Pennsylvania Litigation Blog

EEOC Recognizes Transgender Identity as a Protected Classification

David Freedman — Thu, 26 Apr 2012 13:27:55 -0500

In a first-ever decision, the United States Equal Employment Opportunity Commission (“EEOC”) has recognized that discrimination against transgender employees and applicants is prohibited under Title VII of the Civil Rights Act (“Title VII”). This recognition occurred in the context of a discrimination charge filed by a transgender applicant for a ballistic analyst position with the United States Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”).

Mia Macy applied for the position, met the qualification requirements and had been told that she would receive the position. At the time of her application, Macy identified herself as a male. Several months later, but before she was slated to start, Macy informed the ATF that she was transitioning from male to female. About a week later, Macy was told the position had been eliminated due to budget constraints. Later, she learned that the position was actually awarded to another applicant, allegedly because that applicant was further along in the background check process.

Macy filed an EEOC charge of discrimination claiming that the ATF refused to hire her because of her transgender identity. The ATF sought dismissal, arguing that Title VII prohibits discrimination based on gender, but not transgender identity. The EEOC disagreed, finding that Title VII’s prohibition against discrimination “because of sex” extends to discrimination based on an applicant’s or employee’s failure to comply with gender stereotypes.

This decision is not altogether surprising. For years, courts have broadly interpreted the “because of sex” language as prohibiting gender stereotyping discrimination, including discrimination based on sexual orientation. Yet, the Macy decision marks the first time the EEOC has explicitly stated its belief that Title VII prohibits transgender identity discrimination.

What does this mean for employers? The EEOC will no longer automatically dismiss charges alleging transgender identity discrimination. Instead, employers will be required to address those claims on their merits by articulating non-transgender-related reasons for a challenged action. Employers, therefore, should revise their equal employment opportunity policies to add transgender identity to the list of protected classifications and to discuss the prohibition against transgender identity discrimination during training of hiring managers, supervisors and employees.

Update: Court Blocks NLRB's Posting Requirement

Richard Hackman — Tue, 17 Apr 2012 08:58:00 -0500

As reported yesterday in this article, on April 13, a South Carolina federal court ruled that the National Labor Relations Board (NLRB) lacked authority to issue the notice-posting rule. Today, in the case of National Association of Manufacturers, et al., v. NLRB, the D.C. Circuit Court of Appeals issued an injunction against implementation of the NLRB’s notice-posting rule. The notice was required to be posted by April 30, 2012.

As you may recall, on or about March 2, 2012, in this same case, the District Court for the District of Columbia upheld the requirement that employers post the notice. However, as a result of the emergency injunction filed by the National Association of Manufacturers and the recent decision by the South Carolina federal court, the D.C. Circuit Court of Appeals chose to “temporarily preserve[] the status quo” by granting the injunctive relief requested while the court “resolves all of the issues on the merits.” Since oral argument on the matter is not scheduled until September, it appears (unofficially, at this point) that the posting requirement will be stayed until at least the fall.

Federal Court Finds NLRB's Employee Rights Posting Unlawful

Richard Hackman — Mon, 16 Apr 2012 08:55:24 -0500

On Friday, April 13, a federal court in South Carolina ruled that the National Labor Relations Board (NLRB) lacked authority to issue the notice-posting rule. Under the NLRB’s notice-posting rule, all private-sector employers subject to the National Labor Relations Act (NLRA) must post a notice to employees informing them of their rights under the Act by April 30, 2012.

In invalidating the rule, District Court Judge David C. Norton found that Congress authorized the Board to regulate employers’ conduct in two essential areas -- preventing and resolving ULP charges and conducting representation elections -- and the agency has no authority to initiate proceedings on its own. Specifically, Section 6 of the NLRA provides that:

The Board shall have authority from time to time to make, amend, and rescind, in the manner prescribed by the Administrative Procedure Act, such rules and regulations as may be necessary to carry out the provisions of this Act.

The court found that the NLRB lacks authority under both the plain language of Section 6 and the structure of the Act to issue the Rule because it was not "'necessary to carry out the provisions of the Act."

As you may recall, on March 2, 2012, in a separate lawsuit, the federal district court for the District of Columbia upheld the requirement for employers to post the notice. Accordingly, Judge Norton’s decision contradicts that earlier decision. However, the District of Columbia case is currently under appeal and it is virtually certain that the NLRB will appeal Judge Norton’s decision.

Ultimately, it appears likely that the NLRB will once again postpone the effective date for the posting, although, as of today, no official declaration to that effect has been issued by the NLRB. We will continue to monitor both cases and advise you if the posting requirement is again delayed.

JOBS Act Becomes Law

Kimberly J. Decker — Sat, 14 Apr 2012 08:52:48 -0500

The President recently signed into law legislation that aims to make it easier for small companies to raise capital through “crowdfunding”. Crowdfunding will permit private companies to raise up to $1.0 million in a 12 month period through a registered broker or a registered funding portal. Investors would be limited in the total amount they could individually invest, with investors with an annual income or net worth of less than $100,000 topping out at a maximum investment of $2,000, although individuals above that threshold will be able to invest as much as 10% of their net worth or annual income. For those of you doing the math, actually raising $1.0 million could require the involvement of up to 500 investors, which is where we get the term “crowdfunding”. Unlike most small offerings, this type of offering would permit public advertising and in fact, a crowdfunding offering would require the involvement of either a registered broker or a registered funding portal. Advertisement of the offering would go through the broker or portal. Also, securities sold under the crowdfunding provisions are exempt from state securities registration requirements, which can become burdensome to comply with if a company is selling securities in several states.

Of course, an opportunity of this sort does not come without a little bit of pain. The company would be required to provide certain required information about the company, including its financial results, business plans, intended use of proceeds and a description of certain risks of investing in the company along with other information. The company would also be obligated to provide annual results of operations to both investors and the Securities and Exchange Commission, and while brokers and portals cannot be compensated based on the success of the offering, they will be able to charge a fee of some nature for their services. While $1.0 million will go a long way for some companies, keep in mind that the “net” isn’t likely to be the entire $1.0 million - the broker or portal will certainly require compensation, and disclosures are likely to need legal review and drafting. Also, the financial statement requirements may require the help of an accountant. Finally, there are a lot of companies that need more than $1.0 million, and the new law does nothing to relieve the requirements for larger offering amounts, which will still be mostly limited to 35 “typical” investors plus an unlimited number of high net worth/high earning investors. Also, an investor cannot transfer securities acquired in a crowdfunding offering for one year from the date of purchase, except in limited circumstances.

We don’t have the full picture yet for the requirements of crowdfunding. The Securities and Exchange Commission has about nine months to pass regulations that may impose additional requirements on the use of the crowdfunding technique.

Take Note: Most people don’t realize that notes, bonds, common stock, preferred stock, limited partnership interest, membership interests in a limited liability company and similar interests are all examples of a “security”. If you (or your company) sell a security, federal and state law requires that you first register the security or comply with an exemption from the registration requirements. Securities law issues are complicated. Please call us if you have any questions.

The Bay Strategy And Its Impact On Your Business

Michael W. Davis — Sun, 08 Apr 2012 08:49:47 -0500

Back in December of 2004, the Pennsylvania Department of Environmental Protection (“DEP”) rolled out its Chesapeake Bay Tributary Strategy (“Bay Strategy”) in response to the United States Environmental Protection Agency’s directive for all states within the Chesapeake Bay Watershed to develop a comprehensive strategy to reduce storm water, wastewater and industrial discharges to the Bay. While the debate continues as to whether or not the strategy implemented by the DEP will ultimately result in any meaningful improvement to water quality within the Bay, the impact of the DEP’s strategy on developers, business owners and municipal authorities in Pennsylvania is unquestioned. Any entity requiring a National Pollutant Discharge Elimination System (“NPDES”) permit as part of its construction activities or business operations must now factor in the Bay Strategy and its more stringent effluent requirements (for constituents such as nitrogen, phosphorus and suspended solids) into its plans.

The Bay Strategy and its tightened effluent standards are complicating the process of renewing NPDES permits for existing operations and raising the bar for securing NPDES permits for new discharges. DEP is informing NPDES permit holders that any additional capacity or new discharge must comply with the heightened Bay Strategy effluent discharge standards. This position is particularly challenging for existing NPDES permit holders because even with the implementation of best available technology, some older treatment systems and existing discharge points will not be able to meet the new standards. The bottom line is that developers and business owners are being forced to very critically evaluate upfront the cost and ability of individual projects to meet these tightened discharge standards. This analysis includes, but is not limited to, determining whether a project will: (1) require a new or modified NDPES permit for storm water or wastewater and (2) be served by public sewer and, in turn, if the publicly owned treatment works has sufficient available capacity to service the project. If a development project is to be served by a private treatment system, the cost associated with having a new or upgraded system which meets the Bay Strategy standards also has to be factored into the business model for the project.

Certain aspects of Bay Strategy are still looking for increased momentum. Pennsylvania’s Bay Strategy focuses largely on using nutrient trading as a means to reduce agricultural discharges to the Bay while facilitating increased commercial and industrial activity. To date, while some nutrient trading has been occurring, it has not occurred on nearly as widespread and large a scale as initially contemplated or hoped for by the DEP.

As the Bay Strategy continues to evolve and as the more stringent effluent standards and water quality standards take effect, the challenge of meeting these new standards and securing associated NPDES permits will be a meaningful and costly hurdle for developers, business operations and municipal bodies alike.

Racial Harassment Plaintiff Asked Supreme Court To Clarify Supervisor Liability Under Title VII

Jennifer Craighead — Fri, 02 Mar 2012 11:25:20 -0500

In June of 1998, the U.S. Supreme Court handed down two cases involving claims of sexual harassment under Title VII of the Civil Rights Act of 1964 which defined the circumstances under which an employer was liable for harassment committed by a supervisor. In Faragher v. City of Boca Raton, 524 U.S. 775 (1998) and Burlington Indus., Inc. v. Ellerth, 524 U.S. 742 (1998), the Supreme Court ruled that employers are strictly liable for harassment inflicted by supervisors, but they can assert an affirmative defense when the harassment does not result in a tangible employment action. However, if the harasser is not a supervisor, the employer is only liable if it was negligent in either discovering or remedying the harassment. In a recent case involving racial harassment under Title VII, a plaintiff has petitioned the Supreme Court to accept her case to determine the proper definition of supervisor. If the Supreme Court accepts the case and renders a determination, the case could have far reaching impacts on employers.

Specifically, in the case of Maetta Vance v. Ball State University, et al., a dining services employee and the only African American in her department at Ball State University (“Ball State”) alleged that employees in her department created a hostile work environment by making racially offensive comments to her, including using racial epithets and making veiled threats of physical harm. She eventually filed suit in Federal District Court. The District Court dismissed the case in favor of the defendants and Ms. Vance appealed to the Seventh Circuit Court of Appeals, alleging that three supervisors, Kimes, Adkins, and Davis harassed her on account of her race. The court found that Kimes and Adkins did not engage in the type of conduct required to support a hostile work environment claim. On the subject of Davis, the court ruled that although Davis held the title of supervisor, he did not have supervisory authority over Ms. Vance because he did not have the power to directly affect the terms and conditions of her employment, including the right to hire, fire, demote, promote, transfer, or discipline her. Consequently, the Seventh Circuit evaluated Ball State’s liability to Ms. Vance under the co-worker theory of liability and found that there was no basis for liability because Ball State took prompt and remedial action in response to Ms. Vance’s complaints of racial harassment.

Ms. Vance has filed a petition asking the Supreme Court to take her case in order to determine whether the definition of supervisor applied by the lower courts in her case was proper. Ms. Vance maintains that the Seventh Circuit’s narrow definition of supervisor conflicts with other circuit courts of appeal which have found that the authority to direct an employee’s daily activities is sufficient to confer supervisory status under Title VII. Ms. Vance wants the Supreme Court to establish a uniform definition of supervisor for purposes of employer liability. The Supreme Court has asked the U.S. Solicitor General to weigh in on the petition.

If the Supreme Court accepts the case and adopts the broader definition of supervisor adopted by some circuit courts, it could result in heightened liability for employers. Employees who merely direct the daily activities of employees, without any meaningful input to direct the terms and conditions of employment, would be deemed supervisory agents of the employer, subjecting the employer to a heightened standard of liability in harassment cases under Title VII.

Letters of Intent: Start Your Potential Merger Off on the Right Foot

Paul G. Mattaini — Wed, 22 Feb 2012 11:22:13 -0500

It is advisable to start a potential merger and acquisition through the execution of a letter of intent (LOI). With limited exceptions (such as transactions involving public companies), it is usually advisable to confirm that the parties actually have a “meeting of the minds” by setting forth the most material terms in an LOI early on in the transaction
process.

The argument against negotiating an LOI is that the parties may be expending time on a preliminary document when the time could otherwise be used to negotiate definitive transaction documents. However, most parties are unwilling to expend the time, effort and expense to investigate a proposed transaction without an LOI. An LOI is usually a useful guide for the negotiation of definitive transaction documents and the negotiation of an LOI can help identify points on which the parties thought they were in agreement but, in fact, were not; in some cases, the parties even realize that they are so far apart on certain issues that they, in fact, “have no deal”. One final caveat is that parties can gain a bargaining advantage, or can make unwitting concessions, on key issues in an LOI which may, in effect, block negotiation of these issues later on in the process. Thus, it is always a best practice to involve a party’s advisors early on in the process and certainly before execution of an LOI.

The level of detail to be included in an LOI is always a question, i.e. the parties want to include enough detail so as to address the most important deal points without getting into so much detail such that the parties instead should have moved immediately to attempting to negotiate definitive agreements.

The topics that are often included in an LOI are as follows:
• Transaction Structure
         - Sale of stock (includes a merger)
         - Sale of assets
                  > What assets are to be sold?
                  > What liabilities are to be assumed?
• Purchase Price
         - Adjustment mechanism against a target measure, e.g. working capital?
         - Timing of payment
         - Form of payment
         - Escrow?
         - Earnout/contingent payment?
• Key conditions precedent
         - Financing?
         - Required consents
• Non-competition, employment and consulting agreements
• Deal-specific terms
          - Indemnification limitations
          - “Social issues” such as post-closing treatment of Seller’s employees
          - Break-up fee
          - Timing
          - Confidentiality and public announcements
          - Non-solicitation of other proposals (a “no-shop”)
          - Non-binding nature
• Exceptions for expenses, confidentiality and public announcements and no shop.

Dispute Resolutions: Know Your Options

Ron Pollock — Fri, 10 Feb 2012 11:20:02 -0500

It is a fact of life that disputes will occur in any business relationship. The disputes can range from small to large. While disputes are a part of doing business, a party can control how disputes are resolved through contractual agreements. Issues such as who decides, where does a dispute get heard and how quickly does it get resolved can be addressed in a contract.

Traditionally, parties involved in a contract dispute have the ability to sue each other in court. The trend today is away from the court system toward different alternative dispute resolution techniques. Confusion arises due to the multiplicity of options available through the alternative dispute resolution arena.

Before discussing the alternatives, it is worth taking a moment to examine our traditional civil litigation system. An advantage of the litigation system is that it operates strictly according to law – Judges are lawyers who learn to analyze problems through legal precedent and statute.

There are also various appeal options available to the parties which will enable them to have any incorrect legal rulings overturned. As such, if a party will rely on strong legal arguments to win it’s case, the court system is often a good option.
Court systems also tend to be more black and white – there are winners and losers. A jury or a judge, whichever is utilized, will often take less of a “split the baby” compromise approach to a verdict. This is both an advantage and a disadvantage, of course, depending on which side of the dispute or the verdict one occupies.

What is certain is that the discovery process in our civil litigation system can be quite time consuming and expensive. Often, discovery costs far exceed that of the trial and other aspects of the case. This does prompt an eventual wearing down of the parties and a settlement of the dispute through negotiation, not trial and verdict.

Arbitration, on the other hand, offers some advantages of speed and informality. Generally, the discovery process is less protracted, although filing fees with certain arbitration organizations coupled with a tendency to proceed with some form of discovery process similar to the court system have tended to drive up the cost of arbitration. If an arbitration provision is desirable, and the parties truly wish to save costs as the primary goal, provisions regarding the limitation of discovery and the like should be written into the contractual ADR provision.

This ability to modify and customize the dispute resolution mechanism is a hallmark of ADR. Specifically, the parties can determine who hears the dispute (e.g., a particular industry specialist such as a panel of engineers). There is typically no appeal, which gives an advantage of finality (small consolation to a losing party however).

The parties are really limited only by their desires and imagination, although agreements that clearly overreach against one party or the other, or if one party has much greater bargaining power than the other, may not be enforced. The overwhelming tendency however is to enforce the alternative dispute resolution provisions agreed to by the parties.
ADR is not always perfect. If the parties wish to limit the provisions of the ADR process in order to save costs, they should be prepared to reap the consequences of proceeding to a hearing without a full understanding of each party’s evidence. This can at times result in somewhat arbitrary results. Further, in contrast to the court system, arbitrations often can result in compromise decisions as a result of an arbitrator’s attempt to be “fair,” often born of their desire to operate in good faith to both parties.

Finally, a contractually mandated mediation/settlement conference can also be employed. A settlement conference is just that – the parties sit down with an unbiased mediator, skilled in facilitating compromise, in an effort to resolve the dispute without further litigation. This is often a good idea, although the timing may not be effective. For example, if it is mandated that the parties immediately have a mediation prior to any form of litigation, the mediation may in fact be premature. The parties are in a dispute – they obviously have not been able to come to terms based upon the information available to them at that time. It may require some period of litigation before the parties are able to materially change their position or modify it in order to arrive at a compromise. As such, parties should think carefully about requiring a mediation too early in the process, before the parties are prepared to compromise.

In short, ADR and trial through the judicial court system present two parallel, and at times contrasting, forums in which parties can resolve their disputes. The dispute resolution mechanism of the parties can be prestructured so that it meets the party’s needs – a business can take control over the way in which disputes are resolved. There are a number of issues to consider when making decisions on the dispute resolution process. This article is far from exhaustive as to all the issues, but rather begins to provide a very basic outline of some of the factors. In later articles, we will flesh out a variety of scenarios in order to improve the understanding of this important issue, to assist you in making the right choice for your business.

EEOC Warns Against Use of Criminal Records to Deny Employment

Joshua L. Schwartz — Wed, 01 Feb 2012 11:18:06 -0500

In a settlement likely to have long-lasting implications for employers nationwide, Pepsi Beverages Company has agreed to pay $3.13 million to resolve charges stemming from its policy against hiring applicants who had been arrested and/or convicted of certain minor offenses. The Equal Employment Opportunity Commission (“EEOC”) determined that Pepsi’s policy adversely affected over 300 black applicants, in violation of Title VII of the Civil Rights Act. Pepsi will also provide job offers and training to many of these applicants. The Pepsi investigation is part of a nationwide EEOC crackdown on hiring policies that can hurt black and Hispanic applicants. The “use of arrest and conviction records to deny employment can be illegal,” according to the EEOC, “when it is not relevant for the job,” because it can limit opportunities for minorities with higher arrest and conviction rates. The agency has indicated that it “hope[s] that employers with unnecessarily broad criminal background check policies take note of this agreement and reassess their policies to ensure compliance with Title VII.”

Pennsylvania employers are already prohibited from having blanket policies regarding criminal background checks. Under Pennsylvania law, Title 18 section 9125, an applicant’s convictions may be considered only to the extent to which they relate to the available position, and employers must notify applicants if their criminal background played a role in the decision not to hire them.

The Pennsylvania Human Relations Commission has opined that employers “must be able to show that inquiry into conviction is substantially related to an applicant’s suitability to perform major job duties” and that the criminal background check is, thus, required by “business necessity.” The EEOC’s statements surrounding the Pepsi settlement potentially takes this constraint nationwide.

Given these developments, employers should ensure that hiring practices conform to some “relevance” standard for criminal background disqualifications. The EEOC has stated, for example, that a recent theft conviction may be relevant to a bank teller position, while a years-old drunk driving conviction is likely not relevant to a clerical position. Employers should take steps to ensure that those in charge of hiring have access only to aspects of an applicant’s criminal background deemed relevant to a given position or that criminal background checks are not performed until late in the hiring process after a conditional offer is made. An individualized analysis should then be undertaken to ensure that the age and circumstances of the conviction, the available position, and any interim conduct suggesting rehabilitation of the applicant are
adequately taken into account.

NLRB Limits Scope of Non-Union Arbitration Agreements

David R. Keller — Wed, 25 Jan 2012 11:14:43 -0500

Many employers require their employees, as a condition of employment, to sign agreements stating that any dispute arising from their employment will be settled through arbitration, without resorting to the courts. In D. R. Horton, Inc. and Michael Cuda, the employer required employees to agree that all employment disputes would be determined “exclusively by final and binding arbitration.” Further, the agreement specified that employees could not consolidate their claims with those of other employees, that they could not proceed as a class or collective action with other employees and they waived “the right to file a lawsuit.”

Employee Michael Cuda retained a lawyer to file a nationwide class action on the ground that Horton was misclassifying employees as exempt from the Fair Labor Standards Act (“FLSA”) and failing to provide overtime. When the employer sought to invoke the arbitration agreement, Cuda filed an unfair labor practice charge with the National Labor Relations Board (“NLRB”) arguing that the arbitration agreement was invalid under the National Labor Relations Act (“NLRA”).

On January 3, 2012 the NLRB agreed, holding as follows:

The law protects the right of employees to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection;
This aspect of the law protects the right of employees to improve the terms and conditions of employment through channels outside the immediate employee/employer relationship;
The right to engage in concerted activities includes the right to join together to pursue workplace grievances, including through litigation.

Accordingly, because the arbitration agreement in question required employees to refrain from bringing collective or class claims in court, that agreement illegally prevented employees from engaging in the type of collective action protected by the law. The Board held, “We find that the [arbitration agreement] expressly restricts protective activity.”

The employer argued that a decision by the NLRB to prohibit this type of arbitration agreement violated the Federal Arbitration Act (“FAA”), which provides for a liberal federal policy favoring arbitration agreements. However, the NLRB held that an arbitration agreement, even if favored under the FAA and Supreme Court decisions, could not require employees to give up substantive rights afforded them in another statute, and that the right to seek redress in the courts is a “core substantive right protected by the National Labor Relations Act.”

The holding in this case protects only the right of employees to raise “class and collective claims” in the courts. The NLRB expressly held that employers remain free to require arbitration agreements with employees, and to insist that such arbitration be conducted on an individual basis only, without recognizing a joint or collective claim. Further, this ruling applies only to statutory employees, not to supervisors and managers who are without the protections of the NLRA. Finally, the decision recognizes that employers may continue to require employees to waive the right to seek “redress” for their individual claims against the employer, and require those claims be asserted only through arbitration.

Employers who currently have arbitration agreements with their employees should now have them examined to ensure that they do not prohibit employees from bringing or joining collective or class actions in court when they have employment related disputes. Those agreements should also be reviewed if they allow class or collective action claims, but only in arbitration, or if they involve an agreement entered into by employees which was not a condition of employment (i.e., a purely voluntary agreement).

Because of the argument that the application of the NLRA in this case conflicts with the FAA, there is a likelihood that the courts will address this issue in the future, and employers who wish to maintain arbitration agreements will need to follow the continuing course of this case.

Planned Changes to Processing for Unlawful Presence Waivers

Silas M. Ruiz-Steele — Fri, 13 Jan 2012 11:08:55 -0500

On January 6, 2012, USCIS posted a Notice of Intent in the Federal Register advising of its plan to reduce the amount of time that U.S. citizens are separated from their immediate relatives who are required to file immigrant visa applications abroad.

Under the current regulation, spouses and children of U.S. citizens who have accrued a period of unlawful presence in the U.S. are required to leave the country and process for their immigrant visa “green card” outside of the U.S. However, when they leave the U.S, a bar to reenter is triggered and they are forced to remain separated from returning to their families for as long as 3 to 10 years.

The proposed change will allow foreign nationals who qualify for classification as immediate relatives of U.S. citizens, who have a U.S. citizen spouse or parent who would suffer extreme hardship if the waiver were denied, and for whom the sole basis for inadmissibility is unlawful presence in the United States of more than 180 days to seek this provisional waiver while present in the U.S. This will allow families to remain together and minimize the time they are separated during the process. If the waiver is granted, the foreign national will then leave the U.S., apply for his or her green card abroad, and return to his or her family in a much shorter amount of time. The change will allow more U.S. citizens to apply to legalize their spouses and children while allowing the family to remain intact.

We will provide more details on the proposed regulation once the rule making process is completed, which is expected later this year. For additional information or questions regarding how the above information may affect your case, please contact Attorney Silas Ruiz-Steele, Chair of the Immigration Law Group, at 610-898-7153 or sruizsteele@barley.com.

Barley Snyder is pleased to announce the addition of paralegal, Becky Munscher, to its Immigration and Employment Law Groups. Becky will be based out of Barley Snyder’s York office. With 12 years of experience, Becky will work closely with attorney Silas Ruiz-Steele in the Immigration Practice Group to assist business and individual clients with the complex legal issues involved in obtaining legal status to work and live in the United States. Becky has extensive experience working with health care immigration, business and employment-based immigration, marital and family immigration, employer compliance, naturalization, and diversity. Becky can be reached at rmunscher@barley.com or 717-852-4991

New Hours Restrictions For Truck Drivers To Take Effect In July Of 2013

Richard Hackman — Thu, 05 Jan 2012 16:29:17 -0500

The U.S. Department of Transportation, Federal Motor Carrier Safety Administration has released new rules for CDL drivers that limit the number of hours per week drivers are permitted to work. The new rules are designed to combat driver fatigue and go into effect in July of 2013.

Under the new rules, truck drivers are prohibited from working more than 70 hours in a week. Currently, the restriction is set at 82 hours per week. When a driver reaches the 70 hour maximum, the driver must take at least two nights of rest from 1 a.m. to 5 a.m. Drivers must also take a 30 minute break after working 8 hours and are restricted to no more than 11 hours of daily driving.

Employers should begin to put mechanisms in place in 2012 in preparation for compliance with the new rules. The new rules provide for fines against companies of up to $11,000 per violation. In addition, drivers are subject to penalties of up to $2,750 per offense.

Update to Pennsylvania's Mortgage Licensing Act: Three Mortgages Per Year or Less Excepted

Sarah Yocum Rider — Mon, 19 Dec 2011 16:26:47 -0500

As described in the July 2011 Construction Law Brief, the Pennsylvania legislature passed amendments to the Mortgage Licensing Act (the “MLA”) which prohibits individuals and entities from engaging in the residential mortgage loan business (except to immediate family members) without being licensed under the MLA. The amendments to the MLA were made in response to, and to remain compliant with, the federal SAFE Mortgage Licensing Act (the “SAFE Act”). The SAFE Act establishes minimum standards for mortgage licenses that apply to all states.

Since the amendments to the MLA have been enacted, the Pennsylvania real estate community responded to the MLA with major opposition and has been working to restore seller financing in limited situations.

In August 2011, the United States Department of Housing and Urban Development (“HUD”) issued a final regulation related to the SAFE Act that was inconsistent with Pennsylvania’s prohibition on individuals and entities engaging in the residential mortgage loan business without a license (the “HUD Regulation”). The HUD Regulation, in part, prohibits an individual from engaging in the mortgage loan business if the individual, in a commercial context, habitually and repeatedly takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan for compensation or gain, or represents to the public that such individual can or will perform these activities. The MLA, as currently enacted, contains no similar qualification.

On October 6, 2011, the Pennsylvania Department of Banking (the “Department”) issued a letter discussing the Department’s position with regard to the MLA in light of the HUD Regulation. The letter states that the Department will be seeking amendment to the MLA in order to implement the HUD Regulation as soon as possible, thereby making the MLA consistent with the HUD Regulation.

The Department’s letter, however, stated that “the Department will not take exception to an individual making or brokering three (3) or less mortgage loans in a calendar year without being licensed as a mortgagor originator.” Accordingly, the Department apparently will not enforce the MLA against a residential seller who finances a portion of the purchase price and takes back a residential mortgage on property that it is selling, even if the mortgage is not from an immediate family member, provided that the seller take back three or less mortgages in a calendar year.

This is welcome news for the Pennsylvania real estate community. However, it is important to proceed with caution, since a letter from the Department of Banking is not the law. We expect amendments to the MLA implementing the Department’s position in the near future.

In addition to clarifying its position regarding private residential mortgages, the Department’s letter also announced that the Department reversed its original position that installment sales agreements are not a form of selling financing subject to the mortgage licensing requirements. The Department explained that installment sales agreements create an “equivalent consensual security interest on a dwelling or on residential real estate.” Accordingly, sellers of residential real estate, by means of installment sales agreements, are essentially treated as mortgagees for purposes of the MLA and the same licensing requirements apply.

OFCCP Proposes Rule Targeting Hiring of Disabled

Jennifer Craighead — Fri, 09 Dec 2011 15:34:00 -0500

The Department of Labor, Office of Federal Contract Compliance Programs (OFCCP), proposed a new rule on Thursday, December 8, 2011, that would require federal contractors and subcontractors to set a hiring goal of having 7 percent of their workforces made up of disabled people. The rule amends Section 503 of the Rehabilitation Act of 1973 which obligates federal contractors and subcontractors to ensure equal employment opportunities for qualified workers with disabilities.

Under the proposed rule, contractors would be required to do the following:

For the first time, set a goal of having 7 percent of their employees be workers with disabilities in each job group of the contractors’ workforce.

Request that applicants voluntarily self identify at the pre-offer stage as an “individual with a disability”. Applicants would also be asked to voluntarily self identify at the post-offer stage, and annually contractors would be required to survey all employees in order to invite them to self identify in an anonymous manner.

Maintain records of all individuals with disabilities applying for positions and the number of individuals with disabilities hired.

Engage in a minimum of three specific types of outreach and recruitment efforts to recruit individuals with disabilities.

List job openings with One-Stop Career Centers and other appropriate employment delivery services.

The proposed rule would apply to contractors with 50 or more employees and contracts worth $50,000 or more. The rule is open for public comment for 60 days after publication.

We will continue to keep our contractor clients apprised of the status of this proposed rule.

Two New Tax Credits For Employers Who Hire Veterans

Joshua L. Schwartz — Wed, 30 Nov 2011 11:49:39 -0500

On November 21, 2011, President Obama signed into law two tax credits designed to bring unemployed veterans back to work. These new tax credits were part of the American Jobs Act propsed by the President in September.

The Returning Heroes Tax Credit offers a credit scaled to the length of time a veteran has been unemployed. A credit of up to $2,400 (40 percent of the first $6,000 in wages) is available when a newly-hired veteran had been unemployed at least four weeks. A credit of up to $5,600 (40 percent of the first $14,000 in wages) is available when a newly-hired veteran had been unemployed at least six months. This tax credit replaces the now-expired Recovery Act credit, which provided for up to $2,400 for employers hiring certain unemployed veterans.

The Wounded Warrior Tax Credit, meanwhile, provides a new credit of up to $9,600 (40 percent of the first $24,000 in wages) for employers who hire veterans with service-connected disabilities who had been unemployed longer than six months. This credit exists alongside the existing Work Opportunity Tax Credit, which provides up to $4,800 for all employers who hire veterans with service-connected disabilities. The Wounded Warrior credit essentially replaces the Work Opportunity credit for hires of long-term unemployed veterans.

These tax credits are part of a larger jobs initiative targeted at veterans. Among other executive actions, the Administration has created a job-match online resource, a Veterans Job Bank, and an assistance card for veterans seeking job counseling. Employers wishing to participate in the Job Bank may find further information here.

If you have questions about any of these initiatives, please do not hesitate to contact any member of our employment law group.

Administration Of Special Needs Trusts: Extraordinary Duties For Trustees

Michael L. Mixell — Tue, 22 Nov 2011 14:57:55 -0500

Corporate trust officers have a great deal of experience determining how to properly exercise their fiduciary duty to make discretionary payments of income and/or principal for the beneficiaries of the trusts they administer. The administration of a special needs trust, and in particular, the determination of what constitutes a “special need” for which expenditures properly may be made, requires an additional layer of knowledge and expertise on a trust officer’s part.

The purpose of a special needs trust is to hold assets for the benefit of a disabled person in a manner that will not jeopardize the person’s eligibility for government benefits. Trust officers thus need to be mindful of appropriate expenditures so that the assets of the trust are not considered “available resources” that would disqualify the disabled person from receiving benefits. Most special needs trusts provide that funds may not be disbursed from the trust if the proposed expenditure is provided as a benefit from any governmental agency. Special needs trusts are not intended to pay for basic support, food or shelter expenses.

There are two broad categories of special needs trusts: (1) a first party special needs trust, and (ii) a third party special needs trust. A first party special needs trust is funded with the disabled person’s own assets and must meet certain statutory requirements. During the lifetime of the disabled person, distributions from the trust must be used for the sole benefit of the disabled person. First party special needs trusts are often referred to as “payback trusts” because, at the death of the disabled person, funds remaining in the trust must be used to reimburse the Commonwealth of Pennsylvania for benefits paid on behalf of the disabled person.

A third party special needs trust is funded with money from a source other than the disabled person - perhaps a parent or a grandparent. Third party special needs trusts may be created in a parent’s will or as a separate trust document during the lifetime of a parent or other donor, and are sometimes referred to as “supplemental needs trusts.” One key difference between a first party special needs trust and a third party special needs trust is that a third party special needs trust does not need to include a “payback” provision for the Commonwealth of Pennsylvania for benefits paid on behalf of a disabled person. A third party special needs trust typically includes other possible beneficiaries to whom the trustees may make discretionary distributions during the lifetime of the disabled person, as well as remainder beneficiaries.

Because of restrictions placed upon special needs trusts, and indirectly the trustees, a trust officer administering a special needs trust must have a fundamental understanding of the basic government entitlement programs, including Social Security Disability Income (SSDI), Supplemental Security Income (SSI), Medicare and Medicaid (also known as Medical Assistance or MA). The Medicaid program includes some basic health insurance for disabled persons which becomes a key issue when the trust officer seeks to supplement medical expenses and supplies from a special needs trust.

First party special needs trusts are subject to the scrutiny of the Orphans’ Court and the Pennsylvania Department of Public Welfare (DPW) with regard to expenditures of principal. The trustee of a first party special needs trust generally will seek court approval and will request consent from DPW before making principal expenditures. In some cases, the trustee may obtain blanket approval for ongoing expenses. Third party special needs trusts do not have this limitation, but a thorough understanding of the governmental benefit programs is critical to determine if a desired expenditure, however legitimate, is properly disbursable as a “special need.”

In summary, trust officers need to have additional expertise to properly administer a special needs trust. We at Barley Snyder have extensive experience and expertise in advising trustees of their extraordinary duties as they seek to enrich a disabled person’s life while only paying for expenses that properly qualify as “special needs.”

Decennial Reporting

Sarah Rubright McCahon — Mon, 14 Nov 2011 14:56:40 -0500

The Pennsylvania Department of State mandates that all businesses operating in Pennsylvania provide the Department with updated registration information at least every ten (10) years. Unless an exemption applies, all Pennsylvania businesses have until December 31, 2011 to file the necessary Decennial Report with the Department of State’s Corporation Bureau.

In the event this requirement is not met and a report is not filed by December 31, 2011, while the business shall continue to exist under Pennsylvania law, the business will no longer have exclusive use of its name. In that instance the name of the business then becomes available as of January 1, 2012 for use by any other company or association registered to do business in the Commonwealth which may request it.

Consequently, in order to make certain that a business maintains exclusive use of its name, a review of its filings with the Department of State may be necessary. Barley Snyder can assist with this review, the filing of the Decennial Report and other corporate compliance matters. For more information on the Decennial reporting requirements or for assistance with corporate compliance, contact Sarah Rubright McCahon, at 610-898-7168 or smccahon@barley.com.

Court Decides Issue Of First Impression Regarding Irrevocable Will Agreements

Paul Minnich — Wed, 09 Nov 2011 14:54:35 -0500

In a case of first impression in Pennsylvania, the York County Orphans’ Court recently clarified the law regarding irrevocable will agreements. Irrevocable will agreements are an estate planning tool through which an individual who makes a will also signs an agreement that the will cannot be subsequently revoked or altered in any respect.

In the case of In re: Estate of Charlotte M. Bankert, a husband and wife executed wills leaving the property to nine surviving children, four of whom were children from the husband’s prior marriage and the five children that the husband and wife had together. Subsequent to the husband’s death, the wife made financial gifts to her five children. Following the wife’s death, the four stepchildren challenged the gifts by the wife to her five children as being in violation of the irrevocable will agreement.

The Court reviewed the irrevocable will agreement and noted that it did not obtain any prohibition on the use or transfer of assets by the surviving spouse during her lifetime. However, after observing that no Pennsylvania appellate courts had addressed the issue, the Court adopted the standard set forth in the classic treatise Page on the Law of Wills and held that even in the absence of an express restriction on inter vivos transfers, inter vivos gifts could be challenged as violative of the irrevocable will agreement under certain circumstances. Specifically, the Court held that to prevail on their claim, the stepchildren would have to establish by clear and convincing evidence that the wife’s gifts to her children were made to evade performance of the irrevocable will agreement and were in fraud of the husband’s rights. Also, the stepchildren would be required to prove that the gifts were (a) unreasonable in amount or represented a considerable part of the wife’s estate or were substantial gifts made to only some beneficiaries who were to receive equal shares under the will; (b) were received gratuitously; and (c) received by children of the wife who had notice of the contents of the irrevocable will agreement. The Court’s decision is published in the York Legal Record in Volume 125, page 37-41.

Retirement Plan Sponsors Face Extensive New Participant Disclosures in 2012 New Retirement Rules

Mark A. Smith — Thu, 03 Nov 2011 14:46:10 -0500

Required disclosures of relevant employee benefit plan information to the plan’s participants has been one of the major themes of ERISA -- the federal law regulating employee benefits -- since its enactment in 1974. Benefit plan sponsors and administrators have long been preparing and distributing to participants summary plan descriptions, summaries of material modifications, summary annual reports, annual benefit statements, periodic account statements, notices to interested parties, and black-out notices, in the seemingly unending effort to ensure that plan participants are kept adequately informed of their benefits and their benefit plan rights. Notwithstanding these many established ERISA disclosure requirements, a new set of ERISA participant disclosure regulations have now been promulgated by the Department of Labor and will become effective in 2012.

These new requirements are a specific reaction by the DOL to the increasing prevalence across the retirement plan landscape of so-called “participant-directed individual account plans.” These are plans, including most current-day 401(k) and 403(b) plans, under which each plan participant can direct the investment of the participant’s plan account among various investment alternatives. The new participant disclosure regulations summarized below apply only to plan administrators of such participant-directed retirement plans, not to those of traditional defined benefit pension plans or individual account plans without participant-directed investments.

What types of disclosures are required by the new rules?

The new regulations require written disclosure of two types of information: (1) plan-related information, and (2) investment-related information.

What is the required plan-related information?

First, general plan information must be provided to each participant or beneficiary before he or she can first direct plan investments, and at least annually thereafter, including:

the circumstances under which investment instructions can be given;
any plan limitations on investment instructions, including any restrictions on transfers in and out of an investment alternative;
plan provisions relating to voting or tender or similar rights appurtenant to any investment alternative;
an identification of all investment alternatives available under the plan;
an identification of any investment managers designated under the plan and;
a description of any plan provisions allowing investment outside of the menu of investments designated as available under the plan (e.g., “brokerage windows” or “separate brokerage accounts”).

Second, before a participant or beneficiary can first direct investments, and at least annually thereafter, he or she must be given an explanation of plan administrative expenses (e.g., accounting, recordkeeping and legal expenses) that may be charged to an individual plan account, and how those expenses are allocated (e.g., pro rata or per capita). At least quarterly, the participant or beneficiary is to receive a specific statement that includes the dollar amount of such administrative fees charged to the individual’s account in the prior quarter and the administrative services to which the charges relate.

And third, before a participant or beneficiary can first direct investments, and at least annually thereafter, he or she must be given an explanation of any individual fees and expenses (such as participant loan fees, QDRO processing fees, “brokerage window” fees and individual investment advisor fees) that may be charged against the individual account of a participant or beneficiary who incurs the fee rather than against all accounts. Here again, at least quarterly, the participant or beneficiary is to receive a specific statement that includes the dollar amount of such individual account expenses actually charged in the prior quarter and the types of individual account expenses incurred.

In the case of changes in any of the plan-related information summarized above after disclosures are provided, the participants and beneficiaries are to be given an advance description of the changes within the 30- to 90-day period preceding the effective date of the change.

What is the required investment-related information?

There are two sets of investment-related disclosures, one consisting of information to be distributed to participants automatically each year and the other of information to be provided upon participant request. The automatic disclosure includes historical investment performance data relating to each investment alternative available under the plan, which must be provided in a comparative, essentially side-by-side manner (the regulations include a suggested format for this presentation). The disclosure includes identifying information, such as fund name; its type or category; one, five and ten calendar years of investment performance results; one, five and ten calendar years of performance results for an appropriate benchmark; applicable fee and expense information; and any purchase, transfer or withdrawal restrictions or limitations that may be imposed. The plan administrator must also provide a website address that participants can access for additional details, and a glossary of investment-related terms (or internet access to such a glossary).

The investment-related information to be provided upon request includes copies of prospectuses, copies of any other materials relating to an investment alternative that may have been provided by the investment alternative to the plan, a statement of the value of a share or unit of each investment alternative, and a list of assets held in the portfolio of each investment alternative that meets the DOL’s definition of a “plan asset,” including their value.

When must these newly-required participant disclosures be made?
This new DOL participant disclosure regulation is effective for plan years that begin on and after November 1, 2011 (therefore, for calendar year plans, they are effective January 1, 2012, subject to the transition relief described below). The general rule regarding the plan-related and investment-related disclosures described above is that they are to be provided to participants on or before the date the participant can first direct his or her investments, and then at least once per year thereafter. The individualized participant statements relating to fees charged to his or her account are required each quarter.

What are the transition deadlines for 2012 when the new disclosure requirements first become applicable?

The initial disclosures of the annually-required plan-related and investment-related information is required by the 61st day of the first plan year that begins on or after November 1, 2011 or, if later, by May 31, 2012. The initial quarterly disclosures of the fees charged to individual plan accounts are due 45 days after the end of the quarter when the plan first has to provide the annual plan-related and investment-related disclosures. Therefore, the typical calendar year plan will have until May 31, 2012 to make the initial annual disclosures, and the initial quarterly statement deadline for such a plan will be August 14, 2012.

What penalties apply if the new disclosure requirements are not met?
There is no defined and automatic monetary penalty payable to participants or the DOL if the new required disclosures are not timely or fully provided. However this disclosure obligation is a fiduciary duty imposed by the regulation on the plan administrator. A failure by the plan administrator to satisfy this obligation will open the door to legal claims by participants who suffer investment losses on grounds that the non-disclosure of the required information was a breach of a clearly-defined fiduciary duty which resulted in those losses.

What steps should retirement plan administrators take now to prepare for these new disclosure obligations?

Confirm whether the plan is a participant-directed individual account plan and therefore subject to these new disclosure rules. Meet with the relevant plan vendors (trustees, record keepers and third party administrators) to establish who will bear responsibility for compiling and providing the new required disclosures, and to coordinate between the plan administrator and vendors the compilation of data that will go into the required disclosures. This may require renegotiation of service provider contracts, with one or more vendors taking on this disclosure responsibility.

Since employees who are eligible to participate must receive the disclosures, even if they have not as yet elected to participate, plan administrators must identify these eligible non-participants and ensure that any vendor sending disclosures has their information.

Consider and settle upon a distribution method or methods that will be used for disseminating disclosures, including such alternatives as hard-copy versus electronic distribution, mail versus workplace delivery, and coordination of delivery with other already-required disclosures such as annual or quarterly account statements or summary annual reports.

If the plan has any unique or plan-specific investment alternatives, such as an employer stock fund or a guaranteed investment contract, the plan administrator must pay particular attention to who will take the lead in compiling the data and preparing the disclosures related to that plan-specific investment alternative.

For more information, or if you have questions or require any assistance in connection with the new self-directed plan disclosure requirements, please contact a member of the Employee Benefits Group.

The NLRB's Agenda = Employers Under Attack

Richard Hackman — Thu, 27 Oct 2011 14:44:04 -0500

As indicated in our two recent client alerts, the National Labor Relations Board (NLRB) has been extremely activist in promoting a pro-Union agenda. In fact, it wouldn’t be a stretch to refer to the agency as currently constituted as the “National Labor Relations Union.” Prior to this most recent activism, the NLRB had two primary functions: (1) to prevent and remedy unfair labor practices, regardless of whether committed by labor unions or employers; and (2) to establish whether certain groups of employees wanted union representation for collective-bargaining purposes. However, the NLRB’s recent measures indicate an intent to substantially deviate from its statutorily-mandated duties as an objective investigatory agency.

By way of reminder, when appointed to the NLRB by the Obama administration, Craig Becker made it quite clear that he intended to use the NLRB’s rulemaking process to enact provisions and positions favorable to his labor unions.

Since his appointment, which gave the Board a 2-1 democratic majority, Becker has attempted to use his currently unchecked authority (he was a recess appointment by President Obama and, as such, was neither confirmed nor approved by either party) to propose rules undercutting an employer’s ability to manage its workforce. The NLRB’s proposed rules placing more obligations and expense on employers are particularly troubling in light of the current economy.

In an attempt to implement its agenda, the NLRB has proposed several recent rules and regulations of which employers must be aware. Specifically,

1. The NLRB issued a Final Rule that will require employers to notify employees of their rights under the National Labor Relations Act (NLRA) as of November 14, 2011. However, on October 5, 2011, the agengy agreed to postpone implementation of the posting requirement until January 31, 2012. Private-sector employers whose workplaces fall under the NLRA will be required to post the employee rights notice where other workplace notices are typically posted. Also, employers who customarily post notices to employees regarding personnel rules or policies on an internet or intranet site will be required to post the notice on those sites. The notice states, among other things, that employees have the right to act together to improve wages and working conditions, to form, join and assist a union, to bargain collectively with their employer, refrain from any of these activities, strike and picket or choose not to do any of these activities. It also informs employees of their right to solicit during their non-work time, to be free of interrogation and discrimination related to union activities, and to wear union hats, buttons, tee shirts, and pins.

Penalties for employers who fail to post the notice may be severe. First, failure to post the required notice is an unfair labor practice itself. The second sanction is the tolling of the statute of limitations for filing an unfair labor practice charge against employers who fail to post the notice. The normal statute of limitations is six months, but it may be extended when no notice has been posted. Finally, the Board will hold that knowingly and willfully failing to post notices may provide evidence of unlawful motive in unfair labor practice cases.

Although the NLRB did not directly address the issue of whether an employer may post a notice of the company’s position at the same location, there appears to be nothing per se illegal about this practice; however, you should have legal counsel review such a notice prior to posting.

2. A proposed rule would significantly reduce the time period for a union election and impose substantially shortened timeframes for the production of documents. For example, employers would need to produce an electronic voter list within two days (as opposed to seven, under the current rules) after the filing of a petition. Employers would also be required to include in the voter list an employee’s name, telephone number, email address, physical address, work location, shift, and classification. Moreover, the proposed rules would expedite the hearing process and a hearing officer would be required to close a hearing if he or she concludes that “the only issues remaining in dispute concern the eligibility or inclusion of individuals who would constitute less than 20 percent of the unit if they were found to be eligible to vote.” The cumulative effect of the changes has been predicted to take the average time between petition and election from its current 38 days to approximately 20-23 days. This will obviously give employers less time to communicate with employees about the negatives of unions after a petition is filed and presumably boost the likelihood that a union could win an NLRB election.

Ultimately, employers have a legitimate and substantial interest in NLRB rules and procedures which includes the right of the employer to communicate with its employees about unions. If this proposed rule becomes effective, a union may conduct an organizing campaign for weeks or months without an employer becoming aware of it, frame the election, communicate with employees and prepare for legal issues to the significant detriment of an employer.

Please be advised that if employers currently do not engage in ongoing communication about unions as part of their regular communications to employees -- DO IT NOW. Further, employers need to be prepared immediately at the commencement of union organizing to roll out a solid communications strategy.

3. Finally, the NLRB has proposed a drastic expansion of the definition of “persuasion” to include numerous common human resource and legal activities which would substantially impact current basic employer activities. With respect to restrictions regarding legal counsel, any involvement by the employer’s attorney in suggesting or preparing campaign literature or other communications would make the attorney a “persuader” within the meaning of the law, and would require the attorney and his or her firm to file detailed reports, including reporting on their finances, to the DOL. If adopted, these regulations would require labor lawyers to determine whether to meet the burdensome requirements of the DOL in order to continue to assist their clients in organizing campaigns, or to abandon that type of work entirely.

Significantly, the proposed rule also requires employers subject to this requirement to report receipts and disbursements of any kind “on account of labor relations advice and services.” Accordingly, there would be substantial new recordkeeping and reporting requirements for employers. To comply with these onerous requirements, potentially on every occasion an employer engages an attorney or a consultant, reporting would be required. Accordingly, the costs associated with compliance could truly be staggering.

Please contact a member of Barley Snyder’s employment group with any questions regarding this proposed legislation and for advice on a course of action to ensure legal compliance.