Labor and Employment Update - Summer 2018

NEW JERSEY ENACTS SWEEPING EQUAL PAY LEGISLATION

With the recent passage of the Diane B. Allen Equal Pay Act, which will go into effect on July 1, 2018, New Jersey will have one of (if not the) strongest equal pay laws in the country. While the already existing New Jersey Law Against Discrimination (NJLAD) prohibits employers from "discriminat[ing] in any way in the rate or method of payment of wages to any employee because of his or her sex,” the Diane B. Allen Equal Pay Act goes much further. It expands equal pay protections to include compensation based on any of the numerous protected classes covered by the statute. This includes race, creed, color, national origin, nationality, ancestry, age, marital status, civil union status, domestic partnership status, affectional or sexual orientation, genetic information, pregnancy, sex, gender identity or expression, disability or atypical hereditary cellular or blood trait of any individual, or liability for service in the armed forces. Also, under the new law, the standard in not “equal pay for equal work.” Instead, employees are entitled to equal pay for “substantially similar work.”

More specifically, the Diane B. Allen Equal Pay Act prohibits an employer from “pay[ing] any of its employees who are members of a protected class at a rate of compensation, including benefits, which is less than the rate paid by the employer to employees who are not members of the protected class for substantially similar work, when viewed as a composite of skill, effort and responsibility.” If an employer is paying a different rate of compensation, the employer has the burden to demonstrate that the differential is based on a seniority system, a merit system or that:

(1) the differential is based on one or more legitimate, bona fide factors other than the characteristics of members of the protected class, such as training, education or experience, or the quantity or quality of production;

(2)  the factors are not based on and do not perpetuate a differential in compensation based on sex or any other characteristic of members of a protected class;

(3)  each of the factors is applied reasonably;

(4)  one or more of the factors account for the entire wage differential; and

(5)  the factors are job-related with respect to the position in question and based on a
legitimate business necessity and there are no alternative business practices that would serve the same business purpose and not produce the wage differential.

Importantly, when comparing wage rates, employers cannot limit the comparators to only those working together in a particular office or at a job-site. Rather, wage rates are to be compared among all of the employees in the employer’s operations or facilities. Also, if a wage disparity is discovered, the Act specifically prohibits an employer from reducing the rate of compensation of an employee to remedy the disparity. Accordingly, unless an employer can meet its burden to justify the difference in compensation, the employer is going to be forced to raise wages or give more benefits to the purportedly underpaid employee.

What is more, the Act provides for treble damages, lengthens the statute of limitations period from two to six years, and classifies each discriminatory payment of wages as a separate offense. In addition, punitive damages are available when the employee shows that the employer acted willfully.

Given the broad protections this new law provides, as well as the potentially extraordinary expense associated with trying to justify a disparity and the ramifications for non-compliance, New Jersey employers should take steps now, well before July 1, to audit their compensation policies and practices. To the extent the audit uncovers any differences, the employer must either increase the compensation and/or benefits of the purportedly underpaid employee or, at the least, analyze, on a case-by-case basis, the reason(s) for the disparity to determine if it can be justified based on the factors above. In any event, employers would be wise to consult legal counsel to gain a further understanding of this new law and consider all of the available options. Finally, for compensation decisions going forward, it may be advisable for employers to ensure that they thoughtfully consider and the fully document the bases behind each of these decisions.

Lee D. Moylan
lmoylan@klehr.com

FLSA’S NARROW CONSTRUCTION STANDARD STRUCK DOWN

In another decision from the Supreme Court’s most recent term, employers may get some relief in defending the plethora of class actions brought under the Fair Labor Standards Act. There has been a significant amount of FLSA class action litigation which can be difficult to defend and potentially crippling to a business.

In addition to the Supreme Court’s decision allowing class action waivers [discussed in the Klehr Harrison Spring newsletter], the Court’s decision in Encino Motorcars LLC v. Navarro will have implications far beyond the automobile dealers’ industry.

In Navarro, the Court held that service advisors are exempt from overtime under the “automobile dealer” exemption applicable to salesman, partsmen, and mechanics. The most significant aspect of the Court’s ruling was that it rejected a long-standing principle that courts had applied to FLSA exemption litigation. Many courts had held that exemptions were to be “narrowly construed” against the employer because the FLSA is a remedial statute. This principle increased the probability that employees would prevail against employers in exemption cases.

The automobile exemption was first enacted in 1966 and stated that “salesman, partsmen, or mechanics, primarily engaged in selling or servicing automobiles” were exempt from overtime. Over the years, cases litigated whether or not service advisors were covered by the exemption and in 1978 The Department of Labor issued an opinion letter stating that service advisors were covered by the exemption. Subsequently, in 2011, along with several other rule changes, DOL issued a final rule stating that service advisors were not covered by the exemption. Litigation ensued and ultimately rose to the Supreme Court.

In addition to finding that service advisors were exempt from overtime, the Court emphatically dismissed the narrow construction principle stating “[w]e reject this principle as a useful guidepost for interpreting the FLSA. . . . The “narrow construction” principle relies on the flawed premise that the FLSA pursues its remedial purpose at all cost. . . . [e]xemptions are as much a part of the FLSA’s purpose as the overtime-pay requirement. We thus have no license to give the exemption anything but a fair reading.”

It will be interesting to see how lower courts interpret the FLSA cases in light of this new standard, given the many prior decisions under the narrow construction principal. It seems clear, however, that this case is a boon to employers in defending FLSA exemption litigation.

Charles A. Ercole
cercole@klehr.com

FAIR SHARE FEES DECLARED UNCONSTITUTIONAL

Recently, the United States Supreme Court issued a significant decision impacting the rights of public sector non-union workers. Previously, these employees were required under various state laws to pay “fair share fees” to unions based on the theory that unions were entitled to payment because they represent the interests of all employees in collective bargaining and grievances. This only affects employees in the public sector such as police, firefighters, teachers, municipal workers, etc. Janus overruled a nearly forty year-old decision [Abood v. Detroit Board of Education].

In Janus v. AFSCME, the Supreme Court held that fair share fees violate non-union employees’ First Amendment rights because unions are engaged in political activities and these non-union fair share fee payers may disagree with the positions the union takes. Fair share laws required non-union employee to pay an amount that was the pro-rata portion of actual union dues [purportedly not used for lobbying and/or political campaigns]. However, in reality, this “pro-rata” amount was typically 90% or more of the dues amount. Non-union employees could still voluntarily pay dues or fees to the union and even authorize their employers to make such deductions from their wages if they believed that the union’s efforts on behalf of the bargaining unit warranted compensation.

This decision will cost public sector unions millions of dollars in lost fair share fees, but it remains to be seen what the long-term effects will be. Certainly, the landscape has changed, and unions are increasing their efforts to educate both members and non-members alike about the benefits of having representation. Some claim that even in the limited time since Janus was decided, they’ve seen an uptick in membership because former non-union fair share payers do not want to be seen by their bargaining unit colleagues as freeloaders.

Charles A. Ercole
cercole@klehr.com