New HR legal and regulatory developments you need to know about
By Bill DeRosa Running a small business is full of surprises. Some of them good (an unexpected order or new client) and some not so good (a dicey HR problem that suddenly finds you navigating a tangle of laws and regulations).
“The challenges faced by small businesses trying to accommodate the needs of employees are ever-changing,” says CBIA Assistant Counsel Eric Gjede, who lobbies on labor issues at the State Capitol.
“Unexpected things happen in HR, and employers are constantly looking for ways to adapt and meet employee needs in a way that works for everyone.”
No matter what your industry or headcount, staying up to date on changes to the HR regulatory and legal landscape is a must, says Gjede.
For starters, employers can pay a steep price for being uninformed or misinformed.
“An employee complaint to the state DOL or Commission on Human Rights and Opportunities can result in fines and legal fees that can get very expensive very quickly, not to mention the cost of your time. The process can last months and months.”
From Mistake to Mandate
Gjede also cautions that even innocent HR mistakes can have repercussions well beyond one company.
“Issues can come out of the woodwork, and employers simply aren’t prepared or think they’re doing the right thing when they’re not.
“What sometimes happens is that policymakers pushing for more workplace mandates point the finger and say, ‘This is a bad employer,’ when more often than not, the issue was a simple mistake or misunderstanding.
“So the next thing you know, an employer who tried to do the right thing is now the reason for an inflexible, new mandate on all employers.”
The good news, says CBIA HR Counsel Mark Soycher, is that CBIA offers its members a host of opportunities to learn about legal and regulatory developments affecting the workplace.
And of course, CBIA members can take advantage of our free HR Hotline, where labor law experts Soycher and Gjede explain how to handle tricky personnel matters and keep you in business and out of court.
“We feel a strong responsibility to be a resource for our members,” says Soycher. “No matter the problem, we will get the answers, whether it’s through our own staff or our network of outside experts.”
Overreach on Overtime?
CBIA’s HR resources add great value for members, particularly when new laws are passed or policymakers change existing laws or regulations.
One such change, announced on July 6 by the U.S. Department of Labor, drastically alters the playing field when it comes to overtime and the distinction between exempt and nonexempt workers.
The DOL’s proposed new rule would guarantee overtime pay to most salaried white-collar workers earning less than $50,544 annually (or $970 per week)—a jump of more than twice the current threshold of $23,660 ($455).
Under the proposed rules, employers could not classify an employee as exempt if that employee is making less than $50,544. The DOL estimates this would extend the right to overtime pay to nearly 5 million workers.
What’s more, the new rules propose increasing the salary threshold annually by indexing it to inflation for urban goods and services or pegging it to the 40th percentile of weekly earnings for full-time salaried workers.
Although the rules are not final, Mike Soltis, office managing shareholder at the law firm of Jackson Lewis P.C. in Stamford, believes they’re pretty much a done deal.
“One would have to be a wild optimist to think that the proposed salary threshold is going to go down or go down in any significant way before the rules become final.”
As to when that will be, Soltis isn’t sure, but he predicts it will happen before the end of the current administration. When it does, employers will have several options.
“I’ve already been counseling employers to look at their exempt employees’ salaries,” says Soltis. “If they’re at $50,440 or above, employers may not have to do anything. If they’re below but close, some employers may want to make a one-time upward adjustment.
“But if a salary is significantly less, you need to think about whether you allow the position to become nonexempt and pay the overtime or, for example, whether you hire two part-timers to do the job.”
Pregnancy in the Workplace
Another important federal development is the March 2015 U.S. Supreme Court decision in Young v. UPS.
The plaintiff in the case, Peggy Young, was a UPS driver who, after becoming pregnant, was restricted by her doctor from lifting more than 20 pounds during the first 20 weeks of her pregnancy and 10 pounds thereafter.
UPS, which requires drivers to lift up to 70 pounds, told Young that she could not work; she was put on leave without pay and deprived of company-provided medical coverage.
At the time, UPS made accommodations for other employees who had been injured on the job or were disabled under the Americans with Disabilities Act (ADA).
According to John Letizia, managing partner at the law firm of Letizia, Ambrose & Falls in New Haven, many employers have a policy of creating light-duty work for employees injured on the job because there is an expectation among state workers’ compensation commissioners that employers will do so.
In addition, light-duty work arrangements reduce workers’ comp benefit payouts, which in turn reduces employers’ future workers’ comp insurance premium increases.
The Court in Young v. UPS, says Letizia, basically said that if you create light-duty work for workers injured on the job, you’re now required to do the same for women who have a medical restriction due to pregnancy, even though the restriction is not a consequence of a work-related injury or a disability under the ADA.
So what do employers need to do?
“If an employer has a policy that creates some kind of temporary light-duty work or modified work for people who have sustained a work-related or non-work-related injury,” says Letizia, “that policy must now include women who are medically restricted due to pregnancy.”
He points out that Connecticut has a pregnancy antidiscrimination statute that requires employers to make a reasonable effort to transfer a pregnant employee to more suitable work that may be available if either the employer or employee reasonably believes the employee’s regular work may pose a health risk to her or the fetus.
The Supreme Court decision highlights the importance of evaluating light-duty opportunities for pregnant employees. And it goes beyond the Connecticut law by providing a pregnant employee another legal basis for claiming entitlement to light-duty work where an employer provides it for workers injured on the job.
Declaring War on Employee Misclassification
On July 15, the U.S. DOL’s Wage and Hour Division issued guidance that narrows the definition of independent contractor. Many workers previously designated as independent contractors are now considered employees.
Allen Smith, J.D., manager of workplace law content for the Society for Human Resource Management, explains that in determining whether someone is an employee or an independent contractor, the DOL is focusing less on how much a business controls an individual’s work and more on whether the worker is economically dependent on the employer. This is known as the economic realities test.
In a CNN Money article, Littler Mendelson compliance attorney Tammy McCutchen said, “I think employers will be more cautious, because DOL has essentially declared war on the independent contractor relationship.”
To Mike Soltis, this comes as no surprise.
“I look at this as the next level of an effort that’s been going on for many years to address misclassification of employees as independent contractors. This is just tightening the screw one more turn.
“Basically the new guidance says that the default is employee status. It’s a significant default. Employers will have an uphill battle establishing that somebody is an independent contractor.”
Since the Great Recession, many states, in collaboration with the federal government, have created commissions to crack down on employee misclassification.
“For its part,” says Soycher, “the Connecticut DOL, in coordination with the IRS, has worked for years to prevent and hold businesses accountable for misclassifying workers as contractors when they do not meet the legal standards for contractor status.
“In fact, Connecticut’s standards for contractor status have always been narrower than the federal standard, making it more difficult to legally engage someone as an independent contractor.”
“Misclassifying an employee as an independent contractor,” says Soycher, “can lead to underreporting and undercollection of payroll and unemployment taxes, depriving the employee of medical and workers’ compensation insurance, as well as creating an unfair business advantage for companies that do not comply with the law.”
The Paper and the Practice
To help employers head off legal problems resulting from employee misclassification, says Soltis, “I tell them that times have changed, the level of government scrutiny has changed, and the focus has changed, so you need to revisit your independent contractor relationships.”
Soltis advises employers to look at their 1099 forms, because those are what the DOL will ask for in an audit.
“When they see a company [designated as an independent contractor], that’s fine,” he says. “But if it’s an individual, that’s going to raise a red flag. Then they’ll drill down and ask you to tell them more about this person.
“To be on the safe side, I tell everybody that to have a credible defense, you have to focus on the paper and the practice. Have an agreement that says the right things about the relationship so that somebody just reading the agreement and nothing else will say, ‘OK, this is potentially an independent contractor.’
“And then you need to have the practice that follows the agreement. In other words, you can’t have an agreement that’s a sham. You have to have a credible document and the practice that follows it, and that’s the best you can do.”
State Law: Heads-Up for Employers
This year’s state legislative session saw numerous anticompetitive bills emerge from the Labor Committee, but fortunately a CBIA-led coalition of members and other business organizations succeeded in stopping most of them.
Employers, however, need to be aware of several bills that either won approval or appeared in one form or another in the budget implementer bill, signaling that they would likely be back in next year’s session.
One new law (PA 15-86), takes away judges’ discretion to award less than double damages in civil actions for the recovery of unpaid regular and overtime wages unless an employer can establish a good-faith belief that their underpayment of wages was in compliance with the law.
This decision, says Gjede, will likely force employers to settle legitimate wage disputes.
Discuss Your Wages at Your Own Risk
Another new law, PA 15-196, An Act Concerning Pay Equity and Fairness, prohibits an employer from imposing or enforcing any rule or contract that forbids employees from discussing and/or distributing their own or another’s confidential wage information.
Under the law, an employee can freely share confidential wage information about another employee provided that other employee’s confidential wage information had been disclosed to someone at the business at some point in the past.
To avoid a financial penalty, suggests Gjede, “the number-one thing employers should do is look over their employee handbooks and eliminate any language about nondisclosure of wages or any possible disciplinary actions for employees who disclose their pay.
“The law also nullifies any written agreements employers may have with employees or consultants about nondisclosure of pay rates.”
Employers, he says, should also take care that payroll information is accessible only to individuals who need to have it, and they should advise employees to be careful about disclosing their pay to anyone at work.
“There’s nothing an employer can do to prevent an employee who learns that kind of information from spreading it to others in the company. So the onus is really on employees to protect themselves.”
Although two bills (SB 1044 and HB 6791) that would have raised the minimum wage to $15 in certain businesses failed, the concept was given new life in the budget implementer bill, which established a Low Wage Advisory Board to advise the state labor commissioner on:
The causes and effects of businesses paying low wages to state residents
Public assistance usage among working residents
The minimum wage necessary to ensure residents achieve an economically stable standard of living
“The appointments to the board are being made now,” says Gjede, “and its composition will heavily favor employees rather than employers.”
Gjede predicts that the new body will try to demonstrate that a higher wage will not have a big impact on the business community, or at least certain segments of it. He also warns employers that we’ll see the $15-per-hour minimum wage bills reappear next year.
“The Labor Committee chair has already said the bills are coming back, and they’re going to target specific industries.”
Another failed proposal bound to turn up again would have required deductions from all Connecticut employees’ wages to fund a system allowing up to 12 weeks per year of paid leave at 100% of employees’ pay up to $1,000 per week. It also would have required businesses to continue providing non-wage benefits to those employees.
In addition, state taxpayers would have to fund the administration of the program.
The idea of a state-run paid FMLA system was resuscitated in the budget implementer bill, which required the state labor commissioner to hire private consultants to create an implementation plan.
“Hiring consultants to create the program takes the process out of the public eye,” says Gjede. “They’ll be designing a costly program without actually speaking to any of the people involved in the process, which is a bad idea from a government transparency standpoint.”
One of the main problems with the paid FMLA concept, says Gjede, is the cost. The bill as it was proposed in the last legislative session was projected to cost $23 million in the first biennium “just to cover startup costs, just to get the program off the ground, with continued costs after that—and we actually think that projection was low.”
Can employers do anything to head this off? Gjede thinks so.
“Employers could help take the wind out of the sails of this proposal just by continuing to modernize their workplace policies and follow growing trends by building more flexibility into employees’ work schedules and embracing things like telecommuting to a greater extent when possible. By continuing to focus on flexibility, they’ll help counter some of the perceived need for a proposal like this.”
Gjede stresses that CBIA is not opposed to companies instituting paid FMLA programs on their own if that’s something they can afford and want to offer to attract talent.
“If that’s the case, go for it,” he says. “But when it’s an across-the-board government mandate, where all employers—regardless of size, regardless of industry—are forced to participate, that’s when things start falling apart, which is exactly why measures like the paid sick leave law and other inflexible mandates just haven’t worked.” ■