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Feb 15

The Fox OFCCP Report: Why OFCCP Audits of Compensation Are Entirely Different From Those Alleging a Failure of Affirmative Action or a Failure To Hire…and the “Tough Row to Hoe” which lies ahead for Both OFCCP and Federal Contractors as to Compensation Audits

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Friends: This is my second column for Local JobNetwork™ discussing OFCCP developments. I appreciate the overwhelmingly generous response to my first column. 

This month, I want to discuss why OFCCP’s audits of the compensation federal contractors pay to their employees and of federal contractor compensation systems are very different from OFCCP audits in which OFCCP alleges only a failure of “Affirmative Action” or an unlawful “failure-to-hire” (typically blue-collar unskilled entry-level laborers). The single difference I will identify below, as simple as it is, leads, however, to a totally different mindset among defending federal contractors.  This single difference also exposes two unique problems with which federal contractors have to specially grapple in compensation cases. Unfortunately, too, this difference “raises the stakes” for most federal contractors in a way which will force most contractors OFCCP accuses of unlawful compensation discrimination into uncomfortable, but necessary, confrontations with OFCCP.  And, OFCCP is learning that compensation audits in which OFCCP alleges unlawful compensation discrimination are suddenly almost always hard fought scrimmages as to which it is not going to be a rollick in the park.

Next month, I will discuss how to defend against OFCCP’s new style of compensation audits…which will be particularly timely if OFCCP is able to publish by then it’s long overdue new (hoped-for) revised audit Scheduling Letter (which is all and only about compensation audits…and is still not yet published).       

That single difference in OFCCP compensation audits is that most contractors facing “inadequate affirmative action efforts” or “failure to hire” audits typically cooperate very easily and fluidly with OFCCP to settle them. Cooperation with OFCCP is rarely the case in compensation audits, however, as I note more fully below.  Most federal contractors in non-compensation-related audits have historically willingly (although generally begrudgingly) agreed to sign an OFCCP Conciliation Agreement (CA) to conclude the audit where OFCCP has claimed a violation, even when OFCCP’s claim of unlawful discrimination lacks merit.  Read more.

Jan 26

New Penalties Seek To Ensure California Employers Properly Understand Independent Contractor Classification

As of January 1, 2012, SB 459 added two new California Labor Code sections addressing employer misclassification of “Independent Contractors.” Given the recent economic downturn, the California legislature has now expressed its concern that more and more companies and businesses are using independent contractors to fill vacant positions to reduce burgeoning administrative costs and which increased workers’ compensation insurance, payroll taxes, and health benefits have driven up.  Accordingly, to help protect employee rights from eroding, California has now increased penalties against businesses that willfully misclassify workers as independent contractors.

Beginning January 1, 2012, California Labor Code sections 226.8 and 2753 established penalties and statutory liability for businesses and their vendors which have intentionally and voluntarily misclassified employees as independent contractors.  The so-called “Job Killer Act”:

    • Authorizes Courts and the State of California to assess fines (penalties) in the amount of not less than $5,000.00 and not more than $15,000.00 “for each violation” of an employer’s “willful misclassification” or unlawful deduction from wages. However, if a Court or the State of California finds the employer has engaged in a “pattern or practice” of “these violations,” it may assess a fine in the higher range of not less than $10,000 and not more than $25,000.00 “for each violation.” Apart from the uncertainty as to what constitutes a “pattern and practice” to know when the higher range of fines will attach, the statute also does not define what it means when it states that both ranges of fines (whether we are speaking of the $5,000-$15,000 not “pattern or practice” fines, or the $10,000-$25,000 “pattern or practice” fines) will attach “for each violation.” For example, does “each violation” mean for each subsequent pay period where misclassification or an unlawful deduction occurred —i.e. $25,000 fine x 52 pay periods=$1.3M per year if the employer pays contractors weekly (employee’s view); or does “each violation” mean (i.e. the employer’s view) for each initial unlawful decision the employer made to either willfully misclassify or unlawfully deduct from wages—i.e. a one-time fine of up to $25,000 for each employee adversely affected in the pattern or practice? Based on prior interpretations of other provisions in the Labor Code as to what constitutes a “violation,” we fear the California Labor Commissioner may seek to assess “pattern and practice” fines for each pay period an employer misclassifies an employee.  Accordingly, if the employer were found to have misclassified 10 employees as independent contractors, the fines could look like this, we fear: $25,000 x 52 weeks=$1.3M x 10 misclassified employees=$13M…per year of misclassification if the employer pays the contractors on a weekly basis. Companies will have to await guidance and interpretation, and possibly litigation, to be further certain what the California legislature meant in passing this broad and inartfully drafted statute.
    • Renders any person who knowingly advises an employer to misclassify an employee as an independent contractor (other than an employer’s agent or legal counsel) jointly and severally liable for the fines.
    • Requires employers found to have willfully misclassified employees as independent contractors to post public notice of the violation either on its website or some other public area for a period of one year.
    • Prohibits companies from charging employees a fee and from making an unauthorized deduction from an employee’s pay.
    • Authorizes additional civil or liquidated penalties the Labor Commissioner may deem appropriate.

The only “positive” aspects of this bill for employers are that (1) only the state of California may enforce these penalty provisions; the bill does not create a “private cause of action” for a plaintiff lawyer; and (2) the new fines attach only to circumstances involving a “willful” or “maliciously intentional” misclassification.  Please also note that the new Labor Code sections do not provide any new guidance to companies to analyze whether a worker is an “independent contractor” or an “employee.”  Accordingly, companies with employees in California are encouraged to familiarize themselves with the existing legal tests to classify a worker as either an “employee,” or other than an “employee.” (For example, Fox, Wang & Morgan provides a major treatise regarding independent contractor classification. See the Publications section of our website). 

NOTE: One potential defense a well-intentioned company might deploy to defeat a finding of “willfulness” should the state determine a company has misclassified, is to conduct an audit to exhibit an employer’s attempt to faithfully comply with the California wage-hour laws. We recommend that companies accomplish any such audit using lawyers who proceed under the Attorney-Client privilege.

Jan 24

The Fox OFCCP Report: 2011: The Year That Was!

Posted in OFCCP  |  Post a Comment

John C. Fox is now writing a monthly column about OFCCP developments for the Local JobNetwork™, a local network of employment and diversity sites covering the entire U.S. and focusing first and foremost on local cities and communities.  You may find his latest column at LocalJobNetwork.com.  Mr. Fox was formerly Executive Assistant to the Director of OFCCP responsible for all regulatory, enforcement and policy matters and was liaison to The White House, The Congress and other federal agencies.

Welcome to the first edition of “The Fox OFCCP Report.”  This will be a monthly column commentary on the latest developments at the Office of Federal Contract Compliance Programs (“OFCCP”). 

While I have been a reporter and a news editor at various times in my pre-law career, I have never been a columnist.  This will be a new venture for me.

A columnist is different from a news reporter in that s/he does not simply neutrally report the news.  Rather, a columnist also has a point of view.  My point of view will not be as Democrat or Republican or Libertarian or Green, or from any political point of view.  Rather, my point of view will be that of a federal contractor advocate: What does OFCCP’s action (or failure to act) mean to the federal contracting/subcontracting community? 

Please join with me in this monthly discussion.  I have provided a Comment section at the end of my column.

For my first column, I want to write about “the year that was” for OFCCP.  What a whirlwind!  Right?  Calendar 2011 was the biggest period of policy change for OFCCP in its now storied 46-year history even, while the agency operationally stepped down the number of audits and also apparently shrank back pay collections from the levels in prior years.

Amid all the hoopla of new and far-ranging policy developments,  the most important development at OFCCP in 2011, I thought, was the change of relationship between OFCCP and the contractor community…Read more.

Jan 24

National Employment Law Institute – 2012 ADA & FMLA Compliance Update

Scheduled in April 2012, this program is unique to NELI!  NELI brings together a distinguished panel, including EEOC representatives, to discuss every major aspect of evolving ADA and FMLA law. On Day One, NELI will focus on the latest developments under the ADA Amendments Act and the EEOC’s regulatory changes to the definition of “disability,” including practical training tips for supervisors to avoid “regarding” an individual as disabled, the latest decisions on whether an individual is “qualified,” including whether attendance, shift-work, lifting, and handling stress are “essential functions,” and “reasonable accommodation” issues, including leave, reassignment, and modified schedules, among other things. “Direct Threat” and conduct rules will be addressed as well. Day One will also provide an update by our EEOC faculty on the Genetic Information Nondiscrimination Act (GINA), including current implementation of the EEOC’s 2010 Final Regulations.

John Fox Personal Note:  I am not speaking at this program, but David Fram is.  David is without doub the most knowledgeable consultant in the country on the ADA and the ADAAA.

Day Two commences with a session on requesting medical information under the ADA and emerging developments concerning voluntary wellness programs under GINA and the ADA. The FMLA Update will provide practical guidance in light of recent case law developments, including managing the medical certification process, the application of GINA’s safe harbor language to FMLA documentation, practical tips to curb intermittent leave abuse, and more. Issues concerning the interaction between the ADA, FMLA and other leave laws will be covered as well. Day Two will conclude with an interactive ADA/FMLA Case Study.

All program participants will receive a hard copy and searchable CD of NELI’s ADA & FMLA Compliance Manual, which will be newly revised for this program.

For more information and to register, go to NELI ADA & FMLA Compliance Update.

Jan 12

Contrary to OFCCP assertions, proposed hiring goal for individuals with disabilities is a quota, says expert, but it would not be unlawful

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Read more http://www.employmentlawdaily.com

Jan 01

California Employers Required To Provide Notice Regarding Wage Rate To Employees

Beginning January 1, 2012, California employers face new statutory obligations to notify non-exempt NEW HIRE employees of their rate of pay and compensation.  To ensure employees clearly understand their compensation rates, and in furtherance of the general public policy California endorses requiring reasonable notice to employees of any change in a term of employment, California employers must now provide written disclosure of general employment information (as described below) to non-exempt employees at the time of their hire.  AB 469 further requires that employers provide written notice to its current employees within seven (7) days of any change to the general employment information employers are now required to report.

Pursuant to new Labor Code § 2810.5, employers must provide written disclosures that contain the following information:

      • The rate or rates of pay and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime as applicable.
      • Allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances.  This requires description of any other form of compensation the employer provides other than base salary, such as per diem amounts or travel expense budgets.
      • The regular paydays the employer designates as required under Labor Code § 204.
      • The name, aliases, physical address, and telephone number of the employer.
      • The name, address, and telephone number of the employer’s workers’ compensation insurance carrier.
      • Any other information the Labor Commissioner deems material and necessary.

This new notification obligation does not extend to employees exempt from payment of overtime wages by statute or wage order, employees of the state or any political subdivision thereof, or to employees covered by a collective bargaining agreement that expressly provides for wages, hours of work, working conditions, and provides for premium wage rates for overtime worked.  Failure to comply with the new law subjects an employer to penalties provided for in the California Labor Code for statutory violations.  Of important note is the fact that AB 469 extended the statute of limitations for the Division of Labor Standards Enforcement (“DLSE”) to collect statutory penalties from one year to three years, thus allowing potential recovery for claims under this new law to exist for three years.

To assist employers in providing the appropriate written notification to its non-exempt employees, the DLSE provides a sample form employers may use to comply with the new Labor Code § 2810.5, which can be found at: http://www.dir.ca.gov/dlse/LC_2810.5_Notice.pdf

Jan 01

New Restrictions On Credit Checks For Employment in California

As of January 1, 2012, California employers joined six other states to restrict the use of credit checks to make employment decisions as to most jobs and as to employment transaction such as hiring, promotion and termination.  Specifically, except for statutory exceptions identified under California Labor Code § 1024.5, AB 22 prohibits an employer from obtaining a consumer credit report for employment purposes.  The intent of the bill was to further protect employee rights, and address the growing concern related to the most recent recession and its effect on unemployment and the reduced financial capabilities suffered by today’s workforce.

The few exceptions the Labor Code carves out for private employers in California are limited to the following types of employment:

  1. A managerial position.  This would appear to relate to not only those individuals that qualify for the executive or managerial overtime exemption, but any supervisory role over another employee.
  2. A position for which the information contained in the report is required by law to be disclosed or obtained, such as fiduciary or professional positions requiring economic responsibilities and obligations.
  3. A position that involves regular access, for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment, to bank or credit card information, social security numbers, or a person’s date of birth.  This exception was not meant to apply to retail or store cashiers who handle cash register transactions.
  4. A position in which the person is, or would be, a named signatory on a bank or credit card account of the employer, authorized to transfer money on behalf of the employer, or authorized to enter into financial contracts on behalf of an employer.  This includes positions such as a Chief Financial Officer, Accounting Department personnel, and Payroll employees.
  5. A position that involves access to confidential or proprietary information.  This exception appears to suggest that employees who execute Confidentiality and Non-Disclosure Agreements would qualify for exemption from the AB 22 prohibition against credit checks.
  6. A position that involves regular access to cash totaling Ten Thousand Dollars ($10,000.00) or more during the workday.

If an applicant or employee does fall under one of the statutorily identified exceptions, the employer may obtain a credit report about an individual’s credit worthiness, credit standing, or credit capacity provided the employer provides written notice to the employee explaining why a credit check is being requested, from whom, and allowing the employee to request a free copy.

It is important to note that AB 22’s prohibition relates to credit checks only; the new statute does not preclude employers from conducting background reference or criminal record checks (other than to require that the statutory notices to employees regarding background checks include the reporting agency’s website address with the contact information already required for reporting to the applicant or employee). 

However, the continued allowance of criminal background checks does not suggest that an employer should exercise its discretion to uncritically conduct criminal background checks.  For example, on January 11, 2012, Pepsi Beverages agreed to pay the Equal Employment Opportunity Commission $3.1 million in settlement of racial bias claims related to its use of criminal background checks to screen out job applicants.  Alleging that the company’s old policy of not hiring workers with arrest records disproportionately excluded black applicants, the settlement should serve as a poignant reminder to employers regarding the potential legal risks associated with the use of criminal background checks.

Dec 15

New California Law Permits Labor Commissioner to Award Liquidated Damages for Minimum Wage Violations

As of January 1, 2012, many new employment laws will take effect in California that will have a significant impact on California employers.  One of these laws is AB 240, which will amend California Labor Code sections 98 and 1194.2.  California law currently sets a minimum wage for all employees in California, with limited exceptions, and prohibits employers, unless specified, from paying less than the state minimum wage.  Employees who believe they have a claim for their employer’s failure to pay minimum wages have the option of filing a lawsuit in superior court, or filing a claim with the Labor Commissioner’s office.  Current law, however, permits aggrieved employees to recover liquidated damages only through complaints filed in court. 

In an effort to ensure that victims of minimum wage violations receive the same relief regardless of whether they file a complaint in court or with the Labor Commissioner, Governor Jerry Brown signed AB 240 into law on September 7, 2011.  AB 240 authorizes the Labor Commissioner to “recover liquidated damages in an amount equal to the wages unlawfully unpaid and interest thereon,” for an employee who brings a complaint alleging payment of less than the minimum wage.  AB 240, however, also provides that if an employer “demonstrates to the satisfaction of the court or the Labor Commissioner that the act or omission giving rise to the action was in good faith and that the employer had reasonable grounds for believing that the act or omission was not a violation of any provision of the Labor Code relating to minimum wage, or an order of the commission, the court or the Labor Commissioner may, as a matter of discretion, refuse to award liquidated damages.”  The new law will not only increase the likelihood that employers will have to pay liquidated damages for minimum wage violations, but will likely result in more employees pursuing their minimum wage claims through the Labor Commissioner.

Jun 02

United Parcel Service, Inc. v. Superior Court of the State of California for the County of Los Angeles

In a ruling directly impacting California employers, the Second Appellate District for the California Court of Appeals held that California Labor Code § 226.7 permits employees to recover up to two premium payment penalties per workday should an employer fail to provide mandatory meal and rest periods.  In United Parcel Service, Inc. v. Superior Court, 2011 Cal. App. LEXIS 682 (June 2, 2011), the Court rejected prior analysis emphasizing language in § 226.7 that an employee was entitled to only one premium payment regardless of the amount of breaks missed in a workday.

As California employers are acutely aware, both the California Labor Code and the Industrial Welfare Commission’s Wage Orders require employers provide employees who work a certain amount of hours in a workday both a meal period and a rest period.[1]  However, a dispute arose between the plaintiffs’ bar and defense counsel as to the amount of penalties available to an employee in situations where an employer failed to provide both a meal and rest break in a single day.  Employee rights advocates argued that the intent of the law was to provide a one hour penalty for each type of break an employer failed to provide, while employment groups stressed the language in § 226.7 that read an employee was entitled to one additional hour of pay for each workday limited the penalties available.

California Labor Code § 226.7 states, “If an employer fails to provide an employee a meal period or rest period in accordance with an applicable order of the Industrial Welfare Commission, the employer shall pay the employee one additional hour of pay at the employee’s regular rate of compensation for each work day that the meal or rest period is not provided.”  In Corder v. Houston’s Restaurants, Inc., 424 F. Supp.2d 1205 (C.D. Cal. 2006), the United States District Court for the Central District of California interpreted this language to limit the amount of penalties available to one hour of pay regardless of the number of breaks an employer failed to provide in any single workday.  Id. at 1207 fn. 2 (“§ 226.7(b) states that the employer is liable ‘for each work day’ that a break is not provided.  Thus, the plain wording of the statute is clear that an employer is liable per work day, rather than per break not provided”).

Rejecting this proposition, United Parcel Service relied on legislative history and the remedial nature of legislative enactments regarding the regulation of wages and hours to find that § 226.7 instead requires an one hour penalty for missed meal periods and a separate one hour penalty for missed rest breaks.  Relying on another Central District of California decision, Marlo v. United Parcel Service, Inc., 2009 U.S. Dist. LEXIS 41948 (C.D. Cal. 2009), the court in United Parcel Service found for the employees by relying on two grounds:  (1) legislative reference to the Wage Orders lent persuasive authority that the Wage Orders’ separation of meal and rest period requirements into two unique provisions required separate penalties for failing to provide meal and rest breaks; and (2) permitting a premium payment for failing to provide each type of break is in accordance with the public policy behind meal and rest break mandates protecting employee rights.

As such, UPS would suggest that employers may now be liable for two hours of additional pay as a penalty should they fail to provide a meal break and a rest break in a single workday solely because of the placement of a paragraph in the Wage Orders.  The added potential liability should UPS be found controlling encourages employers to take the proactive recourse of documenting rest periods as well as meal periods, even though the law does not require documentation of rest periods.  Rather, the California Labor Code requires employers keep records documenting employee meal breaks only.  However, should an employer determine that the fear of litigation outweighs the administrative hassle of paperwork, then strenuous recordkeeping of rest periods provides employers strong evidence as to the taking of breaks (or employee voluntarily refusal to take a break) so as to limit potential penalties arising from employee claims.

 [1] Employers in California must provide a 30 minute, undisturbed meal break before the beginning of the 5th hour of work (unless the workday is less than 6 hours and the employee expressly waives the meal period), and must also provide a second meal break if an employee works more than 10 hours in a single workday.  In regard to rest breaks, an employer must provide a 10 minute break to an employee for every 4 hours of work or major fraction thereof (unless the workday is less than 3.5 hours).  Whether an employer needs to “provide” a meal or rest break, or “ensure” that employees take such breaks, is an issue currently before the California Supreme Court pursuant to Brinker v. Superior Court and its progeny.