Social media usage is now ubiquitous:

  • Facebook users spend more than 10.5 billion minutes per day on the website.
  • LinkedIn has more than 277 million members in over 200 countries and territories.
  • Twitter has 230 million active users who collectively post 500 million Tweets every day.

What’s an employer to do?

This is an ever-increasing area of litigation. In a series of recent decisions, the National Labor Relations Board (“Board”) has found social media policies unlawful because those interfere with employees’ rights to act collectively. It has found employers in violation for policies that

  • prohibit posts that are inaccurate or misleading or that contain offensive, demeaning or inappropriate remarks;
  • prohibit posts discussing non-public information, confidential information, and legal matters;
  • threaten employees with discipline or criminal prosecution for failing to report violations of an unlawful social media policy;
  • prohibit the use of the employer’s logos or trademarks;
  • discourage employees from “friending” co-workers;
  • prohibit online discussion with government agencies concerning the company; and
  • prohibit employees from making statements that are detrimental, disparaging or defamatory to the employer or discussing workplace dissatisfaction.

Beyond the content of social media posts, there is also the loss of work time. Thus, employers need to deal with three discrete concerns: (1) use of social media in evaluating applicants; (2) limits on social media content by existing employees; and (3) lost work time in using social media at work.

Here is a social media policy based off of the Board’s own model.*

Sample Social Media Policy

Use of social media presents certain risks and carries with it responsibilities. To assist you in making responsible decisions about your use of social media, we have established these guidelines for appropriate use of social media. This policy applies to all employees.

1. Guidelines: Social media can mean many things, and includes all means of communicating or posting information or content of any sort on the Internet, including to your own or someone else’s web log or blog, journal or diary, personal web site, social networking or affinity web site, web bulletin board or chat room, whether or not associated or affiliated with the company, as well as any other form of electronic communication, including but not limited to Facebook, Twitter, Tumblr, Flickr, Instagram, etc.

You are entirely responsible for what you post online. Before creating online content, consider some of the risks and rewards that are involved. Keep in mind that any of your conduct that adversely affects your job performance, the performance of fellow employees, or otherwise adversely affects clients, customers, vendors, suppliers, or people who work on behalf of the company’s legitimate business interests, may result in disciplinary action up to and including termination.

2. Know and follow the rules: Carefully read these guidelines, the company’s [EEO policies, Code of Conduct, etc.], and ensure your postings are consistent with these policies. Inappropriate postings that may include discriminatory remarks, harassment, and threats of violence or similar inappropriate or unlawful conduct will not be tolerated and may subject you to disciplinary action up to and including termination.

3. Respectfulness: You should always be courteous to fellow employees, clients, customers, vendors, and suppliers. You are more likely to resolve work problems by speaking directly with your co-workers or supervisor(s) than by posting complaints on social media. Nevertheless, if you decide to post complaints or criticism, avoid using statements, photographs, video or audio that are malicious, obscene, threatening or intimidating, that disparage employees, clients, customers, vendors or suppliers, or that might constitute harassment or bullying. Examples of such conduct might include offensive posts meant to intentionally harm someone’s reputation, or posts that could contribute to a hostile work environment on the basis of race, sex, disability, religion or any other status protected by law or company policy.

4. Honesty and accuracy: Make sure you are always honest and accurate when posting information or news, and if you make a mistake, correct it quickly. Never post any information or rumors that you know to be false about company, fellow employees, consultants, clients, customers, vendors, suppliers or competitors.

5. All content posted should be appropriate and respectful: Maintain the confidentiality of company trade secrets and confidential information. Trade secrets may include information regarding the development of systems, processes, products, know-how and technology. Do not post internal reports, policies, procedures or other internal business-related confidential communications. Do not create a link from your blog, website or other social networking site to a company website without identifying yourself as a company employee.

6. Social media at work: Do not use social media while at work or on company equipment, unless it is work-related and authorized. Do not use your company email to register on blogs, social networks, or other forms of social media.

7. Personal opinions only: Do not represent yourself as a spokesperson for the company. If the company is a subject of the content you are creating, be clear and open about the fact that you are an employee and clarify that your views do not represent those of the company, fellow associates, members, customers, suppliers or people working on behalf of the company. If you do publish a blog or post online related to the work you do or subjects associated with the company, clarify that you are not speaking on behalf of the company.

8. No retaliation: The company prohibits taking adverse action against any employee for reporting a possible deviation from this policy or for cooperating in an investigation. Any employee who retaliates against another employee for reporting a possible deviation from this policy or for cooperating in an investigation will be subject to disciplinary action, up to and including termination.

 *See OFFICE OF THE GENERAL COUNSEL, Division of Operations-Management, MEMORANDUM OM 12-59 (May 30, 2012).

WELCOME TO THE EDITORIAL BOARD DEBATE ON SOCIAL MEDIA POLICIES

Kevin:

Phil’s policy is illegal under 2014 Board case law, which trumps the 2012 guidance from the Board’s general counsel. Here is my counter policy and explanation:

SOCIAL MEDIA POLICY

1. Work time is for work. Posting or reading online when you should be working is like sleeping at work: very bad.

2. All other rules that apply at work (“thou shall not sexually harass co-workers”; “thou shall not steal trade secrets”; etc.) apply not only live but also digitally.

Social media may not even need a separate policy. There is no need to have a second floor policy nor a telephone policy: same rules as on the first floor and phone is same as live.

Ben:

I completely disagree with you on this one. People are using social media at work and at home in ways that could impact that company (like bad mouthing customers or competitors, thinking that it’s personal and not imputed to the company). This should be addressed in policies rather than sticking our heads in the sand.

Kevin:

My policy does and solves the legal problem. In fact, recent Board law holds that portions of their own model policy (see above policy ¶ 5) are illegal. See Flex Frac Logistics, 360 NLRB No. 120 (May 30, 2014) (termination of employee for disclosing client charges is legal but rule forbidding disclosure of confidential information is illegal).

Ben:

Whatever! You are a damn neo-Luddite. I’ll continue working to find solutions that work for each individual client. Of course, even a confidentiality policy that does not explicitly state that wages are not confidential information could be “unlawful” now, so it’s not like the NLRB is using a lot of common sense. Employers must be aware that there is that risk if they are going to address social media use by their workforce in a robust manner. Employers must weigh the benefits of a carefully crafted social media policy that can protect their interests in the new, constantly connected world, versus the risk that the NLRB may come knocking.

What does an Irish electronic repairman, a sheriff from Kentucky, and a Finnish software developer all have in common? They are all getting paid in the hottest technological trend since Al Gore created the Internet: the Bitcoin.

As the hype builds and development of this digital currency grows, more and more employees are requesting Bitcoin as a form of supplemental and sometimes primary compensation to avoid the otherwise cumbersome process of acquiring Bitcoin, and employers across the globe are responding. Online payroll processing companies, Bitcoin ATM’s and even Bitcoin-to-cash ATM and debit cards are popping up all over the world, paving the way for the progressive trend to become more mainstream.

As a high-level primer, Bitcoin can most easily be thought of as virtual gold: it is a unit of value that is awarded when “miners” solve a series of complex equations on a computer. There is a fixed quantity of Bitcoin as each equation can only be solved once, and the equations become incrementally more complicated as they are solved. There is no central banking or governmental unit to control the price or flow of Bitcoin; it is a purely peer to peer network. As such, its value can easily fluctuate over a short period of time and, like gold, it can be lost or stolen.

Despite its undisputed volatility, the Bitcoin does have its advantages which appeal to employees living in an increasingly global community. Bitcoin is highly-encrypted and secure, it cannot be frozen or confiscated, transactions are anonymous, and the currency can be instantly transferred across the world with little to no transaction fees or costs.

It’s difficult to tell if and how Bitcoin technology will impact the global workforce in the long-run. Yet, while alternative currencies are gaining support beyond tech-savvy margins, there still is little legal guidance on the subject.

There is some guidance on taxation. The IRS has made it clear that virtual currency is not tax exempt. Any wages paid using Bitcoin are taxable to the employee, must be reported by the employer, and are subject to all other federal and state taxes and withholdings. Therefore, the dollar value of any Bitcoins paid should be recorded to calculate such amounts.

There is also some guidance by analogy to the issue of pay cards. Just last year a major fast food franchise was hit with a class action alleging that the practice of paying employees exclusively with pay cards violated the state wage laws based on paying wages in cash. State laws uniformly mandate that “employees” must be paid in cash. 820 ILCS 115/4 (“All wages and final compensation shall be paid in lawful money of the United States”); 29 C.F.R. § 531.26 (“Various Federal, State, and local legislation requires the payment of wages in cash”).

Recently, the federal Consumer Financial Protection Bureau advised that employers may only offer paycards if the employee is allowed to choose the financial institution at which the wages will be deposited or if the employee has the option to receive the pay in a different manner.  Presumably, Bitcoins are subject to that same limitation: i.e., employees cannot be forced to accept wages via Bitcoin.

There is also some guidance by analogy to payroll commitments in non-dollar currencies. Dept of Labor Opinion Letter FLSA2006-17 (opining on payroll conversions from foreign currency to US currency for compliance with the Fair Labor Standards Act). Employers should continue to set base salaries and wages in dollars that meet state and federal minimum wage and overtime requirements, so that the amounts employees are paid do not fluctuate with the dollar-to-Bitcoin exchange rate. Further, the policies should explicitly provide that the currency conversion from dollars to Bitcoins will occur on a specified date (payroll close date for that payroll period) and by a specified table

Employers with access to Bitcoins and with sufficient courage might be able to enter this world.

It’s late afternoon. You call a three-month employee into a small conference room – along with two managers – for a talk about his attitude. He complains that he and his coworkers aren’t paid enough, don’t receive proper breaks, and the bathrooms are too far away; you say he can always work somewhere else. The employee shoots up, knocks his chair back, and launches into an F-bomb tirade fit for a Tarantino movie: he tells you that “you’re a “f****** crook,” a “f****** mother f******,”an “a******” that nobody likes and that if you fire him, you’ll “regret it.” You tell him he’s fired.

Now, the National Labor Relations Board orders you to rehire that raging potty mouth and pay him back wages. What just happened? “Protected activity” — that’s what. This is Plaza Auto Center, Inc., 360 NLRB No. 117 (May 28, 2014). There, the NLRB ruled that the employee had protection under the National Labor Relations Act (the “Act”) to discuss “terms and conditions” of employment (e.g., wages, breaks, and bathrooms) when he launched into his profane tirade. There was not enough evidence to show that his conduct was objectively “menacing, physically aggressive, or belligerent,” even though the managers testified that subjectively they feared for their safety. And because the incident occurred away from customers and coworkers, the NLRB concluded that there was minimal harm to the employer’s interest in maintaining discipline and order.

But what if the employee had engaged in his outburst in a more public place? Even then, the employer may have been unjustified to terminate under the NLRB’s decision in Starbucks Corp., 360 NLRB No. 134 (June 16, 2014). There, the NLRB ruled that a barista who told a store manager “you can go f*** yourself” was unlawfully terminated, reasoning that that the employer (who was facing a unionization drive) was unable to prove that it would have terminated the employee in the absence of the employee’s prior protected activity – which included attending unionization rallies and distributing pro-union flyers. Similarly, in Inova Health System, 360 NLRB No. 135 (June 30, 2014), the NLRB reasoned that an employer did not prove that it terminated an RN for cursing and telling sexually explicit stories in the operating room (while children were under anesthesia) where “use of profanity, and the telling of off-color jokes and stories were commonplace” and where the RN had recently drafted an email to management on behalf of four employees complaining about an evaluation process.

Such cases may tempt employers to launch into their own profane tirades at the NLRB. More realistically, what is an employer (union or non-union) to do when faced with a belligerent and out of control employee who starts hurling f-bombs at managers either during or after engaging in “protected activity”? Rather than accept that your workplace is now a dive bar / fight club, consider applying the following strategies:

  • Do Not “Provoke”: Avoid any temptation to spar (verbal or otherwise) with the employee; if you curse back or comment on anything that could be connected with protected activity (e.g., the employee’s “bad attitude”) the NLRB may dismiss the employee’s behavior as justified or just par for the course. For example, in Plaza Auto Center, the NLRB noted that the employer had “engaged in extremely provocative acts” by repeatedly telling the employee that he could quit if he did not like the employer’s policies.
  • Report To the Police (If Appropriate): If the employee’s profanity progresses into physical threats or otherwise generates a reasonable fear for safety, do not hesitate to contact the police and file a report. Beyond keeping the workforce safe, the report will serve as evidence that threatening behavior was taken seriously. In Plaza Auto Center, the NLRB noted that no police report was filed and that management had not immediately remove the employee from its property.
  • Incident Report: Before the sun sets, draft an incident report including the employee’s exact statement, making sure to note the tone and any details indicating the level of hostility (e.g., he had a balled fist and was screaming while staring me down). In Plaza Auto Center, the NLRB pointed out that the contemporaneous report of the incident did not characterize the employee’s conduct as menacing, physically aggressive or belligerent.
  • Final Report: There needs to be contemporaneous documentation of the decision by the decision-maker. Both this report and the incident reports will be trial exhibits so be precise. Do not rely on the employee’s use of profanity alone – rather, describe if the profanity was part of insubordination (e.g., refusing a direction) or a threat to do harm. Reference any prior incidents of violence, and note if the incident occurred within earshot and/or coworker or customers. Do not consider (or even mention) whether the employee has been or was engaged in any protected activity; that does not and should not matter unless, of course, you prefer to have the NLRB tell you to reinstate this employee with full backpay.

The CEO of an emerging growth company called me a while ago, a bit shocked after having seen the employment contracts that had just been issued to a couple of new hires in Hong Kong. “How could they be longer than mine!? Are you sure that is the approach we should take as we expand our operations?”

This CEO, like many US executives, employment lawyers and HR representatives, is accustomed to one- or two-page US-style at-will offer letters. But in many jurisdictions around the world,. detailed employment agreements are not only customary and best practices, but are simply required. In fact, as foreign companies expand into the US, we see the reverse phenomenon – foreign companies rolling out foreign-style employment agreements to US-based regular employees, thus losing the benefits of the unique concept of at-will employment in the US.

Against this background, here are ten important pitfalls to be aware of as you develop your global employment documentation:

1. You don’t use a contract. Outside the United States, your employees will expect a contract – and might sue if they don’t get one! Written employment agreements are best practices and they can incorporate crucial terms such as probationary periods, termination grounds, or working time provisions. In fact, many jurisdictions require written employment agreements. In China, for instance, a company that fails to issue a written employment agreement within one month of the commencement date will be subject to double wage claims. In the European Union, under Directive 91/533/EEC[1], an employer is required to inform its employees of all relevant terms of the employment relationship within two months of commencement of employment; commonly, this information is provided in the employment agreement. Several EU member states have more stringent requirements.

2. You fail to protect your company by including probationary periods and proper termination provisions. Given the lack of at-will employment, probationary periods are crucial outside the United States. Each country has different rules on the maximum duration of a probationary period, whether renewals are permissible, etc. (e.g., Germany permits a six-month probationary period, China six months for open-term contracts, but only one month for fixed-term contracts of less than one year, and two months for contracts longer than one year). If you include a probationary period, make sure to make any termination decisions before expiration of the probationary period. In various jurisdictions, termination provisions are crucial as well. While they may not always give a company full protection (since ultimately, it is statutory restrictions that determine in which instances terminations are permissible), they often give a company at least a good starting point to enforce a termination (e.g., in case of violation of company policies such as a code of conduct).

3. You don’t think strategically when it comes to employment contracts. One size does not fit all. Before you embark on drafting employment agreements for your international operations, think through the strategy you want to use. The most common approach is to prepare a local-law-compliant employment agreement in line with best practices and the standard approach of the specific jurisdiction where you hire. Some companies feel strongly about global consistency, though, and would rather create a “global” template that would only be localized as necessary under local laws. One hybrid approach is to agree on company-specific clauses (such as references to specific global policies and commission plan or bonus language – keeping in mind that internationally, once granted, variable compensation is hard to take away or amend) to include in any agreement globally, while otherwise working off local templates.

Also consider the interrelationship between your contract and policies. In some jurisdictions, it is advisable to incorporate relevant handbook policies in the contract (e.g., in the UK you need to mention disciplinary and grievance procedures). Having policies incorporated (e.g., data protection) can also often protect the company if claims are brought to show the employee was aware of procedures. Finally, do not forget data privacy considerations. Consider, for instance, whether you need consent to the transfer of personal data in the employment agreement, or a standalone data privacy notice.

4. You don’t properly address assignment of intellectual property.[2] Keeping your intellectual property safe starts from day one. Have you considered how to address IP assignment? If there is a standard proprietary information and inventions assignment agreement (PIIA) you want to use, this must be localized under local laws. Sometimes, specific policies and procedures are required. In China, for instance, absent company rules on payments made for employee-created patents, a company will end up paying an amount determined under statutory rules. In Russia, trade secrets must be specifically outlined in a company trade secrets regime or those trade secrets will not enjoy protection.

5. You use the wrong employing entity. Make sure your employees (and the government and courts) know who’s the boss. A common mistake is to print the employment agreement on the parent company’s letterhead, or to include the parent company as employer of record in the contract. This is only accurate where that company in fact acts as the employing entity (which is not feasible in some jurisdictions, like Brazil, Mexico or Russia). Where you have set up an international structure of local subsidiaries, these should be expressly indicated to be the employing entity, or you risk joint employer liability and permanent establishment exposure of the employing entity, thus obliterating all the tax planning the company has done. One exception to this rule: if stock option grants are made in a parent company, that company should be issuing the stock award documentation.

6. You use the wrong template. Which template to use is not determined by the employing entity, but by the jurisdiction in which the employee performs his or her services. While most jurisdiction recognize the principle of choice of applicable law, this is usually overridden by considerations of public policy, and employees are almost always deemed protected (for example, see Article 8 of the Rome Convention[3]). Accordingly, an employee in France should receive a French law-governed employment agreement, even if the employee works for a UK employing entity. Otherwise, the employee could enjoy the best of both worlds (in this example, UK contractual rules, plus French statutory rules).

Also, templates for specific individuals or situations should be used where appropriate, such as fixed-term employment agreements (where permissible), managing director or entrustment agreements (e.g., in Germany or Japan for certain individuals in corporate roles), or agreements with specific working time provisions depending upon level of the employee.[4]

7. You fail to translate your contract. No surprise, but employees should be able to understand their agreement or it will not be enforced against them. It is always fascinating when employees who used to be fluent in English during their entire employment relationship seem to have lost their ability to communicate in that language when it comes to bringing a termination lawsuit. Indeed, many jurisdictions (such as Belgium, France or Poland) require employment agreements to be in the local language, even for an employee fluent in a foreign language. Absent that, the agreement will not be enforceable (at least not against the employee).

8. You insert unenforceable non-compete provisions. You may think US state-to-state rules are confusing, but it gets much more interesting abroad. Rules on post-termination restrictive covenants vary significantly from jurisdiction to jurisdiction, with many following a general reasonableness approach (as in Australia, the United Arab Emirates or the UK), others prohibiting them outright (e.g., India, Mexico and Russia) and yet another set of jurisdictions requiring specific payouts for post-termination non-competes (e.g., China, France and Germany). If you include such provisions in your employment agreement or PIIA, ensure that you understand the legal requirements. For instance, in Germany, once included, a post-termination non-compete can only be terminated with a one-year advance waiver, or the company will end up paying the mandatory 50 percent post-termination non-compete compensation even if it has no desire in enforcing the provision.

9. You don’t issue your contract on time. Often, some delay is not a big deal, but there are jurisdictions (most often in the common law context) in which a valid contract is predicated not only on offer and acceptance, but also payment of a consideration, and these actions must happen within the proper timeframe. For example, if an employee in Canada receives his or her employment agreement after having commenced employment, then that employee will not be technically bound by the agreement, since no additional consideration was provided for the contractual restrictions set out in the contract. Ongoing employment is not sufficient.

10. You let your contracts become stale. Last but not least, keep in mind that laws change, as do your company’s practices. Implement a process to regularly review your template agreements and make sure they still provide you the best protection possible.

———————————–

[1] See it here.

[2] See this post on the blog International Employment Lawyer.

[3] See this page.

[4] See this post on International Employment Lawyer.

 

Often, it makes practical sense to send an experienced worker from his/her home country to another country rather than engage an independent contractor or hire a new employee in that destination country. This is precisely when experienced global employers explore the possibility of a secondment.

In a secondment (a term coined in the British army circa the Boer War), an employee is deployed to, and renders service for, an affiliate entity while remaining employed by his or her home country employer. Its opposite is localization, where the employee’s employment with the home company is terminated and replaced with a new employment agreement with the destination country’s entity or affiliate. These are the most common secondment structures, although there are hybrid variations as well.

There are advantages and drawbacks to each approach.

From an administrative standpoint, traditional secondment trumps others because it only requires the execution of a secondment agreement. Nonetheless, that structure may present other difficulties: (1) obtaining a work permit/visa for the employee may be complicated in certain countries that require a local entity/employer to sponsor the employee; (2) countries may have durational limitations after which a foreigner needs to make local statutory contributions and/or be localized (e.g., 183 days for income tax under most tax treaties); (3) a shadow payroll may be required in the host country even if the employee remains on the home country’s payroll; and (4) a seconded employee is fully subject to the destination country’s employment laws and also often covered by his/her home country’s employment laws.

Localization initially imposes a higher administrative burden at inception since it requires termination and rehiring. This triggers the problem of dealing with accrued benefits payouts following a technical termination and a question on whether to recognize continuous service. Further, localization does not automatically mean that the employee’s rights are dictated solely by foreign law; US laws may still apply if the host country employer is controlled by the US employer although that risk can be contractually circumscribed with both choice of law and choice of forum clauses. Martinez v. Bloomberg LP, 740 F.3d 211 (2d Cir. 2014)(finding UK choice of law and forum selection clauses contained in the transfer agreement of a US citizen employee transferred to his employer’s UK entity sufficient to bar litigation of US discrimination law claims in the US).

Regardless of which option, there are some common denominators:

1. Draft secondments carefully.

Templates generate regrets; every secondment agreement should be customized – to the employee’s position, to its duration, and to the requirements of the destination country’s law. It should set out clear expectations between the employer, employee and destination country employer, if applicable. It should address the inevitables: what types of additional benefits will the employee be entitled to while abroad; who has responsibility for obtaining visa or work permits; how compensation and taxes will be handled; data protection and the protection of personal information; restrictive covenants, confidentiality and protection of intellectual property; and the responsibilities and duties of the employee.

2. Tempus fugit.

Virgil was right: time flies. A secondment, by its very nature, is temporary. Regardless of how long before it happens, employers should prepare how to successfully repatriate the employee; send the employee to an alternative secondment; or terminate the secondment (and the employee) without complications. This might be eased with provisions such as these (but, caveat lector, these clauses will not be enforceable everywhere):

Waiver of Termination Benefits: You hereby waive any rights or claims you may have for all termination payments or benefits (including, without limitation, notice periods and/or pay, severance pay and extensions or continuations of any benefit program) provided by the laws of any country other than under the law of [home country].

Consent to Injunctive Relief: If the Company files an action in any court to enjoin you from filing or maintaining a claim in any court, agency or other tribunal of any country other than [home country] in violation of this letter agreement, you agree that the Company shall be entitled to legal, equitable or other remedies, including, without limitation, injunctive relief. Further, you waive the right to contest or oppose entry of an injunction against you and you stipulate to an entry of judgment against you. You acknowledge that: 1) the Company is likely to succeed on the merits of the claim that you are not entitled to termination payments or benefits provided by the law of any country other than [home country]; 2) the Company will be irreparably harmed if an injunction is not granted and you take action to collect termination payments or benefits; 3) you will not be harmed by the entry of an injunction; and 4) that the entry of an injunction is in the public interest.

Non-exclusive Remedies for Breach: You acknowledge and agree that if you make a claim for termination payments or benefits provided by the law of any country other than [home country], then the Company may withhold any payments, services and options which otherwise would be provided to you including, without limitation, unexercised stock options, tax assistance or reimbursement, housing payments, transportation allowance, COLA, tuition, moving expenses and severance pay. This clause is not meant to afford you a choice between the benefits that may be withheld and the benefits provided by the law of a country other than [home country]. These remedies are non-exclusive.

At-Will Employee: You will be an at-will employee of the Company. As such, you understand that you have the unqualified right to terminate the employment relationship at any time for any reason; you understand and agree that the Company shall have the same unqualified right. Nothing said or done by either you, the Company or its affiliates shall affect these rights unless it is incorporated into a formal written contract which not only bears the notarized signatures of both you and the Company’s president, but also revokes or amends this letter agreement by explicit reference to its date of signature. This letter agreement is not a guarantee of any fixed term of employment.

3. Consider scaling.

For employers with dozens of secondments in place on a regular basis, there are additional options. Such employers should consider scaling by setting up a GEC (“global employment company”) to serve as paymaster of its seconded workforce. By creating — for example — a Bermuda-based GEC, the parent employer then seconds employees to that entity which, in turn, reseconds them across the globe as needed but managing payroll, benefits, taxes, etc. through the GEC.

* * *

Now you are ready to send your employees off… But wait! There is more but no space here. Okay, maybe enough for just one more caution. Companies entering into new countries where they do not have a presence must consider the risk of being deemed a permanent establishment or taxable presence. That risk can often be mitigated by including provisions in the secondment that do not allow the employee to enter into contracts on behalf of the company, or by specifically setting out the scope of the employee’s duties.

 

 

 

 

Suddenly, the advance sheets show a wave of litigation targeting private equity funds. See, e.g., Guippone v. BH S&B Holdings LLC, 737 F3d. 221 (2d Cir. 2013) (private equity funds potentially liable for WARN Act liability); Oaktree Capital Management, L.P. v. National Labor Relations Board, 452 Fed. Appx. 433 (5th Cir. 2011) (same for unfair labor practices under National Labor Relations Act); Board of Trustees, Sheet Metal Workers’ National Pension Fund v. Palladium Equity Partners, LLC, 722 F. Supp. 2d 854 (E.D. Mich. 2010) (same for multiemployer pension plan liability of a portfolio company).

Let’s take a deep breath and sort this out.

Private equity funds usually consist of: (1) partners (aka investors) who belong to a limited partnership and (2) general partner(s) who belong to a limited liability corporation. The partners invest money into the fund with the general partner(s) responsible for managing the fund, including determining in which targets to invest. Once a target is selected, the fund acquires a controlling interest in that portfolio company with the general partners (or their officers, directors, employees, affiliates, or representatives) sitting on the acquired company’s board of directors, directing the company’s business, and affecting policy at the company level. It is that intervention that potentially exposes the private equity fund to being held liable as a co-employer.

But, there are certain exposures that matter more than others.

While the target remains a portfolio company and remains solvent, the potential for being named as an extra defendant is no more than an annoyance and a cost of doing business. Whether it is a claim for unpaid overtime under the Fair Labor Standards Act, a claim for discrimination under Title VII, or alleged unfair labor practices as in Oaktree Capital Management, the cost of defending, settling, or paying judgments routinely will be handed by the portfolio company. The claim’s existence may be a wake-up call on the need to orchestrate the appropriate indemnity provisions in advance, but not a cause for insomnia among the fund’s investors.

Conversely, the claims that matter – and hurt the most– are those that arise either because the portfolio company is failing or after the portfolio company has been flipped. For example, Palladium Equity Partners is illustrative of an expensive issue – withdrawal liability – which arises where an employer participates in but then completely or partially withdraws from (by dissolving or selling the business) an underfunded multiemployer defined benefit pension plan. In Palladium Equity Partners, the amount of withdrawal liability at stake was over $9 million. In BH S&B Holdings, where the triggering issue was the implementation of a reduction in force at a failing entity without 60 days’ notice as required by the WARN Act, the search for upstream pockets to supplement the near-empty pockets of the failing entity was inevitable.

The takeaway? First, going in, set the ground rules clearly in the portfolio company’s by-laws and other corporate governance agreements on indemnification and limit direct (and indirect) investments in any portfolio company that participates in multi-employer pension plans to less than 80 percent to avoid withdrawal liability. Second, structure the involvement to respect corporate formalities; it is the micromanagement of the portfolio company that opens the door to exposing the private equity fund to the portfolio company’s employment liabilities and litigations. Finally, plan the exit from a portfolio carefully:

• if it is closing, make sure that there has been WARN compliance;

• if there are pending or asserted claims, consider the likelihood of being named as a defendant; and

• incorporate proper protection (whether financial or legal: e.g., indemnities) into any sale agreement.

It’s iconic Americana – the Earp brothers and Doc Holliday walk down an empty main street in Tombstone for their showdown with the Ike Clanton gang. But, can you refocus and replay that scene one more time but now with the viewpoint of business owner or business manager. What image do you see?

That’s right – not a single person in town is working.

Now let’s turn to today. Worker productivity has skyrocketed, growing by over 80% from 1973 to 2011. But sixty percent of lost workdays are attributable to stress, so anything that increases stress levels can temper those overall gains in productivity. Has no one considered the Tombstone effect on productivity?

22 states currently having laws on the books limiting employer’s ability to ban firearms in parking lots. Plus, despite 32,000 gun-related deaths per year, legislative control of guns (and there 88 guns for every 100 Americans) is politically unthinkable. Thus, there is an ever growing open carry movement.

Will these guns make people feel safer and more productive, or increase stress levels and send people home? 80% of people who don’t own guns say that the increased presence of guns would lessen their safety; over 70% of gun owners concur. They would feel less safe if more guns were in their neighborhood. Simply stated, the Bring Your Gun to Work laws that have been introduced offer security to few and concentration on productivity to none.

Since OSHA was passed in 1970, employers have been conscientiously improving their workplace safety policies. But, with OSHA silent on guns, the question remains: what can or should employers do about guns at work? The case of Mullins v. Marathon Petroleum Co., L.P., 2014 WL 467240 (E.D. Ky) suggests an interesting starting point.

Kentucky law states that “no person…shall prohibit any person who is legally entitled to possess a firearm from possessing a firearm…in a vehicle on the property.” In this case, Mullins had a hunting rifle in plain sight in the back of his car and, as a result, was disciplined for violating the Company’s weapons policy that did not prohibit weapons but did require that those weapons be registered.

The United States District Court for the Eastern District of Kentucky agreed that a policy regulating firearms on company property does not contravene Kentucky law. Because Marathon did not forbid registered guns but only unregistered guns on its property, it was not an impermissible prohibition of firearms on its property. Id. at *3.

Requiring employees to register firearms being brought on company property with the HR department can be a sensible starting point for employer’s seeking guidance in this emerging area of law. Wyatt Earp would concur because it is damn close to what he did in Tombstone: guns had to checked at either the sheriff’s office or at the Grand Hotel.

Such employer action might be enough to maintain overall employee stress levels manageable while honoring statutory prerogatives on gun possession. If so, your business won’t go the way of Tombstone on October 26, 1881 –shut down because of dramatically decreased employee performance.

“I love it when a plan comes together”

Col. John “Hannibal” Smith

Confirmed by the Senate last Monday, Professor David Weil takes the helm as Administrator of the Wage Hour Division of the U.S. Department of Labor. In practical terms, the Wage Hour Administrator is the head honcho in charge of interpreting and enforcing the federal Fair Labor Standards Act. The FLSA and its companion regulations encompass both the minimum wage and overtime rules, as well as the myriad exemptions from those wage and hour requirements.

Notwithstanding his academic title, Weil is more partisan than scholar; he has openly endorsed aggressively coercive union tactics, including advocating the use of regulatory agencies to advance union campaigns. See, e.g., “A Strategic Choice Framework for Union Decision Making,” WORKINGUSA: THE JOURNAL OF LABOR AND SOCIETY, 342-43 (2005). The Wall Street Journal is, accordingly, justifiably impolite in its description of Weil as “a life-long, left-wing academic with labor-union sympathies, no private-sector experience or legal training, and limited management experience.” POLITICAL DIARY: “Who Is David Weil?,” December 12, 2013.

Weil’s willingness to subordinate fact to partisan results is well established. He has been repeatedly commissioned to author reports for the Department of Labor. His 2012 report entitled Improving Workplace Conditions Through Strategic Enforcement* is a critical document because it outlines Weil’s game plan for the Wage Hour Division. The only way to prepare for the coming attacks is to study that game plan:

  • Under Weil, agency success will be defined quantitatively: that is, success = more Department of Labor lawsuits. Concomitantly, the budget President Obama recently submitted to Congress proposes an unprecedented jump in funding for the Wage-Hour Division, with funds earmarked for strategic enforcement activities.
  • Under Weil, the Department of Labor will subordinate the merits to serve union agendas. Weil’s Strategic Enforcement study laments the decline of union representation and encourages an active partnership between regulatory agencies and unions. Put bluntly, a union need only ask to trigger an investigation.
  • Under Weil, the emphasis will be on accountability for the sins of others. His study concludes that the phenomenon of “fissured industries”—his term for business plans that include outsourcing—necessitates holding companies responsible for the violations of other employers with which they do business, regardless of existing legal rules. He urges regulators to “act on webs or networks of employers, not on single, fixed organizations.” In short, Weil appreciates the cost of far-reaching investigations and litigation, and proposes to use that cost to shakedown the convenient rather than prosecute the guilty.
  • Under Weil, the law no longer counts; rather, as sheriff, Weil proposes to ignore the law to pursue his personal agenda. While couched in academic jargon, his own words reveal an intention to ignore the laws passed by Congress in making those shakedowns: “[t]he direct, two-party relationship assumed in federal and state legislation and embodied in traditional approaches to enforcement no longer describes the employment situation on the ground.” Enforcing Labour Standards in Fissured Workplaces: The US Experience, D. Weil, THE ECONOMIC AND LABOUR RELATIONS REVIEW, Vol. 22 No. 2, pp. 33–54.
  • Under Weil, the approach is that of trophy hunter: target industries and then target the biggest and best companies in those industries. In short, enforcement efforts will have nothing to do with whether a company has violated the Fair Labor Standards Act but only with its success. Weil misdescribes this—in terms only Orwell could admire—as a desire “to bring systemic compliance to an entire industry rather than on an employer-by-employer basis.” Strategic Enforcement at 26.

Employers should prepare for the full implementation of the plans and initiatives outlined in Weil’s Strategic Enforcement report. These include, among other things, “top down” enforcement in targeted industries; an expanded definition of “employer” under the FLSA; more aggressive litigation; enhanced penalties and sanctions; use of the media and public opinion as pressure tactics; and responsiveness to union requests.

It is time for employers to audit their FLSA compliance and build their counter-strategy.

Though it will only get worse under Weil, the Department has already implemented much of Weil’s “strategic” (his most-overused word) plan. For example, it has demanded that an employer not merely correct identified violations but also promise the Department that it will require its suppliers to comply with the Fair Labor Standards Act, monitor their compliance, and report back to the Department on its audits of those suppliers. Similarly, in another investigation, the Department did not question the company’s compliance but demanded—via subpoena—that the company identify every entity with which it had done business and every entity with which it planned to do business. This was not—the Department’s lawyers avowed—a fishing expedition because Weil’s report justified such tactics for any corporation that was a brand name in a fissured industry.

Orwellian is overused; Weilesque is poised for its own distinctive run.

Question: What does Edward Snowden (N.S.A.’s infamous document leaker) have in common with Aaron Alexis (who shot 12 people at the Washington Navy Yard last fall)?

Answer: Their employers’ background check said it would be just fine to hire each.

In January, the U.S. Department of Justice accused the background checking firm of taking shortcuts in 40% of the checks it performed for the U.S. government. Criminal background checks are complicated by the lack of centralized records while credit history systems are plagued with inaccuracies. Indeed, according to the Federal Trade Commission, 21% of all credit reporting agency (“CRA”) reports contain inaccuracies. Complicating these inherent difficulties, there are legal pitfalls to running one-size-fits-all background checks that further muddle the cost-benefit analysis of these checks. While the one-size-fits-all approach worked for the Greek mythological character Procrustes, it may not for employers’ background check policies.

First, employers are exposed to liability under the Fair Credit Reporting Act if there are flaws in the authorization forms the employer and its CRA utilize. See Reardon v. Closetmaid Corp., 2011 WL 1628041 (W.D. Penn. Apr. 27, 2011) (certifying class action of employees and prospective employees presented with FCRA authorization forms that were not stand-alone documents). In addition, employers that rely on the CRA’s report in rejecting job applicants are liable for rejecting the applicant without providing enough time for the applicant to dispute the report. Beverly v. Wal-Mart Stores, Inc., 2008 WL 149032 at *3 (E.D. Va. Jan. 11, 2008) (denying employer’s summary judgment motion where its third party background checker rejected an applicant on the employer’s behalf without giving the applicant sufficient time to contest the erroneous criminal history report on which the rejection was based).

Second, state and local human rights laws threaten lawsuits stemming from background checks. So-called “ban the box” laws prohibit employers from asking individuals about their conviction histories on job applications. Ten states and about 50 cities and counties have some form of ban the box laws, and while many apply only to government employers, the laws in Hawaii, Massachusetts, Minnesota and Rhode Island explicitly apply to private employers. Plus, New York law prohibits refusing to hire an applicant based on his or her criminal background unless (a) that background is directly related to the position applied for; or (b) hiring the applicant would pose an unreasonable safety risk.

Finally, the EEOC is aggressively pursuing employers on the theory that either criminal history or credit history disparately impact minorities. So far, the courts have been unimpressed with the EEOC’s statistical arguments. E.E.O.C. v. Freeman, 961 F.Supp.2d 783, F.Supp.2d 783, 803 (D. Md. 2013) (granting summary judgment of EEOC’s disparate impact claim based on criminal background checks because the EEOC did not meet its burden to present appropriate statistics) (appeal pending); see also E.E.O.C. v. Kaplan Higher Educ. Corp., No. 13-3408, 2014 WL 1378197 (6th Cir. Apr. 9, 2014) (affirming summary judgment for employer on alleged disparate impact in credit background checks because the EEOC’s expert testimony was based on “a homemade methodology”).

What are the practical solutions?

  • Know what laws apply that may require background checks. In some cases, criminal history checks are mandatory (e.g., 18 U.S.C. §1033 forbids hiring individuals convicted of a felony for positions in the “business of insurance”).
  • Don’t ask about or attempt to investigate arrest records. The EEOC’s Enforcement Guidance points out arrests are not proof of criminal conduct, and a number of state statutes (e.g., the Illinois Human Rights Act) agree.
  • Decide position – by – position whether a background check is necessary and precisely what you need to check for that particular position. The Procrustean bed (“one size fits all”) approach should stay in Greek mythology.
  • If background checks are used, follow the FCRA protocols scrupulously.

Weasel words, not epithets for employees with legal claims, are the problem. “…[C]ourts have been nearly uniform in holding that a franchisor should not be deemed to be an ‘employer’ … when plaintiff works for an independently owned franchise.”  McFarland v. Breads Of The World, 2011 WL 801815 (S.D. Ohio 2011) (granting franchisor Panera’s motion for summary judgment in Title VII case) (emphasis added). 

With qualifiers like this, what’s a franchisor to do?  Perhaps, like weasels (the animals), the best approach is to follow the prey cleverly into their own burrow. Let’s try chasing down those tunnels for guidance.

McFarland acknowledged that Panera was safe because it did not write or enforce employment policies for its franchisees: “Select courts have found a franchisor to be an employer … only after determining that the franchisor required the franchisee to adopt specific employment policies.” (citations omitted).  Indeed, Meyers v Garfield & Johnson Enterprises, 679 F. Supp. 2d 598 (E.D. Pa. 2010) confirms that advice.  There, Jackson Hewitt’s motion to dismiss was denied because it did too much, including imposing its own code of conduct for all franchisee employees. 

What else should franchisors avoid?   In Courtland v. GCEP-Surprise, LLC, 2013 WL 3894981 (D. Ariz. 2013), Buffalo Wild Wings International (“BWWI”) won summary judgment because “[i]mportantly, no training was provided regarding the hire retention, discipline, compensation, training or recordkeeping for employees…BWWI ‘does not dictate any policies, procedures, or behavior of [its] franchisees’ in relation to employment matters.”  In contrast, in Orozco v. Plackis, 2013 WL 3306844 (W.D. Tex. 2013) (affirming jury verdict in FLSA case against franchisor), entrepreneur-chef Craig Plackis waded into too much including employment-related training:

Plackis testified it was his role and responsibility to train his franchisees…, including ways to minimize labor costs. [O]ne way in which he did this was to examine the work schedules for his franchise locations. [H]e sat down with [one franchisee] and advised her on cutting employees and hours worked.

Despite a “nearly uniform rule,” franchisors face risk in struggling to maintain quality-control and market reputation without crossing into being an “employer.”  This may be a greater challenge for emerging operations but even established franchisors can get hit as a recent $1.3 million dollar settlement involving a national franchisor evidences. Further complicating matters is that different jurisdictions and different statutes apply different tests of  liability. 

What else should a judicious franchisor avoid in order to escape being the employer of strangers?

  • DO NOT control the hiring, firing, promotions, or demotions of franchisee employees;
  • DO NOT control the pay rates and classifications of franchisee employees;
  • DO NOT set, control or modify the employment conditions of the franchisee employees (e.g., scheduling, meal and rest breaks, timekeeping procedures, etc.);
  • DO NOT micromanage, train, or directly supervise the franchisee employees;
  • DO NOT set the employment policies for franchisees; and
  • DO NOT run the payroll and benefits or maintain the employment records of franchisee employees.