Labor & Employment Insights
Summer 2003

SIMPLER, MORE EMPLOYER- FRIENDLY. PROPOSED CHANGES TO FSLA
EXEMPTIONS ARE MOSTLY GOOD NEWS FOR EMPLOYERS.

by James M. Coleman

Employers have historically torn their hair out trying to interpret the current regulations regarding overtime exemptions under the federal Fair Labor Standards Act (“FLSA”). The U.S. Department of Labor has proposed regulations, which if adopted, may remedy that situation . . . and in ways that primarily benefit employers.

First, the bad news—the proposed changes would substantially increase the compensation threshhold for most exemptions, raising it to $425 a week for most categories. As a result, the USDOL predicts that the proposed regulations would extend overtime and minimum wage protection to 1.3 million additional low-wage employees, and strengthen overtime protection for 10.7 million additional hourly employees.

That’s bad, but almost all of the other news is good. The complex “long test” in the current regulations would be eliminated under the proposed regulations. It is replaced with the easier “short test” but with the higher salary threshhold. (Outside sales people are an exception because they have never had a salary threshhold.) This “short test” with a higher threshhold is called the “standard test.” Here is a summary of the tests that would apply to each category of exempt employee if the new regulations are adopted:

Executive. In addition to the $425 salary threshhold, the employee’s primary duty must be management of an enterprise or a customarily recognized departmental subdivision. The employee must customarily and regularly direct the work of two or more other employees; and the employee must have authority to hire and fire, or to recommend hiring, firing, advancement, promotion, or other changes of employment status.

Administrative. In addition to the $425 salary threshhold, the employee’s primary duty must be to perform office or non-manual work that is directly related to the management or general business operations of the employer or its customers. The employee must also hold a “position of responsibility” with the employer (performing work of substantial importance, or performing work requiring a high level of skill or training). It is not clear what “position of responsibility” would be. This is a new concept, replacing the current “discretion and independent judgment,” so there is no enforcement history. Arguably, “position of responsibility” is as subjective as “discretion and independent judgment,” so the proposed administrative exemption may continue to be the most difficult to apply.

Learned Professionals. For this category of employee, the $425 salary threshhold contains exceptions for teachers, lawyers and medical doctors. The employee’s primary duty must be the performance of office or non-manual work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction, but which may be acquired by alternate means, such as an equivalent combination of intellectual instruction and work experience. The current requirement of “discretion and independent judgment” would be eliminated. The current test also does not allow work experience to count toward the “prolonged course of specialized intellectual instruction” but requires some level of formal academic education.

Creative Professional. This category would be relatively unchanged, with the exception of the $425 threshhold. In addition, under the new regulations, this type of employee must have a primary duty of performing work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.

Computer Employee. The salary threshhold for this type of employee would be $425 a week or $27.63 per hour. The employee’s primary duty must be either (a) application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional applications; (b) design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; or (c) design, documentation, creation, or modification of computer programs related to machine operating systems; OR (d) a combination of (a), (b), or (c) that requires the same level of skill. In addition, the computer employee must be employed as a computer systems analyst, computer programmer, software engineer, or similarly skilled worker in the computer field.

Outside Sales. As stated above, this category has no salary threshhold now, and it would not under the proposed regulations. To fall under this exemption in the proposed regulations, the employee must have primary duty of making sales or obtaining orders for services or for the use of facilities for which consideration will be paid by the employer’s customer; and must be customarily and regularly engaged in such activities away from the employer’s places of business. The main difference between the current and proposed regulations is that the proposed regulations would not require employers to track time spent performing “non-exempt” duties. The current regulations require that outside sales employees spend no more than 20 percent of their time per workweek on non-exempt duties. Eliminating this rule would be very helpful to employers.

Highly Compensated Employees. Under the proposed regulations, employees who earn guaranteed total annual compensation of at least $65,000 would be considered exempt as long as they (a) perform office or non-manual work, and (b) satisfy any one of the duties requirements set forth in either the executive, administrative, or professional categories. This would be a dramatic change from the current regulations, which have no such “highly compensated” harbor, and would again be very helpful to employers.

Salary Deductions. This has always been a knotty area of wage and hour law, because under the current regulations, an improper deduction can result in retroactive disqualification of entire classes of otherwise exempt employees who potentially were subject to such deductions.

The proposed regulations would reduce the potential for this consequence. The proposal lists factors that should be considered in determining whether class-wide invalidation of the exemption should occur. Moreover, if an employer has a written policy prohibiting improper salary deductions, notifies employees of the policy, and reimburses employees for any improper deductions, it can, with limited exceptions, keep the exemption.

The above is only a summary of the proposed regulations. Determining FLSA exemptions can be difficult and complex, and mistakes often result in class claims. If you need assistance determining how the proposed regulations will affect your company, or in complying with the current regulations, you may contact any of Constangy’s wage and hour attorneys, or the Constangy attorney of your choice.

Jim Coleman (Fairfax, VA) practices in the areas of wage and hour, including defense of class and collective actions asserting wage and hour issues; litigation prevention and defense; and public accommodation discrimination.

FROM THE EDITOR’S DESK: IS THE ADA DEAD? DON’T BET THE RENT
by Robin E. Shea

Well, well, well. The Family and Medical Leave Act recently celebrated its ten-year anniversary. How the time flies!

Let’s take a walk down memory lane, shall we? Ten years ago, it was legal to enforce a “no-fault” attendance policy. It was legal to give attendance bonuses only to the employees who showed up for work every day. If an employee couldn’t work and didn’t appear to be able to return . . . you could hire a replacement. Ah, those were the good old days!

Of course, the FMLA hasn’t been all bad. It’s hard to be opposed to a reasonable amount of job-protected leave for people with serious health conditions, or whose close family members have such conditions, or for new parents.

But, as we know, the regulations haven’t quite worked out that way. The definition of “serious” health condition was bloated to include conditions like the flu, prenatal check-ups, and inpatient nose jobs. The technical and paperwork requirements have required, for some employers, a dedicated, full-time clerk to handle. This edition’s Quarterly Pulse (see page 3) shows that, even ten years later, many employers are still having substantial difficulty complying with the law.

Politicians continue to talk about the many ways the law needs reform. Republicans want a tougher definition of “serious,” and less onerous paperwork requirements. Democrats want to expand the law to employers of 25 or more, and expand the covered relatives to include grandparents, in-laws, and siblings. And, they continue to advocate the use of unemployment insurance to cover employees on FMLA leave.

But we on the employer’s side still have much to be thankful for. The Supreme Court last year held that an employer’s failure to comply with technical paperwork requirements did not entitle the employee to an extra 12 weeks of leave. Compliance is getting easier, if for no reason other than that we adjusting, like feet to a pair of new shoes.

Finally, with all the other troubles in the world – class action lawsuits, Sarbanes-Oxley, Muslim/Middle Eastern discrimination, and increasing employee favor of unions —what’s a little FMLA in the great scheme of things?

Robin E. Shea, Editor—Winston-Salem, NC

“DIVERSITY”? “REVERSE DISCRIMINATION”? U OF M DECISIONS PROVIDE SOME GUIDANCE
by Robin E. Shea

A perennial question among employers with aggressive diversity programs and the attorneys who represent them has been whether the diversity program would survive a legal challenge and, if not, whether it could be restructured in such a way as to become legal.

Love them or hate them, the Supreme Court’s recent decisions regarding the admission standards at the University of Michigan provide some useful resolution to these questions.

The Court ruled in two cases: (1) the “undergraduate” case, challenging an admissions “point” system in which certain minorities were automatically awarded points; and (2) the “law school” case, challenging a more flexible system in which certain races were considered desirable but in which all applications were considered individually.

Because the cases involved a public university, and because racial classifications by the state are subject to “strict scrutiny,” the university had to establish (1) a compelling state interest in making racial distinctions; and (2) a method of doing so that was “narrowly tailored” to achieve that compelling state interest.

Both decisions clearly state that “diversity” is a compelling state interest. By extension, presumably “diversity” would be a legitmate goal for employers in the private sector. As Justice O’Connor says in the “law school” decision: “Major American businesses have made clear that the skills needed in today’s increasingly global marketplace can only be developed through exposure to widely diverse people, cultures, ideas, and viewpoints.”

However, the decisions also make clear that there are permissible and impermissible ways of achieving diversity.

In the “undergraduate” decision, Gratz v. Bollinger, the Court said that going strictly by the numbers is unlawful. The university’s school of Literature, Science and the Arts used a "point" system in determining who would be admitted. Although the precise nature of the admission system underwent some alterations over the years, it automatically awarded 20 points to any applicant who was a member of an “underrepresented minority” (African-American, Hispanic, or Native American). The 20-point award constituted one-fifth of the points needed for admission. The Court found that this method of selection was not “narrowly tailored” enough to achieve educational diversity.

On the other hand, the “law school” decision, Grutter v. Bollinger, approved the school’s attempt to achieve a so-called “critical mass” of underrepresented minorities, where race was considered along with other factors and where each individual application was purportedly reviewed in total. This was so even though, as Chief Justice Rehnquist pointed out, the percentage of “underrepresented minorities” accepted at the law school suspiciously matched the percentages of applicants from those groups.

So, following the University of Michigan decisions, how can employers take diversity into account without crossing the line into reverse discrimination?

First, the constitutional principles applied in the University of Michigan cases do not apply to private employers. However, Title VII of the Civil Rights Act of 1964, which does apply to private employers, by its terms prohibits discrimination on the basis of race. Discrimination against Caucasians and males is prohibited, as is discrimination against minorities and women. Although the University of Michigan decisions do not apply to private sector employers, the latter can certainly use the decisions’ reasoning in evaluating their own diversity programs.

Applying the University of Michigan cases to private employers, it seems clear that all minimally qualified candidates for hire or promotion should be considered on an individual basis. Justice O’Connor says that the selection system cannot insulate the candidate with the desired characteristic from competition with other candidates. There cannot be separate tracks for minority and non-minority candidates. However, race and ethnicity may be used as “plusses,” but only “in a flexible, nonmechanical way.”

What this means for specific “diversity” practices is not entirely clear. Many companies evaluate members of management based in part on the number of minorities and women they hire or promote. Under the analysis in the University of Michigan cases, such a cold numerical calculation may not be lawful. On the other hand, considering a good record of hiring and promoting women and minorities as a “plus” factor may be more consistent with the approach taken by the law school and found lawful.

Another problematic issue is how to go about lawfully hiring and promoting women and minorities when the company affirmative action plan indicates that there is underutilization (also known as “goals”), expressed in terms of percentages by which women or minorities are underrepresented. Applying the reasoning in the University of Michigan decisions, it now may be difficult to openly try to achieve those percentage goals. However, the decisions seem to indicate that it would be lawful for an employer to consider a candidate’s sex or race as a “plus” factor as long as goals for those characteristics exist.

One final thought—Justice O’Connor says that race considerations should be phased out or eliminated once it appears that they are no longer necessary to achieve diversity. Thus, employers should periodically monitor their hiring practices to determine whether consideration of sex or race as “plus” factors continues to be necessary to achieve diversity. If and when such considerations become unnecessary, they should be stopped. 

Robin Shea (Winston-Salem, NC) practices in the areas of litigation prevention and defense, and affirmative action.

GETTING TO KNOW US

JOHN DOYLE (Winston-Salem, NC, litigation prevention and defense, and labor relations) received his bachelor’s and law degrees from the University of North Carolina at Chapel Hill. Before he began practicing law in the 1970s, John was a Special Agent for the Federal Bureau of Investigation. He is the founding chair of the Labor and Employment Law Section of the North Carolina Bar Association. John is the first North Carolina practitioner elected into the College of Labor and Employment Lawyers, a member of the Equal Employment Opportunity Committee of the American Bar Association, and a contributor to the cumulative supplements of Employment Discrimination Law. He is listed in The Best Lawyers in America, America’s Leading Business Lawyers (Chambers USA), and the 2002 and 2003 “Legal Elite” of Business North Carolina. John is also a frequent writer and lecturer on various labor and employment law subjects. When not practicing law, John enjoys jazz, baseball, and cultivating roses. John and his wife, Ellen, have two grown sons and a teenage daughter.

IRA FRIEDRICH (Atlanta, GA, employment benefits and compensation) is the co-chair of Constangy’s ERISA and Employee Benefits practice group. He graduated from Northwestern University with a bachelor’s degree in Communication Studies and then, after working in production planning, went on to Case Western University School of Law. Ira has written on employee benefits issues for numerous publications and speaks on benefits-related issues. When not practicing law, Ira can be found gardening, making music, or playing with his camera. He’s also working on seeing the world . . . two weeks at a time.  

MELISA BODNAR (Macon, GA, employment litigation, and workers’ compensation prevention and defense) received her bachelor’s degree in History and Political Science with a certificate in Business from Wesleyan College in Macon. Her law degree is from Mercer University, where she was a member and managing editor of the Law Review. She was a contributing editor to the ABA publication The Developing Labor Law in 1999 and 2002. Melisa serves on the National Planning Committee of the high school mock trial competition sponsored by the Young Lawyers Division of the Georgia Bar Association. She was previously chair of the Ethics and Professionalism Committee for the YLD. Melisa enjoys reading, movies and choir. She and her husband, Dennis, have three young children.  

SHANNON MILLER (Birmingham, AL, employment litigation prevention and defense) received her bachelor’s degree cum laude in English from the University of Florida, and her law degree magna cum laude from the University of Alabama. Before joining Constangy, Shannon was a Law Clerk to Senior United States District Court Judge James H. Hancock. She is currently Treasurer and Executive Board Member of the Alabama/Northwest Florida Chapter of the Crohn’s and Colitis Foundation. She also reads newspapers live on the radio to the blind and "print-handicapped" for the Alabama Radio Reading Service. When she is not practing law, Shannon enjoys wine tasting, reading, and music. She and her husband, David, have a baby boy.  

JOHN DICKINSON (Jacksonville, FL, employment litigation prevention and defense, wage and hour, and labor relations) received his bachelor’s degree in English magna cum laude and his law degree cum laude from Mercer University. John is Past Chair of the Labor and Employment Law Section of the Florida State Bar Association. He is also listed in Best Lawyers in America and Leading Florida Attorneys, and is a past President of the Oceanwide Rotary Club (Jacksonville beaches). He is widely published on a variety of labor and employment topics. When he is not practicing law, John enjoys tennis, saltwater fishing, and collecting vintage automobiles. He is also an avid hiker, having recently hiked from one rim of the Grand Canyon to the other. John and his wife, Carol, have two grown daughters.

NOBODY LIKES THE PROPOSED REGS . . . DOES THAT MEAN THEY’RE JUST RIGHT?
by James M. Coleman

The comment period for the proposed overtime regulations expired on June 30, 2003, and the Department of Labor reports that it received more than 50,000 comments. Employer groups, including the U.S. Chamber of Commerce and the National Retail Federation, expressed concern that the $425-a-week threshhold was too high for small employers in rural and small-town areas. Some said that the “highly compensated” exemption should kick in at $50,000 rather than $65,000.

Overall, however, employers were positive. Such was not the case on the employees’ side of the fence.

Richard Trumka, secretary-treasurer of the AFL-CIO, called the proposed changes “economic poison” and accused the DOL of giving employers a “manual” on laying off workers and avoiding overtime pay.

At a union rally to protest the regulations, he called the 40-hour workweek “the legacy of some of the greatest uprisings of workers in our history” and accused the Bush administration of wanting to “turn back the clock to the 1920s and 1930s.” The National Employment Lawyers Association, a plaintiffs’ lawyers’ organization, said, “this proposal only demonstrates the [DOL]’s supine acquiescence to the employers’ agenda.”

A study by the union-friendly Economic Policy Institute estimates that the DOL regulations, if implemented, could cause 8 million more employees to become exempt.

Wage and Hour Administrator Tammy D. McCutchen seemed to be taking the debate in stride, saying she was not surprised by the positions taken by the employers’ or the employees’ groups. She said that the EPI study substantially overestimated the number of employees who would be affected and was based on a misunderstanding of current law.

DOL action on the proposed rulemaking is expected in late 2003 or early 2004.

Jim Coleman

TECHNOLOGY BYTES

There have been several items in the news about computers and the law that should interest employers:

  • The Wall Street Journal warns about excessive use of “cc’s” and “bcc’s,” and the “Reply All” button. In addition to hindering productivity by requiring too many people to read too many e-mails, overuse can result in legal problems, especially when the “excessive reply” contains confidential or incriminating information. The “bcc” is so frequently used as a backstabbing device that some workplaces have banned it altogether. To these very well-founded cautions, Constangy would add that employees should also be counseled about forwarding e-mails with care.
  • Do you arrive at work every morning to find an in-box full of e-mails telling you how to enlarge certain parts of your anatomy and inviting you to watch teen-age girls performing unspeakable acts on various non-human members of the animal kingdom? Do these make you feel uncomfortable as you delete them? (You do delete them, don’t you?) According to some management attorneys, an employer’s failure to screen these obscene “spam” e-mails can create a sexually hostile work environment and can, theoretically at least, result in employer liability. Unsolicited workplace “spam harassment” has not been litigated yet, and there is widespread disagreement about the issue. But employers who have problems with obscene spam getting through their systems would be well advised to take all reasonable efforts to screen the spam and keep proof of those efforts. It’s also a good idea to be as responsive as possible when employees complain.
  • The Supreme Court of California has held that that Intel could not maintain a trespass suit against a disgruntled ex-employee who sent mass, unsolicited e-mails to his former co-workers that disparaged Intel. The Court said that its holding did not affect the viability of legal action against “spammers,” at least where the recipients complained that the volume impaired the ability of the computer systems to work. In the Intel case, the Court said, the alleged injury was based on the distraction and content of the messages rather than technical difficulties caused by volume.

ATTENTION, ACCA MEMBERS!
Our firm is proud to be a Gold Sponsor of the annual meeting of the American Corporate Counsel Association (ACCA), slated for October 8-10 in San Francisco. If you’re planning to attend, notify vwhitaker@constangy.com or your Constangy attorney, and you’ll receive details about our special function for clients and friends during the conference. Hope to see you there!

REASON PREVAILS…

If we’re so great, why do we keep getting these cases? A study recently released by the American Bar Association shows that employers win approximately 94.5 percent of lawsuits filed under Title I (the employment provisions) of the Americans with Disabilities Act.

“You can’t fire me! I was over 40 when my division lost that $200 million!” The usually-liberal Ninth Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, Guam, and Northern Mariana Islands) affirms dismissal of an age discrimination suit brought by a former vice president whose division had lost more than $200 million in the approximately five years before he was terminated.

Well, at least we understand why she brought this ridiculous claim. A federal judge in Pennsylvania has held that “blonde discrimination” is not prohibited by Title VII.

Guy with no religion has no religious discrimination claim. The Seventh Circuit (Illinois, Indiana, Wisconsin) affirms dismissal of a religious discrimination case, where the plaintiff refused to identify his religion and didn’t even claim to be an atheist.

Vito Corleone held not necessarily representative of Italian-American, Catholic older men. The Third Circuit (Delaware, New Jersey, Pennsylvania) affirms dismissal of a discrimination case, where the evidence showed that the plaintiff referred to his gun and the Mafia in a threatening manner, and played the theme from The Godfather, during a work-related meeting. The plaintiff had claimed he was discriminated against because of his age, his Italian national origin, and his Catholic religion.

“@#$%!!$#% paper, or @#$%@#$% plastic?”: Part Deux. A couple of years ago we reported on a grocery store employee who was terminated because his Tourette’s Syndrome caused him to have offensive outbursts in front of customers. In what appears to be a mini-trend, a federal court in Georgia was recently faced with the same issue, and like the first court, held that the employee was not protected by the Americans with Disabilities Act.

REASON FLAILS…
Cussing, ¡no! Forgery, ¡sí! Although involuntary, disability-related cursing at supermarket customers has been held inappropriate and warranting discharge (see above), forgery by able-bodied supermarket employees is apparently fine and dandy. A federal judge in Rhode Island recently enforced an arbitrator’s order reinstating a supermarket employee who forged store customers’ names on public assistance checks.

Flash! Federal judge in Louisiana abolishes statute of limitations! A female firefighter who claimed discriminatory failure to hire may introduce evidence of a consent decree that was 20 years old. (In the court’s defense, it did find that the fire department had made recent, material misrepresentations regarding its compliance with the decree.)

The $64,000 answer. A federal court in Minnesota assessed a $64,000 penalty against an employer for providing a benefits “answer book” to opposing counsel instead of the actual plan document.

 QUARTERLY QUIZ
How does the new Supreme Court decision on homosexual behavior affect companies’ employ-ment policies?

ANSWER:
Technically speaking, not at all. The decision in Lawrence v. Texas held unconstitutional a statute that provided for criminal liability for sex acts between two members of the same sex. Private employers, ostensibly, are not affected by the decision.

That said, the decision appears to be a small step in the direction of a federal ban on sexual orientation discrimination, and numerous states and municipalities already have such bans. Constangy recommends that employers avoid discrimination and prohibit harassment based on employees’ sexual orientation.

One last caution: A growing number of state and local laws also require non-discrimination on the basis of transvestitism and transsexualism.)