Labor and Employment Update - Winter 2013

PENNSYLVANIA HIGH COURT REVERSES COURSE: EMPLOYEES ACCEPTING EARLY RETIREMENT PLANS MAY ALSO RECEIVE UNEMPLOYMENT COMPENSATION BENEFITS

The Supreme Court of Pennsylvania recently overturned nearly twenty years of precedent when it determined that an employee who accepts an early voluntary retirement plan pursuant to an employer-initiated workforce reduction can qualify for unemployment compensation benefits if the employee continues to look for work.

In Diehl v. Unemployment Compensation Board of Review, the employer announced a reduction in workforce based on declining financial conditions and issued a memo to the employee’s union with a list of twenty individuals who would be laid-off in accordance with the union contract.  Notably, the memo indicated that up to ten individuals could be retained from the list dependent upon the results of an early retirement offer.

To encourage high seniority employees to leave and preserve the jobs of lower seniority employees, the employer offered an early retirement program to employees over sixty years old.  The program included full payment of health insurance for three years and partial payment of such benefits for two years.  Employer also offered to pay for unused vacation days.

After accepting the early retirement offer, Harold G. Diehl, a sixty-three year old, twenty-three year employee, applied for unemployment compensation benefits.  His claim was denied by the Office of Unemployment Compensation Benefits on the basis that he did not demonstrate that “he had knowledge that his job would have been affected if he did not accept the employer’s plan.”

Diehl unsuccessfully appealed the denial of benefits to the Unemployment Compensation Board of Review and the Commonwealth Court.  In upholding the denial, the Commonwealth Court explained that it had repeatedly held that the “voluntary layoff option” proviso (“VLO proviso”) of the Unemployment Compensation Law (“UC Law”) did not apply to early retirement incentive packages.

Ultimately, the Pennsylvania Supreme Court overruled the Commonwealth Court’s long-held interpretation of the VLO proviso, holding that the proviso applies to an employee who accepts an early retirement package pursuant to an employer-initiated workforce reduction.

The Court noted that while the UC Law states that an employee is ineligible for compensation in any week “[i]n which his unemployment is due to voluntarily leaving work without cause of a necessitous and compelling nature,” the VLO proviso provides for a limited exception where “unemployment is due to exercising the option of accepting a layoff from an available position pursuant to a labor-employment contract agreement, or pursuant to an established employer, plan, program or policy.”

While the Court observed that “layoff” is not defined under the statute, it also noted that eligibility sections must be broadly interpreted in favor of the claimant.

As to employers in Pennsylvania, the possibility of paying unemployment compensation benefits is now an additional consideration for those contemplating an early retirement program.  As noted in Justice Saylor’s concurring opinion, however, an employee who accepts a voluntary layoff should only be eligible for unemployment compensation benefits if he or she remains within the labor pool, rather than actually retires.

EEOC CAUTIONS AGAINST USE OF ARREST AND CONVICTION RECORDS IN SCREENING POTENTIAL EMPLOYEES

On April 25, 2012, the United States Equal Employment Opportunity Commission (the “EEOC”) issued an updated “Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964” (the “Guidance”).  The Guidance cautions private employers that “use of arrest and conviction records to deny employment can be illegal,” where “it is not relevant for the job.” 

The Guidance stems from the EEOC’s historical position that, even though individuals with criminal records are not a protected class under Title VII, using arrest and conviction records in employment decisions can disproportionately impact minority groups, thus violating Title VII.  Title VII prohibits “disparate impact” discrimination, which occurs when an employer’s seemingly neutral policy has a disproportionately negative impact on members of a protected class.  In the context of criminal history information, the EEOC’s stance is that because certain racial groups, primarily African Americans and Hispanics, have arrest and conviction rates disproportionately higher than other races, employer policies or practices permitting or requiring adverse employment action due to employees’ or applicants’ criminal records, absent further analysis, are discriminatory and therefore illegal.

Under the Guidance, a blanket policy barring employment based on arrest or conviction records violates Title VII.  Therefore, an employer must show that the policy or practice is “job related for the position in question and consistent with business necessity,” which can likely be satisfied by developing a two-step “targeted screen” for criminal convictions.  The first step requires an assessment of whether the individual should be presumptively barred based on analysis of 1) The nature and gravity of the offense or conduct; 2) The time that has passed since the offense or conduct or completion of the sentence; and 3) The nature of the job held or sought.  The second step requires an “individualized assessment,” whereby the employer informs the individual he or she may be excluded due to past criminal conduct and provides the individual with an opportunity to explain why he or she should not be excluded based on a number of individualized factors such as mistaken identity, particular facts or circumstances surrounding the conviction, and rehabilitation efforts.

While employers may not exclude an applicant based on an arrest record alone, the EEOC acknowledges that “an employer may make an employment decision based on the conduct underlying the arrest if the conduct makes the individual unfit for the position in question.”  This requires an investigation into the factual circumstances surrounding the arrest. 

Restrictions Under Pennsylvania and Philadelphia Law

Employers in Pennsylvania and Philadelphia are already subject to restrictions on the use of criminal records in employment screening.  Under Pennsylvania law, an applicant’s convictions may be considered only to the extent related to an available position and employers are required to notify applicants if their criminal history was a factor in the decision not to hire him or her.

In 2011, Philadelphia passed an ordinance limited an employer’s ability to consider arrests and convictions of job applicants.  Under the ordinance, it is illegal for city agencies and private employers with ten or more employees in Philadelphia to:

Inquire about or require an applicant to disclose any criminal convictions during the application process, which begins when an applicant inquires about employment and ends when an employer has accepted an employment application;

Inquire about or require an applicant to disclose any criminal convictions before and during the first interview.  However, the employer may discuss the criminal conviction if the applicant voluntarily discloses any information regarding a criminal conviction at the interview;

Inquire about or require an applicant to disclose or reveal any arrest or criminal accusation, not then pending, which did not result in a conviction; or

Refuse to hire any person on the basis of any arrest or criminal accusation, not then pending, which did not result in a conviction.

Considerations for Employers 

While the Guidance is not legally binding, the EEOC will likely rely on it in enforcing Title VII.  Thus, employers should consider the best practices noted in the Guidance when using criminal background information to make employment decisions.  These include narrowly tailoring policies for screening applicants and employees for criminal conduct, training managers, hiring officials, and other decision makers regarding the appropriate use of criminal records, and maintaining confidentiality of such records.  Employers should also be cognizant of the Philadelphia and Pennsylvania laws regulating use of criminal records.

If you need assistance re-evaluating your existing criminal background check policies or establishing new policies to comply with the latest EEOC Guidance, as well as state and local regulations, our employment team at Klehr Harrison is available to assist you. 

NLRB LIMITS WHEN AN EMPLOYER MAY REQUIRE CONFIDENTIALITY DURING ONGOING INVESTIGATIONS

Whether you are a company that has ever investigated an employee’s complaints of inappropriate or potentially unlawful behavior, or you are or will ever be that employee, you should know about the decision rendered by the NLRB in Banner Health System d/b/a Banner Estrella Medical Center.  There, the NLRB found that Banner Estrella violated Section 8(a)(1) of the National Labor Relations Act by following a practice that is quite common among employers – it regularly instructed employees not to discuss ongoing investigations.  This ruling applies to both union and nonunion employers.  While Banner Estrella has been appealed to the D.C. Circuit, the Circuit Court has yet to render a decision.

This opinion as it stands surely makes it more difficult for companies to lawfully protect their interests in conducting investigations.  According to the Board, although an employer may have a reasonable justification for proscribing discussions about ongoing investigations in certain circumstances, a blanket confidentiality rule will violate the NLRA.  Indeed, now, the employer must be able to show that it had specific legitimate business justifications for its rule and that those justifications outweighed the employees’ Section 7 rights to engage in concerted activity for their “mutual aid or protection.”  An employer citing a generalized interest in protecting the integrity of investigations would not meet this burden.  Instead, the company must be able to demonstrate that, in any given case, it had a need to: (a) protect witnesses from retaliation;  (b) prevent the destruction of evidence; (c) protect the integrity of future testimony; or (d) preclude a cover up.   

In addition, despite a dissent from Member Brian Hayes, the Board rejected Banner Estrella’s argument that it did not infringe on employee rights because it did not discipline anyone for discussing the investigation.  The Board held that the mere instruction had a “tendency to coerce employees” and amounted to an “unlawful restraint” of their NLRA rights.        

Take Away: Unless and until the D.C. Circuit reverses the Board’s decision in Banner Estrella, employers should cease applying a blanket rule mandating confidentiality and should consider scrapping all together any written policies to that effect (either expressed in a company handbook, on an interview form, or the like).  Also, companies, before requiring confidentiality, must ensure that they are able to articulate a legitimate business reason in that particular investigation.

Lee D. Moylan
lmoylan@klehr.com

UPDATE:  RITE AID SETTLES WAGE AND HOUR CLASS ACTION  

Last year, we reported on a decision reached by the United States Court of Appeals for the Third Circuit in Knepper v. Rite Aid Corporation, wherein the Court held that collective action claims under the Fair Labor Standards Act (“FLSA”) and class action claims under state wage and hour laws can be brought in the same lawsuit.  Now, a settlement reached in the consolidated cases of Craig v. Rite Aid resolves 14 class or collective actions brought against Rite Aid nationwide, including the Knepper case. 

The actions against Rite Aid involved employee classification at 4,700 stores across 30 states, creating a class of more than 6,000 assistant store managers who had been classified as exempt employees not eligible for overtime pay.  The complaints alleged that the class members were wrongfully classified as exempt because their actual job duties required little skill and did not include managing an assigned store or any department or subdivision thereof.

The Department of Labor has established a test for determining whether an employee does in fact qualify as an “exempt” executive/manager.  One of the requirements under that test is the employee must have a primary duty to manage the enterprise, or manage a customarily recognized department or subdivision of the enterprise.  Furthermore, the employee must customarily and regularly direct the work of at least two or more other full-time employees and must have the authority to hire or fire other employees. 

Employers should take note of the issues raised by these cases.  First, as we reported last year, the Third Circuit’s decision in Knepper now allows employees to pursue both FLSA and state law claims in a single federal court action, resulting in an employer’s inability to limit the number of  class plaintiffs to those who actively opt-in under the FLSA action.  Now, the global settlement of these class and collective actions against Rite Aid reinforces the notion that employers can face significant liability for employee misclassification and failure to comply with both federal and state wage and hour laws.  Employers in the retail industry should use special caution when giving an employee the title of “manager” in order to avoid overtime pay.  The lesson learned here is that the job title alone is meaningless if the actual job duties do not meet the requirements for exemption under the FLSA.