While not in the employment field, the latest attack on arbitration as a sensible, fair and comparatively inexpensive and fast dispute resolution mechanism comes from the federal government. Until now, the federal level has been a primary supporter of arbitration, through the Federal Arbitration Act, which protects arbitration clauses in contracts affecting commerce from interference by states and local governments, and policies of agencies. Now, the Consumer Finance Protection Bureau has taken a provocative step hostile to the institution of arbitration. On Monday, July 10, it issued a Final Rule prohibiting banks and other financial institutions under the jurisdiction of the CFPB from using contracts that require individuals with disputes to arbitrate those disputes individually.

In addition, the Rule would require financial institutions to provide broad information about the number of arbitration cases filed, and the outcomes.

Characterizing arbitration provisions as “Contract Gotcha’s”, the CFPB relied upon a controversial study completed in 2015. The study reviewed available records of class actions, small claims actions and arbitration cases in 2010—2012, plus a survey. Many cases covered in the survey’s time period were not completed by the cut-off date, so their results were not included. There are substantial disagreements over the validity of the study and the “lessons” from the data it assembled. The CFPB, however, believes the study supports its conclusion that individual arbitration is unfair and abusive to consumers.

The CFPB’s effort to prevent financial institutions from prohibiting court-based class actions by consumers instead of arbitration is likely to draw a response from Congress. Employer and business groups have already urged Congress to begin the process of using the Congressional Review Act to overturn the Rule. The CRA process, if successful, would not only void this rule, but would also prevent the agency from issuing a similar rule in the future without authorization. In addition, the CFPB is currently subject to scrutiny from Congress and the Trump Administration due to its possibly unconstitutional independence from Congressional or Presidential oversight. See the Trump Administration’s Brief asserting unconstitutionality here. This new rulemaking effort may well result in a response from the Administration consisting of an attempt to remove the head of the CFPB, Richard Cordray (who is rumored to be considering a run for the office of Governor of Ohio in 2018 as a Democrat).

The new Rule from the CFPB may represent the first of many efforts to roll back the ability of businesses to manage their dispute resolution processes through arbitration, among other tools. It could, on the other hand, represent a last gasp of those who prefer the current system of class action litigation, where businesses and lawyers resolve cases with consumers receiving little or no real relief. https://cei.org/issues/class-action-fairness

After revisions in format and technology, we are proud to announce that the Labor & Employment Law Navigator Blog is back. The Navigator, written by experienced attorneys at Frantz Ward LLP, provides succinct information on new developments in the L&E space, cautionary tales for HR professionals, and helpful hints for navigating the increasingly hazardous shoals of the L&E world. Upcoming topics include overtime changes, medical marijuana, and OSHA reporting changes.

We have incorporated a more robust comment capacity to facilitate interactivity, so we look forward to hearing from you!

–Keith Ashmus

Ashmus-Keith-web

wellness-crop-600x338On May 16, 2016, the Equal Employment Opportunity Commission (“EEOC”) issued final regulations regarding employers’ use of wellness programs. Such programs seek to promote healthy behavior by employees, often through financial incentives such as reduced healthcare benefits premiums or reduced gym membership costs. The EEOC rules amend existing regulations under the Genetic Information Nondiscrimination Act of 2008 (“GINA”) and create new regulations under the Americans with Disabilities Act (“ADA”).

Click here to read this Client Alert.

Based upon information received from a number of sources, it now appears that the Department of Labor’s controversial changes to the rules governing the white collar exemptions under the Fair Labor Standards Act will be finalized and published in the coming weeks – potentially as early as next week. Once published, it is expected that employers will have only 60 days before the new rules take effect.

Click here to read this Client Alert.

In a ruling on a motion to dismiss, U.S. District Judge Arthur Spiegel found that the Cincinnati Public Schools Could be forced to ignore a state law (H.B. 190, passed in 2007) that prohibited employment by schools of convicted felons and others convicted of drug offenses, no matter how long ago the offenses occurred. Cincinnati Board of Education Case 04-24-2013.pdf . One of the plaintiffs had been convicted of felonious assault and the other of acting as a go-between for the sale of a small amount of marijuana. Both were good employees, according to the school system, and would have been retained except for the state law.  There was no claim of intentional discrimination.  The district had to terminate ten employees under H.B. 190, and nine of them were African-American.

In these circumstances, Judge Spiegel ruled that the Board had no duty to follow H.B. 190, since “Title VII trumps state law.” He rejected the Board’s argument that state laws may only be disregarded if they “purport” to discriminate, as well as the contention that adverse impact had to be based on statewide statistics, not just on what had happened in one city. (In part, the reason for the statistical disparity in Cincinnati was that Cincinnati, unlike many other school districts, had been willing to hire minorities with criminal records.)

Because the ruling is on a motion to dismiss, it does not conclusively establish that the Public Schools discriminated, or that the plaintiffs are entitled to relief.  They still need to establish valid statistical evidence of a disparate impact and a lack of business necessity.  The outcome of those issues is fairly clearly foretold in Judge Spiegel’s order.  Employers in states where the legislators have passed laws limiting employment opportinities as collateral sanctions for criminal conduct will now have to worry whether they will be caught between state law and Title VII.  Whatever the outcome of a dispute over this issue, the employer will lose a great deal of time and money getting to any definite outcome.

According to this article from Politico, the cost of operating the health insurance exchanges, including the costs of providing subsidies to lower-income purchasers of coverage, will increase dramatically over prior estimates.  In part, this is because of the failure of some states to embrace the expansion of Medicaid.  The cost of Medicaid coverage is $3000 less than the cost of providing subsidies for private insurance on the exchanges, according to current estimates. If insurers then raise premium rates beyond current projections, the difference will grow, and the cost of running exchanges will accelerate. By 2021, the subsidies are now estimated to consume $606 Billion.

Each of the serious immigration reform proposals now being discussed in Washington relies to a great extent on the federal E-Verify system.  The notion is that employers will be required to go onto the system, enter personal information about prospective hires and find out from the system whether the employee is entitled to work in the U.S. or not.  Employers who do not use the system and hire an individual who is not legally entitled to U.S. employment would face fines and jail time. The employer penalties would reduce the incentive for employers to employ illegals, thereby reducing the incentive for illegal immigration. That all sounds simple and logical, but there are problems.

One problem is that E-Verify is not reliable enough to place prospective employees’ livelihoods at stake or to jeopardize the very existence of small businesses.  While the “official” error rate is 0.7%, in a recent informal test, twenty U.S. citizens checked themselves on the system and two came up as not eligible (the response is called a “Temporary Non-Confirmation” or TNC).  That is a 10% Type 1 error rate.  (A Type 1 error is where a person in the “good” category is erroneously categorized as in the “bad” category.  A Type 2 error is where a person in the “bad” category is treated as being in the “good” category.) There would be additional errors of Type 2.  While a 10% error rate may not sound like much, that equates to a million people out of every ten million perfectly legal job applicants who would be excluded from further consideration for a job, or would be placed in limbo while the E-Verify system performs further checks.  Even the 0.7% error rate would exclude over half a million legal job applicants a year.  This is simply unacceptable.

That brings up the second big issue–correcting errors.  It now takes an average of 100 days to resolve database problems, which often result from marriage-related name changes or misspellings on federal forms.  If E-Verify becomes mandatory, the task of resolving millions of problems is likely to drastically increase the time needed to correct system errors.  Employers and employees alike will be effectively left in limbo during this period.  Even 100 days (more than three full months) is too long.

Third, these problems with E-Verify, coupled with the draconian fines and penalties contained in some of the proposals (Title X of the White House proposal has fines of up to $75,000 and TEN YEARS in prison!) will discourage employers from hiring in the U.S. except as a last resort.  Robots do not require employment verifications, and off shore operations do not need E-Verify checks. 

These problems are not insoluble.  Phased implementation of E-Verify requirements, based upon independent performance metrics of the system’s accuracy and time to resolve discrepancies, would be one measure.  Adequate “safe-harbor” provisions for employers who use E-Verify would help.  Resonable allowances for employers and employees to be productive while E-Verify TNC’s are resolved would avoid unnecessary hardship. The essential requirement for any of these measures to be adopted, though, is for Congress and the White House to recognize the reality of the current shortcomings of E-Verify.  Assuming, as they are apparently doing, that it is some magic formula for solving all the issues of employee identity is folly and will lead to serious economic consequences.

Individuals can click here to access the E-Verify system in order to perform a self-check.

Much attention has been given to the looming “Fiscal Cliff” and the perils of across the board sequestration.  Most commentators feel that the fiscal cliff will be avoided in some way.  The possibility of new regulations from the second-term Obama Administration that will impact small business success, profitability and growth has not been sufficiently covered.  I wrote an opinion piece for the Washington Post that was published earlier today on that issue.

The NLRB, in a 2-1 decision Iron Tiger Logistics NLRB 10-23-12.pdf, extended the duty to respond to union requests for information to cover requests for information that is found to be irrelevant to legitimate bargaining concerns.  Prior cases had found employers who delayed in turning over relevant information to have violated the Act by delaying their responses.  In Iron Tiger, the Board majority (Chairman Pearce and Member Block) found that even if the information requested turns out to be irrelevant, the employer has a duty to respond in a timely fashion on pain of violating its duty to bargain in good faith.  The policy justification for the rule is that the employer can avoid a dispute and resulting Board charges if it states its position right away and allows the union to withdraw or modify its request.  They observed that, had the employer done so in the case before them, “an unnecessary dispute could have been avoided.”

The dissenting Board member (Member Hayes) agreed that it would be preferable for an employer to respond quickly, but he could not find a duty under the Act to respond to requests for irrelevant information.  He stated, “Ultimately, requested information is either legally relevant to a union’s representative duties, or it is not. If it is not, then the statutory duty to bargain in good faith is not implicated by the request or the employer’s failure to respond timely to the request.”  Member Hayes also observed that the Board majority’s decision gives unions yet another tool “to hector employers with information requests for tactical purposes that obstruct, rather than further, good faith bargaining relationships.”

Employers who are confronted with demands for information that they believe seek irrelevant information should therefore say so without undue delay.  The alternative is to risk an unfair labor practice finding.  In connection with some other activity (such as a strike) a finding of a failure to bargain by refusing to give a timely response to an improper union information request could be enough to turn an economic strike into an unfair labor practice strike.  The consequence for an employer who responds to the strike by hiring replacements could be significant.

The Supreme Court earlier today issued its long-awaited decision on the constitutionality of two aspects of the Patient Protection and Affordable Care Act, often referred to as the ACA or Obamacare. In a majority decision written by Chief Justice Roberts, the Court found that the provision in the ACA requiring individuals to purchase insurance or pay a penalty could be justified under the Constitution as tax.  A majority of the Court found that the mandate could not be justified as a legitimate exercise of Congressional power under the Commerce Clause. 

Seven members of the Court also found that the expansion of Medicaid to many new categories of beneficiaries, coupled with the threat of loss of all existing federal subsidies for current Medicaid benefits, was beyond Congress’ power, and hence unconstitutional. Three of those justices joined with the two justices who found the Medicaid expansion terms to be constitutional to find that simply eliminating the threat of loss of existing Medicare subsidies would correct the problem.  These five justices thus wrote out the ability of the administration to impose the penalty upon states who choose not to participate in the expansion.

The Court’s decision means that the ACA will take effect as scheduled, with the individual mandate, the employer mandate, community rating and Medicare cuts all intact.  In those states that elect not to participate in the Medicaid expansion, there will be potential problems.  The ACA has no backup mechanism for providing coverage for those who are eliglible by income for Medicaid, but who cannot get coverage due to a refusal of their state to participate.  This will leave them uninsured (and ineligible to participate in the Exchanges at subsidized premium rates.)  That means that providers may continue to have higher than expected uncompensated care, at the same time that their federal assistance to pay for uncompensated care is being cut.

In any case, the bottom line of the health insurance/health care market is that it was too expensive for consumers and employers before the ACA; the ACA did not do anywhere near enough to reduce the costs, or even to slow the increase in costs; and this decision does nothing to control costs, and may contribute to increasing them.  Just because the Supreme Court upheld most of the ACA, it does not mean that system is fixed.  Our nation still has much to do to create a sensible, affordable health care financing system, and it is long past time for our representatives to get busy on that project.