Thursday, June 9th, 2016
For at least 110 years, Virginia has followed the at-will doctrine that employees working under an agreement that does not specify its duration or require cause for termination may be separated from employment simply by being given “reasonable notice.”[1] An open question in recent years has been “what constitutes reasonable notice under this at-will rule?”
On June 2, the Supreme Court of Virginia decided this issue. The case involved a claim by a long-term employee (17-year tenure) who was abruptly terminated without any advance notice. The former employee argued that she should have been given some reasonable period of advance notice before the employer terminated the relationship. The Supreme Court disagreed.
In Johnston v. William E. Wood & Associates, Inc., the Court refused to impose any minimum notice requirement on an employer’s right to terminate an employee with or without cause.[2] (The corollary to the Court’s ruling is that employees are free to quit without giving advance notice.) Justice McCullough, who joined the Supreme Court on March 3, 2016, authored a unanimous opinion and noted as follows:
Imposing a requirement of reasonable advance notice is antithetical to the flexibility that lies at the heart of the at-will doctrine and would undermine the indefinite duration element of at-will employment.
This concept of “reasonable notice,” according to Justice McCulloch, simply means effective notice that the employment relationship has ended so the employee no longer performs services.
This ruling clarifies an important issue for many employers, especially when making decisions about long-term employees.
The question of whether an employer “should” provide advance notice of termination is now solely a business decision, as opposed to one that is a legal requirement. There may be good business reasons for an employer to provide and require advance notice of termination of the relationship.
Many employers who rely on the at-will doctrine still use written employment agreements that require a specific period of advance notice of termination (or in lieu thereof, severance) by the employer, and advance notice by the employee of the intent to resign, where no “good cause” exists. These contractual obligations to provide advance notice will continue to be enforceable in Virginia following Johnston.
Employers often need written employment agreements to address important obligations, e.g., non-disclosure of confidential information, protection of trade secrets, restrictive covenants against unfair competition, compensation and other matters. As part of these agreements, employers typically address issues of termination. Johnston provides employers with flexibility they need to design these agreements, where the relationship is governed by the at-will doctrine, as best suits their needs. An employer may now elect to impose whatever advance notice requirement it believes is reasonable (two weeks, 30 days, or longer) to minimize business disruption by an abrupt or undesired resignation and not worry about being second-guessed by the courts. Keep in mind that the at-will doctrine is designed to be a “mutual one” so whatever advance notice requirement is expected of the employee should also apply to the employer, absent the existence of some form of “good cause” or “misconduct” warranting an immediate termination without prior notice.
The preparation of effective employment agreements and the enforcement of those agreements is an important part of Gentry Locke’s practice. The law as it relates to restrictive covenants (i.e., non-competition, non-solicitation and anti-piracy clauses), as well as the protection of “trade secrets,” is constantly evolving and requires careful monitoring so that agreements can be updated. If your company needs assistance with preparing or revising employment agreements, or you are an executive who has questions as to the enforceability of certain provisions, you are encouraged to contact David Paxton or any member of the Gentry Locke Labor and Employment Law Team.
[1] Stonega Coal & Coke Co. v. Louisville & Nashville R.R. Co., 106 Va. 223, 226, 55 S.E. 551, 552 (1906).
[2] Johnston v. William E. Wood & Associates, Inc., ____ Va. ____, ___ S.E.2d ___, 2016 Va. LEXIS 67 (Va. Sup. Court, June 2, 2016).
Thursday, May 19th, 2016
Finally, the much anticipated changes to DOL overtime regulations have been issued. Most significantly, the new overtime regulations will double the salary threshold effective December 1 and will be increased incrementally every three years.
Here is the down and dirty on the new rules:
Mercifully, the new regulations are not effective until December 1, which is at least longer than the 60-day period the DOL previously indicated.
- The salary threshold is doubled to $47,476 per year or $913 per week. Currently, workers earning more than $23,660 per year are not eligible for overtime, if they also meet the various duties test (i.e. executive, professional, or administrative duties). The new regulations leave intact the current duties test.
- The standard salary threshold will be adjusted every three years. The new standard salary level of $47,476 is projected to rise to more than $51,000 based on wage growth with the first scheduled update on January 1, 2020.
- For the first time, employers will be allowed to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level, as long as those payments are made on a quarterly or more frequent basis. (The rules also allow an employer to make a “catch-up” payment). Although the DOL recognizes that some businesses pay significantly larger bonuses, even where such larger bonuses are paid, the amount attributable toward the standard salary level is capped at 10% of the required salary amount.
- The total annual compensation requirement for highly compensated employees (“HCE”) is $134,004.
- To be exempt as a highly compensated employee, the employee must receive at least the equivalent of the new standard salary of $913 per week on the salary or fee basis and pass a minimum duties test. For HCEs, employers cannot use bonuses to satisfy the minimum payment of $913 per week, but can use non-discretionary bonuses, incentive payments and commissions and other forms of non-discretionary deferred compensation to satisfy the remaining total annual amount of $134,004.
- The new regulations do not change any of the existing job duty requirements to qualify for exemption.
- The DOL is offering clarification on higher education and non-profit employees. Although the final rule does not contain a carve out for colleges and universities, these entities will be given options to avoid paying overtime under the current FLSA. The DOL is releasing guidance aimed at higher education and non-profits.
While the December 1 effective date is longer than originally expected, employers need to begin examining the classification of their employees, not only as it pertains to the salary threshold, but to reaffirm that employees classified as exempt upon hire are in fact performing exempt duties in the course of their employment.
For managers who will now be supervising non-exempt employees for the first time, those managers need to be trained regarding the differences in managing a non-exempt workforce (i.e. making sure that time and off duty work are tracked). Employers may want to consider utilizing a fluctuating workweek method of compensation, thereby reducing overtime to half-time. For clarification on how you might best prepare your company for these changes, contact a member of the Employment Law Team at Gentry Locke Attorneys.
Wednesday, May 11th, 2016
Paul Klockenbrink contributes to the “Virginia Hospitality Law Blog” and is a frequent lecturer on employment law issues.
A recent decision by a federal appeals court has sent minor, if not significant, shockwaves into the restaurant and hospitality industries that use 
tip pooling as part of their employees’ income.
Under Section 203(m) of the Fair Labor Standards Act (“FLSA”), restaurants and other hospitality industry employers are permitted to utilize a limited amount of employees’ tips as a credit against their minimum wage obligations by using tips as “wages.” This practice is known as taking a “tip credit.” An employer can pay tipped employees (1) a cash wage of $2.13, plus (2) an additional amount in tips that brings the total wage to the federal minimum wage. If the employer uses tips to help meet the minimum wage requirement for its employees, the employee must be informed of this fact and the employee must also be permitted to keep the tips, unless the employee is part of a tip pool with other employees who regularly receive tips. Therefore, if an employee earns $5.12 an hour in tips, it is permissible for a restaurant/hotel to only pay the employee $2.13 an hour in cash wages in order to meet the $7.25 federal minimum wage. In some states (not Virginia), employers are not permitted to take a tip credit because the particular state law requires them to pay employees the state or federal minimum wage regardless of the tips the employees receive.
Many employers have instituted tip pooling programs. Under these programs, employers sometimes require employees to share the tips they receive with workers in customarily non-tipped positions (such as back of the house staff, cooks, dishwashers, hostesses, etc.). Many courts have held that the FLSA permits these types of tip pooling arrangements so long as the employer does not take tip credits against the employee’s wages.
An ongoing hot issue in tip pooling arises when the employer decides (or is legally required) to pay the employees the federal or state required minimum wage and does not seek a tip credit. If the employer does not seek a tip credit, can the employer require its employees to contribute their tips to a tip pool that includes employees who are not regularly or customarily tipped? The Department of Labor says no. In 2011, the DOL issued a formal rule interpreting Section 203(m) that extended the tip pool restrictions of Section 203(m) to all employers, not just the ones who take a tip credit. Stated differently, the DOL says it can also regulate tip pooling arrangements of employers that do not take a tip credit because tips are the property of the employee. The DOL’s logic being that if an employer could require its employees to contribute their tips to a tip pool that included employees who were not regularly tipped, the employer would have no reason to ever elect the tip credit because instead of using only a portion of the employees’ tips to fulfill its minimum wage obligations, it could use all of its employees’ tips to fulfill its entire minimum wage obligations to the tipped employees, as well as the non-tipped employees.
The meaning of Section 203(m) of the FLSA and the validity of the DOL’s 2011 interpretation are currently the subject of lively debate in the federal courts. Most recently, the Ninth Circuit Court of Appeals (which includes several states in the West) in Oregon Rest. & Lodging Association v. Perez ruled in favor of the DOL’s 2011 interpretation of Section 203(m). The 2-1 decision, however, had a vigorous dissent and an en banc appeal to the full Ninth Circuit is expected.
Closer to home, restaurant and hospitality employers in Virginia can take some minimal comfort in a July 2015 decision from the Fourth Circuit Court of Appeals in Trejo v. Ryeman Hospitality Properties, Inc. In the Trejo case, the Fourth Circuit upheld the lower court’s dismissal of an employee’s challenge to a tip pooling arrangement. The Court did not, however, address the DOL’s 2011 regulation. Therefore, employers using tip pools in Virginia are left with uncertainty. Arguably, there remains the option of foregoing the federal tip credit and paying full minimum wage, thereby allowing broader tip pooling including – non-tipped employees. But, caution is recommended because the DOL says no and the judicial final chapter in this story has yet to be written.
Wednesday, May 4th, 2016
For many apartment dwellers, a deck or balcony is their version of a backyard — a place they can privately savor a sunny day or cool evening. Occupants and visitors alike should be able to enjoy a deck or balcony with confidence in its stability. Over the last twenty years, however, there has been a massive race to build structures which included decks and balconies.
Unfortunately, many of those decks and balconies were not built to appropriate building codes or were negligently constructed using inferior products or inadequate nails/fasteners. In some cases, owners and managers of properties have failed to properly maintain or inspect the decks and balconies, resulting in deteriorating conditions (e.g., rotting wood, rusted supports, and loose elements). These failures present a huge hazard for unsuspecting tenants and invitees.
In one case we recently resolved, a guest could not appreciate a balcony’s poor state of repair when opening the apartment door. Upon stepping onto the balcony, it acted as a trap door and collapsed, dropping the entire family onto the concrete below and resulting in horrific injuries. But, who was responsible? The landlord? The manager of the apartment complex? The builder? What are the potential remedies and barriers to recovery?
If faced with such a situation, one must first and foremost preserve the evidence. Specifically, one should:
- Take pictures and video of the deck or balcony and all connecting points from every angle.
- Take pictures and videos of all injuries.
- Preserve every piece or part of the deck, and if not in control, demand that the owner or landlord do so.
Ensuing litigation, in turn, can be very complicated and highly technical. One must heed statutes of repose, determine the status of the injured person (i.e., guest, trespasser, tenant, landlord, owner), and even consider the deck’s composition (wood, concrete, metal, or some combination), amongst other things.
For example, if the victim is a tenant, then he or she may be able to recover monetary damages from the landlord or owner. Landlords and owners are liable to tenants and guests for any injury caused by a failure to exercise reasonable care in maintaining common areas in proper repair and a safe condition. By contrast, they owe no such duty for any part of the leased premises under a tenant’s exclusive possession and control, unless an exception applies.
One must also consider the deck or balcony’s location. For example, if the collapse was caused by the ledger board below the surface of the deck not being properly anchored to the building, and the tenant could not even see it without trespassing onto the patio of the tenant below, then it is arguably a common area. By contrast, such an argument could fail if the tenant also had exclusive control of the patio below.
As demonstrated by the single factual scenario above, cases involving deck and balcony collapses are complicated. Gentry Locke attorneys are familiar with such cases, and are prepared to use a wide range of civil law principles to help and protect the injured and grieving.
This article was written by Nicole Poltash, and Gentry Locke attorneys Matt Broughton and Greg Habeeb.
Thursday, April 21st, 2016
What is due diligence?
As an essential element of commercial transactions, due diligence is the process of investigating the target company or real estate prior to completion of the acquisition. For all forms of a business acquisition (or merger), the due diligence process will equip the buyer with additional knowledge, including but not limited to management, operation, financial perspective, structure, existing liabilities and contractual relationships, tax compliance, customer base, employees, and litigation or claims against the business. For real estate transactions, due diligence may include a review of the property’s title history, consideration of current and former uses and impacts resulting from those uses, evaluation of the condition of any improvements, assessment of licenses and permits, and understanding of existing tenants and leases.
Why is due diligence necessary?
At this point, something has sparked your interest in the target business or real estate. Although you have a desire to move forward with the acquisition, you recognize that there could be an issue that you have not yet uncovered. Due diligence will provide you an opportunity, prior to the transfer of ownership, to take a look at the details of the business or real estate.
You don’t buy milk without checking the expiration date, so as a buyer you should also take the time and spend some money prior to this purchase to verify that the business or real estate is what the seller claims, and meets your expectations.
When and how should due diligence be completed?
Due diligence may take several different forms depending on the nature of the transaction and the stage of the acquisition. Due diligence can occur informally when a buyer and seller begin discussing a transaction. It is often customary for the parties to enter into a preliminary non-disclosure agreement to protect the confidentiality of the information. The buyer and seller may agree to enter into a letter of intent that outlines the framework of the transaction and the parameters of any due diligence to be conducted prior to the execution of a formal purchase agreement. In the real estate context, a purchase agreement will typically be executed before the commencement of an official due diligence period.
Due diligence should be completed in a fashion that most easily facilitates the sharing of information but also causes minimal disruption to the seller’s business or property. A checklist can be used as a guide to request specific information from the seller and to track information as it is received and reviewed. For a typical business acquisition, a typical due diligence checklist will include broad topics and categories, such as corporate, financial, management and operations, employee, insurance, real estate/personal property, government regulation, and litigation. Within each topic are specific requests of information. For example, typical requests within the corporate category would include meeting minute books and ownership transfer records, and requests within the financial category would include financial statements, accounts receivable report, financial projections, and sales numbers. A purchaser of real estate may have a shorter list of due diligence items to request and review. A checklist can be customized to fit the structure of the transaction and to ensure that all relevant information will be requested.
As part of the initial discussions, the seller and the buyer should reach an understanding on the scope, duration, and expectations from one another during the due diligence process. Sellers may view the due diligence process as inconvenient and invasive, so a buyer must be realistic in the timing of the requests and the organization of the material provided. Unless a seller has engaged a consultant to position its business or piece of real estate for sale, it is unlikely that all due diligence material will be neatly organized and immediately available to the buyer.
The business lawyers at Gentry Locke are ready to assist you with acquisitions of businesses and real estate. For questions on these issues and other related transactional matters, please feel free to contact Jon Puvak at 540.983.9399, or any of the lawyers in Gentry Locke’s Business and Corporate practice group.
Wednesday, April 6th, 2016
It sounds like the most simple and innocuous thing. Who could mess up the parties’ names on a contract? And, what’s the big deal if the name is not exactly right?
Under Virginia law, it is a bigger issue than you might think. In particular, it is an issue that can rear its head when one or more of the parties is a corporation or limited liability company. Getting the name correct – that is, using the officially-registered corporate name – is necessary, and failure to do so can impact legal rights.
In fact, failure to include the correct party names on a contract may result in a court rendering the contract unenforceable by the misstated entity.
For example, in Berglund Chevrolet, Inc. v. Thor Incorporated, the plaintiff, owner of a car sales showroom, sought to recover damages for alleged violations of a construction contract. The owner was Berglund Chevrolet, Inc.; however, the name on the contract was listed as Berglund Automotive Group, which was not the owner’s official name (or even its registered trade name).*
The owner brought suit in its formal/official name, but different from what appeared on the contract. On challenge from the contractor, the Court ruled that the owner could not bring its claim in its official name, as that was not the party that entered into the contract. If the difference in wording is simply a slight transposition or alteration of the correct words then it is more likely to be a misnomer. However, there are many entities that have drastically different “official” names versus what they are called. Using the official name is vitally important.
So, what is a party to a construction contract to do to ensure that it will have the rights it expects?
- Don’t just skip over or ignore the “name” section of contracts. Read and review them carefully so they reflect the official corporate name of your business and that of the other parties.
- Don’t just assume that you know the official corporate names of all the parties with which you are dealing. Look them up on the Virginia State Corporation Commission website to verify. If still in doubt, then ask the other entity. Some businesses are proprietorships or partnerships, and need to be named accordingly.
- Don’t assume that whoever prepared the contract, including any design professional, actually knows the name of the entities involved in the contract. Still verify and double check.
Keep in mind that if you are the party signing the contract and the official corporate name is not used and title identified, then you could become personally liable.
* Disclaimer: Our firm represented the defendant in this litigation. This article is for informational purposes only and is not intended as self-promotion, an advertisement, or a solicitation of business. In this article, we limit our comments to a general discussion of the court’s opinion, and we will not discuss any privileged information or communications. THE RESULTS OBTAINED IN THIS CASE DEPEND UPON A VARIETY OF FACTORS UNIQUE TO THIS CASE. ANY RESULTS OBTAINED IN THIS CASE ARE NOT INDICATIVE OF, DO NOT GUARANTEE, AND DO NOT PREDICT A SIMILAR RESULT IN ANY OTHER CASE.
Friday, March 11th, 2016
What was once a simple decision to dam up a creek or stream and create a pond or small lake for agricultural or recreational purposes is no longer a simple decision. Rather, it is one that could be very expensive, complicated, and very disappointing.
The construction of dams is now a highly regulated activity in the Commonwealth of Virginia. Over the last several years, landowners have had to face the proposition of reversing impoundment activities and draining existing lakes and ponds because of a failure to properly comply with the applicable dam rules and regulations. When permitting requirements exist, it is necessary to conduct extensive engineering and planning activities to ensure compliance.
Certain impoundments are exempt from certain rules and regulations, but anyone intending to construct a dam or otherwise impound waters should make certain that affirmative decisions regarding the need or lack thereof for permitting are made by the proper authorities and documented.
In Virginia, dam construction and impoundment creation is regulated by numerous governmental entities. The primary restrictions and prescriptions are found in the Virginia Dam Safety Act, The Virginia Impounding Structures Regulations, the Virginia Erosion and Sediment Control Law, the Virginia Erosion and Sediment Control Regulations, the Stormwater Management Act, and the Virginia Stormwater Management Program Regulations. These statutory and regulatory programs are administered in part by the Virginia Department of Environmental Quality and, in part, by the Virginia Department of Conservation and Recreation.
In addition to state regulatory agencies, it is important to coordinate any impounding activities with the local building and planning officials and it is further important to determine whether or not such activities may fall within the federal wetland protection programs which are coordinated among the United States Army Corps of Engineers, the Virginia Marine Resources Commission, and the Virginia Department of Environmental Quality together with local wetlands boards.
Contact information for some of the primary points of contact are:
Virginia Department of Environmental Quality
Office of Water Permitting
melanie.davenport@deq.virginia.gov
Virginia Department of Conservation and Recreation
Dam Safety and Floodplain Management
dam@dcr.virginia.gov
Comments Off on Want to Build a Dam? Stop, Look, Ask, and Listen
Category | Tags:
Social Networks : Technorati, Stumble it!, Digg, de.licio.us, Yahoo, reddit, Blogmarks, Google, Magnolia.
Friday, January 22nd, 2016
Like the roads in our region affected by 2016’s Winter Storm Jonas, the avenue of compliance for federal contractors has just become a little more treacherous. The Department of Labor’s Final Rule affecting federal government contractors’ policies on pay transparency went into effect on January 11, 2016. [1] The Rule, which implements Executive Order 13665, which was signed by President Barack Obama back in April 2014, is the DOL’s effort to promote pay transparency by barring policies of certain federal contractors which previously prevented workers from discussing their wages. Now, covered federal contractors are prohibited from firing or otherwise disciplining employees or job applicants for discussing their pay or the pay of their co-workers. This new Rule, unlike the National Labor Relations Act, applies to all employees and applicants, including supervisors and managers.[2]
This new Rule has several parts, and this article will explain what steps covered federal contractors will need to take in order to comply with this Rule and avoid potential audits, fines, or debarment. This Rule applies to employees and applicants of federal contractors or subcontractors that have contracts over $10,000 that are entered into or modified after January 11, 2016.
What the Rule prohibits
Employees and applicants of federal contractors now have a protected right to inquire about, discuss or disclose their own compensation or the compensation of other employees. If contractors discipline, harass, demote, terminate, deny employment or otherwise discriminate against employees or applicants for these discussions, then they open themselves up to investigations by the Office of Federal Contract Compliance Programs (“OFCCP”) and penalties. However, the Rule does not impose any requirement on covered contractors to disclose information to applicants or employees regarding the compensation paid to other employees, even if employees request such information.
It is important to note that the term “compensation” is very broadly defined. For purposes of this Rule, “compensation” includes any payments made to an employee or offered to an applicant, including but not limited to salary, wages, overtime pay, shift differentials, bonuses, commissions, vacation and holiday pay, allowances, insurance and other benefits, stock options and awards, profit sharing and retirement.
If contractors violate this Rule and dismiss the employee/applicant, then they may be required to reinstate or hire the employee or applicant, and to compensate the individual for back pay, front pay, a pay raise, or some combination of these remedies. Compensatory and punitive damages are not available in enforcement actions under the Rule.
How to Stay Compliant
1. Update Handbooks & Policies
The Rule requires that affected contractors incorporate the non-discrimination provision into their employee handbooks and disseminate the non-discrimination provision to employees and job applicants. We recommend that handbooks be revised and updated, and that the non-discrimination provision be posted on the company’s website if individuals can submit an employment application online.
2. Update Subcontracts and Purchase Orders
Covered contractors are responsible to ensure their subcontractors comply. If your subcontracts and purchase orders include the full language of the EEO clause, instead of incorporating it by reference, contractors will need to update the language in their documents to reflect the new pay transparency rules.
3. Posting the New DOL Notices in the Workplace
Contractors must post the new pay transparency non-discrimination notice in the workplace. Contractors are now governed by three posting requirements under OFCCP regulations. These include posting:
- An “EEOC is the law” poster
- An “EEO is the law” poster supplement
- The new nondiscrimination notice on pay transparency
Each of these posters is available online on the OFCCP website.
Employer Defenses
When facing an audit or investigation, in addition to demonstrating that the decision to discipline the employee was for an unrelated, legitimate reason, the OFCCP recognizes two specific, but limited defenses when defending against claims for violations of the new pay transparency rule. The two defenses are: (a) the “essential job functions” defense which applies in the HR/Finance/Audit/IT personnel and (b) the “workplace rule” defense, which applies when the employer can show a different reason for the adverse action.
a. The Essential Job Functions Defense
Under the “essential job functions” defense, a contractor can defend against a claim of discrimination by showing that it took adverse action against an employee because the employee (a) had access to the compensation information of other employees or applicants as part of his or her essential job duties and (b) disclosed such information to individuals who did not otherwise have access to it. The term “essential job functions” means the fundamental job duties of the employment position an individual holds. A job function may be considered essential if (i) the access to compensation information is necessary in order to perform that function or another routinely assigned business task; or (ii) the function or duties of the position include protecting and maintaining the privacy of employee personnel records, including compensation information. The DOL has provided an example of how the defense works:
Sam is an information technology professional at a federal contractor and one of his weekly tasks is to ensure that personnel data, including individualized pay data, has not been compromised. While performing a routine security check, Sam notices that his coworker Sally makes $10,000 less a year than Ted, a colleague who does the same job as Sally. The next day, Sam informs Sally of Ted’s pay. In this example, the contractor could defend an adverse action against Sam because he revealed pay information that he discovered performing one of his essential job functions. Access to employees’ compensation data is necessary to perform one of Sam’s routinely assigned tasks. Additionally, Sam’s task involved protecting the privacy of personnel information.
b. The “Workplace Rule” Defense
The “workplace rule” defense allows for a contractor to defend against a discrimination claim by showing that it took adverse action against an employee for violating a consistently and uniformly applied workplace rule that does not prohibit employees or applicants from discussing or disclosing their compensation. That is to say, employers are not liable if they take adverse action against employees or applicants who are discussing pay while they are simultaneously violating another workplace rule. The DOL provided an example of when this defense might apply:
ABC Corporation, Inc. allows employees to take a 20-minute break for every three hours worked. Jennifer and Sally take a 30-minute break during which they discuss their pay. Their manager refuses to pay both Jennifer and Sally for the extra 10 minutes taken during their break, which is the usual penalty for exceeding the allotted 20-minute break time. In this example, the contractor can defend an allegation that it unlawfully penalized Jennifer and Sally for discussing pay by explaining that Jennifer and Sally were penalized for violating the consistently and uniformly applied workplace rule that employees lose pay if they take a break longer than 20 minutes.
Recommendations and Conclusion
Covered federal contractors and subcontractors are strongly encouraged to update their handbooks, policies, practices and guidelines to be sure that they comply with this new Rule. Policies must not expressly prohibit discussion of compensation, nor contain language that will be construed as “tending to prohibit” or discourage applicants or employees from discussing compensation.
Additionally, though the Rule does not impose any explicit training requirements, federal contractors and subcontractors should train managers and supervisors on these new rules to ensure they do not take potentially discriminatory actions against applicants or employees who discuss compensation information. In this regard, separate and apart of this new OFCCP Rule, Section 7 of the National Labor Relations Act (“NLRA”) already protects nonsupervisory employees who engage in concerted activity by discussing compensation issues with co-workers. This NLRA provision applies even in the non-union setting. Accordingly, employers who violate this new OFCCP Rule should also expect unfair labor practice charges to be filed if employees are disciplined.
Last, employers must appropriately document the reasons for disciplinary action, especially termination decisions. Whenever an employee has engaged in some form of “protected activity,” which now includes discussing compensation, in close proximity in time to the decision to discipline, the employee is going to claim retaliation. This puts a premium on making sure the reasons for disciplinary action are understood and documented at the time.
If you have questions about these issues, contact a member of Gentry Locke’s Employment & Labor team.
Footnotes [1] and [2]:
[1] The final rule is entitled “Government Contractors, Prohibitions Against Pay Secrecy Policies and Actions” and can be found here.
[2] Compared to Section 7 of the National Labor Relations Act (“NLRA”), which protects the rights of only non-supervisory employees to engage in certain protected concerted activity, this Rule provides broad protections to all employees who discuss their pay, including for both non-supervisory and supervisory-level personnel.
Thursday, January 21st, 2016
Some Advice for Business Owners with Commercial Insurance Policies
Every business that owns or operates out of a brick and mortar location needs a commercial insurance policy for that building. This we can all agree on. But what happens when the insurance policy will pay out only after the policy holder replaces the destroyed property? What happens if the insurance company (surprise, surprise) decides it may not pay at all, based on policy exclusions?
As a business owner, you can be left high and dry if you don’t have the capital to pay for the replacement up front. It is well worth the time it takes to make sure your policy actually protects you against loss on the front end.
Virginia commercial insurance policies can feature several different loss payment provisions that dictate the amount the insurance company will pay upon loss, and when they must pay it. What many Virginia business owners don’t know is that their commercial policy may not ever pay out until they replace their building and actually pay out for the replacement.
This is a problem that occurs with policies featuring “replacement cost” provisions, and their effect can be devastating if the business does not have the operating capital to fund a rebuilding project.
Replacement cost provisions may include language like this, and promise to pay you:
The amount you actually spend that is necessary to repair or replace the lost or damaged building with less costly material if available…
It’s all so clear now…or not. What exactly does this language mean?
It means that if the insurance company wants to it can force you to replace the building and pay for all that cost up front, before the insurance company will reimburse you under the policy (this provision often comes accompanied by another that allows settlement with the insurance company for actual cost value of the property in order to finance the replacement, and a supplemental replacement cost settlement 180 days later). This type of provision is acceptable under Virginia law, and it can have devastating effects on your business if things turn in a bad direction.
Let’s look at an example: a fire starts up in your building and burns the place down. The fire department thinks the fire may have started in the office kitchen, but it’s not clear whether it was caused by human error or electrical malfunction.
You have a policy featuring “replacement cost” loss payment, which means that the insurance company can delay paying you until you actually replace the building. The insurance company issues a reservation of rights letter, taking the position that because the fire might have been caused by electrical problems, the insurance company may not ever need to pay out on the policy (due to an exclusion that says the insurance company doesn’t need to pay for fires caused by electrical malfunction).
So, the insurance company is telling you that (1) you can’t get coverage payments until you actually replace the building, and (2) the insurance company may not ever repay those expenditures, depending on what it decides caused the fire. This is the perfect storm of replacement cost policies. What will you do? Pray that you have enough working capital to replace the building? Take out a loan on the replacement without knowing whether the insurance company will ever pay out? This dilemma can be compounded if the policy requires that you undertake to replace the building within a certain amount of time in order to receive coverage.
This may seem like it wouldn’t happen to your business—but it has happened, and the Virginia Supreme Court has ruled that the insurance company can do all of these things. In Whitmer v. Graphic Arts Mutual Company, the insurance company denied coverage, claiming that the owner of the burned-out building started the fire by arson. The policy featured replacement cost coverage, and required that the owner replace the building within a certain amount of time in order to get replacement cost.
The Supreme Court found that the building owner was not entitled to replacement cost, because he had not undertaken to replace the building in time, even though the insurance company was totally wrong about its claim that the owner committed arson. As a result of Whitmer, an insurance company may wrongly deny coverage, be proven wrong in court, but still not ever have to pay because the insured didn’t replace the building in time under the policy.
This is not just a 1990s thing, either. Recent cases confirm Whitmer is alive and well in Virginia. Examples? Vaughan v. First Liberty Ins. Corp., 2009 U.S. Dist. LEXIS 108045 (E.D. Va. Nov. 13, 2009) and Breton, LLC v. Graphic Arts Mut. Ins. Co., 2010 U.S. Dist. LEXIS 16274 (E.D. Va. Feb. 24, 2010) are just two.
So, don’t let this happen to you. Following are a couple of tips on how to protect yourself—now—against this perfect storm.
Look over your policy.
Take the insurance policy out of the dusty cabinet folder it has probably been sitting in since the day you got it, get a cup of coffee, and look through that policy. Does the policy have “replacement cost” coverage? You may want a lawyer to do this for you—it won’t be too expensive and shouldn’t take that much of your lawyer’s time to do.
Does the policy have replacement cost coverage? Negotiate out of it.
If the policy does have replacement cost coverage, call your insurance representative and tell him or her you don’t want replacement cost coverage. You can always negotiate, and it is worth doing this now, so that when disaster hits you won’t have a huge rebuilding project with no insurance funds to pay for it.
Friday, January 8th, 2016
How would you have handled the following personnel matter?
A supervisor and HR director met with an employee to provide him with a first-level attendance counseling. The employee became quite angry and refused to sign the counseling document. He then told the supervisor that he was incompetent (and repeated this comment over and over). He stated (and restated) that management was a “bunch of liars” and complained about low pay for him and others. When management tried to discuss his concerns with him, he told them that he did not trust them and he continued his disparaging comments. The HR manager ended the meeting. She advised the company president of the facts.
As further context, the employee does not belong to any protected classes. While his work performance was good, he was a negative person who was never satisfied. The company decided to terminate the employee for his misconduct and insubordination. Do you see any legal risks as to this decision?
A few days later, the company received notice from the National Labor Relations Board that a local union had filed an unfair labor practice charge against the company on behalf of the terminated employee. The charge alleged that the company unlawfully terminated the employee for exercising his Section 7 right to complain about the terms and conditions of his employment.
During a subsequent conversation with the NLRB’s “neutral” investigator, she informed me that the Labor Board considered the employee’s conduct to be “protected” and “concerted” because the employee complained about pay. (The Labor Board considers these to be “Protected Concerted Activity” or “PCA” cases.) As part of its investigation, the Labor Board requested 11 different categories of documents/information including the company’s entire employee handbook, a complete list of all of its employees including home address, phone numbers and email addresses, and the company’s disciplinary history as to other employees.
The company faced a challenging decision. A decision to litigate would mean that the Labor Board would likely file a Complaint that would result in a trial before a NLRB judge in a case with some legal risk. There would also be the possibility of subsequent appeals (i.e., years of litigation, expense and uncertainty). The company also needed to assess whether it was vulnerable to a union organizing effort. Fortunately, the company was able to resolve the matter quickly without having to reinstate the employee, admit any liability, or produce and information. It had to pay the employee some money, however, and also had to post a (large) NLRB settlement notice on its employee bulletin board.
This is a true story that involved a local non-union company in Virginia. It illustrates how a non-union company can unwittingly become trapped in the NLRB’s web. In this case, company management had what it believed to be an insubordinate and belligerent employee, who was employed at will and did not belong to any protected classes.
They were surprised to learn about the NLRB’s aggressive pursuit of PCA cases on behalf of terminated employees. (See https://www.nlrb.gov/rights-we-protect/protected-concerted-activity.) While it is self-serving for me to say, it is always wise for an employer to consult with experienced employment counsel before taking adverse action against an employee. Please contact me or any member of Gentry Locke’s employment law group if you have any questions about the NLRB’s activities or if you want to make sure your company remains union-free.
