Morgan Stanley Abandons Broker Industry Recruiting Pact

In a major blow to the Protocol for Broker Recruiting, which limited restrictive covenants in the broker industry and resulting litigation, according to Reuters (October 30, 2017), Morgan Stanley has decided to withdraw from the Protocol. Created in 2004, the Protocol is made up of thousands of registered representatives, with the stated goal of “furthering clients’ interests in privacy and freedom of choice in connection with the movement of their registered representatives.” The move by Morgan Stanley to leave the Protocol was apparently motivated in part, according to Reuters, by industry changes as the top brokers are increasingly leaving the large brokerages that are members of the Protocol to work for smaller independent brokerages, which are not members.

The impact of Morgan Stanley’s departure from the agreement is unknown, but the next question remains whether the other major Wall Street brokerages follow suit. Regardless, it appears that restrictive covenants in the brokerage industry will be making a comeback as will the resulting litigation that the Protocol was created to lessen. For our clients in the brokerage industry, including Registered Investment Advisors (“RIA”), restrictive covenants are likely to become a much more important part of employment agreements again, and hiring of rival brokers will require more diligence in terms of existing non-competes.

For questions about restrictive covenants in the brokerage industry, please contact John C. Petrella, Esq., Chair of the firm’s Employment Law & Litigation Practice Group, Partner Harris S. Freier, Esq. or Associate Christopher M. Kurek, Esq. at 973-533-0777. Please also sign-up for our free Labor and Employment Law Blog to keep up-to-date on the latest news and legal developments.

September 18 Deadline Set By U.S. Citizenship and Immigration Services for Employers to Use Revised Form I-9

Currently, every employer that recruits, hires, or refers employees for a fee in the U.S. is required to complete the Form I-9, Employment Eligibility Verification process within three days of a new employee’s hiring.  On July 17 the U.S. Citizenship and Immigration Services approved a revised version of Form I-9.

The revised Form I-9 changes the prior form by, among other things, adding Consular Reports of Birth Abroad to the List of Acceptable Documents. Two other clarifications relate to the timing of completion. First, Section 1 of Form I-9 must be completed no later than the first day of employment, as opposed to a previous command that it must be completed “no later than the end of the first day of employment.” Second, persons employed for fewer than three days must present their original I-9 documentation to the employer no later than the first day of employment. The employer must still complete its review of the employee’s employment eligibility documentation within three business days of hiring.

No later than September 18, 2017, all U.S. employers must use the new Form 1-9.  Employers may continue using the prior Form I-9 through September 17, 2017 but should prepare to modify their hiring process to include the revised Form I-9.  Alternatively, employers may choose to use the new Form I-9 right away.  For any existing Form I-9s, employers must continue to comply with the existing separate filing and document retention rules.

The new Form I-9, its instructions, supplements, and translations are available for download here.

For any questions on the new Form I-9 and the I-9 employment eligibility verification process, contact Patrick W. McGovern, Esq., Partner in the firm’s Labor Law Practice Group, at pmcgovern@nullgenovaburns.com, or by phone at 973-535-7129.

Third Circuit Stymies Employer’s Attempt to Force FLSA Overtime and Meal Break Pay Claims into Collectively Bargained Arbitration

Earlier this month, in a 2-1 decision, the Third Circuit Court of Appeals held that certified nursing assistants covered by a collective bargaining agreement are not required to arbitrate their FLSA claims before seeking court relief despite a mandatory arbitration clause in their labor agreement. The assistants claimed that their shift differentials should be included in the calculation of their overtime pay and challenged the deductions from their pay for meal breaks they did not take. The Third Circuit held that resolution of the assistants’ FLSA claims did not depend on an interpretation of language in the labor agreement and, therefore, the assistants were not required to arbitrate their claims. Jones v. SCO Silver Care Operations LLC (May 18, 2017).

The Court of Appeals explained that a court may compel arbitration of an FLSA claim when (1) the arbitration provision clearly and unmistakably waives the employee’s ability to vindicate federal statutory rights in court; and (2) the statute does not exclude arbitration as an appropriate forum. Here, the labor agreement’s grievance-arbitration provision did not expressly refer to FLSA or wage-hour claims, so there was no effective waiver of the right to go to court. Nonetheless, the Third Circuit recognized that even where a labor agreement’s arbitration clause fails to refer to the FLSA, the FLSA claimant may be forced to arbitrate disputes over an interpretation of a labor agreement if the FLSA claims are “inevitably intertwined with the interpretation or application” of the labor agreement.

On the issue of shift differentials, SCO Silver Care argued that the FLSA claim alleging miscalculation of the overtime rate consisted of a dispute over an implicit term of the labor agreement and whether shift differentials already include an overtime pay component. The Court rejected this argument and held that the overtime claim was governed by the FLSA, no analysis of the labor agreement’s treatment of shift differentials was required, and the Court should determine only whether the shift differentials at issue are remuneration that the FLSA requires to be included in the calculation of an employee’s regular hourly pay rate.

On the question whether the assistants’ meal breaks must be treated as hours worked, the employer argued that resolution of this issue depends on determining various meal break practices that occurred while the labor agreement was in effect and that this determination should be made by an arbitrator. The Court rejected this argument as well and found that the alleged meal break practices raised factual issues as to what work was performed during meal breaks and did not require a review of language in the labor agreement. The Court stated that the employer could not “transform these factual disputes inherent to any FLSA claim into disputes over provisions of the CBA subject to arbitration.”

If you would like to discuss how the Third Circuit’s decision affects your pay policies, arbitration clauses, wage and hour compliance program, and your business, please contact Patrick W. McGovern, Esq., Partner in the Firm’s Wage and Hour Compliance Practice Group at 973-535-7129 or at pmcgovern@nullgenovaburns.com.

 

 

 

The D.C. Circuit Vacates NLRB Ruling on Driver Status in FedEx Case

In early March 2017, the D.C. Circuit in FedEx Home Delivery v. NLRB, 2017 U.S. App. LEXIS 3826 (D.C. Cir. 2017) vacated a National Labor Relations Board (“NLRB” or “the Board”) ruling that Connecticut FedEx drivers constitute employees under the National Labor Relations Act (“NLRA”). The D.C. court said that the case was indistinguishable from a 2009 case before the panel involving a group of Massachusetts drivers.

In 2007, single-route FedEx drivers based in Hartford, CT elected Teamsters Local 671 (“Union”) to represent them which lead to FedEx filing subsequent objections to the NLRB. While the appeal was pending, the D.C. Circuit decided FedEx Home Delivery v. NLRB (FedEx I), 563 F.3d 492 (D.C. Cir. 2009), finding that FedEx drivers based out of the company’s Wilmington, MA terminal constituted independent contractors under the NLRA. In its holding, the court vacated the NLRB’s order to engage with the union and denied the Board’s cross-motion for enforcement. The court held that the NLRB was bound to apply the common-law ten factor agency test as set forth in the Restatement (Second of Agency), but explained that rather than a control inquiry, that the emphasis of these factors should be on  “entrepreneurial opportunity” for gain or for loss as it relates to the determination of a worker’s status.  FedEx identified three specific entrepreneurial opportunities available to the drivers: (1) drivers’ ability to hire other drivers; (2) drivers’ ability to sell routes; and (3) drivers’ ability to operate multiple routes.  Persuaded by these arguments, the court held that the FedEx drivers were independent contractors.

In 2014, the NLRB issued a revised decision in FedEx Home Delivery, 361 N.L.R.B. No. 55 (Sept. 30, 2014) which found that the facts pertaining to the Hartford drivers and those discussed in FedEx I were “virtually identical.” Still, however, the NLRB declined to adopt the D.C. Circuit’s 2009 interpretation of the NLRA because it disagreed with the court’s emphasis on “entrepreneurial opportunity” as the key factor in determining a worker’s status. Specifically, it said that the Board should give weight to actual, not merely theoretical, entrepreneurial opportunity, and it should evaluate the constraints imposed by a company on the individual’s ability to pursue that opportunity. Moreover, it noted that FedEx unilaterally drafts, promulgates, and changes the terms of its agreements with drivers, a feature that weighs “heavily in favor of employee status” along with the Board’s view that the drivers lacked independence and were disallowed the initiative and decision-making authority normally associated with an independent contractor   The Board also found that FedEx engaged in unfair labor practices affecting commerce under the NLRA by refusing to recognize and bargain with the union.

In the present case, FedEx argued that the question had already been argued before the D.C. Circuit in FedEx I and involved the same parties, thus the same result should follow. The court agreed and denied the Board’s cross-application for enforcement, granted FedEx’s petitions for review, and vacated the Board’s orders. The D.C. Circuit noted that in FedEx I, the Board considered all common-law factors and was still persuaded that the drivers were independent contractors. The court also noted that the U.S. Supreme Court previously held that that the question whether a worker is an “employee” or “independent contractor” under the NLRA is a question of “pure” common-law agency principles that a court can review and does not require special administrative expertise.

The takeaway for employers is that in determining whether workers are employees or independent contractors, employers must remember that despite significant overlap, there are in fact different tests as related to the NLRA, federal taxes, the Fair Labor Standards Act, state wage and hour law, ERISA, the Affordable Care Act, and various other circumstances.  While the D.C. Circuit has for the moment clarified (or rather reinforced) its view as to the proper test under the NLRA, employers should always focus on where their greatest liability is and attempt to cater to the relevant test as much as possible.

For questions about independent contractors or trucking and logistics, please contact John Vreeland, Esq., Chair of the Transportation, Trucking & Logistics Group and a Partner in the Labor Law Practice Group at jvreeland@nullgenovaburns.com or (973) 535-7118, or, Harris S. Freier, Esq., a Partner in the Firm’s Employment Law and Appellate Practice Groups, at hfreier@nullgenovaburns.com or (973) 533-0777. Please also sign-up our free Labor & Employment Blog at www.labor-law-blog.com to keep up-to-date on the latest news and legal developments effecting your workforce.

Uber Scores Victory Compelling Arbitration in Wage & Hour Misclassification Suit

Just a few days after being in the news and facing consumer boycotts for allegedly seeking to profit as a result of a taxi boycott of JFK International Airport related to President Trump’s immigration Executive Order, Uber received good news when it received a pro-employer legal ruling in a suit brought against the company by its New Jersey drivers.

In a published opinion filed on January 30, 2017, Hon. Freda L. Wolfson, U.S.D.J. of the U.S. District Court for the District of New Jersey held that a proposed class of Uber drivers must arbitrate their claims that Uber misclassified them as independent contractors, failed to pay overtime compensation, and required drivers to pay business expenses purportedly incurred for Uber’s benefit.  In Singh v. Uber Technologies Inc., No. 16-03044 (D.N.J. January 30, 2017), the District Court made two significant findings that are favorable to employers: (1) employment agreements incorporating so-called “clickwrap” or hyperlinked agreements by reference are enforceable—whether or not the employee actually reviews the agreement—so long as the employer provides reasonable notice that the terms and conditions of that agreement apply; and (2) Uber’s agreement with its drivers is not considered a contract involving “transportation employees,” and therefore is not subject to the exemption provisions of the Federal Arbitration Act (FAA), which the court construed narrowly.

In Singh, plaintiff registered with the Uber App (the “App”) in order to become a driver with Uber’s “uberX” platform. Registration required him to electronically accept an Agreement provided by Uber’s technology service provider Raiser, LLC (the “Raiser Agreement”).  When plaintiff logged onto the App, he was able to review the Raiser Agreement by clicking a hyperlink to the Raiser Agreement within the App.  To advance within the App past the hyperlink and actively use the App, plaintiff had to twice confirm that he reviewed and accepted the Raiser Agreement by clicking “YES I AGREE.”

The first page of the Raiser Agreement also contained a paragraph, written in large bold and capital text, indicating that a voluntary arbitration agreement was contained therein.  The arbitration provision required Uber drivers—if they do not opt out within a 30-day period—to individually arbitrate all disputes arising out of, or relating to, the Raiser Agreement, or their relationship with Uber, including disputes alleging breach of contract, wage and hour, and compensation claims on an individual and class or collective basis.  Importantly, the Raiser Agreement’s 30-day opt out provision noted that the arbitration provision was not mandatory, and should the driver choose to opt out of arbitration, Uber would not retaliate against him or her.  Plaintiff was also permitted to spend as much time as he found necessary in reviewing the Raiser Agreement on his smartphone or other electronic devices before accepting it.

Following the filing of litigation by plaintiff, Uber moved to dismiss the complaint and compel arbitration.  In his opposition, the plaintiff first asserted that because Uber only provided a hyperlink, or “access” to the Raiser Agreement, as opposed to providing the document itself, he should not be bound to the Raiser Agreement’s arbitration provision.  In rejecting this argument, the District Court noted that for hyperlinked agreements to bind parties, they must provide “reasonably conspicuous notice of the existence of” the terms of the agreement, citing favorably to ADP, LLC v. Lynch, No. 16-01111 (D.N.J. June 30, 2016), a decision that our firm helped to achieve on behalf of a long-time client.  The District Court determined that since the plaintiff was required to review and agree to the hyperlinked Raiser Agreement before utilizing the App, and the link was prominently displayed, he was provided with sufficient notice of the terms and conditions and therefore manifested intent to be bound by the agreement.

The District Court also held that the parties’ agreement is subject to the FAA, granting the court authority to compel arbitration. Plaintiff argued that his employment with Uber fell within the exemption contained in Section 1 of the FAA, which excludes from the FAA’s ambit contracts involving “transportation employees.”  However, the court noted even if plaintiff was an Uber employee (as opposed to an independent contractor, as Uber argued), Section 1 of the FAA only excludes “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”  The court found that although the Third Circuit has yet rule on the issue, virtually every other Circuit Court having considered the issue found that the exclusion is to be narrowly construed as only applying “to those employees who are actually engaged in the movement of goods, as opposed to the transportation of people, in interstate commerce.”  Coupled with Congress’s intent to only exclude contracts involving certain categories of workers in this way from the application of the FAA, the District Court held that plaintiff’s job was “too far attenuated from the types of employees to whom the FAA’s exclusion is intended to apply.”

Finally, the District Court also rejected plaintiff’s argument that the Raiser Agreement violated Section 8 of the National Labor Relations Act (NLRA).  While noting that it is an open question whether “an employee may enter into an arbitration agreement requiring the resolution of labor disputes on an individual basis” (indeed, the Supreme Court recently granted certiorari to review this exact issue), the court found it did not need to reach this issue because Uber did not “restrain, or coerce” the plaintiff into being bound by the arbitration agreement contained within the Raiser Agreement because it was optional.

The court’s decision in Singh shows that if crafted correctly, employers are permitted to execute agreements with their employees in more contemporary fashion, and with dispute resolution provisions that are fair and efficient for all parties.

For questions about Singh v. Uber Techs. Inc. and its implications on your company’s arbitration agreements, please contact Harris S. Freier, Esq., a Partner in the firm’s Employment Law and Appellate Practice Groups, at hfreier@nullgenovaburns.com or (973) 533-0777.  Please also sign-up our free Labor & Employment Blog at www.labor-law-blog.com to keep you up-to-date on the latest news and legal developments effecting your workforce.

New York State Launches Aggressive Campaign to Enforce The New Minimum Wage Law

On December 31, 2016, the new minimum wage law in New York State took effect.  New York’s minimum wage law is among the most complicated in the country. The minimum wage will gradually increase to $15.00 in the coming years, with annual increases to take effect on December 31st. However, how quickly the minimum wage reaches $15.00 depends on where your company is located, the type of business you are in, and whether you are a small or a large employer. For example, the minimum wage in NYC will increase as follows:

New York City 10 or fewer employees 11 or more employees
December 31, 2016 $10.50 $11.00
December 31, 2017 $12.00 $13.00
December 31, 2018 $13.50 $15.00
December 31, 2019 $15.00

For Nassau, Suffolk and Westchester counties, the increments began December 31, 2016 and will conclude on December 31, 2021, with the following increases annually on December 31 no matter the size of the workforce: $10.00, $11.00, $12.00, $13.00, $14.00 and $15.00.  For the rest of New York State, the increments began December 31, 2016 and will conclude on December 31, 2020, with the following increases annually on December 31 no matter the size of the workforce: $9.70, $10.40, $11.10, $11.80, $12.50 and $15.00.

There is a special carve out for fast food companies.  By December 31, 2018, fast food companies in NYC will reach the $15.00 and by July 1, 2021 the rest of NY State’s fast food companies will reach $15.00.

The New York Department of Labor (NYDOL) plans to aggressively enforce the new law and has created a 200-investigator unit to ensure employers are appropriately increasing employee pay to at least the minimum wage. The newly formed State Minimum Wage Enforcement and Outreach Unit’s mission is to inform workers of the new minimum wage law and to ensure they are properly paid.  The State has also established a hotline for workers to report violations of the new minimum wage law. Hotline calls will initiate a NYDOL compliance audit.  If violations are found, a company is subject to a $3.00 fine for each hour the company failed to pay the required minimum wage to an employee plus back wages and liquidated damages.

If you have any questions or would like to discuss the new NYS minimum wage law and its effect on your business, please contact John Vreeland, Esq., Chair of the Wage & Hour Compliance Practice Group and a Partner in the Labor Law Practice Group at (973) 535-7118 or jvreeland@nullgenovaburns.com, or Nicole L. Leitner, Esq., a member of the Wage & Hour Compliance and Labor Law Practice Groups at (973) 387-7897 or nleitner@nullgenovaburns.com.

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.

Immigration Law Violations Occurring After November 2, 2015 Carry Heavier Penalties

Effective August 1, 2016 the Department of Justice is assessing higher penalties for employers that violate immigration laws. These penalties cover violations that occurred after November 2, 2015.  Specifically, the DOJ’s interim final rule increases penalties for a myriad of violations, including penalties for employing unauthorized workers and for technical Form I-9 paperwork violations. These increases are driven by the Civil Monetary Penalties Inflation Adjustment Final Rule which directs federal agencies periodically to increase their administrative penalties to account for inflation. With this increase, the minimum penalty for unlawfully employing a single unauthorized worker will increase from $375 to $539, and the maximum increases from $3,200 to $4,313. These fines apply to the employer’s first offense. For each additional offense, the penalty increases significantly and tops out at $21,563 per unauthorized worker.

The increases in penalties for Form I-9 paperwork violations are similarly stiff. The interim final rule increases the minimum fine from $110 to $216 per I-9 violation, and the maximum penalty increases from $1,100 to $2,156 for a single violation. Fines for I-9 paperwork violations are independent of any unlawful hiring violation. Since the I-9 fines apply to each discrete technical violation and increase with each additional offense, a growing business whose I-9 compliance process is out of compliance could face tens of thousands of dollars in fines if audited by Immigration and Customs Enforcement (ICE).

In addition, the U.S. Department of Labor will also increase penalties for H-1B visa related violations. For example, misrepresenting material facts on the Labor Condition Application now carries a maximum penalty per violation of $1,782. In addition, an employer that displaces a U.S. employee in the period starting 90 days before and ending 90 days after it files an H-1B visa petition faces a maximum penalty of $35,000 to $50,758 per violation, if it does so in conjunction with certain willful violations.

Although these increases are touted as merely keeping pace with inflation, they are problematic for employers that have a poor track record of either ensuring their new hires are authorized to work in the U.S. or completing I-9 paperwork accurately for their new hires. Since these new penalties apply to violations that occurred as far back as November 2015, many in the employer community suspect that ICE has been delaying issuing fines for older violations until now, to recover the higher penalties. Also it is reasonable to anticipate that workplace audits will increase in number since ICE now has greater financial incentives to find employers out of compliance.

An audit with the assistance of counsel allows employers to detect and potentially correct any I-9 or other immigration compliance issues. It can also help to train the personnel responsible for immigration compliance, preventing errors in the future. For further information regarding how the ICE regulatory environment affects your business, recruiting, and hiring, and assistance with auditing your Form I-9 process, please contact Patrick W. McGovern, Esq., the Director of our Immigration Law Practice Group, at 973-535-7129 or pmcgovern@nullgenovaburns.com.

Allison Benz, a recent summer associate at Genova Burns LLC, assisted in the preparation of this blog post.