Title VII

Although federal law does not directly prohibit discrimination based upon sexual orientation, a recent decision from the Southern District Court of Florida illustrates how an employee may be able to state a claim under Title VII for discrimination based upon sexual orientation if the alleged discriminatory conduct was based upon the employee’s failure to conform to gender stereotypes.

In Anderson v. Napolitano, Case No. 09-60744 (S.D.Fla. Feb. 8, 2010), the Plaintiff, a former Federal Air Marshal, filed suit against the Secretary of the Department of Homeland Security alleging, among other things, sex discrimination on the basis of gender stereotyping in violation of Title VII of the Civil Rights Act of 1964.  The Plaintiff claimed that shortly after his transfer to the newly established Miami Field Office in late 2001, he began to suffer discrimination and harassment due to his sexual orientation.  In support, Plaintiff provided several examples of alleged harassment, including:

(1) that the acting-Special Agent in Charge publicly referred to him as a “fag” and encouraged coworkers not to associate with him;
(2) that “someone in the Miami Field Office had written the word `Fag’ on a grease board next to Anderson’s office”; and
(3) that on one occasion, the Special Agent in Charge denounced the Plaintiff for bringing to his attention a subordinate employees’ complaints of racial discrimination and then told the Plaintiff “It’s my perception, and I could be wrong — that because you’re gay you’re super sensitive to issues of discrimination.”  When the Plaintiff denied this characterization, he was told “You’re too gay. You’re too flamboyant. You’re too `in your face’ around other [Federal Air Marshals].”

The employer moved for summary judgment, claiming that the Plaintiff failed to state a claim under Title VII because these allegations related to harassment based upon sexual orientation, not harassment based upon sexual stereotyping.  The Court agreed, and granted summary judgment to the employer.  In doing so, the Court distinguished the facts of this case from another case recently decided where a plaintiff was able to successfully state a claim for gender discrimination, because the alleged discrimination was based upon the plaintiff’s “effeminate” mannerisms (including his high voice, he walked in an feminine manner, “did not curse and was very well-groomed,” and crossed his legs like a woman).  In contrast, the discrimination alleged by Plaintiff in this action did not relate to the Plaintiff’s failure to conform to gender stereotypes, but rather, his sexual orientation.  For example, the allegation that the Plaintiff’s supervisor referred to him as a “fag” and told him he was “too flamboyant” was clearly directed to the Plaintiff’s behavior as a gay man, not behavior associated with a woman.

Notwithstanding the Court’s decision, employers must recognize (1) that certain forms of discrimination based upon sexual orientation may also constitute discrimination based upon gender stereotyping.  In this case, slightly different facts or testimony could have resulted in a different result and the employer facing an expensive trial; and (2) although discrimination based upon sexual orientation is not currently prohibited by federal law (although Employment Non-Discrimination Act (“ENDA”) legislation which would prohibit such discrimination has continually been proposed in the U.S. Congress since 1994), state and/or local laws may prohibit such discrimination.  For example, although not prohibited by Florida law, discrimination based upon sexual orientation is prohibited by Illinois law.

Hiring Interns

The current economic situation in this country has led to an increase in the use of unpaid internships by companies, especially unpaid internships for young people who have been hit particularly hard by unemployment.  However, employers need to be extra careful in this regard since the U.S. Department of Labor (“DOL”) recently announced that it is cracking down on what it claims is the excessive and improper use of unpaid interns by companies for free labor.  Specifically, the DOL recently proclaimed that “[i]f you’re a for-profit employer or you want to pursue an internship with a for-profit employer, there aren’t going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law.”

For an unpaid internship to be lawful under the Fair Labor Standards Act (“FLSA”), the intern must be classified as a “trainee” rather than an employee.  The DOL has developed the below six factors to evaluate whether a worker is a trainee or an employee for purposes of the FLSA:

1. The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or academic educational instruction;
2. The training is for the benefit of the trainees;
3. The trainees do not displace regular employees, but work under their close observation;
4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded;
5. The trainees are not necessarily entitled to a job at the conclusion of the training period; and
6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.

If all the above factors are satisfied, the worker will be deemed a “trainee,” not an employee, and the worker can lawfully be unpaid under the FLSA.  Put another way, unless all the above factors are met, the worker will be classified as an employee entitled to, among other things, minimum wage and overtime.  A misclassification of a worker as a “trainee” could also obligate the company to pay workers’ compensation and unemployment insurance benefits, as well as subject the company to federal and state discrimination laws, tax liability, fines and significant legal bills.

In light of the foregoing, employers must carefully tailor any existing or future unpaid internship programs to make sure that they comply with the above factors in order to avoid liability.  Should you have any questions about this issue, please contact E. Jason Tremblay at Arnstein & Lehr LLP.

HIRE Act Payroll Tax Exemption

In conjunction with the recently-passed Hiring Incentives to Restore Employment (“HIRE”) Act, the Internal Revenue Service (“IRS”) just issued a form Employee Affidavit that employers can use to claim a payroll tax exemption.  You can view and print out the form affidavit at: http://www.irs.gov/pub/irs-pdf/fw11.pdf

As we detailed in our earlier posting on the HIRE Act, the new law contains two significant tax breaks that are available to most private employers.  First, it exempts an employer from its obligation to match the Social Security portion of FICA tax in 2010 for any unrelated employee, hired after February 3, 2010 and before January 1, 2011, who (1) swears under oath that he or she has not been employed for more than 40 hours during the 60-day period ending on the date the employee begins his or her employment with the employer, and (2) was not hired to replace another employee, except an employee who voluntarily resigned or was terminated for cause.  In order to establish that an employee’s hiring meets the first of those two elements, employers can have the qualified employee sign the form affidavit, which is also known as a Form W-11.  Second, the HIRE Act also offers a tax credit to companies that keep a newly-hired qualified employee for at least 52 consecutive weeks, so long as the employee’s wages during the last 26 weeks of that period are at least 80 percent of his or her wages during the first 26 weeks of the period.  The tax credit is equal to the lesser of $1,000 or 6.2 percent of the employee’s wages during the 52-week period.

Should you have any questions about the HIRE Act or ascertaining its applicability to newly-hired employees, please contact your Arnstein & Lehr LLP attorney.

The Illinois Appellate Court for the First District ruling

In order to ensure that an employer gets the full benefit of the restrictive time period in its non-competition, non-disclosure or non-solicitation agreements, employers in Illinois should make sure that such agreements contain “extension clauses.”  An extension clause states that the time period of the restrictive covenant will not start or will be extended for the period in which the ex-employee was breaching in the event that an employer does not discover the former employee’s breach until near the end of the restrictive time period.

The Illinois Appellate Court for the First District (which covers the Chicago metropolitan area) recently addressed the issue of extension clauses in Citadel Investment Group, LLC v. Teza Technologies LLC, et al. In that case, Citadel sought to enforce non-competition agreements that did not contain extension clauses against two former employees who had agreed to refrain from competing against Citadel for nine months following the end of their employment.  Several months into the nine month non-competition period, Citadel discovered that its former employees were competing against it and filed an emergency motion for a preliminary injunction.  The trial court enjoined the employees from engaging in any competitive activity as defined by the non-competition agreements, but only for the few months remaining on the nine month restrictive time period set forth in the non-competition agreements.

On appeal, Citadel argued that its former employees should have been enjoined for a full nine month period as contemplated under the agreement, despite the lack of an extension clause.  However, the First District Appellate Court affirmed because the plain language of Citadel’s restrictive covenants ended the restrictions nine months after termination of employment.  Because the agreements did not contain any provision for allowing for an extension of the restrictive period, the First District refused to read such a provision into the agreements.

This recent decision is in accord with decisions from the Second and Fourth Illinois Appellate Courts.  Employers in Illinois should review their existing non-competition, non-disclosure or non-solicitation agreements to see if they contain an extension clause.  If any of these agreements do not contain extension clauses, Illinois employers should consider revising these agreements to include extension clauses to ensure that in Illinois they get the full benefit of the restrictive time period in these agreements.  (Remember: revising the non-competes of existing employees may require some additional consideration other than merely allowing them to keep their jobs).  Otherwise, by the time that employers realize that ex-employees are breaching their non-competes and run into court, the restrictive periods may be expiring or have expired.

Finally, this decision is applicable only to agreements that are governed by Illinois law.  Employers should be mindful to not use the “one agreement fits all approach” and automatically assume that extension clauses will get the same treatment under the laws of other states.  The law of the particular state at issue should be looked at to see if the use of extension clauses will be beneficial to employers.

Illinois General Assembly considers Illinois Not to Compete Act

Illinois businesses should be aware that Illinois House Bill 4923 would radically alter the law regarding non-competition agreements in Illinois by creating the Illinois Not to Compete Act.  This Act would restrict the enforceability of non-competition agreements in several key respects and create numerous rebuttable presumptions in favor of employees that would make it more difficult for employers to enforce non-competition agreements in Illinois.

The Act would limit covenants not to compete to only “key” employees or independent contractors who either are informed of the non-compete two weeks before their first day of employment or who enter into a non-compete as a result of a promotion or material increase in compensation or bonus.  Further, while Illinois courts have upheld covenants not to compete that are up to three years in duration, this Act would create rebuttal preemptions that any covenant not to compete in excess of one year is void and that any geographic or service area that the contractor did not work in during the year prior to termination of employment is void.  In addition, while the Act would allow courts to modify the terms of overbroad non-competes, courts could not award any damages incurred by employers prior to the date of modification.  Finally if the non-compete contains an attorneys fee provision in favor of the employer, the Act would automatically make the attorneys fee provision mutual and allow courts the discretion to award attorneys’ fees to a prevailing employee in declaratory judgment actions.

A complete copy of House Bill 4923 can be found here.

U.S. Senate passes HIRE Act

News reports say that House Speaker Nancy Pelosi expects the House will soon consider the Senate-passed $15 billion jobs bill (H.R. 2847), known as the Hiring Incentives to Restore Employment (HIRE) Act, that passed the Senate by a 70-28 vote on Feb. 24.  The bill passed by the Senate and presently before the House includes tax incentives for businesses to hire unemployed workers in 2010, an extension of federal aid for highway programs, an extension of a small business expensing tax break, and the establishment of a Build America Bonds program.

The tax incentives for hiring in the proposal presently before the House includes a new program that would exempt employers that hire unemployed workers from paying Social Security taxes on the new hires for the remainder of 2010. The proposal would also offer employers an additional $1,000 tax credit for any new hire who stays on the job for one year.

The HIRE Act significantly pared down the House’s original bill that it passed Dec. 16 by a narrow 217-212 vote.  The original House bill was a much larger $150 billion package that also included six-month extensions of the emergency unemployment insurance benefits program and the COBRA subsidies to help those who have lost their jobs to continue their health insurance.

Short extensions of unemployment benefits (until April 5) and COBRA subsidies (for those involuntarily terminated between March 1 and March 31) were signed into law on March 2.

Even if the HIRE Act is enacted in its present form (and odds are that it will not be since 3 caucuses within the Democrats in the House are already on record that they have problems with the bill), it is expected to create a quarter of a million new jobs.  That is not much when compared with the 8 million jobs lost in the US since 2007, but proponents are calling the HIRE Act a “good first step.”

Employment Contact being signed by the employee

The legal landscape regarding the use of independent contractors has dramatically changed over the past several years.  For decades, employers’ use of independent contractors was not only rarely challenged, but it was also a way they could save significantly on labor and other costs associated with hiring employees.  In this tough economy, employers may be tempted to use the services of independent contractors instead of employees in order to reduce their bottom-line costs.  However, now more than ever, employers need to be extra careful in this area since both state and federal agencies are cracking down on what they believe is the widespread and improper use of independent contractors.

By way of example, the U.S. Department of Labor (DOL) has recently made the misclassification of workers one of its top priorities.  President Obama’s proposed 2011 budget for the DOL includes an additional $25 Million for what he characterizes as the “Misclassification Initiative.”  In this regard, it is expected that the DOL will hire an additional 100 enforcement personnel to investigate claims of misclassifying workers as independent contractors.

The Internal Revenue Service is also taking the misclassification of employees seriously.  The U.S. Government Accountability Office (GAO) recently concluded that employee misclassification is a “significant problem” because it reduces tax revenues flowing to the federal government.  In fact, the GAO estimates that over $7 Billion in payroll taxes will be lost over the next ten years.  Needless to say, the IRS does not take this loss in revenue lightly and has notified the public that, commencing in 2010, it will increase its employer tax audits with the specific purpose of determining whether employers are misclassifying workers as independent contractors.

States around the country have also seen this as a significant issue.  Illinois, New York, Maryland, Colorado and Delaware, to name a few, have either increased penalties for improperly classifying workers as independent contractors or have passed laws specifically designed to penalize employers for misclassifying workers.  There has even been legislation pending in Congress, which was sponsored a former Illinois Senator named Barack Obama, called the Independent Contractors Proper Classification Act, that would restrict an employer’s ability to classify a worker as an independent contractor.  Specifically, it would grant workers the right to petition the Secretary of Treasury for a determination of their status as employees or independent contractors and obligate employers to provide notice to workers of their right to seek a determination.  Simply put, the issue of misclassifying workers is not going away anytime soon.

Unfortunately for employers, there is no single test to ascertain whether a worker should be classified as an employee or an independent contractor.  And, to make matters worse, different state and federal agencies utilize different tests and standards in this regard.  However, common scenarios that raise red flags to governmental agencies are:

• Individuals classified as independent contractors who perform the same kind of work or duties that employees also perform for the business;
• Individuals classified as independent contractors who perform work that  is essential to the services or work of the business;
• Arrangement where the independent contractor either dedicates all his or her time to the business or is restricted from performing services for other businesses;
• Individuals designated as independent contractors who perform work for which other businesses in the same industry use employees.

In light of the foregoing, all employers must properly evaluate whether any current workers are appropriately classified as independent contractors and, if necessary, change the classification to comply with current federal and state law.  For a more detailed discussion of the benefits, risks and other issues related to the use of independent contractors, please contact E. Jason Tremblay and/or request a copy of the Employment Law Toolkit that he recently authored.

ENDA

The Employment Non-Discrimination Act (ENDA) would create federal protections against workplace discrimination based on sexual orientation and gender identity.  The first version of the bill was introduced in 1994.  The latest version, introduced in June 2009, is currently in committee. The House Education and Labor Committee held a full committee hearing on the bill in September, and the Senate Committee on Health, Education, Labor and Pensions (HELP) held a hearing on ENDA in November.

The Act, as proposed, would make it illegal to fire, refuse to hire, refuse to promote, or refuse to compensate an employee based on sexual orientation or gender identity. If passed, it would not apply to the military or to religious organizations and would exempt businesses with fewer than 15 employees. Further, the law doesn’t require employers to provide benefits to the same-sex partners of their workers. And law would not allow a “disparate impact” claim like the one available under Title VII of the Civil Rights Act of 1964 – which means an employer wouldn’t have to justify a neutral practice, even though it might have a statistically disparate impact on individuals because of their sexual orientation or gender identity.

In 29 states, employees can still be fired because of their sexual orientation, and discrimination against transgender people is legal in 38 states.  Illinois law provides protection for both sexual orientation and gender identity discrimination.  Florida state law provides none.

According to the Human Rights Campaign, 87 percent of Fortune 500 companies have adopted polices barring discrimination based on sexual orientation.

The Obama Administration, in tandem with the President’s support for the bill, recently added language to the federal jobs Web site that explicitly bans gender identity-based employment discrimination under the federal Equal Employment Opportunity (EEO) policy. This is the first time that employment discrimination on the basis of gender identity has been explicitly banned by the federal government.

A link to the new policy can be found here.

Click here for a summary of LGBT laws by state

On December 19, 2009, President Obama signed into law the Fiscal Year 2010 Department of Defense Appropriations Act. In this $63 billion spending measure is a provision, known as the “Franken Amendment” because it was originally introduced by Senator Al Franken of Minnesota, that prohibits federal defense contractors and subcontractors with contracts in excess of $1 million from enforcing existing employment arbitration agreements or entering into new ones with their employees or independent contractors.

Under Section 8816 of the Act, in order to receive funds appropriated under the Defense Appropriations Act on contracts in excess of $1,000,000, a defense contractor or sub-contractor must agree not to enter into or take any action to enforce any agreement that requires, as a “condition of employment,” that an employee or independent contractor agree to resolve through arbitration any claim under Title VII of the Civil Rights Act of 1964 (e.g., claims of race, sex, national origin and religious discrimination, harassment and retaliation), or any tort claim related to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention.

This anti-arbitration provision currently applies only to large defense contractors and sub-contractors and it only precludes arbitration of employment claims, but not others.  It is unclear if the Act also precludes the arbitration of common law claims unrelated to sexual harassment or sexual assault, state law employment claims, or claims under other federal employment statutes besides Title VII, such as the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Fair Labor Standards Act, or the Family Medical Leave Act.

It is unclear whether failing to comply with the Act will merely invalidate the arbitration agreement, jeopardize the defense contract, or both.  The Franken Amendment is the first time Congress has ever precluded any employers from using mandatory pre-dispute arbitration agreements.

A More Comprehensive Anti-Arbitration Bill Is Pending In Congress.

Although the anti-arbitration provision of the Defense Appropriations Act affects only large defense contractors and sub-contractors, there is a bill pending in Congress that could prohibit virtually all U.S. companies from entering into or enforcing pre-dispute agreements to arbitrate employment, civil rights and consumer disputes. Reintroduced in early 2009, the Arbitration Fairness Act of 2009 would bar all pre-dispute arbitration clauses in employment contracts (except collective bargaining agreements), consumer transactions, franchise agreements, and agreements to arbitrate disputes arising under any civil rights statute.  If passed, the Arbitration Fairness Act would force most employment and consumer disputes currently resolved by private arbitration into the courts.  The Arbitration Fairness Act remains in committee for now, but it is expected that Congress will consider the bill later this year once health care reform legislation is resolved.

Where Is Employment Arbitration Headed?

These congressional initiatives against employment arbitration come at a time of turmoil in this area of the law.  Concerns about the unfairness of some companies’ arbitration procedures have caused private arbitration organizations (such as the National Arbitration Forum, JAMS and the American Arbitration Association) to change their rules or stop conducting certain kinds of arbitrations.  State courts and legislatures are often hostile to arbitration, but the U.S. Supreme Court and most federal courts have endorsed arbitration as a quicker, cheaper, and less formal alternative to litigation.  However, this Congress has shown little hesitancy in legislatively overruling other Supreme Court precedent.  Only one thing is clear:  the future of employment arbitration is up for grabs.

Please tell us what you think:  Is this the beginning of the end of employment arbitration?

Employment Arbitration: Law and Practice

For more comprehensive information and guidance on employment arbitration, see Employment Arbitration: Law and Practice by Arnstein & Lehr partner and Employment Law Practice Group chair Paul Starkman , Gail Golman Holtzman, Donald J. Spero.

Social Media in the Workplace

As an attorney working with companies whose employees use social media on a daily basis I have observed that companies often react after problems occur instead of dealing with new technology proactively through sensible employee policies.  Whether employees are twittering, texting, facebooking, or blogging, employee handbooks may now need social media guidelines. Employees are likely using social media, during and after work.  The risks and legal issues associated with such use, while still developing, are not to be ignored when revising employee handbooks in order to keep up with the ever-changing social media landscape. Potential legal issues abound, and employers must set clear guidelines for employees in order to avoid potential problems.

Some areas to address are:

• The type of information employees can share and what should remain confidential
• Personal use of social media during working hours/on company computers or cell phones
• Guidance on using social media appropriately in career development and marketing
• Guidelines on blogging and social networking about the workplace

For some more thought provoking reading on social media in the workplace take a look at Lawsuits & PR Nightmares: Why Employees Need Social Media Guidelines.