latter, is that true only for Doherty (given the circumstances in this case) or does the EEOC believe that this type of express language is necessary in all employment-related arbitration agreements?

There’s also one important observation to make at this time.  Doherty’s arbitration agreement also contains a collective action waiver, and the EEOC didn’t challenge it, or even discuss it, in its Complaint.  That means that there is still a lot that business owners can accomplish through the use of an arbitration agreement (in that regard, see our prior post on Arbitration Agreements and the FLSA, Part I (Collective Action Waivers)).

We’ll keep an eye on EEOC v. Doherty Enterprises Inc. (Southern District of Florida, Case No. 9:14 — CV — 81184).  But certainly, even at this early stage, the case underscores the importance of careful contract drafting.  Words matter, and many situations require tailoring, structuring, nuance and foresight.  In other words, good lawyering is needed.  Can’t replace lawyers with robots yet. Take that, IBM Watson.

References   [ + ]

The “Reasonable Hourly Rate” Debate

Attorney's Fee Calculator

The federal act states that a prevailing plaintiff is entitled to an award of reasonable attorney’s fees, but it does not allow for prevailing party fees for the defendant.

That’s what Florida’s Second District Court of Appeal said, last year, illustrating one way the deck is stacked in favor of plaintiffs in lawsuits alleging a violation of the federal minimum-wage and overtime laws.1Of course, there are strong policy reasons to construe the law this way.  Benshoff v. City of Virginia Beach, (4th Cir. 1999) (in keeping with the remedial purposes of the Fair Labor Standards Act (FLSA), courts construe FLSA in favor of workers whom it was designed to protect.) Is this asymmetry a big deal?  Oh, absolutely.  As Christopher M. Pardo wrote in a 2009 edition of the Michigan State Journal of Business and Securities Law, “the Fair Labor Standards Act has recently been rediscovered as a law with ‘teeth,’ making it increasingly attractive to both aggrieved employees and plaintiffs’ lawyers alike.”  What constitutes a “reasonable attorney’s fee”?

A reasonable attorney’s fee consists of a reasonable hourly rate times a reasonable number of hours spent by plaintiff’s counsel in the case.  Earlier this month, the Southern District of Florida analyzed what constitutes a “reasonable hourly rate” for a plaintiff’s lawyer prosecuting an FLSA case in South Florida in 2014.  In Picado v. Lafise Corp.,  plaintiff accepted defendant’s $6,595.34 “offer of judgment” on the FLSA portion of plaintiff’s claim.  In the offer, defendant agreed to pay whatever the Court deemed to be reasonable attorney’s fees and costs.  The Court entered the agreed-upon judgment, and reserved jurisdiction to award fees to plaintiff.

Plaintiff asked for an award of $7,565.00 in fees and costs.  Much of the requested award was based on the work of Plaintiff’s lead counsel.  That lawyer had litigated many FLSA claims over the past seven years, and billed at an hourly rate of $350.00.  Defendant argued that rate was excessive, and pointed to another recent case awarding fees to a different attorney based on an hourly rate of $295.00.  Despite some reservations, the Court ruled in Plaintiff’s favor.

The Undersigned rejects Lafise’s contention that the hourly rates sought are overly excessive.  To be sure, the rates sought are at the high end of reasonable.  They are, however, not significantly out of line with rates recently approved in other FLSA cases in this district.  See, e.g., De Armas v. Miabraz, LLC, No. 12 — 20063 — CIV, 2013 WL 4455699, at *4 (S.D. Fla. Aug. 16, 2013) (awarding $350.00/hour to counsel for trial time); Reppert v. Mint Leaf, Inc., No. 11 — 21551 — CIV, ECF No. 114 (S.D. Fla. Jan. 31, 2013) (awarding $375.00/hour to lead attorney and $325.00/hour to senior associate in FLSA case); Medrano v. Mi Colombia Bakery, Inc., No. 11 — 23916 — CIV, 2013 WL 1748403, at *2 (S.D. Fla. Jan. 10, 2013) (awarding $375.00/hour).

(italics in original).  So: $350.00 an hour?  Well, similar results were obtained, in August, in two other federal court cases arising out of Tampa.  In McMillan v. Masrtech Group, Inc., the Middle District of Florida — again, with some reservations — found a $350.00 hourly rate reasonable for prevailing Plaintiff’s counsel in an FLSA case.  And, in Martinez v. Hernando County Sheriff’s Office, the Eleventh Circuit affirmed the award of a $300.00 hourly rate to a prevailing Plaintiff’s counsel in an FLSA case.2There’s a lot of good news for employers in the Martinez decision.  The plaintiff won an overtime compensation award of only $1,075.44.  His counsel requested $79,850.63 in fees and costs, with the fee award based on an hourly rate of $500.00.  The Court lowered the hourly rate to $300.00; disallowed 38 hours of travel time for plaintiff’s counsel traveling to the Tampa Courthouse from his office in Weston, Florida; and made a downward adjustment of the fees, in light of plaintiff’s “limited success” on the claim.  Of course, YMMV, as the kids say; each case is different, and courts routinely make adjustments to requested fee awards.  In a forthcoming post, we’ll examine arguments an employer can make against a plaintiff’s fee petition.

References   [ + ]

EEO-1 Reporting Deadline Fast Approaching


Employers of a certain size and type — including some larger private employers — must soon file their annual Employer Information Report EEO-1, with the EEOC.  In the EEO-1 Report, a company categorizes its employment data by race/ethnicity, gender and job category.  The Report must be filed by September 30, 2014.  It can be submitted online.  The EEOC provides affected employers with step-by-step instructions on how to prepare and submit the Report.

Don’t miss the deadline!

Judicial Support for the EEOC’s Broad Right to Investigate Companywide Policies

EEOC Investigations

A federal District Court in Tampa just issued an interesting opinion, underscoring the broad power of the EEOC to investigate companywide policies.  Business owners, take note.

The case’s fact-pattern is straightforward.  In 2012, Rose-Marie Porter applied for a job with KB Staffing, LLC, an agency that connects temps with companies needing temporary employment.  In order be considered for employment, KB Staffing insisted Ms. Porter complete a health questionnaire (“Does the applicant have cerebral palsy, cardiac issues, diabetes, etc.”).  Ms. Porter refused, and wasn’t hired.  She filed a Charge of Discrimination with the EEOC.

The EEOC served, on KB Staffing, a subpoena seeking a copy of health questionnaires for all applicants for the three year period preceding Ms. Porter’s Charge of Discrimination and health questionnaires for any and all current employees.  KB Staffing — which, at any point in time, temporarily employs 200 to 300 people — resisted the subpoena.

The EEOC applied to the Middle District of Florida for an order requiring KB Staffing to comply with the subpoena.  At a cursory glance, KB Staffing’s defenses formed a powerful narrative:

  • KB Staffing “no longer uses the health questionnaires as part of its business operation,” and hadn’t done so for more than a year.
  • Ms. Porter raised claims for her own individual situation; she wasn’t attempting to act on behalf of anyone else.  Under those circumstances, KB Staffing argued that courts should avoid “confer[ing] unconstrained investigative authority upon the EEOC.”
  • The EEOC requested three year’s worth of questionnaires, when “the statute of limitations has already run for claims of all applicants who filled out the questionnaire more than one year prior to the date of even the request for the documentation.”
  • Ms. Porter also sued KB Staffing over the incident.  And “Porter and KB Staffing agreed to amicably resolve Porter’s claim of discrimination . . . . Porter has withdrawn her EEOC Charge against KB Staffing.”

To summarize, KB Staffing argued that the subpoena greatly exceeded the scope of the charge; the deadline for many other applicants to pursue their own claims had expired; KB Staffing had discontinued use of the health questionnaire; and Ms. Porter and KB Staffing had privately resolved their dispute.  Does that seem reasonable enough?  Case closed?

Hardly.  In a Report & Recommendation adopted by the Court this past Tuesday, Magistrate Judge Anthony E. Porcelli began by noting that the Charge of Discrimination stated that “[t]he policy of asking medical history questions unrelated to the job, prior to any job offer, could affect numerous applicants.”  For this reason, the EEOC’s subpoena wasn’t excessive or overbroad; to the contrary, the EEOC was merely investigating the claims that the Charging Party raised.

Then, Magistrate Judge Porcelli delivered the knockout punch.

The EEOC maintains discretion to seek relief on behalf of an individual, such as the Charging Party, but, contrary to KB Staffing’s assertions, also maintains discretion to vindicate the public interest in combating systemic discrimination.  Accordingly, the claims that the EEOC may assert are not merely derivative of those asserted by a charging party.  See E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 297 (2002) (“Moreover, it simply does not follow from the cases holding that the employee’s conduct may affect the EEOC’s recovery that the EEOC’s claim is merely derivative.  We have recognized several situations in which the EEOC does not stand in the employee’s shoes.” (citations omitted)). . . .  Indeed, “it is crucial that the [EEOC]’s ability to investigate charges of systemic discrimination not be impaired.”  E.E.O.C. v. Shell Oil Co., 466 U.S. 54, 69 (1984).  As such, the EEOC maintains the authority to investigate whether KB Staffing engaged in systemic discrimination when it used a pre-offer health questionnaire during its application process, despite the victim-specific relief it could pursue on the Charging Party’s behalf and despite KB Staffing’s assertion that it ceased use of the health questionnaire as of December, 2012.

So whether or not a Charging Party asserts claims on behalf of herself or on behalf of a class, and whether or not the discriminatory practice has ended, the EEOC is authorized to investigate systemic discrimination “to vindicate the public interest.”  Thus, the Court found the subpoena appropriate, and ordered KB Staffing to produce the requested documents within 30 days of Tuesday’s Order.

The lesson here: The EEOC has powerful tools at its disposal when it investigates discrimination.  But the agency’s authority in this area isn’t unlimited, and some other federal cases have criticized the EEOC’s investigatory tactics.1For instance, in EEOC v. Homenurse, Inc., the Court criticized the EEOC’s “highly inappropriate search and seizure operation, its failure to follow its own regulations, its foot-dragging, its errors in communication which caused unnecessary expense for HNI, its demand for access to documents already in its possession, and its dogged pursuit of an investigation where it had no aggrieved person.”  Ultimately, the Court concluded that “[a]lthough the standards governing enforcement of an administrative subpoena are low, the EEOC has not met them here.”  With good guidance, careful analysis, and quick action, a business may be able to effectively respond to an administrative subpoena.

References   [ + ]

Arbitration Clauses and the FLSA, Part II (Prevailing Party Fee Clauses)

In our last post, we discussed how an employee might be limited to pursuing only her individual FLSA claim if she signed an arbitration agreement containing a “collective action waiver.”  That post correctly suggests that an arbitration agreement may be a powerful tool available to an employer.  But — having said all that — there are limits on what an employer can accomplish through an arbitration agreement with employees.

In Hernandez v. Colonial Grocers, Inc., the plaintiff filed a lawsuit alleging FLSA violations against his employer, Colonial Grocers, Inc.  The employer moved to compel arbitration, based on a clause in the employment manual signed by plaintiff.  Under that clause, “[a]ny controversy or claim arising out of or relating to the employment relationship between the employer (Company) and employee (you) . . . shall be settled by arbitration in accordance with the Arbitration Rules of the American Arbitration Association.”  That clause also authorized an award of attorneys’ fees to the prevailing party in arbitration.

Although  the  parties  shall  initially bear the cost of arbitration equally, the prevailing party, if any as determined by the arbitrator at the request of the parties which is hereby deemed made, shall  be  entitled  to  reimbursement for its share of costs and reasonable attorneys’ fees, as well as interest at the statutory rate.

The trial court granted Colonial Grocers’ motion to compel arbitration, and Plaintiff appealed.

The Second District Court of Appeal reversed.  The Court noted that the FLSA entitles a prevailing plaintiff to an award of reasonable attorneys’ fees, “but it does not allow for prevailing party fees for the defendant.”  The Court concluded that a clause authorizing a fee award to a prevailing defendant undermined the purposes of the FLSA, and couldn’t be enforced.

This is a sufficient enough chilling effect to defeat the remedial purpose of the federal act. The attorney’s fees provision of the Fair Labor Standards Act is intended to encourage  employees  to  seek  redress  when  they  believe they have been wronged by an employer. The arbitration agreement, however, does just the opposite—it discourages the employee from pursuing a claim. As such, under Flyer Printing, it is unenforceable. See 805 So. 2d at 833 (“An arbitration  agreement  containing  provisions  that  defeat  a federal statute’s remedial purpose is … not enforceable.”).

The Colonial Grocers case is an important reminder that the power of an arbitration agreement has its limits.  It’s also an important reminder that careful planning, and careful drafting, matters in preparing employee contracts and manuals.  For all the lawyer jokes,1Q. How do you stop a lawyer from drowning? A. Shoot him before he hits the water. it’s crucially important for employers to have solid legal guidance in establishing and maintaining good business practices.

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Arbitration Clauses and the FLSA, Part I (Collective Action Waivers)

Under the Fair Labor Standards Act, an employee can sue her employer for unpaid minimum wages or unpaid overtime compensation on behalf of herself “and other employees similarly situated.”  29 U.S.C. § 16(b).  The ability to proceed collectively — i.e., as part of a group of similarly situated jobholders — is a powerful weapon for employees.  Many employees have very small claims, and having to litigate on an individual basis may discourage them from suing.  But by aggregating their claims in a collective action, employees can bring immense pressure against an employer.  In its 2003 decision in De Asencio v. Tyson Foods, Inc., the Third Circuit observed, in a related context, that “aggregation [of claims] affects the dynamics for discovery, trial, negotiation and settlement, and can bring hydraulic pressure to bear on defendants. The more aggregation, the greater the effect on the litigation.”  Despite the language of Section 16(b), there may now be a way for employers to ensure that employee claims are litigated individually.  To get there, we’ll begin by examining a late July 2014 case on a matter of first impression, which examines things that employers cannot do to prevent a collective action.

In Killion v. KeHe Distributors, LLC, a number of sales representatives for a food distributor were discharged in a corporate restructuring.  The employees were offered a separation agreement that, among other terms, required them to promise “not to consent to become[ ] a member of any class or collective action in a case in which claims are asserted against the Company that are related in any way to [their] employment or the termination of [their] employment with the Company.”  Some of the employees who signed the agreement later sued the employer for unpaid overtime wages.  Those employees sought to certify a collective action under Section 16(b), and asked the district court to void the collective-action waivers in the severance agreements.  The district court refused.  It upheld the waivers, and required the employees who signed the waivers to proceed individually.

The Sixth Circuit reversed.  Initially, the Court noted that “[n]o court of appeals appears to have squarely addressed this issue outside of the arbitration context.”  With no binding prior precedent, the Court looked to its recent decision in Boaz v. FedEx Customer Information Services, Inc. for guidance.  In Boaz, an employee signed an employment agreement that, among other things, required her to bring any legal action against the employer within six months of the date of the alleged violation.  The FLSA affords employees a much longer period of time in which to sue an employer for unpaid overtime wages.  When the employee later filed a lawsuit for unpaid overtime wages after the six-month time period had elapsed, the employer moved for summary judgment, arguing the employee’s claims were untimely under the employment agreement.  The Sixth Circuit disagreed, holding that “[a]n employment agreement cannot be utilized to deprive employees of their statutory [FLSA] rights.”  The Sixth Circuit applied the Boaz reasoning to the Killion case, finding “little reason to think that the right to participate in a collective action should be treated any differently than the right to sue within the full time period afforded by the FLSA.”  The Court found that the contract clauses in Boaz and Killion presented the same unacceptable situation, i.e., an employer attempting to navigate around the FLSA’s requirements by having employees sign a contract that waives away the employees’ rights.  For these reasons, the Sixth Circuit held, in Killion, that the collective action waivers in the severance agreements were invalid and void.

This reasoning seems straightforward and insurmountable: An employer cannot end-run the FLSA’s requirements by having employees waive them in a contract.  But what if the waiver is in a contract that also requires arbitration of FLSA employment disputes? Then it’s a whole new ballgame.

We are aware, of course, that the considerations change when an arbitration clause is involved.  Boat explained that “an employee can waive his right to a judicial forum only if the alternative forum allow[s] for the effective vindication of [the employee’s] claim.”  Id. at 606 — 07 (alteration in original) (internal quotation marks omitted).  Arbitration, it noted, is such a forum. Id. at 606.  But this line of precedents is of only minimal relevance here because the plaintiffs’ collective-action waivers in this case contained no arbitration clause. And, in any event, none of our precedents permitting arbitration of FLSA claims has addressed employees’ collective-action rights.

Counsel for the Killion employees said as much when the issue was raised at the end of the oral argument before the Sixth Circuit: “That’s a situation where the courts are trying to balance two competing federal policies — the labor policy and the arbitration policy.  That’s not this case.  There is no federal arbitration policy at issue here.  All you have is the labor policy and a contract that was made up by the employer.”  The Court agreed, finding that “[b]ecause no arbitration agreement is present in the case before us, we find no countervailing federal policy that outweighs the policy articulated in the FLSA.”  The Court also acknowledged an “emerging consensus” in other federal circuits, upholding collective-action waivers contained in an arbitration agreement.  If the separation agreements in Killion v. KeHE Distributors had required the arbitration of disputes, it’s very possible that the Sixth Circuit would have upheld the collective action waivers, thereby forcing the employees to arbitrate their claims on an individual basis.

The Sixth Circuit’s ruling in Killion contains important lessons for employers.  Of course, each circuit court’s opinion has its own nuances, and the reasoning various courts use to reach their conclusions on this issue is sometimes in conflict.  Still, with careful guidance, the holdings of these cases offer opportunities for employers who wish to confine FLSA litigation to an individual employee’s claims.