Employment Law Lookout

Liability for Data Breach Involving Employee Information: Even the Federal Government and Third Party Vendors Are Not Immune

Posted in Class Action Avoidance, Workplace Arbitration, Workplace Policies and Processes

By: Karla Grossenbacher

In what is quickly becoming the newest trending topic in class action litigation, another class action has been filed alleging the disclosure of employee personally identifiable information due to a cyber attack.

This time, the employer is the federal government, and another target in the lawsuit is the third party vendor allegedly used by the federal government to conduct its background checks during the time of the breach.

On June 29, 2015, the American Federation of Government Employees filed suit against the U.S. Office of Personnel Management, as well as its Director and Chief Information Officer (the “OPM Defendants”) and KeyPoint Government Solutions (“KeyPoint”), on behalf of two named plaintiffs and a putative class of 18 million current and former employees and prospective employees (the “Plaintiffs”) of the federal government whose personally identifiable information was put at risk by a massive data breach suffered by OPM, which was made public early last month (AFGE, et al. v. OPM, et al., Case 1:15-cv-01015, D.D.C., June 29, 2015).

Although the claims asserted in the case are somewhat different than those we have seen in cases filed against private employers, the types of injuries for which the employees are seeking redress are not. In their Complaint, Plaintiffs are seeking to recover damages for the following alleged injuries that they claim to have already suffered or from which they are “at increased risk of suffering”:

– “out-of-pocket costs associated with the prevention, detection, and recover from identity theft or unauthorized use of financial and medical accounts,” such as putting in place credit monitoring and obtaining credit reports;

– “lost opportunity costs” associated with putting preventative measures in place, including time spent “researching how to prevent, detect, contest and recover from identity and health care/medical data misuse.”

– costs associated with the unavailability of frozen or flagged credit or assets and complete denial of credit or use of credit;

– freezing and unfreezing of credit and penalties resulting from the unavailability of frozen credit;

– diminution in the value and/or use of their personally identifiable information; and

– the continued risk to their personally identifiable information and future costs that will be expended to “prevent, detect, contest and repair the impact” of their compromised information.

It is unclear at this time what injuries the Court will deem sufficiently non-speculative to confer standing on Plaintiffs or establish a viable cause of action.

Plaintiffs are asserting claims against the OPM defendants for violations of the Privacy Act and the Administrative Procedure Act. However, Plaintiffs are also suing KeyPoint, which according to the Complaint, is the OPM contractor that handled the majority of the background checks for OPM at the time of the cyber attack. As is commonplace in suits of this nature, Plaintiffs assert a garden variety negligence claim against KeyPoint. The thrust of the negligence claim, as stated in the Complaint, is that KeyPoint owed Plaintiffs a duty of care and did not take reasonable steps to maintain and protect their personally identifiable information, especially in light of the fact that the “OPM employee data was an attractive target for cyber attackers” and KeyPoint’s cyber security systems had sustained a prior breach in late 2014.

Although the Plaintiffs in the OPM litigation do not advance a separate claim based on delayed notification of the data breach — despite the fact that Plaintiffs claim OPM delayed months in disclosing the data breach to those affected — many states have laws that require certain notifications to take place within a specific timeframe in the event of a data breach. Accordingly, employers need to make sure they are aware of such laws in the states in which their employees work and are prepared to comply with them in the event of a breach. Moreover, every company should have an information security policy in place that states what actions the employer will take in the event of a data breach. A number of the state data breach notification laws provide a safe-harbor for employers who comply with the notification procedure in their own information security policies in response to a breach.

It remains to be seen if the defendants in the OPM litigation will move to dismiss all or some of Plaintiffs’ claims and whether or not they will be successful if they do. However, the filing of this complaint serves as yet another cautionary tale about the many ways in which employees and applicants can seek to impose liability on employers in the event of a data breach. Moreover, the inclusion of KeyPoint in the lawsuit is a reminder to employers that they need to vet carefully any third party vendors to whom they entrust employee or applicant personally identifiable information. Employers should review their data security measures — as well as those of their vendors — in light of the ever-evolving threat posed by hackers. Employers need to ensure that the measures they have in place will be viewed as reasonable in light of the type of personally identifiable information that they obtain from employees (e.g., medical, financial, personal, etc.) and their history of vulnerability in this area. Companies should be expending the same level of effort to protect employee information as well as consumer information. Indeed, some might argue that a company’s duty of care to its employees is greater than the duty owed to consumers. A consumer has a choice in the free market about to whom he or she gives personally identifiable information; the same cannot necessarily be said of an employee whose employer requires that certain financial information be provided by the employee in order to have a paycheck deposited or that certain medical information be provided in order or process benefits.

For more information regarding this topic, please contact the author or your Seyfarth attorney.

Record $17M Settlement Of False Claims Act Lawsuit Alleging Doctor Kickbacks

Posted in Whistleblower

By Ada W. Dolph and Craig B. Simonsen

PostHailed as “another achievement” for the government’s Health Care Fraud Prevention and Enforcement Action Team (referred to as “HEAT”), the U.S. Department of Justice has announced that a Florida skilled nursing company and its former president and executive director will pay $17 million to resolve allegations that the company violated the False Claims Act by submitting claims to Medicare and Medicaid for patients that were referred to the company through illegal kickbacks.

The Department of Justice called this the largest settlement involving alleged violations of the Anti-Kickback Statute by a skilled nursing facilities company in the United States. Under the False Claims Act, the company’s former CFO, who initiated the lawsuit, will receive an eye-popping $4.25 million as his share of the recovery.

The CFO alleged that from 2006 through 2013, the company operated a kickback scheme in which they hired physicians as medical directors under contract. The lawsuit alleged that the medical director positions were actually “ghost positions,” which did not require the medical directors to perform any actual work; rather, they were on contract for their patient referrals to the company’s facilities. The CFO alleged that up to 70% of admissions to the skilled nursing facilities resulted from referrals by paid medical directors.

As part of the settlement, the company’s president agreed to resign from his position.  The company also entered into a five-year “corporate integrity agreement” with the Department of Health & Human Services Office of Inspector General, and agreed to change its policies on hiring and maintaining medical directors.

The Department of Justice asserted in its press release that with the help of HEAT, since January 2009 it has recovered more than $24 billion through False Claims Act cases, of which more than $15 billion was recovered in cases involving fraud against federal health care programs.

Ada W. Dolph is Team Co-Lead and Craig B. Simonsen is a member of the National Whistleblower Team. If you would like further information on this topic, please contact a member of the Whistleblower Team, your Seyfarth attorney, Ada W. Dolph at ADolph@Seyfarth.com, or Craig B. Simonsen at CSimonsen@Seyfarth.com.

To receive future Workplace Whistleblower Alerts, click here.

Obama Administration Proposes New Overtime Rules

Posted in Wage & Hour Compliance, Workplace Policies and Processes

President Obama announced last night that the DOL would be releasing its proposed amendments to the white collar exemption regulations today.

Our colleagues from the Wage Hour Litigation Practice Group blog about these matters and have been tracking the progress of the rules proposal during the past year and are already formulating how these new regulations may impact employers across the court.  To learn more, please review their blog posted here.

New Jersey Supreme Court Confirms Aspiring Whistleblowers Can’t Help Themselves to Confidential Documents

Posted in Whistleblower

By Robert T. Szyba and Jade Wallace

In a pivotal decision with broad implications for aspiring New Jersey whistleblowers, yesterday the New Jersey Supreme Court affirmed the Appellate Division’s finding that no qualified privilege exists to protect an employee from criminal prosecution for taking confidential documents from her employer under the guise of gathering evidence for an employment lawsuit.

In State v. Saavedra, A-68-13 (June 23, 2015), a former public employee, Ivonne Saavedra, was criminally indicted on charges of second-degree official misconduct and third-degree theft of public documents after taking hundreds of highly confidential original and photocopied documents from her former employer, the North Bergen Board of Education.  These documents, which contained sensitive personal information, such as individual financial and medical information regarding individual minor students, were taken by Saavedra in support of her whistleblower retaliation and discrimination claims against the Board.  Saavedra alleged that she was a victim of gender, ethnic, and sex discrimination, as well as hostile work environment and retaliatory discharge.

Saavedra moved to dismiss the indictment, arguing that, in Quinlan v. Curtis-Wright Corp., 204 N.J. 239 (2010), the New Jersey Supreme Court “establishe[d] an absolute right for employees with employment discrimination lawsuits to take potentially incriminating documents from their employers.”  In Quinlan, the plaintiff’s employment was terminated after her employer discovered that the plaintiff copied about 1,800 pages of confidential information without authorization, and gave them to her attorney to use in the lawsuit.  The plaintiff added a claim of retaliation to her lawsuit and was awarded a multimillion dollar verdict.  The New Jersey Supreme Court upheld the jury verdict, finding that the plaintiff had engaged in protected activity that could not lawfully serve as a grounds for termination.

Analyzing Saavedra’s argument, the Appellate Division found that Quinlan did not apply in criminal cases, and instead of a bright-line prohibition against taking company documents, established a totality-of-the-circumstances test for use in civil litigation.

The New Jersey Supreme Court agreed. It confirmed that the “decision in Quinlan did not endorse self-help as an alternative to the legal process in employment discrimination litigation.  Nor did Quinlan bar prosecutions arising from an employee’s removal of documents from an employer’s files for use in a discrimination case, or otherwise address any issue of criminal law.”  On the contrary, the Court explained that the Quinlan decision stands for the proposition that an employer’s interest must be balanced against an employee’s right to be free from unlawful discrimination when assessing whether an employee’s conduct in taking documents from his or her employer constitutes a protected activity.  The Court pointed to the discovery procedures available to litigants that would have provided Saavedra access the same documents that she took, but would have allowed the trial court the opportunity to balance her interests with the Board’s interests, including any concerns about the privacy of minor students and their parents.

Despite the fact that the Court declined to provide an automatic shield from prosecution under Quinlan, the Court pointed out that in such circumstances, the employee will nevertheless be able to assert a claim of right defense or a justification.  Thus, the employee will still be able to assert that his or her taking of the employer’s documents was justified.  And there, the Court suggested, Quinlan’s guidance may assist the trial court in analyzing the particular facts and circumstances to determine whether the employee can assert this defense.

The New Jersey Supreme Court has thus clarified that although self-help tactics may be justifiable in certain circumstances, Quinlan did not establish or endorse an unfettered right of employees to surreptitiously take documents from the workplace for their own use in litigation or otherwise.  New Jersey employers, especially those who may be concerned with customer identity theft and data breaches, have won an important victory to assist in guarding against the unauthorized, and often covert, taking of confidential documents and information.

Robert T. Szyba and Jade Wallace are associates in the firm’s New York office.  If you would like further information, please contact a member of the Whistleblower Team, your Seyfarth Shaw LLP attorney, Robert T. Szyba at rszyba@seyfarth.com, or Jade Wallace at jwallace@seyfarth.com.

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Second Circuit Tackles “Whistleblower” Protection Under Dodd-Frank

Posted in Whistleblower

By Christopher Robertson, Gena Usenheimer and Needhy Shah

Last week, the Second Circuit heard oral arguments in Berman v. Neo@Ogilvy, a case that places squarely before the Court the question of who is a “whistleblower” within the meaning of the Dodd-Frank Act Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

As we have discussed in our previous posts, whistleblower status under Dodd-Frank remains a hotly contested issue, with courts around the country sharply divided.

The Debate

The crux of the debate arises from the interplay between the definition of “whistleblower” in Dodd-Frank and the conduct protected in the Act’s anti-retaliation provisions.  Specifically, the Act defines “whistleblower” as “any individual who provides . . . information relating to a violation of the securities law to the [Securities and Exchange] Commission, in a manner established, by rule or regulation, by the [SEC].” 15 U.S.C.§ 78u-6(a)(6).

Dodd-Frank goes on, however, to prohibit retaliation against “whistleblowers” who participate in the following conduct:

(i) who raise complaints relating to lawful acts done by a whistleblower in providing information to the SEC;

(ii) who participate or assist in any investigation of the SEC based upon such information; and

(iii) who make disclosures required or protected under the Sarbanes-Oxley Act and any other law, rule or regulation subject to the jurisdiction of the SEC.

See 15 U.S.C. § 78u-6(h)(1)(A)(i)-(iii).

One interpretation of the statute is that because subsection (iii) above does not expressly condition anti-retaliation protection on an employee having complained to the SEC, that such an external complaint is not required.  This interpretation is furthered by the clear reference to the Sarbanes Oxley Act of 2002 (“SOX”) in the statute which arguably suggests that internal reporting protected by SOX is sufficient to qualify for Dodd-Frank’s anti-retaliation protections.  Under this reading of the statute, the protections afforded to a “whistleblower” under subsection (iii) seemingly contradict the clear statutory definition of the term, leading a number of district courts to conclude that there is sufficient ambiguity in the statute to permit deference to the SEC’s interpretation on the issue.  Not surprisingly, the SEC has argued that that an employee need not report to the SEC in order to benefit from the anti-retaliation provisions of Dodd-Frank.  Rather, participation only in a protected activity covered under SOX is sufficient. See, e.g., 17 C.F.R. § 240.21F-2(b)(1) (SEC Rule).

Not all courts agree with the this reading of the law. Many courts find that the law is not ambiguous, the statutory definition of “whistleblower” is abundantly clear, and notwithstanding the language in subsection (iii) above, the anti-retaliation provisions plainly support the conclusion that to be a whistleblower, a person must first complain to the SEC.  This line of authority is consistent with Asadi v. G.E. Energy (USA), L.L.C., 720 F. 3d 620 (5th Cir. 2013), out of the U.S. Court of Appeals for the Fifth Circuit — which is the only circuit court to have conclusively addressed this issue. In Asadi, the Fifth Circuit expressly found that: “[u]nder Dodd–Frank’s plain language and structure, there is only one category of whistleblowers: individuals who provide information relating to a securities law violation to the SEC.”  Id. at 625. For a more fulsome discussion on the split in authority in court’s throughout the country, see last week’s blog on this issue here.

The Arguments Presented in Berman

The Berman case came to the Second Circuit on appeal from a decision by Judge Woods in the Southern District of New York.  Judge Woods found that to benefit from Dodd-Frank’s anti-retaliation provisions, an employee must have reported his or her concerns to the SEC. This decision created a split of authority within the Southern District.

Last Wednesday, the Second Circuit held oral argument that lasted almost one full hour.  To begin, the panel unanimously agreed that term “whistleblower” is clearly defined in Dodd-Frank.  The remainder of argument, however, seemed to indicate that at least for the judges hearing the appeal, the definition of “whistleblower” was only the beginning of the analysis.  Specifically, the judges appeared to fall into three distinct camps with respect to the remainder of the statute’s interpretation.

First, Chief Judge Katzmann raised concerns about extending the protection in subsection (iii) to individuals who had not complained to the SEC, arguing that the definition of “whistleblower” could not be clearer.  Based on his questioning, he appears to believe that there is no ambiguity in the statute. Judge Katzmann also noted that it seemed compelling that absent a complaint to the SEC, a “whistleblower” still had potential remedies under SOX. In contrast, Judge Newman focused on the policy arguments that support the SEC’s position, in particular the fact that if a complaint to the SEC is required, then only in exceedingly limited circumstances would a person be protected under subsection (iii). Accordingly, Judge Newman’s questions focused on the apparent “tension” in the statute, which he implied would be sufficient for the Court to find the statute ambiguous.  If ambiguous, he suggested deference to the SEC’s rule would be appropriate.

Judge Calabresi’s questions provided less transparency with regard to his views.  His inquiries were more focused on statutory interpretation, questioning, in light of the clear definition of “whistleblower” in the statute, whether the arguably inconsistent language in the anti-retaliation provision allows the Court to conclude the statute is ambiguous. He requested authority from counsel on both sides directly addressing this issue, but counsel were not able to cite to any specific authority supporting either position.

From the questions posed by the panel during the argument and the colloquy between counsel and the panel, it appears that the panel has differing views regarding the language of the statute and whether an ambiguity or inconsistency exists, making it difficult to predict from the argument exactly how the Court will ultimately rule.  No matter the result in Berman, it will be significant for several reasons.  First, at least for employers within the Second Circuit, the Court’s decision will resolve the issue and provide clarity.  More importantly, the Court’s decision will either fall in line with the Fifth Circuit’s decision in Asadi, bringing a second federal appellate court in line with the conclusion that the statute is not ambiguous and a “whistleblower” only includes an employee who provides information to the SEC.  On the other hand, if the Second Circuit deviates from the Fifth Circuit, a split in the appellate courts will exist, creating the opportunity for the issue to be decided once and for all by the U.S. Supreme Court.

Regardless of the outcome, the Second Circuit’s decision is certain to influence the development of case law on this issue throughout the country.

Christopher F. Robertson is Team Co-Lead of the National Whistleblower Team.  Gena B. Usenheimer is a partner in Seyfarth’s New York office.  Needy Shah is a fellow in Seyfarth’s New York office.  If you would like further information on this topic, please contact a member of the Whistleblower Team, your Seyfarth attorney, Christopher F. Robertson at croberston@seyfarth.com, Gena B. Usenheimer at gusenheimer@seyfarth.com or Needy Shah at nshah@seyfarth.com.

To receive future Workplace Whistleblower Alerts, click here.


Posted in Diversity, Retention & Pay Equity

By Erin Dougherty Foley

Seyfarth Shaw proudly celebrates and takes pride in being a lead supporter of diversity and inclusion in the legal profession, and is celebrating June as LGBT Pride Month. We invite you to enjoy this short presentation of our accomplishments by following this Diversity Pride E-Card link.

If you have any questions about our e-card, Pride Month, or our efforts in diversity, please reach out to any member of the Diversity Action Team or LGBT Affinity Group. At Seyfarth, we are proud of our many achievements in Diversity.

You Can’t Stick Your Head in the Sand: Dos and Don’ts for Religious Accommodation in Hiring After EEOC v. Abercrombie

Posted in Diversity, Retention & Pay Equity, EEOC, Hiring, Testing & Selection, Privacy & Social Media, Uncategorized, Workplace Arbitration

By Dawn Solowey and Ariel Cudkowicz

On June 1, 2015, in a 8-1 ruling, the U.S. Supreme Court ruled for the Equal Employment Opportunity Commission in the religious-discrimination case of EEOC v. Abercrombie & Fitch Stores, Inc. We blogged about that opinion on the day of the decision.

But many employers are wondering: now what? Read on for some practical, common-sense “do’s” and “don’ts” for hiring in the wake of the Supreme Court’s ruling.

Ten-Second Recap of the Supreme Court’s Decision

Title VII prohibits a prospective employer from refusing to hire an applicant in order to avoid accommodating a religious practice that could be accommodated without undue hardship. The question before the Abercrombie Court was “whether this prohibition applies only where an applicant has informed the employer of his need for an accommodation.”

The Court rejected Abercrombie’s argument that an applicant cannot show a violation of Title VII without first showing that the employer had “actual knowledge” of the applicant’s need for accommodation. Instead, the Court held that “an applicant need only show that his need for an accommodation was a motivating factor in the employer’s decision.”

The bottom line? “[T]he rule for disparate-treatment claims based on a failure to accommodate a religious practice is straightforward: An employer may not make an applicant’s religious practice, confirmed or otherwise, a factor in employment decisions.”

Do’s and Don’ts

DO Update Training

Update training programs to ensure that hiring managers and interviewers learn best hiring practices. What questions are OK to ask, or not ask? How do you handle a religious accommodation request? When do you call Human Resources or Legal? Remind trainees that there can be no retaliation against an applicant for having requested an accommodation.

DON’T Ask Directly About Religion

Many of the old rules still apply. Employers should NOT ask applicants directly about religion or religious practices and should NOT assume anything about an applicant’s religion based on stereotypes.

DON’T Stick Your Head in the Sand

On the other hand, When the employer is aware of, or even suspects, a potential conflict between an applicant’s religious practice and a work rule, from any source, the employer should explain the work rule and ask if the rule would pose any problem for the applicant.

Let’s say an applicant arrives to the interview wearing religious clothing that violates the employer’s uniform policy. The employer should communicate the rule and ask if that rule would pose any issues for the applicant. This invites the applicant to disclose any conflict, but avoids a direct inquiry into the applicant’s religion or religious practice.

Facial hair, long hair, head coverings, religious clothing or jewelry, tattoos, and body art are just some personal attire or grooming practices that might be religious in nature, and apparent in an interview, and may also conflict with certain employers’ policies on uniforms, grooming, professional appearance, or safety policies.

The employer may consider alerting applicants more broadly to policies that could pose conflicts for applicants of various religious groups. For example, an employer whose policy is to require weekend work might consider letting all applicants know that up front. The question can be simple: “This position requires work on Saturday and Sunday, would that pose any problem for you?” This starts the dialogue but avoids stereotyping or prying. It also means the employer doesn’t have to guess from dress or other clues whether an applicant is an Orthodox Jew, an evangelical Christian, or a Seventh-Day Adventist who might observe the Sabbath, and what that means in practice.

DO Engage in the Interactive Process (When Warranted)

Once the employer explains the work rule and asks if it would pose a conflict, the applicant’s response determines what happens next.

If the applicant says that there is no conflict, leave it at that. Let’s say the employer explains to an applicant with dreadlocks that the grooming policy forbids long hair, and the applicant says that rule poses no problem for him. Don’t ask for more detail, or question whether the applicant can really abide by the rule.

If the applicant says that there is a conflict, ask why. The answer may or may not relate to religion. One applicant may say she can’t work weekends because she wants to spend time with her kids, and another may say that any work from Friday sundown to Saturday sundown conflicts with her religious belief against work on the Jewish Shabbat.

If the applicant cites a religious reason, the employer must engage in a dialogue — what the law calls “the interactive process” — to explore whether a reasonable accommodation is possible, or whether it will pose an undue hardship.

DO Loop in Human Resources and Legal

If the interactive process is warranted, involve Human Resources. Why? Because HR often has greater expertise in the area of religious accommodation and a deeper knowledge of the company’s religious-accommodation policy. HR likely has a broader perspective about how the company has handled similar accommodation requests, which helps ensure consistency. Finally, HR can help document the interactive process so that there is an accurate record of the request and any accommodations offered or refused.

The employer should also consider consulting legal counsel who specializes in this area for guidance. A legal expert can help navigate the thorny, fact-specific questions of what is a reasonable accommodation, and what is an undue hardship. Counsel can also help the employer to ensure compliance with state or local religious discrimination laws, which can vary from the federal law at issue in Abercrombie.

Both HR and Legal can help brainstorm creative solutions to a conflict between religious practice and a workplace rule. An employee observing the Sabbath might be able to swap shifts with a co-worker or be scheduled around services. A worker seeking a religious exemption to a safety policy forbidding long hair could be allowed to tie his hair up.

DO Set the Right Tone

Be careful to set the right tone. Always be respectful of any religious practice, no matter how unusual. Don’t make assumptions about whether a practice is a “real” requirement of a given religion; under the law, a “sincere religious belief” doesn’t necessarily need to be part of an organized religion, or practiced by many people, or long-held by the employee. The interviewer should avoid making comparison to his or her own, or other employees’, religious identity or practice, or citing advice from a priest or rabbi. Like so much in the workplace, respect and communication can go a long way.

If you have questions regarding this blog or this topic, generally, please contact the authors, a member of Seyfarth’s Workplace Counseling Group, or your Seyfarth attorney.


Massachusetts Attorney General Publishes Mandatory Earned Sick Time Notice

Posted in Wage & Hour Compliance, Workplace Policies and Processes

By Daniel B. Klein

The Massachusetts Attorney General has issued the awaited, mandatory Earned Sick Time Notice.

Pursuant to the Massachusetts Earned Sick Time Law, which takes effect July 1, 2015, employers shall post this Notice in a conspicuous location accessible to employees in every establishment where employees with rights under this law and its regulations work, and shall provide a copy of it to their employees. Employers should therefore post this Notice in such locations and distribute it to their current Massachusetts employees (in paper or electronic form) no later than July 1, and to all new hires thereafter.

Of note, the Notice includes several items that reflect a shift from the Attorney General’s draft regulations and perhaps a sign of impending changes in the final regulations. The period for public comments on the Attorney General’s proposed regulations closed yesterday. We now await the final version of the regulations. Noteworthy highlights include:

  • The smallest amount of sick time an employee can take is an hour. Previously, the draft regulations allowed earned sick time to be used in the smallest increment the employer’s payroll system uses.
  • Sick time cannot be used as an excuse to be late for work without advance notice of a proper use. This provides employers a new ability to prevent an employee from protecting a tardy after the fact.
  • An employer may require documentation from a medical provider if an employee uses sick time within 2 weeks of leaving his or her job. Previously, the statute and the draft regulations only permitted the ability to require documentation from a medical provider if the employee was absent more than 24 consecutively scheduled hours. This new measure seems aimed at preventing employees whose resignation or termination has been noticed from using sick time in their last 2 weeks without providing a medical provider’s documentation.

Stay tuned for the final regulations in the coming weeks. Our prior Alerts reporting on this law and the proposed regulations may be accessed here and here, and the Alert on the safe harbor policy may be accessed here.


New York Poised To Allow Pay Cards But To Continue Scrutinizing Them

Posted in Reductions-in-Force and Business Restructuring, Wage & Hour Compliance

By Condon McGlothlen

On May 27, 2015, New York’s State Department of Labor (“NYSDOL”) issued proposed rules regarding payment of wages by payroll debit cards (sometimes called “pay cards”).  The proposed regulations contain good news and bad news for employers.  The good news is that they appear to let employers pay either by direct deposit or, alternatively, by pay card; in other words, a paper check option is not required.  However, the rules require that employees can only be paid by pay card following their written consent, and they contain various disclosure requirements and other steps that must be satisfied before an employee can consent.

In announcing the proposed rules, Governor Cuomo stated: “An honest day’s pay for an honest day’s work should never come with an asterisk.  These regulations crack down on one of the more underhanded forms of wage theft and will better protect hundreds of thousands of employees who work and live in New York.”  That statement should give pause to any employer that thinks NYSDOL has green-lighted pay cards as they are offered now.


For several years at least, many employers with a large non-exempt workforce – particularly in the retail and hospitality industries – have moved towards pay cards as a means to reduce payroll administration costs.  Most states either regulate pay card systems lightly (with fairly minimal disclosure and free withdrawal requirements) or not at all. There are two exceptions, namely New Hampshire and Montana, wherein employees must have the choice of receiving pay by an employer-issued paper check.  New York until now has been the great unknown.  New York Attorney General Schneiderman last year led many employers to believe his office (and NYSDOL) were taking a position much like New Hampshire’s.  In his final report on the subject, however, Schneiderman concluded the issue was best left to the New York legislature.  Then, when Albany failed to advance the sort of legislation he wanted, Schneiderman in February introduced his own bill in the New York Assembly.  That bill would have required that employers offer a paper check option – presumably one decoupled from pay cards.

Specifics of NYSDOL’s Proposed Rules

Again, the proposed rules do not require a paper check option. However, they prohibit pay by payroll card absent the employee’s informed written consent.  To obtain that consent, employers must wait at least seven business days before seeking the employee’s consent.  Employees must at the outset of that 7-day period receive:

  • A plain language description of all of employee options for receiving wages;
  • A statement that the employer may not require the employee to accept wages by payroll debit card;
  • A statement that the employee may not be charged any fees for services that are necessary for the employee to access his or her wages in full;
  • A list of locations where the employee can access and withdraw wages at no charge to the employee within reasonable proximity to his/her place of residence and place of work.

Other requirements that must be satisfied before employees can receive pay by payroll card include:

  • A network of ATMs that offer free withdrawals;
  • A method enabling a least one free withdrawal per pay period;
  • Written statements, provided electronically or on paper, that include a monthly balance, plus a transaction history going back 12 months before the employee’s request; and
  • Electronic balance notifications on a per day or per transaction basis.

Finally, if the employer does not offer a paper check option, it must retain the employee’s written consent for six years.

Devilish Details

As with most new laws and regulations, the practical difficulties will arise during implementation, particularly in outlier situations not squarely addressed by the rules.  The proposed New York rules are unique in imposing the seven business day waiting period. (Most employers now have new hires elect a pay method on their first day of employment.)  Under NYSDOL’s approach, employees could on the 8th work day theoretically be “required” to choose pay by either direct deposit or pay card; that way employees can get paid via their method of choice on their first pay day, after the end of a biweekly period.  That appears to be what NYSDOL has in mind, i.e., that’s how the administrative scheme is supposed to work.  But what happens if recent hire doesn’t choose a pay method on the 8th day or for some time thereafter, either because she refuses or is ill or simply forgets?  The employer obviously can’t default a recent hire to direct deposit if it hasn’t obtained that individual’s account information.  And, the New York rules state plainly that the employer can’t pay by pay card absent the employee’s consent, which appears to prohibit employers from defaulting the employee to a pay card.  Thus, the only feasible “default” method of pay would appear to be by paper check.

Similar difficulties arise if an employer wants to move current employees from a paper check system or option to an all-electronic system.  Suppose a third of the employer’s current workforce receives pay by paper check.  The employer can of course offer those employees a pay card option (so long as they have at least 7 business days to consider the option after having received the requisite information).  However, if at the end of the waiting period some employees either fail to respond or refuse to consent to pay by pay card, then it would appear those employees must continue to be paid by paper check.

45-Day Phase-In Period

The New York regulations are scheduled to take effect after a 45-day notice and comment period.  It’s conceivable that comments received during that period would cause the Department to revise its proposed rule.  It’s just as conceivable that the Department will issue the rules in final form either at or shortly after the notice/comment period ends.  Thus, to be safe, New York employers should assume they will need to be in compliance with the new rules on or about Monday, July 13, 2015 — 47 days after they issued on May 27.

If you have any questions regarding the New York Pay Card Regulations, please contact the author or your favorite Seyfarth attorney.

Weathering The Recent Storms in Texas: How to Compensate Employees for Lost Time

Posted in Workplace Policies and Processes

By Steve Shardonofsky and Ashley Hymel

In the wake of Houston’s recent flooding, countless businesses closed their doors, and many individuals are coping with homes in disrepair.

Texas employers wondering whether they must pay workers for lost time during inclement weather or clean-up work during the aftermath should follow a few simple rules from the Department of Labor (“DOL”).

Rules for Exempt Employees

Closed For Business.  An office closure may not affect the salary of an exempt employee.  If the office is closed, employers may not make deductions from an exempt employee’s salary.  However, employers may require that exempt employees take vacation or paid time off (“PTO”) to make up that time.  If an employee does not have vacation or PTO days available, the employer can allow her to take the PTO or vacation day anyway and make it up at a later time.

Open For Business.  If the office is open, and the exempt employee decides to stay home, employers may deduct that day’s wages from his pay without violating the salary-basis.  But beware.  If the employee works any portion of the day, then the employer must pay him as though he worked a full day.  This includes any work performed remotely.

Rules for Non-Exempt Employees

Whether the office is open or closed, employers are only required to pay non-exempt employees for hours worked. However, inclement weather often results in traffic delays.  If the employee works during the delay (by taking phone calls or answering emails, for example), then she must be compensated for time worked.  But not all situations are as clear-cut.  Consider, for example, an employee who is stranded in an employer’s vehicle and instructed to safeguard the vehicle.  Or consider an employee who is instructed to transport or retrieve employees or company goods and gets stranded during the storm.  In each of these situations, it is likely that the DOL or a court would later find that all of the time while the employee was stranded was compensable time.  The cost of defending the claim and then paying the amount owed would exceed the cost of simply paying the amount in the first place.  In these special circumstances, it makes legal and practical sense to pay employees for this time.

Employees Who Volunteer For Clean-Up Or Recovery Work

It is an unfortunate truth that businesses are sometimes reduced to wreckage during inclement weather.  Some are fortunate enough to also experience the goodwill of employees ready to help the company rebuild.  Exempt employees who volunteer to help will not be entitled to any additional compensation.  But remember that too much time spent on manual tasks or other tasks unrelated to their regular job duties could invalidate their exempt status and allow them to collect overtime compensation.

Non-exempt employees must be paid for all time worked, even if they offer to work for free, with one exception. Employers may accept free work from employees of government or non-profit agencies who volunteer out of public-spiritedness to perform work that is not at all similar to their regular duties.