Under the previous overtime regulations, last updated in 2004, employees had to meet certain job duties tests to qualify as executive, administrative, professional, outside sales and computer employees and be paid a fixed annual salary of at least $23,660 ($455 per week), in order to be exempt from the Fair Labor Standard Act’s requirement that overtime be paid at the rate of time-and-a-half for all hours worked over 40 in a work week. The final rule just issued retains the “duties” test, but raises the standard salaried employee exemption threshold to $47,476 per year ($913 per week). That’s more than double the current threshold under the FLSA white collar exemptions. The salary threshold will be automatically updated every three years, so that it remains at the 40th percentile of earnings of full-time salaried employees benchmark, according to a statement released by the White House.
Who is Affected
According to a fact sheet released by the White House, the new rule is expected to extend overtime protections to 4.2 million more American workers (277,998 in New York; 131,854 in New Jersey; and 46,321 in Connecticut) who are not currently eligible for overtime under federal law, and increase workers’ wages by $12 billion over the next 10 years.
The final rule also raises the overtime eligibility annual salary threshold for highly compensated workers (who must meet only a minimal duties test) from $100,000 to $134,004, the annual equivalent of the 90th percentile of full-time salaried workers nationally.
Duties Test
The final rule makes no change to the existing “duties” test for executive, professional, administrative, outside sales and computer professionals exemptions.
However, the “salary” basis test is amended to permit employers to use nondiscretionary bonus and incentive payments (including commissions) to satisfy up to 10 percent of the new salary threshold levels.
Employees paid on an hourly basis are (depending on the duties performed) eligible for overtime regardless of their pay level.
Political Backdrop
In March 2014, the Obama administration directed Secretary of Labor Thomas Perez to “modernize and streamline” the rules for exemption from overtime and minimum wage, and increase the number of overtime eligible employees. The Obama administration initially proposed raising the overtime exemption salary threshold to $50,440 per year ($970 per week). That level was reduced by about $3,000 in the final rule. The proposed overtime rule received over 270,000 comments during the comment period which ended in September, 2015, primarily from business and employer groups contending that the new rules will actually have negative consequences for employees and that employers would seek to control overtime costs by reducing hours worked and limiting opportunities for long-term advancement.
Effective Date
The effective date of the final rule is December 1, 2016. There is no retroactivity. The initial increases to the standard salary level (from $455 to $913 per week) and highly compensated requirement (from $100,000 to $134,004 per year) will be effective then. Future automatic updates will occur every three years beginning January 1, 2020.
Councilman Brad Lander, the sponsor of the law, explained the view of many consumer advocates that the use of credit checks in employment unfairly prevents law abiding citizens from obtaining employment due to student loans or medical bills that have ruined their credit and that the use of credit histories can have a disproportionately negative effect on low income and minority applicants. “Credit checks for employment unfairly lock New Yorkers out of jobs. There is no link that can be shown between credit history and job performance and now New York City reflects that fact,” stated Lander.
The ban on credit checks does not apply to:
• police, law enforcement, public safety and other appointed positions subject to background investigations by the NYC Department of Investigation;
• bonded and financial services positions;
• non-clerical jobs providing access to trade secret or national security/intelligence information;
• jobs with signatory or fiduciary authority over funds valued at $10,000 or more;
• jobs where security clearance is required by any federal or state law; and
• positions allowing the employee access to modify digital security systems designed to prevent the unauthorized use of networks or databases.
The law adds New York City to a list that includes 10 states (California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington) and the city of Chicago, all of which currently ban the use of credit checks of job applicants. Chicago (and several of the states) allow credit checks to be performed for any job involving money handling.
According to a 2012 study by the Society for Human Resource Management, nearly half of all employers utilized credit checks in evaluating prospective employees. The stated rationale for those employers doing so, according to the SHRM study, is that an individual who acts responsibly with respect to his/her own finances tends to be a better performer.
The New York City law goes into effect on September 3, 2015, 120 days after being signed by Mayor de Blasio.
Aggrieved applicants and employees would have the full range of rights and remedies available to individuals asserting other rights under the NYC Human Rights Law.
New York City employers should look carefully at the scope of their credit and background check protocols to ensure that they are in compliance with the Stop Credit in Discrimination in Employment Act and/or fall within any of the new law’s exclusions, prior to September 3, 2015.
Please contact the author if you have any questions or require additional information.
1. Consider the Reason: Position Elimination vs. Performance Issues
As a fundamental proposition, the employer must be able to articulate the reason for terminating an employee. A good exercise for employers is to summarize the reason for the action in a paragraph. Is the decision economically motivated as a position elimination or reduction in workforce, or is it based on the employee’s poor performance? If based on the employee’s less-than-acceptable performance, the employer hopefully can establish a paper trail in terms of performance evaluations and prior warnings to support the decision. Will the employee be replaced? Generally speaking, position eliminations (i.e., no replacements) may be easier to defend. However, if there are multiple employees in the position, the employer should be prepared to justify the employee’s termination, e.g., seniority, performance, etc.
2. Consider Whether the Employee Falls Under Protected Status
The employer should consider whether the affected employee falls into a category that is protected by federal, state or local law. Employees may not be discriminated against on the basis of race, religion, age, citizenship, sex, sexual orientation, national origin, marital status, disability and certain other factors. Essentially, all employees except for white males under the age of 40 likely fall into some class that is protected by law. Of course, this is not to suggest that such protected employees are insulated against employer action. Rather, the employer should be cognizant of a potential discrimination claim, underscoring the need to be able to articulate the legitimate business reason for taking action against an employee in a protected classification. Employers should also consider whether a termination or series of prior terminations has a disparate impact on a particular group.
3. Consider Any Applicable Collective Bargaining or Individual Employment Agreements
Most employees are employed “at will,” meaning they are not guaranteed a job for any fixed period, and may be terminated at any time for a good reason, a bad reason or no reason at all, as long as it is not an illegal reason, such as discrimination. Many employers have employment handbooks or other written policies that reiterate such employment-atwill status. Two very notable exceptions to “at will” employment status are collective bargaining and individual employment agreements. Union agreements typically limit a termination to a showing of “cause” or “misconduct.” Economically motivated actions may be strictly limited on the basis of seniority and create “bumping” rights for affected employees. Individual employment contracts may limit terminations without a showing of “cause,” and/or impose significant severance payments. Employers must always take into account the presence of a union or individual employment agreement before acting.
4. Consider Possible Retaliation Allegations
Employers are often annoyed when an employee voices concerns or files a written complaint about discrimination, harassment, wage-hour violations, or requests an accommodation for a disability or religious belief and related issues. Their first instinct sometimes is to “get rid of” the problem employee. Be careful: A myriad of laws protect employees who have either “opposed” discrimination or “participated” in some sort of proceeding. Even where the underlying claim of discrimination or other employment violation lacks merit, the employee may indeed have a bona fide retaliation claim if terminated or subjected to other negative employment action soon after lodging a complaint. While such employees are not necessarily insulated from termination, employers should be aware that they may assume an additional burden to justify their decisions against a possible retaliation claim, especially if taken within approximately six months of an employee’s complaint.
5. Consider the Need for Advance Notice of Group Actions
If the employer’s action constitutes a plant closing or mass layoff under the Worker Adjustment and Retraining Notification (WARN) Act and parallel state mini-WARN laws, the employer should be aware of strict rules requiring advance written notice before the employment terminations can be implemented. Under the federal WARN Act, 60 days advance written notice generally is required where the action affects 50 or more full-time employees. Limited exceptions may apply, e.g., natural disasters or unforeseen business circumstances. State laws may require longer advance notice (e.g., 90 days) or provide broader protections (e.g., actions affecting 25 or more employees.)
6. Consider the Need to Protect Confidential Information
Certain employees may have particular access to confidential and sensitive information about the employer and/or its clients. It may be harmful to the employer if the employee is able to remove or utilize such information post-employment. The employer should take care to ensure that the employee has returned all confidential information company property, and has not downloaded confidential and sensitive information. Employers may, for example, wish to consider disabling the employee’s access to its computer systems and other property just as the termination is being implemented.
7. Consider the Competition and the Need to Protect Clients
Employers are well advised to review and analyze any restrictions already in place to prevent the employee from soliciting clients (and employees), and/or from engaging in a competing business following employment termination. Such “restrictive covenants” typically are found in employment agreements, or separate confidentiality and non-competition agreements. These may have been created at the commencement of or during the employment relationship.
If such restrictions do exist, we believe it is advisable to write the employee a letter providing a gentle reminder of these post-employment restrictions on solicitation and/or competition. Alternatively, such a non-compete provision may be negotiated at the time of separation in exchange for a severance payment or other consideration.
8. Consider Final Compensation and Vacation Pay Due
As a general proposition, employees must receive payment for work performed through the termination date regardless of the reason for termination. Sometimes, employers may elect, for reasons of security or employee morale, to pay the employee “through the end of the month,” although the employee will neither be expected nor required to report to work after the notice of termination is delivered. Employers also need to be mindful of whether the employee is owed any compensation for overtime worked. In California, for example, failing to provide for loss of accrued time is strictly forbidden.
Similarly, employees are generally entitled, under the employer’s policy and/or most state laws, to receive payment for accrued but unused vacation pay through termination date. Some states, such as New York, allow that employers may lawfully adopt “use it or lose it“ vacation policies, which provide that unused vacation time is not payable upon termination. By contrast, in California, for example, a policy or practice providing for forfeiture of accrued time is strictly forbidden. It also should be noted that final termination pay and accrued but unused vacation pay typically must be paid promptly, generally by the next regular payroll date.
9. Consider Unemployment Benefits
In most states, terminated employees are eligible to receive unemployment insurance benefits for an extended period of time unless they (1) leave employment voluntarily or (2) are terminated for misconduct. Conversely, loss of employment due to layoff, lack of work or economic retrenchment typically qualifies the individual for benefits. If the termination is the result of misconduct, employers are encouraged to oppose the claim for unemployment benefits in order to control their “experience rating” and tax rate.
10. Consider the Use of Releases
Because of the potential of liability and associated litigation costs to an employer associated with its termination of an employee in one of the protected classifications, employers should strongly consider requiring employees to sign releases in exchange for receiving severance pay and/or other benefits and consideration in connection with their termination. Although regulations take care to protect employees who agree to waive their rights (i.e., releases must be “knowing” and “voluntary”), when designed and executed carefully, release agreements can provide a valuable protection to employers. The cost can be more than offset by the avoidance of litigation.
What You Can Stipulate: A release agreement usually stipulates that employees will not sue their employers for discrimination or any other claim related to their employment and termination. In addition, employees are typically asked not to disclose confidential information about the employers, not to disparage the employers, or not to disclose the details of the release to anyone other than their spouse, attorney, and financial advisor.
The release agreement should also contain a clause that says the employer, by entering into the release agreement, has not conceded liability in any way. In addition, there should also be provisions whereby employees will forfeit the enhancements from the agreement if they breach it.
Consideration/Enhancement: To make the release agreement binding, employees must be offered some type of consideration. The typical consideration is severance pay over and above what may already be required. For example, if the employer has no severance policy, any severance should suffice; if the employer has a policy that pays one week’s severance for each year any employee works, then the consideration for the release has to be in addition to that. Severance is typically paid out either as a lump sum or salary continuation. Other types of consideration could include directly paying or reimbursing the employee for COBRA (Consolidated Omnibus Budget Reconciliation Act) health care continuation coverage, outplacement counseling, an agreement not to contest unemployment benefits or allowing the employee to keep the company car.
The Over 40 Crowd
The Older Workers Benefit Protection Act (OWBPA) has added safeguards for workers over age 40 when it comes to release agreements. First and foremost, OWBPA requires that the release be “knowing and voluntary.” In other words, the release has to be in clear language and has to spell out exactly what the employee is receiving. In addition, it must tell employees that they have the right to consult an attorney before they signthe agreement.
Employees over 40 also have a minimum of 21 days to consider the release agreement, and even after signing it, they still have a seven-day revocation period.
Conclusion
Overall, the most important thing employers can do to avoid liability and protect themselves when terminating an employee or employees is to plan ahead and be aware of the potential legal implications of their decision, particularly for legally protected employees. The key point to remember: terminations are not accidents, but planned events. Hopefully the 10 considerations outlined above will help to guide employers and help to protect them from liability.
]]>Purpose
New Jersey state Senators Peter Barnes and Jim Whelan, sponsors of the legislation, explain:
New Jersey state Senators Peter Barnes and Jim Whelan, sponsors of the legislation, explain: The stigma of being unemployed can have a greater impact on whether or not someone gets an interview or a job offer than the person’s qualifications or experience… Unfortunately, employers assume that a long break in employment is a reflection of the candidate’s inability to effectively do the work rather than a byproduct of a bad economy.…Being unemployed can have serious financial and emotional effects on any individual, particularly if it is for a long length of time, leaving them with a constant feeling of hopelessness and defeat when looking for a job. This pressure is often compounded by the fact that the longer someone is unemployed the more difficult it is for them to reenter the workforce.
Who is Covered?
The law applies to all private and public sector employers and employment agencies in New Jersey.
What is Prohibited?
The new law protects the unemployed by banning employers from basing decisions with regard to hiring, compensation or the terms, conditions or privileges of employment on the fact that the applicant is, or has been, unemployed.
What is Permitted?
Nothing in the law prohibits an employer from considering, and employers may still inquire about, the circumstances of an applicant’s separation from prior employment. In addition, employers may permissibly (i) base decisions and post advertisements identifying job-related qualifications, including a current and valid professional or occupational license or minimum level of education, training or experience; (ii) limit the applicant pool or give preference to only those currently working for that employer; and (iii) consider, or base compensation or terms and conditions of employment on, a person’s actual amount of experience.
Remedies Available
Employers are liable for civil penalties of $1,000 for the first violation, $5,000 for the second violation and $10,000 for each subsequent violation, collectible by the New Jersey Department of Labor and Workforce Development. There appears to be no private cause of action in New Jersey, unlike the New York City law.
What New Jersey Employers Should Do
Clearly it would be prudent for employers to review all job advertisements and related materials and remove any language that states or suggests, in effect, that only currently employed individuals can apply or be considered. Individuals who conduct job interviews should be made aware of the new law, and advised to eliminate job interview questions that focus on an applicant’s present unemployed status. However,it certainly appears permissible to inquire about the reasons why the applicant left his/her last employment, and nothing prevents an employer from researching an applicant’s background, employment history and criminal record. Of course, it is always advisable, as with all other employment discrimination protections, to focus the job interview and hiring process on the applicant’s experience, training, education, skills and qualifications to perform the duties of the job, rather than questions encroaching on an individual’s protected classification.
Up Next
Similar legislation is pending in 15 other states.
Conclusion
New Jersey employers should continue to make every effort to focus the job application process, and base hiring decisions, on the individual’s education, skills, experience and other qualifications for the particular job sought, rather than on protected classifications or characteristics that are now extended to unemployment status.
Employer groups vigorously had opposed the posting requirement, arguing that the rule was invalid as it violated employers’ free speech rights, exceeded the NLRB’s power and authority, and constituted an improper NLRB attempt at rule-making, rather than the imposition of a remedy designed to correct a specific employer violation of the National Labor Relations Act in any particular “case.”
The NLRB’s proposed rule was struck down by the U.S. Court of Appeals for both the District of Columbia and the 4th Circuit in May and June 2013, respectively. The NLRB had repeatedly requested extensions of time in which to file a writ of certiorari seeking review of the appellate court decisions by the Supreme Court of the United States.
On January 2, 2014, the NLRB’s filing deadline expired. Instead, on January 6, 2014, the Board issued an announcement stating that it had decided not to seek Supreme Court review of the two Court of Appeals decisions invalidating the notice posting rule. The Board’s announcement states it will post the same message as contained on the poster at issue on its website, where “it may be viewed, displayed and disseminated voluntarily. In addition, the NLRB has established a free NLRB mobile app for iPhone and Android users to provide the public with information about the National Labor Relations Act.”
The Board’s decision not to seek further review of the circuit court decisions, which found that the NLRB lacked authority to promulgate and impose the notice posting rule, is seen as a major victory for employers. As a practical matter, it means that the courts’ decisions now stand as binding legal precedent, and that employers have no NLRB rights posting requirement.
Employer organizations have recently been highly critical of the Board’s activist efforts. Employers contend, in view of all-time-low rates of unionization in the private sector, that they represent a strained, unprecedented attempt by the Board to recast and make itself relevant. The Obama-appointed Board also has been criticized by employers for abandoning its statutory role as a neutral, attempting instead to affirmatively encourage unionization efforts.
The earliest commitments of the Obama administration to pass the Employee Free Choice Act, which would have promoted union organization efforts through simple card checks rather than elections, as well as mandatory mediation and arbitration of initial collective bargaining agreements, have been unsuccessful.
Other high profile NLRB prosecutions have sought to protect employee postings that are critical of their employer on web-based social media sites such as Facebook by styling such comments as “protected concerted activity.” Employers have criticized such Board efforts as a strained effort to force the NLRA, designed for the “square peg” of a 1930’s and 1940’s manufacturing setting, into the “round hole” that is today’s service-oriented and Internet-based workplace.
In any event, for now at least, the NLRB’s effort to require employers to post a notice of union rights is a dead letter. Commentators, however, expect the NLRB to continue to pursue a pro-union agenda and will revisit the right-to-unionize posting requirement when the political climate changes.
Indeed, the Board’s January 6, 2014, statement reiterated that “the NLRB remains committed to ensuring that workers, businesses and labor organizations are informed of their rights and obligations under that National Labor Relations Act. Therefore, the NLRB will continue its national outreach program to educate the American public about the statute.” (emphasis ours)
Stay tuned.
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