Employers Council attorneys and human resources professionals receive an incredible variety of questions. Among these questions are frequent concerns about establishing compliant payroll practices, how much leave to provide to an ill or injured worker, or how to properly classify someone as an independent contractor rather than an employee. While there was a time that the answers to these questions resided in the annals and guidance of federal law and regulations, today’s employers find that their analysis must, necessarily, include an evaluation of state and local laws. Although an exhaustive review of such issues is beyond the scope of this article, please consider your own practices as employers especially with regard to the following areas.
When businesses open their doors, they will hopefully have conducted a legal review of their positions to determine who is and who is not exempt from minimum wage, overtime, meal and rest breaks, and other privileges bestowed on their workers by so-called “wage-and-hour” laws. However, when is the last time that your organization reviewed these practices?
Recent years have seen an onslaught of state and local legislation regarding payroll practices. Even overtime and minimum wage exemptions have been significantly altered by several states. Consider, for example, that Colorado law requires an “executive” employee who is exempt from overtime and minimum wage pursuant to the “executive exemption” to spend at least 50 percent of his or her time on the performance of supervisory or management functions. This subtle nuance in Colorado’s interpretation of its own wage-and-hour guidelines, currently embodied in Colorado Minimum Wage Order 34, may make a supervisor who would otherwise be considered to be exempt under federal law, a non-exempt employee in Colorado. Other states, like California, appear to have dispensed to a large degree with federal minimum wage and overtime exemptions.
As a further example, take the recent decision by the California Supreme Court in Alvarado v. Dart Container Corporation of California (Cal. 2018), where the state’s highest court upheld a “dual-formula” model for calculating overtime pay by distributing bonus payments into total compensation. This recent decision has led to a bevy of questions from Employers Council members regarding their compliance with California’s law, which is significantly different from the “one formula” model presented under existing federal regulations.
Businesses who have employees in several states must re-examine their payroll practices to ensure that these are compliant with new state laws that may have been passed since the organization last reviewed its practices, including any applicable overtime and minimum wage exemptions.
Another frequently encountered question is, “How much additional time off must employers give when an employee has exhausted job-protected leave under the Family and Medical Leave Act (FMLA)?” The answer to this question may vary greatly based on the location of the employee and may require more time off after FMLA expires.
If you do business in Colorado, Utah, or the geographic area covered by the U.S. Court of Appeals for the Tenth Circuit (which also covers Oklahoma, Kansas, and Wyoming), the standing case appears to be Hwang v. Kansas State University (10th Cir. 2014). Although Hwang addressed the Rehabilitation Act, the protections offered in that Act are similar to those offered under the Americans with Disabilities Act (ADA), as amended. Colorado employers, and those located in the other 10th Circuit jurisdictions, may limit time off as a reasonable accommodation to “up to but not including six months.”
Thus, if your business is located in, say, Utah, you may be induced to establish a medical leave policy that limits your employees to the “up to but not including six months” standard. But wait – what if you have an employee in Nevada? Or Massachusetts? Or Illinois?
The brief answer is that the policy you crafted for your Utah operation may very well be non-compliant in the other states, or conversely, it may be overly generous! The well-publicized decision in Severson v. Heartland Woodcraft, Inc. (7th Cir. 2017), which may be headed to the U.S. Supreme Court, indicates that your Illinois employees (who are covered by the 7th Circuit) may not need to be granted any time off beyond FMLA entitlements. On the other hand, your employees in Nevada and Massachusetts are governed by the interpretations of the 1st and 9th Circuit Courts of Appeal (respectively), which have held that 12 months or perhaps even more time off, i.e. far more than is provided under FMLA, may be reasonable on a case-by-case basis under the ADA. Clearly, this is another area where a “one-size-fits-all” medical leave policy may not be feasible unless you are willing to be as generous as is provided for in the most leave-friendly jurisdictions.
Independent Contractor Classification
In early 2017, the Department of Labor withdrew several Administrator’s Interpretations from 2015 and 2016 that were seen as severely limiting an organization’s ability to classify certain individuals as independent contractors. As a result, many businesses believed that their hands had been unshackled with respect to classifying individuals as contractors, rather than employees. Of course, the independent contractor classification is a serious issue, not only because contractors may not avail themselves of most of the rights guaranteed by law to employees, but there are tax consequences as well. Were these employers justified in popping the proverbial champagne bottle?
The answer is, “Maybe not.” While some states do not actively legislate in the area of employment law, and with respect to independent contractors generally, many assemblies around the country have passed such laws. A recent review of such laws by Employers Council attorneys revealed that a single independent contractor agreement is highly unlikely to suffice when reviewing the laws of the 50 states. For example, Colorado has a listing of factors that must be included in independent contractor agreements for the employer to avail itself of a favorable “presumption” that the individual is properly classified. Other states, conversely, presume that workers are employees unless an employer is able to prove otherwise. Some states have strict statutory multi-factor analyses that may apply, yet others rely on time-tested but vague analyses centering on “authority and control.”
The issue of independent contractor classifications is pervasive, as it can be triggered by a simple unemployment insurance filing. And it is risky, as an incorrect classification may result in dire tax consequences, back pay obligations, and numerous fines for technical violations.
These complications arising from state and local employment and labor laws are unlikely to subside over time. Some states have passed complex paid sick leave laws (such as California, Arizona, Washington, and New York) which differ from each other substantially. The State of California alone features over 30 different minimum wage rates. Arizona has a paid sick leave law with requirements more favorable than what is included in the paid sick leave laws of some other states, if you count out the six local (i.e. sub-state-level) paid sick leave statutes in California. Colorado wage-and-hour law may vary substantially from federal law, but only if you are a member of certain industries.
Employers Council membership covers a multitude of states and numerous attorneys are licensed in more than one state. These attorneys are also able to perform complex preventative audits that may help you to determine whether the “multi-state threat” attaches to you. Don’t be caught in a situation where you must explain to a state labor agency why you did not factor in their state’s employment laws – federal compliance in this area provides a limited defense, if any. Know your requirements!