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Top Ten Hot Topics for Employers in 2014

At about this time every year, clients and friends often begin asking me what the hot topics will be in the new year. Naturally, some developments remain to be seen, as each new day seems to bring unique challenges for employers (one of the many reasons I love what I do). But other issues are reminiscent of the adage “everything old is new again.” With that, here is a list of what I anticipate will be among the hot topics for employers in 2014:

1. Misclassification of Non-Exempt Employees as Exempt

Many employers continue to assume that their salaried employees are not entitled to overtime pay. However, paying an employee a salary does not necessarily mean the employee is exempt from the minimum wage and overtime requirements of the federal Fair Labor Standards Act (FLSA) and similar state laws. Employers also must consider the duties the employee performs and whether those duties qualify the employee for an exemption. Because misclassification can result in liability for two years of backpay (three years for willful violations), as well as double damages and attorneys’ fees, this issue continues to be subject to scrutiny by the U.S. Department of Labor (USDOL) and plaintiffs’ attorneys. To assess whether an employee is properly classified as exempt, the USDOL web site is a good place to start. But before reclassifying any worker, we recommend consulting with your attorney, particularly because how the message is communicated to employees during the reclassification process may be critical to minimizing risk.

2. Misclassification of Employees as Independent Contractors

I continue to receive calls from employers under audit by the Illinois Department of Employment Security (IDES) regarding their classification of workers as independent contractors. Employers should bear in mind that the test utilized by IDES to ferret out worker misclassifications is more stringent than both the Internal Revenue Service’s (IRS) and USDOL’s tests. Whether a worker is free from direction and control is just one factor to consider. To survive IDES scrutiny, an employer also must establish that the services the worker performs are either outside the employer’s usual course of business or outside the employer’s place of business and that the worker is engaged in an independently established trade, occupation, profession, or business. IDES presumes every worker is an employee, and the burden always remains on the employer to prove otherwise. See also our previous article on classification of independent contractors.

But don’t forget about the USDOL and the IRS, both of which have made worker misclassification a priority. As just one example, on November 12, 2013, a bill was introduced in the U.S. Senate entitled the “Payroll Fraud Prevention Act of 2013.” If passed, it will amend the FLSA and impose penalties on employers who intentionally misclassify workers as independent contractors. With these types of initiatives in mind, if you have classified workers as independent contractors, it would be wise to consult with your attorney, particularly if reclassification is in order, as timing may be important to avoiding unnecessary exposure.

3. FICA Tax on Severance Paid in Connection with a Workforce Reduction

Ordinarily, employees and employers pay Social Security and Medicare taxes on wages received by employees. An employer withholds an employee’s share from his or her paycheck and sends it to the IRS along with the employer’s matching payment. However, the question of whether severance payments made in connection with a workforce reduction are “wages” is an issue that the Supreme Court of the United States (SCOTUS) soon will decide. If severance payments are considered wages, it’s business as usual. But if not, then such payments are exempt from these FICA taxes, and employers may be entitled to refunds from the IRS and also will be required to distribute to affected former employees their share of the refund. Because SCOTUS likely will decide the issue after the April 15, 2014 IRS filing deadline, employers that have made severance payments because of a workforce reduction should consider promptly filing protective refund claims. Consult with your accountant or tax attorney for additional guidance.

4. Legalization of Medical Marijuana

In August, Illinois Governor Pat Quinn signed the Compassionate Use of Medical Cannabis Pilot Program Act, making Illinois the 20th state to legalize marijuana for medical use. Although that does not mean patients who test positive for marijuana cannot be disciplined or fired from their jobs, we expect there will be employees who choose to challenge such decisions. For further information and guidance, see our article on the legalization of medical marijuana in Illinois

5. The NLRB’s Continued Intrusion Into the Non-Union Workplace

In the last two years, the National Labor Relations Board (NLRB) has, in the form of new rule-making, new case law precedent, and advisory memoranda from its Acting General Counsel, made it clear that non-union workplaces are not immune to the requirements of the National Labor Relations Act. The NLRB’s initiatives have impacted, for example, the long-standing practice of most employers to issue a directive to employees requiring confidentiality during workplace investigations and whether and when employers can discipline employees as a result of their social media posts. In 2014, we expect the NLRB to continue to issue decisions that have the effect of intruding more deeply than ever into the non-unionized workplace.

6. Obamacare

The word “Obamacare,” alone, is daunting to many employers. The coming year will undoubtedly be an important period for employers subject to the Affordable Care Act (ACA). Although the deadline for compliance with many of the ACA’s requirements were delayed until January 1, 2015, employers should become familiar with their obligations and begin steps to comply. See our previous article on applicability of the ACA and the “Pay or Play” rules and our related article on some effects of the ACA on dental and vision coverage.

7. Criminal Background Check Practices as a Basis for EEOC Scrutiny

If you haven’t already, it would be prudent to review and update your criminal background check procedure. Although the Equal Employment Opportunity Commission (EEOC) has been under attack in recent months, the agency continues to aggressively pursue compliance with its updated Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964. Indeed, asking job applicants to answer generic questions about their criminal convictions on employment applications may become a practice of the past, as more and more state and local jurisdictions are deeming such inquiries illegal.

8. Restrictive Covenants and the “Two-Year Rule”

In June 2013, the Illinois Appellate Court, First District, held that whenever employment (whether new or continued employment) is the sole consideration for a non-compete or non-solicitation covenant, such employment must last at least two years after the employee signs the covenant in order to be sufficient to support the restrictions imposed on the employee. In light of this bright-line rule, employers seeking to enforce restrictive covenants in 2014 may face challenges unless they have provided employees with additional consideration, whether in the form of a signing bonus, a promotion, equity, or something else real and tangible. For more information, see our article on the importance of consideration in these agreements.

9. IRS’ Tipping Rule For Employers In the Hospitality Industry

Effective January 1, 2014, gratuities automatically added to customers’ bills by employers in the hospitality industry (for example, an automatic 18% gratuity on parties of six or more) will not be considered “tips,” but rather “service charge wages.” This will impact not only employer recordkeeping and reporting obligations, but also compliance with overtime rules under the FLSA, as such mandatory tips need to be included as part of an employee’s regular rate of pay in order to properly calculate the overtime rate. Failure to comply with the rule may subject hospitality employers to increased scrutiny by the IRS, USDOL, and plaintiffs’ attorneys. Accordingly, employers in the hospitality industry should review their recordkeeping and reporting practices and wage calculations regarding mandatory gratuities.

10. Use of Social Media to Make Hiring and Firing Decisions

The risk of viewing job candidates' social media pages is apparent: once an employer learns that a candidate is Muslim, a cancer survivor, an Air Force reservist, or a member of any other protected class, this information cannot be "unlearned." And if the candidate is not hired, he or she can claim that the decision was based on such protected characteristics, leading to exposure to claims of discrimination. The same risk exists with respect to decisions about employees once they are hired. But social media can be a valuable tool when, for example, an employee on workers' compensation leave claims to have suffered a debilitating knee injury on the job but also posts photos on Instagram that show her finishing the Chicago Marathon. That said, as social media law continues to develop, and legislation continues to be enacted in an effort to protect employees from their employers' "intrusion" into what is already in the public realm, this is an area ripe for disputes in the coming year.

© 2014 Much Shelist, P.C.

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