Financial Services Employment Law

News, Updates, and Insights for Financial Services Employers

The NLRB Slams a Non-Union Financial Services Employer Over Its Commonplace Employee Manual Rules

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Jonathan L. ShapiroLauri F. RasnickIn a recent decision, a National Labor Relations Board (“NLRB”) Administrative Law Judge (“ALJ”) ruled that Quicken Loans’s (the “Company”) Detroit, Michigan branch (along with five related entities) violated the National Labor Relations Act (“NLRA”) by using and disseminating an employee manual in its non-union workplace that the ALJ concluded interfered with employees’ rights under the NLRA.  This was yet another case in which the NLRB took aim against Quicken Loans for adopting work rules and/or policies that an ALJ found would “chill” non-unionized employees in the exercise of their rights under the NLRA.  As we previously discussed in another blog post, in March 2016, the NLRB found that the Company’s branch in Scottsdale, Arizona violated the NLRA by implementing unlawful work rules after one of its bankers used profanity and complained about a client in an office restroom.

The most recent case revolved around a 238-page employee manual referred to as the “Big Book.”  In Quicken Loans Inc. et al. and Hugh MacEachern, Case Number 07-CA-145794, an ALJ found a number of provisions in the Big Book unlawfully interfered with employees’ rights to engage in concerted activities concerning their terms and conditions of employment.  Although Quicken Loans has vowed to appeal the April decision to the Board in Washington for setting a “dangerous precedent,” the decision in reality follows a long line of NLRB precedents that have taken a buzz-saw to employment policies and agreements where it believes they may interfere with employees’ protected Section 7 activity (i.e., activity that implicates employees’ right to form, join or assist labor organizations or collectively bargain or act for their mutual aid and protection).  In this latest decision, the ALJ reviewed a number of the Big Book’s rules, ultimately finding many, but not all, to be unlawful on account of being “overbroad,” which the ALJ explained means is a rule that is broader than necessary to protect the employer’s legitimate interest and that “employees would reasonably interpret . . . to encompass protected activities” under the NLRA.  We list and discuss some of these rules below to shed light on what the NLRB considers to be unlawful interference with employees’ rights, as opposed to a lawful work rule.

Found to be Unlawful Rules:

  • “This book contains confidential information that must not be disclosed outside the Company or used for purposes other than for the Company’s legitimate business purposes. This book or any of its contents may not be reproduced or disseminated to anyone not employed by the Company.” The ALJ concluded this rule was overbroad and would be seen by employees as prohibiting actions protected by the NLRA because there was no way for an employee to know what portions of the Big Book were confidential. Moreover, a blanket prohibition on dissemination of “any of [the Big Book’s] contents” was overbroad because the Big Book discussed matters relating to the terms and conditions of employment.
  • “Think before you Tweet. Or post, comment or pin. What you share can live forever. If it doesn’t belong on the front page of the New York Times, don’t put it online.” The ALJ found this to be a violation of the NLRA because an employee considering this rule would reasonably feel chilled from expressing negative, but protected, information about the Company, which is protected by the NLRA.
  • “The Company recognizes that team members may desire to display mementos pertaining to family or other personal items. However, nothing can be displayed that is, or could be deemed to be, harmful or offensive to a reasonable person and his or her system of beliefs.” The ALJ concluded this rule was unlawful because a reasonable employee would “think twice” in the face of this rule before displaying pro-union mementos and thus would see it as a prohibition on union related activity.
  • “The Company’s buildings, offices, common areas . . . are to be used only for conducting Company business and transactions, and for no other purpose.” The ALJ found this rule was unlawful because an employee would reasonably understand it to bar solicitation and other protected activity at times and in places where such activities are protected by the NLRA.
  •  “You shall not photograph or record through any means the Company’s operations, systems, presentations, communications, voicemails, or meetings.” The ALJ found that this policy was unlawful because employees would likely understand this to prohibit protected activity, such as the recording of a meeting held to discuss wages and other terms and conditions of employment.
  •  “[You may not use] Company Resources to engage in inappropriate acts that exhibit conduct that is not in the best interests of the Company, its clients, or Team Members”; “[You may not use a] signature line that contain religious, political, sexual or other inappropriate content.” The ALJ found the first rule was overbroad and unlawfully interfered with employees’ rights because an employee would believe that using email to harshly criticize the terms and conditions of employment would be considered “inappropriate” action “not in the best interest of the Company.” Similarly, the ALJ held that the second rule was unlawful and interfered with employees’ statutory rights because an employee would likely believe that “inappropriate content” would include speech protected by Section 7 of the NLRA.
  •  “[You may not] “Communicat[e] with the media without express authorization from the Corporate Communications Team.” The ALJ found this to be a “straightforward” violation of the NLRA because employees have a right to communicate with the media on subjects relating to their terms and conditions of employment, including but not limited to formation of and membership in and representation by unions.

Found to be Lawful Rules:

  • “From time to time, team members may have access to private Company information, for example, information about financial performance, strategy, forecasts, etc. Such information is confidential, any may not be shared with people or entities outside the Company—including members of the media.” The ALJ said this provision was lawful because, based on the explanation of the type of information covered by the rule, employees would reasonably understand that the rule related to their employers’ interest in the security of their proprietary information and not to information protected by Section 7.
  •  Unacceptable conduct includes: “Harassment: verbal, physical, or visual harassment of a team member, client, consultant, business partner, vendor or any other person associated with the Company.” The ALJ stated that this was lawful because employees have a right to a workplace free of unlawful harassment.
  • “You acknowledge and agree that: (a) all documents . . . and (b) all office equipment and supplies . . . are and shall remain the property of the Company . . . The ALJ held that this was lawful because it included no language prohibiting the sharing, copying or dissemination of employee lists or other information that is described as company property.
  • Transmission of Sensitive Information. Sensitive information must not be transmitted over the Internet without prior management approval.” The ALJ said that this was lawful because the Big Book defined Sensitive Information and provided 21 examples of such information. Thus, it would be unreasonable for an employee to conclude that he was precluded by this work rule from transmitting Section 7 information.
  •  “Personal Electronic Devices. Approval from management . . . is needed before any Sensitive Company information is stored on a personal electronic device, and the amount of information stored should be kept to a minimum. Special protection needs to be enabled on each device to ensure that the stored information is kept secure. The ALJ found that an employee would not likely construe “sensitive” information to include information protected by Section 7 activity.

Based on the findings, the ALJ ordered Respondents to cease and desist from maintaining the overly broad work rules.  Respondents, however, had already done so:  on December 4, 2015, by email notice sent to all employees, the Respondents rescinded all versions of the Big Book, effective immediately.

This case is yet another example of the NLRB’s continued broad view of what constitutes “concerted protected activity,” “work rules” and unlawful activity under the Act.  Because the distinction between an overbroad and lawful work rule is not always clear-cut, any employer subject to the Act (one whose company affects commerce) should carefully review its various agreements and policies, whether in an nondisclosure agreement, offer letter, handbook, manual, separation agreement, or the like to ensure that they do not contain rules that would potentially chill union-related activities.  Taking a proactive approach will put employers in the best possible position if they have to face scrutiny from the NLRB.

NLRB Argues “Misclassification” of Independent Contractors Is Unfair Labor Practice

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Our colleague Steven M. Swirsky, a Member of the Firm at Epstein Becker Green, has a post on the Management Memo blog that will be of interest to many of our readers in the financial services industry: “NLRB Argues ‘Misclassification’ as an Independent Contractor Is Unfair Labor Practice.”

Following is an excerpt:

In a further incursion into the area of the gig and new age economy, the Regional Director for the National Labor Relations Board’s Los Angeles office has issued an unfair labor practice complaint alleging that it is a violation of the National Labor Relations Act (the “Act”) for an employer to misclassify an employee as an independent contractor. …

The issuance of the complaint in this case comes less than a month after the Board’s General Counsel issued General Counsel Memorandum 16-01, Mandatory Submissions to Advice, identifying the types of cases that reflected “matters that involve General Counsel initiatives and/or priority areas of the law and labor policy.”  Among the top priorities are “Cases involving the employment status of workers in the on-demand economy,” and “Cases involving the question of whether the misclassification of employees as independent contractors,” which as reflected in the IBT complaint the General Counsel contends violates Section 8(a)(1) of the Act.

Read the full post here.

New Online Recruiting Accessibility Tool Could Help Forestall ADA Claims by Applicants With Disabilities

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Frank C. Morris, Jr.

Frank C. Morris, Jr.

In recent years, employers have increasingly turned to web based recruiting technologies and online applications. For some potential job applicants, including individuals with disabilities, such as those who are blind or have low vision, online technologies for seeking positions can prove problematic. For example, some recruiting technologies and web-based job applications may not work for individuals with disabilities who use screen readers to access information on the web. The U.S. Department of Labor’s Office of Disability Employment Policy (ODEP) recently announced the launch of “TalentWorks.” TalentWorks is a free online resource intended to assist employers in providing accessibility in their web based job applications and recruiting technologies for job seekers with disabilities.

TalentWorks can provide background information on accessibility and e-recruiting in addition to tips for providing online job applications, digital interviews, pre-employment tests and resume upload programs that are accessible. The tool was created by DOL’s ODEP’s Partnership on Employment and Accessible Technology (PEAT). The PEAT developed the tool after a national survey of people with disabilities found 46% of the respondents rated their most recent online job application experience as “difficult as to impossible.”

Employers would be well advised to review TalentWorks in connection with their online recruiting efforts because if their online recruiting tools are not accessible to individuals with disabilities, they may be targeted for alleged Americans with Disabilities Act (ADA) violations by individuals, advocacy groups for the disabled and the EEOC – particularly if they do not provide alternative, regularly used, legitimate methods for job application. Moreover, federal contractors now have specific affirmative action goals for individuals with disabilities. In any audit of a contractor by DOL’s Office of Federal Contract Compliance Programs (OFCCP), it is likely that OFCCP will scrutinize whether the contractor’s avenues for job applications, including online recruiting, is accessible to individuals with disabilities. Further, a contractor may not be able to meet its goals for hiring of people with disabilities if their application process is not accessible.

The U.S. Department of Justice (DOJ) has investigated a number of cities and universities for alleged ADA violations in connection with their application, recruitment and training processes. DOJ’s enforcement activities have resulted in various settlement agreements requiring the cities (see page 4) and universities involved to make their application processes accessible to individuals with disabilities (See specifically Paragraph 22).

In light of such potential claims, we are working with employers on assessing their online recruiting and application processes, as well as their websites, to enhance accessibility and reduce potential exposure to ADA claims. With DOL’s focus on this issue with TalentWorks, it is clear that this is an issue that will continue to attract increasing attention and enforcement activity.

Employers: Caregivers Will Be Protected Under New York City’s Human Rights Law

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Our colleagues Peter M. Panken, Nancy L. Gunzenhauser, and Marc-Joseph Gansah have a post on the Retail Labor and Employment Blog that will be of interest to many of our readers in the financial services industry: “Employers Should Care About This: New York City’s Amendment on Caregiver Discrimination.”

Following is an excerpt:

The New York City’s Human Rights law (“NYCHRL”) prohibits employment discrimination against specified protected classes of employees and applicants including:

race, color, creed, age, national origin, alienage or citizenship status, gender, sexual orientation, disability, marital status, partnership status, any lawful source of income, status as a victim of domestic violence or status as a victim of sex offenses or stalking, whether children are, may be or would be residing with a person or conviction or arrest record.

If this list wasn’t long enough, on May 4, 2016, NYCHRL will add “caregivers” to the protected classes including, anyone who provides ongoing medical or “daily living” care for a minor, any disabled relative or disabled non-relative who lives in the caregiver’s household. …

Read the full post here.

DOL’s Continued Expansion of Worker Coverage Remains a Top Wage and Hour Concern

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The DOL has been steadfast in expanding worker coverage under the Fair Labor Standards Act (“FLSA”), and the financial services industry, like most, will be affected. The DOL’s initiative began on July 6, 2015, when it published a Notice of Proposed Rulemaking (“NPR”) that is expected to extend overtime protection to almost five million white-collar workers who are currently not entitled to overtime pay because they are classified as exempt. The NPR, which is expected to be finalized in July 2016, will likely more than double the salary threshold to qualify for FLSA exemption under the executive, administrative, or professional exemption, increasing it to $970 per week, or $50,440 per year. In addition, the highly compensated employee exemption, which, if satisfied, lightens the duties requirements of the executive, administrative, or professional exemptions, is expected to increase from $100,000 to $122,148. Once in place, these salary threshold requirements are expected to increase annually to adjust for inflation, which has not previously been the case.

Less than two weeks later, on July 15, 2015, the DOL issued Administrator’s Interpretation No. 2015-1 on independent contractor misclassification, promoting the now famous “tagline” that most workers are employees—and not independent contractors—who are, therefore, covered by the FLSA. To support its position, the DOL redefined its long-standing “economic realities” test, which courts rely upon when determining whether there exists an employer-employee relationship. The traditional economic realities test includes the following non-dispositive criteria: (i) the degree of control exercised by the business over the worker; (ii) the worker’s opportunity for profit or loss; (iii) the degree of skill and independent initiative required to perform the work; (iv) the permanence or duration of the working relationship; (v) the extent to which the work is an integral part of the business; and (vi) the worker’s investment in his or her own business. In this Administrator’s Interpretation, however, the DOL significantly revised this objective test by radically redefining the factors to promote “employee” status.

Not resting on its already significant initiative, on January 20, 2016, the DOL issued Administrator’s Interpretation No. 2016-1 (“new Interpretation”) concerning joint-employment liability. The new Interpretation provides that businesses that utilize employees of third-party employers may be considered joint employers of those workers and therefore covered by the FLSA. Also, the new Interpretation states that joint employment often involves a “larger and more established” employer “with a greater ability to implement policy or systemic changes to ensure compliance.” The DOL explains that investigators may hold the larger company responsible for “financial recovery” and “future compliance.” The larger companies are undoubtedly more important to the DOL as they are the deep-pocket joint employer that can be held responsible for the entire amount of back wages owed.

The new Interpretation explains that there are two types of joint employment on which the DOL will focus: horizontal and vertical relationships. Horizontal joint employment exists when an employee has employment relationships with two or more related or commonly owned businesses. In assessing horizontal joint employment, the DOL focuses on the relationship between the businesses, not the workers. The DOL explains that a horizontal joint-employment relationship may exist in situations when: (i) employers share an employee’s services, (ii) one employer acts in the interest of the other employer in relation to the employee, or (iii) one employer controls the other employer and therefore shares control of the other employer.

Vertical joint employment exists when a worker provides services to one company while being formally employed by a third party, such as a labor supplier. To determine whether joint employment exists, the DOL analyzes whether an employee of one business, the labor supplier, is economically dependent on another business that utilizes the labor supplier’s employee.

In light of the DOL’s ongoing initiative to increase coverage under the FLSA, businesses should carefully consider their relationships with independent contractors and their labor supply workforce. Businesses should closely monitor their relationships with independent contractors and be disciplined in limiting their engagement with contractors to discrete projects of a finite duration. In addition, businesses should avoid using contractors as headcount replacement. Doing so places firms at risk for claims by individuals that they were misclassified and entitled to pay and benefits.

With respect to using a labor supplier’s employees, businesses should effectively “partner” with the labor supplier. As part of any services agreement, labor suppliers should explicitly represent that they are treating their workers as employees, and not as independent contractors. Businesses should also have the right to review the labor supplier’s employment records for the workers it supplies to confirm FLSA compliance. In addition, financial services firms may want to pay careful attention to the contracts between them and the labor suppliers, confirming that such contracts contain: (i) appropriate forum and choice of law provisions, (ii) representations regarding wage and hour and other legal practices, and (iii) an explicit indemnification by the labor supplier for any liability arising from a joint-employment relationship.

A version of this article originally appeared in the Take 5 newsletter “Five Employment Law Compliance Topics of Interest to Financial Services Industry Employers.”

NLRB Finds a Non-Union Employee’s Foul-Mouthed Complaining About Clients Protected Activity and Slams Employer’s Separation Agreement

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NLRB Finds a Non-Union Employee’s Foul-MouthedA recent National Labor Relations Board (“NLRB”) decision by an Administrative Law Judge (“ALJ”) found numerous violations of the National Labor Relations Act (the “Act”) stemming from the reaction of a mortgage brokerage firm to a conversation in which one of its bankers used profanity and complained about a client in an office restroom.  While this decision may seem extreme to some, it is also an example of the expansive view that the NLRB is taking in deciding what types of employee communication and activities, particularly with respect to non-unionized workforces, will be found to be protected by the Act as “concerted activity” relating to employees’ terms and conditions of employment.

A brief overview of the facts is worth reciting to shed light on the decision.  Quicken Loans, Inc. and Austin Laff, an Individual, Case Number 28-CA-146517, centered around Austin Laff, a mortgage banker, who had a conversation with a co-worker, another mortgage banker, in a workplace restroom near the company reception area.  While the precise content of the conversation was in dispute, Laff claimed that he asked the other banker how it was going and that this banker then complained about a new client that “should get in touch with a [f-ing] Client Care Specialist and quit wasting his [f-ing] time.”  A supervisor who overheard the conversation thereafter sent an email to all employees in the Company’s Arizona’s office stating, “Under no circumstances should we be discussing the pay we receive, in an area that a client or potential client could ever hear us. . . . Never, EVER should we be swearing in the bathroom especially about clients.”  When Laff was later questioned by another supervisor about the restroom conversation, he claimed “that he had no clue” about the incident.  Given his complete denial, Laff was given separation documents and terminated.  After the termination, Laff claimed he was party to the conversation but it was his co-worker who made the alleged comments.  The Company then issued a disciplinary warning to the co-worker for making the comments.

Laff filed an unfair labor practice charge with the NLRB, claiming he had been terminated for engaging in actions protected by the Act.  Following an investigation, the Board’s Regional Director issued a complaint and the matter was referred to a hearing before an ALJ to determine the facts and assess whether the employer had violated the Act.  Notably, in cases such as this, where there are disputed facts, the NLRB will refer the cases for hearing.

After a 3 day trial, the ALJ found multiple violations of the Act.  We highlight a few of these findings as they reflect the expansive definition that the NLRB is applying to protected concerted activity in recent times:

  • Laff and His Co-worker Engaged in Concerted Protected Activity. Section 7 of the Act, in pertinent part, states: “Employees shall have the right to self-organization to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid and protection.” Finding that Laff and his co-worker were discussing “common concerns regarding terms and conditions of their employment,” including how calls are forwarded and whose responsibility it was to field calls with the goal of improving terms and conditions of employment, the ALJ concluded that their discussions were concerted protected activity. The fact that their conversation was arguably only preliminary (i.e., one that only laid the groundwork for possible further group activity) did not change the conclusion.
  • The Termination of Laff and Discipline of the Co-worker Violated the Act. Given that Laff and the co-worker were engaged in concerted protected activity that formed the basis of their alleged misconduct, the ALJ determined that the discharge and warning violated the Act. The ALJ rejected the Company’s assertion that it would have disciplined the co-worker in the absence of the protected activities due to his profanity because there was evidence of regular and tolerated use of profanity in the workplace.
  • The Email to Employees About Appropriate Language Constituted Unlawful Rules. A work rule violates Section 8(a)(1) of the Act if it “would reasonably chill employees in the exercise of their statutory rights.” The ALJ found that the email sent by the supervisor contained rules that were unlawful on their face because they specifically prohibited employees from discussing their terms and conditions of employment and their pay, even though the restriction of such discussions may actually have been intended to be limited to instances in which clients or potential clients could overhear based on the ALJ’s view that anyone could be a “potential client.” Likewise, the ALJ found that the rule, “Never, EVER should we be swearing in the bathroom, especially about clients,” and the prohibition against stating “that clients that call in are wasting your [expletive] time” also violated the Act because they were promulgated in direct response to Section 7 concerted and protected activity.
  • Laff Was Unlawfully Interrogated. Questioning by an employer regarding the employees’ own concerted protected activity or that of other employees is unlawful under the Act if it would reasonably have a tendency to interfere with, restrain or coerce employees in the exercise of their Section 7 rights. The supervisor’s questioning of Laff was found to be improper because rather than ask whether he had engaged in any specific misconduct, he was asked whether he saw the office-wide email and if “he had any part in the situation that went down.” This questioning was considered to be coercive and to violate Section 8(a)(1).
  • Standard Separation Documents Provided to Laff Violated the Act. In addition to finding the confidentiality provision of the separation agreement improperly overbroad, the ALJ found that the agreement’s fairly standard obligation to return all company property was overly broad because it restricted employees from providing items like employee handbooks to government agencies and private counsel. Additionally, the ALJ determined that the agreement’s non-solicitation provision restricting employees from contacting or soliciting the Company’s employees or clients “for any reason” was overly broad and unlawful. Citing a 2013 decision that also involved Quicken Loans, the ALJ stated that employees are allowed to criticize their employer and its products under Section 7, and sometimes they do so in appealing to the public or to their fellow employees in order to gain support.

This case demonstrates the current broad view of the NLRB as to what constitutes a “concerted protected activity,” interrogation, “work rules” and unlawful activity under the Act.  In light of this, employers subject to the Act (essentially employers whose companies affect commerce) should be mindful that disciplining or terminating employees who may be engaged in concerted activities (such as complaining about clients) may run afoul of Section 8 of the Act.  Employers also should look at their various agreements (handbooks, offer letters, manuals, separation agreements, etc.) to ensure that they do not require employees to keep secret “all” proprietary/confidential information, prohibit employees from soliciting employees or clients “for any reason,” or require employees to return “all” company property.  Such requirements may be deemed overly broad and unlawful.  Finally, managers should be cautioned about sending emails or communicating other broad requirements that could be deemed overbroad work rules.

DOL’s New Persuader Rule Is Intended to Aid Union Organizing

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Our colleagues Adam C. Abrahms and Steven M. Swirsky, attorneys at Epstein Becker Green, have a post on the Management Memo blog that will be of interest to many of our readers in the financial industry: “Department of Labor Releases New Persuader Rule Intended to Aid Union Organizing.”

The US Department of Labor has finally issued its long awaited Final Rule radically reinterpreting the “Advice Exemption” to the Labor Management Reporting and Disclosure Act of 1959 (“LMRDA.”).  The Final Rule eviscerates any meaningful use of the Advice Exemption, which would be swallowed up by the new expansive definition of persuader activity which could include discussion regarding strategy, reviews of employer drafts and myriad other ways labor attorneys currently aid their clients including essentially any meaningful advice or counsel provided by labor counsel. The move comes just over two years to the day from the DOL’s 2014 postponement of its issuance of the Final Rule. …

Read the full post here.

Compensation Practices of Financial Services Companies Are Likely to Be Targeted by the OFCCP

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With the release of President Obama’s budget for the DOL on February 9, 2016, the Office of Federal Contract Compliance Programs (“OFCCP”) announced two top enforcement priorities for 2016. First, the OFCCP will continue to identify and address systemic pay discrimination in its efforts to reduce the gender and race-based pay gap.  Second, the OFCCP will establish regional centers staffed with “highly skilled and specialized compliance officers” to conduct “large, complex compliance evaluations” in specific industries, including the financial services industry.

When President Obama signed the Lilly Ledbetter Fair Pay Act after taking office seven years ago, he made clear his commitment to equal pay for equal work. Since then, the OFCCP has taken steps to fulfill that commitment. With the release of the OFCCP’s 2017 budget, government contractors can count on larger, more complex and thorough compliance investigations specifically aimed at rooting out unlawful pay discrimination. Financial services companies are in an industry specifically targeted by the OFCCP and should expect more audits and greater scrutiny of their compensation practices. The OFCCP’s scrutiny of companies within its jurisdiction at a minimum will include requiring a company to produce compensation data on each U.S.-based employee located at the audited facility, identify factors used to determine employee compensation, and submit policies and documentation concerning the company’s compensation practices.

The OFCCP has jurisdiction pursuant Executive Order 11246 over any financial services company that (i) holds a single government contract or subcontract in excess of $10,000; (ii) holds government contracts or subcontracts that combined are in excess of $10,000 in any 12-month period; (iii) holds government bills of lading; (iv) is a depository of federal funds in any amount; or (v) is a financial institution that is an issuing and paying agent for U.S. savings bonds and notes. Those with contracts in excess of $50,000 are required to maintain written affirmative action programs. The thresholds are higher under the Rehabilitation Act of 1973 and the Vietnam Era Veterans’ Readjustment Assistance Act.

Often overlooked, financial institutions with federal share and deposit insurance, whether with the Federal Deposit Insurance Corporation (“FDIC”) or the National Credit Union Association (“NCUA”), are  considered contractors subject to OFCCP jurisdiction. Although the FDIC and NCUA do not use government-appropriated funds, and are not subject to the Federal Acquisition Regulation, the OFCCP maintains that they are contracting government agencies for affirmative action purposes, and by definition, government contracts include contracts for nonpersonal services, including insurance services.

In another recent development, the OFCCP final rule implementing President Obama’s Executive Order 13665 (“Final Rule”) went into effect January 11, 2016. The Final Rule extends pay transparency protections to all employees and applicants. The Final Rule prohibits contractors subject to the Executive Order, when entering into a new or modified contract on or after that date, from discriminating against any employee or applicant for employment for inquiring about, discussing, or disclosing his or her compensation, or the compensation of another employee or applicant. Although the National Labor Relations Act provides similar protections, it does not extend the protections to supervisors, managers, agricultural workers, and employees of rail and air carriers. Under the Final Rule, however, those employees are protected. Contractors are required to notify employees and applicants of their rights by including the Pay Transparency Nondiscrimination Provision prepared by the OFCCP in their employee manual or handbook and either electronically posting the provision on contractor’s career web page or posting a copy in conspicuous places at their facilities.

Finally, on January 29, 2016, the U.S. Equal Employment Opportunity Commission (“EEOC”) proposed revisions to the Employer Information Report (“EEO-1 report”). As proposed, contractors and employers with 100 or more employees would have to submit pay data on their workforce when filing their EEO-1 report. In addition to disclosing the number of employees working in each EEO-1 job category by gender and race/ethnicity, contractors and employers would be required to provide pay data on each employee’s W-2 earnings, along with the total hours worked by the employee. The pay data and hours worked would be submitted in the aggregate showing the total number of employees, and the total number of hours of employees, by gender and race/ethnicity within each EEO-1 job category slotted into 12 pay bands. Each pay band provides a range of compensation received by employees and is used to distinguish different levels of compensation. For example, employees earning from $49,920 to $62,919 would fall within Pay Band 6, while employees earning $208,000 or more would fall within Pay Band 12.

The new EEO-1 report would allow the EEOC and OFCCP to use the employer pay data to “assess complaints of discrimination, focus investigations, and identify employers with existing pay disparities that might warrant further investigation.” Specifically, the pay bands would allow the EEOC and OFCCP to compute within-job category variation, across-job-category variation, and overall variation, looking at W-2 pay distribution within an establishment, and comparing the establishment’s data to aggregate industry data, which would support their ability to detect potential discrimination. While the proposed revisions are now subject to comments and possible changes, going forward, it is clear that the OFCCP, in partnership with the EEOC, will be stepping up its efforts during compliance reviews, specifically scrutinizing contractors’ compensation, in an attempt to root out pay discrimination and close the earnings gap.

A version of this article originally appeared in the Take 5 newsletter “Five Employment Law Compliance Topics of Interest to Financial Services Industry Employers.”

 

Congress Attempts to Expand Whistleblower Protections – Employment Law This Week

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A featured story on Employment Law This Week is the new legislation proposed in Congress that aims to clarify whistleblower policies.

The Whistleblower Augmented Reward and Non-Retaliation Act would expand protections for those who blow the whistle on financial crimes. The bill would also resolve a circuit court split on the definition of “whistleblower,” expanding the scope of the term to specifically include employees who only report violations internally, without filing with the SEC or CFTC. The WARN Act aims to broaden monetary incentives for whistleblowers, and increase the scope of protected activities and prohibited retaliation. Whether or not this bill moves forward, we’re likely to see some movement soon on the circuit conflict it addresses, either by legislation or by the courts.

View the episode below or read more about this legislation in an earlier post on this blog.

SEC Makes Cybersecurity an Examination Priority for 2016

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Businesses of all sizes and in virtually every industry face the daily threat of a data breach or other cybersecurity event, as well as the challenge of managing the potentially catastrophic economic and reputational harm that can flow from such an incident. Further complicating matters is that these threats can come from any number of sources: hackers, phishers, spammers, bot-network operators, spyware and malware authors, insiders, other nations, organized criminal groups, and terrorists. SEC regulations require registered financial institutions—including broker-dealers, investment companies, and investment advisers—to adopt written policies and procedures reasonably designed to ensure the security and confidentiality of customer information and records. In the last few years, the SEC has become increasingly vocal about cybersecurity compliance. For example, SEC Commissioner Luis A. Aguilar, in his speech entitled “Boards of Directors, Corporate Governance and Cyber-Risks: Sharpening the Focus,” noted that “boards that choose to ignore, or minimize, the importance of cybersecurity responsibility do so at their own peril.” It should come as no surprise, then, that the SEC recently announced that cybersecurity compliance will be one its selected examination priorities in 2016. The inspection and examination priorities selected by the SEC “reflect certain practices and products that [the Office of Compliance Inspections and Examinations] perceives to present potentially heightened risk to investors and/or the integrity of the U.S. capital markets.” The recent announcement is a natural continuation of the SEC’s focus on cybersecurity in the financial services industry.

In April 2014, after holding a roundtable discussion with industry representatives, the SEC announced a series of examinations to identify and assess cybersecurity risks and preparedness in the securities industry. In February 2015, the Financial Industry Regulatory Authority (“FINRA”) released a “Report on Cybersecurity Practices.” As FINRA observed, the frequency and sophistication of cyber attacks are increasing, and it is imperative to have fundamental controls in place to manage risk and reduce the threat.

Subsequently, in September 2015, the SEC launched a second initiative to examine the cybersecurity compliance and controls in place at broker-dealers and investment advisory firms. The SEC expressed concern regarding public reports that had identified cybersecurity breaches related to weaknesses in basic data controls. As a result, this second initiative focused on governance and risk assessment, access rights and controls, data loss prevention, vendor management, training, and incident responses.

Shortly thereafter, the SEC announced that a St. Louis-based investment adviser had agreed to settle charges that it failed to establish the required cybersecurity policies and procedures in advance of a breach that compromised the personally identifiable information of approximately 100,000 individuals, including thousands of the firm’s clients. At the time, an SEC representative emphasized that “[a]s we see an increasing barrage of cyber attacks on financial firms, it is important to enforce the safeguards rule even in cases like this when there is no apparent financial harm to clients . . . Firms must adopt written policies to protect their clients’ private information and they need to anticipate potential cybersecurity events and have clear procedures in place rather than waiting to react once a breach occurs.” Without admitting any wrongdoing, the firm agreed to cease and desist and pay a $75,000 fine.

In the recent statement, the SEC indicated that, to advance the efforts announced last September, the 2016 examinations will be looking at structural risks and trends that may involve multiple firms or entire industries. The examinations will include the testing and assessment of the implementation of procedures and controls at the target companies. Companies subject to the SEC’s jurisdiction are therefore well advised to make cybersecurity and data privacy a priority in their own compliance regimes.

A version of this article originally appeared in the Take 5 newsletter “Five Employment Law Compliance Topics of Interest to Financial Services Industry Employers.”