Archive
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.
Employers Face Wage & Hour Risks When Terminating Employees
This summer, the family-owned grocery store chain Market Basket has been engaged in a contentious and public dispute over ownership and control of the chain. As a result, thousands of jobs have hung in the balance. In a joint letter, the Attorneys General of Massachusetts and New Hampshire recently used the dispute to remind Market Basket of its legal obligations to employees. The joint letter applies to employers generally, and provides a helpful synopsis of some of the obligations and risks involved in employee terminations.
For further information or questions about employee terminations, contact a member of our Employment Law Group.
D.C. Circuit Court of Appeals Declares NLRB’s Posting Rule Invalid
By: Scott Connolly
On May 7, 2013, the U.S. Court of Appeals for the District of Columbia invalidated a rule issued in 2011 by the National Labor Relations Board (the “Board”) that would have required employers to post notices informing employees of their unionization rights. The case, National Association of Manufacturers v. National Labor Relations Board, was brought by trade associations and other employer representatives who claimed that the Board’s rule violated the National Labor Relations Act (“NLRA”) and the First Amendment to the Constitution.
Specifically, the Board’s rule would have required employers to post notices to employees in conspicuous places informing them of their rights under the NLRA to, for example, form, join or assist a union; bargain collectively; and strike and picket. The Board’s poster also recited more specific employee rights. For example, the poster states that it is “illegal” for an employer to prohibit employees “from wearing union hats, buttons, t-shirts, and pins in the workplace” or to “[s]py on or videotape peaceful union activities.” The rule made failure to post the notice an unfair labor practice, as well as evidence the Board could consider of the employer’s unlawful motive regarding other alleged unfair labor practices, such as plant-closing threats, firings or refusals to hire. The Board claimed the rule was “necessary” because employees were not aware of their union rights. Obviously, employer groups found the required notice pro-union.
The Court held that the Board’s rule violated Section 8(c) of the NLRA, which states:
The expressing of any views, argument, or opinion, or the dissemination thereof, whether in written, printed, graphic, or visual form, shall not constitute or be evidence of an unfair labor practice under any of the provisions of this [Act], if such expression contains no threat or reprisal or force or promise of benefit.
Citing “firmly established principles of First Amendment free-speech law,” the Court determined that Section 8(c) protects the right of employers to both speak and “not to speak.” In other words, an employer’s decision to not disseminate information contained in the Board’s poster is protected to the same extent as an employer’s right to express views and disseminate information about unions. Employers, the court concluded, cannot be compelled by the Board to speak its message. The Board’s rule violated Section 8(c) and First Amendment principles by making an employer’s failure to post the Board’s notice an unfair labor practice, and by treating such a failure as evidence of anti-union animus in cases involving, for example, unlawfully motivated firings.
It remains to be seen whether the Board will appeal the Court’s ruling to the U.S. Supreme Court.
Please feel free to contact Scott with any questions on this topic.
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