Employment Law for Small Business Owners Patrick J

Employment Law for Small Business Owners Patrick J. Lamparello Proskauer Rose LLP October 1, 2013

Why is it important to be familiar with employment laws? � � � Employers are responsible for knowing the laws, following and enforcing employment policies, and insuring their employees follow the law Failure to follow and enforce policies can lead to corporate and personal liability High number of employment claims, with significant monetary costs of litigating ◦ Average cost of litigating a single-plaintiff employment case to conclusion (excluding cost of settlement) exceeds $100, 000 ◦ Cost of class actions is significantly more � � Time spent litigating / burden on operations Effect on business (e. g. , publicity, boycotts, reputation of company, recruiting issues) Reputation of individuals negatively affected Effect on employee morale

Independent Contractors vs. Employees � � Critical to correctly determine whether individuals providing services are employees or independent contractors Consider degree of control and independence ◦ Does company control or have right to control what the worker does and how the worker does his or her job? ◦ Are business aspects of the worker’s job controlled by the company? (how worker is paid, who provides tools/supplies, etc. ) ◦ Are there written contracts or employee type benefits (i. e. pension plan, insurance, vacation pay, etc. )? Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.

Wage and Hour Laws: Fair Labor Standards Act (FLSA) The Basics: Ø All time worked above 40 hours in a week shall be compensated at a rate not less than one and one-half times the employee’s regular rate Ø Certain employees are “exempted” from overtime • Exemptions are narrowly construed • Title and salary are NOT determinative • Burden is on the employer to prove each element of the exemption

Exempt Employees vs. Non. Exempt Employees � Certain employees “exempted” from overtime and other requirements: � Executive � Administrative � Computer Professional � Outside Sales � Professional � Failure to properly classify exempt/non-exempt status may lead to expensive claims: � Overtime � Missed meal and rest periods � Penalties � Attorneys’ fees

Minimum Wage and Overtime in New York Minimum Wage � Currently $7. 25/ hour, but set to rise incrementally over the next 3 years ◦ $8. 00/hour effective December 31, 2013 ◦ $8. 75/hour effective December 31, 2014 ◦ $9. 00/hour effective December 31, 2015 � The minimum wage and overtime laws apply to employees even if undocumented, paid in cash, or “off the books” ◦ Does not apply to independent contractors Employers must post the provisions of the Minimum Wage Act Overtime � Employers must pay non-exempt employees overtime equal to 1. 5 times the employee's regular rate for all hours worked in excess of 40 hours in a work week �

New York State “Spread of Hours” Regulation � Employees must be paid one extra hour in addition to his or her hourly wages if: ◦ The beginning and end of an employee’s workday exceeds 10 hours ◦ The employee works a “split shift” � � Not applicable if employee is compensated sufficiently above the minimum wage “Split shift” not applicable for employees in restaurant industry

Curbing Unauthorized Overtime � For an employee to be entitled to overtime, work need not necessarily be authorized � So long as employer “permits” the work, employees are entitled to be paid � Have a policy that specifically requires supervisor approval before employees may work overtime � Enforce the policy � Discipline employees who fail to abide by the policy

Unpaid Interns Must ensure that unpaid internships meet certain criteria or face liability for FLSA and other wage law violations: � � � Internship must be similar to training which would be given in an educational environment Internship experience must be for the benefit of the intern Intern must not displace regular employees, but work under close supervision of existing staff Employer must derive no immediate advantage from the activities of the intern Intern must not necessarily be entitled to a job at the conclusion of the internship Employer and the intern must understand that the intern is not entitled to wages for the time spent in the internship

Withholdings � � Payroll taxes must be withheld from an employee's paycheck Payroll tax deductions include: ◦ Social Security taxes (6. 2% up to the annual maximum) ◦ Medicare taxes (1. 45% of wages) ◦ Federal unemployment taxes (FUTA) ◦ State unemployment taxes (SUTA) FICA Taxes (Federal Insurance Contributions Act) ◦ Consists of both Social Security and Medicare taxes ◦ Employees pay share (as above) and employers pay equivalent share Challenges/complications when paying employees in cash ◦ If you pay in cash, must keep full and accurate records and provide employees with documentation about their pay and withholdings just as you would for employees being paid by check or direct deposit

Deductions • New York State recently expanded categories of wage deductions allowed (must be authorized in writing by the employee). Permissible categories include: Insurance premiums Pension or health and welfare benefits Contributions to charitable organizations Dues or assessments to a labor organization Discounted parking or discounted mass transit passes or fare cards Fitness center, health club, and gym membership dues Cafeteria, vending machine, and pharmacy purchases at employer’s place of business Tuition and room & board and day care, before-school, and after-school care expenses Ø Similar payments for the benefit of the employee Ø Ø Ø Ø • • Deductions also allowed for: (1) recovery of overpayment of wages due to mathematical/clerical error by employer, and (2) repayment of advances on salary/wages May NOT deduct for spoilage/breakage or cash register shortages

Benefits � Types of Benefits: ◦ Short Term Disability Insurance (required) ◦ Workers’ Compensation (required) ◦ Health Insurance (required by 2014 for employers with more than 50 full-time employees or employer must pay assessment) Life Insurance (optional) ◦ ◦ Vacation (optional) ◦ Breaks (meal breaks required; rest periods are not) � � New York does not require employers to provide vacation time or time-off for holidays Employers that adopt a benefit policy can impose any conditions they choose

Benefits – Short Term Disability Insurance in New York • • • Compensates for lost wages due to disability resulting from an off-the-job accident or illness New York requires employers to provide STD coverage and must use either an insurance carrier approved by the New York State Workers' Compensation Board or receive authorization for self-insurance Generally, any for-profit business will need to provide coverage • Employers not required to offer coverage can elect to do so as well

Benefits - Workers’ Compensation Employers' Requirements � Employers Must: • Obtain and keep in effect workers' compensation coverage for their employees without a lapse in coverage • Post a notice of workers' compensation coverage • Keep accurate records of the number of employees, classification, wages and accidents for four years • Not discriminate against an employee or applicant because of workers' compensation claims • Report most injuries to the Board and the insurance company within 10 days after an accident • Report an injured worker's wages or other compensation to the Board, as well as any wage or work status changes

Benefits - Workers’ Compensation Employers' Rights � � � Request that the insurance carrier contest the compensability of a claim Attend any hearings related to a claim filed by one of the employer's workers Electronically access the Board's case file for a claim filed by the employer's worker Report suspected workers' compensation fraud to the Fraud Inspector General - Fraud Referral Hotline: 1 -888 -363 -6001 Seek administrative review and/or appeal to the Appellate Division

Benefits – Health Insurance � Under the Patient Protection and Affordable Care Act, employers with fewer than 50 full-time employees: ◦ No financial requirements to contribute toward workers’ health insurance costs ◦ Must provide notification and certain information to employees about the new Health Insurance Marketplace exchanges � Small Business Health Care Tax Credit ◦ 25 or fewer full-time employees ◦ Potential tax credit to help offset costs of insurance

Benefits - Breaks � Employers do not have to provide "rest periods" or "coffee breaks" ◦ But if break permitted (of up to 20 minutes), should pay as work time � Employers must provide meal breaks for all employees: ◦ 30 to 60 minute (depending on industry) noonday meal break between 11 am and 2 pm if at least a 6 hour shift that extends over this noonday meal period ◦ Additional meal periods required for employees working certain shifts � Employers do not have to pay employees for meal breaks if: ◦ At least 30 minutes ◦ Employee must be completely relieved of his/her duties for the purpose of eating a regular meal ◦ Employee must be allowed to leave his or her workstation (but not the employer's premises or worksite)

Benefits - Family and Medical Leave Act (FMLA) � � Applies to employers with at least 50 employees Entitles an eligible employee to twelve weeks of unpaid leave in a 12 -month period (but employer must continue health insurance coverage) Upon return from leave, employee must be restored to the same or equivalent position Leave is permitted for: ◦ The birth, adoption or foster care placement of a child ◦ The employee’s serious health condition ◦ The serious health condition of a child, parent, or spouse

Benefits - NYC Earned Sick Time Act � Requires NYC-based businesses to provide up to 5 days of paid sick leave annually � Permits employees to use paid time off for their own physical or mental illness, injury, or medical care, or for that of a spouse, domestic partner, child, or parent � Companies with 20 or more employees in NYC must begin complying in April 2014; companies with 15 or more employees in NYC must begin complying in October 2015

Recordkeeping/Personnel Files Records to retain � � � Hiring records: ◦ Eligibility to work in the US (I-9) ◦ Employee’s Social Security number ◦ Employee’s withholding Other records: ◦ Employee payroll records and hours ◦ Employee health and safety logs ◦ Job descriptions ◦ Performance reviews ◦ Disciplinary notices Records should be maintained for a minimum of 7 years (longer, if possible)

Payroll Records • Employers must keep payroll records showing, for each week worked by an employee: • Total hours worked each day • Total hours worked each week • Rate or rates of pay and basis (by the hour, shift, day, week, salary, piece, commission or other) • If paid more than one hourly rate, the number of hours worked at each rate • If paid piece rates, the number of pieces completed at each piece rate • Gross wages • Deductions • Allowances or credits, if any, claimed as part of the minimum wage • Net wages

Payroll Records (cont’d) � Employers must notify employees in writing both (i) at the time of hiring and (ii) on or before February 1 st of each subsequent year of employment of: ◦ Rate of pay ◦ Basis of pay (i. e. , by the hour, shift, day, week, salary, piece, commission, etc. ) ◦ Allowances, if any (i. e. , tip, meal, or lodging allowances) ◦ Regular pay day ◦ Name of employer and d/b/a/, if any ◦ Physical address of main office of principal place of business (and mailing address, if different) and telephone number of employer

Employment Discrimination � � An Employer CANNOT refuse to hire, discharge, or otherwise discriminate with respect to compensation, terms, conditions or privileges of employment because of an employee’s protected characteristic Laws governing employment discrimination include: Ø Title VII of the Civil Rights Act of 1964 (Title VII) Ø Age Discrimination in Employment Act (ADEA) Ø Equal Pay Act of 1963 (EPA) Ø Americans with Disabilities Act (ADA) Ø Genetic Information Nondiscrimination Act of 2008 (GINA) Ø New York State and City Human Rights Laws

Discrimination Defined � Disparate Treatment � Disparate Impact ◦ Taking an adverse employment action based on an individual’s membership in a protected class ◦ Using neutral policies or practices that have a disproportionate, adverse impact on any protected class �E. g. , layoffs, certain tests ◦ Circumstantial proof of employment discrimination because no discriminatory animus

Discrimination Law - Protected Characteristics Federal: Race, color, sex (including pregnancy, childbirth, and related medical conditions), religion, national origin, age (40 years or older), citizenship, disability, certain veterans, genetic information NY State: Age (18 and older); marital status; sexual orientation; AIDS/HIV; lawful use of any product or lawful recreational activities when not at work; military status or service; observance of Sabbath; political activities; use of service dog; criminal accusation; domestic violence victim status NYC: Transgendered status; broad gender-based discrimination (e. g. based on an individual’s actual or perceived sex, gender identity, self-image, appearance, behavior or expression); arrest or conviction record; status as a victim of domestic violence, stalking, and sex offenses

Employer Cannot Refuse to Hire Based on Protected Characteristic: Interviewing Dos and Don'ts Age Do: Are you over the age of 18? Don't: How old are you? When did you graduate from college? What is your birthday? Other questions that indirectly ask for age. National Origin Do: Are you authorized to work in the United States? What languages do you read, speak or write fluently? (if job relevant) Which (job related) professional associations do participate in? Don't: Are you a U. S. citizen? Where were you/your parents born/grow up? What is your "native tongue”? What clubs or social organizations do you belong to? (could apply to other characteristics)

Employer Cannot Refuse to Hire Based on Protected Characteristic: Interviewing Dos and Don'ts (cont’d. ) Marital Status Do: Would you be willing to relocate if necessary? Would you be willing to travel as needed by the job? Would you be able and willing to work overtime as necessary? Don't: What's your marital status? Who do you live with? Do you plan to have a family? When? How many kids do you have? What are your child care arrangements? Religion Do: Can you work on evenings and weekends if necessary? Don't: What is your religion? What religious holidays do you observe? What are your plans for the upcoming holiday (i. e. , Christmas, Easter)?

Employer Cannot Refuse to Hire Based on Protected Characteristic: Interviewing Dos and Don'ts (cont’d. ) Disability Do: Ask about: (a) applicant's ability to perform a specific job function; (b) non-medical qualifications such as education, work history, and certificates or licenses; (c) how the applicant would perform job tasks or ask to demonstrate such tasks; (d) whether applicant can meet attendance requirements; (e) current use of illegal drugs. Don’t: Ask about: (a) applicant's general or specific health, medical condition, or mental/physical disability; (b) how many days applicant was absent last year due to illness; (c) workers’ compensation history; (d) legal drug use.

Disability Discrimination and the ADA � Prohibits discrimination on the basis of disability against any “qualified person” with a “disability” who can perform the “essential functions” of the job, with or without a “reasonable accommodation” � Protects individuals “regarded as” disabled � Recently amended to broaden the definition of “disability” and focus on accommodating disabilities � Requires accommodation unless “undue hardship” � Applies to employers with at least 15 employees

Employer/Supervisor Personal Liability • Discrimination or harassment claims • Tort claims • FLSA violations • • Retaliation Aiding and abetting Coercing, threatening, intimidating, interfering Failure to act; “deliberate indifference” Assault and battery Defamation Invasion of privacy False imprisonment • Broad definition of “employer”

Employment-at-Will and Exceptions to the Rule • • Under the “employment-at-will” doctrine, an employee or employer may end the relationship at any time, for any lawful reason or for no reason, provided that there is no contract or agreement to the contrary However, there are some exceptions to the atwill doctrine: • Statutes (e. g. , wage and discrimination laws) • Whistleblower protection (federal and state laws) • Public policy • Asserting a legal right (e. g. , filing a workers compensation claim) • Doing what the law requires (e. g. , serving on a jury) • Refusing to do what the law forbids (e. g. , committing perjury)

Unions � Protected Concerted Activity ◦ When two or more employees take action for their mutual aid or protection regarding terms and conditions of employment � � Even non-union employees have the legal right to engage in protected concerted activity Cannot fire an employee or take other negative employment action for engaging in certain protected activities ◦ ◦ Forming, or attempting to form, a union Joining a union whether recognized by the employer or not Assisting a union in organizing fellow employees Refusing to do any or all of these things

Performance Management and Discipline � Set clear expectations � Address problems promptly � Provide accurate, timely feedback, including performance evaluations � Be clear about policies and work rules (e. g. , employee handbook) � Apply policies and rules firmly, consistently, and fairly � Provide the necessary training and tools to do the job properly and safely

Follow through with discipline and performance management • • • No final decisions when emotions are high Progressive discipline unless very serious offense Consult with a professional before terminating anyone Review prior discipline in similar cases Compare procedures prior to termination Consider whether accommodation is indicated Investigate employee’s complaints so no appearance of retaliation for complaints Check compliance with policies and practices Check for recent exercise of protected right

Terminating an Employee � Determine whether progressive discipline has been followed � Obtain appropriate review and approval (e. g. , human resources, senior management, legal counsel) � Document basis for termination for internal use (e. g. , performance, discipline, reduction-in-force) � Assess possible claims against company � Avoid retaliation or appearance of retaliation

Termination Logistics � Final pay and accrued vacation ◦ Termination v. resignation ◦ No deductions � Reimburse the employee for outstanding business expenses � Employee return of company property

Document, Document. . . • • If it isn't documented, it didn't happen! To mount a defense to a wrongful termination claim, employer will need to produce documents including signed performance evaluations, signed written warnings/notices, and recorded verbal corrections • “Just the facts” • Include prior supervisory actions • Include effects on company • Document third-party statements • Document employee responses • Progressive discipline

Employee Privacy � Employers have access to employees’ confidential information - medical, financial, family, etc. � Employees expect that confidential information disclosed in the course of employment will be kept confidential � Important not to disclose information (especially medical and health information) unless (i) there is a business need to do so and (ii) disclosure has been authorized � Establish and follow clear guidelines concerning maintenance of and access to employees’ confidential information

Employee Privacy and Social Media � Issues to consider: ◦ Privacy Laws – is information private or access authorized? ◦ State Lawful Outside Activities Laws – protect lawful activities outside of the workplace (e. g. , political, recreational activities) ◦ Title VII and Related Laws – require employers to investigate claims of discrimination and harassment and take appropriate remedial measures �What if an employee is being harassed via social media?

Employment Law for Small Business Owners Patrick J. Lamparello Proskauer Rose LLP October 1, 2013 The information provided in this slide presentation is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the firm, our lawyers or our clients. No client-lawyer relationship between you and the firm is or may be created by your access to or use of this presentation or any information contained on them. Rather, the content is intended as a general overview of the subject matter covered. Proskauer Rose LLP (Proskauer) is not obligated to provide updates on the information presented herein. Those viewing this presentation are encouraged to seek direct counsel on legal questions. © Proskauer Rose LLP. All Rights Reserved.