Ten months after his election, President Trump has sent nominations to the Senate for a number of key positions, including four with significant importance in the employment area. David Zatezalo, the former Chief Executive Officer of coal mining company, Rhino Resources, is the nominee for the position of Assistant Secretary of Labor for Mine Safety and Health. In that role, he will manage the Mine Safety and Health Administration, which regulates safety and health in all types of mines in the US. He has extensive background as an underground coal miner and a coal executive, but no previous government experience. Mr. Zatezalo has criticized the Obama Administration’s approach to mine safety as being disconnected from working America. Since Rhino Resources had been cited by MSHA for violations, that history will likely be raised in Mr. Zatezelo’s confirmation hearings. Not surprisingly, the mining industry was supportive of the pick, expecting that it will herald an era of more cooperative and effective safety regulation, as contrasted with the punitive approach of the most recent administration, while labor interests have a more skeptical attitude. For more information, click here.

President Trump nominated Cheryl Stanton as Wage and Hour Administrator. If confirmed, she will head the Department of Labor’s Wage & Hour Division. This part of the DOL has responsibility for, among other things, overtime and minimum wage enforcement. A significant portion of this relates to the issue of whether workers are employees or independent contractors. Ms. Stanton is the Executive Director of the South Carolina Department of Employment and Workforce, and had worked in the George W. Bush White House as its liaison to the DOL, NLRB and EEOC. She practiced law with a management-side law firm before working for South Carolina.

A third DOL nominee is Katherine McGuire to serve as the DOL’s Assistant Secretary of Labor for Congressional and Intergovernmental Affairs. She is a veteran congressional aide, having worked for Sen. Mike Enzi and most recently for Rep. Randy Holtgren, and also spent several years in government relations with the Business Software Alliance. In her new role, she will support Secretary of Labor Acosta’s agenda in Congress and with state and local governments.

The fourth nomination may set a new tone for the federal government’s employment policy. The President has nominated the current Chief Human Resources and Strategy Officer at the Society for Human Resource Management (SHRM) to head the Office of Personnel Management. Jeff Tien Han Pon has experience with Booz Allen Hamilton as a consultant and has worked in the Federal Government as the Department of Energy’s Chief Human Capital Officer. Federal employment practices have come under increasing scrutiny as being outmoded, overly costly and impervious to improvements, so Mr. Pon’s position has the potential to be extremely important. He is the second nominee for the position. The first withdrew from consideration after the Senate received a letter of opposition from a coalition of federal employee unions. The new nominee is unlikely to be deterred by opposition from the unions that are benefitting from the current system.

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

183809648-57a54ae55f9b58974ab92602As my colleague Keith Ashmus recently noted, most employers currently ask job applicants for their salary histories. This is a reasonable question, and one that employers find useful to help attract and retain talented employees. Given recent legislative initiatives and judicial decisions on this topic, however, employers should tread carefully.

In the past few weeks, both the state of Oregon and New York City have joined a growing list of jurisdictions that restrict employer inquiries into job applicants’ salary histories. Other states include California and Massachusetts, while other notable cities include Philadelphia, New Orleans, and Pittsburgh. At least 20 other states and many other cities are considering similar legislation. Several of these laws impose fines on employers for violations, and some even include potential jail time.

By way of example, the New York City law, which took effect last month, makes it an “unlawful discriminatory practice” for employers: (1) “to inquire about the salary history of an applicant for employment;” or (2) “to rely on the salary history of an applicant in determining the salary, benefits or other compensation for such applicant during the hiring process, including the negotiation of a contract.”

“Salary history” is broadly defined to include an applicant’s “current or prior wage, benefits or other compensation.” This concept does not, include, however, any “objective measure of the applicant’s productivity, such as revenue, sales or other production reports.” “Inquiry” is likewise broadly defined as “any question or statement to an applicant, an applicant’s current or prior employer, or a current or former employee or agent of the applicant’s current or prior employer, in writing or otherwise, for the purpose of obtaining an applicant’s salary history.” The inquiry restriction includes searching publicly available records.

Even for employers who operate in jurisdictions that do not prohibit salary-history inquiries—such as Ohio—other laws may limit the extent to which such information may be used in determining compensation. According to the  Sixth Circuit Court of Appeals (which includes Ohio, Michigan, Kentucky, and Tennessee), for example, the federal Equal Pay Act prohibits employers from relying on salary history as the sole justification for paying two otherwise-equal employees differently, particularly if those employees are different genders.

With these issues in mind, multi-state employers should ensure that they do not run afoul of any state or local laws regarding the procurement or use of salary history. Additionally, all employers should also be cautious when considering salary history as a lone or significant factor in setting compensation, particularly in light of the potential for perpetuating gender pay disparities. Employers should, at a minimum:

  • Avoid relying on salary history as the lone determination of starting pay;
  • Periodically review compensation practices to ensure non-discriminatory and equitable treatment;
  • Document market factors that contribute to any discretionary determination of starting pay, including the individual’s education, prior experience, special skills, and expertise, individual negotiations by the candidate, market factors, and other job-related factors; and
  • Comply with state and local laws regarding salary history inquiries and use of prior salaries in making compensation determinations (and stay abreast of increasing changes).

Stillwater PlaceThe annual Frantz Ward Labor & Employment Seminar is consistently a great learning experience for both clients and guests and for the presenters from our Labor & Employment Practice Group. This year’s program, at the new Stillwater Place facility at the Cleveland Metroparks Zoo, was no exception. Our audience of HR professionals, business owners, and attorneys heard not only from our lawyers, but also from experts in fields such as medical marijuana and managing a premier metropolitan park system. The participants also provided feedback on some important current issues in the human resources world. We asked formal questions to the over 300 guests and received responses through Poll Everywhere software. While the invitations were not based upon a scientific selection of the HR universe, the number of responses was valid as reflective of the group that was in attendance.

The subjects of the polling were pre-employment background checks under the Fair Credit Reporting Act (“FCRA”), inquiries on past criminal history, and pre-employment questions on prior salary history. It may be interesting to know what the responses were.

Pre-Employment Background Checks

The FCRA has a number of non-intuitive requirements that may create problems for employers who fail to follow the requirements exactly. For example, the FCRA requires that subjects of background checks be provided with a disclosure that consists of the disclosure and nothing else (except in some cases the permission from the applicant may be in the same document.) Permissions contained in the general application forms, for example, may not be proper. Waivers of claims against the prospective employer included within disclosure forms have created liability for a number of businesses. The polling revealed that many employers do include authorizations for background checks within their application forms.

Many employers also include waivers within their permission forms.

Criminal History

With many more working age individuals having some criminal history, the general approach of employers is to ask about relevant criminal conviction history and then make individualized judgments about the suitability of the employee in the particular circumstances of the employer.

Employer experience with hiring people having felonies on their records is much the same as with people with “clean” records.

Salary History

Philadelphia, New York City, and other jurisdictions are attempting to prohibit employers from even asking about salary history. The theory is that females generally have had lower pay in the past, and if their salary at hire is based on that lower prior pay rate, they will start out behind and likely stay there. If employers are prohibited from asking for the information, they will not be able to justify lower pay for females upon their previous pay. The vast majority of employers ask about prior pay rates and find the information very useful.

Despite asking for and using the data on pay rates, most employers recognize that paying new employees based upon prior rates (plus an increase) does perpetuate inequality in pay between men and women.

Conclusion

The takeaways from this brief survey are:

  1. Employers do not have sufficient awareness of the specific, non-intuitive and unnecessary requirements of the FCRA.
  2. Employers are very willing to hire felons who demonstrate rehabilitation and qualifications for the job, but they do want to have the ability to know about the past criminal history.
  3. Employers use, and want to continue to use, prior pay history in setting initial pay for new employees, but are aware of the potential impact on pay equity. They are therefore willing to be flexible.

imagesRepresentative Tom MacArthur (R-NJ), a leader of the so-called “Tuesday Group” of moderate Republicans, introduced an amendment to the American Health Care Act (“AHCA”) (Kaiser Family Foundation summary) after negotiations with the Freedom Caucus, the group of conservative House Republicans. The MacArthur Amendment does several things designed to obtain conservative support for the AHCA. Because some of these measures would impact employers, it is worth discussing them briefly.

More State Flexibility.  The MacArthur Amendment allows states, with permission from the Department of Health and Human Services, to go without certain of the “essential health benefits” provided for under the Affordable Care Act (“ACA”). To obtain the waiver, a state will have to show that it will lower premiums and encourage more individuals to become insured. States could also provide greater leeway for charging higher premiums for those with pre-existing health conditions who do not maintain continuous coverage, as discussed in more detail below. Employers in the small group market or who obtain coverage in the individual market in waiver states may need to check more carefully to ensure that desired benefits are part of their plans.

Easing of Pre-Existing Condition Restrictions on Insurers.  The essential bargain of the ACA was that everyone could get insurance no matter how sick they were or expensive their care was, but everyone would have to buy insurance no matter how healthy they were. The individual mandate was the means to enforce that second part of the bargain. It turned out to be very ineffective. Sick people got their coverage at community rates and healthy people stayed uninsured unless or until something bad happened. The predictable result has been rising community rates and insurers exiting markets. The AHCA would eliminate the individual mandate, making the adverse selection problem even worse. The MacArthur Amendment addresses this issue by allowing insurers to charge higher premiums for those with pre-existing conditions who do not maintain continuous coverage or who, upon losing coverage, do not obtain new insurance within sixty days.

In order for this to occur in a state, though, that state would have to provide some protection of the sick individuals who might otherwise be priced out of the “market.” This can be done by the creation of a high risk pool where individuals with expensive conditions can be covered with government subsidies, or by a so-called “invisible high risk pool,” which protects the carriers. This can be thought of as similar to a reinsurance program.

The MacArthur Amendment would not prevent individuals with expensive health conditions from obtaining or keeping coverage. Such persons would not be locked into their employer’s coverage if they preferred to go to another employer or start their own business.

Implications of the MacArthur Amendment.  It is difficult to see how the MacArthur Amendment would reduce premiums, unless the high risk pool provisions work much better than anticipated. It is also hard to think of a way that selling across state lines (a concept embraced by many business groups) would work if the states are operating under a patchwork of waivers and conditions agreed upon to obtain those waivers.

Politically, the Freedom Caucus has indicated that its members will now support the AHCA. Some moderates may drop their support. No Democrats are likely to vote for the amended AHCA, so its fate rests with the Republican majority holding itself together to repeal the ACA and replace it with the AHCA. Once through the House, the AHCA faces strong headwinds in the Senate. Even under the filibuster-proof procedures of budget reconciliation, the AHCA currently lacks support of fifty Republican Senators, and the MacArthur Amendment is unlikely to change that.

White HouseThe Office of Management and Budget released President Trump’s “America First” budget blueprint for discretionary spending earlier this morning. Overall, it increases spending on defense, veterans’ health, immigration enforcement and combatting opioid abuse while decreasing civilian discretionary spending. Hardest hit are programs such as the National Endowment for the Arts, the Legal Services Corporation, The Corporation for Public Broadcasting, which were cut completely from the budget. The Environmental Protection Agency and State Department received deep cuts, which will reduce foreign aid. The Department of Labor will have its budget reduced by about one-fifth.

The Budget document provides the following introduction to the DOL appropriation request:

The Department of Labor fosters the welfare of wage earners, job seekers, and retirees by safeguarding their working conditions, benefits, and wages. With the need to rebuild the Nation’s military without increasing the deficit, this Budget focuses the Department of Labor on its highest priority functions and disinvests in activities that are duplicative, unnecessary, unproven, or ineffective.

The President’s 2018 Budget requests $9.6 billion for the Department of Labor, a $2.5 billion or 21 percent decrease from the 2017 annualized CR level.

The President would totally eliminate the Senior Community Service Employment Program (SCSEP), which retrains unemployed older workers for unsubsidized private sector jobs on the basis that it is ineffective. It closes underperforming Job Corps Centers, although it does not specify which ones. The budget would limit the Department’s International activity to ensuring that American Workers are protected under trade arrangements. While reducing federal subsidies for job training and employment service grants to states (in favor of greater reliance on state and local government and employer funding), it increases support for “evidence-based” apprenticeship programs to prepare individuals for jobs. Finally, it eliminates OSHA training grants, so that the agency can focus on its core mission of worker safety.

Overall, the cuts do not appear to drastically reduce the ability of the DOL to conduct its investigation and enforcement activities as much as might have been expected. There is much yet to be determined, however, and the budget process is likely to lead to substantial changes in the budget.  It is clear, however, that the Trump Administration is prepared to make major cuts in civilian discretionary spending in order to increase funding for border security and military capacity.

Earlier this week, Missouri’s Governor Eric Greitens signed legislation making Missouri the 28th state to pass Right to Work legislation. New Hampshire is considering legislation that, if passed, will be signed by its Republican governor, Chris Sununu, making it the 29th state. Right to Work is, of course, legislation permitted under the Labor Management Relations Act that prohibits unions from requiring bargaining unit employees to pay union dues or dues equivalents. Under current law, employees in states without right to work laws may be required either to join and remain members of the union representing them (paying the normal dues), or to pay the union what are called “Fair Share Fees”. These Fair Share Fees are calculated to be the union’s cost of representing employees in the bargaining unit, without inclusion of extraneous amounts included in the dues amount, such as political donations to candidates. Unions obviously prefer to have all employees contributing to their operations and political endeavors, and the number of employees opting out in non-RTW states is generally far less than the percentage opting out in RTW areas. Unions must represent all bargaining unit members fairly, even without receiving any payments from those in RTW states who chose not to pay. Employers generally support RTW efforts, since unions receive less funding and are weaker than otherwise. Employees prefer RTW since they have the choice of joining the union if they want, or staying out of it, even if there is a union present in the workplace. They can be “free-riders”—benefitting from any results of union bargaining but without paying anything to the union.

States have been the focus of RTW legislation in recent years, with Kentucky, Indiana, Michigan and Wisconsin all passing laws in the heartland. Wisconsin’s law has encountered still-pending challenges from unions on the basis that it forces unions into a position of involuntary servitude by having to represent dissenters. It survived a federal district court decision, now appealed to the U.S. Court of Appeals for the Seventh Circuit (which upheld Indiana’s RTW law), and was found unconstitutional under Wisconsin’s Constitution by a local county judge, whose decision is now on appeal at the district level.

An additional front is being opened in the RTW war. U.S. Representatives Joe Wilson (R-SC) and Steve King (R-IA) have introduced the National Right to Work Act, HR 785, which would make Right to Work the uniform law in the U.S. The law faces opposition from the labor movement, and would almost certainly encounter a filibuster in the Senate. Given the number of Democratic senators in states that have adopted RTW laws, it is likely that the House will pass the bill and send it to the Senate. This would force RTW state Democrats up for re-election in 2018 to take a position on the bill. Then, depending upon how the midterm elections turn out, the opportunity for Senate passage might increase, or passage could be foreclosed for at least another two years.

Orange Safety SignsOn January 13, 2017, the Occupational Safety and Health Administration issued Recommended Practices for Anti-Retaliation Programs, which are intended to allow employees to raise safety issues arising in the workplace without fear of retaliation. The 12-page document sets forth recommendations that apply to private and public employees protected by the more than twenty (20) whistleblower laws enforced by OSHA.

Some of the key items recommended by OSHA for an effective anti-retaliation program are:

  1. Management leadership, commitment, and accountability.
  2. System for listening to and resolving employees’ safety and compliance concerns.
  3. System for receiving and responding to reports of retaliation.
  4. Anti-retaliation training for employees and managers.
  5. Program oversight.

Further discussion of these key items may be found in the Recommended Practices. Employers should review these recommendations and the discussion surrounding them, as we anticipate that OSHA will review the items as part of any investigation or inspection.

There is much in the OSHA Guidance that is common sense, but there are several items included that employers will want to consider. They are reflected in the following quotes from the Guidance (emphasis supplied):

Employer policies must not discourage employees from reporting concerns to a government agency, delay employee reports to government, or require employees to report concerns to the employer first.

[Employers should…] Eliminate or restructure formal and informal workplace incentives that may encourage or allow retaliation or discourage reporting. Examples of incentives that may discourage reporting or encourage retaliation include rewarding employee work units with prizes for low injury rates or directly linking supervisors’ bonuses to lower reported injury rates.

Ensure that any employment agreement or policy that requires employees to keep employer information confidential does not prohibit or discourage employees from reporting or taking the steps necessary to report information reasonably related to concerns about hazards or violations of the law to any government agency. Steps that may be necessary include conferring with legal counsel, union or other worker representatives, or with medical professionals regarding the employee’s concerns. Employers should not use confidentiality or non-disclosure agreements to penalize, through lawsuits or otherwise, employees who report suspected violations of the law or take steps necessary to make such reports.

If possible, make the anti-retaliation investigation completely independent from the corporation’s legal counsel, who is obligated to protect the employer’s interests. If the employer’s legal representative is involved in conducting the investigation, fully inform the whistleblower that the investigator represents the employer’s interests and that any attorney-client privilege will only extend to the employer.”

To the degree that OSHA applies this Guidance in connection with investigations of alleged retaliation, employers should have a record that they considered and, to the degree applicable to their circumstances, adopted recommendations from it.

Small Business Owner Green Road Sign and Clouds
Small Business Owner Green Road Sign and Clouds

Within the many pages of the 21st Century Cures Act, just passed by Congress and awaiting signature by President Obama, is the Small Business Healthcare Relief Act. This creates a new health benefit plan for small employers called Qualified Small Employer Health Reimbursement Arrangements (“QSEHRA’s”). It allows employers to provide pretax reimbursement to employees who obtain health insurance for themselves, such as through Affordable Care Act exchanges. If an employee has either individual or group health coverage (such as through a spouse’s employer’s plan) that meets the ACA’s definition of Minimum Essential Coverage, it also provides for reimbursement of eligible unreimbursed medical expenses. Prior to this taking effect, the Internal Revenue Service had specifically outlawed this benefit, and provided devastating penalties for employers who tried to help out their employees in this way.

There are a few points to keep in mind. First, the employer must be a small one, defined as under the fifty employee threshold. Second, the employer can’t be offering group coverage to any of its employees. Third, only the employer can contribute, and must do so on a non-discriminatory basis. The maximum annual support is $4,950 for single coverage and $10,000 for family coverage, prorated by months of coverage. The QSEHRA premium reimbursement is only for the purchase of individual, not group coverage, and is tax free for unreimbursed medical expenses if the employee is enrolled in a plan that meets the minimum essential coverage requirements under the Affordable Care Act. Finally, QSEHRA reimbursements will not count towards the Cadillac Tax if that ever goes into effect.

This could be a welcome opportunity for small businesses to provide a significant health care benefit to their employees without the hassle of purchasing group coverage. For employees, subject to the minimum essential benefit requirements, they can purchase coverage most suitable to their own situations, rather than what is best for the employer’s entire workforce.

For a more detailed explanation of QSEHRA programs, see this White Paper.

In a development that may be of interest both to those who follow Fair Labor Standards Act (“FLSA”) developments and to those interested in mediation, the U.S. District Court of the Southern District of New York has mandated early mediation for all FLSA cases. The pilot program responds to the surge in FLSA case filings by sending cases to mediation immediately upon the appearance of the defendant.

The mediation is to be scheduled within four (4) weeks of the Court’s issuance of its standard order. Limited disclosures are required as follows:

  1. Both parties to produce any existing documents describing plaintiff’s duties and responsibilities
  2. Both parties to produce records of pay and hours worked by plaintiff
  3. Plaintiff to produce spreadsheet of alleged underpayments and other damages
  4. Defendant to produce documents describing compensation policies
  5. If claiming inability to pay, defendant to produce proof of financial condition

If the mediation is successful, the parties are then required to provide a memorandum to the Court so that it can perform its function of approving the FLSA settlement.

Some see a conflict between the voluntary process of mediation and forcing parties to participate in it. However, getting parties to agree to mediate disputes before discovery has taken place is a tough sell, especially to lawyers. In FLSA cases, the key facts are often available and material/factual issues may be limited. FLSA cases should lend themselves well to early resolution, and mandating prompt mediation with limited, but relevant, disclosures is probably well worth the investment in the pilot project. It remains to be seen if other courts will follow along.