REMINDER: Chicago Employers Must Complete Sexual Harassment Prevention and Bystander Training by June 30, 2023

By Steven J. Pearlman, Alexandra Oxyer, Edward Young and Dakota D. Treece on March 22, 2023 Posted in Discrimination, Harassment and Retaliation

On April 27,2022, the Chicago City Council passed SO2022-665, which broadened the Chicago Human Rights Ordinance (the “Ordinance”) and imposed new requirements on Chicago employers with respect to preventing sexual harassment in the workplace. Pursuant to the Ordinance, all employees working in Chicago must participate in sexual harassment prevention training and bystander training annually.

Specifically, affected employers are now required to provide a minimum of one hour of sexual harassment prevention and bystander training annually to all employees, while managers and supervisors must participate in a minimum of two hours of sexual harassment prevention training annually. The first round of this required training must be completed by June 30, 2023.

Additional details on the requirements of the trainings can be found in our original post on this topic (here) as well as the Chicago Commission on Human Relations website, which also includes template bystander training modules (the templates are intended to be expanded and tailored by employers to meet the needs of their specific workplace).

Illinois Appears Poised to Require Disclosure of Pay Scales in Job Postings

By Steven J. Pearlman and Edward Young on March 21, 2023 Posted in Workplace Policies and Procedures

HB3129 (the “Bill”), which was introduced in the Illinois House of Representatives on February 16, 2013, and passed by the Labor & Commerce Committee on February 28, 2023, would require Illinois employers to include pay scale information in job postings—or face financial consequences. The Bill defines “pay scale” to mean the salary or hourly wage range that the employer reasonably expects to pay for the position. The Bill has garnered significant support, including adding 10 Democrat sponsors, as it steadily marches towards a final vote in the Illinois House.

More specifically, the Bill would amend the Illinois Equal Pay Act to make it unlawful for an employer with 15 or more employees to fail to include the pay scale for a position in any job posting. If an employer with 15 or more employees utilizes a third party to announce, post, publish or otherwise make known a job posting, the employer would need to provide the pay scale to the third party, and the third party, in turn, would be required to include the pay scale in the job posting.

Employers that do not comply with the Bill would risk significant financial consequences. As originally drafted, aggrieved employees could bring a civil action to recover actual damages, special damages not to exceed $10,000, injunctive relief and reasonable attorneys’ fees. Employees would have up to 5 years to bring a cause of action. In addition, civil penalties for violating the Bill would vary depending on the size of the employer and the number of offenses at issue. However, employers with 100 or more employees would be subject to a fine of up to $10,000 for the first violation.

An amendment to the Bill, which was filed on March 21, 2023, would change the Bill in three significant ways:

It would expand the Bill to require Illinois employers to include both “pay scale and benefits” information in the job posting. “Pay scale and benefits” is defined to mean “the wage or salary, or the wage or salary range, and a general description of the benefits and other compensation the employer reasonable expects to offer for the position.”
It would require employers to announce, post, or otherwise make known all opportunities for promotion to all current employees no later than the same calendar day that the employer makes an external job posting for the position.
It would significantly reduce appliable civil penalties. In particular, it would provide employers up to 7 days to cure a violation upon notification or face a civil penalty of $100 per day for each day the violation continues after the notice period.

If the Bill becomes law, Illinois would join a growing number of states that require employers to publish wage information in a job posting, including California, Colorado and New York (effective September 14, 2023). Several other states require disclosure of wage information either upon an applicant’s request or during a specified point in the interview process, including Connecticut, Maryland, Nevada, Rhode Island and Washington. Numerous cities, including New York City, have their own salary disclosure laws.

We will continue to monitor progress on the Bill and any amendments. In addition, employers should review their job posting practices to ensure compliance with the growing number of state and local jurisdictions that require the disclosure of salary information.

Reminder – NYC Employers: “Automated Employment Decision Tools Law” Will Be Enforced Starting April 15

By Joseph O’Keefe and Alisha Bruce on March 17, 2023 Posted in Workplace Policies and Procedures

On Friday, September 23^rd, the New York City Department of Consumer and Worker Protection (“DCWP”) issued a Notice of Public Hearing and Opportunity to Comment on Proposed Rules related to Local Law 144 (“the Law”), which regulates the use of “automated employment decision tools” by employers. The law was originally set to go into effect January 1, 2023.

As previously reported, in October 2022, the DCWP announced that the law would not be enforced until April 15, 2023. In addition to the other obligations under the law, which are discussed in detail here and here, it is unlawful for an employer or an employment agency to use an automated employment decision tool to screen a candidate or employee for an employment decision unless: (i) the tool has been the subject of a bias audit conducted no more than one year prior to the use of such tool; and (ii) a summary of the results of the most recent bias audit has been made publicly available on the employer’s website prior to the use of such tool.

Covered employers should immediately determine whether they are using any automated employment decision tools, as defined in the new law, and take any steps needed to ensure compliance.

Tags: automated employment decision tools, dwcp

Missed Payroll in the Wake of Bank Collapse: Implications and Strategies

By Allan Bloom, Philippe A. Lebel, Katrina McCann, David Gobel and Jennifer McGrew on March 14, 2023 Posted in FLSA, Strategic Corporate Planning, Wage and Hour

In the wake of the recent news of bank failures, businesses—and their investors—are rightly concerned about the implications of a missed or delayed payroll. Let’s look at those implications, and strategies for minimizing risk.

Obligation to Make Payroll

Under federal and most state laws, employers have both timing-of-pay and frequency-of-pay obligations. Under most of these laws, wages earned in a particular workweek must be paid on the regular pay day for the period in which such workweek ends. Under some of these laws, payment of certain kinds of wages (e.g., overtime wages) can be delayed until the following regularly scheduled pay day, but only if the wages cannot be computed in time with reasonable diligence. Here, however, the issue is likely not one of computation—but of availability of funds.

Consequences

Employees who do not receive timely payment of wages can sue, and can seek not only their unpaid wages, but liquidated damages equal to 100% (and in certain states 200%) of the amount of wages not timely paid. In many jurisdictions, civil penalties and attorneys’ fees are also available to prevailing plaintiffs in wage lawsuits. Unfortunately, the wage laws do not provide a defense based on lost access to payroll funds. In addition, while an employer may have rights or claims vis-a-vis their banks or insurers, the employer is the entity with responsibility for compliance with wage and hour laws, and third-party liability won’t absolve the employer of its responsibility to make timely payroll.

Investor and Individual Liability

To what extent can an investor (e.g., a private equity or venture firm) or an individual (e.g., a director or officer) be liable to employees for unpaid or late-paid wages? The short answer is it depends. Employees and plaintiffs’ lawyers may pursue different theories of liability depending on the jurisdiction, and most depend on an analysis of multiple considerations.

Federal Law

Under the Fair Labor Standards Act (“FLSA”), an employer is defined as “any person acting directly or indirectly in the interest of an employer in relation to an employee.” It’s possible for more than one entity or individual to be an “employer” of the same individuals under the FLSA, and all such “employers” are jointly and severally liable for wages—meaning any of them can be sued for the full amount of unpaid wages. To determine whether an individual or third party is an “employer” for purposes of FLSA liability, most courts apply a version of the “economic reality” test that considers whether the individual or third party (1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and/or (4) maintained employment records. None of the factors individually is dispositive, and the inquiry is fact specific.

The FLSA’s definition of a “person” includes an individual, partnership, association, corporation, business trust, legal representative, or any organized group of persons. As such, a corporation, partnership, or limited liability company could be held liable for unpaid or delayed wages if it otherwise qualified as an “employer” under the FLSA.

While individual officers and directors can (depending on the facts) be deemed “employers” under the FLSA, many courts have held that individuals who are not directly involved in employment decisions and/or who do not have economic control over employees are not liable under the FLSA. By contrast, courts have found that individual defendants who are directly involved in employment decisions and/or who have economic control over the at-issue employees may be liable as “employers.”

State Liability

As with all wage and hour issues, state laws may require a different analysis of individual or third-party liability. For example, under the Wage Orders of California’s Industrial Welfare Commission, an individual or third party may be deemed an employer—or joint employer—if they “directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.” For a discussion on the consequences of a missed payroll under California law, see our blog here.

Separate and apart from whether individuals and third-parties can be held directly liable for wages as employers or joint employers, some states have statutes that allow employees to seek relief against shareholders. For example, under Section 630 of New York’s Business Corporations Law, the top ten shareholders of a corporation (determined based on the fair value of their respective beneficial interests) are jointly and severally liable for amounts owed in respect of unpaid services performed in New York, including:

wages;
vacation, holiday, and severance pay;
employer contributions to or payments of insurance or welfare benefits;
employer contributions to pension or annuity funds; and
other amounts due and payable for services rendered by the employee.

Because liability is joint and several, employees can elect to recover from only one, a few or all of the top ten shareholders, though shareholders that pay more than their pro rata share are entitled to contribution from the other shareholders.

Under the New York law, to seek relief from the top ten shareholders, plaintiffs must:

first give written notice to the applicable shareholder(s) that they intend to hold such shareholder(s) liable within 180 days of the termination of the services performed in New York (or, if within such time period the employee demands an inspection of the corporation’s records to determine the top ten shareholders, within 60 days of being granted such inspection);
seek to recover the amounts owed from the corporation and obtain a judgment against the corporation that remains unsatisfied prior to commencing an action against the shareholder(s); and
commence such action within 90 days after the judgment against the corporation is unsatisfied.

The requirement that the employee first obtain a judgment against the corporation is of particular importance because it has the effect of limiting the potential for shareholder liability to situations in which the corporation is insolvent or bankrupt. In all other contexts, the corporation should generally be able to satisfy the claim directly without the need to shift the liability to its shareholders. Similar relief is available against the ten members of a limited liability company with the largest percentage ownership interest, under Section 609 of New York’s Limited Liability Company Law.

California also has unique laws that could implicate a company’s directors and officers. For example, under Section 558.1 of the California Labor Code, an “owner, director, officer, or managing agent” of an employer may be held personally liable for violating or causing a violation of any provision of the Labor Code relating to minimum wages or hours and days of work in any Wage Order of the Industrial Welfare Commission. California courts have held that the key inquiry for liability under Section 558.1 is whether the individual had “personal involvement” in violating a labor statute or causing the violation. In 2021, the Court of Appeal held that a company’s owner was not liable because her involvement in the operation and management of the business was “extremely limited” and “she did not participate in the day-to-day operational/management decisions of the company.”

Employee Benefits Considerations

Missed payroll can impact employee benefit plans. First, employee contributions (e.g., to health or 401(k) plans) will need to resume when payroll resumes. Employees can miss out on 401(k) and similar deferral opportunities if payroll does not resume by year-end. Second, employers that are unable to make matching or other employer contributions should consider whether the plan can be amended to cut off the employer’s obligation. Third, employers should contact their insurers to ensure there are no gaps in coverage. If employers are resorting to manual adjustments to payroll or moving to new providers, they should confirm that employee contribution elections are implemented correctly. If any employees’ benefit elections are missed, employers should discuss with counsel the available options to correct the error.

Avoiding Section 409A Issues

If pay is delayed beyond March 15, 2024, employers can be exposed to adverse tax consequences under Section 409A of the Internal Revenue Code. To avoid this tax, the employer will need to make payment as soon as practicable and establish either (a) that it was “administratively impracticable” to make the payment earlier and the impracticability was unforeseeable, or (b) that earlier payment would jeopardize the employer’s ability to continue as a going concern.

Practical Considerations

Employers that no longer have access to their payroll accounts should, of course, be actively seeking alternative sources of funds to make payroll (e.g., from cash reserves in other accounts, credit lines, etc.).

As with so many other workplace issues, early and open communication with impacted employees—combined with frequent updates as to the status of remediation efforts—is a key strategy that can help to create and maintain trust and minimize the risk of legal claims. Employers that have lost access to their payroll accounts and will miss a payroll as a consequence should immediately notify employees of the development and the plan to make payroll on the next possible date. In that communication, the employer should designate a contact person or team to field questions from employees, and that contact person/team should respond to all employee inquiries in real time. Employers should send regular updates to impacted employees (e.g., every 24 hours) as to when they expect to make payroll. Assuring employees that they will be paid notwithstanding the circumstances—and keeping them well-informed as to timing—should help alleviate what is likely the primary concern in most workers’ minds, particularly for those who rely on a predictable payroll to meet their financial obligations.

As with all wage and hour and benefits issues, state law may require a different or more nuanced approach. Employers with multi-state operations must consider both federal and state law in devising a strategy to address a missed payroll.

Proskauer’s Wage and Hour Group is comprised of seasoned litigators who regularly advise the world’s leading companies to help them avoid, minimize, and manage exposure to wage and hour-related risk. Subscribe to our wage and hour blog to stay current on the latest developments.

Tags: Federal, FLSA, minimum wage, wage and hour

New York State Legislators Propose “Wrongful Discharge” Law

By Allan Bloom, Evandro Gigante, Laura Fant and Hannah Morris on March 8, 2023 Posted in Performance Management, Discipline & Termination

A trio of New York State Senators has proposed a bill that would create a cause of action for “wrongful discharge.” If enacted, the “Safeguarding Employees and Accountability for Termination (SEAT) Act” would be codified in a new Article 20-D of the Labor Law and take effect 90 days after being signed into law. The law would effectively do away with the notion of at-will employment within the State of New York.

The SEAT Act would allow employees to sue for “wrongful discharge.” A “discharge” is defined as a constructive discharge and any other termination of employment, which includes “resignation, elimination of the job, failure to recall or rehire and any other cutback in the number of employees for a legitimate business reason.”

A discharge would be only be considered “wrongful” under the proposed bill if:

it is not for “good cause” and the employee has completed a “probationary period” of employment; or
the employer materially violated an express provision of its written personnel policy prior to the discharge and the violation deprived the employee of a “fair and reasonable opportunity” to remain employed.

“Good cause” is defined as “any reasonable job-related grounds” for an employee’s discharge that is based on:

the employee’s failure to satisfactorily perform their job duties;
the employee’s disruption of the employer’s operations, except when engaging in concerted activity;
the employee’s material or repeated violation of an express provision of the employer’s written policies; or
other legitimate business reasons determined by the employer while exercising their reasonable business judgment.

As it relates to the “good cause” definitions, the proposed law states that an employer “has broad discretion when making a decision to discharge any managerial or supervisory employee.”

In connection with these fundamental changes to the law around at-will employment in New York, the new bill includes a number of completely new concepts for New York employers:

Probationary Period

As noted above, most discharges that occur during a probationary period would not be subject to the “good cause” requirement. For employers that do not specify the length of a probationary period prior to or at the time an employee begins work—or for those employers that make clear that there is no probationary period—the SEAT Act would impose a one-month probationary period beginning on the day the employee begins working. Employers are able to extend a probationary period prior to its expiration, but the law caps the total probationary period (inclusive of extensions) at six months. Employers may not extend or restart an employee’s probationary period by discharging the employee during the period and then rehiring them within three months after discharge. In addition, under the proposed law, if an employee takes any leaves of absence during their original (or extended) probationary period, such leave time will not be considered part of the probationary period unless the employer “affirmatively elects” to include such leave time in the probationary period with the “affirmative written consent” of the employee.

Private Right of Action

Under the SEAT Act, claims for wrongful discharge for discharges without “good cause” would be subject to a six-year statute of limitations, beginning on the date of discharge.

However, if an employer maintains certain “written internal procedures” allowing an employee to appeal a discharge within the organizational structure, the employee would need to exhaust those internal procedures prior to filing a lawsuit. An employee’s failure to initiate or exhaust such procedures could be raised by the employer as an affirmative defense. If an employer’s internal procedures are not completed within 90 days from the date an employee initiates them, the employee may proceed with filing an action. The six-year statute of limitations on SEAT Act claims is tolled until an organization’s internal procedures are exhausted.

If an employer maintains such written internal procedures, it must notify the discharged employee of the existence of the procedures “in writing or electronically” within 14 days of the employee’s discharge. The time in which an employee can initiate procedures would run from the date the employer provides such written or electronic notice. An employee would be considered to have received notice if a copy of the internal procedures is sent to the employee’s last-known postal mailing address, or to the employee’s attorney.

Remedies for a Wrongful Discharge

Under the SEAT Act, an employee who is wrongfully discharged may seek lost wages and fringe benefits, with interest, for up to four years from the employee’s date of discharge. The employee would have a duty to mitigate damages, and any lost wages award may be reduced by the employee’s interim (i.e., post-discharge) earnings, including amounts the employee could have earned with “reasonable diligence.” Any “reasonable amounts” the employee spent searching for, obtaining, or relocating for new employment would be deducted from interim earnings for purposes of a damages offset.

Any other “monetary payments, compensation or benefits” the employee received as a result of being wrongfully discharged, such as unemployment compensation and benefits, would also offset any lost wages award.

Exemptions

The following two types of discharge would be exempted under the SEAT Act:

discharges that are subject to any other state or federal statute that provides a procedure or remedy for contesting the dispute, including statutes that prohibit discharge for filing complaints, charges, or claims with administrative bodies, or those that prohibit unlawful discrimination based on protected categories; and
the discharge of an employee covered by a written collective bargaining agreement or a written contract of employment for a specific term.

Choice to Arbitrate

The SEAT Act would provide employers and employees the option to make a written offer to arbitrate a dispute otherwise covered under the law. If a valid offer and acceptance is made, arbitration would be the exclusive remedy and the arbitrator’s award would be final and binding.

The offer to arbitrate must be in writing and must contain the following provisions:

That a neutral arbitrator shall be selected by mutual agreement or, in the absence of agreement, pursuant to Article 75 of the New York Civil Practice Law and Rules (“CPLR”);
That the arbitration be conducted pursuant to the CPLR Article 75; and
That the arbitrator is bound by the SEAT Act (and if a conflict exists between the SEAT Act and the CPLR, the provisions of the SEAT Act would apply).

Under the proposed law, an offer to arbitrate must be made within 60 days after service of a complaint, and may be accepted in writing within 30 days after the date the offer is made. Further, if a discharged employee who made a valid offer to arbitrate that was accepted by the employer prevails in arbitration, they are entitled to the arbitrator’s fee and the employer must pay all costs associated with the arbitration. If, on the other hand, the offer from a discharged employee is rejected by the employer, and the employee prevails in the civil action, the employee is entitled to reasonable attorneys’ fees incurred after the date of the offer to arbitrate.

This subdivision would not apply if the employer already has in place internal arbitration procedures that the employee may use to appeal a discharge.

The Bottom Line

This proposed bill is similar to an ordinance that New York City introduced in December that would significantly limit at-will employment (which we reported on here). The City’s proposal is currently in committee, but has increased to 11 sponsors since its introduction.

The SEAT Act would be groundbreaking legislation if enacted and would have wide-ranging impact on the ability of New York employers to discharge employees. Moreover, an employer’s decision to discharge would also be subject to review by a court or arbitrator. We will continue to monitor the New York State and City proposals and report on their progress.

Tags: for cause termination, new york state, probationary period, wrongful discharge

Applicant Files Class Action Suit Over Alleged AI Tool Discrimination in Hiring

By Joseph O’Keefe, Edward Young and Hannah Morris on March 7, 2023 Posted in Workplace Policies and Procedures

As we have previously reported (here, here and here), there are novel risks associated with employer use of AI tools in the workplace. While such tools have caught the attention of the EEOC and state and local legislatures, we have yet to see a proliferation of litigation in this area. However, that may soon be changing. On February 21, 2023, a class action lawsuit was filed against Workday, Inc. (“Workday”) in the Northern District Court of California, alleging that the company engaged in illegal race, age, and disability discrimination by offering its customers applicant-screening tools that use biased AI algorithms.

The lead plaintiff, Derek Mobley, an African American male over 40 who suffers from anxiety and depression, applied for 80-100 jobs on Workday since 2018 and was denied employment from each one, despite holding a bachelor’s and associate’s degree. Mobley seeks to represent a class of all current or former applicants since June 3, 2019, that are African American, over the age of 40, or disabled and that have not been “referred and/or permanently hired” as a result of Workday’s alleged discriminatory AI practices.

According to the complaint, Workday provides screening tools to its customers, which allows them to use “discriminatory and subjective judgments” when evaluating applicants, and even allows for “preselection” of applicants not within certain protected categories. Mobley alleges that the administration and dissemination of this screening tool constituted a “pattern or practice” of discrimination and that this conduct amounted to intentional and disparate impact discrimination.

The putative class seeks a declaratory judgment that the practices are unlawful, a preliminary and permanent injunction against Workday from engaging in the allegedly discriminatory policies and practices, and an order that Workday implement “policies, practices, and programs” that allow all minorities access to equal employment opportunities. The class also seeks monetary damages, including back pay, front pay, compensatory damages, punitive damages, and attorneys’ fees.

Takeaway

This case is groundbreaking as it is one of the first to allege discrimination based on an employer’s use of AI tools in hiring. With the increasing use of AI in the employment sector, employers must be aware of the legal implications of using such tools. The EEOC and other governmental agencies are paying close attention to the potential for discrimination, as reported here. It is imperative that employers stay updated on the developing law in this area. We will keep you updated as this case progresses.

Tags: AI, artificial intelligence, discrimination

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