The U.S. Supreme Court is considering the future viability of affirmative action plans in the academic sphere and could make significant changes to the legality of race-based admissions policies in colleges and universities.  Like academia, over the last twenty years, many companies have adopted diversity and affirmative action programs (even where not required by law) to increase the representation of traditionally underrepresented employees in certain positions.

The prevalence of these business practices, coupled with the scrutiny federal courts implore onto programs that discriminate against some employees (even if that discrimination is in an effort to either equalize racial or gender imbalance or to remedy the effects of past discrimination), will likely lead to an increase in race-based and gender-based challenges to employer diversity programs—as demonstrated by a recent case out of the U.S. District Court for the Southern District of Texas. Thus, while the goals of these actions may be laudable, they may also result in discrimination claims filed by non-minority employees.

In Burak Powers v. Broken Hill Proprietary (USA), Inc., Houston-based federal judge Lee Rosenthal aptly framed the issue:

This lawsuit raises a question that many companies are struggling to answer: What steps can a company take to encourage the promotion of women and unrepresented minorities to managerial positions without discriminating against men or individuals outside the protected class seeking the same opportunities?

As it turns out, there is good reason why companies are struggling to answer this question—because there is no clear answer.

Burak Powers was hired by BHP, an Australian-based company, in 2013. By most accounts, he was an outstanding employee. He was promoted to managerial positions having multiple direct reports. He was nominated as a BHP Future Emerging Leader, and HR named him a high potential talent.

In 2016, the company launched its Inclusion and Diversity Initiative. The goals of the initiative included both increasing the presentation of women in the global workplace by 3% and reaching an overall gender-balanced global workforce by 2025. The company furthered the initiative by creating Key Performance Indicators, that tied manager performance reviews and bonuses to the targets in the Inclusion and Diversity Initiative and the representation of women in the workforce.

Despite being a high performer, Powers’ position was eliminated during the company’s global restructuring effort. When he attempted to apply for other positions within the company, he was routinely passed over for women (despite his contention that he was more qualified and a better candidate for the role). Moreover, the company converted an Australia-based role similar to the one Powers held into a global opportunity, which a woman from Houston, Texas ultimately filled. As a result of his termination and other subsequent actions taken by BHP, Powers brought a sex discrimination, post-termination retaliation and breach of contract suit against BHP.

Judge Rosenthal denied BHP’s motion for summary judgment on Powers’ claims, noting that Powers had direct proof of sex discrimination (i.e., the Inclusion and Diversity Initiative) and that he had substantial circumstantial proof of sex discrimination. Judge Rosenthal also determined that a fact issue existed on Powers’ post-termination retaliation and breach of contract claims.

Power’s spotlights several features of diversity initiatives that could prove problematic and give rise to a discrimination claim by an employee that is not the intended beneficiary of the initiates. These include: (1) tying bonuses (either the amount or eligibility to receive) to achievements of gender or minority-based targets; (2) measuring manager performance or setting KPIs to the achievement of gender or minority-based targets; (3) pre-determining that a position will be filled by a candidate of a particular gender or race without regard to the qualifications of the applicants; (4) altering a position to accommodate for one gender or minority-based candidate while not altering the position for other applicants of different genders or races; (5) instructing leadership to utilize the company’s restructuring as a tool to accelerate its progress towards gender or minority-based targets and (6) exiting employees based, in whole or in part, on their gender or minority status and not upon the employee qualifications.

Inclusiveness and diversity in the workforce can be important goals of a business.  However, when implementing and utilizing these programs, companies must be mindful of the anti-discrimination laws and ensure that remedying underrepresentation of certain racial, gender or ethnic does not result in discriminating against other employees.

A full copy of Judge Rosenthal’s opinion is available here.

COVID-19 Nurses & Therapists at Manchester Memorial Hospital
Rusty Watson, Unsplash

On November 16, 2022, the Department of Labor announced that it had recovered $1.2 million in back wages from four different home health care agencies on behalf of 599 home healthcare workers.  One of the responsible employers, Guardian Angels Care Services, Inc., owed $160,477 in overtime back wages for misclassifying its employees as independent contractors.  Earlier in 2022, a federal court in Virginia ordered a medical staffing agency to pay $7.2 million in back wages to over one thousand aides and nurses it misclassified as contractors rather than employees.

There is a growing trend with health care practices and staffing agencies serving the health care field to classify their workers like certified nurse assistants, licensed vocational nurses and registered nurses as independent contractors rather than as employees. Some of the entities are employing Gig-economy practices to allow health care workers to select their shifts on mobile phone-based applications.

It’s easy to see why companies are engaging in this practice.  According to Businessweek magazine, companies save an average of 30 percent on hiring an independent contractor versus an employee because of the tax, overtime, insurance and benefits savings.   If a worker is properly classified as a contractor rather than an employee, the company does not 1) pay overtime to the employee; 2) provide health insurance and benefits; 3) not providing workers’ compensation insurance coverage; 4) provide retirement or other savings benefits; 5) withhold the worker’s federal and state tax obligation nor pay the company’s portion of those federal and state tax obligations which are now borne 100% by the worker; and 6) pay unemployment taxes so the worker is eligible for unemployment.  Moreover, the company working with the contractor cannot be sued by the contractor for discrimination, harassment or retaliation, and the company may not even provide liability insurance for the health care worker.  However, a worker misclassified as an independent contractor (rather than an employee) is likely not receiving overtime compensation, is not getting the benefit of the employer paying 1/2 of the employee’s tax obligations on the employee’s behalf, is not being provided health or retirement benefits and is not contributing to their social security fund to fund the employee’s social security benefits.  The contractor also cannot receive workers’ compensation benefits for injuries sustained in the course and scope of employment, they are not eligible for unemployment benefits and are not afforded the protections of the civil rights laws that protect employees from unlawful discrimination, harassment and retaliation.  And because many African American women are more widely represented in healthcare than other groups, the misclassification disproportionately affects persons of color.

The cost savings of using properly classified independent contractors versus employees is significant, and there are substantial risks and liabilities to the company that misclassifies those workers.  The consequences of misclassification are significant as evidenced by the DOL’s enforcement actions mentioned above.  The consequences are also significant to the government’s collection of tax revenue.  The Government Accountability Office has estimated that the government loses $2.72B annually in unpaid social security, unemployment insurance and income taxes as a result misclassification of contractors by companies.

The test for determining whether the worker is properly classified as a contractor versus an employee is the economic reality test.  The economic realities test asks whether the entity functions as the individual’s employer or if the worker is really in business for herself. The following nonexclusive factors are often examined by the Courts in this analysis (1) the employer’s right to control the work; (2) the worker’s opportunity to influence his profit or loss depending on his managerial skill; (3) the worker’s investment in equipment and materials; (4) whether the service requires special skills; and (5) the degree of permanence of the working relationship.  Because it is a fact intensive rather than a bright line test, it is difficult for an entity to have much certainty in the classification of its workers; particularly where the workers are involved in core business operations like health care service.   Mistakes can be very costly for employers found to have engaged in misclassification.

If you have any questions about how to properly classify workers, you should contact legal counsel.

 

 

 

With the spectacular crash of the centralized cryptocurrency exchange FTX and the potential bankruptcy of a second high-profile cryptocurrency exchange called BlockFi, now is a good time to revisit whether an employer would want to pay or employees receives all or part of their wages in Bitcoin or other cryptocurrency.

Let’s go back to 2014:  Guardians of the Galaxy was a box office hit, Russell Wilson and the Seattle Seahawks were the defending Super Bowl champs, Taco Bell finally released a breakfast menu, and we first wrote about paying employees with cryptocurrency.  So what’s new in the eight years since we first wrote about cryptocurrency?  Not much.

Over the past several years, Bitcoin and other various forms of digital cryptocurrency have skyrocketed in popularity. This popularity is shown through celebrities and politicians taking their salaries, at least in part, in Bitcoin (e.g., Aaron Rodgers and New York Mayor Eric Adams).  Despite this popularity, several crashes and bear markets have plagued the cryptocurrency market.  While some employees may find pleasure in receiving Bitcoin that is on a decline, others – and the FLSA – do not.

The volatility of the cryptocurrency market, which can best be described as very high when its high and very low when its low, may expose Texas employers to liability for unpaid wages.  One crash, which occurred as recently as last week, has failed to recover in light of the exchange company FTX’s bankruptcy filing announcement.  This announcement, which raised security concerns regarding the exchange platform, was as unexpected as it was detrimental to the world of cryptocurrency.  In fact, over a week later, the future of the digital market is still in fluctuation.  So, what does this have to do with Texas employers?

Texas law allows for employers and employees to agree, in writing, for an employee to receive part or all of their wages either in kind or in another form—including Bitcoin or cryptocurrency.  The FLSA, however, requires the compensation required by law (i.e., salary, minimum wage, and overtime) to be paid in cash or negotiable interest payable at par.  Because the FLSA supersedes Texas law when the two conflict, Texas employers are limited to paying bonuses, commissions and sums in excess of minimum wage and overtime in cryptocurrency.  If a Texas employer wants to pay these sums cryptocurrency, and the employee wants to accept that method of payment, they must make an agreement in writing to do so.  The agreement should clearly outline the payment structure and the risks associated with such payment, including the potential for a decrease in worth between the time of payment and the payment’s receipt.  As a reminder, however, for non-exempt employees, bonuses and commission still must generally be included in the employee’s regular rate of pay—making this strategy even riskier in terms of FLSA compliance.

Texas employers cannot always accurately predict the market.  However, they can minimize their risk of running afoul of the FLSA by paying their employees through more traditional methods of payment.  As the old saying goes, if it isn’t broke, don’t fix it – and the traditional payment methods (when paid correctly) aren’t broken.

 

Want to evaluate whether you need to improve your company’s sexual harassment and gender discrimination policies or get recommendations for potential improvements to those policies?  A company can spend tens or hundreds of thousands of dollars to engage a large law firm to study the company’s policies and make recommendations for improvement.  Alternatively, a company can piggyback on Microsoft’s investment in a publicly released, comprehensive report done by an outside, independent law firm on the effectiveness of its policies and recommendations to improve those policies and practices.

In January 2022, Microsoft retained an outside, independent law firm to review the effectiveness of the company’s sexual harassment and gender discrimination policies.  In November 2022, the independent firm provided its final report to the Microsoft Board of Directors.  Moreover, Microsoft just released the report to the world.  While most companies cannot afford the significant investment Microsoft undertook in the audit of its policies and practices, here are the key takeaways from the report and recommendations that any company can consider implementing in its own policies.

Key Improvements Recommended in the Report

  • Have the CEO sign the anti-discrimination and harassment policies
  • Revise the anti-harassment and anti-discrimination policies to provide more examples and clarify expectations
  • Require disclosure of certain consensual relations where a conflict of interest could develop and define inappropriate relationships
  • Adopt a formal procedure to request reconsideration of an investigation’s findings that a party disagrees with
  • Advise employees of the right to seek external relief
  • Develop an effective tool to track and remind senior leaders that they need to take required training on gender discrimination and sexual harassment issues
  • Ask complainants to complete surveys about their investigation experience
  • Establish Credible Transparency around Remedial Efforts
  • Take steps to minimize a perception that senior leaders are not held accountable
  • Coordinate data among the various HR teams and groups that investigate allegations of misconduct
  • Make improvements in the investigation process
  • Continue efforts to increase the percentage of women in senior leadership positions.

The report is impressive in its thoroughness and comprehensiveness.  More impressive is the fact that Microsoft released it publicly.

You can access the final report here.

In a recent case out of a federal court in Houston, a former African American sales representative for FedEx received a jury verdict in the amount of $366M.  In that case, Jennifer Harris claimed that she opposed racial discrimination and that she was retaliated against and terminated for engaging in her protected activity.  She brought her claim under Section 1981, a federal law that lacks the EEOC administrative exhaustion requirement or the damages caps that apply to civil rights claims under Title VII.  And while the $366M verdict will likely be reduced because the punitive damages represented 314 times the compensatory damages found by the jury, the judgment entered by the Court will be significant.  FedEx apparently has insurance that may cover the portions of the judgment between $10M and $75M although there may be disputes over whether the punitive damages are covered by the applicable insurance policies or insurable under Texas law.  And, the jury verdict does not include amounts for back pay, front pay and attorney’s fees which will likely be awarded by the court and also significant.

FedEx had to know the case was not going well.  In Jury Question No. 3, the jury asked:

 

And then in Jury Question No. 4, they asked:

While Title VII cases can have significant liability, racial discrimination and retaliation claims under Section 1981 carry all the risk and danger of a Title VII race claim without the guardrails of statutory damages caps, administrative exhaustion requirements and a truncated statute of limitations.  Take these claims seriously or the jury may ask for a calculator.

Complaint

Jury Note 3

Jury Note 4

Jury Verdict

Employers are booking venues and planning for the annual company holiday party.  As these preparations are made, Human Resources should review these tips to reduce the likelihood of post-holiday party human resources hangovers.

Keeping Off Santa’s Naughty List Because of your Behavior at the Company Christmas Party

Proper Planning Now Can Lead to a Complaint Free Holiday Party

There are important mid-term elections occurring in Texas on Tuesday, November 8, 2022, from 7 a.m. to 7 p.m.  Early voting runs from October 24  though November 4, 2022. There are many statewide, state district and U.S. representative races to be decided in this election.

In Texas, employers are required provide employees with time off to vote if:

  • The employee has not already voted early by Election Day;
  • The employee does not have at least two consecutive hours off to vote on election day while the polls are open.

Time off to vote on election day must be paid only if the employee does not have sufficient time off to vote outside the voter employee’s working hours (i.e., two consecutive hours when the polls are open).  For example, an employee working from 8:30 a.m. to 5:30 p.m. does not have two consecutive hours to vote when the polls are open from 7 a.m. to 7 p.m.

The employer can proscribe the hours the employee will have off to vote so long as it is reasonable and sufficient for the employee to vote.

Employers with workforces that might the employer to provide time off to vote may consider a variety of options that may help reduce the impact on Election Day.  For example, employees can be encouraged, but not required, to vote early.  Similarly, an employer may consider an Election Day late arrival for the beginning of the shift or early departure at the end of the shift to provide voting employees with at least two consecutive hours to vote when the polls are open.  In addition, an employer could designate a particular two-hour block of time or schedule designated times when employees are released from work in order to vote and better accommodate the operations of the particular workforce.  Careful advance planning, with the advice and input of legal counsel, can balance the important need for employees to vote while reducing or minimizing the potential disruption to an employer’s operations.

 

EEOC regulations require employers to post notice of employee rights that protect employees from discrimination.  These posters must be posted in conspicuous places.  The EEOC has updated its “Know your Rights” posters.  Employers should update their posters with the most recent versions from the EEOC.  You can access the English and Spanish versions for posting below.

EEOC Know Your Rights Poster (English)

EEOC Know Your Rights Poster (Spanish)

In the weeks and months following the start of the COVID-19 pandemic, many employers were faced with the need to quickly conduct substantial reductions in force.  In making these decisions, the question frequently arose around whether an employer had to provide 60 days advance notice of a plant closing or mass layoff under the Workers’ Adjustment and Retraining Notification (“WARN”) Act or whether COVID-19 constituted a natural disaster giving rise to the natural-disaster exception to the notice provision.  Two years later, we have an answer –at least in Texas, Mississippi and Louisiana.

On June 15, 2022, the Fifth Circuit Court of Appeals held that the COVID-19 pandemic is not a natural disaster under the WARN Act.  The WARN Act requires covered employers to give affected employees sixty days’ notice before conducting a plant closing or mass layoff.  One exception to the sixty day notice requirement is the natural-disaster exception.  When this exception applies, shorted notice or no notice is required.

In Easom v. U.S. Well Services, Inc., U.S. Well Services, Inc., an oil and gas producer, experienced a substantial loss of business beginning in March 2020.  This loss of business was caused by a combination of factors including a price conflict between Russia and Saudi Arabia and a precipitous drop in the price of oil resulting from the reduced demand for travel, oil and gas caused by the COVID-19 pandemic.

U.S. Well Services laid off a substantial number of its crews sufficient to qualify for WARN Act notification.  Rather than providing any period of advance notice, the company terminated the employees with no notice and told them:

Your termination of employment is due to unforeseeable business circumstances resulting from a lack of available customer work caused by the significant drop in oil prices and the unexpected adverse impact that the Coronavirus has caused.

The laid off employee filed suit alleging violations of WARN.  U.S. Well Service defended that it was not required to provide any advance notice under the natural-disaster exception.  The employee countered that COVID-19 was not a natural disaster and even if it was, it was not the direct cause of the layoffs.

The district court certified two questions for interlocutory appeal to the Fifth Circuit.  First, does COVID-19 qualify as a natural disaster under the WARN Act’s natural-disaster exception?.  Second, does the WARN Act’s natural-disaster exception incorporate but-for or proximate causation?  For the reasons explained by the Court, it held that the COVID-19 pandemic is not a natural disaster under the WARN Act and that the natural-disaster exception incorporates proximate causation.

And employer’s beware (and mass action attorneys rejoice), the statute of limitations for a WARN Act claim is at least two years.  Thus if there was a  plant closing or mass layoff caused by COVID-19 where the employer failed to provide 60 days advance notice of the employment action believed the pandemic was a natural disaster, there may still be time for employees to bring claims over those actions.

You can download Easom v. U.S. Well Services, Inc. here.

Many employers have implemented mandatory arbitration programs to resolve disputes with employees.  When sued by an employee, an employer with a mandatory arbitration provision occasionally delays seeking an order compelling the lawsuit into arbitration.  When a delay occurs, the party seeking to keep the case in court (usually the employee), may resist arbitration arguing that the employer waived its right to have the case decided in arbitration by delaying seeking to compel the case into arbitration.

Historically, to show that a party waived its right to arbitrate rather than litigate the dispute, the party opposing arbitration had to show that the party seeking arbitration waived its right to arbitrate by acting inconsistently with that right –usually through delay and proceeding in the court system.  Additionally, the opposing party also had to show that it was prejudiced by the inconsistent actions or delay.  Showing prejudice was very difficult.  So long as the party seeking arbitration had not sought rulings on dispositive issues or waited an unreasonably long period (often more than six months of engaging in litigation or right before trial), courts rarely found that a party was prejudiced by the delay in seeking arbitration.

Last month, the U.S. Supreme Court dispatched the prejudice element required to show waiver.  No longer is a party required to show that it was prejudiced by its adversary’s delay in seeking arbitration.  The prejudice requirement is an arbitration-specific procedural rule that is not authorized by the Federal Arbitration Act.  Thus, an employer who wants to preserve its contractual right to arbitrate its dispute with an employee should make that request timely and avoid acting inconsistently with the right to arbitrate.

You can read the entire Supreme Court opinion in Morgan v. Sundance, Inc. here.