Administering payroll for employees with variable work schedules and hourly rates can cause major headaches for employers. In an effort to simplify and reduce administrative costs, employers are oftentimes tempted to set a standard overtime rate to be paid at a set dollar amount to all employees regardless of variations in compensation rates and actual weekly compensation earned. However, as a recent Department of Labor Opinion Letter explains, employers must adhere to the FLSA’s overtime calculation rules when setting such rates.

The December 21, 2018 letter analyzed home health aides who provide in-home services to various clients. Some of the employees’ weekly schedules were heavily influenced by travel between clients throughout the day and, as a result, their hours worked varied greatly. To capture the total time worked and corresponding pay, the employer multiplied an employee’s time with clients by his or her hourly pay rate for such work. The employer then divided the total by the employee’s total hours worked, which includes both the client time and the travel time. The typical standard rate for the employees was $10 per hour, and if any employees worked over 40 hours in a given work week, they were paid time and a half for all hours over 40 based on that standard rate ($10 x 1.50 = $15/hour).

The Opinion letter took issue with the standard rate of $10 per hour. The $10 per hour rate was lawful for all employees who made $10 per hour or less, as an employer may choose to pay overtime greater than its statutory obligation. However, the DOL determined that the employer’s practice did not comply with the FLSA’s overtime calculation rules for those employees whose regular rate of pay exceeded $10 per hour. Those employees’ standard rate, when calculating overtime, could not be lower than their actual hourly rate.  As the DOL further explained, the employer’s practice did not entirely compensate certain employees for all overtime worked.

This letter reminds employers that, when calculating overtime compensation, the regular rate of pay cannot be arbitrarily selected, especially when the selected amount is potentially less than the employee’s actual hourly wage rate. Rather, overtime must be based on the actual rate of pay the employee earns.

If you have other questions regarding overtime calculations, please contact Jonathan Scandling ofthe Frantz Ward Labor & Employment Practice Group.

Although some departing employees are willing to risk violating their non-competes when they leave a company, a recent court decision reinforced one of the significant dangers that those employees can face in doing so. In this decision, a federal appeals court in Ohio ruled that a former employee who violates a non-compete can be forced to pay the employer’s legal fees, even if the former employer does not prevail on all of the issues raised.

In an opinion issued on January 10, 2019 in Kelly Services Inc. v. De Steno, the U.S. Court of Appeals for the Sixth Circuit considered a case involving three employees who left Kelly Services to join a competitor. The employees had signed non-compete agreements during their employment, so Kelly Services sued them and secured a preliminary injunction. The injunction was not permanent, and was intended to remain in effect only until the court could examine the enforceability of the restrictions in the non-competes. The court maintained the injunction for the one-year period set out in the non-compete and lifted the injunction shortly after that period expired, all without ever ruling on the enforceability of the restrictions.

After the court lifted the injunction, Kelly Services asked the court to order the employees to pay for its attorneys’ fees. Kelly Services based its request on language in the agreements that allowed Kelly Services to recover the fees and costs involved “in enforcing” the agreements. The former employees objected to the request and argued that Kelly Services could not recover its fees and costs because it had not actually won on its claims. The district court found, however – and the Sixth Circuit agreed – that the former employees had to pay the fees and costs because the specific language in the agreements did not require Kelly Services to win. Rather, the agreements only required that Kelly Services incurred the fees “in enforcing” the agreements.

Although the Sixth Circuit did not have to reach the issue, its language suggested that there are limits to the circumstances in which broad fee-shifting provisions will be enforced. For example, the Sixth Circuit suggested that it would not be proper to award fees incurred in enforcing an agreement if the former employer’s efforts to enforce the agreement lacked sufficient legal basis or were simply designed to oppress or harass a former employee.

This case reinforces the importance of both including a fee-shifting provision in agreements of this nature and having the proper language in those agreements.

For more information on best practices in drafting and enforcing restrictive covenants and related agreements, contact Chris Koehler.

On September 14, 2018, the National Labor Relations Board published a new proposed rule that attempts to reverse the joint-employer rule created in the Board’s Browning-Ferris Industries decision of 2015. (Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (2015). On December 10, 2018, the Board issued a notice that it was extending until January 14, 2019, the deadline for submitting comments to the proposed rule, and extending until January 22, 2019, the deadline for responding to comments to the proposed rule.

Under Browning-Ferris, the Board expanded its joint-employer standard and changed 30 years of precedent in ruling that two businesses are joint employers when one has “indirect” or “reserved” control over another’s workers rather than the previously required direct and immediate control over essential employment terms that was actually exercised. As we previously reported, the Board had overruled Browning-Ferris in its December, 2017 Hy-Brand Industrial Contractors decision, but in February, 2018, the Board vacated its Hy-Brand decision when it determined that one of its members had improperly participated in the decision.  When the Board vacated Hy-Brand, it effectively reinstated the indirect control test set forth in Browning-Ferris. The Board’s proposed new rule would again reverse Browning-Ferris and require a finding of direct and immediate control over the essential terms and conditions of employment in order to establish a joint-employer relationship. Additional information regarding the proposed new rule can be found here.

This is the second time that the NLRB has extended the comment period for its proposed new rule, and to date more than 10,000 comments have been submitted.

If you would like further information on the proposed new rule and how it may affect your business, please contact a member of the Frantz Ward Labor and Employment Group.

The Ohio medical marijuana industry is ready to go live, with most of the pieces in place to complete the regulatory structure passed by the Ohio General Assembly in September of 2016. However, like the medical marijuana industry in general, the Ohio market will have a difficult time accessing banking services. This is because while marijuana may be legal under state law, it is still illegal under federal law, and thus banks are reluctant to offer banking services to the industry for fear of violating federal banking laws and rules to which the banks are subject.

However, there are signs in Ohio that banks may be beginning to give the medical marijuana industry a fresh look. Recently, Wright-Patt Credit Union in Dayton, through its board of directors, gave approval for the credit union to begin offering limited services to the medical marijuana industry. At this point, the nature of the services and what they might include have not been specified. Additionally, the Ohio Department of Commerce, through its Division of Financial Institutions, recently issued guidance for banks contemplating getting into the industry.

The decision by Wright-Patt, while isolated in Ohio, reflects a national trend in the industry. By the end of March 2018, 411 banks and credit unions in the U.S. were “actively” operating accounts for marijuana businesses, according to a report prepared by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). That’s up more than 20% from when President Trump took office.

The business reasons for the timing of the announcement are not entirely clear. Banks and credit unions in other states, mostly state chartered, have quietly served the industry to varying degrees for years. Some banks do increased due diligence on their marijuana clients to ensure compliance with a FinCEN memo of February 2014, while other banks may turn a blind eye. What is becoming clear is that as more states pass laws legalizing marijuana and the federal climate for rescheduling marijuana under the Controlled Substances Act and re-examining cannabis related issues continues to improve, many financial institutions want to be ready to jump into a large and growing marketplace that is woefully underserved.

Frantz Ward attorneys Tom Haren and Pat Haggerty attended the Marijuana Business Conference this past November. Tom was a presenter at the Marijuana Business Crash Course, and Pat attended the Hemp Forum. The biggest takeaway from the conference is that 2019 could be a banner year for cannabis in Ohio and nationwide.

Hemp reform is moving forward.

It has now been confirmed that the 2018 Farm Bill will include the federal Hemp Farming Act, which would remove industrial hemp (cannabis containing less than 0.3 percent THC) from the Controlled Substances Act.

Hemp-derived CBD has been all the rage as of late, with this segment of the industry on track to hit $591 million in 2018. Some analysts predict this could be a drop in the bucket: The Brightfield Group predicts that the CBD industry alone could hit $22 billion by that time.

Legalization of hemp at the federal level is the first step toward a nationwide market for hemp and its derivatives — after passage of the 2018 Farm Bill, it will be incumbent upon the states to develop their own hemp programs.

Broader cannabis reform is possible in 2019.

With the coming change in control of the House of Representatives, many are confident that 2019 will bring significant cannabis reforms. For one thing, the expected Democratic Chair of the House Rules Committee will no longer block cannabis-related amendments from being debated on the House floor.

While that is newsworthy in and of itself, there is also confidence that Congress may finally pass the STATES Act during this session.

The STATES Act would exempt state-compliant cannabis operators from the purview of the federal Controlled Substances Act. In addition to removing the fear of federal prosecution, this change would allow banks to service state-compliant cannabis businesses, and also permit state-compliant cannabis companies to take standard tax deductions on their federal tax returns.

President Trump has indicated that he supports this change, which has bipartisan support in both chambers of Congress.

If you have questions about the 2018 Farm Bill, the Hemp Farming Act, or the STATES Act, please do not hesitate to contact one of Frantz Ward’s Cannabis Attorneys.

In today’s day and age, it is widely understood that no one is safe from a data breach.  If you have been so fortunate as to escape fraudulent credit card purchases, data security breaches, or having your entire identity stolen, cybersecurity experts will tell you that is no longer a matter of “if,” but “when” it will happen to you.  In response to national and international cybersecurity incidents during the past few years, state legislators in all 50 states (as well as the District of Columbia and several U.S. territories) have enacted data breach notification legislation that requires private entities to notify individuals of security breaches involving their personal identification information (“PII”).

State and federal judiciaries have also begun to weigh in on the issue of cybersecurity, particularly in the employment context and most recently in Pennsylvania, where the State’s Supreme Court held that employers have an affirmative duty to protect employee PII from cybersecurity incidents.  Dittman v. UPMC, 2018 Pa. LEXIS 6051 (Pa. Nov. 21, 2018).

Dittman arose out of a data breach of personal information at the University of Pittsburgh Medical Center (“UPMC”) that affected all of UPMC’s 62,000 current and former employees.  A class action was filed after employees’ names, birth dates, social security numbers, tax documents, and bank accounts were hacked and stolen from UPMC’s internet-accessible computer systems.  The data was then used to file fraudulent tax returns.  Alleging negligence and breach of implied contract, the Dittman plaintiffs argued that UPMC had a common law duty of care to protect their PII, particularly given the fact that UPMC had collected this data from them as a condition of their employment.  Based on UPMC’s failure to implement a data security program (including but not limited to sufficient firewall protection, authentication protocols, encryption) and its failure to create proper processes or protocols to detect security breaches, the plaintiffs alleged that they incurred monetary damages.

The trial court dismissed the lawsuit, which Pennsylvania’s intermediate Superior Court affirmed.  In their decisions, the lower courts first declined to recognize a “new” common law duty by employers to protect employee PII, holding that the creation of such a duty was outside the province of the judiciary and should be left to the state legislature.  The lower courts also declined to expand Pennsylvania’s economic loss doctrine by allowing the plaintiffs to recover only economic damages without alleging any physical injury or property damage.

After granting discretionary review of the case, the Supreme Court of Pennsylvania reversed both of its lower courts in toto.  First, the Court determined that, as a threshold matter, it was not creating a “new” duty, but rather was “appl[ying] an existing duty to a novel factual scenario.” Second, the Court reasoned that UPMC engaged in affirmative conduct when it required the plaintiffs to submit their PII, which triggered a duty on UPMC’s part to exercise reasonable care to protect the employees from risk of harm.

The Court also rejected UPMC’s argument that it could not be liable under general tort law principles because the actions of the third party hacker were a superseding event (i.e. not foreseeable).  The Court agreed with the plaintiffs, and growing public consensus, that “troves of electronic data stored on internet-accessible computers held by large entities are obvious targets for cyber criminals” and a reasonable entity in UPMC’s position should have foreseen that “failure to use basic security measures could lead to exposure of the data and serious financial consequences…”

Lastly, with respect to the economic loss doctrine, the court confirmed that Pennsylvania law recognizes “purely economic losses are recoverable in a variety of tort actions,” and that “a plaintiff is not barred from recovering economic losses simply because the action sounds in tort rather than [in] contract law.”

Given the heightened scrutiny that is now paid to cybersecurity on the national and international stage, the Dittman decision is not completely unexpected.  Employers, both big and small, should take the decision as a lesson: employers who do not take reasonable steps to protect their employees’ data put themselves at risk of costly class action litigation.  Pennsylvania employers and employers elsewhere should take immediate steps to update and address critical gaps in insurance, procedures and I.T. services – if not only to meet the duty of care, but as good business practice to ensure that any eventual cybersecurity threat will minimize disruption to business operations.

In what should be viewed as a victory for employers, the United States Circuit Court of Appeals for the Eleventh Circuit recently issued a decision limiting the scope of OSHA inspections. United States v. Mar-Jac Poultry, Inc., No. 16-17745 (11th Cir. 2018).

In February 2016, an employee at Mar-Jac’s poultry processing facility was severely burned and hospitalized after attempting to repair an electrical panel.  Within days of Mar-Jac reporting the injury to OSHA, OSHA compliance officers visited Mar-Jac’s facility.  OSHA sought to inspect not only the accident site, but Mar-Jac’s entire facility.  Mar-Jac gave limited consent to inspection of the electrical accident site, but refused to permit inspection of any additional areas.

OSHA’s limited inspection revealed additional potential violations of electrical safety, personal protective equipment, machine guarding and other standards. OSHA also determined that the injuries reported on Mar-Jac’s OSHA 300 logs suggested additional possible violations covered by an OSHA Regional Emphasis Program (“REP”) that permits random “programmed” inspection of such facilities based on neutral criteria.

OSHA sought an administrative warrant from a federal magistrate judge to expand its inspection, arguing that it had probable cause to conduct a top-to-bottom inspection on three grounds: 1) the OSHA compliance officers had personally observed additional hazards during its limited inspection, (2) the OSHA 300 logs revealed additional potential hazards, and 3) probable cause existed to conduct a programmed inspection based on OSHA’s Poultry REP.  The District Court quashed the warrant, and OSHA appealed.

On appeal, OSHA argued that the District Court erred by applying a more stringent standard which purports to require OSHA to show that employees had been injured as a result of suspected violations.  OSHA also argued that the District Court conflated the terms “hazard” and “violation” and that OSHA had presented reasonable suspicion of additional violations based on Mar-Jac’s OSHA 300 logs.

The 11th Circuit affirmed the District Court’s ruling.  First, the Court held that the District Court correctly applied the reasonable suspicion standard and simply found that OSHA did not establish reasonable suspicion to inspect for the additional suspected hazards. Second, the Court rejected OSHA’s argument that “because there was an injury, there must have been a hazard, and because there was a hazard, there is likely a violation to be found.”  Rather, the Court affirmed that “the existence of a ‘hazard’ does not necessarily establish the existence of a ‘violation,’” and that OSHA must, when applying for a warrant, demonstrate reasonable suspicion that a violation (not simply a hazard) exists.”  Finally, after reviewing Mar-Jac’s OSHA 300 logs, the Court determined that the injury descriptions were vague and showed no common thread sufficient to justify a comprehensive inspection.

Mar-Jac (1) reinforces the notion that there are limits on OSHA’s inspection authority and (2) confirms the right of employers to limit consent to inspect or to challenge a warrant. OSHA cannot expand an accident-based inspection simply because of an emphasis program, injuries recorded on an OSHA 300 log, or the mere existence of a hazard. So, if faced with a request by OSHA to expand the scope of an accident-based inspection, employers should contact counsel immediately to determine an appropriate response.

 

Last week, a closely-watched trial involving a Colorado cannabis cultivator sued by a neighbor ended with a jury finding in the cultivator’s favor. In Reilly v. 6480 Pickney, LLC, the Reillys complained that their property’s value had decreased due to odor emitted from the cultivator’s property (an unfortunate, if not new, problem in legal cannabis markets) and increased crime in the area. Rather than file a state based standard nuisance claim, however, the Reillys filed claims under the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”).
 
RICO was originally enacted in the 1970s to give law enforcement another tool to fight organized crime. Civil RICO lawsuits provide remedies where plaintiffs allege they have been harmed by “racketeering activity,” which, arguably, includes cultivating marijuana (because it remains illegal to do so under federal law). 
 
Last year, a ruling from the Tenth Circuit Court of Appeals allowed the Reillys to take their civil RICO case to trial, though the court noted that they still had to prove that the cultivator’s activity caused their property value to be diminished. In a landmark victory for the cannabis cultivator, though, the jury found that the Reillys did not make those required nuisance related showings. The jury’s verdict comes after a federal district court in Oregon refused to allow a civil RICO claim to proceed.
 
RICO suits are attractive to plaintiffs because, if they succeed, the plaintiffs can obtain treble damages and attorney fees. Perhaps that is why there appears to be a dedicated effort to use RICO in cannabis-related litigation. Given the increased risks associated RICO litigation, coupled with the fact that more of these cases are likely to be filed in the future, cannabis companies should be prepared to vigorously defend against these claims.

On October 11, 2018, the Occupational Health and Safety Administration (OSHA) issued a memorandum clarifying its position regarding safety incentive programs and post-incident drug testing.

Two years ago, in October 2016, OSHA issued a memorandum that prohibited drug testing employees who reported injuries or illness unless there was an “objectively reasonable basis” for doing so. The rationale was that blanket post-accident drug and alcohol testing violated OSHA’s anti-retaliation provisions. OSHA’s prior guidance also implied that safety incentive programs were unlawful and could create a chilling effect and deter employees from reporting work-related injuries and illnesses.

With respect to post-incident drug testing, OSHA’s most recent memorandum clarifies that “most instances of workplace drug testing are permissible.” The memo specifically includes the following as types of drug testing policies that are not violative of OSHA’s anti-retaliation provisions:

  • Random drug testing
  • Drug testing unrelated to the reporting of a work-related injury or illness;
  • Drug testing under a state workers’ compensation law;
  • Drug testing under other federal law, such as a U.S. Department of Transportation rule; and
  • Drug testing to evaluate the root cause of a workplace incident that caused injury or could have caused injury to employees. In this circumstance, employers must test all the employees whose conduct could have contributed to the incident, not just employees who made reports.

With respect to safety incentive programs, OSHA’s recent memorandum acknowledges that many safety programs do, in fact, promote workplace safety and health, including rate-based safety incentive programs focused on reducing the number of work-related injuries and illnesses as well as programs rewarding employees for reporting near-misses or workplace hazards. OSHA now takes the position that safety incentive programs are only retaliatory and unlawful if they seek to “penalize an employee for reporting a work-related injury or illness rather than for the legitimate purpose of promoting workplace safety and health.”

Employers should regularly review and update their safety incentive programs and drug testing policies to ensure compliance with the new OSHA guidance and business objectives, but now can be much more comfortable that legitimate safety incentive programs and post-accident drug testing policies will not result in citations.

Under new federal regulations effective September 21, 2018, employers must now issue updated “Summary of Your Rights” forms mandated by the Fair Credit Reporting Act. In May 2018, Congress responded to several, high-profile data breaches by passing the Economic Growth, Regulatory Relief and Consumer Protection Act (“Act”). The Act adds new language to the Summary of Your Rights Form, explaining that a consumer can obtain a “security freeze” locking his or her account so that a Credit Reporting Agency may not release information on a credit report without the consumer’s authorization. The language is intended to make it more difficult for identity thieves to fraudulently open an account in a consumer’s name. Consumers also have the option of placing an initial or extended fraud alert on their account free of cost.

The new form is effective immediately, and employers should begin using it now to avoid gaps in compliance. However, the new regulations do temporarily permit continued use of the old Summary of Your Rights forms, provided a separate page containing the newly required information (i.e. the security freeze and fraud coverage rights) is provided at the same time.