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NJ Appellate Courts Permit Employers to Shorten Statute of Limitations Period Through Employment Applications

July 31, 2014

By Michael J. Wietrzychowski

A New Jersey Appellate Court recently held that a provision in an employment application shortening the statute of limitation from two years to six months was enforceable under New Jersey law. As a result, the employee’s discrimination and retaliation claims that were filed nine months after his termination were dismissed. Subject to appeal, this decision encourages all employers to include similar provisions in their applications for employment.

In Rodriguez v. Raymours Furniture Co., the plaintiff sued his employer, alleging that he was fired in retaliation for filing a workers’ compensation claim and because of discrimination based on his disability. The plaintiff filed his complaint nine months after his alleged wrongful termination by his employer. The statute of limitations for each claim is normally two years, and therefore the plaintiff appeared to have filed his claims on time. However, the employer argued that the plaintiff filed his lawsuit too late, relying on a provision contained in the Plaintiff’s application for employment – part of which read:

 I AGREE THAT ANY CLAIM OR LAWSUIT RELATING TO MY SERVICE WITH RAYMOUR & FLANIGAN MUST BE FILED NO MORE THAN SIX (6) MONTHS AFTER THE DATE OF THE EMPLOYMENT ACTION THAT IS THE SUBJECT OF THE CLAIM OR LAWSUIT. I WAIVE ANY STATUTE OF LIMITATIONS TO THE CONTRARY.”

Looking at the totality of the application language (the above is an excerpt of the entire application language that the Court considered), and the circumstances surrounding the applicant’s signing of the application, the Rodriguez Court held that the language limiting the applicable statute of limitations to six months was enforceable. The Court stated that the language, its prominence, and circumstances regarding the signing of the application made it clear, conspicuous, reasonable, voluntary, and not contrary to public policy. In so holding, the Court upheld the lower court’s dismissal of the plaintiff’s complaint.

What Employers Should Do

As of the time of this posting, the Rodriguez decision is the law of New Jersey, and therefore, employers are encouraged to include waiver language in employment applications and contracts to shorten the statutes of limitation applicable to state employment actions. However, employers must take care to draft proper language and create an environment that will ensure enforcement and defend against claims of unconscionability, involuntariness, lack of clarity, and lack of consideration. Also, this holding applies only to state claims. It is not expected that federal courts will reverse decisions holding that the statute of limitations for certain federal claims, such as EEOC discrimination claims, cannot be shortened by agreement. Finally, this decision may be subject to further appeal or amendment to the law.

For more information regarding this or other labor and employment issues, please contact Michael J. Wietrzychowski, Co-Chair of Schnader’s Labor and Employment Practices Group.   

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

 

 

Senate Finance Committee Considering Measure to Largely Repeal IRC Section 530 Safe Harbor for Most Businesses Using Independent Contractors

July 8, 2014

By Scott J. Wenner

Sen. Sherrod Brown (D.Ohio) reintroduced the “Fair Playing Field Act,” S.1706, in November 2013. The bill, which first appeared in 2010 under then-Senator John Kerry’s sponsorship, purports to close an ostensible loophole in the application of the common law test generally used by the Internal Revenue Service to determine whether a worker is properly classified as an independent contractor. The purported loophole referred to by Sen. Brown and his predecessor sponsors is Section 530 of the Internal Revenue Code, which the bill would repeal for workers who do not provide professional services. The bill defines “professional services” as services performed in the fields of health, law, engineering, architecture, accounting, actuarial science, consulting, or financial services and insurance.

Section 530 of the Internal Revenue Code

Far from a mere “loophole” that permits big companies to cheat, Section 530 provides important protections for businesses, many of which are small, whose business model was and remains built around legitimate use of independent contractors, including independent sales representatives and mystery shoppers. Many of these businesses maintain that they have relied on Section 530 in growing their businesses, and that its repeal would have devastating consequences for them because, e.g., they cannot afford to employ a national network of workers who may work just a few hours at a time, two or three times per year, distributing surveys or undertaking some similar task. Moreover, because in many cases entire industries treat workers in a specific position as independent contractors using Section 530, one central thesis of the legislation – that some companies gain an unfair competitive advantage by misclassifying a position – in fact fails to justify repeal of Section 530.

Section 530 was added by Congress to the Internal Revenue Code by the Revenue Act of 1978. Under the Section 530 safe harbor, a qualifying employer is not responsible for payment of past employment taxes for workers who the IRS determines have been misclassified. Further, that employer is not required to reclassify such workers. The safe harbor permits an employer to continue to treat workers the IRS finds to have been misclassified as independent contractors for purposes of federal employment taxes so long as the employer satisfies the requirements of the safe harbor:

  • The employer consistently must have filed Forms 1099 for all those whom it classified as independent contractors.
  • The employer must treat each group of workers that holds similar positions consistently. That is, it must treat all workers holding substantially similar positions as independent contractors.
  • The taxpayer must have a “reasonable basis” for treating the workers in those positions as independent contractors. “Reasonable basis” includes reliance on court cases, published IRS rulings, an IRS ruling received by the employer, a past IRS audit that made no assessment on the class of workers at issue, by showing that a significant segment of the taxpayer’s industry treats similar workers as independent contractors, or some other reasonable basis.

Fair Playing Field Act

In addition to the repeal of Section 530’s safe harbor with respect to most positions, the Fair Playing Field Act would

  • Repeal the existing moratorium on IRS guidance addressing worker classification;
  • Permit the IRS to prospectively reclassify workers as employees;
  • Limit the IRS’s discretion to reduce penalties for misclassifying employees where a “reasonable basis” (defined above) does not exist. Presumably, this would affect the IRS’s authority to continue its Voluntary Classification Settlement Program, which we discussed here.

The bill, which has been stalled in the Senate Finance Committee, will be taken up in the form of an amendment by Sen. Brown to a bill entitled Preserving American’s Transit and Highway Act (PATH). PATH was introduced to provide revenue and authorize expenditures for the Highway Trust Fund, which purportedly will run out of money this year. Sen. Brown has linked the Fair Playing Field Act to PATH by making the increased misclassification penalties to be collected – estimated at $5.8 billion over ten years – a source of funding for the highway trust.

The Senate Finance Committee has scheduled a July 10 mark up session for PATH, including making decisions on which of the plethora of amendments to include. If the committee adopts the Fair Playing Field amendments and PATH is favorably reported out, it will go to the Senate floor for a vote. If passed with the Fair Playing Field amendments included, it still must gain House approval, which appears unlikely. Nonetheless, it is important to know that the Democrats’ effort on this legislation continues, and that monitoring of the campaign to narrow the lawful use of independent contractors continues to be a good idea.

For more information regarding this or other labor and employment issues, please contact Scott J. Wenner, past chair of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation

Supreme Court Deals NLRB and Administration Another Legal Setback

June 27, 2014

By Scott J. Wenner

The United States Supreme Court yesterday ruled unanimously that three recess appointments made to the National Labor Relations Board by President Obama on January 4, 2012 were an invalid exercise of the power to make recess appointments found in Art. II, §2, cl. 3 of the United States Constitution. National Labor Relations Board v. Noel Canning, No. 12-1281.

Summarizing the view of all nine Justices, Justice Breyer’s majority opinion stated: “we conclude that the President lacked the power to make the recess appointments here at issue.”  Four of the Justices arrived at the same result by a different route, explained in Justice Scalia’s concurring opinion.

This is the second time in the past several years that the Supreme Court has invalidated NLRB action for what might be termed administrative or procedural irregularity.  In New Process Steel v. NLRB, the Court found that action in deciding more than 600 cases by an NLRB with only two sitting members from January 2008 until July 2010 was invalid because the agency lacked a quorum, which it held to be at least three members.

While Noel Canning was decided on constitutional law principles having little to do with the substance of labor and employment law, the potential impact of the Supreme Court’s decision on labor law is substantial.   The fact that three of the five Members of the NLRB were appointed without authority means that from January 2012 until July 2013, the Board lacked the three-member quorum needed to make valid decisions for that eighteen-month period.  One thousand or more decisions were made in that period and are rendered invalid by the Noel Canning decision.

Certainly this means that the Board, which now has a full quorum, will have to re-decide many of the decisions that were invalidated.  Given the similar makeup of the current and invalid Boards, the outcome of many cases may not change on reconsideration.  A particularly pressing question is presented by the dozens of Board decisions that were appealed to one of the federal appellate courts, which largely were stayed while Noel Canning was awaiting decision.  One would expect that the Board would have to reconsider its decisions in those cases on a priority basis.  Further intriguing questions concern the status of regional directors appointed by improperly constituted panels and the fate of cases presently being prosecuted by the General Counsel based on Board decisions that now are invalid.

One thing that is clear is that the Board will have much urgent work to occupy its time simply dealing with the repercussions of Noel Canning.  That could be good news for employers given the Board’s ambitious plans to alter radically the representation election rules and its recent request for briefs from interested parties on what is likely to be an equally radical reworking of the rules on employee use of employer e-mail networks to engage in concerted activity.

Many project that the enormity of the Noel Canning fallout will consume the agency at least through the 2014 elections, after which the Board majority could be up for grabs, depending on the results of the Congressional elections.

For more information regarding this or other labor and employment issues, please contact Scott J. Wenner, past chair of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

California Supreme Court Submits to Federal Preemption, Holds Class Action Waivers Enforceable in Employment Cases – But Not in PAGA Claims

June 24, 2014

By Scott J. Wenner

We have written previously of the back and forth between the United States Supreme Court and the California Supreme Court on questions relating to mandatory binding arbitration and class action waivers in the workplace (see here). While the U.S. Supreme Court has construed the Federal Arbitration Act’s (FAA) policy favoring arbitration expansively, the California Justices have taken the opposite view.

The California Supreme Court consistently has read the limited exceptions to FAA preemption of state laws broadly, while seeming to construe U.S. Supreme Court opinions approving binding arbitration and class action waiver agreements as narrowly as possible – most recently in Sonic-Calabassas A, Inc. v. Moreno, a 2013 opinion that nominally narrowed use of the state’s unconscionability doctrine to invalidate mandatory binding arbitration agreements in response to the U.S. Supreme Court’s Concepcion opinion.

Yesterday, the California Supreme Court took what was for it a giant step in Iskanian v. CLS Transportation.  The following excerpt from the Court’s opinion best summarizes the questions considered and primary holdings of Iskanian:

In this case, we again address whether the Federal Arbitration Act (FAA) preempts a state law rule that restricts enforcement of terms in arbitration agreements. Here, an employee seeks to bring a class action lawsuit on behalf of himself and similarly situated employees for his employer‘s alleged failure to compensate its employees for, among other things, overtime and meal and rest periods. The employee had entered into an arbitration agreement that waived the right to class proceedings. The question is whether a state‘s refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the FAA. We conclude that it is and that our holding to the contrary in Gentry v. Superior Court (2007) . . . has been abrogated by recent United States Supreme Court precedent.  We further reject the arguments that the class action waiver at issue here is unlawful under the National Labor Relations Act and that the employer in this case waived its right to arbitrate by withdrawing its motion to compel arbitration after Gentry.

The opinion continued:

The employee also sought to bring a representative action under the Labor Code Private Attorneys General Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.). This statute authorizes an employee to bring an action for civil penalties on behalf of the state against his or her employer for Labor Code violations committed against the employee and fellow employees, with most of the proceeds of that litigation going to the state. . . . [W]e conclude that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy. In addition, we conclude that the FAA‘s goal of promoting arbitration as a means of private dispute resolution does not preclude our Legislature from deputizing employees to prosecute Labor Code violations on the state‘s behalf. Therefore, the FAA does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract.

California plaintiff-side class action lawyers routinely include PAGA claims in actions they bring for wage-hour and other Labor Code violations, so framing their complaints as PAGA claims will be nothing new.  However, PAGA claims ordinarily are less remunerative for the represented employees because of the shorter one-year limitations period and the fact that only 25 percent of the amount awarded, deemed penalties, is paid to the plaintiff class, with the balance paid to the state. What will drive the answer to whether Iskanian signals the decline of the expensive and, for class counsel very profitable, California Labor Code class action will likely depend on whether these cases remain as profitable for the lawyers who bring them.

For more information regarding this or other labor and employment issues, please contact Scott J. Wenner, past chair of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

Big Win For Employers: NJ Supreme Court Affirms Limits on Employee Whistleblower Actions

June 20, 2014

By Harris Neal Feldman

Employers benefit from a New Jersey Supreme Court decision finding that a former employee cannot maintain a whistleblower claim absent a reasonable belief that the employer violated a law, rule, or regulation. Such claims must minimally identify the specific authority for the alleged violation.

Under New Jersey’s Conscientious Employee Protection Act (CEPA), a licensed health care professional may assert a whistleblower claim against his employer if he possesses a “reasonable belief that the employer’s conduct ‘constitutes improper quality of patient care.’”  In Hitesman v. Bridgeway, Inc. d/b/a Bridgeway Care Center, a nurse claimed wrongful termination based on allegations that he was a whistleblower regarding his employer’s improper quality of patient care.  To establish his claim, the nurse relied on: (1) a code of ethics that applied to him as a nurse but not his employer, and (2) nursing home internal policy documents that did not define acceptable patient care.  The Court ruled that such a claim cannot be maintained when it does not establish a violation of the law or the employer’s standard of conduct.

The Supreme Court affirmed last year’s decision by the N.J. Appellate Division, which was discussed in detail here.

The scope of whistleblower protection continues to be a hot issue in the New Jersey courts.  Check out our blog for further guidance on the courts’ interpretation of New Jersey’s whistleblower statute.

For more information regarding this or other labor and employment issues, please contact Harris Neal Feldman of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

Good News/Bad News/Good News Again for CEOs

May 30, 2014

By Scott J. Wenner

The Associated Press reported earlier this week that compensation for chief executive officers of companies listed in Standard & Poor’s 500 increased by 8.8 percent in 2013 – the fourth consecutive increase in total compensation after a decline in 2009, the midst of the financial crisis and recession. Even more striking, however, are the numbers. In 2013, the median compensation package for an S&P 500 CEO crossed the $10 million mark for the first time, totaling $10.5 million.

The size of the jump is attributed by compensation experts to the substantial rise in the stock market since its nadir in 2009. The gains in 2013 were in the range of 30 percent. Ironically, critics of executive compensation practices after the 2008-09 market debacle may be largely responsible for the size of the CEO compensation jump since the time of the stock market’s recovery began. Their complaint was that incentives such as cash bonuses and stock options were not aligned with company performance, and that sound governance and compensation practice should place greater reliance on stock bonuses, which at least theoretically rise and fall with a company’s performance. Now one of the reforms sought by corporate governance experts may be responsible, at least in part, for a jump in CEO compensation that is certain to draw even further criticism over the level of CEO compensation.

The Other News

On May 28 the California State Senate voted on the revolutionary SB 1372, gaining a majority but falling short of the two-thirds super-majority required to increase taxes under the state constitution. SB 1372 was intended to attack perceived income inequality (or, as put by its sponsors, to “stop outrageous CEO pay”) using the state corporate tax code as a carrot and a stick. If enacted, SB 1372 would have recalibrated income taxes on public corporations doing business in California based upon how their CEO pay compared to the median pay received by their entire workforce. SB 1372 was favorably voted out of both the Senate Appropriations Committee and the Senate Committee on Governance and Finance.

At present California’s corporate tax rate is 8.84 percent of a company’s net profits. SB 1372 proposed to replace that flat rate with a sliding scale that would have reduced the corporate tax to 7 percent where a company’s CEO is paid at or below 25 times its median worker pay. A public corporation that pays its CEO more than 100 times the median amount earned by the corporation’s workers would have seen a corporate tax increase. Companies compensating their CEOs 400 times more than the average worker would have seen a corporate tax increase of nearly 50 percent, to a 13 percent rate.

The bill also would have imposed tax penalties on companies that off-shored and outsourced work. Any publicly traded company that had reduced the number of full-time workers on their payroll by more than 10 percent while increasing the use of contract and foreign workers would have found their tax rate hiked by 50 percent. An analysis of SB 1372 by the Senate Committee on Governance and Finance noted that the California Franchise Tax Board expressed concern over the constitutionality of the bill under the Commerce Clause of the U.S. Constitution, because it could appear to improperly favor U.S. over foreign commerce.

Not surprisingly, the California Chamber of Commerce placed the bill on its list of “job killers” if passed. Other critics warned that passage would prompt more businesses to flee to more hospitable environments. Supporters cited, inter alia, a study of the Economic Policy Institute, which observes that in 1965, CEOs were paid 20 times what their median employee made, but by 2012, that ratio had risen to 273 to 1.

 The Future of SB 1372

While likely dead for this legislative session, another vote this session is technically a possibility, as reconsideration was granted that keeps the bill alive. While Republicans were unanimously opposed, the 19 to 17 vote in favor of passage included five Democrats who voted against the bill and four Democrats who did not vote. If supporters can successfully whip other Democrats, the bill could pass this session.

While there is no comment publicly available as of yet, it would appear more reasonable to assume that SB 1372 will not come up for another vote this session. While the populist theme of the bill fits neatly into the emerging Democratic agenda for this election year, questions over its constitutionality, its dramatic nature, and simple uncertainty at this early stage over how the idea would work, all make it difficult to anticipate that at least 8 of 9 the Democrats who opposed or did not vote can be flipped into the “aye” column, thereby sending the measure over to the Assembly for its approval.

Stay tuned on this one.

For more information regarding this or other labor and employment issues, please contact Scott J. Wenner, past chair of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

By May 30, NYC Employers Must Provide Notice of Rights to All Employees Under Pregnant Workers Fairness Act

May 23, 2014

By Scott J. Wenner

In the final months of the Bloomberg Administration, the New York City Council passed and Mayor Bloomberg signed the Pregnant Workers Fairness Act (PWFA), which became effective on January 30, 2014. The PWFA requires New York City employers that have four or more workers – including independent contractors – to provide reasonable accommodations to workers for pregnancy, childbirth and associated medical conditions if doing so would permit the worker to perform the essential functions of the position without causing undue hardship to the employer. It amends the New York City Human Rights Law to strengthen existing protections against pregnancy discrimination and add new affirmative accommodation duties.

The PWFA’s enactment occurred in tandem passage of Philadelphia’s Fair Practice Ordinance (which we discussed here). It follows on the heels of similar legislation in nine states, including New Jersey (discussed here), following the amendment of the Americans With Disabilities Act in 2008 to confirm that pregnancy disabilities are protected under the ADA, inter alia.

In addition to its substantive terms, the PWFA also adds individual notification requirements to the responsibilities of beleaguered New York City human resource officials. The new law does not mandate posting in addition to distribution of the notice, but suggests that employers may wish to do so. Specifically, by May 30, New York City’s places of employment must (i) distribute a written notice that informs workers of the rights of pregnant employees to reasonable accommodations for their pregnancies and childbirth disabilities; and (ii) ensure thereafter that all new hires are provided copies of the same written notification upon commencement of their employment. Covered employers also may conspicuously post, but that will not relieve them of their individual notification responsibilities. Businesses need only provide each worker with a single notice; there is no annual or periodic notification requirement. Only businesses with fewer than three employees in New York City are exempted.

The NYC Human Rights Commission has created Pregnancy and Employment Rights posters, available in seven languages, which it says will satisfy the notice and posting requirements. The posters can be downloaded from the Commission website here .

For more information regarding this or other labor and employment issues, please contact Scott J. Wenner, past chair of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

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