Employment laws and regulations are constantly changing, creating challenges for employers and their executives who handle human resource issues. As we enter the new year, below is a summary of five key employment issues to be aware of in 2016.
1. Protecting Trade Secrets
In today’s business landscape, protecting your competitive edge is more important than ever. Non-compete, trade secret and related litigation is rising as employers attempt to prevent present and former employees from unfairly competing and using or disclosing confidential information and trade secrets. The threat of misappropriation and unfair competition increases as technology advances at record speed and becomes more accessible to employees. In the new year, employers should conduct self-audits to determine whether they have the proper contractual and institutional safeguards in place to protect their trade secrets. In order to maintain trade secret protection, employers must take adequate steps to maintain the secrecy of its trade secrets. At a minimum, therefore, an employer should require all of its employees who have access to confidential information and trade secrets sign non–disclosure covenants. Employers should also review their employee handbooks and implement and/or revise policies so that employees have a clear understanding of what conduct is prohibited when dealing with company information. Drafting enforceable agreements and policies can be instrumental in protecting a company’s trade secrets and avoiding unfair competition.
2. DOL White Collar Exemptions and Overtime Rules
On June 30, 2015, The U.S. Department of Labor (DOL) Wage and Hour Division issued proposed regulations which, if adopted, could significantly increase the number of individuals who are eligible for overtime pay. The DOL’s proposed changes are in response to President Obama’s March 2014 Presidential Memorandum directing the DOL to simplify the overtime regulations and make overtime available to more employees. The DOL estimates that 4.6 million workers who are now classified as exempt under the current regulations will become overtime-eligible under the proposed regulations without some intervening action by their employers. The proposed rules would increase the salary threshold from $455 a week (or $23,660 per year) to $970 a week (or $50,440 per year) in 2016. Additionally, highly compensated employees would see the salary threshold rise to $122,148. The DOL proposes to adjust (and likely increase) these minimum salary and compensation levels on an annual basis. As many of 270,000 individuals and businesses submitted comments to the DOL on the proposed regulations, which has caused the DOL to postpone the release date of the final regulations until late 2016. Despite this delay, employers should begin to prepare for major changes.
3. Independent Contractor Classifications
On July 15, 2015, the DOL published additional guidance regarding the application of the standards for determining who is an employee under the Fair Labor Standards Act. More specifically, the DOL’s guidance adopts the DOL’s “economic reality” test to determine whether a worker is an independent contractor or an employee. The “economic reality” test is comprised of the following factors:
(1) The extent to which the work performed is an integral part of the employer’s business;
(2) Whether the worker’s managerial skills affect his or her opportunity for profit and loss;
(3) The relative investments in facilities and equipment by the worker and the employer;
(4) The worker’s skill and initiative;
(5) The permanency of the worker’s relationship with the employer; and
(6) The nature and degree of control by the employer.
Both the DOL and the courts have emphasized that all of the factors must be considered in each case, and no one factor (particularly the control factor) is determinative of whether a worker is an employee. One common misconception the DOL’s guidelines address is that labeling a worker as an independent contractor is not sufficient to establish an independent contractor relationship. In other words, the existence of a written independent contractor is not determinative. Rather, the six factors are to be viewed in their totality as indicators of the broader concept of economic dependence.
4. Background Checks and Screening New Applicants
Hiring the right people is critical to a company’s success. Many employers seek criminal background information on job applications and conduct criminal background checks on applicants to ensure that they do not hire the wrong people. Generally, it is not illegal to ask questions about an applicant’s background. However, employers must comply with federal laws that protect applicants and employees from discrimination. The Equal Employment Opportunity Commission (EEOC) has aggressively challenged employer practices that exclude applicants based on credit and criminal history on the theory that such practices have a disparate impact on minorities. In addition, employers that run background checks through a company in the business of compiling background information must comply with the Fair Credit Reporting Act (FCRA). Among other things, the FCRA requires employers to obtain permission before seeking a criminal history report from a third party and providing an applicant with a copy of the report and a summary of rights under the FCRA before taking a negative employment action based on information in the report. The number of class action lawsuits alleging violations of the FCRA is surging. Several states and counties have enacted “ban-the-box” laws that prohibit private employers from asking an applicant about criminal history at the job application stage. Additional “ban-the-box” legislation will likely pass in 2016 as well as other restrictions regarding an employer’s consideration of an applicant’s criminal history.
5. Joint Employer Issues
In its Browning-Ferris decision, the National Labor Relations Board (NLRB) announced a new standard to determine “joint employer” status. Under the new standard, a company is a joint-employer if it exercises “indirect control” over working conditions or if it has “reserved authority” to do so. The test runs counter to prior NLRB precedent and it is feared that it will lead to more findings of joint employment relationships under the National Labor Relations Act. In a press release, the National Restaurant Association stated: “The decision to upend the joint-employer standard will have dire consequences on franchisees’ decisions to grow and expand their businesses, jeopardizing economic growth in communities across the country.” For franchisors and franchisees, the impact and application of the Browning-Ferris decision will be the most important workforce issue of 2016.
Kenneth Winkler, a shareholder at Berman Fink Van Horn, helps employers navigate the employment laws and regulations that govern the workplace.