Financial Services Employment Law

News, Updates, and Insights for Financial Services Employers

D.C. Mayor Signs Ban on Most Employment Credit Inquiries

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Our colleagues Brian W. Steinbach and Judah L. Rosenblatt, at Epstein Becker Green, have a post on the Heath Employment and Labor blog that will be of interest to many of our readers in the financial services industry: “Mayor Signs District of Columbia Ban on Most Employment Credit Inquiries.”

Following is an excerpt:

On February 15, 2017, Mayor Muriel Bowser signed the “Fair Credit in Employment Amendment Act of 2016” (“Act”) (D.C. Act A21-0673) previously passed by the D.C. Council. The Act amends the Human Rights Act of 1977 to add “credit information” as a trait protected from discrimination and makes it a discriminatory practice for most employers to directly or indirectly require, request, suggest, or cause an employee (prospective or current) to submit credit information, or use, accept, refer to, or inquire into an employee’s credit information. …

Read the full post here.

New DOL FAQs Provide Additional Guidance (and Comfort) for Plan Sponsors

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Sharon L. LippettBased on recent guidance from the Department of Labor (the “DOL”), many sponsors of employee benefit plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA Plans”) should have additional comfort regarding the impact of the conflict of interest rule released by the DOL in April 2016 (the “Rule”) on their plans. Even though it is widely expected that the Trump administration will delay implementation of the Rule, in mid-January 2017, the DOL released its “Conflict of Interest FAQs (Part II – Rule)”, which addresses topics relevant to ERISA Plan sponsors.  As explained below, these FAQs indicate that the Rule, as currently designed, should not require a large number of significant changes in the administration of most ERISA Plans.

Covered Fiduciary Investment Advice Clarified

The FAQs indicate that most of the communications between ERISA Plan sponsors and their employees and plan participants will not be considered fiduciary investment advice covered by the Rule. Under the Rule, a “recommendation” is defined as a communication that, based on its content, context, and presentation, would reasonably be viewed as a suggestion that the advice recipient (for example, an ERISA Plan participant) engage in or refrain from taking a particular investment-related course of action.  An investment-related course of action includes recommendations on transfers, distributions and rollovers from a plan or IRA.  This distinction between recommendations and other types of communication is important because, if the person making the recommendation receives a fee or other compensation (direct or indirect), then the recommendation is fiduciary investment advice that is covered by the Rule.

For example, the DOL confirms that a recommendation to an ERISA Plan participant from the plan sponsor to increase plan contributions is not investment advice, as long as the plan sponsor does not receive a fee or other compensation for the recommendation. The DOL further states that, when employees of an ERISA Plan sponsor develop reports, recommendations and other deliverables for their employer, those employees are not providing fiduciary investment advice that is covered by the Rule.

Several of the FAQs explain why information frequently provided by ERISA Plan sponsors or their delegates to plan participants can be considered investment education, which is non-fiduciary advice and not covered by the Rule.  The DOL provides the following information:

  • Product Feature Information. Information on product features, investor rights and obligations, fee and expense information, risk and return characteristics or historical return provided by representatives in the call center for a 401(k) plan (a type of ERISA Plan) is not investment advice, as long as the call center representatives do not address the appropriateness of the product for a particular ERISA Plan participant. The DOL indicates that this type of information is considered “plan information”, which is a type of investment education.
  • Increasing Contributions. Information provided to an ERISA Plan participant by a call center representative about the benefits of increasing contributions to a 401(k) plan to maximize the plan match is investment education and not investment advice.
  • Certain Interactive Investment Tools. Interactive investment tools that help ERISA Plan participants estimate future retirement needs and assess the impact of different asset allocations on retirement income may be treated as investment education, if the tools satisfy the conditions outlined in the Rule. These conditions include a requirement that the materials be based on generally accepted investment theories that take into account the historic returns of different asset classes.
  • An Asset Allocation Model. An asset allocation model offered by an ERISA Plan that is limited to the plan’s 15 designated core investments is investment education, even if the plan also has a brokerage window that offers an additional 2000 investment options. However, the model must provide information required by the Rule on the plan’s other designated investment alternatives with similar risk and return characteristics. The required information includes a statement identifying where information on these investment alternatives may be obtained.

Next Steps for Plan Sponsors

Based on these FAQs, many ERISA Plan sponsors will be able to conclude that most of their current plan administration policies and procedures will not run afoul of the Rule. Even if the DOL under the Trump administration modifies the Rule, it is unlikely that such modifications will impose significant additional restrictions or obligations on ERISA Plan sponsors.

Five Issues Financial Services Employers Should Monitor Under the Trump Administration

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

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

Governor Andrew D. Cuomo Introduces Employee Protective Mandates in New York State

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Our colleagues Judah L. Rosenblatt, Jeffrey H. Ruzal, and Susan Gross Sholinsky, at Epstein Becker Green, have a post on the Hospitality Labor and Employment Law Blog that will be of interest to many of our readers in the financial services industry: “Where Federal Expectations Are Low Governor Cuomo Introduces Employee Protective Mandates in New York.”

Following is an excerpt:

Earlier this week New York Governor Andrew D. Cuomo (D) signed two executive orders and announced a series of legislative proposals specifically aimed at eliminating the wage gap in gender, among other workers and strengthening equal pay protection in New York State. The Governor’s actions are seen by many as an alternative to employer-focused federal policies anticipated once President-elect Donald J. Trump (R) takes office. …

According to the Governor’s Press Release, the Governor will seek to amend State law to hold the top 10 members of out-of-state limited liability companies (“LLC”) personally financially liable for unsatisfied judgments for unpaid wages. This law already exists with respect to in-state and out-of-state corporations, as well as in-state LLCs. The Governor is also seeking to empower the Labor Commissioner to pursue judgments against the top 10 owners of any corporations or domestic or foreign LLCs for wage liabilities on behalf of workers with unpaid wage claims. …

Read the full post here.

Are You Prepared to Ban the Box? New Ordinances Prohibit Los Angeles Employers from Asking About Criminal Convictions Before Making Conditional Job Offers

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

No Criminal Inquiry Until After Offer

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

New “Fair Chance Process” Required

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

New Posting and Recordkeeping Requirements

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

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

Employers with operations in the City of Los Angeles should:

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

Top Issues of 2016 – Featured in Employment Law This Week

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The new episode of Employment Law This Week offers a year-end roundup of the biggest employment, workforce, and management issues in 2016:

  • Impact of the Defend Trade Secrets Act
  • States Called to Ban Non-Compete Agreements
  • Paid Sick Leave Laws Expand
  • Transgender Employment Law
  • Uncertainty Over the DOL’s Overtime Rule and Salary Thresholds
  • NLRB Addresses Joint Employment
  • NLRB Rules on Union Organizing

Watch the episode below and read EBG’s Take 5 newsletter, “Top Five Employment, Labor & Workforce Management Issues of 2016.”

Compensation Based on Assets Under Management May Raise Conflict of Interest Concerns Requiring a Prohibited Transaction Exemption

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Advisers and financial institutions that are compensated based on a fixed percentage of the value of assets under management may want to reconsider that compensation methodology as it could require compliance with a prohibited transaction exemption, such as the Best Interests Contract Exemption (the “BIC Exemption”), which is a component of the fiduciary rule issued by the Department of Labor (the “DOL”) in April 2016 (the “Final Rule”).  While stating in the recently published “Conflict of Interest FAQs” (the “FAQs”) that the ongoing receipt of a fixed percentage of the value of a customer’s assets under management, where such values are determined by readily available independent sources, typically does not require compliance with a prohibited transaction exemption, the DOL cautions that such compensation may still raise conflict of interest concerns and require that the adviser comply with a prohibited transaction exemption.  The FAQs, like the Final Rule, are generally limited to advice concerning investments in employee benefit plans covered by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), individual retirement accounts (“IRAs”) and certain other plans.

By way of example, the DOL reiterates the view set forth in the Final Rule that there is a conflict of interest when an adviser recommends that a retirement investor roll retirement savings out of a plan into a fee-based account that will generate on-going fees for the adviser that he would not otherwise receive, even if the fees do not vary based on assets recommended or invested.  The DOL guidance also states that investment advice to switch from a commission-based account to an account that charges a fixed percentage of assets under management on an on-going basis could be a prohibited transaction.  For purposes of the BIC Exemption, a retirement investor is generally a participant in a plan subject to ERISA or the owner of an IRA.   Under  the BIC Exemption:

  • an “adviser” is an individual who:
    •  is a fiduciary of a plan or an IRA by providing investment advice for a fee and an employee, independent contractor, agent, or registered representative of a financial institution; and
    • satisfies applicable federal and state regulatory and licensing requirements with respect to the covered transaction.
  • a “financial institution” is an entity that employs the adviser or retains him in another capacity and that is:
    •  registered as an investment adviser under the Investment Advisers Act of 1940, as amended;
    •  a bank or similar financial institution;
    • an insurance company that satisfies certain criteria;
    • a broker or dealer registered under the Securities Exchange Act of 1934, as amended; or
    • an entity that the DOL, in a prohibited transaction exemption granted after April 6, 2016, determines is a financial institution.

Because the types of prohibited transactions described above are relatively discrete and the adviser’s provision of subsequent advice generally does not involve a prohibited transaction, the DOL states in the FAQs that advisers and financial institutions need only comply with the streamlined conditions in the BIC Exemption to cover the discrete advice that requires the exemption.  Per question 13 of the FAQs, the streamlined conditions applicable to level-fee fiduciaries include:

  • a requirement that the financial institution provide a written acknowledgement of its and its advisers’ fiduciary status to the retirement investor; and
  • satisfaction by the financial institution and its advisers of the impartial conduct standards with documentation showing the reasons why the advice was considered to be in the best interest of the retirement investor.  The impartial conduct standards require fiduciaries to act in the best interest of their clients, charge no more than reasonable compensation and make no misleading statements.

These streamlined conditions apply to “level-fee fiduciaries” who will receive only a “level fee” in connection with advisory or investment management services provided to a plan or an IRA.  As discussed in the FAQs, a level fee is a fee or compensation that is provided on the basis of a fixed percentage of the value of the assets or a set fee that does not vary with the particular investment.

The DOL also states that, after an adviser recommends a rollover to a plan participant, the receipt of level-fee compensation does not violate ERISA’s prohibited transaction rules or require compliance with an exemption.

However, the DOL warns that certain abusive practices could result in a self-dealing prohibited transaction, for which no exemption is available.  The DOL supports this position by citing the October 2013 “Report on Conflicts of Interest” of the Financial Industry Regulatory Authority, which describes various circumstances in which advisers may make inappropriate recommendations intended to promote the advisers’ compensation at the expense of the investors.  For example, recommending a fee-based account to a retirement investor with low trading activity and little need for on-going monitoring or advice would be considered abusive conduct, as such advice would be designed to enhance the adviser’s compensation at the expenses of the investor.

In summary, to mitigate the risk of having to comply with certain provisions of the BIC Exemption or of engaging in a non-exempt self-dealing prohibited transaction, advisers and financial institutions should consider designing compensation programs that are not based on the value of plan assets under management.  Alternatively, if assets under management is key component of an adviser’s compensation plan, then the adviser and financial institution should be certain that they comply with the streamlined conditions of the BIC Exemption.

Policies Prohibiting “Insubordination or Other Disrespectful Conduct” and “Boisterous or Disruptive Activity in the Workplace” Struck Down by NLRB Majority

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Once again seemingly appropriate work rules have been under attack by the National Labor Relations Board (“NLRB”). In a recent decision (Component Bar Products, Inc. and James R. Stout, Case 14-CA-145064), two members of a three-member NLRB panel upheld an August 7, 2015 decision by an Administrative Law Judge (“ALJ”) finding that an employer violated the National Labor Relations Act (“NLRA” or the “Act”) by maintaining overly broad handbook rules and terminating an employee who was engaged in “protected, concerted activity” when he called another employee and warned him that his job was in jeopardy.  Member Miscimarra concurred in part and dissented in part, arguing that the Board should overrule applicable precedent interpreting the Act.

Factual background

The respondent company is engaged in the manufacture and sale of precision machined products for the automotive and other industries from a facility in Missouri. Respondent maintained a personal conduct and disciplinary action policy in its associate handbook that prohibits “insubordination or other disrespectful conduct,” “unauthorized disclosure of business ‘secrets’ or confidential information,” and “boisterous or disruptive activity in the workplace.”  On January 20, 2015, a quality technician called his co-worker from his cell phone during business hours after his Plant Manager made a remark suggesting that the co-worker may not have a job with the company anymore.  The Plant Manager found out about the technician’s phone call when the co-worker called the Respondent to complain that it was management’s job, not an employee’s job, to tell him that he was being fired.  Respondent decided to terminate the technician for “misconduct” for involving himself in another employee’s personal affairs and otherwise engaging in conduct in violation of the handbook.

The ALJ’s Decision

The ALJ first considered whether the Respondent’s maintenance of rules prohibiting “insubordination and other disrespectful conduct” and “boisterous or disruptive activity in the workplace” violates Section 8(a)(1) of the Act because employees reasonably could construe those bans to include protected Section 7 activity. Citing NLRB precedent (Lutheran Heritage Village-Livonia, 343 NLRB 646 (2004)), the ALJ noted that an employer violates Section 8(a)(1) when it maintains a work rule that employees could “reasonably construe” to block or “chill” them from exercising their Section 7 rights.  In this case, the ALJ determined that both rules in the handbook violate Section 8(a)(1) because of their likelihood to chill Section 7 activity.

The ALJ next considered whether the discharge of the technician was proper or whether it violated Section 7 of the Act, which protects employee conduct that is both “concerted” and engaged in “for mutual aid and protection.” Because the Board repeatedly has held that an employee’s warning to another employee that the latter’s job is at risk constitutes protected, concerted activity, the ALJ found that the technician’s conversation with the co-worker constituted protected, concerted activity.  Accordingly, the ALJ found that the technician’s discharge violated Section 8(a)(1) because he was terminated for engaging in such conduct.

Among other things, the ALJ ordered the Respondent to offer the technician full reinstatement to his former position or, if that position no longer exists, to a substantially equivalent position, without prejudice to his seniority or any other rights or privileges previously enjoyed, and to make him whole for any loss of earnings and other benefits suffered as a result of the discrimination against him. The ALJ also said that the employer should compensate him for adverse tax consequences, if any, of receiving a lump-sum backpay award and to file a report with the Social Security Administration allocating the backpay award to appropriate calendar quarters.

The Panel’s Decision

The Board majority agreed with the ALJ’s application of Lutheran Village to find that the Respondent violated Section 8(a)(1) by maintaining overly broad handbook rules and that the technician engaged in protected concerted activity when he called another employee to warn the employee that his job was in jeopardy and the Respondent violated Section 8(a)(1) by discharging the technician for that activity.  The majority said, “We agree with the judge’s application of Lutheran Heritage … to find that the respondent violated Section 8(a)(1) by maintaining overly broad handbook rules. . . . We also agree with the judge that [the technician] engaged in protected concerted activity.” The panel also agreed with the ALJ that the technician should be awarded backpay in the form of a lump sum, but disagreed with the ALJ as to how the Respondent must report and allocate that payment.

Member Miscimarra’s Concurring and Dissenting Opinion

Member Miscimarra concurred with the majority’s finding that the technician engaged in protected concerted activity when he telephoned his coworker to warn him that his job was in jeopardy, and he agreed that the Respondent violated Section 8(a)(1) of the Act when it discharged the technician for doing so. However, regarding the majority’s finding that the Respondent violated Section 8(a)(1) by maintaining the two work rules, Miscimarra disagreed with those violation findings, and he also disagreed with the standard that the ALJ and the majority applied in reaching those findings:  he said, “Unlike my colleagues and the judge, I believe the Board should not apply the ‘reasonably construe’ standard [from Lutheran Village].”

Miscimarra said that he believes the Lutheran Heritage ‘reasonably construe’ standard should be overruled by the Board or repudiated by the courts.

Instead, Member Miscimarra endorsed the standard he articulated in the NLRB’s decision William Beaumont Hospital, 363 NLRB No. 162, slip op. at 7–24 (2016) (Member Miscimarra, concurring in part and dissenting in part).  In William Beaumont, he articulated his view that the Board is required to evaluate an employer’s workplace rules, policies and handbook provisions by striking a “proper balance” that takes into account (i) the legitimate justifications associated with the disputed rules and (ii) any potential adverse impact on NLRA protected activity, and a “facially neutral” policy, rule or handbook provision (defined as a rule that does not expressly restrict Section 7 activity, was not adopted in response to NLRA-protected activity, and has not been applied to restrict NLRA-protected activity) should be declared unlawful only if the legitimate justifications an employer may have for maintaining the rule are outweighed by its potential adverse impact on Section 7 activity.  Applying that standard, Member Miscimarra said that the Board should find that the two rules at issue are lawful.

Conclusion

Notwithstanding Member Miscimara’s dissenting opinion, Lutheran Village remains viable NLRB precedent, as evidenced by the majority’s application of that decision.  Accordingly, this case is yet another example of the NLRB’s broad view of what constitutes “concerted protected activity,” “work rules” and unlawful activity under the Act. Because what constitutes an overbroad work rule is not always clear-cut, any employer subject to the Act (one whose company affects commerce) should carefully review its various agreements, policies and handbooks to ensure that they do not contain rules that would not be reasonably construed to chill union-related activities. While there are swirling questions on how aggressive the future NLRB will be under a new administration, in the meantime, taking a proactive approach of revising potentially problematic work rules will put employers in the best possible position if they find themselves facing scrutiny from the NLRB.

Texas Federal Court Enjoins New FLSA Overtime Rules: Employer Impact

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Our colleague Michael S. Kun, national Chairperson of the Wage and Hour practice group at Epstein Becker Green, has a post on the Wage & Hour Defense Blog that will be of interest to many of our readers in the financial services industry: “Stop! Texas Federal Court Enjoins New FLSA Overtime Rules.”

Following is an excerpt:

The injunction could leave employers in a state of limbo for weeks, months and perhaps longer as injunctions often do not resolve cases and, instead, lead to lengthy appeals. Here, though, the injunction could spell the quick death to the new rules should the Department choose not to appeal the decision in light of the impending Donald Trump presidency. We will continue to monitor this matter as it develops.

To the extent that employers have not already increased exempt employees’ salaries or converted them to non-exempt positions, the injunction will at the very least allow employers to postpone those changes. And, depending on the final resolution of this issue, it is possible they may never need to implement them.

The last-minute injunction puts some employers in a difficult position, though — those that already implemented changes in anticipation of the new rules or that informed employees that they will receive salary increases or will be converted to non-exempt status effective December 1, 2016. …

Read the full post here.

Proposed Increases Under New York State’s Overtime Laws: Not Blocked by Federal Overtime Rule Change Injunction

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Our colleague Jeffrey H. Ruzal, Senior Counsel at Epstein Becker Green, has a post on the Wage & Hour Defense Blog that will be of interest to many of our readers in the financial services industry: “Decision Enjoining Federal Overtime Rule Changes Will Not Affect Proposed Increases Under New York State’s Overtime Laws.”

Following is an excerpt:

As we recently reported on our Wage & Hour Defense Blog, on November 22, 2016, a federal judge in the Eastern District of Texas issued a nationwide preliminary injunction enjoining the U.S. Department of Labor from implementing its new overtime exemption rule that would have more than doubled the current salary threshold for the executive, administrative, and professional exemptions and was scheduled to take effect on December 1, 2016. To the extent employers have not already increased exempt employees’ salaries or converted them to non-exempt positions, the injunction will, at the very least, appear to allow many employers to postpone those changes—but likely not in the case of employees who work in New York State.

On October 19, 2016, the New York State Department of Labor (“NYSDOL”) announced proposed amendments to the state’s minimum wage orders (“Proposed Amendments”) to increase the salary basis threshold for executive and administrative employees under the state’s wage and hour laws (New York does not impose a minimum salary threshold for exempt “professional” employees).  The current salary threshold for the administrative and executive exemptions under New York law is $675 per week ($35,100 annually) throughout the state.  The NYSDOL has proposed the following increases to New York’s salary threshold for the executive and administrative exemptions …

Read the full post here.