The Unemployment Hearing–a Trap for the Unprepared Employer


By Kathleen Jennings (kjj@wimlaw.com)

The simple unemployment hearing. It appears to be a low stakes proposition for an employer to contest the unemployment benefits of a terminated employee. However, the stakes may be higher than just the payment or denial of unemployment benefits. If management or supervisory witnesses testify under oath at the hearing, it is possible that they may make admissions that can be used against the employer in litigation brought by that same terminated employee. In other words, if the terminated employee later files a complaint for discrimination or harassment, anything the employer’s witnesses said at the unemployment hearing can be used against the employer in the litigation.

Moreover, anything the employee says at the unemployment hearing can be used against him or her also. Thus, an unemployment hearing can be an opportunity to gain information and admissions from a potential plaintiff.

Our advice: an employer should have an attorney present at any contested administrative hearing. Counsel can prepare and advise company witnesses and also use the hearing as an opportunity to cross-examine a potential plaintiff.

Kathleen Jennings, Principal is a partner in the Atlanta office of Wimberly, Lawson, Steckel, Schneider, & Stine, P.C. She can be contacted at kjj@wimlaw.com.

©2016 Wimberly Lawson

Time is Money: 21 States File Suit to Block New Overtime Rule

On Tuesday, 21 states, including Georgia, filed a lawsuit in a federal district court in Texas challenging the Department of Labor’s new rule expanding overtime pay. The rule, set to take effect Dec. 1, will require employers to pay overtime to salaried workers earning less than $47,500 a year, double the current threshold of $23,660. A coalition of business groups also filed a challenge to the rule. Both of Tuesday’s lawsuits said the DOL abused its authority by increasing the salary threshold so drastically, and also failed to account for regional variations in the cost of living.

At this point, the lawsuits have no effect on the effective date of the new rule, which will have a significant impact on many employers. To stop the implementation of the new rule, the parties will need to convince a court to enter an injunction before December 1. We will be watching this situation closely. In the meantime, employers need to continue preparing for the December 1 effective date.

Questions? Need more information? Contact Larry Stine (jls@wimlaw.com) or Betsy Dorminey (ekd@wimlaw.com) at (404) 365-0900.

 

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©2016 Wimberly Lawson

Never Underestimate the Generosity of a Civil Jury

By Kathleen Jennings (kjj@wimlaw.com)

“You never know what a jury is going to do.” This is something we regularly tell clients when considering settlement or a jury trial. As lawyers, we can evaluate a case based upon the facts and the law, and we also try to account for such intangibles as witness likeability. However, it is impossible to predict how a jury of 6 or 12 or more people, probably none of them lawyers, will evaluate the same evidence and witnesses. Although we make an effort to screen out potential jurors who may harbor a particular bias or bad feeling about our client or employers in general, we cannot eliminate the social or experiential factors that may affect each jurors’ own perception of the case.

An example of a jury verdict that was not predicted by the defense comes to us from South Carolina. In a personal injury case filed against Target, a jury in Anderson County awarded the plaintiff $4.6 million dollars. This case arose out of an unfortunate situation where the plaintiff’s young daughter found a used hypodermic needle in a parking lot of a Target store. The child picked it up, and the plaintiff swatted it out of her hand, causing the needle to stick in the plaintiff’s hand. After her injury, the plaintiff received medical treatment, including testing for HIV and hepatitis. She was also prescribed medication because of the potential risk that she would contract HIV. She has tested negative for both HIV and hepatitis thus far, documents show.

How do we know that this verdict came as a surprise to the defense? Because before trial, the defense rejected a $12,000 settlement demand from the plaintiff. The defense had offered $750.00 to settle the case.

It is probable that the case will now go up on appeal. Regardless of the result of the appeal process, news of a verdict of this magnitude cannot be erased from public consciousness.

Kathleen Jennings, Principal is a partner in the Atlanta office of Wimberly, Lawson, Steckel, Schneider, & Stine, P.C. She can be contacted at kjj@wimlaw.com.

©2016 Wimberly Lawson

THE OVERTIME CLOCK IS TICKING: WILL YOU BE READY DECEMBER 1?


The increase in the minimum salary threshold for the Fair Labor Standards Act’s (FLSA) overtime exemption takes effect December 1, 2016, which will be here sooner than you think. Will your company be ready?

Under the new rules, the minimum weekly salary that an otherwise exempt executive, administrative or professional employee must receive for the employer to be relieved of the obligation to pay overtime will rise from $455/week to $913/week ($47,476 per year). This salary threshold will be updated automatically every three years, based on wage growth over time, to keep pace with inflation.

Remember — in addition to being paid on a salary basis, in excess of the minimum, the employee also must meet the “job duties” test to qualify for the exemption. This means that their job duties must be executive, administrative, or professional and require the exercise of discretion (judgment). In most cases, the employee’s primary duty must be managing the enterprise, or a department or component of the enterprise, and he or she must supervise 2 or more full-time employees. They must have the ability to hire, fire, promote, or discipline other employees, or at least the power to influence those decisions. Alternatively, their primary duty must include non-manual work or the performance of work requiring advanced knowledge, requiring the exercise of discretion and independent judgment.

If this sounds complicated, that’s because it is. The law reports are full of misclassification cases, disputes about whether the employee’s actual duties (titles are meaningless) qualify them for the exemptions. A mistake can cost the employer thousands of dollars in back wages, liquidated damages, and attorneys’ fees. And an employer who thought an employee was exempt usually has no time records to speak of, and is at the mercy of the employee’s recollection as to the number of unpaid overtime hours worked. In large part, this explains the dramatic rise in wage-hour litigation over the past 20 years; today, wage-hour cases are the single largest sub-group of employment-related lawsuits in the federal judicial system.

(Another potentially expensive misclassification trap is treating an employee as an independent contractor – more about that another time.)

The salary threshold change affords employers an excellent opportunity to review how employees have been classified, and to make any necessary changes. A thorough wage-hour audit will more than pay for itself by keeping your company out of trouble.

 

Questions? Need more information? Contact Larry Stine (jls@wimlaw.com) or Betsy Dorminey (ekd@wimlaw.com) at (404) 365-0900.

 

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©2016 Wimberly Lawson

 


 

Dirty Deeds Done Dirt Cheap—Another Example of a Bad Harassment Investigation

By Kathleen Jennings (kjj@wimlaw.com)

A recent case out of the Second Circuit Court of Appeals demonstrates the importance of following up on all evidence produced by parties and witnesses in an investigation into a sexual harassment complaint. In Vasquez v. Empress Ambulance Service, Inc., Docket No. 15-3239-cv, August 29, 2016), Ms. Vasquez complained to her employer that a co-worker had subjected her to unwanted sexual overtures, including a texted picture of his erect penis. The employer commenced an immediate investigation. In anticipation of the complaint against him, the accused co-worker manipulated text messages, took screen shots, and printed them out. The final product purported to show that Ms. Vasquez’s consent to and solicitation of a sexual relationship. In reliance on those documents, Vasquez’s employer immediately fired her on the ground that she had engaged in sexual harassment. The employer refused to allow Ms. Vasquez to look at the documents produced by the accused and also refused to accept evidence in the form of text messages from Ms. Vasquez. Ms. Vasquez subsequently filed an action against her employer alleging that she was terminated in retaliation for complaining about sexual harassment.

The Second Circuit Court of Appeals held that the employer could be held liable for terminating Ms. Vasquez in reliance on the false information that it deemed retaliatory under the “cat’s paw” liability theory. The Court explained that the “cat’s paw” metaphor now “refers to a situation in which an employee is fired or subjected to some other adverse employment action by a supervisor who himself has no discriminatory motive, but who has been manipulated by a subordinate who does have such a motive and intended to bring about the adverse employment action.” The Second Circuit extended the “cat’s paw” liability to manipulative retaliatory actions by non-supervisors when the employer is negligent in allowing the non-supervisory employee’s false allegations, and the retaliatory intent behind them, to achieve their desired end.

The Court found that Vasquez’s employer was negligent in crediting the accused’s accusations to the exclusion of all other evidence, and specifically declining to examine contrary evidence tendered by Vasquez.

Practice Pointer: In conducting an investigation into any complaint of harassment, it is important that the employer gather and examine all evidence from both the complainant and the accused and interview all witnesses identified by them. While documentary evidence can be very persuasive, it can also be falsified, so it is also important to make an effort to check the facts and authenticity of any documents. For example, in the Vasquez case, the Court noted in its final footnote that the employer should have questioned the text messages submitted by the accused because the exchange indicated that the accused’s texting partner was asleep at a time when Vasquez was actually on shift working for the employer. A quick check of Vasquez’s time records would have revealed the inconsistency. And it might have saved this employer a lot of time and money.

Kathleen Jennings, Principal is a partner in the Atlanta office of Wimberly, Lawson, Steckel, Schneider, & Stine, P.C. She can be contacted at kjj@wimlaw.com.

©2016 Wimberly Lawson

 

Is Worker Misclassification Tax Fraud? Probably Not.

By Christopher Adams (cda@wimlaw.com)

One of most common types of wage-hour litigation is the “misclassification lawsuit,” triggered by an employer’s misclassification of a worker as an “independent contractor” (“I.C.”) rather than as an “employee.” One urban myth among employers is believing that the choice of whether a person is an “I.C.” or an “employee” is a subjective issue decided solely by the employer. This is absolutely false, and errors can be expensive.

Some employers deliberately misclassify workers as “I.C.s” because they think they can avoid paying employment taxes (and tax withholding), workers’ compensation premiums, overtime wages, and/or employee benefits, such as health insurance. This type of misclassification can lead to lawsuits as workers who should have been classified as “employees” sue to recover wages and benefits.

There are several legal tests, under different statutes, for determining if someone is an “employee” or an “I.C.”. Most of them involve the degree of control the employer exercises over the work to be done. For example, the person you hire to paint your house who arrives with his own buckets and ladders is likely a bona fide independent contractor: but if the contractor hires a painter and tells him when, where, and how to paint, the contractor probably has an employee.

An interesting twist is to add a claim for tax fraud under 26 U.S.C. § 7434. This statute allows individuals who are victims of tax fraud to sue the individual (or company), that filed a fraudulent tax return. The argument in a misclassification lawsuit is that, by filing an IRS Form 1099 (reporting income paid to an independent contractor), the company committed fraud because such income should have been reported via a Form W-2 (the proper form for reporting income paid to an employee). The statute allows an aggrieved person to recover the greater of $5,000 per fraudulent return or their actual damages.

It’s a nifty idea, but so far, it’s not working. The very few written court opinions to date have ruled that 26 U.S.C. § 7434 does not apply to simple misclassification situations. Rather, the district courts are leaning toward an interpretation of the statute that requires actual fraudulent intent, such as deliberately under-reporting income. Companies that, intentionally or inadvertently, misclassify workers as “I.C.s” shouldn’t get too excited by these rulings, so long as the worker’s income is correctly reported via Form 1099. The workers can still recover under a wide variety of statutes (especially the Fair Labor Standards Act), and misclassification can trigger other tax liabilities, but so far no court has handed down penalties under this statute for errors arising from misclassification.

Take-home point: Properly classifying workers as “employees” or “independent contractors” is an objective analysis, not a simple choice to be made by the employer. Misclassifying a worker (whether deliberately or inadvertently) will expose the employer to potential liability for back wages, liquidated damages, lost employee benefits, unpaid taxes and employment-related contributions, and/or plaintiff’s attorney’s fees and costs, but is very unlikely to lead to penalties under 26 U.S.C. § 7434.

Chris Adams is a paralegal and a member of the Wage and Hour Practice Group at Wimberly, Lawson, Steckel, Schneider & Stine, P.C. He can be reached at cda@wimlaw.com.

©2016 Wimberly Lawson

 

Employers Now Facing Mis-Match Letters From the IRS Related To Obamacare Reporting

With Obamacare entering its sixth year of existence, employers are starting to receive notices from IRS that the information submitted to the agency to confirm insurance coverage for certain employees does not match the records under the Social Security Administration (“SSA”). And unlike mis-match letters from the SSA, the IRS can impose serious penalties if certain steps are not taken to address the discrepancy. These penalties were recently increased to $250 per return, to a maximum of $3,000,000 per year. There is a lower cap (only $1,000,000) for smaller entities with gross receipts of not more than $5,000,000.

IRS regulations provide specific procedures that employers must follow to establish that it has taken reasonable steps to obtain a TIN or social security number from each employee. By following and documenting these steps, an employer can demonstrate that it has acted in a responsible manner so as to avoid IRS penalties in the event that it has the incorrect information for an employee. This includes making the initial solicitation of the employee’s social security number upon hire (generally on the W-2), followed by two annual solicitations (the second solicitation is made at a reasonable time thereafter and the third solicitation is made by December 31 of the year following the initial solicitation) if the individual’s TIN or social security number still has not been secured or a mis-match has been identified.

IRS has stated that if an employer receives additional notices based on missing or incorrect TIN or social security number for the employee after making the two annual solicitations, no further solicitations are necessary and that the employer’s initial and two annual solicitations demonstrate that it acted in a responsible manner. IRS publications also state that an employer is not required to solicit a TIN or social security number from an individual whose coverage has terminated and stress that employers should not use a IRS mis-match notice alone as grounds to terminate the employee.

However, employers are rightfully concerned that these IRS notices will trigger an obligation to take reasonable steps to verify and correct the information provided by the employee or face immigration related penalties. These penalties were also recently increased so now paperwork violations on the Form I-9 range from $216 to $2,156 per violation. Penalties for the first offense of employing unauthorized workers range from $539 to $4,313 per violation. At the same time, employers must be careful not to discriminate against an employee based solely on the receipt of an IRS mis-match notice. In the context of Social Security mis-match letters, the Office of Special Counsel (“OSC”) has noted that the mere receipt of a “no-match” notice does not, standing alone, constitute “constructive knowledge” on the part of an employer that the referenced employee is not work authorized. OSC warns employers that taking action against an employee based on nothing more substantial than a mismatch letter may, in fact, violate the law.

If you have any questions regarding IRS mis-match notices under Obamacare or need assistance in creating a plan to respond, please contact Jim Wimberly (jww@wimlaw.com), Jim Hughes (jlh@wimlaw.com) or Ray Perez (rp@wimlaw.com). Wimberly & Lawson also offers Form I-9 Employment Eligibility Verification compliance fixed fee audits. Please contact Wimberly & Lawson if interested in scheduling one of these or other available audits.

©2016 Wimberly Lawson