Protecting Employers Since 1985

January 2014

By: Walter J. Liszka, Esq.

At the beginning of every New Year, all of us have strong hopes of continuing successes and growth, both in our personal lives and business pursuits. For any employer, these “hopes of growth and success” can be related to potential legal issues that have been stirring in the previous year(s) and continue to mount challenges as 2014 opens its doors. Here are some of the potential challenges that will exist in 2014.

1. Continuing problem with misclassification of non-exempt employees as exempt. For many years, employers have concluded that “if I pay someone a salary,” they are exempt from overtime pay. This is an absolutely fallacy and has caused innumerable employers to face legal challenges and pay substantial amounts of money. Whether an individual is exempt from the overtime requirements of Federal or State Laws relates to the actual duties that the employee performs and whether those duties qualify that individual for an exemption. Because misclassifications as non-exempt can expose employers to a minimum of two (2) years of back pay (three (3) years of back pay for willful violations) and, as well as double damages and attorneys’ fees, this continues to be a problem for all employers. Take a step back and take a look at your “exempt employees” and consult with counsel as to whether or not the exemption is valid.

2. The ongoing dilemma of independent contractors. Because of the economic downturn, and to avoid (?) employer-related taxes assessed on the employer/employee relationship, many employers have delved into the area of “independent contractors.” Whether an individual is an independent contractor or an employee is a very fact-specific determination and must meet stringent requirements of the Internal Revenue Code, the United States Department of Labor and, in the State of Illinois, the Illinois Department of Employment Security tests. Just because someone can say that the “independent contractor is free from direction and control” is not the end of the discussion. The employer must bear the burden of proving that the “alleged independent contractor” is truly not an employee. That proof may relate to the actual work performed by that individual and whether or not it is outside the employer’s usual course of business; if it (the work) is performed outside of the employer’s normal place of business, and whether or not the worker is engaged truly in an independent and established trade or profession.

It also should not escape consideration that a recent bill introduced into the United States Senate – the “Payroll Fraud Prevention Act of 2013” if passed will amend the Fair Labor Standards Act and impose penalties on employers who intentionally misclassify workers as independent contractors. It is no longer such an easy decision to employ an “independent contractor.”

3. FICA tax and its effect on severance pay in a workforce reduction. The question of whether severance payments that are made in a workforce reduction are considered as “normal wages” is an issue that the United States Supreme Court will soon decide. If, in fact, the Supreme Court decides that the severance payments are, in fact, wages, then an employer will be responsible for deducting Social Security and Medicare taxes on those wages paid as severance pay. If the Supreme Court should decide that these severance payments are exempt from FICA taxes, employers and employees may be entitled to refunds and the employer certainly may be responsible for reimbursing its former employees for those payments. Employers should consult with their accountants or tax counsel for further guidance on this issue and how to protect themselves and get refunds if, in fact, the Supreme Court decides that “severance pay” is not treated as wages.

4. Continuing legalization of marijuana for medical use. As of January 1, 2014, Illinois becomes the twentieth (20 th) state to legalize marijuana for medical use. With almost two-fifths of the states of the United States of America now allowing use of marijuana for medical purposes, employers are bedeviled by how this can and may impact day-to-day employment decisions. If an individual reports to work “under the influence of marijuana,” can that individual be prohibited from working? If the individual employee states that, “I have to use my medical marijuana prescription during working hours,” must the employer allow it? Must an employer consider accommodating an employee because of the use of medical marijuana and what is the interplay that will affect an employer with regard to the Americans with Disabilities Act versus, for example, the Illinois Human Rights Act? Just because a state has legalized marijuana for medical use, this does not mean that the possession and use of marijuana is not still a federal violation. There is no doubt that there will be a number of cases on this issue in the near term.

5. National Labor Relations Board (NLRB) and non-union workplaces. In the opinion of the writer, the NLRB has delved into the expansion of the impact of the National Labor Relations Act because of the substantial decrease in union activity over the last few years. Obviously, the NLRB must justify its existence and its continued budget application. The Board’s actions over the last few years have impacted employers’ requirements of confidentiality during workplace investigations and certainly have made a “big splash” in the arena of employers’ actions as a result of their employee’s social media posts. One can expect the NLRB to continue its trailblazing in the non-union workplace and draw more employers into coverage.

6. Affordable Care Act – ObamaCare. While the deadline for compliance for many of the Affordable Care Act employer initiatives were delayed until January 1, 2015, this is just a short-term escape for the potential impact of this law. Numbers of clients have indicated that there are substantial increases in medical costs on the horizon and, the writer has been advised by one client that they were told by their insurance carrier that they face a 90% increase in 2015. Hopefully wiser heads will prevail and do some massaging of this law (a recent survey indicates that less than 15% of the Americans surveyed are in favor of ObamaCare), but the politics in Washington are impossible to predict. Take the respite of 2014 and become aware of the potential impact and become aware of the potential obligations you face as of January 1, 2015.

7. Criminal background checks. All of us are well aware that there have been extensive actions by the Equal Employment Opportunity Commission (EEOC) with regard to limitations of criminal background checks because of their alleged discriminatory impact. Regardless of the number of commentaries questioning the EEOC’s actions, the Agency continues to aggressively pursue this arena. It is suggested that the continued use of the past practice of asking job applicants generic questions about their criminal convictions or activities is just that, a thing of the past.

8. Tipping in the hospitality industry. Effective January 1, 2014, the concept of automatic gratuities attached to a customer bill, for example, parties of six (6) or more, will not be considered as tips but will be considered as “service charges wages.” This will impact employers not only in recordkeeping and reporting requirements, but also potentially with compliance under the Fair Labor Standards Act and various state laws with regard to overtime rules – mandatory tips need to be included as part of the employee’s regular rate of pay in order to properly calculate overtime rates. Employers in the hospitality industry should review their practices and gear up for the impact of this change.

9. Restrictive covenants. Over the last number of years, the writer has observed serious problems with regard to an employer’s ability to enforce non-compete/non-solicitation restrictive covenants. Some of this has resulted from the fact that some employers had all employees, including the janitor, signing restrictive covenants and it became a silly concept to try to enforce. Just as importantly, many states, including the State of Illinois, have taken a jaundiced view of restrictive covenants and have limited more and more their expanse. In fact, in the summer of 2013, the Illinois Appellate Court First District imposed a rule that new or continued employment of a signer of restrictive covenant must last at least two (2) years after the employee signs the covenant for it to be enforceable. The rules of the game have been and are changing, and enforcing restrictive covenants is becoming even more difficult!

10. Social media – employer use. There are grave risks with an employer’s viewing of social media of its employees – once you become aware of that individual’s situation (religious beliefs; disabilities; other protected class memberships), you cannot deny your knowledge and it can and will come back to haunt you. Social media is an absolute and continuing element of our society and will continue to impact the workforce. Certainly the NLRB has taken a very aggressive posture in the area of social media and that will continue. As the law of social media continues to develop and, states continue to legislate in an effort to protect employees from their employer’s intrusion into social media, this will be another area ripe for continuing disputes in litigation.

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