Legislation

Just a few years ago, employers were preparing to follow what were to become new overtime rules that were going into effect near the end of the Obama administration.  Those rules were sidetracked by an unexpected court ruling that struck the new rules down and declared them to be unenforceable. Since that time, employers have been waiting on what, if anything, the United States Department of Labor (“USDOL”) would do with this issue with a new administration in power in Washington, D.C. We received that answer this week on September 24, 2019 when the USDOL promulgated new final rules that will apply to overtime eligibility determinations starting in 2020.

The new provisions update the Fair Labor Standards Act’s (FLSA) regulations and minimum salary thresholds needed for executive, administrative, and professional employees to be exempt from overtime. These final rules will go into effect on January 1, 2020.

Here are the changes that are being made by the new rules:

• The standard salary threshold for classifying an employee as exempt from overtime increases to $684 per week ($35,568 annually), up from $455 per week ($23,660 annually).
• The minimum salary threshold for the Highly Compensated Employee (HCE) exemption increases to $107,432 annually, up from $100,000.
• Nondiscretionary bonuses, incentive pay, and commissions, may make up to 10 percent of this standard income threshold, as long as they are paid at least annually.
• Special salary levels for workers in United States territories and the motion picture industry will be revised.

So, what should employers do while waiting for the new rules to go into effect?  Like many employers did when the overtime rules were expected to change during the Obama administration, employers should conduct an audit of its workforce and determine how these regulations might affect your current payroll practices. It is believed by the USDOL that, due to these new regulations, an additional 1.3 million employees will be now eligible for overtime. Therefore, if you have employees who were classified as exempt because of their meeting the older salary test standard, employers will now need to decide if they want to raise what those employees are being paid to the higher 2020 salary level to maintain the exemption or reclassify those employees as non-exempt moving forward.

Ralph R. Smith, 3rd is Co-Chair of the Employment and Labor Practice Group. He practices in employment litigation and preventative employment practices, including counseling employers on the creation of employment policies, non-compete and trade secret agreements, and training employers to avoid employment-related litigation. He represents both companies and individuals in related complex commercial litigation before federal states courts and administrative agencies in labor and employment cases including race, gender, age, national origin, disability and workplace harassment and discrimination matters, wage-and-hour disputes, restrictive covenants, grievances, arbitration, drug testing, and employment related contract issues.

Governor Murphy ran on an election platform promising a number of pro employee changes to New Jersey’s employment laws. As employers already know, one such change was the passage of New Jersey’s Paid Sick Time Law that went into effect in late October 2018. Continuing that trend, additional legislation was passed and signed into law in February modifying three of New Jersey’s major employee leave laws. These recently enacted amendments significantly expanded New Jersey’s existing Family Leave Act (NJFLA) and Family Leave Insurance law (NJFLI). The important changes made to each of these laws are summarized below.

NJFLA

            Currently, the NJFLA applies to employers with 50 or more employees. The recent amendment changes that employee threshold and reduces it to just 30 employees. Thus, starting on June 30, 2019, employers with 30 or more employees (in total, anywhere, not just in New Jersey, but combined company wide) are required to provide those employees working in New Jersey with 12 weeks of job-protected family leave during each 24-month period. Moving forward, for employers in New Jersey, 50 employees will no longer be the magic number as it is under the federal Family and Medical Leave Act (FMLA), which means that more New Jersey employers will have to provide family leave beyond those previously covered with the higher employee threshold.

            The amendments also expand the scope of persons for whom family leave may be taken. The revisions modify the NJFLA to provide that family leave may be taken in connection with the placement of a child into foster care with the employee, not just as now upon the birth or adoption of a child. This change makes the NJFLA and the FMLA consistent with one another in allowing for leave for placement of a foster child. These amendments also expressly permit family leave to be be taken in connection with the birth of a child conceived using a gestational carrier agreement/surrogate.

           One of the cornerstone rights bestowed upon employees under the NJFLA is the ability to take NJFLA leave to care for a family member with a serious health condition. The recent legal changes passed expand the definition of “family member” to include “parent-in-law,” “sibling,” “grandparent,” and “any other individual related by blood to the employee, and any other individual that the employee shows to have a close association with the employee which is the equivalent of a family relationship.” Some of the above relationships were already previously included in the applicable regulations for the NJFLA, but not in the law itself; others are newly recognized relationships.  Nevertheless, employers now need to be cognizant of the added number of family members that could justify NJFLA eligibility.

            The recent amendments also significantly modify the circumstances for which intermittent leave can be utilized. Previously, intermittent leave to care for a child born or adopted was subject to the employer’s approval. The amended law now permits employees to use intermittent leave upon the birth, adoption or foster care placement of a child without the employer’s approval. This means that the old rule that employees had to take such leave on a consecutive basis (unless the employer agreed to allow the use of intermittent leave) is no longer applicable.

            The final significant change made to the NJFLA is that the advance notice requirement for taking a leave has been reduced from 30 to 15 days when an employee requests intermittent leave to care for a family member with a serious health condition. For other leave requests, the 30 days’ advance notice requirement remains the standard.

NJFLI

            The NJFLI provides wage replacement benefits to employees on family leave through the state’s temporary disability leave benefits program. Starting in July 2020, the following significant changes will go into effect:

            Initially, the number of weeks of paid leave benefits will be doubled from 6 to 12 within a 12-month period. The amount of intermittent paid leave benefits is also being increased from 42 to 56 days in a 12-month period, and intermittent leave may similarly now be used in the case of foster care child placement. The law as it currently stands allows intermittent leave only in order to care for a newborn or an adopted child.

            The revisions to the NJFLI also raise the cap on the weekly benefit amount to be received by an eligible employee from two-thirds to 85 percent of an employee’s weekly salary, to a maximum of 70 percent (up from 53 percent) of the statewide weekly remuneration average. That means under current state statistics the weekly maximum benefit will increase from $633 per week to $859 per week in 2020.

            Next, the recent amendments also will prohibit employers from requiring employees to use up to two weeks of paid time off (PTO) in lieu of NJFLI benefits. While employers in the future will no longer be able to force use of existing PTO time, the revised law still allows employees to elect to use PTO in lieu of NJFLI benefits. Furthermore, when an employee elects to use PTO benefits, it will no longer result in a reduction of the amount of NJFLI benefits available to that employee. So, in essence, employees will now be able to “double-dip” into such benefits, which was the primary reason for allowing the set-off in the current form of the law.

            Along with the foregoing changes, the recent amendment to the law likewise modifies the requirements applicable to employers who provide NJFLI (and temporary disability) benefits through a private plan by limiting the requirement that a majority of employees approve the use of a contributory private plan to employees covered by a collective bargaining agreement. The amended law further eliminates the seven-day waiting period for NJFLI benefits. Currently, employees do not receive benefits for the first seven days of family leave, unless benefits continued for more than three weeks, in which case the initial seven days were to be paid retroactively. The present amendment eliminates the seven-day waiting period altogether for NJFLI benefits.

            In addition to the substantive changes made to the benefits related payment provisions of the law, the latest amendments also prohibit an employer’s discharge, harassment, or any other conduct interfering with the terms and conditions of employment because an employee has requested or took family leave. The employer also may not refuse to restore an employee after a period of taken family leave. This is a significant change as before only if the leave itself was covered by another law which protected employment would job restoration be required.  Significantly, the law now also gives a private right of action to the employee with a host of potential remedies, including monetary damages, attorneys’ fees and costs, and injunctive and reinstatement relief to his or her former position. The law likewise outlines a schedule of fines that can be imposed by a court for violation of the anti-retaliation provision.

SAFE Act

            Finally, the recent amendments also similarly made changes to the New Jersey Security and Financial Empowerment (SAFE) Act, a law which provides leave for employees who are victims of domestic violence or sexual assault, or who have a family member who is a victim. Effective July 1, 2020, employees taking leave under the SAFE Act will be eligible for wage replacement benefits from the state, just like employees who take NJFLA leave.

            The amendment also expands the definition of “family member” under the SAFE Act, enlarging those who are covered by that law to now mirror the term’s definition under the NJFLA. This means that like the NJFLA “family member” under the NJ SAFE Act will now include a “parent-in-law,” “sibling,” “grandparent,” and “any other individual related by blood to the employee, and any other individual that the employee shows to have a close association with the employee which is the equivalent of a family relationship.”

Conclusion

In light of the foregoing changes, the time is now for employers to revisit their leave policies, and make all changes needed to bring these policies in line with (1) the amendments themselves, and (2) any new regulatory requirements that these amendments may beget. Moreover, with the addition of the new paid sick time law, coordination of benefits under these respective benefits will be a must for employers, and sound legal advice should be sought to ensure compliance with the complicated web of requirements that these laws will now demand.

Background

The Diane B. Allen Equal Pay Act, one of the most pro-employee equal pay laws in in the nation, took effect on July 1, 2018. The law expands the already broad and expansive New Jersey Law Against Discrimination (“NJLAD”) by strengthening protections against employment discrimination and pay inequity.  Though many think the law only requires employers to pay women and men the same for equal work, the Act goes far beyond addressing gender-based wage disparities and applies to all members of a protected class performing “substantially similar work, when viewed as a composite of skill, effort and responsibility.”   The NJLAD defines a member of a protected class as “an employee who has one or more characteristics, including 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.”  Simply, the law creates a cause of action against employers that pay an employee, who is a member of a protected class, less than the rate paid to employees who are not members of the protected class.  In view of the broad range of characteristics and expansive interpretation of such characteristics under NJLAD jurisprudence, the law could apply to a significant number of employees within an employer’s workforce.

Factors that May Justify Disparity in Pay

The new law does provide limited instances where employers may pay employees differently for similar work if the employer can show that it was based on a “seniority system” or “merit system, or if the employer can establish the following criteria:

1. the pay differential is based on one or more legitimate, bona fide factors, 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 any protected characteristic;
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(ies).  However, a factor based on business necessity would not apply “if it is demonstrated that there are alternative business practices that would serve the same business purpose without producing the wage differential.”

Expanded Anti-Retaliation Protections under the NJLAD

The law also extends the anti-retaliation provisions under the NJLAD to this newly created equal pay cause of action. Previously, the NJLAD only prohibited an employer from retaliating where the request from a current or former employee was for the purpose of investigating or taking legal action regarding discriminatory compensation.  The new law now prohibits retaliation against employees for “requesting from, discussing with, or disclosing to, any other employee or former employee of the employer, a lawyer from whom the employee seeks legal advice, or any government agency” pay information. Such information includes but is not necessarily limited to job title, occupational category, rate of compensation, including benefits, and the gender, race, ethnicity, military status, or national origin of the employee or any other employee or former employee, regardless of whether the employee receives a response.

Expanded Damages and Limitations Period Under NJ’s Pay Equity Law

The law’s provisions for back pay damages are also more extensive than federal law and allows employees to recover treble damages if they can show they were discriminated against on the basis of pay, if they were retaliated against for raising the issue of pay disparity to an employer or other employees, or if they were required to waive their rights to complain about pay disparities.  The law provides for punitive damages if a court finds that an employer’s conduct was willful.  Finally, the statute of limitations for pay equity violations under the law was extended to six years.  The expanded statute of limitations provides that the limitations period restarts each time “an individual is affected by application of a discriminatory compensation decision or other practice,” including each time the individual receives compensation that results, in whole or in part, from a discriminatory decision.  It is also now an unlawful employment practice to require employees or prospective employees to “consent to a shortened statute of limitations or to waive any of the protections” provided by the LAD.

Additional Reporting Requirements for State Contractors

The statute also contains a mandatory reporting requirement for any employer entering into a contract with the State of New Jersey (“State”) or an agency or instrumentality of the State for “qualifying services” or “public works”.  Contracting employers must provide the New Jersey Department of Labor and Workforce Development (“NJLWD”) – upon commencement of the contract – wage and demographic data for all employees who are employed in connection with the contract (for public works) and for all employees (for qualifying services). Simply, any employer, regardless of location, who enters into a contract with the State or any agency or instrumentality of the State qualifying services or public work must file a report with the NJLWD.  For employers filing Reports for Qualifying Services, Reports must be submitted annually by March 31 for the preceding year, using employment figures from any pay period in October through December. For employers filing Reports for Public Works Projects, Reports must be submitted weekly.

Going Forward

As New Jersey’s new law is one of the most expansive employee pay equity protections enacted to date, it is more important than ever for employers to consult with legal counsel to take proactive steps, including review of your compensation records and systems to identify positions where there is potential unequal pay for substantially similar work and determine whether that pay discrepancy is warranted based on one of the recognized justifications. This should also include working with counsel to review compensation policies and job descriptions to ensure that differentiation in pay is based on a defensible factor and maintain data on how these factors informed compensation decisions.

For more information regarding the impacts of this Law, determining applicability of reporting requirements to your organization, and how to implement nondiscriminatory pay practices please contact William R. Burns, Esq. at wburns@capehart.com or Primitivo J. Cruz, Esq. at PCruz@capehart.com.

It is no secret that sexual harassment and the prevention of same in the workplace has become an increasingly popular topic. In response, businesses have started to take a closer look at their anti-harassment policies and how they are enforced.  Interestingly, lawmakers have also become focused on this issue and have now included a provision regarding sexual harassment settlements in the 2018 tax reform law.

Previously, settlements and legal fees were almost always tax deductible by businesses.  The 2018 tax reform legislation includes a provision that states that any settlement for sexual harassment claims, which contains a confidentiality or non-disclosure provision, will not be tax deductible.  Moreover, any legal fees related to the settlement of a harassment suit, where a confidentiality provision is included in the settlement agreement, will also be excluded from any type of tax deduction.

So what is the purpose behind this new rule? It seems to be to discourage the use of confidentiality clauses in sexual harassment settlements. Rumor has it that many powerful people in the entertainment industry, including Harvey Weinstein, have settled various sexual harassment claims over the years but these settlements have not been made public due to confidentiality provisions.  Are confidentiality provisions another way for perpetrators to hide their bad acts so they can continue acting inappropriately? Lawmakers think so.  Lawmakers hope that this new tax provision will make sexual harassment settlements more public, which will incentivize businesses to take a harsher stance on sexual harassment in the workplace.

Although this new tax provision seems like a good idea, it could create problematic consequences.  It’s possible that this provision will discourage settlements of sexual harassment cases, despite the strong public policy favoring settlements.  A business may be more inclined to go forward with trial because payment of litigation costs, attorney’s fees and judgments resulting from trial will be tax deductible. It’s also possible that this new provision will incentivize businesses to lower their settlement offers to offset the fact that the settlement fee will not be tax deductible.

Moreover, the language of the tax reform provision brings about many questions. Does this provision only apply to claims where sexual harassment is the sole complaint? What if an employee files a claim for sexual harassment but also includes claims of discrimination and retaliation? Would a settlement of those claims, with a confidentiality provision, preclude a tax deduction?  Will there need to be proof that the sexual harassment actually occurred before any settlement can be entered into in order to determine tax consequences? Will plaintiffs in a sexual harassment suit be able to take tax deductions for legal fees he/she paid if a confidentiality provision is included in a settlement? The answers to these questions are not yet clear.

As this new tax provision is put into practice, it will be interesting to see what impact it has, if any, on sexual harassment in the workplace. The hope is that making it costlier to hide sexual harassment might make it less common in the workplace.