Supreme Court Rules Severance Payments Are Wages Subject to Payroll Taxes

gavelpictureOn March 25, 2014, the U.S. Supreme Court ruled that severance payments made to workers who were terminated as part of a Chapter 11 bankruptcy were “wages” subject to Federal Insurance Contributions Act (FICA) taxes (United States v. Quality Stores).

This ruling likely will not be news to most employers that have been paying FICA on severance payments for years.  However, the issue was thrown into doubt by various rulings in connection with the Quality Stores bankruptcy.  The lawyers involved in that case hit on a theory, based on a close reading of the statutory language, that severance payments are not “wages” for purposes of FICA.  They then sought a refund of FICA taxes that had been paid in connection with various layoffs.

Somewhat surprisingly, the bankruptcy court, the district court, and the 6th Circuit all agreed with Quality Stores’ arguments. Though a legally narrow issue, it is one with substantial revenue implications. If the lower court decisions had stood, the IRS would have been flooded with refund filings (to the tune of $1 billion according to court documents).  However, the Supreme Court shot the theory down 8-0.

For most employers, this decision won’t change anything about the way they handle severance payments and FICA.  For those that were hoping they could piggyback off of Quality Stores and seek their own FICA refunds, that hope is now over.

NLRB Rules Football Players are Employees. Really?

In a decision that has been attracting a great deal of attention, the Region 13 Regional Director of the National Labor Relations Board (“NLRB”) ruled yesterday that football players at Northwestern are “employees” within the meaning of the National Labor Relations Act (“NLRA”), and directed that an election take place to determine whether the players should be represented by a union.  (See decision here)  The ruling is irrelevant to most employers in the private sector, but nevertheless we thought we would add our two cents to the dNU Football Helmetiscussion because it is an interesting subject.

First, it is important to keep in mind that the ruling is, at this stage, simply the view of a Regional Office whose job duty is basically to expand the jurisdiction of the NLRB and attract attention for its enforcement activities.  The decision will inevitably be appealed, and the legal fight relating to the classification of these players is likely to go on for years.

Second, the decision is a good example of how the most ridiculous conclusions can sometimes be dressed up to look reasonable through references to a hearing record and the use of case citations.  There is an old saying that “to a man with a hammer, everything looks like a nail.”  In this situation, everyone looks like an employee to a Regional Office applying the NLRA.  The fact of the matter is that the NLRB does a particularly poor job of applying its law and precedent to students in educational institutions.  It has struggled for years with what to do about graduate students, and now it has “dropped the ball” (sorry, couldn’t avoid the pun) with college athletes.  The NLRB only understands relationships in terms of an employer-employee dynamic.  It cannot conceive of individuals (or institutions) pursuing something for anything other than monetary reasons.  If you ask college athletes whether they would still play their sports and compete if they did not get a scholarship, odds are most would say “absolutely” (assuming they could still afford to do so).  Yet Region 13 seems to think they are simply assembly line workers punching the clock.

The other problem with the decision from the Regional Office is that it hinges on the assertion that college athletes are not “primarily students” because they spend most of their time training or playing football.  What does this mean for those who are getting debate scholarships and who can put in as much time as student athletes?  Are they employees as well?  If not, what is the difference?  What about football players at Division III schools who put in as much time as Division I players but who don’t make as much (any?) money for their schools?  What about high school athletes?  In addition, if football players at Northwestern are not “primarily students,” then why are they accepting a college scholarship as the only return for their efforts?  Most players at Northwestern are not going to the next level and turning pro in their sport.  Apparently, they see some value in attending a prestigious university and getting a degree after four years.

Although the NLRB is addressing only the scope of the NLRA in the Northwestern case, is it fair to ask (based on the Regional Office’s reasoning) whether football players are also employees for purposes of other laws, such as wage and hour and tax laws?  If not, why not?  Many more questions of this kind can and should be asked about the Regional Director’s decision.  Our own view is that there may be many things wrong with the way college athletics works in America today, but applying employment laws to the relationship between the student athlete and the university is not the right answer.  We also believe that Region 13’s rush to extend its jurisdiction ultimately will be beaten back, if not by higher ups at NLRB, then by the Supreme Court or Congress.

Another Court Rules in Favor of Class Action Waivers

gavelpictureOn March 21, 2014, the Eleventh Circuit Court of Appeals (which covers Alabama, Florida, and Georgia) became the fifth federal circuit court to reject arguments against arbitration agreements containing class waivers, joining the Eighth, Second, Fifth, and Ninth circuits in enforcing such agreements.

In the Eleventh Circuit case (Walthour v. Chipio Windshield Repair), employees brought a class action alleging their employer violated the Fair Labor Standards Act by not paying them required minimum and overtime wages. The defendants moved to compel arbitration, citing agreements the plaintiffs had signed which stipulated that all employment disputes were to be resolved through individual arbitration. In the end, the court sided with the employer and the lower court, ruling that the arbitration agreements were enforceable and that the class action could not move forward.

As discussed in our earlier post Tide Continues in Favor of Class Action Waivers in Arbitration Agreements, more employers are using these types of agreements to reduce the risk of class claims. The Walthour decision continues a trend of court cases in favor of the agreements.

There are advantages and disadvantages to arbitrating disputes with employees, but for employers that fear class claims, either because of the nature of their workforce or their industry, arbitration agreements can make a great deal of sense.

When a Work Made for Hire Isn’t a Work Made for Hire

From time to time, other attorneys with our firm will contribute blog posts on items that may be of interest to members of the labor and employment law community.  Today, we are fortunate to have a post contributed by Marc Fineman, a partner in Levenfeld Pearlstein’s Intellectual Property Group.  Marc’s post discusses an issue that frequently comes up when companies retain independent contractors.  As Marc explains, if you don’t document the relationship correctly you may not own what you think you own when the project is complete . . .

intellectual-propertyIt is a widely held belief that if you retain an independent contractor to create something (a logo, software, a website, marketing collateral, etc.), and you pay the outside contractor, then you “own” what the independent contractor creates. However, this is a common misconception that can lead to disastrous results. For most works created by an independent contractor, the independent contractor owns the copyrights to the works, even if the independent contractor is paid, unless the independent contractor signs a written copyright assignment.

The phrase “work made for hire” is a term of art under the U.S. Copyright Act and refers to two categories of works. The first category is relatively straightforward—the copyright to any work prepared by an employee within the scope of his or her employment is owned by the employer. However, the second category of works made for hire, which covers works created by independent contractors, applies only to nine somewhat unusual types of works (and requires a signed agreement with the independent contractor in which the parties agree that the work is a “work for hire”). For works created by independent contractors that fall outside of those nine specific types of works (as many works commonly created for businesses do), the independent contractor owns the copyright to the work unless the independent contractor signs a written copyright assignment.

Think about the situations in which you have retained, or in the future may retain, an independent contractor to create something for you or your business. Then, think about what would happen if you found out that your independent contractor owns the copyright to what he or she created for you. Could you still stop somebody else from infringing the work? Could the independent contractor sue you for infringement? Would a potential buyer of your business be concerned?

The bottom line—if you use an independent contractor, be sure to obtain a written copyright assignment.

A Big (Bad?) Week for Employers Under the FLSA

overtimeIt was a big week for the Fair Labor Standards Act.

On March 7th, the Supreme Court let stand a decision that the owner, president and CEO of a supermarket chain in New York is personally liable for his company’s failure to make required payments on a FLSA settlement agreement.  The owner argued that to be held personally liable he had to be responsible for the violations (rather than just have general control over corporate operations). However, the Supreme Court refused to hear his arguments against the court of appeals’ decision, which can be interpreted broadly to suggest that an individual may be held personally liable for FLSA violations by virtue of general control of over corporate affairs.

On March 10th, the Supreme Court declined to review an appeals court decision finding that undocumented workers can sue — and recover wages owed — under the FLSA.

Then, on March 13th, President Obama directed the Secretary of Labor to update the FLSA’s overtime exemptions to provide more employees with overtime pay.  Some have speculated that the change will be to significantly raise the minimum weekly salary for an employee to be considered exempt under most exemptions (currently $455/week), but changes could also include rewrites of the job duties tests for the frequently used “white collar exemptions” or other limitations on current exemptions.  It remains to be seen what changes will be proposed by the administration and whether they can be implemented before the end of the President’s term.  We will keep you posted as we learn more.

EEOC and FTC Offer Joint Tips on Use of Employment Background Checks

UntitledOn Monday, the Federal Trade Commission and the Equal Employment Opportunity Commission issued joint publications offering informal guidance on conducting background checks that comply with the Fair Credit Reporting Act and anti-discrimination laws. The overlapping rules and jurisdiction of these two agencies in this area of the law can sometimes be confusing for employers.

The first brochure, Background Checks: What Employers Need to Know, offers nuts-and-bolts guidance for employers to consider when investigating the backgrounds of applicants and employees for use in hiring, retention, promotion, and reassignment decisions. The publication also reminds employers to review local laws regarding background reports and information because some states and municipalities regulate the use of that information for employment purposes in addition to what federal law requires. The brochure also has many helpful links to other EEOC and FTC guidance in this area.

The second brochure, Background Checks: What Job Applicants and Employees Should Know is geared toward job applicants and employees.

The EEOC press release describes the joint guidance as “a unique opportunity for the agencies to work together to provide user-friendly technical assistance to our stakeholders.” Given that the EEOC has not been particularly successful in the cases it has brought against companies for allegedly using background checks improperly, it is likely that the agency also has decided that getting employers to voluntarily alter their practices by providing additional guidance to them may be a better enforcement strategy.

New EEOC Guidance Highlights Religious Accommodations

EEOC ImageThe U.S. Equal Employment Opportunity Commission has issued new, detailed guidelines for employers with respect to required accommodation of religious dress and grooming under Title VII of the Civil Rights Act. Businesses covered by Title VII must permit applicants and employees to follow religiously mandated dress and grooming practices unless it would pose an undue hardship to the operation of an employer’s business.

While the laws themselves are not new, the guide and fact sheet provide clear, practical advice for employers and offer several real-world examples from recent EEOC cases.

Religious Garb and Grooming in the Workplace: Rights and Responsibilities

Fact Sheet on Religious Garb and Grooming in the Workplace: Rights and Responsibilities

Supreme Court Expands Sarbanes-Oxley Whistleblower Protections

gavelpictureYesterday, the Supreme Court handed down its decision in Lawson v. FMR LLC, holding 6-3 that employees of public companies’ private contractors are protected by the Sarbanes-Oxley Act’s whistleblower protections.  The Sarbanes-Oxley Act (“SOX” — which was enacted in 2002 following the collapse of Enron) includes a provision that protects whistleblowers from adverse employment action for reporting corporate misconduct by public companies.  The Court’s ruling clarifies who can bring a whistleblower claim under SOX, concluding that both employees of public companies and employees of their contractors can raise a claim of retaliation under the Act.

So how does yesterday’s decision impact private employers?  For most employers the impact is somewhere between nothing and minimal.  However, private companies that are contractors of publicly traded companies — and in particular private companies that are closely related to public companies — should take care to respond to concerns raised by their employees about the conduct of their public client to avoid any adverse employment action in response.

Fewer EEOC Charges in 2013 than 2012

graphThe EEOC’s recently released 2013 charge statistics show the agency received 5,685 fewer charges in 2013 than it did in 2012. This more than 5% reduction is somewhat surprising after three years of near flat charge filings.

Charges were down slightly for race, national origin, religion, and disability discrimination claims and more markedly for sex discrimination claims (-8.8%) and age discrimination claims (-6.4%). The only major area where the EEOC saw more charges in 2013 was retaliation claims (+1.8%).

While it’s difficult to draw conclusions from a single year’s data, the increase in retaliation claims is a good reminder of the importance of how an employer responds to a complaint of discrimination or harassment.