In a groundbreaking ruling released recently, Unknown v. Anthony Foxx, the U.S. Equal Employment Opportunity Commission confirmed that allegations of sexual orientation discrimination necessarily state a claim of sex discrimination under Title VII of the Civil Rights Act of 1964 (Title VII).

In doing so, the EEOC acknowledged that Title VII does not explicitly list sexual orientation as a prohibited basis for employment actions. According to the EEOC, however, this is not the end of the inquiry. Rather, the agency clarified that “Title VII’s prohibition of sex discrimination means that employers may not ‘rely upon sex-based considerations’ or take gender into account when making employment decisions” (internal citations omitted). The EEOC went on to find that “sexual orientation is inherently a ‘sex-based consideration.’ ” Consequently, sexual orientation discrimination is sex discrimination.

This decision is not altogether surprising after the EEOC’s 2012 ruling in Macy v. Holder. In that case, the EEOC found that Title VII’s prohibition on sex discrimination extends to prohibit discrimination based on transgender status, gender identity and gender transitioning. In addition, long before this ruling, the U.S. Supreme Court held in Price Waterhouse v. Hopkins that Title VII bars not just discrimination because of biological sex, but also gender stereotyping. However, the Unknown decision was still not issued without objection, as only three of the five commission members approved the ruling.

What this means for employers

As discussed above, Title VII does not explicitly list sexual orientation as a protected characteristic. In addition, several courts have held that Title VII does not in fact prohibit sexual orientation discrimination or harassment on the basis of sexual orientation. Only the U.S. Supreme Court could issue a definitive decision on this issue.

However, EEOC decisions are typically given a fair to significant amount of deference by federal courts, so employers could very well start to see a shift in the way courts are evaluating allegations of sexual orientation discrimination. Similarly, state human rights agencies and state courts may begin to consider the EEOC’s ruling in their investigations and determinations.

To minimize associated risk, employers would do well to assume that sexual orientation will be treated as a protected characteristic going forward and modify their policies, practices and training accordingly. Employers should likewise prepare for an influx of sexual orientation discrimination claims as plaintiffs’ attorneys begin to test how federal and state courts will respond to the EEOC’s ruling.

If you have questions regarding this topic, please contact the attorneys in our Employment & Labor Group.

The National Labor Relations Board has long held employers cannot stifle employee communications about the conditions of their employment in general handbook confidentiality clauses, but on Aug. 27, the NLRB took that prohibition one step further.

In a 2-1 decision, the board ruled The Boeing Co.’s confidentiality restriction for employees under HR investigations violated the National Labor Relations Act. (Boeing Co., 2015 BL 278958, 362 N.L.R.B. No. 195, 8/27/15.)

Before November 2012, Boeing routinely distributed to all employees involved in investigations a confidentiality notice that stated, in relevant part: “Because of the sensitive nature of such information, you are directed not to discuss this case with any Boeing employee other than company employees who are investigating this issue or your union representative.”

Boeing argued that requiring confidentiality in all of its investigations was lawful based on legitimate business justifications such as protecting witnesses, victims or employees under investigation from retaliation or harassment, as well as preventing the spread of unfounded rumors. The board found that while an employer may legitimately require confidentiality in appropriate circumstances, it also must attempt to minimize the impact of such a policy on protected activity. Thus, an employer may prohibit employee discussion only when its need for confidentiality in a specific investigation outweighs employees’ Section 7 rights. Boeing’s generalized concern about protecting the integrity of all of its investigations was insufficient to justify the sweeping policy.

In November 2012, Boeing revised its confidentiality notice to employee witnesses and recommended that employees not discuss their investigations, rather than directly prohibiting it. The board found this revised notice was virtually identical to the original and rejected Boeing’s argument that the substitution of “recommend” for “direct” cured whatever defects existed in the original notice. The board’s decision rested on the lack of any assurance in the notice that employees were free to disregard the recommendation that they refrain from discussing the investigation.

If you have questions about the NLRB’s decision and its potential impact on your company’s confidentiality clauses, please contact any of the attorneys in our Employment & Labor Group.

Whether it’s using a company laptop at home or accessing social media and other personal sites via an office desktop computer, the lines between an employee’s personal and work lives are increasingly blurred.

As revealed by the recent Ashley Madison website hack, many employees across the United States use business computers and business email accounts for very personal reasons — reportedly over 15,000 email addresses used to register accounts were linked to government or military servers. However, dealing with an employee who “cheats” on an employer’s computer, Internet or email use policy may not be as simple as it seems.

Undoubtedly, nearly every employer that provides Internet access to employees loses some appreciable measure of productivity to employee activities such as checking a Facebook account or updating a fantasy football lineup. Is maintaining an online extra-marital affair using a company email account more onerous than using company time to prepare for one’s fantasy baseball draft? The answer likely lies within the specifics of the company’s policies governing the activities in question.

Revisit and remind

Employers should regularly review Internet, email and computer use policies to make sure they are clear and up to date. Employers must ensure that their policies clearly communicate the conduct deemed acceptable and unacceptable. Additionally, these policies should clearly notify employees that computer and Internet use may be monitored and that employees have no expectation of privacy in their use of company devices or email accounts. Employees should be reminded of these policies, including through occasional redistribution or training. Also consider blocking access to certain websites or categories of websites on company computers and connections.

The Ashley Madison data hack raises another interesting legal issue: Can an employer take action against an employee for off-duty conduct the employer finds inappropriate or immoral? While many employees are considered “at-will” employees who can generally be terminated with or without a specific reason, several states have enacted laws prohibiting employers from taking adverse action against employees for otherwise lawful off-duty conduct. Of course, in some circumstances, the employee’s conduct may damage the employer’s reputation or violate behavior expectations (e.g., an employer affiliated with a religious organization may expect its employees to follow its religious tenets). It is also important to check any applicable employment agreements or collective bargaining agreements, review applicable local, state and federal privacy and employment laws, and ensure that any relevant company policies and procedures are followed. It is also advisable to conduct a thorough investigation before taking any action against the employee.

If you have questions regarding how to draft or enforce computer use, Internet or email policies or regarding your investigation and disciplinary practices, please contact the attorneys in our Employment & Labor Group.

Reversing course from more than 30 years of precedent, the National Labor Relations Board significantly expanded its standard for determining when two entities constitute a single joint employer over a unit of employees. In so doing, the NLRB creates questions about a number of entity relationships such as parent corporation/subsidiary, contractor/subcontractor and franchisor/franchisee relationships.

The potential to exercise control

Since 1984, the board’s standard for determining whether an entity was a joint employer required a showing that the entity’s control was “immediate and direct” rather than “limited and routine.” Further, in its previous decisions, the board focused on control that was actually exercised over employees rather than control that hypothetically could be exercised. However, in its recently released decision Browning-Ferris Industries of California, Inc. d/b/a BFI Newby Recyclery, 362 NLRB No. 186 (Aug. 27, 2015), the NLRB overruled its prior standard and concluded that an entity with the potential to exercise control over another entity’s employees was a joint employer and was obligated to participate in the collective bargaining process with respect to those issues in which the entity could exercise control. Additionally, the NLRB concluded that the potential control need not be directly exerted; rather, joint employer status could be based on control exercised indirectly through a third party.

The Browning-Ferris case involved an arrangement in which Browning-Ferris Industries of California, Inc. (BFI) contracted with a third party, Leadpoint Business Services, to provide employees who performed work at BFI’s facility. It was undisputed that Leadpoint was an employer — the issue was whether BFI, the recipient of the Leadpoint employees’ services, was a joint employer. In reaching its conclusion that BFI was a joint employer, the NLRB looked at a number of factors, in particular the contract between BFI and Leadpoint to determine whether BFI retained potential control over the Leadpoint employees’ terms and conditions of employment, regardless of whether BFI actually exercised that control. Notably, while the board did identify factors to consider under the newly announced test, it pointed out that the analysis is fact-specific and refused to comment on the potential impact of the new test on facts other than those before it.

Other employee scenarios

While the Browning-Ferris case involved a leased-employee relationship, the NLRB’s decision could extend well beyond the temporary or leased employee scenario. The board has not given guidance on the potential effects the new standard may have on other types of relationships. For example, a parent corporation may indirectly exercise some authority over the employees of its subsidiary by requiring the subsidiary to meet certain standards. A franchisor may require its franchisees to apply standards for purposes of system consistency and trademark protection that indirectly affect employment conditions of franchisee employees. Contractors may require subcontractors to work certain hours or meet certain production standards. While these scenarios may not definitively create joint employer status, it is conceivable that any of these circumstances could satisfy the NLRB’s new test. The implications of joint employer status are significant, including obligations to collectively bargain and potential liability for unfair labor practice charges.

It is unclear whether BFI will file or need to file an appeal of the NLRB’s decision. The NLRB conducted the representation election prior to issuing its ruling and had impounded the ballots. Those ballots will be counted. In the event the union prevails in the election, BFI has the right to appeal the NLRB’s decision to either the 9^th Circuit or D.C. Circuit Court of Appeals.

Should you have questions about the NLRB’s new joint employer test and its potential impact on your company, please contact any of the attorneys in our Employment & Labor Group. For franchise-specific inquiries, please contact the attorneys in our Franchise and Distribution Group.

Decision may have relevance for Illinois employers as well

In a recent and somewhat surprising decision, the Colorado Supreme Court concluded that an employer legally fired an employee for violating the company’s zero-tolerance drug policy, even though the employee’s marijuana use was off-duty and legal under Colorado law.

The decision, Coats v. Dish Network, LLC, 2015 CO 44, was surprising in part because Colorado’s “lawful activities statute” makes it unlawful and discriminatory for an employer to discharge an employee for “lawful” activity outside of the workplace.

The meaning of ‘lawful’

The employee, Brandon Coats, was a licensed medical marijuana user, and it was undisputed that his marijuana use was “at home, after work, and in accordance with his license and Colorado state law.” Coats’ employer, Dish Network, maintained a zero-tolerance drug policy that called for termination of any employee who tested positive for drug use. Coats argued, however, that his use of medical marijuana was protected outside-of-work activity.

The Colorado Supreme Court rejected Coats’ argument. Instead, the court concluded that the term “lawful” meant activity that complied with state and federal law. Because marijuana possession and use remains prohibited by federal law, the court concluded that Coats’ activities were not lawful.

The court held: “Nothing in the language of the [lawful activities] statute limits the term ‘lawful’ to state law. Instead, the term is used in its general, unrestricted sense, indicating that a ‘lawful’ activity is that which complies with … state and federal law.” On this basis, the Colorado Supreme Court upheld Dish Network’s decision to terminate Coats’ employment.

Illinois interest

With the implementation of the Medical Cannabis Pilot Program — and a “lawful activities statute” similar to the Colorado law (820 ILCS 55/5) — the Coats decision should be of particular interest to Illinois employers. While it may have persuasive effect, the Coats decision is not binding on Illinois courts. Also, the Medical Cannabis Pilot Program in Illinois contains an “employer liability” section detailing measures for employer compliance with the new law. As licensed growers begin to (literally) change the marijuana landscape in Illinois, employers should begin to review drug policies and familiarize themselves with some new obligations.

If you have questions or comments about this topic, please contact the Employment & Labor Group.

The U.S. Department of Labor (DOL) on Wednesday aimed to clarify the test it uses to determine whether workers are classified as employees or independent contractors for purposes of the Fair Labor Standards Act (FLSA) and the Family Medical Leave Act (FMLA).

The guidance in the newly released Administrator’s Interpretation emphasizes the DOL’s inclusive definition of “employee” and highlights that the proper classification of workers depends on whether they are really in business for themselves or are economically dependent on employers. This distinction is important because only those workers who are classified as employees are eligible for overtime and minimum wage protections under the FLSA, as well as benefits under other state and federal laws such as workers’ compensation and unemployment insurance.

Identifying misclassified employees has been an increasingly prominent enforcement priority for the DOL, which has partnered with 22 states (including Missouri and Illinois) and the IRS to coordinate efforts to remedy misclassification. The new guidance recognizes that changes in the economy and emerging business structures have caused “independent contractor” relationships to proliferate in recent years. Recent lawsuits and administrative proceedings leveled against Lyft, Uber and companies with similar business models illustrate the vulnerability of the so-called “1099 economy” to such misclassification challenges.

The ‘economic realities’ test

The new guidance affirms that the DOL’s previously used “economic realities” test is still the proper test for determining which workers are employees and which are independent contractors. Courts use this multi-factor test to consider all aspects of a worker’s relationship with an employer, ultimately focusing on whether the worker is truly operating an independent business or is economically dependent on the employer. The new guidance emphasizes that the expansive nature of this test — which is outlined in the questions below — means that most workers are employees under the FLSA.

Is the work an integral part of the employer’s business?

Long considered a key component of the independent contractor analysis by courts, this factor looks at whether the worker’s tasks are part of an employer’s essential business functions. The DOL adds that an individual’s work may be integral to an employer’s business notwithstanding the fact that it represents one small component of the business or that the same task is performed by thousands of other workers.

Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?

This factor has previously been understood as relating to the worker’s opportunity to experience profit and loss, but the DOL emphasizes now that it is the worker’s managerial skill that must contribute to the possibility of economic profit and loss rather than a technical or professional skill. In other words, it is not enough that a worker may increase his income by choosing to work more hours — this does little to distinguish an independent contractor from an employee. Rather, a true independent contractor exercises managerial skills, such as hiring other workers, purchasing equipment, advertising for work, etc., in order to increase his profits.

How does the worker’s relative investment compare to the employer’s investment?

Courts have traditionally viewed this factor solely in terms of the worker’s investment, but the DOL now encourages viewing these investments in comparison to the total investments made by the employer. As a result, only those workers who have made significant investments illustrating the existence of an independent business will be considered independent contractors under this factor.

Does the work performed require special skill or initiative?

Reminiscent of the economic opportunity factor, this aspect of the test focuses on whether a worker is economically dependent based upon business skills, judgment, and initiative — not upon whether he or she has specialized technical or professional skills. The DOL underscores the fact that simply possessing specialized skills is not enough to be considered an independent contractor; instead, workers must truly exercise skills that allow them to operate businesses independent of the employer.

Is the relationship between the workers and the employer permanent or indefinite?

The permanent or indefinite nature of a working relationship suggests that a worker is an employer. Consistent with the DOL’s emphasis on a worker’s business independence, a true independent contractor would not be able to recognize a significant opportunity for profit in a long-term, exclusive relationship with one employer.

What is the nature and degree of the employer’s control?

While the degree of the employer’s control over workers has traditionally been the hallmark of independent contractor tests, the DOL cautions employers against relying exclusively on this factor in analyzing worker classification. The DOL explains that in the current economy, many workers, such as those who work remotely, may be able to control significant portions of their work, but this control is not meaningful unless it indicates that the worker is operating his or her own business.

Review your relationships

As a result of this new guidance, employers will likely find it increasingly difficult to defend independent contractor classifications. Importantly, this guidance does not have the force of law, but it is intended to advise the public of how the DOL interprets its own statutes, and courts will consider this interpretation in future litigation. As a consequence, employers should observe the new DOL guidelines to prevent future liability with respect to misclassification.

Any employers who have relationships with independent contractors should review these relationships in light of the new guidance to ensure compliance with the FLSA and the FMLA. Additionally, employers who use contingent workers sourced from staffing or temp agencies should carefully consider how these arrangements are structured.

If you have questions about the Administrator’s Interpretation’s effect on your business, please contact the attorneys in our Labor and Employment Group.

Employers called to submit comments in next 60 days

After months of internal debates and conferences, the U.S. Department of Labor (DOL) released the long-anticipated proposed overtime rule today. If implemented, the proposed rule will significantly expand overtime pay for Americans under the Fair Labor Standards Act (FLSA).

Key things to know about the proposed overtime rule

Increase in salary requirement for overtime exemption. If implemented, the proposed rule will more than double the minimum salary threshold required to qualify for FLSA “white collar” exemptions, from $23,660 annually to $50,440 annually. The $50,440 salary is a projection that represents the 40th percentile of weekly earnings for full-time salaried workers.

Increase in salary requirement for highly compensated employees. If implemented, the proposed rule will increase the total annual compensation required for the exemption of highly compensated employees (HCEs) to the 90th percentile of weekly earnings for full-time salaried workers. This would raise the HCE exemption threshold requirement from $100,000 annually to $122,148 annually.

The salary requirements would automatically update annually. Under the proposed rule, the salary basis requirement for both the white collar overtime exemptions and HCE exemption would automatically update on an annual basis. The standard overtime exemption standard would remain proportionate to the 40th percentile of weekly earnings for full-time salaried workers. Similarly, HCE salary levels would remain proportionate to the 90th.

The DOL is seeking feedback regarding the standard duties test and non-discretionary bonuses. The DOL has not proposed any specific changes to the standard duties test, but it is soliciting suggestions and comments in its discussion of how the test may be amended to screen out employees who do not truly fall into the category of “white collar” exempt employees. In general, comments received from management before the issuance of the proposed rule weighed against modifying the duties test, likely because changing the duties test will create more confusion as opposed to less and because it has the potential to render past court and agency interpretations of the duties test useless. In addition, the DOL has tentatively considered adopting a provision that would permit non-discretionary bonuses to account for 10 percent of the salary basis requirement. However, the DOL is seeking comments from employers about this possibility as well as the appropriateness of considering other incentive compensation and commissions to contribute to the salary threshold. Employers who pay employees on a commission basis may want to strongly consider addressing the DOL’s comment that employees paid on a commission basis may not satisfy the duties test, as this statement is not consistent with the position DOL has taken since the FLSA regulations were last amended in 2004.

The impact is significant. This will be the first update to FLSA salary levels since 2004 and could result in wage increases for up to 5 million people as early as 2016. Roughly 40 percent of salaried workers, a substantial increase over the current 8 percent, would be eligible for overtime pay under the proposed rule.

Additional thoughts for employers. Employers should begin preparing for substantial potential reclassifications of their workers. When the regulations were last amended in 2004, the result was a rash of wage-and-hour class-action lawsuits that has only begun to diminish in the past few years. Under the proposed rule, employers would also face a heightened administrative burden of tracking hours worked by the now non-exempt employees. The financial cost for employers collectively across the country will also be substantial. The DOL estimates an average annualized direct cost to the employer community of between $239.6 million and $255.3 million per year, as well as an additional annualized transfer from the employer to the employee in the form of increased wages estimated between $1.18 million and $1.27 million per year.

Employers and other interested parties may wish to strongly consider submitting comments during the 60-day comment period beginning June 30, 2015. Comments should specify that the rule being addressed is “RIN 1235-AA11” and should contain an agency name. Comments can be submitted at the Federal eRulemaking Portal or can be mailed to: Mary Ziegler, Director of the Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue, N.W, Washington, D.C. 20210. Comments received will become a matter of public record and will be posted to the Federal eRulemaking Portal website without change or redaction.

If you have questions about the proposed rule expanding overtime eligibility or the potential impacts the proposed rule might have on your business, please contact the our Employment & Labor Group.

Hourly minimum rises to $10 on July 1, 2015, and will reach $13 in 2019

Chicago’s Minimum Wage Ordinance takes effect July 1, 2015, raising the minimum wage to $10 per hour for non-tipped employees and $5.45 for tipped employees.

It provides for subsequent raises each July 1 until the hourly minimum wage reaches $13 for non-tipped employees in 2019. The full text of the ordinance can be found here.

The ordinance affects employers with at least four employees (and at least one covered employee) who maintain a business facility within the geographical boundaries of Chicago or are subject to licensing requirements under Title IV of the Municipal Code of Chicago. A “covered employee” is one who works at least two hours within Chicago’s geographic boundaries in any two-week period. This includes employees making deliveries or traveling within the city if the employee is compensated for that time.

Employers should be aware of the ordinance’s posting requirements. Specifically, the notice must be posted in a conspicuous location in each of the employer’s facilities within the city’s boundaries. Covered employers also must provide the notice to each covered employee with their July 1, 2015, paycheck.

Between now and July 1, 2019, the hourly minimum wage for non-tipped employees will increase according to the following timeline:

• 2016: $10.50

• 2017: $11

• 2018: $12

• 2019: $13

Beginning in 2020, the hourly minimum wage for Chicago workers will increase each year at a rate proportional to the Consumer Price Index measure of inflation. However, such increases will not exceed 2.5 percent annually, and there will be no increase in hourly minimum wage if the unemployment rate in Chicago for the year prior was 8.5 percent or higher.

For tipped employees, the timeline looks a bit different. The hourly minimum wage for tipped employees will increase to $5.95 in 2016 and will then increase based on the Consumer Price Index measure beginning in 2017. Similarly, the increase will not exceed 2.5 percent and there will be no increase if Chicago’s unemployment rate for the year prior was 8.5 percent or higher.

If you have questions about the Chicago Minimum Wage Ordinance or the requirements it imposes upon employers, please contact the Employment & Labor Group.