Employment Training, Practices and Procedures

On April 27, 2017, the Ninth Circuit[1] issued an opinion in Aileen Rizo v. Jim Yovino that provides employers with guidance on how to lawfully implement facially-neutral business policies using prior salary information to set a new employee’s salary, without running afoul of the federal Equal Pay Act (“EPA”). While there has been some backlash regarding this recent decision, the Court’s ruling was consistent with its prior holding in Kouba v. Allstate Insurance Co.[2] when it vacated the lower court’s decision that denied Defendant Jim Yovino’s (“County”[3]) motion for summary judgment, and directed that the lower court consider the County’s hiring procedures in light of certain factors set forth in the Kouba case (as detailed below).

In 2009, Plaintiff Aileen Rizo (“Plaintiff”) began working for the Fresno County School District. Her starting salary was determined using the school district’s standard salary schedule, “Standard Operating Procedure 1440[4],” which was routinely and uniformly applied to all management-level employees, including Plaintiff. Based on the County’s application of this facially neutral policy, which is based on an employee’s prior salary, Plaintiff’s pay was lower than those of her colleagues with higher past salaries, including her male coworkers.

The pay disparity between Plaintiff and her male coworkers was undisputed by the County in this case. But, the County argued that its use of prior salary falls squarely under one of the affirmative defenses to the EPA – i.e., that prior salary amounts to an “other factor other than sex.”[5]

Plaintiff responded by arguing that if an employer’s pay structure is based “exclusively on prior wages,” then any resulting pay differential between men and women cannot be interpreted to be based on “any other factor other than sex.” Her position was consistent with Tenth and Eleventh Circuit decisions and the EEOC’s stance on this topic. Plaintiff further claimed that the use of prior salary alone can’t be considered a “factor other than sex” because it perpetuates existing pay disparities and further undermines the purpose of the Equal Pay Act. The lower court agreed with Plaintiff and found that women’s earlier salaries are likely to be lower than men’s because of historical gender bias; but, the District Court also acknowledged that its decision potentially conflicted with the 1982 decision in Kouba.

On appeal, the Ninth Circuit vacated the District Courts decision and held that its earlier decision in Kouba was controlling in the present case.  In its opinion, the Ninth Circuit held that the Kouba decision “allow[s] an employer to base a pay differential on prior salary so long as it showed that its use of prior salary effectuated some business policy and that the employer used the factor reasonably in light of its stated purpose and its other practices.”  Here, the County offered four business reasons for it policy: (1) the policy is objective, in the sense that no subjective opinions as to the new employee’s value enters into the starting-salary calculus; (2) the policy encourages candidates to leave their current jobs for jobs at the County, because they will always receive a 5% pay increase over their current salary; (3) the policy prevents favoritism and ensures consistency in application; and (4) the policy is a judicious use of taxpayer dollars.

The matter was remanded to the District Court for (1) an evaluation of the four business justifications offered by the County regarding its gender-neutral preset pay scale, and (2) a determination of whether the County’s use of employees’ prior salary is “reasonable in light of [its] stated purpose” under the standard set forth in Kouba.

Many states, including California, recently revised their state law equal pay protections to address the use of prior pay in hiring decisions, and whether it perpetuates prior pay discrimination. In particular, California’s equal pay law now includes a provision that expressly prohibits the use of prior salary “by itself [to] justify any disparity in compensation.” Interestingly, California’s amendment, which was passed prior to the Ninth Circuit’s decision, was not addressed at all in the decision. But, arguably here, all allegedly discriminatory decisions were made prior to the amendment’s passage.

In light of these new state and local laws’ prohibitions and/or restrictions on the use of prior pay as a determinant in setting an applicant’s salary, even if the Ninth Circuit finds that the federal Equal Pay Act permits the use of pay history for this purpose (under certain circumstances), in many jurisdictions, state and local laws will prohibit it. Employers should be aware both of the split in the circuits on this issue, and also of any applicable amendments to state and local equal pay laws that may impact their ability to rely on prior pay in setting an applicant’s rate of pay.

[1] The panel included Circuit Judges A. Wallace Tashima and Andrew D. Hurwitz and the Honorable Lynn S. Adelman, U.S. District Judge for the Eastern District of Wisconsin, sitting by designation.

[2]Kouba v. Allstate Insurance Co. ( 9th Cir. 1982) 691 F.2d 873.

[3] As Defendant Jim Yovino was sued in his official capacity as the Fresno County Superintendent of Schools, the Ninth Circuit utilized the word “County” when referring to the Defendant. For simplicity, we utilize the same term.

[4] To determine a candidate’s salary using “Standard Operating Procedure 1440,” the County applies a 5% increase to an individual’s most recent prior salary, then places the candidate on a “step” of the County’s salary schedule based on that calculated amount. This schedule consists of twelve “levels,” each of which contains ten “steps.”

[5] Under the EPA, a wage disparity is permissible if an employer can plead and prove an affirmative defense based on one of the following exceptions: (i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex.

On May 15, 2017, New York City’s Freelance Isn’t Free Act (“FIFA”) will take effect. FIFA requires parties that retain “freelance workers” to provide any service where the contract between them has a value of $800 or more to reduce their agreement to a written contract.

FIFA defines a freelance worker as “any natural person or any organization composed of no more than one natural person, whether or not incorporated or employing a trade name, that is hired or retained as an independent contractor by a hiring party to provide services in exchange for compensation.” Importantly, the law does not cover organizations or more than one natural person.

The $800 threshold is reached either by itself or when aggregated with all contracts for services during the preceding 120 days.  The contract must include, at a minimum, the following information:

  • the name and address of both the hiring party and the freelance worker,
  • an itemized list of the services that will be provided and the value of those services,
  • the rate and method of compensation, and
  • the date on which payment is due or the mechanism by which such date will be determined.

If no payment due date is indicated in the contract, the hiring party must pay the freelance worker within 30 days of the completion of services.

A hiring party is also prohibited from threatening, intimidating, disciplining, harassing, denying a work opportunity, or discriminating against a freelance worker who exercises his or her rights under FIFA.

The law establishes penalties for violations of these rights, including statutory damages, double damages, injunctive relief, and attorney’s fees.

In anticipation of May 15, 2017, employers should ensure that contracts entered into with freelance workers (or existing contracts that are renewed) with a value of $800 or more comply with FIFA.

Amid challenges regarding Philadelphia’s upcoming law prohibiting employers from requesting an applicant’s salary history, the City has agreed not to enforce the upcoming law until after the court has finally resolved the injunction request.

The law, which was set to become effective May 23, 2017, has been challenged by the Chamber of Commerce for Greater Philadelphia (the “Chamber”). The Chamber’s lawsuit alleges that the pending law violates the First Amendment by restricting an employer’s speech because, among other reasons, “it is highly speculative whether the [law] will actually ameliorate wage disparities caused by gender discrimination.” It is also alleged that the law violates the Commerce Clause of the U.S. Constitution, the Due Process Clause of the Fourteenth Amendment, and Pennsylvania’s Constitution as well as its “First Class City Home Rule Act” by allegedly attempting to restrict the rights of employers outside of Philadelphia.

On April 19, a judge for the Eastern District of Pennsylvania stayed the effective date of the law, pending the resolution of the Chamber’s motion for a preliminary injunction. Prior to resolving the injunction, the parties will first brief the court on the Chamber’s standing to bring the lawsuit. This issue, regarding whether the Chamber is an appropriate party to bring this lawsuit, will be fully briefed by May 12, 2017, before the law is set to become effective. However, there are several other issues to be resolved as part of the lawsuit. The City’s decision to stay enforcement of the pending law until all issues are resolved is intended to help employers and employees avoid confusion during the pendency of the lawsuit.

Although the City of Philadelphia will not enforce this law in the interim, employers with any operations in Philadelphia should review their interviewing and hiring practices in case the lawsuit is decided in favor of the City. Further, employers in Massachusetts and New York City will also be subject to similar restrictions on inquiring about an applicant’s salary history when those laws go into effect. Massachusetts’ law is scheduled to become effective in July 2018, and New York City’s law will become effective 180 days after Mayor de Blasio signs the law, which may occur as soon as this week.

California’s Fair Employment & Housing Council has finalized and adopted new regulations to establish criteria for the use and consideration of criminal history information in employment decisions where such use may constitute a violation of California’s Fair Employment and Housing Act. The new regulations take effect July 1, 2017, and are available here and on the Council’s website.  The regulations are intended to clarify, outline and maintain consistency between the laws governing the consideration of criminal history information in employment decisions.

The regulations reiterate existing prohibitions on the use of criminal history information and also require employers to demonstrate a business necessity, in addition to job-relatedness, for requesting a criminal history if the policy or practice of considering criminal history information creates an adverse impact on applicants or employees based on certain protected classes. Applicants and employees bear the initial burden of demonstrating that the policy or practice has an adverse impact on a protected class.  If this showing is made, the burden shifts to the employer to establish that the policy is justifiable because it is job-related and consistent with business necessity. To do so, the employer must demonstrate that the policy or practice is appropriately tailored, taking into account several factors including: (i) the nature and gravity  of the offense or conduct; (ii) the passage of time; and (iii) the nature of the position held or sought.  Even if an employer can demonstrate job-relatedness and consistency with business necessity, an applicant or employee may still bring a claim if he or she can show that there is a less discriminatory alternative available to advance the employer’s legitimate concerns.

Retail employers in California should review their policies and practices to ensure that their use of criminal history information complies with the new regulations. Employers are also reminded of their obligation to comply with the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., and the California Investigative Consumer Reporting Agencies Act, Cal. Civ. Code § 1786 et seq.

Paid Leave_shutterstock_371740363The state of Maryland appears poised to join seven other states and various local jurisdictions (including Montgomery County, Maryland) already requiring employers to provide paid sick and save leave. On April 5, 2017, the Maryland House of Delegates approved a bill previously passed by the Maryland Senate that would require most employers with at least 15 employees to provide up to five paid sick and safe leave days per year to their employees, and smaller employers to provide up to five unpaid sick and safe leave days. Although the bill contains an effective date of January 1, 2018, the actual effective date will depend on action by Governor Larry Hogan.

The following employees are not covered by the bill:

  • Employees who regularly work less than 12 hours a week;
  • Employees who are employed in the construction industry;
  • Employees who are covered by a collective-bargaining agreement that expressly waives the requirements of the law;
  • Certain “as-needed” employees in the health or human services industry.

Under the bill, an employer may not be required to allow an employee to:

(1) earn more than 40 hours of earned sick and safe leave in a year;
(2) use more than 64 hours of earned sick and safe leave in a year;
(3) accrue a total of more than 64 hours at any time;
(4) use earned sick and safe leave during the first 106 calendar days the employee works for the employer.

The bill also preempts local jurisdictions from enacting new sick and safe leave laws except for amending existing laws enacted before January 1, 2017, i.e. the existing law in Montgomery County.

The bill passed with enough support in both chambers to survive a promised veto by Governor Hogan, who favored an alternative that would require the benefit only for companies with at least 50 workers and make tax incentives available for smaller companies that offered the leave. However, if he still vetoes the bill, lawmakers will not have an opportunity to override the veto until next year’s legislative session beginning on January 10, 2018, which means the bill would not take effect until after January 1, 2018, and could possibly be subject to amendment in the next session.

*Marc-Joseph Gansah, a Law Clerk – Admission Pending in the firm’s New York office, contributed to the preparation of this blog post.

A new post on the Management Memo blog will be of interest to many of our readers in the retail industry: “‘A Day Without’ Actions – How Can Employers Prepare?” by our colleagues Steven M. Swirsky and Laura C. Monaco of Epstein Becker Green.

Following is an excerpt:

[T]he same groups that organized the January 21, 2017 Women’s March on Washington – an action participated in by millions of individuals across the county – has called for a “Day Without Women” to be held on Wednesday, March 8, 2017. Organizers are encouraging women to participate by taking the day off from paid and unpaid labor, and by wearing red – which the organizers note “may be a great act of defiance for some uniformed workers.”

Employers should be prepared to address any difficult questions that might arise in connection with the upcoming “Day Without Women” strike: Do I have to give my employees time off to participate in Day Without events? Can I still enforce the company dress code – or do I need to permit employees to wear red? Can I discipline an employee who is “no call, no show” to work that day? Am I required to approve requests for the day off by employees who want to participate? As we explained in our prior blog post, guidance from the National Labor Relations Board’s General Counsel suggests that an employer can rely on its “lawful and neutrally-applied work rules” to make decisions about granting requests for time off, enforcing its dress code, and disciplining employees for attendance rule violations. An employer’s response, however, to a given employee’s request for time off or for an exception to the dress code, may vary widely based upon the individual facts and circumstances of each case. …

Read the full post here.

Our colleagues Jeremy M. Brown, Steven M. Swirsky and Laura C. Monaco, at Epstein Becker Green, have a post on the Management Memo blog that will be of interest to many of our readers in the retail industry: “F17 and the General Strike Movement – Best Practices for Addressing Political Activity in the Workplace.”

Following is an excerpt:

This week, an activist group calling itself “Strike4Democracy” has called for a day of “coordinated national actions” – purportedly including more than 100 “strike actions” across the country – on February 17, 2017. The group envisions the February 17th strike as the first in “a series of mass strikes,” including planned mass strikes on March 8 (organized by International Women’s Day and The Women’s March) and May Day, and a general “heightening resistance throughout the summer.” The organizers are encouraging people not to work or shop that day. …

Read the full post here.

A New Year and a New Administration: Five Employment, Labor & Workforce Management Issues That Employers Should MonitorIn the new issue of Take 5, our colleagues examine five employment, labor, and workforce management issues that will continue to be reviewed and remain top of mind for employers under the Trump administration:

Read the full Take 5 online or download the PDF. Also, keep track of developments with Epstein Becker Green’s new microsite, The New Administration: Insights and Strategies.

The Age Discrimination in Employment Act (“ADEA”) protects individuals who are at least 40 years of age from discrimination in the workplace. As such, the outcome of disparate-impact claims under the ADEA hinges, ordinarily, on whether or not an employer’s facially neutral-policy has a disparate impact on employees who are 40 years of age or older.  On January 10, 2017, the Third Circuit, in Karlo v. Pittsburgh Glass Works, LLC, 2017 BL 6064 (3d Cir. 2017), issued a precedential ruling, holding that disparate impact claims under the ADEA are not limited to comparisons of the impact an employer’s policy has on employees over 40 with the impact to employees under 40. Rather, the Third Circuit found that claims premised on an allegation that an employer’s policy impacted workers over the age of 50 are cognizable under the ADEA even when the policy had no disparate impact when employees in their forties were considered.

The defendant employer in Karlo terminated approximately 100 employees through a series of reductions in force (“RIFs”). While the impact of the RIFs did not have a disparate impact when comparing employees under the age of 40 with those over the age of 40, the plaintiffs in Karlo, all 50 years of age or older, asserted an ADEA claim premised on the allegation that the RIFs had a disparate impact on employees who were 50 or older.  Rejecting the defendant employer’s argument that the disparate impact claim failed because no evidence of disparity existed when the younger members of the protected category (employees between the age of 40 and 50) were considered with the employees over the age of 50, the Third Circuit opined that: “The ADEA prohibits disparate impact based on age, not forty-and-older identity,” and that “requiring the comparison group to include employees in their forties has no logical connection to that prohibition.”

The Third Circuit’s decision creates a split among the federal appeals courts on whether the ADEA permits disparate impact claims by subgroups of workers in the “40-and-over” protected category when the alleged bias disproportionately impacts older workers within that protected class. The ruling rejects the view of the Second Circuit (Lowe v. Commack Union Free Sch. Dist., 886 F.2d 1364 (2d Cir. 1989)), Sixth Circuit (Smith v. Tenn. Valley Auth., 924 F.2d 1059 (6th Cir. 1991)), and Eighth Circuit (E.E.O.C. v. McDonnell Douglas Corp., 191 F.3d 948 (8th Cir. 1999), that such claims are not allowed.

The Third Circuit correctly recognized that its decision “may very well require employers to be more vigilant about the effects of their employment practices.” The ruling that disparate impact claims may be asserted by subgroups within the protected category of employees over the age of 40 most definitely complicates employers’ ability to effectuate workforce reductions. Before approving a proposed RIF, retail employers concerned with avoiding potential disparate impact claims cannot simply satisfy themselves that employees over and under the age of 40 are treated fairly.  Retail employers now need to check for age-based impacts across different strata of their employees over the age of 40.

On December 9, 2016, Los Angeles Mayor Eric Garcetti signed ordinances no. 184652 and 184653, collectively referred to as the “Fair Chance Initiative.” These ordinances prohibit employers and City contractors (collectively “Employers”), respectively, from inquiring about job seekers’ criminal convictions until after a conditional offer of employment has been made. Both ordinances will go into effect on January 22, 2017 and will impact all employers in the City of Los Angeles and for every position which requires an employee to work at least an average of two hours per week within the City of Los Angeles and all City contractors and subcontractors, regardless of their location.

No Criminal Inquiry Until After Offer

Specifically, these ordinances prohibit Employers from inquiring about a job applicant’s criminal history, at any time or in any manner, unless and until a Conditional Offer of Employment has been made to the applicant. Following the Conditional Offer of Employment, Employers are permitted to request information regarding the applicant’s criminal history. However, Employers can only withdraw or cancel the conditional offer as a result of the applicant’s criminal history after engaging in the “Fair Chance Process.”

New “Fair Chance Process” Required

The “Fair Chance Process” requires Employers to prepare a written assessment highlighting the specific aspects of the applicant’s criminal history that pose an inherent conflict with the duties of the position sought by the applicant. Employers must provide the applicant with written notification of the proposed withdrawal of the conditional offer, a copy of the written assessment regarding the risks posed by the applicant’s criminal history, and any other relevant documentation. The applicant is then given an opportunity to provide the Employer a response to the written assessment, including any supporting documentation. Employers must wait at least 5 business days after the applicant is informed of the proposed withdrawal before taking any action, including filling the position for which the applicant applied.

New Posting and Recordkeeping Requirements

Additionally, Employers’ job postings must now include a notice stating that they will consider all qualified applicants regardless of their criminal histories, in compliance with these ordinances. Employers must also conspicuously post a notice regarding the “Fair Chance Initiative” in a location in the workplace visible to all job applicants; this notice must also be sent to each union or workers’ group with which the employers have any agreement that governs over employees. Further, Employers must retain all job application documents for three years. Penalties for violations of these ordinances may be assessed at up to $500 for the first violation, up to $1,000 for the second violation, and up to $2,000 for subsequent violations. The City may then, at its discretion, distribute a maximum of $500 from that penalty directly to the applicant. The penalty provision of the ordinances will not go into effect for employers in Los Angeles City until July 1, 2017. However, the penalty provision for City contractors is effective immediately.

Exceptions from these ordinances include: (1) employers who are required by law to seek a job applicant’s criminal history; (2) positions for which an applicant would be required to possess or use a firearm; (3) positions which, by law, cannot be held by an individual with a criminal history; and (4) employers who are prohibited, by law, from hiring persons with criminal convictions.

Employers with operations in the City of Los Angeles should:

  1. Remove questions regarding criminal history from job applications;
  2. Ensure future job postings include required equal employment notices;
  3. Defer inquiries regarding criminal history until making conditional job offers; and
  4. Ensure the Fair Chance Process is followed before denying employment based on criminal history.