Third Circuit Allows “Subgroup” Disparate-Impact Claims to Proceed Under The ADEA

Employers are well aware of the federal Age Discrimination in Employment Act (“ADEA”), which protects individuals over the age of forty, as well as its disparate-impact provision, which makes it unlawful for an employer to adopt a facially-neutral policy that adversely affects an individual employee’s status “because of such individual’s age.” However, in a precedential opinion filed on January 10, 2017, the U.S. Court of Appeals for the Third Circuit held that the ADEA allows plaintiffs to proceed with a disparate-impact claim whereby only a “subgroup” or segment of employees over the age of forty are alleged to have been disfavored relative to younger employees.

In Karlo v. Pittsburgh Glass Works, LLC, No. 15-3435, the defendant-employer underwent several reductions in force (“RIFs”) to offset disappointing sales during the height of the recession. Several employees who were terminated in one particular RIF, all of whom were over fifty years old, brought a putative ADEA collective action against the employer asserting, among other things, a disparate-impact claim. The district court thereafter decertified the plaintiffs’ collective action, which was “to be comprised of employees terminated by the RIF who were at least fifty years old at the time.” Additionally, the district court granted the defendant-employer’s motion for summary judgment as to the disparate-impact claim, holding that plaintiffs’ “fifty-and-older” disparate-impact claim was not permitted under the ADEA.

On appeal, the Third Circuit reversed the district court’s grant of summary judgment as to the disparate-impact claim. The court noted that disparate-impact claims may proceed under the ADEA “when a plaintiff offers evidence that a specific, facially neutral employment practice caused a significantly disproportionate adverse impact based on age.” In Karlo, the plaintiff alleged that the specific RIF disproportionately impacted only a portion of the forty-and-older employee population: employees older than fifty. The Third Circuit found that this claim was cognizable, holding that plaintiffs may demonstrate the impact of facially-neutral policy “with various forms of evidence, including forty-and-older comparisons, subgroup comparisons, or more sophisticated statistical modeling, so long as that evidence meets the usual standards for admissibility.”

The court heavily relied upon the Supreme Court’s decision in O’Connor v. Consolidated Coin Caterers Corp., which held that the ADEA “does not ban discrimination against employees because they are aged 40 or older; it bans discrimination against employees because of their age, but limits the protected class to those who are 40 or older.” Thus, the court held that ADEA claims by subgroups of those aged forty or older are cognizable because “evidence that a policy disfavors employees” of such a subgroup “is probative of the relevant statutory question: whether the policy creates a disparate impact ‘because of such individual[‘s] age” under the plain language of the ADEA. The court found that it is “utterly irrelevant” whether the employer’s policy benefits younger members of those employees over forty, so long as an employee can show that his or her subgroup was adversely affected.

Following Karlo, employers should review their policies to confirm that they are in compliance with the ADEA and do not unintentionally discriminate against employees who are in “subgroups” over forty years old. For more information on the implications of the Karlo decision, please contact John C. Petrella, Esq., Chair of the firm’s Employment Litigation Practice Group, at jpetrella@nullgenovaburns.com, or Dina M. Mastellone, Esq., Chair of the firm’s Human Resources Practice Group, at dmastellone@nullgenovaburns.com, or 973-533-0777.

New York City Passes Trailblazing Freelancer Wage Theft Protection Law

On November 16, 2016, New York City Mayor Bill de Blasio signed into law the “Freelance Isn’t Free” Act (“the Act”).  The Act generally grants freelancers the right to a written contract, timely payment and to be free from retaliation. The Act also bars wage theft against contractors and imposes substantial penalties on businesses that fail to comply with these and other requirements surrounding the independent contractor relationship. The Act, the first of its kind in the United States, will take effect on May 15, 2017.

Covered persons – Under the Act, freelancers include individuals and organizations made up of no more than one person, who are hired as independent contractors to provide services in exchange for monetary compensation.  Excluded from the Act are most sales representatives, lawyers and doctors.

The Act’s Requirements

  1. Written Contract – The Act requires a written contract for freelance work that is valued at $800 or more (either alone or aggregated with all service contracts between the same parties over the preceding 120 days). The written contract must include the names and addresses of the hiring party and freelancer, an itemization of services to be performed with corresponding values, and the date of payment or a method of determining said date.
  2. Timely Payment – In addition, the Act requires that the agreed-upon compensation be paid to the freelancer on or before the payment date specified in the written contract. If the contract does not specify a payment date or a method by which the payment date can be determined, the freelancer is to be paid no later than 30 days after completing the services.  Notably, once a freelancer has started performing the services, the employer cannot condition timely payment on the freelancer accepting an amount of compensation that is less than that stated in the contract.
  3. No Retaliation – Finally, the Act has an anti-retaliation clause that prohibits discrimination, threats, intimation, discipline, harassment and denying future work opportunities to freelancers. Employers are also protected from penalizing a freelancer for, or acting in way that would likely deter a freelancer from, exercising his rights under the Act.

Remedies & Exposure

Freelancers whose rights have been violated under the Act may file a complaint with the Office of Labor Standards within 2 years of the alleged violation.  Aggrieved freelancers also have the option to file a civil action.  For claims based on the failure to provide a written contract, the civil action must be filed within 2 years of the alleged violation.  For claims arising out of non-payment, late payment, or retaliation, the civil action must be filed within 6 years.

Failure to enter into a written contract alone subjects an employer to payment of the freelancer’s attorneys’ fees, a statutory damages award of $250, and, if found to have also violated the timely payment and/or anti-retaliation provisions, damages could equal the value of the underlying contract.  Non-payment or late payment alone exposes the employer to double damages, injunctive relief and other damages.  Retaliation alone subjects the employer to damages equal to the value of the underlying contract.

In addition, New York City Corporation Counsel may institute an action against repeat offenders of the Act.  Employers who are found to frequently violate the Act are subject to up to $25,000.00 in civil penalties.

No Waiver – Freelancers cannot waive their rights under the Act.  The Act expressly provides that any contract provisions purporting to waive rights under the Act are void as against public policy.

Potential Impact

The purpose of the Act is to make employers accountable for paying freelancers.  The concept is respectable in theory.  Testimony was given to the New York City Council suggesting that over 70% of freelance workers reported non-payment or late payment of wages and that freelancers were being denied an average of $6,000 of owed compensation per year.

However, the Act’s practical effect may pose significant problems.  First, unlike other wage and hour laws, employers cannot avoid or diminish liability by demonstrating that they acted in good faith.  For example, employers can avoid paying liquidated damages under the Fair Labor Standards Act if they demonstrate good faith and reasonable grounds for their non-payment of wages or other unlawful conduct. Second, the Act does not require freelancers to provide invoices for completed work.  Accordingly, companies who operate on the basis of invoicing by contractors are at an elevated risk, even if they intend to pay a freelance worker for contracted services.

What To Do

Although the Act does not go into effect until May of 2017 and it will not have retroactive effect, there are certain steps that New York City companies hiring independent contractors should take to ensure they are in compliance with the Act by that time.  First, ensure that service contracts for freelancer work valued at $800 or more are in writing and that they specify the work to be done, attach a value to each itemized service, and provide for the rate, method and date of payment.  Companies who operate on the basis of invoicing by contractors may consider imposing additional requirements on the freelancer, such as the submission of invoices, although it has yet to be seen whether a clause conditioning payment upon the submission of an invoice would be enforceable under the Act.  New York City businesses that use independent contractors should also review and update their independent contractor agreements as appropriate, or speak with counsel about preparing such an agreement, to align their payment practices with the Act.

For more information on the Act and how the new requirements will affect your business, please contact John C. Petrella, Esq., Chair of the firm’s Employment Litigation Practice Group at jpetrella@nullgenovaburns.com, or Dina M. Mastellone, Esq., Chair of the firm’s Human Resources Practices Group, at dmastellone@nullgenovaburns.com, or 973-533-0777.