Nolo's Employment Law Blog

If you review applicant or employee credit reports, you're undoubtedly already familiar with the Fair Credit Reporting Act (FCRA). Among other things, this federal law requires employers to get the consent of the employee or applicant before pulling credit and other consumer reports, to give notice if the information in the report might lead you to take adverse action (such as denying the applicant a job or denying the employee a promotion), and to give notice -- again -- if you do ultimately take the adverse action.

As long as you follow the rules above, the FCRA allows you to use credit reports for employment purposes, including to decide whether to hire, promote, or even fire. That's the federal law, however; some states see things differently. The economic downturn of the last few years -- and the resulting damage to credit reports and scores -- have led many politicians to reconsider whether it's really appropriate for employers to use credit reports in making job decisions. At least three states (Hawaii, Oregon, and Washington) have passed laws prohibiting employers from considering credit reports in most circumstances. According to the National Conference of State Legislatures, about 20 states are currently considering similar legislation. (See their detailed chart here.)  

The Supreme Court has ruled that the National Labor Relations Board (NLRB), the administrative body that decides representation and unfair labor practices cases, had no authority to issue decisions while it had only two members. For more than two years, the NLRB (which ordinarily has five members) was down to two members, one Republican and one Democrat. These two members decided about 600 cases in which they could agree on the outcome; if the panel split, no decision was issued.

The dispute before the Supreme Court was over the interpretation of a provision of the National Labor Relations Act that gives the NLRB the authority to delegate its powers to a quorum of at least three members -- and, that once such a three-member group has been designated to handle certain issues, two of its members may constitute a quorum as to those issues. Confused? So were the federal Courts of Appeal, which split as to whether this provision allowed the NLRB to decide cases with only two members or required at least three members. (See my previous post for a few more details on this dispute.)

In the Supreme Court case, New Process Steel v. National Labor Relations Board, five Justices found that the provision about two members acting was effective only if everyone in the three-member quorum was still on the Board. So, for example, if a three-member quorum had properly been delegated the right to hear cases, and one of the members had to recuse him- or herself from hearing a particular case (say, because of a conflict of interest), the remaining two members could issue a decision -- but only if the third member was still on the Board. Once the Board had only two members, they were no longer authorized to issue decisions.

But they did anyway. Which raises the question: What about those 600 or so decisions? Can the party that lost go back and reopen the case? If so, where should those cases be heard -- by the now four-member NLRB? In federal court? And what of the parties who have had to act in accordance with the rulings of the now-declared illegitimate two-member "rump" by, for example, recognizing a union or losing an unfair labor practice case? 

Lots of questions, and not so many answers just yet. There's a nice analysis of the issues over at SCOTUSBLOG. The post points out that the NLRB has issued a statement saying that it expects all pending appeals of two-member Board decisions to be remanded to the Board, so it can "further consider" and resolve them. However, it's still unclear how the many more cases that are now done and dusted -- either because they were never appealed or because the appeal has been decided -- will be dealt with.    

Earlier this week, the Department of Labor (DOL) announced its regulatory agenda for Spring 2010. As always, the plan includes a number of discrete areas where the DOL plans to draft or revise regulations (for example, to require coal mine operators to inspect areas where miners will be working). This time around, the agenda also includes a broad paradigm shift: The DOL wants to replace what it calls a "catch me if you can" model, in which violations are stemmed only if and when the DOL steps in, to a "plan/prevent/protect" model, in which employers take the lead in finding, fixing, and preventing workplace problems.

What will this mean in practice? It's not entirely clear, as the DOL hasn't yet issued any proposed regulations or concrete details of how the plan will shape up. However, The New York Times reported today that the new approach will require employers to draft compliance plans explaining how they will make sure they aren't violating workplace safety and wage and hour laws. Employers will also be required to document key decisions -- for example, why the employer has determined that an employee is exempt from overtime or that a worker should be classified as an independent contractor rather than an employee -- and then provide that documentation to both the worker and the DOL. 

The Supreme Court has agreed to hear a case challenging the federal government's background check process. (The case is called National Aeronautics and Space Administration v. Nelson; you can find links to the petition and other documents here, on SCOTUSblog.)

The underlying challenge was raised by a group of scientists, engineers, and administrative support employees who worked at the Jet Propulsion Laboratory (JPL), a research lab run by NASA and the California Institute of Technology. The employees were officially employed by CalTech. Following a policy change in 2007, all JPL employees whom the government categorized as "low risk" (they didn't have access to classified material) had to submit to the background check procedures routinely applied to federal civil service employees in order to maintain their access to the JPL. The employees filed a lawsuit and sought a preliminary injunction to stop the new policy from going into effect until the court had a chance to decide whether it was constitutional. 

The background check -- called the Nationwide Agency Check with Inquiries (NACI) -- requires employees to provide information on their residential, education, employment, and military histories; give references; and disclose any use of illegal drugs in the past year, along with any treatment or counseling received. Employees must also sign a release form allowing the government to collect information from landlords, employers, and references on a wide variety of topics, including "financial integrity," "mental or emotional stability," and "general behavior or conduct."

The Ninth Circuit Court of Appeals ruled in favor of the government on several issues. However, the Court found that the employees were entitled to a preliminary injunction because they had raised serious questions as to whether their constitutional right to informational privacy was violated by the question asking about drug treatment or counseling and by the release form (and subsequent inquiries it authorized). NASA petitioned the Supreme Court to hear the case, and the Court agreed to do so earlier this month.

This case challenges background checks applicable to government employees and contractors. The U.S. Constitution protects only against action by the government (in this case, NASA's decision that JPL employees had to pass a background check), not actions by private companies and employers. So, while the outcome of the case could be hugely significant to federal sector employees, who have been subject to these same background check requirements for decades, it won't be directly applicable to those who work in the private sector. However, state courts often follow the Supreme Court's lead and guidelines in deciding cases alleging violations of privacy, even though the right to privacy applicable in those cases generally comes from a state constitution, statute, or case law, not the U.S. Constitution.

Private sector employees could be more directly affected by some of the background check developments reported on this week by SHRM, here (you may need to be a SHRM member to view the article). SHRM reports that the EEOC is considering issuing new enforcement guidance explaining when employers may consider an applicant's credit history and arrest and conviction record in the hiring process. The EEOC has long stated that using credit reports and criminal records to disqualify applicants could have a disparate impact based on race; if so, the employer would have to show that the practice is job-related and consistent with business necessity. SHRM offers some tips that will help employers avoid legal trouble when performing background checks, including that employers should be selective in deciding which positions require a background check and should allow applicants to explain negative information that turns up.   

Yet another federal court has found that an employee may sue not only the company but also individual managers -- and even an HR representative -- for violating the FMLA. As reported here in the Legal Intelligencer, a federal district court judge for the Eastern District of Pennsylvania ruled (in the case of Narodetsky v. Cardone Industries, Inc., et al.) that a fired employee's lawsuit may go forward against the former employer and five individual defendants, including the plant manager and the human resources manager, director, and representative. (The individual defendants filed a motion to dismiss the allegations against them, which the judge denied.)

The employee who was fired, Dmitry Narodestsky, claimed that the day after his wife told the company he would need leave for surgery, the defendants searched his computer looking for a reason to fire him. Narodestsky was fired about two weeks later for forwarding an email to another employee. Several of the individual defendants were present at the termination meeting.

The judge refused to dismiss the claims against the individual defendants based on the language of the FMLA regulations, which state that "any person who acts directly or indirectly in the interest of an employer to any of the employees of such employer" may qualify as an employer under the law. The judge also found that the individual defendants exercised some control over Narodetsky's employment, in that they participated in the decision to fire him and the termination meeting.

This decision is only the latest in a long line of cases that have upheld FMLA claims against individual managers and officers who have played a role in denying an employee's FMLA rights. To make sure your company is in compliance, pick up a copy of Nolo's The Essential Guide to Family and Medical Leave (full disclosure: I'm the coauthor). The most recent edition covers the 2008 revision of the FMLA regulations, recent provisions relating to leave for military family members, and the new forms and notice requirements.

After the Senate finally convinced Senator Jim Bunning to stand down his one-man protest (covered in my previous post), Congress passed -- and the President signed -- an extension of the COBRA subsidy last week. (You can find the bill, called "The Temporary Extension Act of 2010," here.) The extension is clearly a stopgap measure: It lasts only until the end of this month (March), by which time Congress hopes to have passed a more comprehensive jobs bill that will keep the subsidy in effect through the end of this year.

But the one-month extension of the subsidy wasn't the only COBRA news in the Temporary Extension Act: The bill also expands eligibility for the subsidy to those who initially lose their health insurance coverage due to a reduction in work hours, then are laid off. This is a small but vitally important change: Many businesses have tried to weather the current economic storm by cutting back on hours worked (and how much employees are paid for those hours). The most recent figures from the Bureau of Labor Statistics (for February 2010) show that more than six million people are involuntarily working part time due to business conditions or lack of work. Unfortunately, given the current economic climate, many of these businesses will ultimately have to make deeper cuts -- and many of these involuntary part-timers will eventually lose their jobs altogether.  

The new law gives these employees another opportunity to elect COBRA coverage once they are terminated -- and, therefore, become eligible for the subsidy. A cut in hours that makes an employee ineligible for group health insurance through the employer's plan is already a COBRA qualifying event, and the new law doesn't change that. Nor does the law make employees who are still working at reduced hours eligible for the subsidy. What the law does is provide an additional election period to these employees if they subsequently lose their jobs and become eligible for the subsidy. If an employee initially declined coverage or elected coverage but let it lapse, the new law gives that employee another chance to elect coverage after a job loss.   

This week, there have been a couple of big stories involving independent contractors -- more specifically, the classification of workers as independent contractors rather than employees (and vice versa). These stories show that worker classification is still a very hot topic, perhaps even more so in the current economic climate.

First, it was reported this week that President Obama's proposed budget includes a $25 million effort to stop the misclassification of employees as independent contractors, with funding for 100 new enforcement positions at the IRS. The Labor Department estimates that up to 30% of businesses misclassify employees as contractors, according to an article in the New York Times. 

This move isn't so surprising when you consider the economy -- and the money a company can save by classifying workers as contractors, who aren't entitled to benefits, overtime, workers' compensation coverage, or unemployment if they are let go. I've even heard stories of employees being laid off, then brought back months later as independent contractors to do essentially the same work. 

According to a study cited in Inc., about half of the jobs that have been created during the current economic recovery are "contingent," which means they are held not by employees but by temps and contractors. Used properly, contingent workers give companies the flexibility to ramp up quickly for a particular project, using professionals with experience and expertise, then pare back down just as quickly (and with very little legal exposure) once the project is done. Used improperly, turning employees into contingent workers exploits the employees, hurts morale and cohesion in the workplace, depletes state and federal tax coffers, and ultimately leaves workers at far greater risk of hitting bottom -- with no unemployment to protect them -- if the work runs out.

And speaking of hitting bottom and tax coffers, there was a second story about contractors this week. Apparently, the man who crashed a plane into an IRS office in Austin, Texas, yesterday was particularly angry about a provision of the Tax Code involving worker classification. The Times reported that the man's suicide note cited a 1986 law that made it more difficult for companies to classify certain workers who provide technical services as independent contractors. (The pilot of the plane was a computer software engineer.) The law ("Section 1706") essentially takes away certain defenses for these companies if they are audited for misclassification: Other companies can point to past industry practice, court rulings, and similar evidence to show that they had a reasonable basis for classifying workers as contractors, but those defenses aren't available for these technical services workers. The Times cites critics of the law, who say that it has prevented technical workers from becoming wealthy entrepeneurs and stymied technological innovation. The Times also reports that the law was passed essentialy as a way to raise tax revenue. 

Taken together, these two stories show the tension underlying worker classification: Workers are supposed to be classified according to the work they do, but the amount of money at stake seems to cloud everyone's judgment. And, the financial interests of private business and the government are decidedly at odds here. Generally speaking, when workers are classified as contractors, companies save money and the government loses money. When workers are classified as employees, companies pay more and the government collects more. 

While the financial incentives on both sides of the equation are therefore strong (and opposing), they are not supposed to be decisive. The law says that workers are to be classified according to what they do: Is their work essential to the employer's business? Does it require special training, skills, tools? Considering a long list of factors, do the workers truly look like independent business people, who can be expected to bargain at arm's length with the employer and cover their own costs of doing business? Or do they look more like employees, who have less bargaining power and may therefore need some protection against discrimination, on-the-job injuries, potentially oppressive working conditionsg, and job loss? With both business and government going broke, however, these fundamental policy considerations seem to have taken a back seat to financial concerns.    

About a year ago, the Supreme Court found in favor of an employee, Vicky Crawford, who was fired after she participated in an investigation of workplace sexual harassment. (The case was Crawford v. Metropolitan Government of Nashville and Davidson County, Tennessee; you can read my previous post about it here.) The Court held that Crawford could sue for retaliation; Crawford's employer had argued that, because Crawford was only a witness in the investigation and not the person who had originally complained of harassment, she was not protected from retaliation. After the Supreme Court's decision kept Crawford's claim alive, the case went back to the federal district court for a trial on the facts.

A couple of weeks ago, the jury reached a verdict: Crawford was awarded $1.5 million in damages. After losing its legal argument that Crawford couldn't bring a retaliation claim, the employer tried a different tack: It argued that Crawford wasn't fired for participating in the harassment case, but for performance problems. The employer said Crawford was once a good employee, but her performance had been slipping; when an audit revealed problems in the payroll department, including checks that were never deposited, she was ultimately fired.

Of course, we can only know the facts that were recounted in news articles or court decisions about the case. Based on the information I've seen, I think there are a few lessons employers can take from what happened in this case:

• Timing is everything. Retaliation cases are all about timing, more specifically how much time passed between the employee's protected activity and the employer's alleged retaliation. The shorter the time period, the more it looks like retaliation. Here, the HR person who conducted the harassment investigation reported possible problems in the payroll department on the same day she filed her report in the harassment case. Same day plus same person involved in both issues equals huge mountain for the employer to climb to refute a retaliation claim.
• Can I get a witness? You don't necessarily need one to decide that harassment took place. It looks like another big problem for the employer in this case was that it fired three employees who participated in the investigation -- in which pretty bad behavior was alleged. Crawford said that the harasser pulled her head into his crotch, asked to see her breasts, and grabbed his own crotch, saying "you know what's up." Two other employees also said that they were harassed, and were also fired. Yet, the employer argued that it couldn't discipline the harasser because there were no witnesses to the behavior. Again, I've got no inside line on what "really" happened, but if three employees all allege that they were harassed, that's ample reason to take action. Often, there are no witnesses to harassment other than the harasser and the harassee. That doesn't relieve employers of their obligation to take action to stop harassment.
• The work environment affects performance. Here, the employer said Crawford was once a good employee, but her performance declined. We don't know the source of Crawford's performance problems, but in a situation like this, employers should consider whether poor performance might be explained, at least in part, by the harassment. Employees who have been harassed might have higher absentee rates, problems concentrating, and other performance issues. If the problems are attributable to the harassment, the employer should deal with the underlying issue, then work with the employee to help her get back on track.  

A few weeks ago, an appeals court in New Jersey decided, in J.T.'s Tire Service v. United Rentals North America, that one business can sue another business for quid pro quo sexual harassment. If you're wondering how one business might make sexual advances toward another, the answer is: the old-fashioned way, with wandering hands and unwanted sexual propositions.

The facts of the case allege that Harold, the manager of an equipment rental company, stopped buying tires from Eileen, owner of a tire service, after she refused his sexual advances. She had been selling to the company for almost ten years, earning about $29,000 monthly from the account. After she rejected Harold's advances, he kissed and groped her, delayed payments to her company, and then stopped doing business with her altogether.

She (and her business) sued under a section of New Jersey's nondiscrimination law that makes it illegal to refuse to contract or do business with any person on the basis of a protected characteristic, including gender. The court found that Eileen faced quid pro quo sexual harassment, a form of gender discrimination that violated the statute. The court added that allowing such conduct would create barriers to a woman's ability to run a business on an equal footing with men, and was therefore exactly what the legislature was trying to get at when it passed this antidiscrimination provision.

There have been a number of legal developments involving Facebook, MySpace, and Twitter lately, all demonstrating that the intersection of traditional employment law and social networking sites has yet to be fully mapped.

Part of the problem seems to be that users of these sites believe themselves to be invisible, at least to their employers. For example, according to an article on Workforce Management (you may have to register to view it), investigators looking into employee workers' compensation claims search social networking sites for photos of employees engaged in activities that are incompatible with their claimed injuries -- such as bowling a perfect game, taking judo classes, or riding a bucking bronco. Then, there's the recently reported case filed by a Canadian woman, who says that her sick leave insurance benefits for depression were improperly cut off after an agent for the insurance company found photos of her on Facebook vacationing and taking in a show at Chippendales.

Even employees who take precautions to make sure employers can't view their posts are finding that management has its ways. In a recent case in the District Court of New Jersey, for example, some employees at Houston's restaurant created a group on MySpace for the stated purpose of venting about their jobs. The group was private and could be joined only by invitation. However, an employee member of the group showed it to a manager (she testified that she felt pressured to do so), a number of managers read it, and the employees who set it up were fired. The court recently upheld the jury's verdict in favor of the employees.

Some companies are so concerned about what employees -- or even the friends of employees -- might be saying about them online that they have instituted content rules or outright bans on social networking. According to an article in the National Law Journal, more than half of the companies responding a survey said that they prohibit employees from visiting social networking sites while on the clock. And, some companies have adopted rules about the content of employee posts. The Associated Press, for example, is reported to have not only set strict rules for employee pages (including that they should not express political affiliations or take a stand on contentious issues, even if their pages are restricted only to friends), but also asked employees to police the content others post on their pages. (You can find an article from Wired about it -- including a link to the actual policy -- here.)