Department of Labor Proposes New Interpretation of Joint Employer Status Under The Fair Labor Standards Act
By: Amanda Thibodeau
On April 9, 2019, the United States Department of Labor (“DOL”) published a notice of proposed rulemaking (the “NPRM”) to amend its existing regulations regarding so-called “joint employer” status under the federal Fair Labor Standards Act (the “FLSA” or the “Act”).
The FLSA requires covered “employers” to pay nonexempt employees at least the federal minimum wage for all hours worked and overtime for all hours worked over 40 hours in a workweek. The Act also contemplates scenarios in which other “persons,” in addition to the nominal employer, may be jointly liable for wages due to an employee under the Act. This concept is generally known as joint employer wage liability (although the term “joint employer” is not specifically used in the language of the FLSA). Joint employer status under the FLSA implicates questions such as:
- Is a franchiser liable for the wage obligations of its franchisees?
- Is an institutional investor liable for the wage obligations of its portfolio businesses?
- Is a parent corporation liable for the wage obligations of its subsidiaries?
In 1958, the DOL issued regulations interpreting joint employer status under the Act. Those regulations instructed that multiple persons or entities may be jointly liable for wage obligations due to an employee if they are “not completely disassociated with” respect to the employment of an employee. This open-ended standard, which remains the current DOL benchmark on the subject, has been the subject to debate for nearly sixty years.
The DOL indicates that the purpose of the NPRM is to make the determination of joint employer status under the FLSA “simpler and more consistent.”
A New Test For Joint Liability Status
The NPRM proposes a four-factored test to determine when a person or entity shares wage liability for an employee with the nominal employer. The four factors are whether the person or business entity:
- hires or fires the employee;
- supervises and controls the employee’s work schedule or conditions of employment;
- determines the employee’s rate and method of payment; and
- maintains the employee’s employment records.
The NPRM clarifies that that “the potential joint employer must actually exercise . . . one or more of these indicia of control to be jointly liable under the Act.” (Emphasis supplied). The reserved, but unexercised, contractual right to act in relation to an employee “is not relevant for determining joint employer status.” In addition, the NPRM provides a set of examples that illustrate the limits of the four-factor test:
- The potential joint employer’s business model—for example, operating as a franchisor—does not make joint employer status more or less likely under the Act.
- The potential joint employer’s contractual agreements with the employer requiring the employer to, for example, set a wage floor, institute sexual harassment policies, establish workplace safety practices, require morality clauses, adopt similar generalized business practices, or otherwise comply with the law, do not make joint employer status more or less likely under the Act.
- The potential joint employer’s practice of providing a sample employee handbook, or other forms, to the employer; allowing the employer to operate a business on its premises (including “store within a store” arrangements); offering an association health plan or association retirement plan to the employer or participating in such a plan with the employer; jointly participating in an apprenticeship program with the employer; or any other similar business practice, does not make joint employer status more or less likely under the Act.
What’s Next?
It should be noted that NPRM is a proposal. The DOL is now soliciting comments from interested parties with respect to the NPRM, and will begin the process of developing a final rule on the subject. Whether the DOL ultimately adopts the rules proposed in the NPRM is unclear. What is clear is that the DOL is focused on clarifying standards with respect to this contentious area of employment law. Morse will continue to monitor, and report on this subject.
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Morse’s Employment Law Group regularly advises clients with respect to compliance with the Fair Labor Standards Act and its developments.
For more information, please contact Amanda Thibodeau or Matthew Mitchell.
Equal Pay Day in Massachusetts: Are you in compliance?
By: Amanda Thibodeau
April 2, 2019, is National Equal Pay Day – a date designated by the National Committee on Pay Equity to highlight inequities in wages between men and women. Equal Pay Day marks how far into the next calendar year the average American woman would have to work in order to make as much as the average American man made in the preceding year. With the recent passage of the Massachusetts Equal Pay Law, Equal Pay Day also serves as a reminder to all Massachusetts employers that they have specific legal obligations to examine, identify, and eliminate wage gaps among their male and female employees.
Read about the obligations in our Employment Law Alert.
U.S. Department of Labor Proposes Significant Changes to FLSA Overtime Regulations
By: Matthew Mitchell
On March 7, 2019, the U.S. Department of Labor announced a long-awaited Notice of Proposed Rulemaking (“NPRM”) that proposes new regulations that relate to overtime and minimum wage exemptions under the Fair Labor Standards Act (“FLSA”). The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked, and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek.
Read about the proposed changes, including how they could change employee exempt or nonexempt status in our Employment Law Alert.
Federal District Court Reinstates EEO-1 Pay Data Reporting Requirements (For Now)
By: Matthew Mitchell
In September 2016, the U.S. Equal Employment Opportunity Commission (“EEOC”) announced plans to collect employee compensation data as a component to its annual EEO-1 employer information reporting requirement. This pay data reporting requirement – known as “Component 2” – was slated to go into effect in March 2018, and would have required all private employers with over 100 employees, and certain smaller, government contractors, to report W-2 wage information and total hours worked, for all employees, by race, ethnicity, and sex, within 12 proposed pay bands. Component 2 was an aspect of Obama-era reforms aimed at strengthening EEOC capacity to identify and prevent pay discrimination.
In August 2017, the White House Office of Management and Budget (“OMB”), under the Trump Administration, stayed the implementation of Component 2, indicating that Component 2 disclosure requirements were unreasonably burdensome for employers – the U. S. Chamber of Commerce estimated that Component 2 would result in $400 million in additional administrative costs to employers. That action by the OMB prompted a lawsuit by the National Women’s Law Center and the Labor Counsel for Latin American Advancement against the OMB and the EEOC.
On March 4, 2019, the U.S. District Court for the District of Columbia issued an opinion reinstating Component 2, concluding that the OMB did not have a sufficient basis to support its decision to stay Component 2. The Court’s decision may have significant implications for employers. The current EEO-1 Report filing deadline is on May 31, 2019, and it is unclear whether Component 2 pay data disclosures will be required for the May 31 reporting cycle.
It remains to be seen whether the ruling is appealed, whether the EEOC issues any special instructions in light of the ruling, or whether the EEOC takes steps to revise its EEO-1 reporting guidelines (although the EEOC does not presently have a quorum to effect such a change). Morse Barnes-Brown Pendleton’s Employment Law Group will continue to monitor this issue, and will provide updates as they become available.
For more information, please contact Matt Mitchell.
Important Reminder: Changes to MA Non-Competition Laws Starting October 1
By now, many employers are aware that Massachusetts law governing non-competition agreements is changing at the end of this month. A non-competition covenant or agreement is a provision in either an employment agreement, offer letter or separate agreement where an employer provides to an employee or independent contractor payment or some other consideration (for example a stock option or bonus). The employee or independent contractor in turn agrees not to compete for a period of time, customarily one year, after leaving the employment relationship. To date, whether a non-competition agreement is enforceable has been largely a matter of judicial discretion and we invariably looked to case law for guidance.
Now, after a decade plus of the Legislature considering the topic, we have a new Massachusetts law effective October 1, 2018, Mass. Gen. L. c. 149, §24L, setting forth a number of rules governing non-competition covenants. Read about the Act and what your company needs to do now in our Employment Law Alert.
The New Mass Noncompetition Legislation: Old Wine in New Bottles? An Employer’s Perspective
By: John Hession
Our Republican governor, Charlie Baker, recently signed into law a boon and a blessing for the average hourly worker, the minimum wage Walmart employee, or the lower level service industry employee. But for venture capitalists, angel investors, entrepreneurs, senior executives and key employees, nothing much may have changed in the landscape of noncompetition covenants. After years of deliberation and failed or stalled legislation, the new Massachusetts legislation regarding noncompetition covenants remains generally intact for the technology and life science industries – unlike California, where noncompetition covenants are unenforceable as a matter of law in the context of employment. While the law’s changes may seem an alteration of the landscape, many contours remain unchanged. First, noncompetition covenants entered into prior to October 2018 remain in effect and continue to be enforceable. Investors can continue to take comfort that existing noncompetition agreements cannot be frustrated or circumvented by the new law. Even noncompetition covenants that might have been longer than one year, if signed prior to October 1, 2018, will continue to be honored, but subject to the customary attacks of unreasonable scope and duration.
Second, after October 1, 2018, a venture-backed company can continue to require noncompetition covenants as part of initial or continuing employment. These covenants can last one year in duration, as long as the employer offers a payment of 50% of the annual base salary or other “mutually agreed upon consideration”. The principle of “mutually agreed upon consideration” will invariably become the topic of much debate and contention under the new law, resulting in extensive negotiation (and certainly renegotiation) of new and previous noncompetition covenants, with either existing employees or new hires.
One aspect of the revised law that is a dramatic change in the noncompetition landscape is that, when an employee is fired without cause, even a valid noncompetition covenant will be void or voidable. Of course, the legislature did not define “without cause”. Hence, the parties will need to negotiate the definition of “cause”. Caution is suggested whether it may be in a party’s best interest to employ the standard “cause” definitions contained in employment agreements with senior executives.
The new law offers opportunities for “creative combinations” of consideration. For example, as it has been an immutable principle of the past, the grant of a stock option or restricted stock award can certainly constitute adequate consideration to support the enforceability of a noncompetition covenant, if extracted contemporaneously with the equity award. As a result of the new law, employers would be prudent to ensure that any new option grants for current employees (or for that matter, consultants) are tied and tailored to the creation of an enforceable noncompetition covenant. Indeed, one could even consider installing the noncompetition covenant inside the option agreement, so the grant and the covenant are inextricably linked.
However, a critical procedural rule applies under the new law, requiring employers to be careful on installing noncompetition covenants as part of the hiring process. Under the new law, employers must provide to new employees the form of noncompetition agreement prior to the earlier of ten business days before the commencement of employment or before the delivery of a formal offer of employment. To avoid the headache of inadvertently violating this procedural rule, the process rules will require some thoughtful planning with your labor lawyer. You can guarantee that there will be plenty of unintended headaches and heartaches in this area – and the risk that a failure to comply with this procedural rule can result in many an employee’s noncompetition agreement rendered unenforceable – and sadly, after the fact. Consider the impact of such a failure when the reality of adherence to this procedural rule of timing is revealed – usually years later during the diligence process by a buyer in an acquisition. You can bet that acquirers will extract a pound of flesh — and price concessions – for prior inadvertent timing mistakes. Hence, careful planning and logistical practices in this area are very crucial.
So, despite the much-heralded proclamations that the landscape has been altered in the noncompetition arena, the more things change in Massachusetts noncompetition law, perhaps the more they remain the same for technology and life science companies, at least for the senior executives and key employees. After October 1, 2018, prudence – and sensible practice — demand that employers seeking to protect their goodwill, business operations and proprietary technology advantages continue to employ noncompetition covenants for senior executives, as long as adequate consideration supports the bargain of the noncompetition covenant, and the new rules on timing and notice are strictly and carefully adhered. While there may be old wine in the new bottles, however, it makes continued sense to have your “sommelier sniff the cork” before serving the libation – that is, consult with your local labor lawyer.
John Hession is a business and legal advisor to emerging life science, medical device, healthcare software and service companies, from cradle to culmination.
Changes to Massachusetts Equal Pay Law Coming in July 2018
Employment attorney Scott Connolly discusses the changes to the Massachusetts Equal Pay Act in his new article, Changes to the Massachusetts Equal Pay Law Coming in July 2018. In an effort to remedy perceived pay inequities based on gender, the Massachusetts legislature recently passed An Act to Establish Pay Equity, which amended the Massachusetts Equal Pay Act (“MEPA”). MEPA prohibits gender discrimination in the payment of “wages.” The changes to MEPA will take effect on July 1, 2018.
For more information, visit our Good Company blog, and read the full article on our website. Please contact Scott Connolly with questions regarding the changes to the MA Equal Pay Act.
Board Members and Investors Found Not Personally Liable Under Massachusetts Wage Act
A unanimous Massachusetts Supreme Judicial Court recently ruled in favor of two former board member-investors of a biotechnology startup, finding the board member-investors not personally liable under the Massachusetts Wage Act for “wages” claimed by the company’s former CEO.
As employment attorney Scott Connolly discusses in his new article, Board Members and Investors Found Not Personally Liable Under Massachusetts Wage Act, at issue in Segal v. Genitrix, LLC, 478 Mass. 551 (2017) was whether the individual defendants, former board members of and investors in Genitrix, a Delaware LLC based in Boston, exercised sufficient management authority to impose personal liability on them under the Wage Act (M.G.L. c. 149 §148) for compensation due to the plaintiff.
Read the full article on our website. For more information, please contact Scott Connolly.
Scott Connolly Discusses Properly Classifying Workers in Accounting Today
In Accounting Today’s article “Properly Classifying Workers Remains a Major Problem“, employment attorney Scott Connolly comments on how worker misclassification is a prevalent issues for both the Internal Revenue Service and state taxing officials. Companies that misclassify employees as independent contractors avoid paying minimum wage, payroll taxes, overtime, worker’s compensation, and other payments under the Federal Family and Medical Leave Act. However, this mislabeling can lead to trouble with the IRS, including the company owing taxes it failed to withhold by classifying a worker as an independent contractor instead of as an employee.
Additionally, as Scott notes:
The employer should be concerned about misclassification claims from the workers themselves… Many service providers want to be classified as independent contractors, but companies run the risk because later there might be disharmony in the relationship.”
Read the full article for more information on the potential consequences of misclassifying workers, or contact Scott Connolly for more information.
Federal Judge Temporarily Blocks New Overtime Rule From Taking Effect On December 1
By: Scott J. Connolly and Sandra E. Kahn
On November 22, a federal judge in Texas issued a preliminary order that temporarily blocks the U.S. Department of Labor (DOL) from implementing changes to the salary basis for white collar overtime exemptions. The new salary rule, which was to become effective on December 1, 2016 would have required employers to increase exempt employees’ minimum salary from $23,660 to $47,476. The preliminary court order blocking the rule appears to apply to all public and private employers nationwide.
Find out how the judge’s order will affect the new salary rule, which was to become effective on December 1. Read this month’s Employment Law Alert.
Are You Ready to Reclassify? New Overtime Regulations Go Into Effect on December 1, 2016
By: Sandra E. Kahn
On December 1, 2016, any employees who earn less than $47,476 annually will be entitled to overtime and must be treated as non-exempt, as per the U.S. Department of Labor’s final rule (“Final Rule”).
Don’t wait any longer to address this critical change in the law.
Find out how the Final Rule will affect your current employee classifications and pay practices, and the consequences of not complying with the law.
Read this month’s Employment Law Alert.
Massachusetts Pay Equity Law Imposes New Restrictions on Employer Pay and Hiring Practices
By: Maura E. Malone
On August 1, 2016, Massachusetts Governor Charlie Baker signed “An Act to Establish Pay Equity (the Act)” into law. The Act, which does not become effective until July 1, 2018, will require Massachusetts employers to pay men and women equally for comparable work. It also forbids employers from asking prospective employees about salary history or restricting employee discussion of pay. The Act imposes significant consequences for
violations of the law.
The Act will make it unlawful for employers to pay unequal wages to employees of different genders who perform comparable work. The Act broadly defines wages to include “all forms of remuneration for employment.”
Continue reading on the full alert.
Employment Law Alert: Bill Passed on Employee Noncompetition Agreements Reform
By: Yesterday afternoon, the Massachusetts House of Representatives unanimously approved bill H. 4434 which restricts
employee noncompetition agreements. This bill has key modifications 
from original proposals that are important to be aware of, including the “garden leave” clause. The issue will now be headed to the Senate, which has previously been a supporter of noncompete reform.
Read more in the full Employment Law Alert to find out more.
Will We See Non-Compete Reform Enacted This Year?
For the past eight years, legislative efforts to reform 
post-employment noncompetion agreements in Massachusetts have failed. But this year, House Speaker Robert A. DeLeo has signaled his support for H. 4323 and there is buzz that a non-compete bill may
land on Gov. Baker’s desk before the legislative session ends in July.
This bill entitled, “Massachusetts Noncompetition Act” has eight key components in order for a noncompetition agreement to be valid and enforceable. If H. 4323 is enacted, employers will have to quickly and carefully revise their employee restrictive agreements to comply with the new law.
Read the full post here.
“Magic” Numbers for Federal and State Employment Law Coverage
By: Sandra E. Kahn
There is an ever-increasing array of regulation on employment practices at the state and federal level. But when do growing businesses become covered under the employment laws of these jurisdictions?
It’s all in the employee numbers: Six, Fifteen, Twenty, Fifty, One Hundred. For example, when a business has six employees, the company becomes covered by the MA Fair Employment Practices Act but then at fifteen, it also comes under the federal laws of Title VII of the Civil Rights Act of 1964. As the company grows, different regulations come and go and it is critical to be aware of it in order to maintain legal compliance.
Read the full post here.
New Overtime Regulations Will Result In Many More Workers Becoming Entitled To Overtime
By, Sandra E. Kahn
On May 18, 2016, President Obama announced the publication of the U.S. Department of 
Labor’s final rule (“Final Rule”) updating the overtime regulations, and providing that employees who earn less than $47,476 annually will be entitled to overtime.
The federal Fair Labor Standards Act (“FLSA”) “white collar” exemptions are familiar to most employers. Under the FLSA, employees must be paid the minimum amount required by the statute on a salary basis, and the employee’s job duties must primarily involve executive, administrative, or professional duties. The Final Rule changes only the salary basis test, leaving in place the existing duties test.
For more details, read our full alert and visit our Employment Law Group page.
New Federal Law Protects Trade Secrets But Also Requires Changes to Employee and Contractor Agreements
By: Sandra E. Kahn
The new Defend Trade Secrets Act of 2016 (DTSA) is expected to be signed into law by President Obama. The Act will allow claims for trade secret theft to be brought under a federal civil cause of action.
Under certain circumstances, the Act will provide protection for whistleblowers who divulge trade secrets to the government in order to report wrongdoing. As such, employers will now have to inform their employees of that protection in any agreement or contract. It is advised that employers consult with their counsel to revise contracts as necessary.
For a more detailed explanation of the DTSA, read the full post on our Good Company blog.
Are You Responsible for Your Employees’ “Shenanigans” Outside the Office?
As music and beer flow freely this St. Patrick’s Day, employers have good reason to be aware of what “shenanigans” their employees may be up to.
Employers already know that sexual harassment in the workplace is illegal and can result in liability, but employers should also know that under some circumstances sexual harassment outside of the workplace can result in employer liability. Employers are liable for the harassment of employees by managers and persons with supervisory authority, regardless of whether the employer knows of the conduct. Employers are also responsible for harassment committed by non-supervisory employees where the employer knew or should have known about the harassing conduct and failed to take prompt, effective, and reasonable remedial action. As a result, an employer could find itself facing a claim for harassment based on conduct outside the workplace.
The Massachusetts Commission Against Discrimination (MCAD) uses the following factors to assess whether conduct outside the workplace constitutes sexual harassment under M.G.L. c. 151B for which an employer is liable:
- whether the event at which the conduct occurred is linked to the workplace in any way, such as at an employer-sponsored function;
- whether the conduct occurred during work hours;
- the severity of the alleged outside-of-work conduct;
- the work relationship of the complainant and alleged harasser, which includes whether the alleged harasser is a supervisor and whether the alleged harasser and complainant come into contact with one another on the job;
- whether the conduct adversely affected the terms and conditions of the complainant’s employment or
- impacted the complainant’s work environment.
To minimize the risk of liability, employers should be proactive in creating a harassment-free workplace and culture, and raise awareness about the responsibilities supervisors have in responding to inappropriate conduct. Employers can do this by conducting anti-harassment training and by distributing the company’s harassment policy. Distributing the company’s harassment policy isn’t just good practice, it’s the law. Massachusetts requires that employers with six or more employees not only have a sexual harassment policy and give it out to new employees when they start work, but also that an individual copy be distributed to each employee annually.
An employer’s commitment to prohibiting harassment extends to employer sponsored gatherings, including holiday parties where alcohol is served. When planning such events, consider reminding employees of their obligations with regard to harassment in advance, and limiting alcohol consumption through strategies such as using trained professional servers.
Contact a member of the Employment Law Group for more information on employer liability for outside of work behavior, responding to complaints of sexual harassment, and for assistance in creating workplace policies.
2016 New Year’s News for Employers
As we approach the New Year there are a few important changes to keep in mind, as well as recommendations to get your employment law practices in order.
What are these changes?
- Minimum Wage Goes Up
- Earned Sick Leave Safe Harbor Ends
- Sexual Harassment Law Compliance
- Data Protection Compliance
For all the details read our Employment Law Alert.
If you have questions about any of the above suggestions, please contact Sandy Kahn or any member of MBBP’s Employment Law Group.
Employers Cannot Pay Employees With Stock or Equity In Lieu of Cash
A company with a bright future but a temporary cash shortage might be tempted to compensate employees with an ownership interest in the company (stock or equity) instead of with cash.
But, is this practice legal? Generally, the answer to this question is no. Under state and federal law, employees must be paid at least the minimum wage in cash. Providing equity, no matter how much the equity is worth, does not fulfill this requirement.
An exception to this rule is made, however, if the employee comes within the exemption for executive-business owners provided for in the federal Fair Labor Standards Act (“FLSA”). An individual who comes within this exemption is exempt from the FLSA’s minimum wage and overtime requirements.
To be exempt as an executive-business owner under the FLSA, an individual must (1) be employed in a bona fide executive capacity, (2) own at least a 20% bona fide interest in the business and (3) be actively engaged in the management of the business.
Unless an employee meets each of these requirements, paying in equity alone will run afoul of wage laws, and could result in significant liability for the employer, as well as possible individual liability for the president, treasurer, and individual “officers and agents” of the employer’s corporate entity.
For further help in determining whether your employee comes within the executive-business owner exemption or questions about paying employees with equity, contact a member of our Employment Law Group.
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