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Best Practices

Unlimited PTO Policies: Avoid the Risks

In light of current labor shortages, employers are paying higher wages and contemplating different benefits and working conditions that employees are now demanding.  One such benefit is an unlimited paid time off (PTO) policy.  An unlimited PTO policy allows employees to take as much paid time off as they desire as long as they complete their work and meet all applicable deadlines.  Most policies require supervisory approval of paid time off and reserve the employer’s right to deny a request for PTO because of business needs and deadlines. Typically, an unlimited PTO policy is made available to exempt employees and not nonexempt employees. There are unique issues that employers must consider in developing their unlimited PTO policies.  For the reasons explained below, I will refer to these policies as unlimited absence policies. Family and Medical Leave and ADA Reasonable Accommodation Leave Without including restrictions on unlimited absence policies, employers may find that they must pay for lengthy absences due to family and medical reasons.  To avoid such situations, there are a number of provisions an employer can include in their unlimited absence policy. Don’t call the policy an unlimited PTO policy. Label it as an unlimited vacation policy.  This title clarifies that unlimited paid time off is not for absences due to medical or family medical reasons but rather, is for vacations. Limit the number of consecutive days for which an employee can be absent in a specified period such as within a week or a month. If unlimited PTO can only be used for absences of, say, up to ten consecutive working days, an employee cannot use PTO for a reason that qualifies for a leave required by the Family and Medical Leave Act (FMLA). The same issue exists for a leave of absence which is a reasonable accommodation under the Americans with Disabilities Act (ADA). If unlimited PTO is allowed for any absence, then a leave of absence which is a reasonable accommodation will also be entitled to be fully paid. Continue to have separate FMLA, workers’ compensation, and ADA leave policies and clearly state in the unlimited absence policy that unlimited PTO applies to absences for reasons other than mandated FMLA leave or leave granted as a reasonable accommodation. In addition to the above, unlimited absence policies should include a number of elements.  Informing employees that they are responsible for completing their work and that the unlimited absence policy does not excuse them from meeting applicable deadlines and carrying out their normal job responsibilities is an important caveat.  Employees should be required to follow established procedures for taking time off, including requiring approval from a supervisor. Paid Sick Time Employers should keep track of the amount of time that employees are taking off for medical reasons vs. for vacations. This is important as an increasing number of cities and states enact paid sick and safe time laws.  If employees work in locales that require paid sick and safe time, the employer should ascertain if by implementing a PTO policy they are entirely exempt from all requirements of the paid sick and safe time requirements.  In some jurisdictions, employers who offer paid time off rather than vacation/sick leave policies are still required to keep track of the amount of paid sick and safe time that employees are taking. Payment for Unused PTO at Separation. An unlimited absence policy should also make it very clear that paid time off does not accrue and that unused paid time off is not paid at termination.  Employers should consult with legal counsel to determine whether there are any applicable laws regarding payment of unused paid time off at termination.  For example, the Illinois Department of Labor’s FAQs state that if an employer has a vacation policy that allows employees to take vacation subject to business needs, the employer must at termination pay a “monetary equivalent equal to the amount of vacation pay to which the employee would otherwise have been allowed to take during that year but had not taken.”  Thus in Illinois, if an employer can demonstrate the average amount of vacation time an employee takes in any given year because the employer has been tracking such vacation, the employer will be in a better position to determine how much-unused vacation is due to an employee at separation.  Legal counsel can advise employers about specific city or state policies that may apply to their employees. Conclusion Unlimited absence policies are becoming more and more popular however when designing a program, employers need to consider mandated family and medical leave laws, paid sick and safe time requirements, leaves of absence that are a reasonable accommodation under the ADA, and state laws regarding the obligation to pay for unused vacation at separation.  If the policies are not crafted carefully, employers may find they are required to pay for a lengthy leave of absence.

April 18, 2022

Best Practices

The Roller Coaster Continues: OSHA’s Emergency Temporary Vaccine Standard for Large Employers

Most of our readers are aware that on November 9, 2021, OSHA issued an Emergency Temporary Standard (ETS) requiring covered employers (employers with 100 or more employees) to require employees to be vaccinated against COVID-19.  The ETS allows employers to decide whether to adopt weekly COVID-19 testing and mask mandates in lieu of vaccinations.  On November 12, the U.S. Court of Appeals for the Fifth Circuit prohibited the ETS from taking effect, additional lawsuits were also filed against OSHA.  All lawsuits were consolidated and assigned to the Sixth Circuit Court of Appeals.  On December 17, the Sixth Circuit Court of Appeals dissolved the order of the Fifth Circuit and reinstated the ETS. Many employers and state attorneys general requested that the U.S. Supreme Court pause the Sixth Circuit Order.  These petitioners asked the Supreme Court to fast-track their appeals and temporarily stop enforcement of the ETS while the Supreme Court considers the appeal.  The Supreme Court declined to stop the enforcement. The Supreme Court has scheduled oral arguments for January 7, 2022, on both the OSHA ETS and the Interim Final Rule, requiring health care workers to be vaccinated, issued by the Centers for Medicare and Medicaid Services. What should an employer do? Large employers who are subject to the ETS are presented with the dilemma of whether to prepare for enforcement of the ETS or delay until the U.S. Supreme Court rules on the appeal from the Sixth Circuit Court of Appeals order.  OSHA has announced that in light of the uncertainty caused by the appeal to the U.S. Supreme Court, they have delayed the original effective date of the ETS.  OSHA has stated that it will not issue citations for non-compliance with any requirements of the ETS before January 10, 2022, and will not issue any citations for noncompliance with the testing requirements before February 9, so long as an employer “is exercising reasonable, good faith efforts to come into compliance” with the vaccine standard. We recommend that covered employers with 100 or more employees begin to prepare for the implementation of the ETS so that they are ready when it comes into effect.  With oral arguments before the U.S. Supreme Court scheduled for January 7, it is unlikely that any decision will be issued until after January 10, the date OSHA has set as the effective date of the ETS.  Therefore, as of January 10, 2021, covered employers must begin to exercise “reasonable, good faith efforts to come into compliance” with the vaccine standard. Employers should take the following steps while waiting for the Supreme Court’s ruling: Develop a mandatory vaccine policy. Determine whether to adopt weekly testing for employees who do not wish to be vaccinated. This policy must require that unvaccinated employees wear face coverings. If weekly testing will be allowed in lieu of vaccinations, unvaccinated employees should provide proof of a negative test by February 9, 2022. Determine the process for employees to request religious or medical exemptions, and who will be involved in making decisions on these requests. Develop forms for employees to request exemptions. Collect vaccine status information for your employees and develop the required vaccination roster showing the vaccination status of each employee. Develop compliance training for managers involved in implementing the vaccination/testing policies. Deliver information about the policies to employees as required by the ETS. The ETS requires that employers pay up to four hours of paid time off to non-exempt employees to obtain the required vaccination so employers should begin preparations for payments.  In addition, the ETS requires that employees be given reasonable paid time off, including paid sick leave, to recover from the side effects following each dose of the vaccine. The tumultuous introduction of the ETS has caused uncertainty and confusion for employers.  However, at present, the OSHA ETS goes into effect on January 10 and employers cannot afford to simply do nothing and wait for the Supreme Court to rule.  Employers must engage in good faith efforts to come into compliance with the ETS by January 10, 2022. If you have questions about the ETS or would like further guidance please contact Phyllis Karasov at pkarasov@larkinhoffman.com.

December 27, 2021

Best Practices

What to Do about Vaccinations: Employer Recommendations

On May 28, 2021, the Equal Employment Opportunity Commission (EEOC) updated its Technical Assistance Questions and Answers (Technical Assistance) about COVID-19 and Equal Employment Opportunity laws, including the Americans with Disabilities Act (ADA).  In the Technical Assistance, the EEOC addressed many questions concerning the right of employers to screen for COVID-19 and/or for symptoms of COVID-19.  Much of the Technical Assistance had been previously published but on May 28, the EEOC updated its answers to many of the questions.  One question which had not been clearly answered by the EEOC until the Technical Assistance came out was whether an employer can require all employees physically entering the workplace to be vaccinated for COVID-19.  This question was added in the May 28, 2021 version of the Technical Assistance. The EEOC stated that federal Equal Employment Opportunity (EEO) laws do not prevent an employer from requiring all employees physically entering the workplace to be vaccinated for COVID-19, subject to reasonable accommodation provisions.  Attorneys have been advising clients for many months that it is permissible to enact a mandatory vaccination policy, and the May 28 Technical Assistance confirmed the lawfulness of such a policy.  The purpose of this article is not to discuss reasonable accommodation although obviously, it is an important concern if an employer mandates that all employees must be vaccinated.  A mandatory vaccination policy must allow for exceptions if an employee is suffering from a medical condition that prohibits the employee from being vaccinated, or if an employee has religious objections to being vaccinated.  Rather, this article will discuss a few issues that we have seen with respect to vaccinations. In the updated Technical Assistance, the EEOC also stated that employers can encourage employees and their families to get vaccinated, without violating any discrimination laws. Again, employers have been offering such incentives for many months, but the updated Technical Assistance provides additional regulatory support for this position.   It is also lawful for employers to provide educational information to employees to address concerns about vaccinations, and to raise awareness of the advantages of being vaccinated. Is it legal to ask employees for documentation that they received a COVID-19 vaccination? Normally, it is unlawful for an employer to make inquiries concerning an employee’s medical treatment or condition, unless such an inquiry is job-related and consistent with business necessity. However, the updated Technical Assistance makes it clear that when an employer asks employees whether they obtained a COVID-19 vaccine, the employer is not asking a question that is likely to disclose the existence of a disability.  Thus, requesting documentation of vaccination is not a disability-related inquiry under the ADA.  Employers should not forget that vaccination documentation is medical information about an employee and must be kept confidential. Can an employer publicize which employees have not been vaccinated? The Technical Assistance provides that information about an employee’s COVID-19 vaccination is confidential medical information under the ADA.  Employers must keep this information confidential, as they would any other medical information.  Employers cannot publicize who has and has not been vaccinated. What can an employer do if an employee refuses to be vaccinated? Employers are struggling with the proper way to handle an employee who refuses to be vaccinated and is not refusing because of a medical condition or a religious objection.  Many companies, particularly those which interface with the public, want the public to know that employees have been vaccinated and it is safe to be in physical contact with their employees.  Some companies, faced with the knowledge that a significant number of employees will refuse to be vaccinated, have offered incentives to motivate employees to be vaccinated, and education about the risks associated with COVID vs. the benefits of being vaccinated. Suggestions for dealing with employees who are not vaccinated: Implement alternative work situations for those employees who are not vaccinated.  An example is to stagger employee schedules so that employees who work in close proximity are not in the office on the same days. Allow employees who are not vaccinated to continue to work from home. Continue to require social distancing. Require that all employees wear masks, or request that unvaccinated employees wear a mask. Just last week, a client called asking what to do with a minor rebellion he was encountering where many unvaccinated employees were refusing to wear masks. This employer requires that all employees wear masks.   He asked what he could do?  We told him that, assuming the employees are not refusing to wear a mask because of a medical condition or religious objection, the employer can terminate the employees for refusing to wear a mask. What if vaccinated employees feel uncomfortable being exposed to unvaccinated employees? The General Duty Clause of the Occupational Safety and Health Act requires that an employer provide employees with a work environment free of recognized hazards that are causing or likely to cause death or serious physical harm to employees.  If an employer fails to take precautions to protect employees from the risk of exposure to an unvaccinated employee, they could be violating the General Duty Clause.  Therefore, we recommend that employers continue to require that unvaccinated employees wear masks and that social distancing continue to be enforced.  In addition, the employer should consider the alternatives discussed above.  These actions will help demonstrate the concrete steps an employer has taken to protect workplace safety. What is an employer’s obligation to unvaccinated employees being harassed by other employees? If an employer does not mandate that all employees be vaccinated, the employer should make sure that unvaccinated workers are not harassed or made to feel isolated.  It is permissible to offer incentives to employees who voluntarily receive a COVID-19 vaccination.  The incentive should not be so substantial that it is deemed to be coercive.  Employers should be cautious about conditioning access to training, career development activities, or other work-related events, on being vaccinated.  Employers should enforce their policies concerning harassment, bullying, respect and civility when unvaccinated employees are harassed or mocked because they are unvaccinated. Conclusion As COVID case numbers are going down, and government agencies are reducing mask and social distancing requirements, employers are grappling with how to bring employees back to work, and what COVID health and safety rules will be applied to the workplace. Whether to require that employees be vaccinated is one of the challenging questions for all employers.  The EEOC, the CDC, and state and local governments are loosening up the requirements and giving businesses more flexibility in what they can demand of their employees.  In making these important decisions, employers must balance safety, employee preference, and the impact of mandating vaccinations.

June 7, 2021

Best Practices

Does your employee handbook create an employee contract? The answer might surprise you!

This post is co-authored withLarry Morgan, MAIR, SPHR, SHRM-SCP, GPHR Originally published in The Minnesota Society of CPA’s Virtually all employee handbooks contain the statement, “This handbook is not a contract.” Most employers assume with this contract disclaimer none of the policies and provisions in their employee handbook constitute a contract. On Feb. 3, 2021, the Minnesota Supreme Court held in Hall v. City of Plainviewthat a general disclaimer that a handbook should not be construed as a contract may not be effective to prevent a paid time off(PTO) policy contained in the handbook from forming a contract. Findings The court first found that the handbook contained sufficiently definite terms to create an offer for a unilateral contract for PTO. The court reasoned that the handbook detailed an overview of the objectives of the PTO program, a PTO accrual schedule based on employee seniority and hours worked per year, instructions on how employees could use their PTO, procedures for rolling over PTO year over year and procedures by which departing employees could cash out PTO. Further, Plainview relied on the handbook’s terms when it initially denied payment of the employee’s accrued PTO benefits. These provisions, the court reasoned, amounted to, “More than general statements of policy; rather, they provide[d] specific information and procedures by which employees [could] comprehend and take advantage of the City’s PTO program.” The city argued that the handbook disclaimers meant that none of the provisions in the handbook, including the PTO provisions, created an enforceable contractual right. The court disagreed. The court first stated that the disclaimer did not affect the employee’s rights to be paid PTO. Next, the court examined a statement in the handbook that it set a “uniform and equitable system of personnel administration” and “should not be construed as contract terms.” The court found that the second disclaimer was broad and general and was ambiguous with respect to its applicability to the PTO policy. The Minnesota Supreme Court clearly stated that an employer is not required to provide employees with paid time off, unless required by a statute, such as paid sick and safe time. However, if paid time off is offered, it is critical that handbook policies regarding paid time off discuss any applicable restrictions on payment for unused time off. If the policy makes a promise that employees will be paid for unused paid time off, that promise may be a contract. The court did not decide whether the paid time off policy in the city of Plainview’s employee handbook constitutes a contract. The court said that whether Hall is entitled to be paid for his 1,778.73 accrued PTO hours is based on a contractual right. Hall could not recover his accrued PTO without a valid contract entitling him to payment. The case was remanded to district court to decide whether a contract exists and whether Hall satisfied the requirements of the handbook’s PTO payment provision and is owed payment for his accrued PTO under that contract. What does this case mean for Minnesota employers? The case reminds us that employers must comply with the paid time off policies in their handbook. If the employer does not pay separating employees for unused paid time off, they should clearly state this fact in the employee handbook. It is not required that employees in Minnesota be paid at termination for unused paid time off. If there are restrictions on the circumstances in which unused paid time off will be paid (i.e., employees will be paid for up to a specified number of hours of unused PTO regardless of how much they accrued), the handbook should state such restrictions. The problem in the city of Plainview handbook was that the city refused to pay any PTO to Hall, despite the fact that the handbook stated that some or all of unused PTO would be paid when an employee ends their employment with the city, for any reason. Employers should review their handbooks, application forms, offer letters and policy statements for language that could create a potential right to benefits, and give rise to claims of contractual employment obligations or the inability of the employer to modify programs. Failure to pay employees for unused paid vacation, sick leave and PTO when the limits or restrictions for such payment is not specified in the employee handbook, could constitute wage theft under local and state law. Thus, failure to comply with an employee handbook policy on paid time off can expose the employer to a claim of wage theft if employees are promised they will be paid for unused paid time off and they are not. Review policies for the following While not addressed specifically in the court case above, employers should review their employee handbook, offer letters, policy manual and other related documents to include language such as the following: Specific and clear descriptions as to whether separating employees will be paid at termination for unused accrued paid time off, including PTO, sick time and vacation. If employees are to be paid for such unused time, up to specified limits, such limits should be expressly stated. Employers who allow carryover of PTO or vacation into the next year should consider restricting the accrual of additional paid time off once a specified limit has been reached. This will limit the amount of unused paid time off an employee can accrue. The offer letter, handbook and other documents do not constitute an employment contract. A statement regarding employment is “at will” and either party may terminate employment at any time, and for any reason provided that no local, state or federal laws are violated. The employer reserves the right to change, amend, modify or terminate employee compensation and benefit programs at any time (unless protected under a collective bargaining agreement). For multistate employers, continued monitoring of state regulations and a statement that “in the event of contrary local or state regulations, those regulations will apply.” Employers with employees in Minneapolis, St. Paul and Duluth should ensure compliance with the safe and sick leave benefit requirements. Employers may wish to provide clear guidance on use and carryover of paid leave benefits including following the Minnesota expansion of sick, vacation and PTO for employee relatives. Disclaimers in offer letters and stated several times within the handbook. We are here for you Do you have more questions on this topic? Reach out to Larry Morgan at the MNCPA HR Hotline at hrhotline@mncpa.orgor Phyllis Karasov at 952-896-1569 or pkarasov@larkinhoffman.com.

February 26, 2021

Best Practices

Do You Need a Teleworking Policy?

Before the COVID-19 pandemic, most employers were reluctant to allow employees to work from home on a continuous basis.  Many companies prohibited all teleworking or allowed employees only to work remotely when recovering from an illness or when required as a reasonable accommodation.  When COVID-19 hit, many employees began working remotely and it appears that working from home is now, for many employees, a permanent situation.  I, myself, have seen the advantages of working from home although I miss the collegiality and professional dialogue with other attorneys in my firm. It has been estimated that about half of employed adults are currently working from home.  Job applicants have indicated that they place a high value on the ability to work from home.  Flexible scheduling is a significant perk that younger workers prefer, even more than a higher salary. Many employers developed written policies regarding teleworking once it became clear that employees would be working from home for some period of time.  Other employers, thinking that remote working was a temporary situation, do not have written policies on teleworking but instead issue periodic directives, instructions, and procedures to employees who are working from home. Key Elements of a Teleworking Policy If an employer expects that all or a segment of its employees will continue to be working from home, even after the pandemic ends, it may be time to consider developing a teleworking policy.  Although allowing employees to work from home may retain or attract employees, the ability to work outside the office can also create nightmares for an employer.  Whether employees work full-time from home or partially work from home, it is important that employers and employees have the same expectations as to productivity, communications, and compliance with company policies.  Below I have highlighted some key elements of a telecommuting policy: Specify what positions are eligible to work from home. Identify those persons responsible for making the decisions as to whether particular employees or positions can work remotely and how often the employees can work remotely (i.e. how many days per week). Identify the expectations and requirements for employees who will be working remotely.Are employees expected to participate in any meetings in the office?  Do they have flexibility in their work hours?  How often do they need to communicate with their supervisors?  Employers may have concerns about the diligence and reliability of employees who work from home, so the expectations need to be clearly stated.  It may be appropriate to remind employees that when they are participating in video meetings, such as Zoom or Teams meetings, they need to dress appropriately.  How many of us have seen others in Zoom meetings wearing pajamas, sweatshirts or other clothing that they would never wear to an in-person meeting involving the same people as those in the Zoom meeting? Discuss expected communications protocols. Employees should be told when they are expected to be available for telephone conferences, video meetings and other group confabs.  Should employees regularly check-in? Should employees inform their supervisors when they are ready to start their day at their computer?  Will employees have to list the specific tasks they will complete or have completed during the day or during the week? Discuss the equipment which an employee will need for their work and who will provide it. The policy should describe what equipment and supplies the employer will be providing versus the employee, and if provided by the employee, whether the employer will be reimbursing the employee for these supplies and equipment.  Explain what personal use an employee can make of equipment which is provided by the employer, such as a printer and scanner.  Outline the accepted use of a personal device and if or when it is acceptable to download or access company files on a personal device. Security is a critical element of the arrangement for an employee to work from home. Firstly, if employees are accessing a company network or other confidential information, what procedures must they follow from their home office to ensure the security of company networks and communications.  Will the company be providing a shredder or is it up to the employee to discard paper generated during the workday?  What safeguards should the employees be setting up against potential hacks, breaches or theft?  The policy should describe the need to password protect all devices used for work purposes. Expectations of work hours. Many employees working remotely have children at home because their daycare or schools are closed. How much flexibility will employees have to extend their work hours to accommodate taking care of their children, or assisting their children with schoolwork?  Are there specific hours during which employees must be working?  How do employees keep track of the hours they work? Consequences of abuse of the policy. The policy should state that employees can be disciplined for violation of the teleworking policy or any other company policy while working remotely. At some point, an employer may decide to withdraw an employee’s right to work remotely because that employee has been abusing the privilege of working from home. Workers Compensation and Remote Workers Employees who are injured while working at home may be covered by the employer’s workers compensation insurance.  Over 10 years ago, the Minnesota Workers Compensation Court of Appeals considered the question of whether an employee’s injury while working at home was covered by the employer’s workers compensation insurance.  The employee was taking a short break from his computer to get a cup of coffee.  While he was walking down the stairs, he slipped and landed on his back on the steps.  He suffered a fracture of his T9 vertebra and eventually required surgery.  The employee filed a claim for workers compensation insurance alleging that his fall arose out of and in the course of his employment.  The employer and insurer disputed the employee’s claim.  The Workers Compensation Court of Appeals held that when he left his home office to go to the kitchen for a cup of coffee, the employee was no different from an employee who, while working at the office, goes to a kitchen for a cup of coffee.  The court found that the injury arose out of the employee’s employment and therefore was covered by workers compensation insurance. To possibly control workers compensation liability for remote workers, an employer should consider establishing guidelines for a home office such as requiring a designated work area and provide training related to setting up a workstation and appropriate safety measures.  When feasible, conduct periodic checks of employee home offices to identify and eliminate work area safety hazards. This suggestion may not make sense for many, if not most employers, but companies should understand that an injury because of hazardous conditions in an employee’s home may be covered by workers compensation insurance.   Consider setting fixed work hours and meal and rest periods for telecommuters.  This may help establish whether an injury was “in the course of employment.” Conclusion If an employer has a written teleworking policy, the employer should periodically discuss with supervisors and managers whether the teleworking policy is effective and whether it is addressing all issues that arise when employees are working from home.  Employers should also check with the remote employees to discuss how isolated they may feel from the rest of the company, whether they feel they are working at their most effective and efficient level and what adjustments may be appropriate for their schedule and/or in the teleworking policy.  Employers should consult with their attorneys to ensure that their teleworking policy complies with all state and federal requirements.

February 19, 2021

Best Practices

The Minnesota Employer’s Guide to Navigating Workplace Issues During COVID-19

When COVID-19 began its pernicious spread, causing Americans to lock down and employers to close or curtail their workplaces, lawyers were busy advising clients on required leaves of absence, the eligibility of laid-off employees for unemployment compensation and other paid benefits, as well as other legal issues associated with closing a business or sending a workforce home. Employees are a company’s most important asset.  Without employees, an employer is unable to manufacture its goods, provide the services it offers, or engage in its normal business activities.  We have seen many clients struggle to balance the business and financial needs of their company with compassion and concern for their employees. As restrictions and shut-down orders are diminishing, many companies are moving from concerns about closing their business to consideration of the best way to operate during the pandemic.  Many employers continue to allow all or a substantial number of employees to continue to work from home, but are seeking advice on how best to ensure employee accountability and efficiency when working remotely.  Other employers are dealing with the challenges of returning employees to the workplace when some do not want to return. The Labor and Employment Law practice group at Larkin Hoffman thought it would be helpful to prepare a resource that employers could use as a starting point for evaluating the legal issues associated with operating a business in the current COVID-19 environment. We have prepared The Minnesota Employer’s Guide to Navigating Workplace Issues During COVID-19 to assist employers grappling with the complex legal and human resources questions that arise.  This guide is an additional resource to the articles, blog posts, webinars and podcasts which can be found in Larkin Hoffman’s COVID-19 Resource Center.  Please understand that this guide is not intended to be definitive legal advice, but rather a resource for employers to review in order to identify potential issues and when to seek legal counsel to assist with the implementation of decisions. Our labor and employment attorneys are available for consultation and advice during the pandemic.  We hope you find The Minnesota Employer’s Guide to Navigating Workplace Issues During COVID-19 to be a helpful resource. View and download a copy here.

October 1, 2020

Best Practices

Phyllis Karasov and Dan Ballintine Discuss Re-opening a “Safe” Workplace: OSHA, ADA and More

Employers are legally required to make their workplaces “safe” for their employees and customers.  What does “safe” mean, given that no employer can guarantee a virus-free workplace?  What are the rules on screening employees, taking temperatures, and refusing to allow employees showing symptoms of COVID-19 into the workplace?  This session will talk about how to make the workplace safe, OSHA guidance, how to handle employee requests for reasonable accommodation for medical conditions that place them at higher risk if they become infected with coronavirus, whether employees should be required to sign waivers and more. About the Larkin Hoffman Podcast Briefings The Larkin Hoffman Podcast Briefings series was developed to discuss issues affected by the COVID-19 crisis. Our attorneys address corporate, employment, real estate, construction, franchise, bankruptcy, insurance, litigation, and other matters in this series. Over the next few weeks, there will be several podcasts on developing matters. Larkin Hoffman is available to help. Please reach out for additional guidance.

May 26, 2020

Best Practices

Five Important Questions to Consider When a Union Company Buys a Non-Union Business

This is the third post in a four-part series discussing labor and employment law issues that should be considered when a company decides to buy another business.  My last post addressed withdrawal liability when a company acquires the assets of a business which contributes to a multiemployer pension plan pursuant to a collective bargaining agreement. This article discusses labor law issues when a union company acquires a nonunion business. Five Important Questions to Consider When a Union Company Buys a Non-Union Business You would think that when a union company buys a non-union business, there should be no concern that the non-union business could be subject to the buyer’s existing collective bargaining agreement, or that the purchased business is subject to an obligation to recognize the union.  Like most things in labor law, it is not quite as neat as you would like. 1. What Jurisdictions are Both Parties In? The first thing to ask when a union company is considering buying a non-union company is whether the non-union company is operating in the geographical jurisdiction of the current collective bargaining representative of the buyer.  If the target company is outside the union’s jurisdiction, it is unlikely that there will be any obligation to bargain with the union which represents the buyer’s employees. 2. Companies are in the Same Jurisdiction, What Now? If the target company is in the union’s jurisdiction, the next step is to review the buyer’s collective bargaining agreement to see if there are any provisions that discuss application of the collective bargaining agreement to other businesses owned by the buyer.  If so, the buyer should think about designing the transaction so that the buyer does not own the new company, but instead, different shareholders or companies will own the business to be purchased from the seller. 3. How Similar are the Businesses of the Buyer and Seller? Another factor to be considered is how similar the businesses are.  For a manufacturer, is the product being manufactured by the seller, and the classifications of employees working for the seller, similar to those currently in the bargaining unit represented by a union?  If the buyer is engaged in the manufacture of, for example, computer chips and the seller is engaged in the distribution of cellular phones, it would be difficult for the union representing the buyer to claim that they should also represent the employees formerly employed by the seller.  On the other hand, if the target company and the buyer are engaged in similar businesses and employ employees in similar classifications, the buyer’s union may argue that the buyer’s union should also represent the employees employed by the target company in those similar classifications. If the products being manufactured or sold by the seller and the buyer are similar and the classifications of employees are similar, there is still a question as to whether there is an arm’s length relationship between the two entities. 4. Will There Be an Arm’s Length Relationship Between the Acquired Business and the Buyer After the Purchase? An arm’s length relationship occurs when two unrelated parties or strangers have no special obligation to the other party. If there is an arm’s length relationship between the buyer and the entity it purchased, the buyer’s union is less likely to have a claim for the target company’s employees. Thus, in planning how the buyer will manage the entity it is considering for purchase, the buyer should think about the degree to which the two entities will be connected.  In determining whether there is an arm’s length relationship between the two entities, the NLRB considers four factors: The interrelationship of operations Common management Centralized control of labor relations; and Common ownership No one of these four criteria is controlling and all four need not be present to warrant a single employer finding.  In various cases, the NLRB has stated that the first three criteria are more critical than common ownership, with emphasis on whether control of labor relations is centralized, as these tend to show operational integration.  If the buyer plans to be involved in the management of the acquired company, written agreements between the two entities are helpful (for example, an agreement in which the buyer agrees to “manage” or provide management services to the target company); but these criteria will also be examined to determine if there is truly an arm’s length relationship.  If there is no arm’s length relationship, then the NLRB could find that the buyer and the acquired company constitute a single employer, thereby opening the door to the union claiming that the collective bargaining agreement applies to both entities. 5. When is Accretion Appropriate? Another way in which the buyer’s union could attempt to apply the buyer’s collective bargaining agreement to the target company after the transaction is completed is through accretion.  In accretion, the union would claim that some or all the target company’s employees should be accreted to the buyer’s existing operation. Whether it is appropriate to accrete a unit is subjective and depends on all the facts and circumstances.  The factors which the NLRB discusses when considering accretion include: The degree of interchange among employees in the two companies; Geographic proximity; Integration of operations; Integration of machinery and product lines; Centralized administrative control Similarity of working conditions, skills and functions; Common control over labor relations; Collective bargaining history; and The number of employees at the facility proposed for accretion as compared with the existing operation. The critical question is whether the new facility is sufficiently integrated into the buyer’s existing operation to justify the application of the collective bargaining agreement.  Therefore, when designing the transaction, it would be important that the purchased business use separate management and have an autonomous operation from the buyer’s existing facility.  If these factors are not considered in structuring the acquisition, the buyer may be faced with a claim by its union that the seller’s employees should be added to the bargaining unit. Conclusion In planning an acquisition, a union-represented buyer should consider whether its union may have a basis to demand to add the target’s employees to its bargaining unit.  The financial aspects of the transaction are not the only issues to consider.

May 15, 2020

Best Practices

Re-Opening A Business the Right Way: Tips to Avoid Pitfalls

Phyllis Karasov and Dan Ballintine discuss the matters employers need to consider when re-opening businesses after the Covid-19 shutdowns. Recalling only some employees, screening employees before they enter the workplace and dealing with employees who refuse to return to work are among the issues discussed. About the Larkin Hoffman Podcast Briefings The Larkin Hoffman Podcast Briefings series was developed to discuss issues affected by the COVID-19 crisis. Our attorneys address corporate, employment, real estate, construction, franchise, bankruptcy, insurance, litigation, and other matters in this series. Over the next few weeks, there will be several podcasts on developing matters. Larkin Hoffman is available to help. Please reach out for additional guidance

May 7, 2020

Best Practices

Buying a Union Business

This is the first post in a four-part series discussing labor and employment law issues that should be considered when a company decides to buy another business. The series will discuss transactions where the buyer is a union business and transactions when the seller is a union business. This first article focuses on the acquisition of a business whose employees are represented by a labor union. A buyer’s failure to ask appropriate questions or consider legal risks when deciding whether to buy a company can result in legal issues and unanticipated complications after the acquisition is completed. Stock Purchase vs. Asset Purchase Acquisitions can be structured as either an asset purchase or a stock purchase. A stock purchase is a transfer of the ownership of the business entity, and the entity continues to own the same assets and have the same liabilities. An asset purchase is an acquisition of individual assets and an assumption of agreed-upon liabilities.  The seller may or may not continue in operation after some or all of its assets are sold. Before a company decides to buy a union business, it is prudent to review all collective bargaining agreements to which the seller is a signatory. When the sale is a stock purchase, the collective bargaining agreement continues in effect.  Essentially, the buyer steps into the shoes of the seller and assumes the seller’s obligations in the collective bargaining agreement.  The buyer should be familiar with the wages, hours and working conditions specified in the collective bargaining agreement(s) so the buyer is familiar with the obligations it is assuming. In an asset purchase, whether or not the buyer has an obligation to negotiate with the collective bargaining representative of the seller’s employees depends on the circumstances.  If the buyer in an asset purchase intends to employ all of the seller’s employees, including management, it is probable that the buyer will have an obligation to negotiate with the union which represented the seller’s employees.  The buyer is not necessarily required to adopt the seller’s collective bargaining agreement which is already in place but most likely will have the obligation to negotiate a new collective bargaining agreement with the seller’s collective bargaining representative. Regardless of the type of transaction, in its review of existing collective bargaining agreements, the buyer should pay attention to any obligations to contribute to a multiemployer pension plan.  It is common that multiemployer pension plans are underfunded, and if a contributing employer stops making contributions to the multiemployer pension plan, the employer may be assessed withdrawal liability.  Withdrawal liability will be discussed in a future post, but it is mentioned here to alert prospective buyers of a union company that withdrawal liability can be a factor in evaluating potential acquisitions. In an Asset Purchase is the Buyer a Successor? One of the determinants as to whether a buyer is obligated to recognize the seller’s union as the collective bargaining representative of employees is the degree to which the buyer has hired the seller’s employees and continues to operate the business as the seller did.  Is there substantial continuity of business at the new business?  If the buyer hires none or a small minority of the seller’s employees there could be an argument that the buyer has no obligation to recognize the union because the buyer is not a successor to the seller.  There are a number of factors that are taken into account in determining whether a buyer in an asset purchase is a successor, including: what percentage of the seller’s employees are hired by the buyer; whether the wages, benefits and working conditions are different from those of the seller; whether the equipment and products manufactured by the buyer are the same as those of the seller; whether management has changed; and the amount of integration between the seller’s other employees and the employees hired to work in the purchased facility. “Perfectly Clear” Successor vs. “Not a Perfectly Clear” Successor If a purchaser intends to dispute the application of the seller’s collective bargaining agreement, the manner in which it hires the new employees could be important.  A buyer’s relationship with the union is controlled by whether the buyer is a “perfectly clear” or “not a perfectly clear” successor to the seller’s unionized company. To ensure that a buyer is not a “perfectly clear” successor, the buyer should tell employees that it does not intend to adopt the existing collective bargaining agreement and that any offer of employment will include wages, benefits and other terms and conditions that will be different from those contained in the collective bargaining agreement. Thus, if the buyer needs to reduce expenses and change the operations and administration of the purchased entity in order to make the purchase worthwhile, the buyer needs to structure the transaction, as much as possible, to enhance a result that either does not require the buyer to recognize the union at all, or at least allows the buyer to have the right to negotiate an entirely new collective bargaining agreement. If the buyer is a successor, in most circumstances, it is advisable to negotiate a new collective bargaining agreement rather than assume the seller’s contract.  It is much easier to negotiate a new collective bargaining agreement at the time of purchase, rather than try to change an existing collective bargaining agreement in future negotiations.  The buyer should assess whether the existing contract’s non-economic provisions will adversely impact the buyer’s operations. Conclusion The decisions regarding whether the buyer intends to recognize the union as the collective bargaining representative or dispute that the union represents the seller’s employees should be made early in the planning process so that the buyer does not unintentionally say or do things which can result in the buyer having to recognize a union as the collective bargaining representative of the new employer, or be required to follow the terms and conditions of the seller’s collective bargaining agreement. Stay tuned for my next post which will discuss withdrawal liability when the seller contributes to a multiemployer pension plan.

May 1, 2020

Best Practices

Department of Labor Guidance on the Families First Coronavirus Response Act

On March 26, 2020,  the U.S. Department of Labor (DOL) published its first guidance on the Families First Coronavirus Response Act (“FFCRA” or “Act”). The publications included a fact sheet for employees, a fact sheet for employers and a question and answers document. The documents begin to address the numerous questions that businesses have concerning the application of the Act to their business, how to determine coverage, ways to seek an exemption and circumstances under which a small business might do so, and other miscellaneous items concerning wages and hours. The DOL promises that more information will be forthcoming before the effective date of implementation of the Act which now appears to be April 1, 2020. Although there is a provision in the Act for seeking exemption and DOL Q&A mentions exemptions for small businesses it merely states that to elect the exemption businesses should document why their business with fewer than 50 employees meets the criteria set forth by the DOL, which criteria will be addressed in more detail in forthcoming regulations. The DOL also admonishes businesses not to send materials to the Department when seeking a small business exemption for paid sick leave and expanded family and medical leave. Both the Sick Leave and the extended FMLA provide the Secretary of Labor with authority to exempt small businesses with fewer than 50 employees when the requirements would “jeopardize the viability of the business.” It is hoped that the DOL will provide guidance soon on how it will administer such exemptions. At the present time, there is no guidance to tell business what should be included, what criteria would count, and where to apply. March 26, 2020 is also the deadline for the DOL to produce and publish a notice including what is required to be provided to employees. We expect a poster with language to be forthcoming.

March 26, 2020

Best Practices

The New Reality – Employees Working From Home

This article is co-written by: Phyllis Karasov, Larkin Hoffman Larry Morgan, Orion HR Group, LLC In light of the coronavirus, the majority of employers are allowing, if not mandating, that employees work from home (WFH). What should employers be thinking about when arranging for employees to telecommute? Determine which positions lend themselves to WFH. Obviously, some positions require face to face interaction or production with hands-on work, such as manufacturing. The employer should consider whether there are alternative options, such as conference calls and videoconferencing, to allow work to proceed despite employees WFH. Determine which employees are capable of working from their homes. Many employees are not technologically savvy and have limited ability to work independently with little or no supervision. Employees must have an area in their home in which they can reliably and work every day. Build a formal checklist to establish clear and objective standards regarding employee and supervisor attributes to make it successful. Determine what infrastructure is needed for employees to WFH. If an employee does not have the internet at home, the employer may be able to provide a hot spot. If necessary, the employer can provide a computer, shredder and/or a printer/scanner/copier. Any secure platforms the employer uses must be installed on the employee’s home computer. The employer’s IT department should work with employees to ensure home computers are protected from hacking, virus malware, etc. All employee work should be stored on the employer’s server. Establish the rules for WFH, such as: Employees must record their hours If children will be at home, with the employee’s assistance, determine when the employee will be available to work Build regular schedules and options for the employee to use paid time off for family activities as appropriate Establish set times for phone meetings or virtual meetings. If necessary, software to allow for virtual meetings will have to be installed on the employee’s home computer or laptop. Employees are allowed only to work from home, not from a public space or someone else’s home. Employees must WFH in an area in which there are no distractions, with formal work hours so they can be contacted. Reminders of the obligation to maintain confidentiality, procedures to ensure business data is properly stored on the employer’s server, and how to handle trash if there is no available shredder. It should be made clear that this is a temporary situation. Employees may get comfortable working from home and want to retain WFH when it becomes safe to return to work. 5) Discuss and publish expectations. When reports and updates are required deadlines should be established. Individuals should be designated with whom employees can communicate when there are issues (and their cell phone numbers). Work product deliverable expectations and deadlines should be clear. WFH can result in additional expenses for the employee. Copy paper, increased internet usage, printer ink and other items can become expensive. The employer should be clear as to what they will pay for, and whether it will be direct payment or reimbursement to the employee. Depending on the item, there may be taxable income issues. Written documents describing the terms and conditions of WFH should provide the employer with the ability to decide that WFH is not effective, whether because of the work or because of the employee or the employee’s family situation. To avoid isolation, the employer should consider having regular virtual meetings so that employees still feel part of the team and continue to feel connected. If anything, over-communicate with employees so they remain connected with the employer and team members, have firm expectations of their own work, ongoing feedback as well as the employer’s business and future forecasts. Employees are naturally nervous about the stability of their work situation and it is helpful for employees to be told how their company is doing in this challenging economy.

March 19, 2020

Best Practices

Should You Buy Employment Practices Liability Insurance?

Over the past decade or so, more and more employers have purchased employment practices liability insurance (EPLI) through their agents. In general, EPLI provides employers with coverage, usually for both defense costs and damages potentially awarded in cases involving claims of discrimination or harassment by employees, overtime, and other allegedly unfair employment practices. At first glance, EPLI coverage seems to be a no-brainer: the employer pays a premium and gains the peace of mind from knowing that if a lawsuit is commenced, insurance will generally pick up the tab, subject to exhaustion of some type of deductible. But employers should not be too hasty to sign the dotted line on an EPLI policy. Often, such policies allow the insurer to dictate the lawyer who will represent the employer in any litigation. And in most cases, that lawyer will be from a firm which is listed as one of the insurer’s “panel counsel,” a group of firms that have contracted with the insurer to keep their rates down in return for referrals of EPLI cases. That, in and of itself, can create a conflict of interest. Any lawyer an employer hires to defend it should solely look out for the interests of the employer. But with panel counsel, the lawyer often has the competing concern to maintain a solid relationship with the insurer which, after all, is feeding cases to the lawyer. That can create situations where the lawyer is not necessarily doing what is solely in the best interests of the employer. For example, an employer may wish to exonerate itself and take a case to trial. The insurer, of course, may prefer to avoid that expense and push for a quick settlement. This can present a conflict for the lawyer, who was brought into the case by the insurer and almost certainly hopes to continue to get referrals of cases from the insurer in the future. In a real-world example, in the summer of 2019, an employer sued its EPLI insurer and its panel-provided lawyer in the Los Angeles Superior Court for bad faith and legal malpractice. The employer, who had been sued by a former employee on a multitude of claims, alleged the lawyer consistently treated the insurer as the true client, and defended the case in a manner which directed liability to the claims with little or no insurance coverage and away from those for which there was strong EPLI coverage. In other words, the lawsuit alleged the lawyer handled the case with an eye toward benefitting the insurer, as opposed to the employer, who should be the true client. And potential pitfalls with EPLI coverage are not limited to the possible conflicts of interest with panel counsel. Many EPLI policies limit the type of claims they cover. For example, they often exclude contractual claims for wages, or payment of damages for overtime. In situations where an employee has asserted a myriad of claims against an employer, as is often the case, it is typical for only some of the claims to be covered by insurance. In those situations, the EPLI insurer may agree to pay for an employer’s defense, but only to the point where the claims covered by insurance remain in the case. If the insured claims are successfully dismissed, an employer may have to find new counsel at that point to continue to defend the uninsured claims. The employer is also using an insurance selected attorney to represent them in a claim which is not covered and for which they may not have as much interest as they do in a covered claim. Many employers decide to hire their own counsel to represent them in uncovered claims to protect them from a disinterested insurance attorney. In the end, EPLI coverage can certainly be a smart and integral part of employers’ risk mitigation strategies. But do not sign such policies blindly. Consider adding clauses which allow the employer to choose its own lawyer and give the employer sole discretion on when to settle and determine strategy for defending the case, and other such clauses.

February 21, 2020

Best Practices

Online Ad Targeting Presents Risks for Employers and Landlords Alike

Last fall ProPublica revealed that the U.S. Equal Employment Opportunity Commission has cited employers for discriminatory targeting of job ads on Facebook.  The ads in question excluded women and older workers through use of the micro-targeting tools provided by Facebook’s advertising platform.  Early in 2019, a similar practice came under fire by the Department of Housing and Urban Development in the context of housing ads and just this past December, Facebook began expanding its efforts to prevent advertisers from discriminating and announced that it will include housing ads in its searchable public database Ad Library.  The move is seen as an effort to fend off criticism that its ads could be used to target audiences based on certain characteristics. For those unfamiliar with online advertising, many platforms, including Facebook, allow ad buyers to select groups of users to be shown the ads.  This practice is perfectly appropriate when used for many goods and services, such as targeting certain video game advertisements at younger users.  However, where it is used to prevent a protected class from becoming aware of job openings or available housing, it runs the risk of being classified as illegal discrimination. Employers may have considered the ad targeting to be an efficient way to use limited marketing funds to reach out to those most likely to apply.  Unfortunately, government regulatory agencies do not see it that way, and cost-savings are unlikely to be viewed as a legitimate defense to allegations of intentional or unintentional discrimination. For its part, Facebook reports that it has made changes to its platform to limit the ability of users to target advertisements for certain products in ways that might run afoul of anti-discrimination laws.  Facebook removed the ability to target by age, gender, or zip code for housing, employment, and credit offers. While Facebook has some of the most accurate and granular demographic details about its users, it is not the only company to offer similar advertising targeting functions.  Any company advertising for a product or service, particularly those in highly regulated areas such as employment or housing, should take care to ensure that it is not inadvertently creating a discrimination claim when it decides how it will target the users who will be shown ads.

February 5, 2020

Best Practices

In or Out?

Inside or Outside Investigations of Employee Conduct or Complaints? It almost goes without saying that it is imperative in these times that businesses conduct impartial, timely and thorough investigations of workplace misconduct, including employee complaints.  Doing so gives businesses better chances to resolve issues, salvage employees, avoid litigation or at least better defend against liability. There are many considerations in making the decision about how to handle employee complaints in a workplace investigation.  Among the considerations are: What type of complaint is it? How severe is the underlying conduct? What is the level of complexity? Who and how many people or witnesses might be involved? Is there documentary evidence, such as notes, diaries, photos available? What is the level of the alleged wrongdoer? Is he/she an executive level or more rank and file? What is the structure of the HR function or department in your company? What is the experience level of the possible inside investigators?  Is there any perception of bias, favoritism, skewed perspective about any or all of the HR personnel in the company? What is the need for confidentiality? Reasons to Use an Outside Investigator Having done investigations and employment law for almost 40 years, I will admit to having my own reasons and biases in favor of using trained outside investigators.  Setting aside those biases however, other than the fact that an outside investigator undoubtedly costs more at least to do the investigation and write up a report, there may be an actual cost savings in the long run.  Outside investigators are neutral, impartial, experienced in investigations and generally in employment law, and are supposed to be objective.  They do not have a continuing role within the business, play no part in subsequent discipline or in decisions the business may have in the future that involve, or are about the affected employees, complainants, witnesses and wrongdoers.  If there is subsequent litigation, or a threat of litigation, an outside investigator would have greater court readiness.  The chances of getting a more thorough and professional report is greater with an outside investigator. Reasons to Use an Inside Investigator There are no laws, state, federal or local, that dictate or require the use of either an in-house or an outside investigator.  Inside investigators, typically from HR or another department of the business, may be a familiar face to those individuals who will be interviewed, which allows them to feel more comfortable rather than having a stranger questioning the various witnesses, complainant, and alleged wrongdoer(s).  The inside investigator most likely has institutional knowledge regarding the people, the culture, and the company.  There is undoubtedly an initial cost savings to the company to have it be done by personnel who are employed by the business, although that savings may disappear or dissipate if the investigation, or the results, are later challenged.  The business also needs to look at whether it has the resources within the company to handle the investigation with the speed, experience and training and objectivity needed, all the while keeping the company running in the meantime. There is a secondary issue that is often debated that needs to be decided by the business, both in choosing its investigators, and in determining their role.  The issue is whether the investigator should make recommendations, determinations in addition to a fact finding, or if they are strictly a fact finder.  A corollary issue is whether the investigator should make and report on the credibility of witnesses, if necessary, or leave that to the business to decide.  There are pros and cons and reasons for either, or both options, to be considered, but the issues should be decided before the investigation is commenced.  Usually, as long as the investigation is adequate and the report is comprehensive, the company will be deemed to have enough information that decisions about discipline, training, termination, etc., regardless of who makes them, should not be challenged.  The company knows its culture, the business risks and is arguably more knowledgeable, if not qualified, to reach such conclusions.  There are obvious exceptions to this, particularly if the investigation revolves around actions or conduct involving a high-level executive in the company.  In those circumstances, using an outside investigator and having that person recommend actions the company should take, removes concerns about objectivity or whitewashing.  However, turning over the determinations, conclusions, or outcome decisions, can be a difficult thing for a company to do.  Individual circumstances dictate that decision.

January 29, 2020

Best Practices

Wellness Fees, Service Charges, and Automatic Gratuities, Oh! My!

If you have eaten out recently, you may have seen an additional charge at the bottom of your bill that says something like “health care 3%” or “3.9% mandate compliance surcharge.” As restaurant and other service-industry employers face growing employee costs further eroding already razor-thin margins, many increasingly add extra charges to their bills to help cover these costs. The CityPages recently published an article looking into the precarious restaurant situation and the use of service fees to try to ease the pain. However, mandatory service charges also face push back—with one restaurant group facing a lawsuit over their inclusion of a 3 percent wellness fee added to their bills. While most media attention has focused on such service charges in the restaurant industry, the service-charge rules apply to any service-oriented employers considering adding a service charge to their bills (For example, hotels often add a “resort fee” to their bills.). So, are these charges legal? As with most things when it comes to the law, the answer depends upon the situation. A service charge or fee is a mandatory charge that is added to a customer’s bill in addition to the basic charge for products and services. Employers are not required to add service fees to their bills. Properly done, employers can legally charge customers a service fee. Improperly done, additional charges can be considered employee gratuities (a/k/a “tips”) under Minnesota law but income to the employer under tax law. As discussed in my prior post about the Dos and Don’ts of Tipping, Minnesota has strict laws about tipping policies. If you are an employer that is considering adding a service charge to customer bills, you will want to make sure your policies comply with these laws. Under Minnesota law, any mandatory additional charge is considered a gratuity to the employee by default. There are two exceptions: A mandatory charge is not considered a gratuity if it would be completely unreasonable under the circumstances for the customer to interpret the charge as “payment for personal services rendered.” For example, it would be unreasonable for a customer to think the charge is a gratuity if an employee directly tells the customer that the charge “is not a gratuity.” However, relying on this type of exception is highly risky because it depends upon the facts of each situation and can easily be disputed. A mandatory charge is also not considered a gratuity if “clear and conspicuous notice” is provided to customers. The rules defining this standard are very particular about what type of notice is “clear and conspicuous.” However, the notice includes printing a statement that the charge “is not a gratuity” clearly in at least 9-point font on the menu or bill. This is the most common approach used by restaurants in the Twin Cities. The use of service fees varies widely and is often rather ambiguous. If you decide to implement a service charge, you should also make sure that the service charge accurately reflects its purpose. For example, saying that a service charge is “mandatory” under state law is not accurate when the state does not require businesses to add the service charge. Similarly, a charge listed as a “wellness fee” should be used for wellness purposes. Some employers charge a “wellness fee” to cover only mandatory healthcare costs, such as insurance and sick and safe time pay. Other employers have found cost-effective plans that also enable the employer to provide basic health and wellness services to all of their employees. Improperly identifying the purpose of the charge could invite challenges from customers or employees—some employers segregate these funds for the identified use. Another way to minimize customer complaints and other potential challenges to the charges is to fully train your staff on the purpose, use, and reason for the charges. If your staff is on-board and excited about the benefits, they can turn any customer questions into an opportunity for increased loyalty and appreciation. For example, employees explaining how they directly benefit from a wellness fee makes it personal. Some employers will even agree to drop the service charge if a customer still does not want to pay the charge. Some employers do charge obligatory gratuities—particularly for large parties. The IRS considers obligatory gratuities to be service charges—not tips—and taxes them as part of your gross income. As explained above, however, Minnesota labor law considers these to be tips. Accordingly, you must distribute mandatory gratuities to the appropriate service employees while also treating them as business income and wages for tax purposes. The increased use of service fees has generated significant discussion among customers and service-industry groups. Some opponents say they would rather see increased prices with postings explaining the increase or touting the benefits the increases provide. Others support the service fees and believe that the fees ensure that the money will be used for the stated purpose. Whichever approach you decide to take, you will want to make sure that you understand the potentially strict legal implications under Minnesota and local law. Additional Resources: Minnesota Statute § 177.23, Subd. 9: Definition of Gratuities Minnesota Administrative Rule 5200.0080: Gratuities/Tips Credits IRS Revenue Rule 2012-13: Regarding Tips versus Service Charges

January 24, 2020

Best Practices

Are you covered? Employment Practices Liability Insurance

Employment practices liability insurance (EPLI) is a popular product for employers of all sizes. Many companies obtain EPLI coverage by purchasing a package of insurance policies covering a variety of management risks, such as directors and officers liability, professional liability, and cyber security. Once the policies are in hand, reviewing your company’s voluminous insurance terms and conditions might not be at the top of your to-do list. It is important, however, to take the time to understand your EPLI coverage before you need it. Doing so will help avoid costly reporting mistakes and maximize your benefits. Here are some common questions and answers about EPLI coverage: What does EPLI typically cover? EPLI provides coverage for specified employment-related claims that are listed and defined in the policy. Covered types of claims usually include employment discrimination, harassment, and retaliation, wrongful termination, and workplace torts like defamation, invasion of privacy, and negligent employment. Coverage is usually also afforded to certain breach of contract claims. EPLI offers protection from both the risk of paying claims as well as the cost of defending them. As discussed below, your policy will either require the insurer to assume the defense of the claim by appointing counsel of its choice (a “duty to defend” policy), or to reimburse the expenses that you incur in defending the claim with counsel of your choice (a “defense expenses” policy). Your EPLI policy may provide coverage for amounts that you become legally obligated to pay as a result of a claim, such as compensatory damages, back pay, or front pay, but there are also amounts that are not covered. What does EPLI typically exclude? EPLI policies usually exclude coverage for risks covered by other types of insurance, such as directors and officers liability or unemployment insurance, as well as bodily injury and property damage covered under commercial general liability or workers’ compensation policies. EPLI policies also usually exclude coverage for intentional acts, labor disputes, and the cost of complying with injunctive relief. Most EPLI policies exclude coverage for wage and hour claims unless the insured purchases a separate endorsement (i.e., an amendment) that expands coverage to include them. Many EPLI policies will cover the defense of claims for breach of contract, wrongful termination, and loss of benefits, but they will often exclude coverage for amounts that you become legally obligated to pay as a result of such claims. An exception to this exclusion for breach of contract damages are amounts that you would be liable for even in the absence of the contract. In these circumstances, the insurer may agree to defend you subject to a reservation of rights to deny coverage for the claim, and as discussed below, this circumstance requires you to carefully consider your rights under the policy and the risks associated with the lawsuit in order to maximize your insurance benefits. What is “claims made” coverage? EPLI policies typically provide “claims made” coverage, which means that the claim must be made against you during the policy period in order to trigger coverage under the policy. This is different from general liability insurance, which is “occurrence” based, providing coverage so long as the damage occurred during the policy period even if a claim does not arise until later. Many EPLI policies that provide claims-made coverage also contain an important additional requirement: that the insured report the claim to the insurer as soon as practicable during the policy period or during a specified extended reporting period after the policy’s expiration. This requirement is often enforced by insurers and many courts if the late notice causes the insurer prejudice, so it is critical that you timely report claims. Insurers will deny coverage for costs incurred and settlements agreed to by the insured prior to receiving notice of the claim. What is the difference between the insurer’s defense and indemnity obligations? Liability insurance policies place two obligations on the insurer: the duty to defend (or alternatively, to reimburse defense expenses) and the duty to indemnify. The former is triggered if the claim merely alleges any facts regardless of merit that are “arguably” within the scope of the policy’s coverage, while the latter is triggered only if the actual facts ultimately establish coverage. This means that an insurer may be obligated at the outset to defend you from claims even if it may not ultimately be obligated to pay any judgments or damages resulting from them. In such cases, the insurer will typically issue a “reservation of rights” letter, agreeing to provide you with a defense, but reserving the right to withdraw from it and deny coverage for any resulting judgments or damages if the facts ultimately do not establish coverage. This is particularly common under EPLI where employees allege many facts, plead alternative causes of action, and request a variety of forms of relief. A duty to defend is triggered if at least one claim is arguably covered under the EPLI policy, but its many exclusions, such as those for intentional acts, loss of benefits, breach of contract, wrongful termination, and injunctive relief, may ultimately eliminate the insurer’s obligation to indemnify you from any resulting judgments or damages. If you are receiving a defense subject to a reservation of rights, it is important to consult with independent counsel about your policy’s coverage because it may affect your litigation and settlement strategies. An insurer’s reservation can also, at times, entitle them to seek to recoup defense costs paid if the policy holder does not properly respond. You should not assume that your insurer-appointed defense counsel will be willing, interested, or capable of providing you with objective advice about your policy’s coverage. An insurer providing a defense subject to a reservation of rights may have interests that do not align with yours and this could affect how it controls the defense, its willingness to contribute to a settlement, and its expectation that you will do so as well. Am I covered? Unlike commercial general liability policies, there is very little uniformity among EPLI policies, meaning that the terms and conditions of each policy often vary from insurer to insurer. Endorsements to the policy may add, remove, or modify the scope of EPLI coverage. EPLI policies often have claim-specific limits, which is particularly common for wage and hour claims, and the limits may or may not be eroded by defense expenses. Depending on your particular business, it is important to consider who qualifies as an “insured” and an “employee,” whether the EPLI policy provides coverage for claims made by third-parties, whether exclusions for “intentional acts” apply before a judicial finding is made, and how your EPLI coverage works with other insurance that may be available to you. You can contact us if you have more questions about your EPLI coverage. We are experienced in assisting our clients with choosing the right EPLI coverage options, explaining the scope of coverage afforded by their EPLI policies, reporting claims to insurers, and evaluating your options if your insurer is providing a defense subject to a reservation of rights or has denied coverage for your claim.

January 6, 2020

Best Practices

It’s Party Time!

The time has come for companies to begin planning their 2019 holiday parties.  While these events are a great way to show appreciation for employees and build morale, they can present certain risks for employers.  Being mindful of the following issues can help employers avoid complaints, or worse, lawsuits, associated with holiday parties. Alcohol While alcohol is common, and often expected, at holiday parties, employers can and should be mindful of potential problems which could follow, including employees driving after drinking at the party.  If an employee drives drunk and injures another person while driving home from the party, a lawsuit could follow in which the employer could potentially be exposed to liability.  The best way to avoid alcohol-related problems at a holiday party is to consider some or all of the following suggestions: •   Use drink tickets rather than an open bar to limit consumption; •   Offer taxi or Uber credits to employees; •   Instruct bartenders not to overserve and to monitor employees’ alcohol consumption; •   Close the bar well before the party comes to an end; and/or •   Before the party, remind employees in writing that, although alcohol will be served, employees are still expected to behave professionally and that anyone who plans to drink must secure a ride home. In addition, employers should consider designating one or more managers to be on the lookout for anyone who appears to be impaired so that any problems can be addressed early on. Sexual Harassment Harassment claims often go hand in hand with alcohol consumption.  While employers certainly do not need to hand out copies of their harassment policies at the entrance, they should be conducting harassment trainings with their employees and reminding employees of harassment policies on an annual basis, if not more often.  Doing so will place the issue in employees’ minds and potentially help support a legal defense to any harassment claim down the road if an incident does occur. Discrimination In general, employers should avoid making holiday parties about one particular holiday or another.  Instead, the celebration should be inclusive of all employees’ beliefs and cultures.  A holiday party with overt religious references may cause an employee who believes that he or she has been the subject of religious discrimination with one more reason to voice a complaint or assert a claim.  The same applies to other forms of holiday celebration (e.g. “secret Santa” gift exchanges which can make non-Christians feel excluded).  While an employer’s reference to Christmas, Hanukkah or any other seasonal religious holiday is unlikely to be the reason an employer has legal exposure, it certainly won’t help when defending against a claim based upon religious discrimination or harassment. Mandatory Attendance and Wage and Hour Issues Every company wants its holiday party to be well attended.  Some go so far as to make attendance mandatory.  However, if an employer tells nonexempt employees that attendance at the party is required, the employer may be opening itself up to a host of Fair Labor Standards Act (FLSA) and state law claims.  If attendance at a holiday party truly is mandatory, it is likely employees will have to be paid for the time they spend there.  Additional relevant factors include whether the party takes place during working hours and on or off the company’s premises.  If an employer does not plan to pay non-exempt employees for attendance at its holiday party, the employer should make clear, in writing, that attendance is optional (and ideally, that the party will take place outside of working hours and away from the employer’s office). Conclusion These are just a few of the commonsense tips employers should have in mind when preparing for and hosting holiday parties.  Although not all employers (and certainly not all employees) will necessarily embrace these tips, they can help holiday parties serve as a fun-filled event rather than a source of liability and legal headaches.

November 26, 2019

Best Practices

Do’s and Don’ts of Tipping

What is the deal with tipping in Minnesota? Although there are many legal considerations which must be taken into account when running a service business where customers tip your employees, there is one cardinal sin that comes up the most in service-industry conversations and can get businesses in big trouble: tip-sharing. There are many cautionary tales, but perhaps one of the most infamous recent examples is the $2.5 million Surly agreed to pay last year to settle a tip-sharing lawsuit. To be clear up front: tips are your employees’ money. Minnesota law prohibits mandatory tip sharing  (requiring employees to share their tips with other employees). This is different from the laws of some other states, and Minnesota’s law can catch multi-state businesses by surprise. Because tip-sharing is such a cultural norm in the service industry, it can be difficult for employers to foster a collegial culture while avoiding misunderstandings about tipping policies. Here’s the key: the fact that any tip sharing is voluntary must be clearly communicated to employees and documented in writing. Anyone who is training new employees needs to be aware of the importance of this. Make sure that any questions about “how much do you usually tip out the _____?” are first answered with something like, “Your tips are yours, and you can do whatever you want with them.” The trainer could then say something like, “I usually do ___,” or “people typically do ____.” The trainer should make sure to finish by clarifying, “but you decide what you want to do.” There are limited exceptions to this rule, for example, in the catering industry and in service-counter establishments, like coffee shops. If you operate one of these kinds of businesses, make sure you understand how the tipping laws apply in your particular circumstance. Again, tipping policies can be a minefield. Minnesota has strict laws about tipping policies. Employers need to be particularly careful regarding issues like automatic gratuities or participating in the tipping-out process. You will also want to make sure your method of handling credit-card tips both complies with the law and is clearly communicated to your applicants and employees, so there are no surprises. There are also tax implications regarding tipping that you will want to make sure you are handling correctly. I hope to address these issues in future articles. Additional Resources: Minnesota Department of Labor: Tips, Tip Credit Minnesota Statute § 177.24: Payment of Minimum Wages Minnesota Administrative Rule 5200.0080: Gratuities/Tips Credits

November 14, 2019

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