Punching the Clock: New Overtime Rules

Wedding Ring Not Required

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This article by Michele Alperin was prepared for the June 16, 2004 edition of U.S. 1 Newspaper. All rights reserved.

Employment Law Update

Here are three important updates on employment law. One change involves benefit payments to domestic partners (unmarried couples and gay couples). Another changes the rules determining which employees will get paid time-and-a-half for working more than a 40-hour week (see articles below).

First, though, an update on the whistleblower suit filed by Karol Maw (U.S. 1, May 28, 2003). When Maw, a graphic artist who was working for Advanced Clinical Communications in Lambertville, was fired for refusing to sign a noncompete agreement, she filed a whistleblower suit.

Maw won at the appellate level, but the case went all the way to the New Jersey Supreme Court, which on May 4 issued a decision in favor of the employer, in a four to two decision with one abstention. Employers in New Jersey gave big sighs of relief because, as a result of this decision, it reaffirmed the viability of noncompete agreements in New Jersey.

“The New Jersey Supreme Court sent the message that employers have the right to have their employees sign a restrictive covenant,” says Tom Lewis of Stark & Stark, who represents employers. “If the court had ruled that an employer could not insist that workers sign the noncompete agreements it would have sent a chilling message to employers who are attempting to protect client information and relationships.”

Lewis also points out that there could have been a problem with the noncompete agreements that had already been signed. Employers would wonder whether these agreements were enforceable.

Attorneys who typically represent employees were dismayed by the ruling. “Karol Maw’s employer had no business asking a graphic designer doing artistic work to sign a noncompete agreement,” says Richard Schall, who represented Maw. A 1971 graduate of Swarthmore and New York University law school, he has a Moorestown-based law firm, Schall & Barasch (NJemployerightslaw.com), and he called the decision “a travesty of justice and an assault on the rights of employees throughout the state.”

Schall claims that employers are abusing the noncompete agreements and tells of an automobile glass installer who was required to sign one. “Traditionally these agreements were for very high level employees or those in a position to take away business from a company. Karol Maw was in no such position.”

Studies have shown, Schall says, that the wide use of noncompete agreements stops the spread of knowledge and affects the economy of a region. “I think this decision is a bad decision, an unfortunate decision, and a short-sighted one,” he says. He points out that Justice James Zazzali, supported by Justice Virginia Long, wrote a strong dissenting opinion. Zazzali invoked a 1601 court case in England that supported the right to pursue one’s trade, and a similar decision in Newark, New Jersey, in 1882.

Here is the scenario: Maw, a graphic designer, had been fired by the pharmaceutical marketing firm for refusing to sign an employment agreement containing a covenant not to compete. Advised by her father, an attorney, Maw proposed changes in the agreement, including changes to the duration of the non-compete clause, but her changes were rejected. After she was terminated, Maw sued her former employer.

Although the case ostensibly involved restrictive covenants, the lawsuit was styled as a violation of the Conscientious Employee Protection Act (CEPA). That is because she had never signed the restrictive covenant non-compete agreement.

Maw claimed that her rights under the CEPA — also known as the “whistle-blower act” — had been violated by the demand that she sign the non-compete agreement. The CEPA prohibits an employer from taking retaliatory action against an employee where the employee is objecting to or refusing to participate in an activity, policy, or practice that the employee reasonably believes is in violation of a law and/or is incompatible with a clear mandate of public policy.

The Mercer County Superior Court dismissed Maw’s case, finding that the non-compete agreement does not per se violate public policy. The Appellate Division reversed this decision. At that point, having won the CEPA claim, she would have been entitled to punitive damages, including attorney’s fees, in addition to compensatory damages, which typically include lost wages.

The employer appealed, and Mark Saloman of Proskauer Rose in Newark filed a “friend of the court brief” on behalf of the Employers Association of New Jersey. “We took the position that there is nothing inherently wrong, illegal, or unethical about using a noncompete agreement in business,” says Saloman, a 1989 Brandeis graduate who went to law school at Penn. “We said that these agreements are not being abused or misused, and that the plaintiff’s argument was unfounded in practical business reality.”

Saloman points out that the appellate court decision was based on California law, where noncompetes are basically outlawed. “The appellate division in NJ was trying to force NJ businesses to adhere to California standards,” he says. “And if you realize that the noncompete agreements are not inherently wrong, how can she be a whistle blower? Whistle blowers can object only to something that is either illegal or clearly goes against public policy.”

“The nod to the viability of restrictive covenants reinforced what was already the law in New Jersey, but it was not the driving theme of the case,” says Saloman. “It was if the court was reminding everyone that restrictive covenants are alive and well and good law. So in the big picture, noncompete agreements are alive and well in New Jersey.”

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Punching the Clock: New Overtime Rules

For many U.S. workers, those extra hours at time and a half make the difference between just making it economically and going under. Particularly for low-paid workers, but for others as well, the possibility of overtime pay has been a hallowed right.

Yet determining who is eligible for overtime, especially among white collar workers, is not always easy — it may be obvious that the company’s president does not get overtime and that the janitorial crew does, but for the legions in between, job duties must be carefully analyzed. Because employers who make mistakes in these determinations may be subject to law suits and employee dissatisfaction, businesses sit up and pay attention when the rules change about which employees are “nonexempt” or “exempt” (from overtime pay).

A new set of overtime regulations to the Fair Labor Standards Act, published in the Federal Record by the Department of Labor in April, is scheduled for implementation on August 23. Stevens & Lee hosts a seminar on Thursday, June 17, at 600 College Road at 8:30 a.m. For a free reservation, call Nicole Sites at 610-478-2187.

The biggest change in the new rules is a nearly threefold increase in the salary threshold below which any employee automatically qualifies for overtime pay — $455 per week, or $23,660 annually, in the new regulations. With some exceptions, employees are exempt if they are paid at least $455 per week as salary; perform primarily non-manual, office work; and perform one of the job duties for which an executive, administrative, or professional employee is exempted. The new regs also exempt certain manual laborers and blue collar workers, police officers, fire fighters, paramedics, emergency medical technicians, and licensed practical nurses, no matter what their salaries.

But what will happen in the middle category of mostly white collar wage earners, earning between $23,660 and $100,000? “The new federal regs will streamline the rules on determining whether white collar workers are exempt or nonexempt,” explains John Sarno of the Employers Association of New Jersey. For example, to qualify for an executive exemption, an employee must earn a salary of at least $455 per week; either manage an enterprise or one of its departments or subdivisions; direct the work of at least two or more full-time employees; and either have the power to hire or fire or have their opinions on such matters be “given particular weight.”

Although supporters of the regs focus on the clarity of the regulations, unions fear that many who now earn overtime will lose that privilege. A May 12 statement by AFL-CIO president John Sweeney claims that “many middle-income workers, including registered nurses, ‘team leaders,’ chefs, working supervisors, and others earning between $23,660 and $100,000 will lose their right to overtime pay.”

William Artis, special assistant to President Joseph Franklin of the District 1199J National Union of Hospital and Health Care Employees, however, points out that union contracts often widen the net of workers eligible for overtime: “Under our contract, all of our members are eligible for overtime pay and will remain so regardless of federal law” that may have exempted them. He adds, however, that if not protected by a union contract, people like pharmacists and certain technicians and technologists “would be deemed ineligible [for overtime] who would have been eligible under the old regs.”

Yet despite all the hubbub in anticipation of implementation, Sarno believes that, in New Jersey, much of this controversy may be moot, except possibly in the case of businesses with significant operations out of state. “The impact of the new regs will be less on New Jersey employers” Artis says, because where New Jersey law is more favorable to employees, it will apply. (And indeed New Jersey law has been favorable to workers for years; the New Jersey threshold for overtime, for example, has been $400 per week since April 1992.) Sarno offers an example of a state regulation that holds instead of a federal one: “I can have a white-collar administrator who can be exempt from overtime under the federal rule, but the same person, working the same job, can be nonexempt under the state rule and that person can still get overtime.”

But the complexities of the New Jersey law, which is more cumbersome to apply than the new regs, can make trouble for employers. Sarno observes, “The problem is that because it is hard to administer, employers make classification errors. Many employers are unsophisticated and believe that simply by paying a salary, they are exempt from paying overtime.”

Anne Ciesla Bancroft, a labor and employment law attorney in the Lenox Drive office of Fox Rothschild LLP, has a different take on potential implications of the new overtime regulations in New Jersey. “There is going to be an effect,” asserts Bancroft. “While some people have viewed state law as preempting the new regulations, they are not correct. Now employers will have to comply with the more restrictive of the federal regs and existing New Jersey law.” One example she offers concerns certain blue-collar workers and first response safety workers, who, under the federal regulations, are entitled to overtime regardless of duties they perform. Even if employees in one of these occupations meet salary and duty requirements that would exempt them under New Jersey law, she says, they would still be nonexempt under federal law.

Bancroft advises that “employers need to be aware of federal regulations that are more restrictive — which will require overtime in situations where New Jersey law wouldn’t. If either law requires overtime, then the employer is required to pay.” She adds that under the new federal regulations the salary threshold is $55 higher in most categories than under New Jersey state law; hence, employees paid between $400 and $455 a week would be exempt under federal but not state law.

As far as potential legal action spawned by the new regulations, Bancroft expects that “the new definitions of duty requirements under the new federal regs will engender litigation until people figure out what the new definitions mean.” Prior to any litigation, however, she sees a period where state and federal departments of labor will help people work out what the new definitions mean. Employers will have to reexamine the actual job duties performed by employees, and if classifying them as exempt, must make sure they satisfy both duty and salary tests under New Jersey law and under the new federal regulations. “Job title alone is not going to govern,” says Bancroft. “The courts and the federal and state departments of labor will look at what the employee is actually doing.”

— Michele Alperin

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Wedding Ring Not Required

A “domestic partnership” may almost sound like a marriage, but the emphasis in this case is on “almost.” Although the new New Jersey Domestic Partnership Act does offer some rights to gay couples and same-sex senior citizen couples, those rights are limited.

The new law grants legal legitimacy to domestic partners of the same sex who are at least 18 years of age and to those not of the same sex who are at least 62 years of age. The couples must have filed an Affidavit of Domestic Partnership with their local New Jersey registrar.

But the scope of the law is somewhat limited. Domestic partners of New Jersey State workers, for example, are eligible to receive certain health care and retirement benefits; however, those of private employees and other public employees are eligible only if the employer chooses to provide such coverage. The law also grants to domestic partners protection against various forms of discrimination; rights to visitation and decision-making in healthcare settings; and certain tax-related benefits.

John Sarno, president of the Employers Association of New Jersey, explains why the new law does not require private employers to grant dependent healthcare benefits to domestic partners. “Federal law governs employee benefits exclusively, and no state can require an employer to grant benefits to anyone. Because the state can regulate the insurance industry, however, the new law requires insurance carriers to issue policies with dependent care policy coverage.”

But, says Sarno, employers can choose voluntarily to grant such benefits, and he offers some persuasive reasons for doing so:

• Creating equity among married and unmarried employees

• Being more competitive with respect to recruitment

• Being viewed as socially responsible employer

• Improving morale and employee relations

To consider the implications of the new law, Sarno suggests the following decision-making process to New Jersey employers:

Cost/benefit analysis. Does sheer cost mitigate against offering dependent coverage to domestic partners? “If employers want to deny that type of coverage,” says Sarno, “they will have to be able to communicate effectively as to the reasons why, because some people may think it is unfair.”

Co-pays. If employers do decide to grant those benefits, they need to consider whether to charge a higher premium. Sarno adds, “Someone might think that’s unfair, but it’s not unlawful. Again, it is a communications issue.”

Post-job healthcare. Should COBRA coverage — the continuation of health care coverage after termination — be extended to domestic partners?

Leave policy. Given that New Jersey leave law has not changed (for example, although employees can take a leave-of-absence to care of an ill spouse, there is no requirement to grant that leave to take care of an ill domestic partner), employers have to decide whether to voluntarily amend sick, bereavement, and family leave policies to cover domestic partners.

Should employers decide to offer health benefits to domestic partners, notes Sarno, the value of such coverage may result in taxable income to the employee unless the domestic partner qualifies as the employee’s dependent under the Internal Revenue Code.

The Domestic Partnership Act also amends the New Jersey Law Against Discrimination to prohibit employment, housing and credit discrimination based on domestic partnership status. Sarno sees this as having little real effect on employers, because “New Jersey law already protects marital status and sexual orientation, so it’s nothing new to add more protection for a lifestyle characteristic.”

At a nuts-and-bolts level, the Domestic Partnership Act will require private employers to do only two things:

(1) Review and update employee handbooks and nondiscrimination policies and training to address the new protected status afforded to domestic partners.

(2) Purchase health insurance policies that offer domestic partner coverage after July 7, 2004. And the state of New Jersey will certainly see an increase in state expenditures on health benefits.

But the biggest effect of the new law will probably be to raise both pragmatic and philosophical questions among New Jersey employers about appropriate treatment of domestic partners. Every employer will have to weigh the potential consequences of inaction against the costs of offering benefits to domestic partners and then make the decision that best serves the overall interests of employer and employee.

For example, firms that offer health care insurance to domestic partners require employees to attest that their relationship with their partner is the equivalent of a traditional insurance beneficiary, such as a spouse. This usually takes the form of a notarized document. In the case of paid time off, the employer is entitled to verify the reasons for the leave of absence but according to Sarno most employers would rather not get into employee lifestyles. “An employee’s lifestyle is usually off limits to his or her employer,” he says.

To avoid getting too much information on an employee, Sarno advises employers to adopt paid time off “banks.” These policies typically establish a set number of days that the employee banks and which can be used for any reason. Under such a policy, an employee can take time off to care for a family member or domestic partner and it wouldn’t matter, since in either case the employer has no need to verify the reason for the absence. The only thing that the employer monitors is whether an employee is exceeding his or her allotment. According to Sarno an employee can be disciplined or even fired for excessive absenteeism.

Sarno believes that more employers will recognize the unique needs of their employees, particularly smaller employers that have a hard time competing for talent and nonprofits that have limitations on how much employees can earn in salary. “It’s another way of retaining talent,” he says.

— Michele Alperin


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