Employment Practices

Three Takeaways from the EEOC’s Guidance on the Use of AI in Making Employment Decisions

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Author Becky Canary-King

Artificial intelligence (AI), algorithmic programs, and software tools continue to have far-reaching (and sometimes unlikely) effects, including in our professional lives. There are now a wide variety of AI and algorithmic tools available to assist employers in recruitment and employee management.  

However, these tools come with some risks, including unintentional discriminatory effects. Title VII and the ADA prohibit employers from using selection procedures that disproportionately exclude employees or applicants based on race, color, national origin, religion, disability or sex, unless the procedures are job-related and consistent with business necessity. Even if job-related, employers must consider if there are available alternatives.  

The Equal Employment Opportunity Commission (EEOC) recently issued a technical assistance document on assessing adverse impacts when using AI. This guidance builds on previous guidance from the EEOC on AI and the Americans with Disabilities Act.  

Below are three key takeaways for employers who use, or are interested in using, AI or other algorithmic tools to assist in hiring, performance management, or other employment decisions: 

  1. Employers cannot assume that AI tools are non-discriminatory. 

While AI tools may appear neutral, they can result in unintentional discriminatory effects. For example, an AI tool may automatically screen out applicants based on large gaps in employment. This could have a disparate impact on the basis of sex, as gaps in employment may be result of pregnancy or leaving the workforce to raise children. This tool may also screen out individuals with disabilities who have gaps in employment for disability-related treatments.  

The EEOC encourages employers to proactively analyze their employment practices, including software and AI tools, on an ongoing basis to ensure there are no such adverse impacts. 

  1. Employers should consider available alternatives if AI tools cause an adverse impact. 

Employers can assess whether a selection procedure has an adverse impact on a particular protected group by checking whether use of the procedure causes a selection rate for individuals in the group that is “substantially” less than the selection rate for individuals in another group. The general rule of thumb is that a selection rate is substantially different than another if their ratio is less than four-fifths (or 80%), however, courts often look to statistical significance when assessing adverse impact.  

If the selection procedure has an adverse impact, the employer should consider whether the use of the tool is job-related and consistent with business necessity and whether there are alternatives that may have less of a disparate impact. 

  1. Employers can be responsible for AI tools designed or administered by a vendor. 

The guidance makes clear that an employer can be responsible for adverse impacts in their selection procedures, even if the tool was developed by an outside vendor or carried out by an agent administering the tool on its behalf.  

The EEOC suggests that employers ask the vendor, at a minimum, if it has assessed whether the tool causes a substantially lower selection rate for individuals within a protected group. Additionally, language can be built into vendor contracts requiring the use of non-discriminatory selection tools.  

We continue to monitor and stay abreast of developments related to the rapidly changing world of AI and will provide updates as necessary. If you have any questions about the use of AI or algorithmic decision-making tools in your workplace, please don’t hesitate to reach out. 

Don’t Let Employment Issues Derail Your Accounting Firm’s Deal – Part 1

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Authors Laura Friedel, Russell Shapiro

Partners Russell Shapiro and Laura Friedel recently spoke at the 2023 BDO Alliance USA Conference on employment issues that impact accounting firm deals. In Part 1 of a two-part series, we share tips on transferring employees from the seller to the buyer to help accounting firms avoid situations where employment issues could derail – or devalue – a potential merger or acquisition. You can read Part 2 here, where we share tips on potential diligence deal killers, restrictive covenants, and other potential issues.

Tip #1: Make sure your plan to transfer employees is consistent with your deal structure.

Employment issues rarely drive the decision on whether a deal will be a stock sale or an asset sale, but the deal structure dictates what the buyer and seller need to do to transition the employees.

In an asset sale, the employment relationship is terminated and a new one is created. This means that the seller needs to do all the things that an employer would normally do when terminating an employee, including paying out final wages and vacation pay (where required by contract or state law). Notice of termination, stay bonus, and severance provisions may also be triggered by an asset sale, so it is important to be aware of those requirements and either terminate them (by agreement with the employee) or honor them.

On the other hand, in a stock sale or merger, there is a continuity of employment – whether you want it or not. This means that you don’t need to worry about things like payment of final wages and triggering severance provisions. But if a firm plans to change one or more employees’ employment terms or plans not to continue the employment of certain individuals post-closing, those changes will need to be implemented in the same manner they would have been at any other time during employment, taking into consideration relevant contractual or legal requirements.

Tip #2: Decide early how you will handle the logistics of transferring employees from the seller to the buyer.

Often overlooked as part of deals, the logistics of getting employees from the seller to the buyer is the greatest opportunity for error.

Documenting the transfer.

In almost all cases, it makes sense to provide employees with a formal document that notifies them of the deal and of how (if at all) it will impact them. What this document looks like will depend on a number of factors, including the deal structure and what is changing. In an asset deal, it is important to confirm whether it’s possible to assign any existing agreements or whether it’s necessary to enter new ones, as well as whether there are any provisions in the existing agreement that the buyer wants to make sure do not continue post-closing. In a stock deal, it’s even more important to understand existing employment terms, and if there are any the buyer does not want to take on, make terminating those agreements or provisions a closing condition. Finally, if the buyer is entering a new jurisdiction, be sure to confirm that the firm’s standard agreements comply with local requirements, or risk having important provisions (such as non-solicits) be unenforceable.

Payment of Wages.

If the deal is an asset sale, the closing triggers the requirement that employees be paid final wages. Depending on state law, payment may be required as early as the closing day itself, which can create logistical challenges, as payroll generally has to be run at least a few days in advance, and the closing date is often confirmed just the day before. If the transaction is a stock sale, there’s no legal requirement to pay final wages, but the purchase agreement may require payment of wages earned through the closing date.

PTO and Vacation Pay.

There are two primary issues relating to PTO/vacation time: whether it needs to be paid out and how to transition employee from the seller’s policy to the buyer’s policy.

As with final wages, pay out of PTO/vacation time isn’t an issue for stock deals but is an issue in asset deals. Whether a seller must pay employees the value of PTO/vacation time depends on state law and the seller’s policies. If either the law or policy requires payment for accrued and unused PTO/vacation on termination of employment, then it technically must be paid based on the transition to buyer’s employment, though there may be the opportunity to carry an employee’s PTO/vacation balance over with their agreement. When PTO/vacation is paid out, it is also wise to provide employees with a corresponding amount of unpaid leave with the buyer so that prearranged plans aren’t put in jeopardy.

Whether in a stock sale or an asset sale, moving from the seller’s paid time off approach to the buyer’s can also create confusion and concern for employees if the two approaches are different. For instance, where employees are moving from a traditional accrual policy to a flexible (sometimes called “unlimited”) time off policy, if there isn’t some type of compensation for the accrued time they had with seller, they are likely to feel that they are “losing” their accrued time. When employees are moving from a more generous accrual policy to a less generous policy, they are even more likely to feel that they are being harmed in the transition. To avoid (or mitigate) these concerns, it’s important to plan ahead and focus on messaging. In many cases, a transition period will help temper employee concerns.

Employee Benefits.

Open enrollments do not always line up between companies, and they rarely align with closing dates. When considering the impact of a change in benefits, both the buyer and seller should consider whether employees will be required to restart deductibles and out-of-pocket maximums and, if so, consider offering bonuses or other benefits to make up for the increased cost during the transition period. Also critical in the logistics of transferring benefits is how the seller’s 401(k) plan will be handled. In a stock deal, if the seller’s 401(k) plan is being terminated, it is far easier to do so before closing.

Immigration and Visa Transfers.

Buyers need to analyze whether they want to rely on existing Form I-9s and eVerify searches or request new forms and searches. This analysis will be done in collaboration with legal counsel as part of the diligence process, with the ultimate decision depending on the sufficiency of the seller’s records and the buyer’s preference. In addition, in an asset sale, if any of the transferring employees is on a visa, their visa needs to be transferred to the new employer. Firms with employees on visas that are involved in an asset sale should consult with immigration counsel early in the process so there aren’t any last-minute surprises.

Synchronizing Employment Practices.

Beyond the legal aspects of moving employees, both the buyer and seller have an interest in making sure that employees transition smoothly to new policies. Human resources teams at both firms should spend time together discussing their respective policies and practices and identifying areas where they need to synchronize or educate and transition, including changes to standard policies, compensation (including commission and other incentive arrangements, overtime, and reimbursement limits), and roles (such as exempt status and independent contractors).

Transition Services Agreements.

There are some circumstances where either the buyer isn’t ready to accept the employees at closing, or there is a benefit to keeping the employees employed by the seller for a set period of time. In those cases, the parties should consider a Transition Services Agreement. A Transition Services Agreement allows the employees to stay on the seller’s payroll (and on seller’s employee benefit plans) until the buyer is ready to accept them. Transition Services Agreements can be helpful in a number of situations, including the following:

  • When payroll or employee benefit plans aren’t ready to be transferred
  • To avoid doubled social security deductions
  • To avoid new deductibles and/or out-of-pocket maximums on the new health insurance plan
  • When part of the seller’s business is continuing
  • When part of the team is needed only for a short-term basis

Firms considering a Transition Services Agreement should be sure to check with their insurance, benefits and payroll providers to make sure that such an arrangement is allowed under their agreements. If you are considering an accounting firm considering a sale or acquisition, please don’t hesitate to reach out. LP knows accounting firms. Our attorneys are trusted advisors for managing partners, executive committee members, key stakeholders, and HR professionals working in and for accounting firms.

2019 Labor and Employment Law Checklist

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Each year, LP’s Labor & Employment Practice Group is pleased to provide a short checklist of steps that all companies should consider taking to measure their readiness for the coming year. We hope that you find our 2019 Labor and Employment Law Checklist to be a helpful guide to best practices for the year ahead.

Download a fillable PDF here. Print it out for yearlong reference, or get started right away and enjoy the satisfaction of checking some very important items off your list.

 

  • Keep Ahead of Harassment & Discrimination Claims.  The #MeToo and #TIMESUP headlines did not slow down in 2018, and preliminary data released by the EEOC showed more than a 50% increase in EEOC charges claiming sexual harassment. In addition, Illinois and New York implemented new requirements relating to harassment policies and training, with Illinois requiring policies for employers that do business with the state or claim EDGE tax credits, and New York implementing strict requirements that apply to all companies with New York employees.  The EEOC also issued “Promising Practices for Preventing Harassment” to provide strategies to employers to reduce workplace harassment. Committed and engaged leadership, strong and comprehensive harassment policies, and regular, interactive training tailored to the audience and the organization are the new standard. If you have not conducted training and updated your harassment, discrimination and retaliation policies to meet these standards, put it on the agenda for early 2019.  

 

  • Update Policies to Reflect New Reimbursement Requirements. Under a new law targeting employers who require employees to use their personal cell phones for business purposes, Illinois now requires employers to reimburse employees for expenses they incur that are “directly related” to the services they are providing their employer. However, employers can set requirements around how and when requests for reimbursement must be made.  It is critical that employers confirm that expense reimbursement policies provide the framework for requesting reimbursement, and that policy manuals are clear that employees are eligible for reimbursement for these expenses, at least to the extent they exceed what the employee would have spent for personal reasons. 

 

  • Review Compensation Policies. The gender pay gap continues to draw the attention of lawmakers. For example, California, Connecticut, Delaware, Hawaii, New York, New Jersey, Maryland, Massachusetts, Oregon, Puerto Rico, Vermont and a number of municipalities have adopted laws making it easier to prove discrimination and/or limiting the compensation information that can be requested from applicants.  And with the change in leadership in Springfield, Illinois might just follow suit in 2019.  Consider reviewing compensation policies to put the emphasis on the value of the work being performed, rather than on what the applicant was paid in his or her last position.   

 

  • Confirm Parental Leave Policies Don’t Discriminate.  Being more generous with paid leave to new mothers than new fathers can create significant liability if the difference is based on gender and not on the physical act of giving birth or the employee’s designation as a primary care giver.  In February 2018, Estee Lauder paid $1 million to more than 200 male workers to settle a charge claiming that the company’s parental leave policy discriminated against male employees. Employers should revisit maternity and parental leave policies to make sure that any difference between the leave being provided to male and female employees is based on a permissible reason.   

 

  • Comply with New Military Leave Protections.  A new Illinois Law –ISERRA– provides some additional protections beyond those of the Federal USERRA.  ISERRA applies to all Illinois employers, regardless of size and requires that a specific notice of rights be posted.  Make sure that your team is aware of these new requirements and that the notice is posted in your workplace. Also, if you have a military leave policy, confirm that it reflects ISERRA.  

 

  • Are Arbitration Agreements Right for You? After years of uncertainty, the Supreme Court determined that employers can legally require employees to arbitrate any disputes individually. But are these types of agreements right for your company?  There are pros and cons of arbitration, so talk with your legal advisors to determine whether the agreements that require individual arbitration make sense for your organization.   

 

  • Revisit Workplace Rules Following NLRB Shift. The NLRB, now controlled by Republicans, is undoing many of the standards put in place by the prior NLRB.  Many, but not all, of these rules are considered pro-employer, including a more practical approach to determining when handbook policies regarding confidentiality interfere with employees’ right to engage in concerted activity. This means that some of the disclaimers and limitations in employee handbooks that were put into place in response to the “old” NLRB’s standards are no longer necessary.  Consider revisiting employee handbooks to clarify policies to be consistent with the current rules. 

 

  • Consider Unpaid Intern Standard Changes.  For years we have counseled clients not to use unpaid interns or risk a variety of employment claims.  However, changes to legal standards from both the courts and the Department of Labor have provided a more practical approach and raises the possibility of treating interns as unpaid.  At the heart of the analysis is whether the internship is more for the intern’s benefit or the company’s, and whether the internship is an extension of their education.  If you have an internship program that works with students, or are considering one, talk to your legal counsel about whether the internships can be unpaid. 

 

  • Update Restrictive Covenants. There has been lots of conversation regarding restrictive covenants. In fact, states are increasingly passing laws related to non-competes. Most recently, Massachusetts passed the most sweeping legislation we have seen in several years, limiting when and how employers can prohibit competition and even requiring additional consideration during the time period in which the employee cannot compete. If your restrictive covenants are more than a few years old, or if they are not specifically crafted to meet the legitimate business needs of the company, it is important to revisit and update them to maximize enforceability.

 

If you found this checklist helpful, subscribe to our blog. For concise, practical updates on the developments that impact you and your business, please subscribe at http://lpemploymentlaw.com.

New Overtime Regulations More Than Double Minimum Salary Threshold Effective December 1st

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Under final overtime regulations set to be published today, the new minimum salary for employees to be exempt from overtime under the “white collar” exemptions will more than double — to $913/week , which is $47,476/year — with further increases every 3 years thereafter, beginning on January 1, 2020.  The new regulations will become effective on December 1, 2016.

In a positive development, according to the Department of Labor’s (DOL) overview and summary of the new rule, employers will be permitted to credit bonuses and incentive payments for up to 10% of the new required minimum salary.

According to the DOL’s summary, the new regulations contain the following changes:

  • Increase of minimum salary for “white collar” exemptions from $455/week ($23,660/year) to $913/week ($47,476/year) — which is the 40th percentile for full-time salaried workers in the lowest-wage Census region (currently, the South).
  • Increase in the salary threshold for the Highly Compensated Employee exemption from $100,000 to $134,000 — which is currently the 90th percentile for full-time salaried workers nationally (note that the Highly Compensated Employee exemption isn’t effective in a number of states, including Illinois).
  • Automatic increases in the salary minimums every 3 years, with the first increase effective January 1, 2020.  For the regular “white collar” exemptions, the minimum salary will increase the  to the 40th percentile for full-time salaried workers in the lowest-wage Census region (estimated to be $51,168 in 2020).  For the Highly Compensated Employee exemption, it will increase to the 90th percentile of full-time salaried workers nationally (estimated to be $147,524 in 2020).
  • Up to 10% of the minimum salary for the regular “white collar” exemptions can be met with non-discretionary bonuses, incentive pay, or commissions, provided that they are paid at least quarterly.
  • The job duties tests remain unchanged.

The Department of Labor estimates that 4.2 million workers will be impacted by the new regulations.

While December seems like a long time away, changes to compensation structures take time.  In order to have all options available, companies need to start thinking now (if they haven’t already) about how the new regulations will impact their workforce and how they are going to react.  We strongly recommend that you speak with your employment attorney to determine the best course of action for your company.

 

New Overtime Regulations Closer to Reality

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The long-awaited new overtime regulations took a big step forward this week when the Department of 600px-US-DeptOfLabor-Seal_svgLabor submitted the proposed final regulations to the White House Office of Management and Budget for final review and approval.  This last step in the review process is anticipated to take up to 90 days, with the final regulations anticipated sometime during Q2.

As we noted in our post on June 30, 2015, the proposed regulations more than double the minimum salary requirement for the “white collar” overtime exemptions (administrative, professional and executive) from $455/week ($23,660/year) to approximately $970/week ($50,440/year), with annual increases thereafter based on a to-be-determined index.  The proposed regulations also increase the minimum salary for the Highly Compensated Employee exemption from $100,000/year to more than $122,000/year (though it is important to note that this exemption does not apply under some states’ overtime laws).  Finally, while the proposed regulations did not change the job duties tests, they did suggest that the final rules may impact the job duties tests in addition to the minimum salary requirement.

There are various strategies available to businesses to minimize the financial, operational and employee-relations impact of the new regulations, but it is important to act quickly to consider available options for impacted employees.  Companies should also consider whether other changes to exempt status classifications make sense, as the regulatory change is a good opportunity to improve compliance across the board.

Facebook Comments and “Likes“ Protected Activity?

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Social Media keyboard

Is commenting on a Facebook post protected, concerted activity under the National Labor Relations Act?  What about hitting the “Like” button on a post?  The Second Circuit recently agreed with the National Labor Relations Board that they are.

In a decision last year, the Board ruled that a sports bar had unlawfully terminated two employees for their activity on Facebook.  The first employee had commented on a status update of a co-worker stating that the bar’s owners “couldn’t even do the tax paperwork correctly” and that someone should do the owners “a favor” and purchase the business from them.  The employee’s comment stated that she “owed too,” and referred to one of the owners as an “asshole.”  The second employee “liked” the first employee’s status update.  The Board held that both employees’ had engaged in protected, concerted activity under the Act, and that the bar had violated the Act when it terminated their employment.

Last month, the Second Circuit (Connecticut, New York, and Vermont) affirmed the Board’s decision.  The court held that the employees’ actions amounted to a group of employees discussing labor issues and were protected by the Act.  The bar argued that the Facebook comment and “like” were meant to defame the bar – with the use of profanity – and thus brought it outside the protections of the Act.  However, the court reasoned that the Facebook activity at issue was different from obscenities voiced by employees in earshot of customers in a crowded shop (even though customers could view the comments on Facebook).  The court also noted that the bar’s internet and blogging policy could be read as prohibiting employees from protected activity under the Act.

The take-away here?  It’s a good time for employers to review their social media policies.  As we have warned in the past, these policies as written and as enforced must not “chill” employees from engaging in protected, concerted activity.  There is often a fine-line between lawfully prohibiting certain types of activities on the internet and unlawfully interfering with employees’ protected activity.  It’s a good idea to check with counsel on how to best craft the wording of these policies to protect the employer’s interests while not interfering with employees’ rights.

Webinar – Back to School: Employment Law Update

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school-suppliesAs fall approaches and students head back to school, The Employment Lawyers are taking a look back and a look ahead at issues in labor and employment law. Join us for an informational webinar to review developments over the past year and discuss tips to keep your workplace practices current in the coming year.

Thursday, September 17, 2015
12:00 pm – 1:30 pm (CDT)
CLICK HERE TO REGISTER

TOPICS

  • Proposed changes to overtime regulations that will make more employees overtime-eligible
  • New standards in accommodating religious practices and pregnancy
  • The NLRB’s “quickie” election rules and what they mean for union organizing efforts
  • Raising the standard to establish that a worker is properly classified as an independent contractor
  • The EEOC’s new position on wellness programs and disability discrimination
  • Expanding employee retaliation and whistleblower claims
  • New state and local laws that impact minimum wage, paid sick leave and accommodation requirements

And more…

CLE Credit Available | This program has been submitted to the HR Certification Institute for review.

QUESTIONS

Contact Annie Darmofal at 312.476.7626 or adarmofal@lplegal.com

What Does The Supreme Court’s Same-Sex Marriage Ruling Mean For You?

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On June 26th, in a ground-breGay_flag_svgaking decision, the Supreme Court ruled that same-sex couples have a constitutional right to marry. Full text of the Court’s decision in Obergefell, et al. v. Hodges, et al. can be found here.

But beyond the general public response, employers need to consider how the ruling will impact employment policies and practices — especially in states that previously have not recognized same-sex marriages.  Following are some of the areas where employers might see Obergefell’s impact:

Employee Benefit Plans

If you offer any employee benefit plans through a separate insurance company, all “spousal” benefits must now be extended equally to same-sex spouses as they are to opposite-sex spouses. You may not be under the same restraints if you are self-insured, but if you deny benefits to same-sex spouses in this instance, you run a high risk of discrimination lawsuits.

It’s a good time to review your employee benefit plans and the costs associated with these plans. You should anticipate that the Court’s ruling may add some new couples — and associated costs — to your plans, especially if you did not previously offer benefits to domestic partners or same-sex spouses.

Equal Employment Opportunity

Marital status is a protected class under many state and local laws. These laws now protect all married people, including those in same-sex marriages.

Family and Medical Leave Act

As we discussed in a previous post, the FMLA has recently been amended to include same-sex spouses in the definition of “spouse.” Given the heightened publicity of the Court’s ruling, be sure to review your FMLA policies and practices to ensure that same-sex spouses are included.

Additional Policies and Practices

We recommend reviewing your employee handbook and any other employment policies to make sure that the policies as written – and in practice – apply equally to employees in same-sex marriages or rely on a qualification other than marriage.