Compliance-side HR – a strong stomach required

Standard

This article was originally published in The Daily Record April 5, 2016.

It’s a rough time to be on the compliance side of human resources, and the immediate future isn’t looking much brighter. Don’t get me wrong, short of selling t-shirts and drinks with interesting names on a tropical beach (alongside my wife, of course), there is nothing I would rather be doing. Let me explain…

Overtime Regulations: The U.S. Department of Labor (“DOL”) sent its proposed Part 541 overtime rule changes to the Office of Management and Budget (“OMB”) on March 14, 2016. I was in Washington, DC attending the Society for Human Resource Management (“SHRM”) annual Employment Law and Legislative Conference at the time. The collective groan from the several-hundred HR and legal professionals in attendance was deafening.

With these updated regulations, the DOL plans to dramatically expand entitlement to overtime wages, with an estimated 4.6 million workers currently classified as exempt losing the overtime exemption. (HR hint: this is a great opportunity to reclassify those employees that have long been misclassified as exempt.) The final rule is expected to more than double the minimum salary an employee must earn in order to be exempt from overtime, to at least $970 per week, or $50,440 annualized. Further, there is speculation that the DOL may increase that figure to reflect more recent wage data. It makes sense when considering the new rule is expected to include automatic annual updates (read “increases”) to the minimum salary amount.

In addition, the question remains as to whether the DOL will make changes to the “duties tests.” If so, it will likely adopt California’s test, which requires exempt employees to spend at least 50 percent of their time performing exempt duties. Why is this important? If the DOL adopts the 50 percent rule as a minimum threshold, exempt employees will likely need to track the time they spend on exempt and nonexempt duties in order to prove they meet the minimum threshold on an ongoing basis.

It generally takes the OMB 30 to 90 days to complete the review process, which means the DOL could publish the final rule as soon as mid- to late April, or as late as August or even September. Once the final rule is published, employers are expected to have 60 days to comply.

Many employers and HR professionals have underestimated the amount of time it will take to implement these changes. The truth is that those who have not started to prepare for these changes are already behind. (Starting to have that queasy feeling in your stomach, like you are on an out of control amusement park ride?)

Joint Employment under the FLSA: The DOL’s Wage and Hour Division (“WHD”) recently released Administrator’s Interpretation No. 2016-1 (AI 2016-1) which discusses the Agency’s position on the joint employment relationship under the Fair Labor Standards Act (“FLSA”) and the Migrant and Seasonal Agricultural Worker Protection Act (“MSAWPA”). This follows on the heals of the National Labor Relations Board’s well-publicized decision in Browning-Ferris Industries that significantly broadens the interpretation of “joint employer” under the National Labor Relations Act.

Employers and HR professionals should add this to their ever-growing list of potential compliance issues. First, while AI 2016-1 doesn’t create any new joint employment law or regulation, it does provide insight into another unsurprisingly employee-friendly WHD policy. It clearly states that joint employment “should be defined expansively” and the WHD intends to maximize “statutory coverage, financial recovery, and future compliance,” especially where “one employer may also be larger and more established, with a greater ability to implement policy or systemic changes to ensure compliance.” Simply put, the WHD expects to persuade employers to police other employers, and puts both large companies with deep pockets, and smaller, less influential companies on notice that they are targeted for compliance.

AI 2016-1 explains that employers have increasingly abandoned traditional employment relationships, choosing instead to use shared employees, independent contractors, and staffing agencies to fill short- and long-term needs. With that, the question of whether entities are acting as joint employers of specific workers has become more nuanced and, in the eyes of the WHD, the terms employer, and consequently joint employer, include relationships where an entity directs, or simply allows work to occur.

To further complicate the issue, AI 2016-1 explains that joint employment relationships may be “horizontal” or “vertical.” Horizontal relationships occur where two separate but sufficiently associated businesses “employ” the same worker. This relationship may occur where the businesses share common ownership, agree to pool employees, or even where they share clients or customers.

More common are vertical relationships, which occur where one business contracts with another to provide services or workers, such as the use of a staffing agency. The key is whether the “economic realities” of the specific situation indicates worker dependence on both the provider and the recipient of the services. Functionally all but identical to the economic realities test used in the context of independent contractor classification, factors include, but are not limited to, control over the work performed, the degree of skill required to do the work, where the work is performed, the duration of the relationship, and the degree to which the work is integral to the recipient’s business.

Employers and HR professionals should not assume existing arrangements offer any protections from employment and labor law obligations regarding the workers providing services. To help reduce the potential for significant liability, insist on a written agreement that clearly identifies worker availability and wages, as well as which entity is responsible for overtime wages and other pay, benefits, and other employment-related items. (Is the aforementioned queasy feeling getting worse?)

Individual Liability for HR under the FMLA: Last, but certainly not least on my list of cautionary issues for HR is a March 17, 2016 decision from the U.S. Court of Appeals from the Second Circuit in Graziadio v. Culinary Institute of America. The Court provides a sobering message for employers, and more specifically HR professionals and supervisors who are responsible for administering leave requests under the Family and Medical Leave Act (“FMLA”). By finding that the FMLA definition of employer is similar to that of the FLSA, the Court held that an HR director may be individually liable as an employer, by acting “directly or indirectly, in the interest of an employer” toward an employee.

In this case, Cathleen Graziadio (“Graziadio”) requested FMLA leave to care for her minor son, then required additional leave soon after returning to work when her second minor son broke his leg. During Graziadio’s second absence, the HR director, Shaynan Garrioch (“Garrioch”), took issue with the paperwork provided to support the FMLA leave request, and refused to allow Graziadio to return to work until additional documentation was provided. Where the FMLA train appears to have gone off the rails is when Garrioch refused to provide any clarification on why the original paperwork was insufficient, or what additional documentation was needed. She also later refused to allow Graziadio to return to work without providing a specific date and time for a face-to-face meeting. The meeting never occurred, but Graziadio did provided updated medical documentation. Garrioch failed to respond and ultimately terminated the employee for job abandonment. Graziadio sued the CIA and Garrioch for interference and retaliation under the FMLA.

The Second Circuit found sufficient evidence that the HR director was an employer in “economic reality,” and that she interfered with the employee’s rights under the FMLA. Regardless of the fact that Garrioch did not have ultimate authority to terminate Graziadio, the President did not conduct an independent investigation and agreed with Garrioch’s recommendation to terminate. Therefore, Garrioch “played an important role.” She also exercised control of Graziadio’s schedule and conditions of employment by handling the FMLA leave, including reviewing the paperwork, and communicating with the employee.

FMLA compliance is a challenge, and the law presumes the employee has a “right” to return to their job. With that in mind, terminating an employee over disputed documentation is risky at best, and generally a bad idea. Consider these take-a-ways from this case:

  • Assuming the initial requirements have been satisfied, if an employee is absent to care for a family member with a serious health condition, the leave is likely protected under the FMLA.
  • If an employee asks for information or clarification, provide a simple and clear response. Correspondence, including emails, should be clear and concise, and reflect a helpful and understanding tone. Remember, the email you send today could be read to a jury tomorrow.
  • Generally, the FMLA does not require an employee to provide direct care to a family member. If a doctor certifies that the family member has the serious health condition, they may also certify that your employee is needed for support.
  • Do not issue arbitrary deadlines and threats, or refuse to communicate with the employee. Keep lines of communication open, set reasonable deadlines, and be clear about what is expected.
  • If an employee is on leave to care for a family member, and they provide a written request to return to work, let them come back and handle any “paperwork” issues later.

The Message: Compliance with labor and employment laws and regulations is extremely complex, and getting more so every day. Employers and HR professionals cannot give it their “best shot” and hope it works out. As my mother told us, there is no shame in asking for help. Some of us even share our antacids.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s