Employment & Labor Law Department Update
Spring 2003
Including Employment & Labor, Benefits and Immigration Law
Service Personnel Entitled to Reemployment
and Benefits Upon Return from Military Duty
By Stephanie Wright Pickett
As workers return from military duty,
employers must be mindful of the
requirements of the Uniformed Services
Employment and Reemployment Rights Act
(USERRA) and corresponding state
law. The Fall 2001 Update, available at
www.prestongates.com, discussed
USERRA eligibility requirements and
reemployment rights. This article focuses
on reemployment and the benefits that employers must
provide to returning employees.
When Do Employees Have to Return to Work?
Generally, employees must return to work or submit an
application within the statutorily-mandated period. The
length of this period depends on the length of military service, and ranges under USERRA from the next workday (for
service less than 31 days) to 14 days (for service of more
than 30 days and less than 181 days) to 90 days (for service
of more than 180 days). Reporting and application deadlines
may be extended for up to two years for persons hospitalized
or convalescing because of a disability incurred or aggravated during military service. There also are exceptions from
these deadlines when returning or reapplying within the
specified period is impossible or unreasonable and state law
may also provide more time, so employers should proceed
cautiously before denying reemployment rights based on a
late return.
What Job Should the Returning Employee Receive?
Generally, a returning service member steps back onto the
seniority escalator at the same point the employee would
have occupied had he or she remained continuously
employed. Employers also must make “reasonable efforts”
such as refresher or other skills training to qualify employees
for positions. Determination of the appropriate job also
depends on the length of service in the following order of
entitlement:
Less Than 91 Days of Service:
Inside This Issue:
Option 1: If qualified, an
employee is entitled to reNew Regulations Specify Retirement
employment in the posiPlan Trading Prohibition and Notice
Requirements During Blackout Periods
tion he or she would have
Under Sarbanes-Oxley Act . . . . . . . . . . . . . . . . .2
held had he or she
remained continuously
CALIFORNIA UPDATE . . . . . . . . . . . . . . . . . . . . . . . . .3
employed.
IMMIGRATION REPORT: National Security
Option 2: If the employand the Foreign Worker III . . . . . . . . . . . . . . . . .4
ee is not qualified to perLABOR LAW UPDATE . . . . . . . . . . . . . . . . . . . . . . . . . .5
form Option 1 after reaIN THE NEWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
sonable qualification
efforts, the employer can
place him or her in the same position held when military
leave commenced.
Option 3: If the employee cannot become qualified for
Options 1 or 2 even after reasonable employer qualification
efforts, he or she must be reemployed in a position that is
the nearest approximation of Options 1 or 2 (in that order)
that he or she is qualified to perform, with full seniority.
More Than 90 Days of Service:
Option 1: Provided that he or she is qualified to perform
the job, an employee is entitled to reemployment in (a) the
position he or she would have held had he or she remained
continuously employed, or (b) a position of like seniority, status, and pay.
Option 2: If an employee is not qualified to perform the
Option 1 positions after the employer makes reasonable
qualification efforts, the employer can place the employee in
the same position held when military leave commenced or a
position of like seniority, status, and pay, provided the
employee is qualified to perform the job.
Option 3: If the employee cannot become qualified for
Options 1 or 2 even after reasonable employer efforts, the
person must be reemployed in a position that is the nearest
approximation of Options 1 or 2 (in that order) that he or she
is qualified to perform, with full seniority.
(cont’d on page 6)
Page 2
Employment & Labor Law Department Update
New Regulations Specify Retirement Plan Trading Prohibition and Notice
Requirements During Blackout Periods Under Sarbanes-Oxley Act
By Deirdre C. Thomas
Two federal agencies
have adopted new rules
pursuant to Section 306
of the Public Company
Accounting Reform and
Investor Protection Act
of 2002 (commonly
known as the SarbanesOxley Act) that relate to
“blackout” periods under qualified
defined contribution retirement plans
such as 401(k) plans.
The Securities and Exchange
Commission (SEC) issued final rules and
adopted Regulation Blackout Trading
Restriction (BTR) to implement SarbanesOxley’s prohibition on trading in company
stock by certain insiders during qualified
Regulation BTR...prohibits
trading by certain insiders
during qualified plan
blackout periods.
plan blackout periods. These rules apply
only to public companies, including foreign private issuers. In addition, the U.S.
Department of Labor (DOL) published
final regulations governing notices that
must be provided to plan participants in
advance of various kinds of plan restrictions or suspensions. These notice
requirements apply to non-public as well
as public companies.
Although both the SEC trading prohibition and the DOL notice requirements
address situations where participants’
access to their retirement plan accounts
is limited during a “blackout period,” the
two rules define the term differently. The
definition of “blackout period” is much
broader under the DOL participant notification requirements than under the SEC
insider trading prohibition.
wise acquiring or transferring any equity
security of the company during any blackout period if such director or officer
acquires (or acquired) such security in
connection with his or her service as a
director or executive officer. Trades by
family members or other trades in which
the individual has a “pecuniary interest”
may also be prohibited during this period.
Certain automatic or prearranged transactions, including regularly scheduled purchases through a qualified employee
stock purchase plan, are permitted during
an applicable blackout period.
Definition of Blackout Period. A blackout
period for purposes of this trading prohibition is a period of more than three consecutive business days during which at
least 50% of the U.S. participants, under
all of a company’s “individual account
plans” that permit participants to acquire
or hold company stock, are restricted
from purchasing, selling, or otherwise
transferring their company stock held in
the plan. An individual account plan is a
defined contribution retirement plan,
such as a 401(k) plan, that provides for
an individual account for each participant
and in which benefits are based solely on
the amounts contributed to each account
and related earnings and losses. The
applicable blackout periods typically
occur when a plan is changing recordkeepers or investment choices under the
plan.
Other Issues. Affected individuals and
the SEC must be notified of the blackout
period. Regulation BTR describes the
specific information that must be provided in the notice and sets forth requirements regarding the timing of notice. In
the event the trading prohibition is violated, the company or, in the absence of
action by the company, individual shareholders may recover profits realized by
the individuals.
The text of the SEC rule is available
at www.sec.gov/rules/final/34-47225.htm.
Regulation BTR Adopted by SEC
Sarbanes-Oxley and Regulation BTR prohibit any director or executive officer
(generally officers subject to Section 16
reporting requirements) from directly or
indirectly purchasing, selling, or other-
ERISA Blackout Period
Notice Requirements Adopted by DOL
The Act also added subsection 101(i) to
the Employee Retirement Income
Security Act of 1974 (ERISA) providing
that the plan administrator of an individual account plan must provide notice to
participants (and alternate payees or
other beneficiaries benefiting under a
plan) at least 30 days, but not more than
60 days, in advance of a blackout period.
These provisions apply to all individual
account plans.
The DOL regulations describe the
information that must be provided in the
notice and include a model notice. The
notice may be provided in the same manner as other materials required to be furnished to participants under ERISA, such
as summary plan descriptions. It is permissible to provide the notice via electronic delivery in accordance with the
final regulations issued by the DOL in
2002 regarding electronic delivery of
plan communications. Exceptions to the
30-day requirement are allowed for certain situations, such as acquisitions,
where it is not possible to provide the
notice 30 days in advance.
Definition of Blackout Period. For purposes
of the DOL notice requirements, blackout
period means “any period for which any
ability of participants or beneficiaries
under the plan, which is otherwise available under the terms of such plan, to
direct or diversify assets credited to their
accounts, to obtain loans from the plan,
or to obtain distributions from the plan is
temporarily suspended, limited, or
restricted, if such suspension, limitation,
DOL notice requirements
apply to non-public as well
as public companies.
or restriction is for any period of more
than three consecutive business days.”
This definition is not limited to restrictions affecting employer stock in a plan,
and there is no condition that at least
50% of participants must be affected by
the blackout. There may be restrictions
that are standard procedure under a given
plan which could constitute a blackout
under the definition for purposes of this
notice requirement.
(cont’d on page 4)
Page 3
CALIFORNIA UPDATE
By Stephen D. Leanos
Availability of Continuing
Healthcare Benefits in
California Lengthened
The California
Legislature has
increased to 36 months
the period of COBRA
healthcare continuation
coverage when a covered employee experiences any “qualifying event” on or after January 1, 2003.
Federal COBRA. Federal law requires
employer-sponsored group health plans to
offer continuing coverage to employees
who would otherwise lose coverage
because of a “qualifying event.”
Qualifying events include a resignation or
involuntary termination of employment, a
reduction in hours, and a participant’s
divorce or death. Under federal law, continuing coverage may extend for different
time periods depending on the type of
qualifying event that occurs. When loss of
coverage occurs because of termination
of employment or a reduction in a participant’s hours, then 18 months of coverage
must be available. When loss of coverage
occurs because of a participant’s divorce
or death, 36 months of coverage must be
offered. Employers may charge participants and beneficiaries who wish to exercise this coverage up to 102% of the
applicable premium in order to cover the
premium and additional administrative
expenses.
New California Standard. Cal-COBRA now
increases the continuation coverage period to 36 months for all qualifying events
that occur after January 1, 2003. Health
care service plans (such as HMOs) and
health insurance carriers must offer eligible individuals who have exhausted continuation coverage under federal COBRA
continuation coverage for up to 36
months from the date the continuation
coverage started. The new law requires
insurers - not employers - to give notice
to each participant and beneficiary covered under federal COBRA of the availability of extended Cal-COBRA coverage
to 36 months. The notice of extended
coverage must be included in the notice
of pending termination of COBRA coverage required by federal law when continuation coverage under federal COBRA is
about to expire. Employer may charge
participants and beneficiaries who wish
to exercise this extended coverage under
Cal-COBRA up to 110% of the applicable
premium to cover the premium and additional administrative expenses.
Corporate Officers and Directors Not
Subject to Personal Liability for Unpaid Wages
Plaintiffs attempted to impose liability
under the Labor Code for unpaid wages
on their employer Earl Schieb, Inc. as
well as personally upon individual members of Schieb’s management. In
Reynolds v. Bement, the California Court
of Appeals affirmed the trial court’s dismissal of the claims against the individ-
Cal-COBRA now
increases the continuation
coverage period to 36
months for all qualifying
events that occur after
January 1, 2003.
ual managers. The court concluded that
the corporate officers and directors were
not “employers” for purposes of compliance with state wage and hour laws and
could not be held personally liable merely
by reason of their official positions for
wages unpaid by the corporation.
However, the officers and directors could
be subject to misdemeanor penalties and
civil fines under the Labor Code for their
actions as the employer’s agent or other
person who exercises control over the
wages, hours, or working conditions of
employees. The court also recognized
that the officers and directors could be
held individually liable for their own tortious conduct if they personally directed
or participated in the employer’s conduct.
Because plaintiffs had failed to allege
any specific acts on the part of the individual defendants which constituted affirmative direction, participation, or cooperation in the employer’s alleged conduct,
dismissal of the complaint against the
individual defendants was appropriate.
Employee’s Refusal to Obey Discriminatory
Order is Protected Activity Under FEHA
In Janowitz v. L’Oreal USA, Inc., a male
executive directed a regional sales
manager to fire a female employee in
her region because the employee did not
meet the executive’s standards for sexual
attractiveness and to get him someone
“hot” instead. When the sales manager
refused, the executive and the sales manager’s immediate supervisor subjected her
to heightened scrutiny and increasingly
hostile evaluations over the following
months. The sales manager - who had
been the company’s Regional Sales
Manager of the Year just two years before
- subsequently went on stress leave and
filed suit under the California Fair
Employment and Housing Act (FEHA)
alleging unlawful retaliation. The trial
court found that the sales manager had
not engaged in any protected activity
under the FEHA and dismissed the suit.
The Court of Appeals reversed, holding that the executive’s directive to fire
the sales associate constituted sex
discrimination under the FEHA and that
the sales manager’s refusal to obey the
sexually discriminatory order was protected activity. The court then concluded that
an “ultimate employment decision” such
as termination, demotion, or reduction in
pay was not necessary for an employee to
be subject to an adverse employment
action under the FEHA, but that an intermediate action such as unwarranted negative evaluations could constitute an
adverse employment action “if it is
reasonably likely to deter employees from
engaging in protected activity” - the test
articulated in the Equal Employment
Opportunity Commission (EEOC) in its
Compliance Manual. The court found that
the sales manager had presented sufficient evidence from which a jury could
find the existence of an adverse employment action reasonably likely to deter her
from engaging in protected activity, and
remanded the case back to the trial
court.
This decision is significant for at least
two reasons. First is the recognition that
an employee’s refusal to follow a sexually
discriminatory order can constitute protected activity under the FEHA.
(cont’d on page 5)
Page 4
Employment & Labor Law Department Update
IMMIGRATION REPORT:
National Security and the Foreign Worker III
By James Doane
INS Functions
Transferred to DHS
On March 1, 2003,
the Immigration and
Naturalization Service
(INS) ceased to exist.
INS functions were
transferred from the
Department of Justice
to three bureaus within the Department of
Homeland Security (DHS).
What are these three new bureaus and
how will DHS assumption of immigrationrelated responsibilities affect American
employers?
Bureau of Citizenship and Immigration
Services (BCIS). BCIS is responsible for
adjudicating immigration benefits formerly provided by INS. For example, employers continue to file H-1B work authorization petitions, and workers continue to
file employment authorization applications with BCIS, just as they did with the
INS. In most cases, only the name of the
addressee has changed. During the transition phase, at least, the bureau’s structure and functions have remained the
same as those of the old INS. More
details can be found at www.bcis.gov.
Bureau of Customs and Border Protection
(CBP). CBP is responsible for immigration
investigations and inspections at borders
and other U.S. ports of entry. BCIS, the
bureau responsible for determining what
immigration benefits are available to
whom, has no presence at the border and
it is CBP alone that determines what per-
sons and goods actually enter or do not
enter the United States. More details can
be found at www.cbp.gov.
Bureau of Immigration and Customs
Enforcement (BICE). BICE is responsible for
investigation and enforcement regarding
violations of the Immigration and
Nationality Act, related federal statutes,
detention and removal, customs, and
other interior matters. For example, BICE
will be responsible for conducting work
site raids, imposing employer sanctions,
and detaining and removing undocumented employees. More details can be found
at www.bice.immigration.gov.
Visa Issuance. Visa issuance and policy
were formerly administered solely by the
Department of State, acting mainly
through consular officials in overseas
embassies and consulates of the United
States. The Homeland Security Act
exclusively vests the Secretary of
Homeland Security with authority to
administer all laws, and issue regulations
relating to functions of consular officials
in the granting or refusal of visas. The
DHS and Department of State are
currently developing a Memorandum of
Understanding to clarify the roles and
responsibilities of each.
Effective coordination among BCIS,
CBP, BICE, the Department of State, and
DHS will be essential now that the benefits and enforcement functions of INS
have been bifurcated and dispersed.
Employers will need to plan further ahead
when hiring foreign employees, and
anticipate delays during the transition
phase. Employers will need to carefully
prepare immigration paperwork to avoid
inclusion in DHS look-out lists by reason
of denials that could taint the employee
and employer for years.
Special Registration (NSEERS) Numbers Grow
As noted in the Fall 2002 Update, citizens or nationals of designated countries
and otherwise, are subject to photographing, fingerprinting, and interviewing at
ports of entry, periodically while in the
United States, and at departure under the
National Security Entry-Exit Registration
System (NSEERS), or special registration.
Non-compliance carries severe penalties.
As of March 18, 2003, some 101,589
individuals from 149 countries had registered and 1,854 unlawfully present individuals had been detained. The updated
list of targeted countries can be viewed at
www.immigration.gov.
Federal and state statutes prohibit
employers from engaging in national
origin discrimination in hiring, pay,
promotion, and otherwise. Employers
should not treat differently individuals
potentially subject to NSEERS or similar
homeland security measures. ■
Business Department
Seattle
jamesd@prestongates.com
New Regulations Specify Retirement Plan Trading Prohibition and Notice Requirements
During Blackout Periods Under Sarbanes-Oxley Act (Cont’d from page 2)
The notice requirement does not apply to
certain regularly scheduled suspensions,
restrictions due to securities law requirements, or account holds relating to a
qualified domestic relations order
(QDRO), including a pending domestic
relations order that has not yet been
qualified. In the case of blackout periods
with limited applicability, such as blackouts in connection with a merger or
acquisition or other restrictions affecting
only a limited number of individuals, only
those affected by the blackout period
need be notified.
Potential Penalties. Both civil and criminal penalties may be imposed for failure
to timely provide the required notice. The
DOL may impose a civil penalty of up to
$100 per participant per day for failure
to timely provide the notice. In addition,
Sarbanes-Oxley increased substantially
the criminal penalties permitted for violation of ERISA’s disclosure (and reporting)
requirements, including this blackout
notice requirement: criminal penalties
now include a fine of up to $100,000
(formerly $5,000) for an individual or
$500,000 (formerly $100,000) for a
person other than an individual, and up
to ten years (formerly one year) imprisonment.
The text of the DOL rule and a model
notice for a blackout period can be found
at frwebgate.access.gpo.gov/cgi-bin/get
doc.cgi?dbname=2002_register&docid=0
2-26522-filed.pdf. ■
Employment & Labor Law Department
Seattle
deirdret@prestongates.com
Page 5
LABOR LAW UPDATE
By Mark S. Filipini
Should We Give a CompanyWide Raise to Employees
During Collective Bargaining
Negotiations? A Private
vs. Public Sector Distinction
in Washington
The National Labor
Relations Act (NLRA)
requires private sector
employers to collectively bargain with the
designated representatives of their
employees (i.e., unions) over terms and
conditions of employment, including
compensation. While generally free to
insist that all terms will be “on the table”
and subject to bargaining going forward,
newly organized employers should be
aware that repetitive practices - such as
annual wage adjustments - may become
established conditions of employment
that must be implemented pending the
completion of negotiations. A recent
decision by the National Labor Relations
Board (Board) illustrates the risks of unilaterally changing these conditions once
a workforce is unionized but before a collective bargaining agreement is reached.
This decision should be contrasted with
precedent applicable to public employers
in Washington.
In Lee’s Summit Hospital, 338 NLRB
No. 116 (2003), the Board held that the
employer committed an unfair labor practice when it withheld a wage adjustment
in 2000 from employees at a recently
organized facility where a contract had
yet to be reached. The employer had provided an annual increase in five of the
previous six years to all employees, and
gave employees at its other facilities a
3% raise in 2000. The employer defended its decision to exclude the newly
unionized employees on multiple
grounds, including its belief that unilaterally imposing the raise would violate the
NLRA’s collective bargaining requirement.
In addition, the employer argued that the
raises were discretionary and had not
been provided at least once in the last six
years. The Board disagreed, stating that
“the wage adjustment had become an
established pattern and practice over
many years.” Under the Board’s analysis,
not providing the 3% raise to the bargain-
ing unit constituted a unilateral change
in the established terms and conditions
of employment. The Board ordered the
employer to “make whole” the bargaining
unit employees through retroactive raises
and interest.
However, the Washington Public
Employment Relations Commission
(PERC) reached an opposite conclusion
for public employers covered by the
Public Employees Collective Bargaining
Act, RCW 41.56. In a case with similar
facts to Lee’s Summit Hospital, PERC
upheld an employer’s decision to withhold a “cost of living” increase to bargaining unit employees, even though
such raises had been provided for the
past seven years. PERC noted that public
employers have “status quo obligations”
under Washington law once employees
select a bargaining representative.
Generally, employees must look to the
bargaining process “for any and all wage
increases.” The union’s argument that
the cost of living increases had become
an established part of the employees’
compensation was rejected.
When a raise is contemplated during
the organizing drive itself - that is, prior
to certification or recognition of the union
as the collective bargaining agent of the
employees - additional considerations
arise. Private employers are faced with
somewhat of a dilemma - they must not
offer a raise in order to discourage union
activity, yet neither may they discriminate
against employees on the basis of their
organizing efforts. Excluding only those
employees targeted by an organizing drive
from receiving a company-wide raise may
raise concerns of discrimination. To
resolve these competing pressures,
private employers should generally limit
raises during an organizing drive to
adjustments that were planned or determined prior to the onset of union activity.
For public employers, PERC has suggested that, with limited exceptions, an
employer should maintain the “status
quo” once a representation petition has
been filed.
Of course, once a contract is negotiated, the terms of the parties’ agreement
control in both the private and public
sectors. Unilaterally imposing increases
(or decreases) in these circumstances will
likely violate the employer’s duty to bargain.
The lesson for all employers is to carefully consider the ramifications of granting or denying a company-wide raise (or
other similar change in benefits) to bargaining unit employees in an organized
environment. Federal and state law may
suggest different conclusions based on
the private or public nature of the
employer. ■
Employment & Labor Law Department
Seattle
markf@prestongates.com
CALIFORNIA UPDATE (Cont’d from page 3)
Potentially more far-reaching is the
court’s holding that an intermediate
employment action is sufficient to constitute an adverse employment action under
the FEHA and its adoption of the “deterrence” test to determine the existence of
an actionable adverse action.
California Supreme
Court Grants Review in Salazar
We reported in the Winter 2002 Update
that the California Court of Appeals had
held in Salazar v. Diversified Paratransit,
Inc., that an employer may not be held
liable under FEHA to an employee who
had been sexually harassed by a client or
customer. The California Supreme Court
subsequently granted review of the Court
of Appeals decision in Salazar, rendering
it void. We will keep you informed of
developments in this matter. ■
Employment & Labor Law Department
San Francisco
sleanos@prestongates.com
Page 6
Employment & Labor Law Department Update
Service Personnel Entitled to Re-Employment and Benefits (Cont’d from Cover)
As with the period for reemployment
or application, these criteria are modified
where the employee has a disability
incurred during or aggravated by military
service. In addition to the general accommodation requirements under state and
Generally, a returning
service member steps back
onto the seniority escalator
at the same point the
employee would have
occupied had he or she
remained continuously
employed.
federal disabilities law, an employer must
reemploy the returning worker in the following order of entitlement:
Option 1: An employer must make reasonable efforts to qualify the disabled
employee by placing him or her in the
position that he or she would have held
had he or she been continuously
employed.
Option 2: If, even with reasonable
accommodation, the employee is not
qualified to perform the Option 1 job, the
employer must provide a job of equivalent
seniority, pay, and status for which the
individual either is qualified or could
become qualified with reasonable effort.
Option 3: If the employee cannot perform either the Options 1 or 2 jobs, the
employer must provide another position
that is the nearest approximation of
Option 2 in terms of seniority, status,
and pay.
As discussed in the Fall 2001
Update, the circumstances where employers may avoid reemployment due to
changing economic or other factors are
extremely limited. In addition, discrimination based upon the potential or actual
use of USERRA or comparable state law
benefits is illegal. Before declining to reemploy returning service personnel or to
provide a specified job, employers should
confer with legal counsel.
Are Employees Returning
from Military Leave At-Will Employees?
Even where employees returning from
military leave were previously employed at
will, state and federal law generally
require “cause” for termination for a
specified period after reemployment.
Under USERRA, if military service was
for more than 30 but less than 181 days,
employers may not discharge employees
without “cause” within 180 days after
reemployment. For service over 180 days,
employers may not discharge employees
without “cause” for one year. Washington
and California law are more protective of
employees and prohibit employers from
terminating returning service personnel
without “cause” for one year after reemployment, regardless of the length of
service. After the statutory period has
passed, employers can generally terminate employees at will, provided that the
employer has not otherwise undermined
the at will status. However, employers
should be cautious to avoid the appearance of retaliation that could be present
when termination occurs shortly after the
statutory for-cause termination period
passes. The Ninth Circuit Court of
Appeals has noted that this can be a factor in inferring discriminatory motivation.
What Benefits Do
Qualifying Employees Receive?
In addition to reemployment rights,
employees are entitled to certain benefits
upon their return to the workforce.
Generally, for any benefits tied to the
length of service, returning employees are
entitled to seniority as if the employee
had remained continuously employed.
Qualified employees engaged in military
service in excess of 30 days are entitled
to the following upon return to the workforce:
Health Insurance: Employers must allow
employees to resume group health coverage without a waiting period or other
exclusion. An exception applies to illnesses or injuries determined by the Secretary
of Veterans Affairs to be connected to the
military service.
Vacation: Employees generally do not
accrue vacation while on military leave
unless the employer has agreed otherwise. However, if vacation accrual is tied
to length of service, the period of military
leave is included in the service period
calculation as if the employee had been
continuously employed.
Family and Medical Leave: An employer
must include the hours an employee
would have worked if not on active duty
as time worked in determining eligibility
under state and federal medical leave
laws.
Retirement Plans: Employers must count
the period of military duty as covered
service for plan eligibility, vesting, and
benefit accrual purposes. In addition,
employees are entitled to make up their
contributions upon reemployment during
the lesser of three times the military
service period or five years. The employer
must then make the corresponding contribution it would have made. To calculate
employee and employer contributions, an
employer must use the rate of compensation the employee would have received
but for the military duty or, if that
amount is not reasonably certain, the
average rate of compensation for the
12-month period immediately preceding
military service.
Even where employees
returning from military leave
were previously employed
at will, state and federal law
generally require “cause” for
termination for a specified
period after reemployment.
Conclusion
Ensuring compliance with the requirements of USERRA and corresponding
state law not only is legally required, but
also is important to show our appreciation
to workers returning from military service.
For more information regarding compliance with these laws, contact your legal
counsel. General information can also be
obtained from websites such as the U.S.
Department of Labor website,
www.dol.gov. ■
Employment & Labor Law Department
Seattle
spickett@prestongates.com
Page 7
IN
THE
NEWS
Items
Of Interest To Employers
By Mark Tuvim
Department of Labor Proposes Revisions for
Overtime Pay Exemptions under the FLSA
For the first time in a half century, the U.S.
Department of Labor (DOL) has proposed substantial revisions to the regulations that exempt certain
administrative, executive, professional, computer
professional, and outside sales workers from the
overtime requirements of the Fair Labor Standards
Act (FLSA). These sweeping proposals would
change the “duties,” “salary basis,” and minimum salary requirements under these exemptions.
The primary changes that DOL has proposed can be summarized
as follows:
• The proposed regulations would increase the minimum salary
requirement from $250 per week for the relevant short tests to
$425 per week (or $22,100 per year).
• The proposed regulations would eliminate the long and short tests
for the executive, administrative, and executive exemptions and
replace them with a single standard for each exemption.
• The executive exemption would still require a primary duty to
manage the enterprise (or recognized department or subdivision
thereof) and direction of two or more employees, but the proposed
regulations would add a third requirement - that the worker have
the authority to hire or fire employees (or effectively recommend
these and other management decisions). The proposed regulations
would also expand the executive exemption to include workers in
sole charge of an establishment, and create a new exemption for a
business owner who owns at least 20% of the business in question
regardless of salary level or duties.
• The administrative exemption would still require a primary duty
to perform office or non-manual work directly related to the
management policies or general business operations of the
employer or its customer. However, the requirement that the
worker customarily exercise discretion and independent judgment
would be eliminated. In its place, DOL has proposed a requirement
that the employee hold a “position of responsibility,” which
requires work of substantial importance or requiring a high level of
skill or training.
• The professional exemption would still require a primary duty of
performing work: (1) requiring advanced knowledge acquired by
intellectual instruction and/or work experience, or (2) that is
original and creative in a recognized field of artistic endeavor. The
proposed regulations would eliminate the requirement that
professional workers “consistently exercise discretion and
judgment,” but would add a requirement that their duties involve
office or non-manual work.
• The proposed regulations for the outside salesperson exemption
would eliminate the 20% limit on non-exempt work and substitute
a primary duty test.
• The proposed regulations would create a new exemption for
employees who perform office or non-manual work, earn over
$65,000 per year, and perform at least one of the defined
administrative, executive, or professional duties.
• The proposed regulations would alter the salary basis requirement
to permit deductions from an exempt employee’s salary for full-day
absences taken for disciplinary reasons. Partial-day deductions
would still be prohibited.
A complete copy of the proposed regulations and DOL’s commentary on the proposal can be obtained at www.dol.gov. DOL has invited feedback and proposed examples that can be inserted into the
regulations. Comments on the proposed regulations will be accepted
through June 30, 2003.
We will provide a comprehensive analysis of the new regulations
after they have been issued in final form. Employers should also be
aware that state laws generally impose exemption requirements that
will not automatically change when the federal standards change,
and must be considered in any analysis of whether a worker is
exempt from overtime.
U.S. Supreme Court Endorses EEOC Standard to Determine
Employment Status for Purposes of Enforcing Discrimination Laws
In Clackamas Gastroenterology Associates, P.C. v. Wells, the U.S.
Supreme Court confronted the issue of whether four physicians
actively involved in a professional corporation’s medical practice as
shareholders and directors should be counted as “employees” of the
corporation for purposes of determining if the clinic met the fifteenemployee minimum for coverage under the Americans with
Disabilities Act.
The Court concluded that the element of “control” - the standard
advocated by the Equal Employment Opportunity Commission
(EEOC) - and not the entity’s organizational structure should be the
principal guidepost to determine “whether the shareholder-directors
operate independently and manage the business or instead are subject to the firm’s control” as employees. The Court cited with
approval specific EEOC guidelines that address whether individuals
such as partners, officers, members of boards of directors, and
major shareholders actually participate in managing the organization.
Among guidelines cited by the Court:
• Whether the organization can hire or fire the individual or set the
rules and regulations of the individual’s work
• Whether and, if so, to what extent the organization supervises the
individual’s work
• Whether the individual reports to someone higher in the
organization
• Whether and, if so, to what extent the individual is able to
influence the organization
• Whether the parties intended that the individual be an employee,
as expressed in written agreements or contracts
• Whether the individual shares in the profits, losses, and liabilities
of the organization
The Court’s endorsement of the EEOC’s standard should assist
courts and organizations to assess employment status for purposes
of determining the coverage of federal anti-discrimination statutes.
Smaller organizations whose shareholder-directors or partners exercise actual management responsibilities may now more readily satisfy the small-employer exemption. However, the Court’s emphasis on
“control” may broaden the reach of these statutes to protect as
“employees” those individuals whose lofty titles may not comport
with their actual management duties. In addition, employers should
remain aware of state laws that may apply to organizations smaller
than those subject to federal law and define differently the
individuals subject to their protections. ■
Employment & Labor Law Department
Seattle & Orange County
markt@prestongates.com
925 Fourth Avenue, Suite 2900
Seattle, WA 98104-1158
925 Fourth Avenue
Suite 2900
Seattle, WA 98104-1158
Tel: (206) 623-7580
Fax: (206) 623-7022
www.prestongates.com
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or have a suggestion for a future article, please contact the authors, Update editor
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chair Steve Peltin at stevep@prestongates.com or (206) 623-7580.
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DISCLAIMER
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should confer with appropriate legal counsel on the application of the law to their own situations. Entire contents copyright
© 2003 by Preston Gates & Ellis LLP. Reproduction of this newsletter in whole or in part without written permission is prohibited.
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