Labor: Seven Employment Trends to Watch in 2011

As 2011 begins, the relationship between employers and employees is changing and so are employment laws. Here are seven employment trends to watch this year.

1) The 2010 Election's Effect on Employment Laws and Regulations

The 2010 Congressional elections, in which the Republicans regained control of the House of Representative and reduced the Democrats' majority in the Senate, has already begun to affect the passage of new employment legislation, the implementation of existing laws and the issuance of regulations.

Many previously proposed employment bills that were not passed prior to the 2010 elections are now dead, at least for the foreseeable future.

Recently deceased legislation includes the Employee Free Choice Act (which would have changed U.S. workplaces become unionized), the Paycheck Fairness Act (which would increased penalties for gender wage disparities), the Arbitration Fairness Act (which would have prohibited most private sector employers from imposing mandatory arbitration of employment disputes) and the Employment Non-Discrimination Act (which would have prohibited job discrimination based on sexual orientation and gender identity).

Laws already enacted have also been impacted by last November's election. As discussed below, funding to implement the financial industry reform laws and the healthcare reform law has been curtailed or frozen. The temporary appropriations bill that Congress just passed in order to fund the government for the next three months also fails to include money for implementing health care reform.

However, the change in control of Congress has not stopped regulatory agencies from issuing new rules and regulations affecting employers.

The U.S. Department of Labor is poised to issue new rules on the Family Medical Leave Act and the Fair Labor Standards Act. The National Labor Relations Board has proposed a radical new rule that, if adopted, would require nearly every private-sector employer in the US to notify employees about their rights to unionize. The NLRB's proposal follows on the heels of the OFCCP's recent rule requiring federal contractors to post such notices.

How the after-shocks of the 2010 election will affect these legislative and regulatory initiatives in 2011 remains to be seen.

2) Will the whistleblower bounty program established by 2010 financial reform laws undermine employers' internal compliance efforts?

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), which went into effect in July 2010, provides bounties of between 10 percent to 30 percent of the fines and settlements in excess of $1 million that are obtained in enforcement actions triggered by "original information" provided by whistleblowers who tip off the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) about financial accounting fraud, market manipulation and other securities law violations. The SEC predicts that it will eventually get 30,000 tips a year and that about half of such tips will lead to money claims, but so far the program generated 5,678 tips between July and September 2010, resulting in 460 claims that may qualify for bounties.

The new whistleblower procedures at the SEC and CFTC promise a minimum reward of $100,000. Payouts are required for cases resulting from a tip that leads to penalties of more than $1 million, and there is no cap on total payouts. Rewards are possible for tips on nearly all kinds of investment fraud. Previously, the SEC limited payouts to insider-trading information. However, there is a requirement that the tip involve "original information" not previously disclosed in prior proceedings in order to qualify for a bounty.

The 10,000 member National Association of Corporate Directors and other corporate groups have expressed concern that the Dodd-Frank Act's bounty program may have the unintended consequence of discouraging whistleblowers from taking their concerns to employers first. It is feared that Dodd-Frank's bounties could undermine employers' internal compliance efforts and prevent them from resolving problems if whistleblower employees feel the need to go first to SEC with their information.

The impact of the Dodd-Frank Act's bounty program will become evident in 2011. The SEC has delayed establishing its whistleblower office due to uncertainty about funding. The Dodd-Frank Act's bounty program could have a big splash or it could be a dud like a recent IRS bounty program targeting high-net-worth individuals that generated only a few hundred reports and has thus far paid out nothing.

3) The Unintended Consequences of GINA.

Will supervisors have to stop expressing sympathy if they learn that a subordinate's family member is ill? Will human resources personnel have to curtail their internet searches for information about job applicants? Will bosses have to clam up if an employee says that he or she will undergo tests for cancer or some other hereditary disease? The answer to all of these questions may be yes. Sound farfetched? It is not.

Under new regulations implementing the Genetic Information Non-Discrimination Act (GINA), employers are prohibited from inquiring about genetic information (such as the propensity for hereditary illnesses ) and family medical histories. The new GINA regulations also state that when employees volunteer such information or employers inadvertently acquire it, employers are precluded from asking follow-up questions. Employers may use "readily available" information from the Internet to screen job applicants, but they cannot use Internet searches designed to uncover genetic information or family medical history.

In 2011, employers may have to change the way they talk to employees and screen job applicants.

4) The Coming Brain Drain

Sixty percent of high-performing employees are planning to leave their current employment in the next 12 months, according to recent research by Deloitte. Another study showed that a substantial number of employees take their employer's confidential information with them when they leave. Additional research shows that many employers do not even know where their confidential information is located. All of these statistics indicate that most employers are not prepared for the coming brain drain that is expected to occur in 2011 if all of these employees jump ship.

5) The Tug-of-War over Employment Arbitration?

Employment arbitration (agreements mandated by employers that require non-union employees to arbitrate their employment claims) has been treated differently by Congress and the U.S. Supreme Court.

In 2009, Congress enacted the so-called "Franken Amendment" that prohibited federal contractors with more than $1,000,000 in federal contracts from establishing or enforcing agreements requiring their employees to arbitrate (rather than litigate) claims of sexual assault, sexual harassment and similar torts against their federal contractor employers. In 2010, Congress went a step further by prohibiting the arbitration of Sarbanes-Oxley whistleblower claims against covered entities, which are now publicly traded companies and their subsidiaries.

In contrast, the U.S. Supreme Court has consistently endorsed employment arbitration. In 2010, the Supreme Court allowed employers to include individual employment claims in the arbitration provisions of collective bargaining agreements and also held that class arbitrations are not allowed where the arbitration agreement is silent on the subject.

However, in 2011, the Supreme Court will decide whether arbitration agreements can be invalidated because they are contain provisions, such as class arbitration bans, that are contrary to state law (AT&T Mobility v. Concepcion).

2011 will tell whether the tug-of-war over employment arbitration between Congress and the Supreme Court will continue.

6) The Perfect Storm of Governmental Enforcement Activity.

Despite the change in control of Congress, a number of federal employment-related agencies (DOL, OFCCP, OSHA and others) have increased budgets and expanded audit task forces. These federal agencies will be sharing information about the results of their audits and will be referring non-compliant employers and executives for criminal prosecutions.

U.S. Immigration and Customs Enforcement (ICE) has increased its investigations and raids on employers who hire illegal workers and plans over 1,000 I-9 compliance audits. The IRS will conduct over 6,000 payroll tax audits focusing on companies misclassifying workers as independent contractors, fringe benefits and executive/deferred compensation, as part of a new federal and state focus on the misclassification of workers as independent contractors.

In addition, the Occupational Safety and Health Administration (OSHA) is stepping up its enforcement activities. The Office of Federal Contract Compliance Programs (OFCCP) has also hired more investigative staff and has pledged more on-site audits.

The U.S. Department of Labor (DOL) has hired 250 new investigators and has launched a new "We Can Help" campaign with a jingle, website and bilingual public service ads designed to ferret out the incorrect classification of exempt employees and other violations of wage and hour laws.

On November 19, 2010, the U.S. Department of Labor announced a joint initiative with the American Bar Association to help find lawyers to enforce their rights under the Fair Labor Standards Act (FLSA) and Family Medical Leave Act (FMLA). Since December 13, 2010, employees who bring FMLA or FLSA complaints that cannot be resolved by the Department of Labor have been given a toll-free telephone number to contact a newly created ABA-approved attorney referral system that will provide information about participating attorneys in their geographic area. In addition, if the Department of Labor has conducted an investigation, it will give the complainant information about its findings so that the information can be turned over to the attorney the complainant retains. This initiative is likely to increase the chances that an employee or former employee can locate an attorney willing to pursue a claim on a contingent fee basis. It is also likely to further fuel the growing trend of FLSA class actions.

2011 promises to be an interesting year for employers from a regulatory standpoint.

7) The Continuing Confusion about The Workplace Effects of Healthcare Reform.

The Patient Protection and Affordable Care Act (PPACA), which became law in 2010 and goes into effect beginning in 2011, will impose new restrictions and requirements on employers and employee benefit plans.

According to a new report from Ernst & Young, many U.S. employers believe that managing the changes resulting from health care reform is a critical business issue, but few organizations have fully analyzed how the new law will financially impact them.

Many employers are confused about whether their health benefit plans are "grandfathered" (exempt from new coverage requirements) and the effects if their plans lose their grandfathered status.

The healthcare reform law is already affecting executive employment agreements and severance arrangements. PPACA's new rules for the first time will prevent employers from discriminating in favor of highly compensated employees in the administration of insured health plans.

Consequently, employers will no longer be able to offer to pay for continued health coverage or pay COBRA premiums for departing executives, even though this had long been a standard component of many CEOs' severance packages.

Given that Congress has not yet appropriated funds to implement PPACA, the confusion over its effect may continue well into 2011.

Read Paul Starkman's previous column. Read Paul Starkman's next column.

Paul E. Starkman

Paul Starkman is one of the leaders of the labor and employment law practice group at Pedersen & Houpt.

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