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Employment Law Worldview

Can you discriminate against a company on age grounds?

Posted in Age Discrimination, Discrimination, Recent Cases

Just when you think you have mostly got a grip on the scope of UK discrimination law, along comes a whole new avenue of legal debate.

Gerry Abrams Limited -v- EAD Solicitors LLP is the first reported case of a claim for direct discrimination by a limited company.  In brief, Mr Abrams was a member (partner) in EAD Solicitors LLP.  It was a term of the LLP Deed that a member would retire on his reaching 62.  In 2011, Mr Abrams set up his own limited company, the unsurprisingly-named Gerry Abrams Limited, and with EAD’s agreement it became a member in his place and was paid fees equivalent to the profit share he would have received as an individual member.  When Mr Abrams reached 62 in 2014, EAD discontinued GAL’s fees, and it was effectively “retired”.

If Mr Abrams had still been an individual member then his compulsory retirement would probably have been lawful following the Seldon saga (fixed retirement age in law firm Partnership Deed upheld as justified).  However, to take the perhaps obvious point, although Mr Abrams was 62, he was no longer the member.  GAL had replaced him, and it was scarcely 2, not 62.

On the face of it, this was a breach of the Membership Deed.  However, surely this was not a point anyone would take, given that Mr Abrams, as owner of GAL, knew full well that he would have to stop working at that point?  Alarmingly, however, GAL started Employment Tribunal proceedings for associative discrimination, i.e. discrimination by A (EAD) against B (GAL) due to the protected characteristic (here age) of C (Abrams).

His claim relied on the definition of “direction discrimination” in Section 13 Equality Act.  A person (A) discriminates against another (B) if because of a protected characteristic (though not necessarily B’s) A treats B less favourably than A treats or would treat others.  In addition, there was a rare public outing for the specific provisions in Section 45 Equality Act, i.e. that an LLP must not discriminate against any of its members.  Neither Section 13 nor Section 45 require that the person or member be a natural individual.  It could very easily be said that this is the product of the Government’s failure to conceive that anyone would try this sort of case, rather than of any deliberate consideration.  Nonetheless, the Liverpool Employment Tribunal concluded that this omission meant that both sections could apply to protect corporate entities as well as individuals.  However, said the Tribunal, this would only be the case where “the corporation in question reflects the characteristics of one individual (or possibly the protected characteristics of more than one individual or a group of individuals) where the grounds upon which the actions taken towards the corporation are claimed to be based on the individual’s (or group’s) protected characteristics“.

Within the pure employment sphere this is less significant than it sounds.  Many individuals supplied to an end user by their own company will potentially be workers and so protected against discrimination in their own right anyway.  However, in the world outside employment (genuine consultancy, supply of goods and services, etc.), the consequences could be critical.  If I choose not to deal with your company (or only on less favourable terms) because I have taken against your staff on racial or religious grounds, for example, then the individuals can do nothing about it because they are not my employees or workers.  Your company, on the other hand, could now sue me for its loss arising from my choice not to use it.  There is still the Liverpool Tribunal’s pre-condition that the company should “reflect the protected characteristics of the individuals”, but logically I am not sure that this is correct – if I refuse to deal with a company because the individual salesman it sent me offends my religious or racial convictions, why is that not still treating that company less favourably on the grounds of a protected characteristic?

Next step in Gerry Abrams is a hearing on the merits of the actual discrimination claim.  It will be very much worth keeping an eye on that one!

NLRB’s “Ambush Election” Rules Survive Federal Court Challenge

Posted in NLRB, Recent Cases, Union

Those of you following the controversial recent revisions to the National Labor Relations Board’s union election rules know that those rules went into effect in April of this year, over a Congressional disapproval resolution.  (See our previous posts concerning the issuance and implementation of the rules here, here, and here.)  These rule changes have been labeled the “ambush election” rules, as they dramatically roll back procedural (and in some cases, substantive) protections to employers (and employees) in the election process in favor of getting to a vote in as little as 11 days.

Two lawsuits were filed seeking to block (or, now that they have been implemented, to void) the new election rules.  One of those suits, filed by several groups in Texas, was dismissed earlier this year.  On July 29, 2015, a federal judge in Washington, D.C. ruled against the U.S. Chamber of Commerce and several other business and trade organizations in their separate challenge to the new election rules.  The court rejected their arguments that the rule changes violated the National Labor Relations Act, the Administrative Procedures Act, and the Constitution, instead finding the plaintiffs’ arguments to be a “policy disagreement with the outcome of a lengthy rule-making process.”  Boiled down to its essence, the 72-page opinion held that the NLRB engaged in an extensive public process in formulating, promulgating, and proposing the new rules; that as the federal agency in charge of administering the National Labor Relations Act, the NLRB has wide discretion to formulate what it believes are appropriate procedures to do so; and that the rules did not violate the law or deprive parties appearing before the Board of their constitutional rights.  Although an appeal is certainly possible if not likely, for the time being, the new union election rules are here to stay.

Raising the Minimum Wage – Congress to Consider a Proposal to Increase the Federal Minimum Wage to $15 per hour by 2020

Posted in Employment Policies, Legislation, New York, Wage and Hour

Humor me for a second.  Imagine you are an employee earning either an annual salary or an hourly wage.  You are in the middle of your year-end review with your supervisor.  You sit down and discuss fun things like strengths, weaknesses, travel destinations and perhaps (but hopefully not) the company holiday party.  Then it comes time to discuss your potential salary increase, not only for next year, but for the next five years of your employment.  Your supervisors propose to increase your salary approximately 24% this year and provide an annual increase somewhere between 11% to 17% for the next five years thereafter in order to provide you with a total wage increase of approximately 110% of your current annual salary.

Impossible, right?

Not impossible for the approximately 3 million American workers who earned hourly wages at or below[1] the federal minimum wage last year.  Last week, presidential candidate and Senator Bernie Sanders of Vermont announced a bill to pass the Pay Workers a Living Wage Act.  The bill, which is co-sponsored by Senator Edward Markey of Massachusetts, proposes to gradually increase the current federal minimum wage of $7.25 over the course of the next five years until the minimum wage settles in at $15.00 per hour in 2020.  The first annual increase will come in 2016, raising the minimum wage to $9.00 per hour.  Thereafter, the minimum wage will be increased each year until 2020 by an additional $1.50 per hour.  A similar bill was also recently referred to the U.S. House of Representatives’ Committee on Education and the Workforce by Representatives Raul Grijalva of Arizona and Keith Ellison of Minnesota.

According to a release from the Sanders camp, the current federal minimum wage is “a starvation wage.”  A fact sheet  in support of the bill provided by Senators Sanders and Ellison cites that around 54 million U.S. workers currently make less than $15 per hour, and almost half of these workers are age 35 or older.  The fact sheet  opines “[n]o one working full time should be in poverty.  It is time to pay workers a living wage of at least $15 an hour.”

By my calculation, there has never been an increase of this significance over a five-year period since the federal minimum wage was first passed in 1938.  The highest percentage adjustment to the federal minimum wage appears to have been from 1949 to 1950 when the minimum wage increased approximately 88% from $.40 to $.75 per hour.  The next highest increase in terms of percentage appears to have been a nearly 66% increase from the 1973 minimum wage of $1.60 per hour to $2.65 in 1978.  The majority of other increases over five-year periods appear to be less than 33%.  The fact sheet  supports the need for the dramatic proposed increase in such a short time by explaining, “[i]f the minimum wage had been raised since 1968 at the same rate as inflation and productivity – i.e., the rate at which the average worker produces income for the employer – it would be more than $26 per hour.”

An astounding 47% of those earning the federal minimum wage purportedly are working in the fast food industry.  The fact sheet cites a study conducted by the University of Massachusets-Amherst that “concluded an increase to a $15 minimum wage could be fully absorbed by [fast food industry] employers without resorting to cuts in employment levels, lowering the average profit rate, or reallocating funds from other areas of operation.”  To reach this conclusion, the study assumes that the increase in labor costs will necessarily “increase workers’ commitment to their job” thereby resulting in lower turnover rates and savings “on the costs of recruiting and training new employees…”  The study also acknowledges that one way for employers to “cover a share of their increased [labor] costs [is] by raising prices.”  However, the elephant in the room only summarily addressed by the study is to what extent the cost of higher wages simply will be reallocated directly to the consumer.  No specific answer is provided – by the fact sheet or the study – regarding the extent of potential price increases.  Therefore, Joe and Debbie Consumer who enjoy their fast-food burritos, burgers, and footlongs can almost certainly expect to share a portion of the increased labor bill that could come with the passage of the Pay Workers a Living Wage Act.  The precise amount of the cost on the other hand remains to be determined.

The national movement behind increasing minimum wages comes after several cities such as San Francisco, Los Angeles, and Seattle already started down a path toward a $15.00 per hour minimum wage.  Last week, the New York Wage Board appointed by Governor Andrew Cuomo announced it would finalize its recommendation to the state’s labor commissioner to pass legislation moving the minimum wage up to $15.00 as well.  Another Governor in the minimum wage debate spotlight is Governor Jerry Brown of California, who signed into law minimum wage increases in California that will result in a $10.00 per hour California minimum wage by January 1, 2016.  However, after two of California’s leading cities (Los Angeles and San Francisco) implemented a plan to increase minimum wage as above, public pressure remains on Governor Brown to implement a further state-wide increase to the apparently magic $15.00 per hour number.

[1] Limited exceptions to the Fair Labor Standards Act’s minimum wage provisions permit certain employers in specific industries to pay workers less than the federal minimum wage.

The beginning of the end for personal service companies in the UK?

Posted in Agency Workers, Contracts, Hiring, Independent Contractors, Tax

HMRC issued a consultation document on 17 July 2015 to explore options for tightening up IR35, the intermediaries legislation that aims to tackle tax avoidance through disguised employment.

IR35 requires individuals working through an intermediary (e.g. a personal service company (PSC)) to pay broadly the same tax and NICs as any other employee, where they would have been an employee if they were providing their services directly to the end-user. Where IR35 applies, it requires the PSC to account for PAYE/NI. Where it does not apply, using a PSC can offer significant tax advantages to workers compared to direct employment by the client (e.g. by paying them “dividends” as opposed to salary).  The expenses position may also be more favourable.

HMRC are concerned that many PSCs are not complying with IR35. The two main options considered by HMRC in the consultation document are:

  • putting the burden of determining whether IR35 applies on the engager (end-user) rather than the PSC (i.e. the engager would be liable for PAYE/NI if IR35 applies); and
  • basing the test for IR35 solely on whether a third person (most usually the engager) exercises supervision, direction or control over the manner in which the worker provides his services (i.e. making it harder to fall outside IR35).

It is a safe bet that HMRC’s preference is to adopt both these options. If implemented, this would take away the main tax advantages of a PSC in one fell swoop. It is generally going to be difficult for an engager to be certain enough that a worker is not under its supervision, direction and control given how widely this test could be construed. Unless the worker is very obviously a specialised contractor who is clearly not under supervision, direction or control as to the manner in which he operates, therefore, engagers would be likely to insist on deducting PAYE/NI from payments to the PSC in order to avoid any risk of non-compliance.

It is worth noting that if these options are adopted then this risk for an engager would be higher when contracting with a PSC than with a self-employed worker direct. In the latter case the obligation to deduct PAYE/NI would only apply if the worker is deemed an employee based on the fuller test that currently applies under IR35 (i.e. considering all of the various factors that could indicate employment rather than solely supervision, direction and control).

This is of course speculation until we see the result of the consultation towards the end of the year. However, the recent consultation regarding proposed changes to the rules on travel and subsistence expenses in the context of intermediaries shows the general heading HMRC is taking here.  At the moment a worker who is employed by an intermediary (e.g. a PSC, umbrella company or employment business) and works on temporary assignments for different engagers can potentially claim his travel and subsistence expenses tax free on the basis that he is working at a number of different temporary workplaces under a single overarching employment with the intermediary. Under the proposed changes, this will generally no longer be possible for workers supplying personal services who are subject to employee-type supervision, direction or control. Contrary to previous suggestions, this is now expected to impact PSC workers.

From next April, tax advantages in using a PSC could be very hard to find.

New Russian Data Protection Requirements – Latest Position

Posted in Data Protection, Guidance, Legislation

On 1 September 2015 new requirements relating to the storage of personal data will come into force in Russia.  These changes are highly controversial, as they will require any databases used to process the personal data of Russian citizens to be physically located in Russia.

When these changes were first announced it seemed they would apply to all legal entities involved in the processing of personal data of Russian citizens, including employers – whether Russian entities or not.  See our October 2014 client alert for further details.

This would not now appear to be the case.  Following a request for clarification on the ambit of the new legislation, our Moscow office has received confirmation from the Legal Department of the Russian Ministry of Communications and Mass Media that these provisions will not apply to employers in so far as they are processing that data for employment law purposes.   

It seems that employers should be able to rely on one of the exemptions in the new legislation, namely where the processing of data is necessary for the performance of functions, authorities and obligations imposed by the laws of the Russian Federation or international treaties.  The Ministry has confirmed that “laws of the Russian Federation” will include the Federal laws and Labour Code which govern labour relations.

In practical terms this should mean that international employers which process data about Russian employees will continue to be allowed to store the data in foreign data centres if and to the extent that such processing is required for employment law compliance purposes.

A note of caution, however.  Although the guidance from the Ministry will be welcomed by employers, especially foreign companies located outside Russia, it is not legally binding.  Ultimately it will be for the Russian courts to interpret the scope of any exemptions under the new legislation.  It does however give a strong indication of the approach that is likely to be adopted with regard to employers.

If you require additional information concerning the application of this new legislation to your organisation, please do not hesitate to contact us.

Reasons to Cheer – California Governor Signs Bill Requiring Professional Sports Franchises to Classify Cheerleaders as Employees

Posted in Employment Policies, Independent Contractors, Legislation, Wage and Hour

If you enjoy employment law AND sports, you may be enjoying this summer more than any other; and if you are also an aficionado of employee classification issues then I KNOW you are enjoying this summer more than any other.

Typically, the headlines in the sports world during the summer months are dominated by free agent[1] movement from in the National Football League (NFL) and the National Basketball Association (NBA).  This summer generally was no different as the attention of the sports world the last few weeks has been dominated by the NBA, whose players have been signing some of the richest contracts in NBA history thanks to their collective bargaining agreement’s revenue sharing provision and skyrocketing TV deals.   Adding to the intrigue of NBA player movement this year was DeAndre Jordan’s now infamous flip flop leaving Dallas Mavericks owner and Shark Tank fixture Mark Cuban looking for a new big man to anchor his defense and possibly wondering whether Jordan breached an enforceable oral contract.  Not to be outdone by the NBA, the NFL reminded us that it is the most popular league in sports when national attention turned to threats by the NFL Players Association to file collusion charges against two of the league’s more popular franchises, the Denver Broncos and Dallas Cowboys, for allegedly negotiating in bad faith with Demaryius Thomas and Dez Bryant.[2]

However, in an atypical twist, the focus shifted this week from the entertainers displaying athletic prowess on the field to the entertainers showcasing their talents on the sidelines.  California Governor Jerry Brown signed Assembly Bill 202 (AB 202) into law this week, requiring California’s professional sports franchises to classify their cheerleaders as employees rather than independent contractors, and thereby requiring them to pay the cheerleaders minimum wage and provide them with other minimum protections under the law afforded to other employees.  The bill was introduced by Assemblywoman Lorena Gonzalez of San Diego, who explained the bill marks “an important step toward ensuring that multibillion dollar sports teams treat cheerleaders with the same dignity and respect as every other employee who makes the game-day experience special.”

The plight of the NFL cheerleader first drew national attention in January 2014, when a group of cheerleaders “independently contracting” with the Oakland Raiders football franchise brought a class action lawsuit against the team.  The Raiderettes alleged the team contracted to pay each cheerleader a flat fee of $125.00 per home game regardless of the number of hours spent preparing for the game or performing during the game.  The Raiderettes estimated that they were paid an amount less than $5.00 per hour taking into account practice, rehearsals, game day performances, and appearances at other events.  The California minimum wage in 2014 was $8.00 per hour, well above the estimated amount of hourly compensation the Raiderettes received.[3]  The Raiders and the class of Raiderettes who brought the lawsuit settled earlier this year for $1.25 million.  The Raiders are not the only NFL franchise to have recently been sued by cheerleaders claiming employment violations.  AB 202 may be a sign of things to come, particularly since the NFL is known for its ability to adapt to the progress of the times.

Significantly, this bill joins the recent legal wave of momentum regarding worker classification.  The California Labor Commissioner started the summer off by siding with Uber employees – and perhaps other ride share providers – regarding their misclassification claim.  The Department of Labor (DOL) then raised the ante by unveiling proposed rules expected to result in approximately 4.6 million (or more) currently exempt workers changing classification to non-exempt workers.  Earlier this week, we heard again from the DOL, this time through an Administrator’s Interpretation declaring “most workers are employees under the [Fair labor Standards Act].”  The DOL’s proposed rule changes are subject to a 60-day comment period and any final regulations must take comments into account.

[1] Free agents are players whose contracts have expired and are free to sign with the team of their choosing in accordance with the league’s collective bargaining rules.

[2] The controversy subsided substantially the day after NFLPA’s threats as both Bryant and Thomas signed nearly identical five-year contracts with their respective teams worth approximately $70million each.  Collusion?  What, collusion?

[3] This reflects the California minimum wage at the time the lawsuit was filed.  The California minimum wage went up to $9.00/hour on July 1, 2014 and is scheduled for another increase to $10.00 per hour effective January 1, 2016.

UK Trade Unions get the Bill for transport strikes

Posted in Employment Relations, Legislation, Trade Unions

Here is a short guide to the main provisions of the Trade Union Bill which went through its first reading in Parliament earlier this week.  The Bill is either a malicious attack on the noble workers of Britain or a welcome redrawing of the boundaries around the disruption which striking can be allowed to cause, depending on what you read.  There are certainly provisions within it which could justify both conclusions.

In essence, the Bill does not affect the basic right to strike, but merely some of the administrative provisions around it.  In particular:-

(i)         in any valid ballot for industrial action there must be at least a 50% turnout of those entitled to vote.

(ii)        in most cases a majority of those voting will carry the day.  This creates the possibility that a perfectly lawful strike could be triggered by scarcely a quarter of those eligible to vote, a point which those union leaders making snide remarks about the Tories’ share of the vote at the last election appear to have overlooked;

(iii)       in certain “important public services”, however, at least 40% of those eligible to vote must support the industrial action.  There is a BIS consultation paper about what should count as an important public service, but the Government appears in reality to have made up its mind on this already. Included in the Bill is a list from health services to nuclear decommissioning workers and (no doubt with a certain sense of satisfaction) transport workers.   The irony is that the most recent Tube strike would reportedly have passed these new hurdles anyway.  It might not hurt to include binmen on public health grounds, but otherwise the list seems fairly predictable.

Putting that in numbers, assume a workforce of 1,000 people.  At least 500 must turn up to vote for the thing to get off the ground at all.  If it is an important public service, at least 400 must vote for the strike, but if 400 were still a minority, the ballot fails.  Therefore if 700 vote, including 400 for industrial action, the strike will be lawful, but if 900 vote, 400 in favour, it will not.

(iv)       the employer will be entitled to 14 days’ notice of industrial action in place of the current 7;

(v)        the ballot result only lasts four months, however overwhelming the majority, after which a fresh one will be required;

(vi)       there must be a union supervisor at or near any picket.  He must carry a letter confirming his position as such to be shown to any enquiring constable.  He must also wear an armband or badge identifying him as the supervisor.  The Bill does not strictly require that on the armband be written “If in doubt, arrest ME”, though that is clearly the general idea.

Issued at the same time as the consultation on what should count as an important public service, but not (so far) included within the Bill, are two other open questions from BIS:

First, should Regulation 7 of the Conduct of Employment Agencies and Employment Business Regulations 2003 be removed?  This Regulation currently prevents employment businesses from providing agency workers to cover for striking employees.

Second, whether it is necessary to revise law or guidance around the intimidation of non-striking workers, including via social media.  It is hard not to see this second consultation as a deliberate looking for trouble on the part of the Government, largely because the existing civil and criminal law makes intimidation unlawful already, including in the picketing context.  In addition, the consultation document “invites evidence of intimidatory behaviour experienced during industrial disputes”.  One might have thought that if the Government had concluded on objective grounds that changes to picketing law were genuinely necessary, it would have that evidence already.  The real objective here is not well hidden – the consultation description expressly seeks views on “proposals that aim to increase union accountability”.  It will certainly pay to think carefully before you don the Armband of Strife.   Maybe that’s the point too.

U.S. Equal Employment Opportunity Commission Rules That Sexual Orientation Discrimination Violates Title VII of the 1964 Civil Rights Act

Posted in Discrimination, EEOC, Employment Policies, Equal treatment, Equality & Diversity, Sex Discrimination

picture2    In a potentially groundbreaking decision that increases legal protections throughout the U.S. for lesbian, gay and bisexual employees, the Equal Employment Opportunity Commission (EEOC) ruled on June 15, 2015, that existing civil rights law bars sexual orientation-based employment discrimination.  The EEOC addressed the question of whether the ban on sex discrimination in Title VII of The Civil Rights Act of 1964 (“The Civil Rights Act”) bars anti-LGB discrimination in a charge brought by a Florida employee.

The ruling was issued without objection from any members of the five-person commission, and while it technically only applies directly to federal employees’ claims, the EEOC also applies such rulings across the nation when it investigates claims of discrimination in private employment.  Although only the Supreme Court can issue a final, definitive ruling on the interpretation of The Civil Rights Act, EEOC decisions are given significant deference by federal courts.

Although the EEOC had been moving in this general direction with cases and field guidance addressing specific types of discrimination faced by gay people, the July 15 decision unequivocally states that sexual orientation is inherently an unlawful “sex-based consideration,” reasoning that sexual orientation discrimination “necessarily entails treating an employee less favorably because of the employee’s sex” and constitutes “associational discrimination on the basis of sex.”  In making this ruling, the EEOC joins approximately 22 states that provide sexual orientation discrimination protections in employment.

Given that this EEOC decision is entitled to deference by federal courts, employers across the U.S. should anticipate that practices that could be construed as discriminatory on the basis of a worker’s sexual orientation will be challenged in federal court and subject the employer to potential liability.

For EEOC guidance on this issue, click the following link: http://www.eeoc.gov/eeoc/newsroom/wysk/enforcement_protections_lgbt_workers.cfm

Employee or Independent Contractor? US Department of Labor Provides New Guidance

Posted in Employment Policies, Independent Contractors, Wage and Hour

“[M]ost workers are employees under the [Fair Labor Standards Act’s] broad definitions.”

The debate over classification of workers as employees versus independent contractors has yet another chapter.  Last month, it was the California Labor Commissioner who sent ripples across the rideshare industry by telling Uber Technologies, Inc. that its drivers are employees, not independent contractors.  This month, the United States Department of Labor decided it was time to throw its hat in the ring and weigh in on the matter by way of a fifteen page Administrator’s Interpretation issued by Dr. David Weil.

The Fair Labor Standards Act (“FLSA”) defines employees, rather unhelpfully, as “any individual[s] employed by an employer.”  The FLSA’s definition of “employer” is similarly unilluminating: “employer”  “includes any person acting directly or indirectly in the interest of an employer in relation to an employee.”  To “employ” under the FLSA is “to suffer or permit to work.”

If you’re confused as to whether a worker is an employee or independent contractor based on these definitions, you’re not alone.

The Department of Labor’s new interpretation explains that an “economic realities” test should be utilized to determine worker classification.  Under this test, the key inquiry is whether a worker is economically dependent on the employer, thereby making the worker an employee, versus whether the worker is truly in business for him or herself and thus, an independent contractor.  Determining the economic independence of a worker should occur on a case-by-case basis, using a multi-factor test that has been developed by a series of federal court decisions.  Factors that should be customarily examined include:

(i)            the extent to which the work performed is an integral part of the employer’s business;

(ii)           the worker’s opportunity for profit or loss depending on his or her managerial skill;

(iii)          the extent of the relative investments of the employer and the worker;

(iv)         whether the work performed requires special skills and initiative;

(v)          the permanency of the relationship; and

(vi)         the degree of control exercised or retained by the employer.

No one factor is determinative and “each factor should be considered in light of the ultimate determination of whether the worker is really in business for him or herself… or is economically dependent on the employer.”  The interpretation emphasizes the FLSA definitions were deliberately designed to provide a broad scope of statutory coverage and the “Act’s intended expansive coverage for workers must be considered when applying the economic realities factors.”  The interpretation also explains “the economic realities of the relationship and not the label an employer give it are determinative.  Thus, an agreement between an employer and a worker designating or labeling the worker as an independent contractor… is not relevant to the analysis of the worker’s status.”

The correct classification of workers matters both for workers and employers alike.  A worker’s classification affects entitlement to legal protections such as overtime pay and minimum wage, amongst other protections under the Act.  This DOL interpretation comes only two weeks after the DOL unveiled its proposed rule that is anticipated to result in approximately 5 million currently exempt workers shifting classification to non-exempt workers, thereby becoming entitled to minimum wage and overtime protection under the FLSA.

California Alert: Governor signs amendments to new paid sick leave law – changes effective immediately

Posted in Employment Policies, Sickness, Wage and Hour

California employers, take note.  Emergency legislation amending and clarifying certain provisions of the recently-effective Healthy Workplaces, Healthy Families Act was signed into law Monday (July 13) by Governor Brown, and went into effect immediately.  Among other changes, AB 304 amends the Act as follows:

  • Regarding accrual of sick leave:
    • Provides that an employer may use a different accrual method, other than providing one hour per every 30 hours worked, as long as the accrual is on a regular basis and an employee has at least 24 hours of accrued sick leave or paid time off by the 120th calendar day of employment or each calendar year, or in each 12-month period.
    • Provides that an employer may satisfy the accrual requirements of this section by providing 24 hours of paid sick leave that is available for use by the 120th calendar day of employment.
    • Clarifies that the “full amount of leave” that must be provided if an employer chooses to frontload leave means three days or 24 hours.
  • Regarding existing paid leave or paid time off (“PTO”) policies:
    • Specifies that an employer is not required to provide additional paid sick days if the employer has a PTO policy, the employer makes available (beginning July 1, 2015) an amount of leave that may be used for the same purposes and under the same conditions, and the policy satisfies one of the following options:
      • Satisfies the accrual, carry over, and use requirements of the law.
      • Provided PTO to a class of employees before January 1, 2015, pursuant to a policy that used an accrual method different than providing one hour per every 30 hours worked, provided that the accrual is on a regular basis so that an employee, including an employee hired into that class after January 1, 2015, has no less than one day or eight hours of accrued leave within three months, and the employee was eligible to earn at least three days or 24 hours within nine months.  If the employer decreases the accrual amount or rate for employees covered under the policy, it must comply with the sick leave law (i.e., either meet the accrual requirements or provide 24 hours of leave at the beginning of each year of employment, calendar year, or 12-month period).
  • Other changes:
    • Allows an employer with an unlimited paid sick leave or PTO policy to simply indicate the leave balance as “unlimited” on the itemized wage statement or written notice provided to the employee each pay period.
    • Clarifies how to calculate the rate of pay for paid sick leave provided to employees.
      • For nonexempt employees, employers now have two methods to choose from in calculating paid sick time:
        • Use the regular rate of pay for the workweek in which the employee uses paid sick time.
        • Divide the employee’s total wages, not including overtime pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment. (Useful for employees who have varying rates of pay, are paid on a salaried basis, or are paid on a piecemeal or commission basis.)
      • For exempt employees, paid sick leave wages should be calculated in the same manner as wages for other forms of paid leave time.
    • Clarifies that the 30-day eligibility period applies to time worked “with the same employer.”
    • Clarifies that the reinstatement of paid sick leave upon rehiring is “subject to the use and accrual limitations set forth in this section” and confirms that an employer who cashes out sick leave/PTO upon termination of employment is not obligated to restore any sick leave/PTO upon rehiring.

Employers, particularly those intending to use existing PTO policies to comply with the Act, should review AB 304 carefully to ensure their policy is in compliance.