This article was originally published in the December 2016/January 2017 issue of NWLawyer magazine, the official publication of the Washington State Bar Association, available at http://nwlawyer.wsba.org/nwlawyer/dec_2016_jan_2017/?pg=50&pm=2&u1=friend.
Employers and workers in Washington and throughout the country saw a number of sweeping changes in 2016 that will have continuing impact for years to come. As we enter 2017, we can expect at least five important developments and trends, as states, courts, employers, and workers grapple with the changes in the law, increased enforcement by governmental agencies, and potentially game-changing legislation on the horizon.
#1: New DOL Overtime Rule Will NOT Take Effect Dec. 1, 2016
In May, the U.S. Department of Labor (DOL) announced sweeping revisions to federal overtime rules under the Fair Labor Standards Act (FLSA). They included more than doubling the minimum salary threshold – from $23,660/year to $47,476/year – for the “white collar” exemptions from overtime pay and provided for triennial adjustments based on national wage data. These changes would have expanded overtime pay requirements to more than 4 million salaried workers who currently earn less $47,476 per year (or $913 per week), even if they satisfy the duties test under the FLSA and are currently considered exempt from overtime.
Federal Judge Blocks DOL’s New Overtime Rule
On November 22, in an unexpected ruling, U.S. District Judge Amos Mazzant from the Eastern District of Texas issued a nationwide preliminary injunction prohibiting the DOL from implementing its new overtime rule.[i] The court found that the DOL had exceeded its delegated authority and ignored Congress’s intent by increasing the minimum salary levels so as to supplant the duties test under the FLSA.
What This Means for Employers and Workers
As long as employees continue to meet the duties test under the FLSA, the minimum salary threshold for the executive, administrative, and professional exemptions will remain at $23,660 per year (or $455 per week) and employers will not be required to satisfy the DOL’s proposed increase to $47,476 per year. The injunction is only a temporary measure until Judge Mazzant can issue a ruling on the merits, but the decision portends that a permanent injunction may be forthcoming and, in the meantime, the new Congress and President may intervene. Employers should remain apprised of updates in this area and continue to comply with their obligations under state and local laws.
#2: Seattle’s New Secure Scheduling Law: Continuing Efforts to Increase Protections for Low-Wage Employees
In September, a little more than two years after passing its landmark $15 minimum wage law, the Seattle City Council unanimously passed, and Mayor Ed Murray signed into law, the Secure Scheduling Ordinance, which will go into effect on July 1, 2017. The stated intent of the law is to combat problems associated with unpredictability in the workplace, including last-minute schedule changes, inadequate work hours for part-time workers, back-to-back shifts (“clopening”) that prevent a good night’s sleep, and being on-call without pay. Seattle is the second city in the country (after San Francisco) to pass secure scheduling legislation.
The new law only applies to large retail employers, including fast food chains and coffee shops, with 500 or more employees worldwide as well as full-service restaurants with at least 500 employees and 40 locations globally that have employees who work within Seattle city limits at least 50% of the time. However, the business community has expressed concerns that the law’s requirements could be broadened in the future to include businesses of all sizes.
Under the new ordinance, covered employers are required to:
Provide new hires a “good faith estimate” of work schedules, including the average number of hours employees can expect to work each week.
Inform employees of their schedules 14 days in advance and pay half of an employee’s hourly rate for each hour cut from the schedule or pay for one extra hour when hours are added to the schedule (the extra pay does not apply when changes are requested by the employee, employees find replacement coverage, or the employer fills open shifts by asking for volunteers through mass communication methods).
Pay on-call employees for half of their hours if they are not called in to work.
Allow employees at least 10 hours off between shifts unless they request or consent to work, and pay time-and-a-half for hours worked that are fewer than 10 hours apart.
Offer additional work hours to existing employees before hiring new employees.
Maintain records for three years.
The scheduling law allows employees to state preferences for work shifts and locations based on major life events, such as their health, transportation, housing, caregiving responsibilities, other jobs, and attending school. Employees will also have the right to decline work hours added after the schedule has been posted or shifts are separated by fewer than 10 hours. The law also gives employees a private right of action to enforce its provisions.
The secure scheduling law is another attempt by the City of Seattle to promote greater economic security for its residents amid rising rents and cost of living in the area. As with the increase in the minimum wage, the economic impact of these changes remains to be seen.
#3: Contractors and the Gig Economy: Ongoing Efforts to Combat Worker Misclassification and Expansion of Liability
With the increase in the number of workers classified as independent contractors and the advent of the “gig economy" in the past several years, the DOL, IRS, and other federal agencies have stepped up enforcement against employers believed to have misclassified workers. Federal agencies are entering into partnerships with 35 states (including Washington) to share information and resources, conduct joint investigations, and coordinate enforcement efforts. In January 2016, the DOL announced that the Bureau of Labor Statistics will work with the Census Bureau to gather additional data on the size and nature of the so-called “contingent workforce,” which includes a range of work arrangements from independent contractors to temporary employees, and workers who hold multiple jobs at the same time, through the May 2017 Census.[ii] Enforcement efforts in Washington also remain strong, largely through coordination among the Department of Labor and Industries, Department of Revenue, and Employment Security Department.[iii]
As a counterpart to the government’s enforcement efforts, the NLRB, DOL, and Equal Employment Opportunity Commission (EEOC) attempted to expand the federal joint employer doctrine to companies that rely on third-party contractors, such as vendors, staffing agencies, and franchisees. Under the expanded definition of “joint employer,” these companies would no longer be shielded from employment-related liability merely by their use of third-party contractors and would be jointly responsible for compliance with applicable employment laws, such as wage and hour laws, leave laws, and employee benefits laws, thereby removing many significant benefits of engaging with these third parties in the first place.
Several recent high-profile worker lawsuits against FedEx, Uber, and Amazon have also thrust the practice of classifying workers as independent contractors or owner-operators into the national spotlight, but, as these lawsuits have demonstrated, many important legal issues in this arena remain undecided. In the face of this uncertainty, competing interest groups have called for legislation either to rein in independent contractor abuses or for industry-specific carve-outs from misclassification laws, but these proposals have stalled.[iv] It remains to be seen whether further developments in 2017 will clarify or further confuse these issues.
#4: Legislation Aimed at Promoting Equal Pay
In 2016, equal pay was on everyone’s mind. In January, California and New York enacted legislation strengthening equal pay laws and lowering the bar for equal pay lawsuits.[v] In May, Maryland’s governor signed a law that prohibits employers from not only pay discrimination but “providing less favorable employment opportunities based on sex or gender identity.”[vi] In June, 28 businesses nationwide, including Amazon and Expedia, signed an equal pay pledge, committing to conduct annual audits of their pay by gender across all job categories. In August, Massachusetts passed a new law, which will go into effect in July 2018, that requires equal pay for work that is of “comparable character.” It the first state to bar employers from asking about applicants’ prior salaries before offering them a job, ensuring that historically lower wages and salaries paid to women and minorities do not follow them for their entire careers.[vii]
Washington’s Equal Pay Opportunity Act (HB 1646), which passed in the House in 2015 but stalled in the Senate in 2016, could get another look in 2017. Beginning in 2017, the EEOC will collect pay data broken down by gender, race, and ethnicity from employers with 100 or more employees in order to help identify and combat pay discrimination.
In light of the continuing and significant emphasis on pay equity issues, employers should be advised to review their compensation data, policies, and practices and ensure that all pay decisions are well supported and documented.
#5: Perils at the Intersection Between Technology and the Workplace
The intersection of technology and the workplace is a minefield for employers and their employees. A number of high-profile data breaches in 2016 put the spotlight not only on businesses’ protection of customer data, but also sensitive data belonging to their own employees. At the other end of the spectrum, the Defend Trade Secrets Act of 2016 gave employers an additional weapon against the theft of trade secrets by current and former employees by adding a federal cause of action accompanied by ex parte relief in extraordinary circumstances, a royalty on future use where injunction is impractical, and attorneys’ fees in cases of willful or malicious theft. The fight between Apple and the FBI over information on a locked iPhone raised questions about how employers must manage the integrity of corporate data against employees’ privacy rights and public safety. Bring-your-own-device policies encourage employee productivity and ease communication between employers and their employees but at the risk of overtime and off-the-clock work claims. Finally, increasingly popular employer wellness programs that rely on smartphone apps and wearable devices raise questions of privacy and potential discrimination claims.
Other Important Issues Affecting Employers and Employees
There are numerous other important issues that are likely to affect employers and employees in 2017. Some of those issues include:
Increased restrictions on the pre-employment process, including laws barring employers from inquiring into applicants’ credit and/or criminal history, and the sharp increase in class actions challenging employers’ use of background checks.
“Ban the box” laws, which seek to prohibit employers from asking applicants about their criminal records during the hiring process.
The validity of class waivers in arbitration agreements, given the current circuit split on the issue.
Legislation banning or limiting enforcement of noncompete agreements in Washington, which have been delayed until at least 2017.
Paid sick leave laws with differing requirements that have swept the nation.
The expansion of LGBT rights in the workplace;
Increased efforts to preserve family and caregiving obligations through paid family leave legislation and expansion of the EEOC’s enforcement efforts.
The increase in OSHA fines for the first time since 1990, coupled with the expansion of employers’ illness and injury reporting requirements, expansion of available remedies, and investigation of issues unrelated to the complaint that brought OSHA to the workplace in the first place.
[i] The case is Nevada v. U.S. Dept. of Labor, U.S. District Court for the Eastern District of Texas, No. 16-cv-731.
[ii] U.S. Department of Labor Blog, Innovation and the Contingent Workforce, available at https://blog.dol.gov/2016/01/25/innovation-and-the-contingent-workforce/.
[iii] According to the Washington State Underground Economy Benchmark Report in Fiscal Year 2015 (July 2014-June 2015), available at http://www.lni.wa.gov/Main/AboutLNI/Legislature/PDFs/Reports/2015/UndergroundEconomyBenchmarkReport.pdf, the three agencies exchanged 96,000 tips and leads, found more than 6,000 unreported or misclassified workers through audits, performed more than 860 audits on unregistered accounts which led to assessments of more than $8.2 million, and assessed taxes totaling more than $87 million from more than 740 businesses. Another 2015 study by the National Employment Law Project, available at http://www.nelp.org/content/uploads/Independent-Contractor-Costs.pdf, reports that Washington found misclassification violations in 62% of audited cases, leading to $26.4 million in assessments, and noted that the state programs brought in more than $7 for every dollar invested in enforcement efforts.
[iv] See Independent Contractor Tax Fairness and Simplification Act of 2015 (H.R. 2483), http://apps.leg.wa.gov/documents/billdocs/2011-12/Pdf/Bills/House%20Bills/1701-S.E2.pdf; Payroll Fraud Prevention Act of 2014 (H.R. 4611), https://www.gpo.gov/fdsys/pkg/BILLS-113hr4611ih/pdf/BILLS-113hr4611ih.pdf; Fair Playing Act of 2013 (S. 1706), https://www.gpo.gov/fdsys/pkg/BILLS-113s1706is/pdf/BILLS-113s1706is.pdf.
[v] California Fair Pay Act, Cal. Lab. Code § 1197.5; New York Labor Law § 194.
[vi] Maryland Equal Pay for Equal Work, Labor and Employment, § 3-301.
[vii] Massachusetts Act to Establish Pay Equity, M.G.L. ch. 149, § 105A.