Employment Law

DOL Withdraws Obama-Era Guidance, Promises More Change

Why it matters

The new Secretary of Labor officially withdrew the Department of Labor’s (DOL’s) guidance on joint employment and independent contractors, although the agency cautioned in a news release that the removal does not change the legal responsibilities of employers under applicable law. While Administrator’s Interpretation 2015-1 tilted the independent contractor/employee analysis in the direction of finding an employment relationship, with the position that most workers are employees under the Fair Labor Standards Act, Administrator’s Interpretation 2016-1 applied a broader test for joint employment to ensure “that the scope of employment relationships and joint employment under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act is as broad as possible,” the DOL explained. The agency noted that it “will continue to fully and fairly enforce all laws within its jurisdiction” as reflected “in the department’s long-standing regulations and case law.” In addition to the withdrawals, Secretary Alexander Acosta announced that the agency is working on other changes, including revisions to the fiduciary rule for retirement advisers as well as the overtime rule.

Detailed discussion

Citing a continuing increase in the misclassification of employees as independent contractors and “numerous complaints from workers alleging misclassification,” the DOL’s Wage and Hour Division released new guidance in 2015, “The Application of the Fair Labor Standards Act’s ‘Suffer or Permit’ Standard in the Identification of Employees Who Are Misclassified as Independent Contractors.”

The Fair Labor Standards Act (FLSA) broadly defines “employ” as including “to suffer or permit to work,” and some courts have used a multifactor “economic realities” test when making the determination of whether a worker is an employee or an independent contractor. The result of the application of the test in view of the expansive definition of “employ” found in the FLSA: “most workers are employees,” the DOL said.

Administrator’s Interpretation 2015-1 provided examples and explanations for each of the six factors found in the economic realities test (including whether the work performed by the worker is an integral part of the employer’s business and whether the worker is retained on a permanent or indefinite basis). All the factors must be considered in each case, with no one factor determinative, the agency said, with the goal “to determine whether the worker is economically dependent on the employer (and thus its employee) or is really in business for him or herself (and thus its independent contractor).”

Misclassification of independent contractors was a major focus of the DOL during President Barack Obama’s presidency, with the agency partnering with various states and issuing grants of more than $10 million to 19 states—including California and New York—to “enhance states’ ability to detect incidents of worker misclassification.”

Another area of focus for the DOL in the Obama era: joint employment. Last year, noting an increase in joint employment relationships such as the sharing of employees or third-party management companies between two or more employers, the agency provided additional guidance on employees’ rights and employers’ obligations under the FLSA and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

Administrator’s Interpretation 2016-1 emphasized that the concept of joint employment—like employment generally under the FLSA’s “to suffer or permit to work” standard—should be interpreted as broadly as possible, rejecting the common-law right of control standard.

The DOL set forth two concepts of joint employment: horizontal joint employment (when two or more employers each separately employ a worker and are sufficiently associated with or related to each other with respect to the employee) and vertical joint employment, where the employee of the intermediary employer is also employed by another employer.

Examples of horizontal joint employment may include separate restaurants that share economic ties and have the same managers controlling both restaurants, or home healthcare providers that share staff and have common management. Vertical joint employment can often be found where a construction worker who works for a subcontractor is also employed by the general contractor, or a farmworker who works for a farm labor contractor is also employed by the grower, the DOL said.

With little fanfare, Secretary of Labor Alexander Acosta announced the withdrawal of both Administrator’s Interpretations. “Removal of the administrator interpretations does not change the legal responsibilities of employers under the [FLSA] and the [MSPA], as reflected in the department’s long-standing regulations and case law,” the agency stated in a press release. “The department will continue to fully and fairly enforce all laws within its jurisdiction, including the [FLSA] and the [MSPA].”

Without the guidance, courts will likely revert to prior interpretations of the FLSA and MSPA with regard to independent contractor classification and joint employment.

Acosta followed up the removal by indicating that the agency is also considering changes to the fiduciary rule for retirement advisers as well as the overtime rule.

The fiduciary rule, also introduced by the Obama administration, states that financial professionals who advise on retirement accounts must act in their clients’ best interests when recommending investment products—a higher standard of accountability than previously required. Acosta pushed out the fiduciary rule’s effective date by 60 days, from April until June.

Testifying before the House Appropriations Labor, Health and Human Services, Education, and Related Agencies Subcommittee, Acosta said the DOL has asked for feedback from stakeholders on the fiduciary rule, with a request published by the White House Office of Management and Budget. A similar invitation for comment will be forthcoming on the overtime rule, he added.

“That is the first step in this administration’s review of that rule,” Acosta told lawmakers. “We need that info, and we need that data in order to decide how to proceed.”

To read the DOL’s press release about the withdrawal, click here.

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Sixth Circuit: Manager Not a Supervisor Under Title VII

Why it matters

Holding that a store manager was not a supervisor for purposes of Title VII and that the employer could therefore not be vicariously liable for his sexual harassment, the U.S. Court of Appeals, Sixth Circuit affirmed summary judgment in favor of the employer. The manager at a Tennessee AutoZone store had the authority to hire new hourly employees and write up existing workers for misconduct, but did not have the power to fire, demote, promote or transfer employees. After multiple women complained about sexual harassment, the company investigated the manager and ultimately terminated him. When the women filed charges with the Equal Employment Opportunity Commission (EEOC), the agency brought suit. AutoZone moved for summary judgment, arguing that it could not be vicariously liable because the manager was not a supervisor under Title VII. A district court agreed, and the federal appellate panel affirmed. The store manager did not take any tangible employment action against the women and had no authority to do so, the Sixth Circuit said in an unpublished opinion. Even if that were not the case, the court said the employer established an affirmative defense to the claim.

Detailed discussion

Three women were hired at different times for various positions at the Cordova, TN, AutoZone store and all reported to Gustavus Townsel when he was transferred as store manager in May 2012. Townsel was authorized to hire new hourly employees and write up employees at the store for misbehaving, but did not have the power to fire, demote, promote or transfer employees. That authority rested with the district manager, who visited the store on a weekly basis.

Within months, Townsel began making lewd and obscene sexual comments to the women. However, none of them reported the conduct until October 2012, when they complained about Townsel’s harassing conduct as well as other operational issues. Human resources followed up on the harassment complaints the next day and AutoZone transferred Townsel out of the store in November, terminating him in December 2012.

The women filed a charge with the EEOC and the agency filed suit against AutoZone, alleging the employer was vicariously liable under Title VII for Townsel’s conduct. But a district court judge granted the employer’s motion for summary judgment, ruling that Townsel was not a supervisor under the statute. The EEOC appealed.

Beginning with the comment that “Townsel’s behavior was repulsive,” the U.S. Court of Appeals, Sixth Circuit nevertheless affirmed summary judgment in favor of AutoZone because “he did not take any tangible employment action against his co-workers and indeed had no authority to do so,” letting the employer off the hook.

Pursuant to Title VII, if the harassing employee is the victim’s coworker, the employer is liable only if it was negligent in controlling working conditions. Alternatively, if the harasser is the victim’s supervisor, the employer may become vicariously liable if the agency relationship aids the victim’s supervisor in his harassment, the court explained.

A supervisor has been interpreted by the courts to be a worker “empowered by the employer to take tangible employment actions against the victim,” the Sixth Circuit said, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities or a decision causing a significant change in benefits.

Under this rubric, “AutoZone is not vicariously liable for Townsel’s harassment because Townsel did not supervise any of the employees he harassed,” the panel wrote. “AutoZone did not empower Townsel to take any tangible employment action against his victims. Townsel could not fire, demote, promote, or transfer any employees. And he could not hire employees that AutoZone already employed, such as [the three women]. Townsel’s ability to direct the victims’ work at the store and his title as store manager do not make him the victims’ supervisor for purposes of Title VII.”

The store manager could initiate disciplinary process and recommend demotion or promotion, but the district manager had vigorous oversight of the location, the court said, visiting the store once a week, actively participating in its management, scheduling shifts and interacting with the workers.

“Were there record evidence that Townsel had the ability to effect tangible employment decisions against the employees he harassed, the appeal would come out differently,” the panel wrote. “But both sides agree that [the district manager] did not have to consider Townsel’s advice at all. [The district manager] gave Townsel’s input, at most, deference to the extent that it had the power to persuade. That does not suffice.”

Even if the court determined Townsel was a supervisor, the Sixth Circuit found that the employer had established an affirmative defense to liability. Employers can avoid liability where they exercise “reasonable care to prevent and correct promptly any sexually harassing behavior” and the harassed employees “unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise.”

AutoZone met both requirements, the panel determined. “First, it exercised reasonable care to prevent harassment and promptly fired Townsel when it learned of his behavior,” the court wrote.

The company had an appropriate anti-harassment policy in place, and the record confirmed that each of the women signed forms acknowledging that she had read and understood the AutoZone employment handbook. The company also promptly corrected the harassment with its investigation and termination of Townsel, the court said. “This is not a case where several supervisors observed and participated in harassment while ignoring the victims’ complaints over months or years,” the panel said.

“Second, the harassed employees failed to report Townsel’s behavior for several months,” the court added, waiting until October to report the harassment that had begun in August. Two of the women didn’t even take advantage of corrective opportunities, the court noted, only reporting the harassment when interviewed by human resources after the third complained.

“Each of the victims had a responsibility to report Townsel’s behavior up the ladder, to human resources, or to the AutoZone hotline,” the panel wrote. “We cannot impute the victims’ knowledge to AutoZone when none of them took any actions that would alert someone with the power to stop Townsel until [one woman] belatedly talked to [the district manager] in October.”

To read the decision in EEOC v. AutoZone, Inc., click here.

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New York ALJ Takes Uber for a Ride

Why it matters

In a decision with potentially significant implications, a New York administrative law judge (ALJ) held that Uber drivers are employees of the ride-sharing company. The case arose after three drivers had their accounts deactivated and sought unemployment benefits. Uber contended that because the drivers set their own schedules, selected their work areas, were not required to report absences and were not provided with fringe benefits, they should be considered independent contractors. But the ALJ disagreed, finding that Uber did not use an “arms’ length approach as would typify an independent contractor arrangement,” instead demonstrating substantial involvement with the drivers. “I find that while there are some indicia of claimant’s independence, the overriding evidence establishes that Uber exercised sufficient supervision, direction and control over key aspects of the services rendered by claimants such that an employer-employee relationship was created,” the ALJ wrote. Importantly, she added that her decision applied not just to the three drivers involved in the case but “others similarly situated” as well. Uber—which has been battling the issue across the country with mixed results—said it intends to appeal the decision.

Detailed discussion

Are Uber drivers employees or independent contractors? Three New York drivers sought unemployment benefits after their accounts with the ride-sharing service were deactivated. Uber balked, arguing that the drivers were independent contractors. The state’s Department of Labor issued an initial determination holding that the drivers were eligible to receive benefits, and Uber requested a hearing to appeal.

Following the hearing—complete with testimony from the drivers and Uber representatives—ALJ Michelle Burrowes overruled Uber’s objection and found that the drivers were employees.

The ALJ walked through the process of becoming an Uber driver, explaining the “on-boarding process” beginning with the requirement of certain documents (a driver’s license, vehicle registration and a license from the New York City Taxi & Limousine Commission). Drivers were shown a video explaining how the Uber app works and depicting best practices guidelines, such as maintaining a clean vehicle and wearing professional attire.

Uber also published a Code of Conduct for its drivers, setting forth the minimum standards of conduct to which it expects both riders and drivers to adhere, with an explanation that failure to do so risks deactivation of access to the app. In addition, Uber published a Welcome Packet, described as containing “essential information for new Uber partners” and maintained online support resources for drivers.

Drivers needed a vehicle and smartphone to provide rides through the app, with Uber compiling a list of the vehicles it deemed acceptable. For those looking to lease their vehicles, Uber referred drivers to an affiliated third party and, in one case, intervened when a driver became delinquent, negotiating with the lessor for an alternative payment schedule. Uber also provided one driver with a smartphone and another with a phone charger and cable.

When a rider was picked up, the Uber app suggested a route, but drivers were expected to follow the route suggested by a rider, if given; the company also imposed rules about how long drivers had to wait for a rider. During the time period drivers are logged in to the app, Uber has the capacity to collect and review data regarding their activities, such as their acceptance and cancellation rates, the ALJ noted. Drivers are expected to accept 90 percent of ride requests received.

The company did not provide drivers with paid vacation, sick leave, health insurance coverage or other fringe benefits, nor did Uber impose a work schedule on the drivers. Instead, drivers autonomously decided when, where and how long they would work. Drivers were allowed to procure rides from Uber’s competitors and had the ability to sub-contract drivers if they wanted.

After relating all these facts, the ALJ found the evidence demonstrated “that Uber exercised sufficient supervision and control over substantial aspects” of the drivers’ work. “Uber did not employ an arms’ length approach to the claimants as would typify an independent contractor arrangement,” Burrowes wrote. “Uber remained involved with the means by which claimants provided transportation services for its Riders,” such as requiring compliance with a list of approved vehicles.

“Additionally, Uber does not dispute that when [two of the] complainants lacked proper credit to secure their own vehicles, Uber not only referred them to their third-party affiliates to lease vehicles without credit, but also Uber took the additional step of withholding monies from these claimants’ fares and making lease payments on their behalf. Uber even intervened when [one claimant] was delinquent in his lease payments to the third-party lessor, to arrange an alternate payment plan … to address his arrears.”

The ALJ rejected Uber’s position that the drivers signed a contract designating them as independent contractors as well as its characterization of the company as simply “a technology company that generates leads for drivers.”

Uber set a mandatory wait time for riders before leaving a pickup site, the ALJ noted, retained the sole discretion to determine if that rider would be charged a wait fee, and had complete control over the fare for the ride, which was calculated by Uber’s app algorithm.

Further, Uber continuously monitored its drivers, Burrowes found. “Uber took steps to modify the claimants’ behavior, as typical in an employer-employee relationship,” the ALJ said, publishing several documents including a Code of Conduct, which warned drivers that if they failed to accept 90 percent of all ride requests, they could face deactivation.

“Uber also used its Riders’ responses on its five-star rating system … to monitor and evaluate a Driver’s performance in providing ride service and to determine if that Driver’s rating was unacceptable such that he should be deactivated from the app,” the ALJ wrote.

A review of the record showed that each driver was “subjected to substantial supervision and control by Uber,” Burrowes said. “I find that while there are some indicia of claimant’s independence, the overriding evidence establishes that Uber exercised sufficient supervision, direction, and control over key aspects of the services rendered by claimants such that an employer-employee relationship was created. I conclude, therefore, that the claimants, and others similarly situated, are/were employees of the employer, Uber.”

To read the decision, click here.

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California Appellate Panel Affirms Dismissal of Religious Discrimination Suit

Why it matters

A California appellate panel affirmed dismissal of a religious discrimination suit brought by a hospital employee last week, finding that the registered nurse and minister failed to establish that the employer’s reasons for his termination were pretextual. Hospital employee Gumaro Trevino alleged he was improperly fired because of an incident involving a dose of opioid pain medication that he did not fully dispense to a patient. After giving multiple explanations for his actions, Trevino was placed on paid suspension and then fired. Although the employer stated he was terminated for failing to properly dispense the drug and falsely documenting a full dose in the records, the plaintiff argued he was really being discriminated against for being a minister at a Christian church. A trial court granted summary judgment in favor of the hospital, and the appellate panel affirmed. The plaintiff was unable to demonstrate that the reasons given for his termination were pretextual, the court said.

Detailed discussion

Gumaro Trevino became an employee of Southern California Permanente Medical Group in 2008 when it acquired the hospital where he was already working. A registered nurse, Trevino was assigned to the emergency department. When his new supervisor took over the department, she found a widespread practice among the nurses of failing to follow the proper protocol for disposing of medication and instituted new procedures holding employees accountable. The supervisor was also aware that Trevino was a minister at a nondenominational Christian church.

In 2011, a nurse found a syringe containing Dilaudid, a powerful and dangerous narcotic, in a cabinet in an examination room. Based on the date and the patient information, the supervisor determined Trevino had been the nurse tasked with administering the drug. When first asked, he admitted he administered only half the dose ordered by the physician, adding that he “titrates” medications for his patients.

But in a later written statement, Trevino claimed the patient asked him to stop after he had administered only a half dose and that he left to take care of other patients and forgot about the syringe.

Hospital procedures permitted nurses to stop administering medication upon a patient’s request. However, the nurse was then required to document in the medical record the accurate amount of the dose, notify the physician of the change and properly dispose of the unused medication (which involved another nurse as a witness).

Trevino was placed on a paid investigatory suspension, at the end of which it was recommended he be fired. The stated reasons for his termination were leaving the unused portion of the controlled substance in the syringe, failing to dispose of it according to policy, documenting falsely in the record that he administered the full dose, neglecting to carry out the physician’s order accurately and failing to notify him as such, and admission of titrating patients’ medications, which was outside the scope of his position.

He then filed suit in California state court, alleging the hospital violated the state’s Fair Employment and Housing Act by harassing him as well as discriminating and retaliating against him based on his religion. The hospital filed a motion for summary judgment, contending that it had legitimate, nondiscriminatory reasons for terminating Trevino. A trial court agreed, and the plaintiff appealed.

In an unpublished opinion, a California appellate panel affirmed, finding insufficient evidence to raise a triable issue of fact as to whether the hospital’s stated reasons for the termination were pretextual.

Trevino asserted seven different types of evidence of pretext, each of which the court rejected. He first argued that he was not terminated for false documentation because hospital policy permits a nurse to refrain from administering a full dose. When a nurse administers medication, he or she scans the bar code for the patient and then the medication, creating a record that the medication has been given. Therefore, the record is already false when a nurse doesn’t give a full dose, he told the court.

“However, this is only true fleetingly—after the bar codes are scanned and before the nurse corrects the chart,” the court said. “This complies with Permanente’s procedures; it will not mislead anyone. Trevino, however, was terminated because he failed to comply with Permanente’s procedures; he never corrected the information in the chart, leaving it misleading.”

The court found no merit to the argument that termination for failing to carry out a physician’s order was pretextual. Although Trevino was allowed to stop administering a medication if a patient so requested, he was fired because he additionally failed to notify the physician of the fact he did not carry out the order accurately, pursuant to hospital policy.

Trevino made much of the fact that no nurse had ever been fired for failure to properly dispose of medication. But the court noted that the incident involved a controlled substance and that the failure to properly dispose of medication was only one of several reasons given for Trevino’s termination, including “for false documentation, failing to notify the physician that he had not administered a full dose, and for leaving the syringe in an unsecured area.”

The court took issue with the plaintiff’s explanation that he “titrates” for his patients, or as Trevino explained it, gives medication according to the patient’s weight and age. “However, as he admitted, he was not authorized to do so,” the appellate panel wrote. He could thus be terminated for this action as well as the fact that “he could not keep his story straight,” the court added, as he claimed in his written statement that he did not give a full dose because the patient asked him to stop.

Additional arguments that the hospital characterized the allegations against him in the “worst possible light” and that his supervisor acted as a “cat’s paw” for others who had a discriminatory animus against him lacked supporting evidence, the court said.

Finally, the panel found no disparate treatment of Trevino as evidence of pretext. The plaintiff argued that his team leader was treated differently when the team leader was accused of religious discrimination and harassment, but the court said the two situations were too dissimilar for comparison.

“An employer could reasonably treat Trevino more harshly, because his misconduct had a potential impact on patient care,” the court said. “Or, of course, an employer could reasonably treat [the team leader] more harshly, particularly as Trevino’s conduct did not cause any actual harm. Our point is that the two types of conduct are apples and oranges.”

The panel affirmed summary judgment in favor of the hospital and awarded it costs for the appeal.

To read the opinion in Trevino v. Southern California Permanente Medical Group, click here.

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