Wyatt Employment Law Report


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Wage and Hour Division Releases Enforcement Statistics

By Michelle D. Wyrick

The U.S. Department of Labor’s Wage and Hour Division recently released enforcement statistics for fiscal years 2009 through 2013. Of particular note to employers, the Wage and Hour Division continues to process a high number of wage and hour complaints, with a particular focus on workers in low-wage industries. Conversely, the number of Family and Medical Leave Act cases has decreased over the last two fiscal years.

According to the enforcement statistics, in fiscal year 2013, the Wage and Hour Division collected approximately $250,000,000 in back wages in wage and hour cases. That number represents a small decrease from the back wages collected in fiscal year 2012 but is still the second highest amount collected since fiscal year 2004. In addition, the number of enforcement hours spent on wage and hour complaints has risen substantially over the last four fiscal years.

The statistics also highlight back wages recovered for workers in low-wage industries. These industries include agriculture, day care, restaurants, garment manufacturing, guard services, health care, hotels and motels, janitorial services, and temporary help. The number of cases filed against employers in low-wage industries continues to increase. Likewise, the amount of back wages recovered for workers in low-wage industries rose significantly during the last two fiscal years ($83,051,160 and $97,912,954, respectively).

Until there is a change in the administration, employers should expect the Wage and Hour Division to continue to emphasize enforcement of the Fair Labor Standards Act, with a priority on workers in low-wage industries.


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New Workforce Development System Passed by Congress and Signed Into Law

By Edwin S. Hopson

According to a July 22, 2014 press release issued by the House Education and Workforce Committee, the Congress has passed and President Obama has signed into law the Workforce Innovation and Opportunities Act (WIOA).

Noting the following problems:

“By 2022 the United States will fall short by 11 million the necessary number of workers with postsecondary education, including 6.8 million workers with bachelor’s degrees, and 4.3 million workers with a postsecondary vocational certificate, some college credits or an associate’s degree.

Fifty-two percent of adults (16-65) in the United States lack the literacy skills necessary to identify, interpret, or evaluate one or more pieces of information; a critical requirement for success in postsecondary education and work.

Individuals with disabilities have the highest rate of unemployment of any group, and more than two-thirds do not participate in the workforce at all.”

The House Committee noted:

“WIOA is bipartisan, bicameral legislation that will improve our nation’s workforce development system and help put Americans back to work. Now more than ever, effective education and workforce development opportunities are critical to a stronger middle class. We need a system that prepares workers for the 21st century workforce, while helping businesses find the skilled employees they need to compete and create jobs in America.”

The new law streamlines the old system by:

“Eliminating 15 existing programs.

Applying a single set of outcome metrics to every federal workforce program under the Act.

Creating smaller, nimbler, and more strategic state and local workforce development boards.

Integrating intake, case management and reporting systems while strengthening evaluations.

Eliminating the ‘sequence of services’ and allowing local areas to better meet the unique needs of individuals.”

WIOA also provides greater value, according to the Committee, by:

“Maintaining the 15 percent funding reservation at the state level to allow states the flexibility to address specific needs.

Empowering local boards to tailor services to their region’s employment and workforce needs.

Supporting access to real-world education and workforce development opportunities through:

“On-the-job, incumbent worker, and customized training;

Pay-for-performance contracts; and

Sector and pathway strategies.”

Another goal of the new law is improving coordination by:

“Aligning workforce development programs with economic development and education initiatives.

Enabling businesses to identify in-demand skills and connect workers with the opportunities to build those skills.

Supporting strategic planning and streamlining current governance and administration by requiring core workforce programs to develop a single, comprehensive state plan to break down silos, reduce administrative costs, and streamline reporting requirements.

Ensuring individuals with disabilities have the skills necessary to be successful in businesses that provide competitive, integrated employment.”

Finally, WIOA seeks to improve outreach to disconnected young people by:

“Focusing youth program services on out-of-school youth, high school dropout recovery efforts, and attainment of recognized postsecondary credentials.

Providing youth with disabilities the services and support they need to be successful in competitive, integrated employment.”

For more information in the Louisville, KY, Lexington, KY or New Albany, IN areas, contact Ed Hopson.

For more information in the Memphis, TN, Nashville, TN or Jackson, MS areas, contact Odell Horton.


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Kentucky Supreme Court Issues Potential Game-Changing Decision for Employers with Non-Competes

By Mitzi D. Wyrick

In Creech, Inc. v. Brown, et al, 2012-SC-000651 (Ky. 2014) rendered June 19, 2014, the Kentucky Supreme Court altered the landscape for employers who have covenants not to compete signed by their employees. The employer, Creech, Inc. (“Creech”), provided hay and straw to farms. In 2006, after Donald Brown (“Brown”) had worked for Creech for sixteen years, he was presented with a “conflict of interest” agreement (“Agreement”). The Agreement contained confidentiality provisions with respect to proprietary information as well as a prohibition on employment with any company that directly or indirectly competed with Creech for three years after Brown left his employment. At the time he signed the Agreement, Brown worked as a salesperson. He received no additional compensation for signing the Agreement. Shortly after signing the Agreement, Brown was transferred to the position of dispatcher with no change in salary, but decreased responsibilities and little to no customer contact. In November 2008, Brown resigned to take a job with Standlee, a producer and seller of hay and straw. Ultimately, Creech filed suit against Brown and Standlee alleging breach of contract, intentional interference with contract, aiding and abetting breach of contract, intentional interference with prospective business relations, fraud, and breach of confidentiality.

The trial court issued an injunction allowing Creech to remain employed with Standlee but preventing him from selling or purchasing hay for Standlee in Kentucky and preventing him from disclosing information obtained during his employment with Creech. The trial court modified the Agreement to include a geographical restriction to the Commonwealth of Kentucky. The court found that continued employment was adequate consideration for the non-compete. The Court of Appeals was concerned with the breadth of agreement. The court found that additional discovery was warranted and held, as a matter of law, that continued employment was sufficient consideration to support the Agreement.

On appeal, the Kentucky Supreme Court reversed and held that the Agreement was not enforceable because it was not supported by adequate consideration. Specifically, the Supreme Court held that Brown was offered nothing in exchange for signing the Agreement. Brown remained an at-will employee without an employment contract, with no raise or promotion, no change in the terms of the employment relationship, no specialized training or expertise, and no limitation on Creech’s ability to discharge him after he signed the Agreement.

The Supreme Court distinguished two of the leading cases on non-competes in Kentucky, which had led many employers to believe that continued employment was adequate consideration for a non-compete. In Higdon Food Service, Inc. v. Walker, 641 S.W.2d 750 (Ky. 1982), after the plaintiff worked for four years without an employment contract, he was presented with an employment contract in a new position that contained limitations on the employer’s ability to discharge him in exchange for signing the non-compete. Because the employment contract altered the terms of the employment relationship, it was the same as “new employment.” Similarly, the Supreme Court found Central Adjustment Bureau, Inc. v. Ingram Associates, Inc., 622 S.W.2d 681 (Ky. 1981), to be inapplicable. There, the employees involved signed agreements shortly after they began working and they continued to be employed for a number of years before leaving. While employed they received raises and promotions as well as specialized training and knowledge to which they would not otherwise have had access. And unlike Creech, Central threatened employees with the loss of their jobs if they did not sign the agreements.

Lessons for Employers: Employers should examine any non-compete agreements they have entered into with their employees. After Creech, it appears that continued employment, by itself, may not support enforcement of a non-compete. If employees signed the non-compete after they became employed, employers should make certain that the agreements are supported by adequate consideration, such as access to proprietary information, specialized training or knowledge, raises or promotions, or restrictions on the ability to terminate employment. If employees received none of these things, a non-compete may not be enforceable.   In addition, employers should explicitly make signing a non-compete or confidentiality agreement a condition of continued employment. That, by itself, may not be enough to enforce the agreement, but it is a factor that was lacking in Creech. The Court also noted that the Agreement at issue was contained in the employee handbook. Confidentiality and non-compete agreements should not be included in employee handbooks. Employee handbooks should contain disclaimers stating that they are not contracts or guarantees of employment and that they may be revised at any time in the employer’s discretion. If a confidentiality or non-compete agreement is included in an employee handbook that contains such a disclaimer, a court will likely find that it is unenforceable.

If anyone has questions, please contact us:

http://www.wyattfirm.com/services-detail/Labor-&-Employment


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President Obama’s Equal Pay Executive Orders to Impact Federal Contractors

By R. Joseph Stennis

In support of National Equal Pay Day, President Obama signed an executive order on April 8, 2014, that prohibits federal contractors from retaliating against workers who discuss their compensation with each other and/or in the workplace. According to White House officials, this executive order will not compel workers to discuss pay and/or require employers to publish employee compensation. Instead, it will serve as a “critical tool” to encourage pay transparency, so that workers have an additional mechanism in place for discovering violations of equal pay laws and are able to seek appropriate remedies. Whether retaliation against employees who discuss their pay on social media outlets such as Twitter or Facebook would also fall under the President’s order is uncertain, but more than likely would be protected under the contemplated executive order.

Additionally, President Obama will direct the Labor Department this week to create and issue regulations that will require federal contractors to submit to the Deparment data regarding their employees’ compensation. This data must include details regarding employee gender and race. The Labor Department will utilize the data to conduct more targeted enforcement against federal contractors with the expectation that companies will comply voluntarily with equal-pay laws — the Equal Pay Act of 1963 and the Lilly Ledbetter Fair Pay Act. It remains unclear at this point what such “targeted enforcement” will entail. However, it may result in more enforcement activity by the Department if it concludes a company is not being compliant.


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Supreme Court Holds Certain Severance Payments Are Taxable Wages for FICA Purposes

By Edwin S. Hopson

On March 25, 2014, the U.S. Supreme Court ruled in United States v. Quality Stores, Inc., 572 U.S. ___ (2014), No. 12-1408, that severance payments made to employees involuntarily terminated in connection with Quality Stores’ Chapter 11 bankruptcy were taxable wages for purposes of the Federal Insurance Contributions Act (FICA). A bankruptcy court, a district court and a court of appeals had held to the contrary. Thus, in an opinion by Justice Kennedy, joined in by all other Justices but Kagan who recused herself, the Court reversed the court of appeals, finding that FICA’s definition of “wages” was stated broadly as “all remuneration for employment.” The Court noted that the severance payments at issue “were varied based on job seniority and time served, and were not linked to” state unemployment benefits. They were a part of the employer-employee relationship for which compensation was paid. The Court also stated that the lengthy list of exemptions from the definition of wages included severance payments “because of … retirement for disability.” There was no explicit exemption for the severance payments at issue here.

FICA’s statutory history also supported the Court’s holding in this case.

Finally, the Court stated that the major principle of Rowan Cos. v. United States, 452 U. S. 247 (1981), that simplicity of administration and consistency of statutory interpretation instruct that the meaning of “wages” should be in general the same for income-tax withholding and for FICA calculations, also supported its decision.

For more information in the Louisville, KY; Lexington, KY or New Albany, IN areas, contact Ed Hopson.

For more information in the Memphis, TN; Nashville, TN or Jackson, MS areas, contact Odell Horton.


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U.S. Supreme Court Extends SOX Whistleblower Protection to Employees of Private Contractors Who do Business with Public Companies

By R. Joseph Stennis

In Lawson, et. al. v. FMR LLC, No. 12-3 (decided March 4, 2014), a divided U.S. Supreme Court confirmed that the whistleblower protections contained in the Sarbanes-Oxley Act of 2002 (“SOX”) extend to employees who work for private contractors that do business with public companies. At issue in the case was a bit of text in SOX which provides that, “[n]o public company. . . or any . . . contractor . . . of such company may [retaliate] against an employee . . . because of [SOX- protected activity].”

The U.S. Court of Appeals for the First Circuit had held this language applied exclusively  to employees of  public companies and not to employees of private contractors that do business with public companies. The First Circuit’s ruling was  in sharp contrast to  decisions issued by the Administrative Review Board of the U.S. Department of Labor (“ARB”).  For example, in Spinner v. David Landau & Assoc. LLC, Nos. 10-111 and 10-115 (decided May 31, 2012), the ARB held that a private contractor’s employee who was a whistleblower as to fraudulent activity by his company was covered by SOX and therefore protected by its anti-retaliation provisions.

In Lawson, the whistleblower plaintiffs were employed by private companies that performed as advisers to public mutual fund institutions.  Petitioners, Jackie Lawson and Jonathan Zang, urged the High Court to overrule the First Circuit and extend whistleblower protections to employees of private contractors of publicly held companies. The respondents argued that the petitioners’ interpretation would lead to an unlimited application of the statute.  Ultimately, the Supreme Court in a 6-3 ruling—penned by Justice Ginsburg—concluded that the plain meaning of SOX’s text, SOX’s legislative history, and its overall statutory purpose favored a wider interpretation and reading of the provisions than favored and advocated by the respondent companies.

Thus, Lawson establishes that an employee of a private contractor that does business for a public company and is retaliated against for engaging in SOX protected conduct would be entitled to pursue an anti-retaliation claim under SOX against that private employer.


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White House Seeking Expansion of Overtime Pay Under the FLSA

By Mitzi D. Wyrick

President Obama has directed the U.S. Department of Labor (“DOL”) to revise regulations under the Fair Labor Standards Act to make more workers eligible for overtime pay.  Specifically, the DOL will be reviewing the executive, professional, and administrative exemptions, sometimes referred to as the “white-collar” exemptions from the requirement to pay overtime for hours worked over 40 in a workweek.  The salary basis threshold, which is currently set at $455 per week, will be one area of focus.  In addition, the White House has directed the DOL to review other exemptions changes to which would result in more overtime pay based on the type of work performed.  For example, under the revised regulations thought to being considered, store managers who also perform non-management duties may be entitled to overtime pay unless they can demonstrate that the majority of their time is spent performing management work.  Read more about it at:  http://t.co/KgEmpdqfZT

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