Have Faith: 4.9 Million Dollar Settlement Underscores Importance of Accommodating Religious Beliefs During Hiring Process

What happens when the religious beliefs of an applicant conflict with your grooming and appearance policy?  What if the applicant is seeking a public-facing position in which they will be the first (and only) representative of your organization with whom most members of the public interact?  shutterstock_EEOCWhile some employers may believe that “image is everything” when it comes to the appearance of their public-facing employees, a 4.9 million-dollar settlement of a religious discrimination lawsuit announced recently by the U.S. Equal Employment Opportunity Commission (“EEOC”) serves as a stark reminder to employers that even your most straightforward policies may need to be modified in certain situations.  As detailed in our June 7, 2018 blog post, the EEOC has been aggressively making good on the promise made in the agency’s Strategic Enforcement Plan for Fiscal Years 2017 – 2021 to focus on “class-based recruitment and hiring practices” that discriminate against people with disabilities by filing a series of lawsuits accusing employers of violating the Americans with Disabilities Act by inquiring about prior medical histories, subjecting applicants to physical capacity tests and refusing to hire individuals who disclosed certain conditions.  The agency’s Strategic Enforcement Plan similarly committed to rooting out religious barriers to employment.  This is important because while many employers readily understand the need to reasonably accommodate disabled applicants and employees, it seems that some employers fail to grasp that they may also have to accommodate religious beliefs and practices of applicants and employees.

What the Law Requires

Title VII requires that employers, once informed that a religious accommodation is needed, accommodate an employee whose sincerely held religious belief, practice, or observance conflicts with a work requirement, unless doing so would pose an undue hardship.  If an employer’s dress and grooming policy conflicts with an employee’s known religious beliefs or practices, the EEOC expects Continue reading

Digital Threats Continue to Confront the Hospitality Industry

shutterstock_217014265Cybersecurity and digital threats were a hot topic at ALIS Law, a conference for hotel owners and operators, in Los Angeles last month.  I had a pleasure of moderating a session on “threats in a digital world” with senior executives from national hotel management and ownership groups.  In our session, we discussed what were some of the pressing and most concerning digital threats that kept the hospitality industry up at night.  Here are some highlights and take-aways from the session:

  • Cybersecurity and hacks from foreign and domestic threats remain a top concern. Many hotels have been engaging in surveillance as one method of cyber protection.  It was noted how much the investment in technology to prevent, address, and respond to cybersecurity issues has increased for both owners and operators.  While owners may bear the cost on their profit & loss statement, and management companies are putting in policies, owners are adding property specific monitoring.  It was discussed that one global hotel company, Hyatt Hotels, recently announced a bug bounty program whereby they will be paying ethical hackers to monitor their systems, including mobile applications, for potential risks and where credible risks or threats are found – the hackers will be compensated – which is a novel approach in the hospitality industry.
  • While cybersecurity threats have been a focus, one repeated concern is the threat of harm to a hotel’s reputation due to guests and third parties spreading false information on social media sites, such as LinkedIn, Yelp, and Trip Advisor. To address these concerns, hotel operators talk with their teams daily about the consequences of false information or a bad review and take steps to remove false reviews if possible.  Others noted that removing a false review from a site like Trip Advisor can be challenging unless the company is able to prove that the review was posted for criminal reasons or demonstratively false.
  • One consequence of a cybersecurity hack beyond the disclosure of guest information is if a hacker was able to secure personal identifiable information of a hotel company’s investors and borrowers. If investors are concerned that a hotel company is not protecting their highly confidential and personal financial information, that would have a significant impact on the reputational harm to the company.
  • Some of the best practices that owner and operators have put into place is an incident response plan to respond to a threat. In doing so, a key question is who you need at the table to decide how to move forward (IT / GC / PR / Owner) and what elements do you need to put into place.  In addition, implementing policies and procedures on the front end is critical.  For example, from an accounting perspective, having controls in place that can protect where the money is going and where it is coming from and ensuring that there are multiple approvals before money is sent out electronically.  Finally, training staff on the policies and procedures so that the right people are getting the right information.  Managers need to judge and reward staff for compliance with the policies because while a company continue to monitor and audit, training is only effective if compliance is monitored.  For example, one company reported conducting more secret shoppers to determine whether someone can drop a flash drive into a front desk computer to tap into the network.

Unfortunately, cybersecurity risks and threats are not going away anytime soon, but with planning and focus on this important issue, hotel owners and operators can get ahead of some of the threats and take control and strong action if a risk materializes.

[Webinar] A Business Primer on Disability Access Laws: Preventive Tools and Defense Strategies

On Thursday, October 25, 2018, at 1 pm EDT, join Kara M. Maciel and Andrew J. Sommer of Conn Maciel Carey’s national Labor & Employment Practice Group for a complimentary webinar:  “A Business Primer on Disability Access Laws:  Preventive Tools and Defense Strategies

Businesses continue to be plagued by litigation under the Americans with Disabilities, Title III (ADA) over alleged access barriers.  Lawsuits against hotels and retailers, among other public accommodations, appear to be on the rise with a disproportionate share in California.

Disability Webinar

This webinar will provide an overview of ADA, Title III standards as they apply to construction existing before the enactment of the ADA in 1992 as well as to subsequent new construction and alterations.  The webinar will also address Continue reading

Tips, Service Charges, and Automatic Gratuities Continue to Cause Problems for Employers

Hospitality employers nationwide continue to be hit with class action lawsuits alleging failure to properly pay/distribute tips, as well as failure to correctly characterize service charges and automatic gratuities.  These lawsuits have the potential to result in verdicts or settlement amounts more costly than virtually any other employment-related matter.  As a result, it is important to periodically review what is or is not permissible under the law is it relates to tips, service charges, and automatic gratuities.  shutterstock_waiter

Most employers are familiar with the basic premise that a tip is a voluntary amount a guest leaves for an employee over the amount due for the goods sold or services rendered, while a service charge is an amount agreed-upon in advance by a venue for services provided, often in connection with large pre-planned events.  However, service charges are treated differently than tips for tax and other purposes, and automatic gratuities add an extra complicated layer in this analysis. A brief synopsis of the differences of these terms from a legal perspective is set forth below:

Continue reading

SCOTUS Approves Class Action Waivers in Employment Arbitration Agreements

By:  Kara Maciel and Dan Deacon

The U.S. Supreme Court ruled on Monday that class/collective action waiver clauses in employment agreements that compel employees to settle disputes individually with a third-party arbitrator are enforceable.  In a landmark 5-4 ruling, the Justices in the majority rejected the National Labor Relations Board’s position and held that a class/collective action waiver in an arbitration agreement – which effectively prohibit employees from joining together in a class or collective action lawsuit to settle disputes – do not violate the Federal Arbitration Act (“FAA”) or the National Labor Relations Act (“NLRA”).

Background

Arbitration agreements – requiring employees to submit claims to an arbitrator instead of filing in court – are relatively common in the workplace.  Many employers favor arbitration because it tends to lower the cost of litigation and streamlines a resolution.

The legal issue that percolated through the federal Courts of Appeals over the past several years was whether a class/collective action waiver in an arbitration agreement is enforceable.  An arbitration agreement that includes a class/collective action waiver benefits an employer because it prevents employees from banning together to file costly class or collective actions and it forces employees to utilize the arbitration process rather than filing a lawsuit.  Thus, the only form of redress for an employee is a single action that must be worked out before a neutral, third-party arbitrator.

Over the past five years, the Courts of Appeals issued conflicting opinions on whether class action waivers are enforceable.   Notably, between 2013 and 2014, employers were provided favorable opinions from the U.S. Courts of Appeals for the Fifth, Second, and Eleventh Circuit which concluded that the NLRA does not invalidate class action waivers in arbitration agreements.  In contrast, in 2016, the U.S. Courts of Appeals for the Ninth and Seventh Circuit adopted the NLRB’s position that class and collective action waivers violate Section 7 of the NLRA.

The Supreme Court’s Decision

The Supreme Court’s ruling brings finality to an issue that sparked years of debate and caused significant uncertainty for employers.  Oral arguments took place in October 2017 with the justices appearing split along ideological lines – except for Justices Clarence Thomas and Neil Gorsuch who did not speak at all during the session.  Interestingly, however, it was Justice Gorsuch who wrote the opinion – which was his first major opinion since joining the Court last spring.

As alluded to in our prior blog post, President Trump’s ability to fill Justice Scalia’s vacancy was ultimately a deciding factor in what appears to have been a partisan showdown.  Speaking for the conservative wing on the bench, Justice Gorsuch explained that the law is clear that Congress in enacting the FAA instructed federal courts to enforce arbitration as written, including those terms calling for individualized proceedings, and that the “decision does nothing to override” what Congress has done.  In a lengthy dissent, Justice Ginsburg criticized the majority for overturning 80 years of NLRB precedent.  Justice Ginsburg commented that the majority’s decision is “egregiously wrong” and expressed concerns that many employees with small claims, such as minimum wage and overtime violations, will be disinclined to pursue potential claims individually.

The expected fall-out and the future of this ruling now rests with Congress.  Congress certainly has the ability to revise the FAA and the NLRA through legislation.  Given the deep split amongst party lines, however, it is unlikely that Congress will act any time soon.

Take Aways for Employers 

In light of the Court’s decision, employers should immediately review their practices and policies governing employment agreements with arbitration clauses.  For those employers who do not require arbitration of disputes, now may be the time to reconsider whether to implement such an agreement with current employees.  For those employers who have arbitration agreements in place already, now is the time to ensure the agreement contains an enforceable class/collective action waiver, especially for wage and hour disputes.  Employers may want to evaluate whether to restrict class/collection actions for other types of disputes, such as discrimination or harassment cases.  Importantly, any arbitration agreement must be drafted with the company culture in mind.

In short, employers now have the ability to utilize a new forum to resolve legal disputes on an individual basis.  In some circumstances, especially for class/collection claims, an arbitration may be less expensive than lawsuits, take less time, and do not typically result in years of appeals.  Ultimately, the Supreme Court’s decision is welcome news for employers.  Employers can proactively mitigate litigation risk through carefully drafted employment agreements and more effectively manage legal disputes.

Bucking the Gig Economy, the California Supreme Court Places Steep Hurdle on Classifying Workers as Independent Contractors

california-flagHistorically, California has applied a multi-factor test for evaluating whether a worker is an employee or independent contractor.  These factors – all of which must be considered with no single controlling factor – were developed almost 30 years ago by the California Supreme Court in S.G. Borello & Sons v. Department of Indus. Relations (Borello).  Under this test, consideration was given to the business’ right of control over the manner and means of completing the work, the method of payment, duration of the relationship, and the kind of work being performed, among other factors.  Although Borello examined these factors in the context of workers’ compensation laws, its multi-factor test has been applied to other types of legal claims.

In the new economy, businesses have considered arrangements outside of an employment relationship such as hiring freelancers or contract workers.  Based on an individualized analysis with no bright line rule, Borello’s multi-factor test has afforded businesses flexibility in structuring positions to support an independent contractor  relationship.  Yet, the consequences of misclassification are severe, exposing businesses to liability for minimum and overtime wages, denied rest and meal breaks, unreimbursed work-related expenses and tax liability.  While Uber and other gig economy companies have become embroiled in high-profile litigation over independent contractor issues, businesses across the spectrum are affected as well.

Dynamex Imposes Inflexible Standard

In Dynamex Operations West, Inc. v. Superior Court (Dynamex), the California Supreme Court has just upended Borello, by recognizing a different standard for determining whether workers should be classified as employees or independent contractor for purposes of California’s wage orders.  These wage orders impose obligations relating to minimum and overtime wages, reporting time pay, uniforms and meal and rest periods.

In Dynamex, delivery drivers filed a class action against defendant claiming that Dynamex had misclassified its delivery drivers as independent contractors, rather than employees, in violation of the applicable wage order.  Based on the definition of “employ” contained in the wage orders, the Court recognized that a worker is considered an employee of an entity that has “suffered or permitted” the worker to work in its business. The suffer or permit to work definition is broader and more inclusive than the traditional test adopted by Borello.

The Supreme Court interpreted the suffer and permit to work standard as placing the burden on the hiring entity to establish that the worker is an independent contractor who was not intended to be covered by the wage order.  The Court concluded that, in order to meet this burden, the hiring entity must establish each of these three factors:

(1) that the worker is free from the control and direction of the hiring entity in performing the work;
(2) that the worker performs work that is outside the usual course of the hiring entity’s business; and
(3) that the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.

The first factor is similar to the control factor recognized as a primary consideration under Borello’s common law test.  While businesses may structure the work arrangement in a manner to demonstrate an absence of control, the same is the not true under the second factor.  Even if the worker has a specialized skill, works from home and does not perform work under the direction or control of the hiring entity (factors considered under Borello), the mere fact that the worker’s services are part of the entity’s usual course of business defeats independent contractor status.  The Court cited as an example a bakery that hires cake decorators to work on a regular basis on its custom-designed cakes, which it found to be part of the hiring entity’s usual business operation.  On the other extreme, the Court found that a plumber hired by a retail store to repair a bathroom leak would not be considered to perform services that are part of the store’s usual course of business.  There are numerous consulting arrangements that are now vulnerable under this factor.

Similarly, the third factor places another significant hurdle to establishing independent contractor status because it requires the worker to independently decide to engage in this business relationship, as opposed to being designated as an independent contractor by the hiring entity.  The Court found that an individual meeting this requirement “generally takes the usual steps to establish and promote his or her independent business – for example, through incorporation, licensure, advertisements, routine offerings to provide the services of the independent business to the public or to a number of potential business, and the like.”  Accordingly, this factor suggests that the worker would need to establish some sort of independent business entity or identity.

The Supreme Court has recognized that its ruling marks a major departure from past cases and defies guidance by the California Labor Commissioner following the Borello multi-factor test.  In adopting this broad standard for the employment relationship, the Court considered the economic consequences of classifying workers as independent contractors, with businesses avoiding payroll taxes and workers’ compensation obligations, and workers assuming financial burdens.

Takeaways for Business Owners

While this newly recognized standard provides greater clarity than the Borello multi-factor balancing test, it imposes a very high burden for employers seeking to classify workers as independent contractors.  It should be noted that the Borello test for now will continue to apply in contexts outside of California’s wage orders and should be evaluated as well.  Yet, Dynamex may effectively end up being the benchmark because it imposes a higher, more rigid standard applying to wage and hour violations that typically are the greatest source of exposure for businesses misclassifying workers as independent contractors.

Business owners and management should immediately, through the advice of employment counsel, review all current independent contractor arrangements to ensure proper classification under this new standard.  Before classifying a worker as a “consultant,” i.e., independent contractor, businesses will need to consider primarily whether the worker has an independent business and whether the nature of worker’s services is similar to the business’.  Decisions to treat a worker as a consultant motivated by financial reasons alone or because the individual works from home will now be suspect. Under appropriate circumstances, however, the California courts will likely continue to recognize independent contractor status for traditionally recognized independent contractors such as attorneys, accountants and construction trades who perform services independent of the hiring entity’s business.

 

U.S. Department of Labor Changes Position on Internships under the FLSA

interns wantedAlthough summer seems far away, now is the time when most employers begin to prepare for their summer internship programs.  Internships are a great way to give college students or new professionals some hands-on experience in your industry.  However, one major question that has plagued employers over the past decade is whether an intern must be paid under the Fair Labor Standards Act (“FLSA”) based on the duties he or she performs in the intern role and the structure of  internship program.

While some employers offer paid internships, other internships are unpaid or only provide a stipend lower than the minimum wage.  Given the recent string of high-profile class action cases brought by unpaid interns, for-profit, private sector employers must be aware of the FLSA’s requirements as it relates to unpaid interns.  Specifically, employers need to carefully evaluate whether an intern qualifies as an “unpaid intern” or an “employee” entitled to compensation.   Continue reading