Employment Law Update:

What’s on the horizon for Employers and Employees as 2019 gets underway?

1. Pennsylvania’s Proposed Updates to White Collar Overtime Exemptions

On June 23, 2018, the Pennsylvania Department of Labor and Industry (DLI) published proposed regulations delineating new standards for white-collar exemptions to the Pennsylvania Minimum Wage Act (PMWA).  These new regulations would amend the current requirements governing the Commonwealth’s overtime and minimum wage exemptions applicable to executive, administrative and professional (EAP) employees.  Specifically, for each exempt category, the new regulations include (i) sizeable increases to the salary thresholds, and (ii) noteworthy alterations to the duties test.

Increases to Salary Thresholds

The Commonwealth’s regulations have not been updated since 1977.  Because the salary thresholds have not been updated for more than forty (40) years, the DLI proposed these new regulations to ensure that employees are not improperly classified.  Under the DLI’s proposed regulations, the current salary threshold of $250 per week for EAP employees would be increased in the following manner:

• $610 per week ($31,720 annually) effective as of the date the DLI publishes the final rule;
• $766 per week ($39,832 annually) effective one year after the DLI publishes the final rule; and
• $921 per week ($47,892 annually) effective two years after the DLI publishes the final rule.

Finally, three years after the DLI publishes the final rule and “every 3rd year thereafter,” the salary threshold increases  “at a rate equal to the 30th percentile of weekly earnings of full-time nonhourly workers in the Northeast Census region in the second quarter of the prior year as published by the United States Department of Labor, Bureau of Labor Statistics.”

These proposed increases to the salary threshold are very similar to the regulations promulgated by the U.S. Department of Labor (DOL) in 2016, which were ultimately struck down by a District Court in Texas.  See Nevada v. United States Dep’t of Labor, 275 F. Supp. 3d 795, 798 (E.D. Tex. 2017).  In that case, the District Court concluded, “[the DOL] exceed[ed] its delegated authority and ignore[d] Congress’s intent by raising the minimum salary level such that it supplants the duties test.”  Nevada v. United States Dep’t of Labor, 218 F. Supp. 3d 520, 530 (E.D. Tex. 2016).  In other words, the Court reasoned that the DOL was not permitted to make an employee’s salary rather than job duties determinative of an overtime exemption.  Should the DLI issue final regulations similar to its proposals, expect employers and the business community to mount a similar challenge to the DLI’s rulemaking authority.

Revisions to the Duties Test

With these new proposed regulations, the DLI intends to bring the Commonwealth’s exemption requirements into alignment with the standards set forth by the federal analog, the Fair Labor Standards Act (FLSA).  The new regulations are designed to create greater consistency between Pennsylvania and federal law concerning the duties test to determine whether an employee is exempt.  Although some inconsistencies have been eliminated, the proposed regulations continue to include language not present under federal law.

Notice and Comment Period

The notice and comment period for the proposed regulations ended on August 22, 2018.  As expected, employers were critical of the DLI’s proposal while employee groups tended to favor the DLI’s changes.  On September 21, 2018, the Independent Regulatory Review Commission (IRRC) issued its formal comment to DLI’s proposal as required under Pennsylvania’s Regulatory Review Act (RRA).[1]  The IRRC discussed a number of concerns with the proposed regulations.  It indicated that the current language could cause unintended adverse impacts to hundreds of thousands of workers and businesses in Pennsylvania.  The IRRC concluded that it was unable to determine whether the regulation was in the public’s interest.

Specifically, the IRRC expressed concerns about the economic impact to Pennsylvania’s employers, citing comments describing the proposed increases to salary thresholds as “ ‘unprecedented,’ ‘extreme,’ and ‘unsustainable.’ ”  The regulations propose increasing the salary threshold by 34.1% in the first year, 25.6% in the second year and 20.2% in the third year.  According to the IRRC, these increases stand in stark contrast to the national average of 3% for salary increases over the last five years.  Because such increases may be infeasible to implement, the IRRC recognized that employers may be forced to convert salaried employees to hourly workers and reduce hours or restructure benefits or incentives programs.

In addition, the IRRC explains that – in many regards – the proposed regulations fail to create greater consistency with the FLSA, although this is one of DLI’s express purposes.  Most notably, the FLSA includes five specific exemptions that are not included in the DLI’s proposal:

• Highly compensated employee;
• Outside sales;
• Certain computer employees;
• Business owners under the executive exemption; and
• Employees of educational establishments under the administrative exemption.

These types of omissions, the IRRC hypothesized, will further add to the inconsistency between the PMWA and the FLSA, and therefore present increased confusion and compliance challenges.  Moreover, the language in the proposed regulations still contains notable differences to the federal law.  As the IRRC commentary points out, given these differences, the DLI’s proposed regulations will not align Pennsylvania law with the current federal standards.

What to Expect Next?

Employers and employees should expect significant changes to white collar exemptions under both Pennsylvania and federal law in 2019.  As of now, the DLI has not yet issued its final regulations.  It remains to be seen how the DLI plans to address the concerns raised during the notice and comment period, and whether the final regulations will incorporate any significant changes as a result.  Likewise, the DOL has indicated its intent to propose new regulations in 2019 regarding the FLSA’s overtime exemptions.  Although any new regulations are likely to increase salary thresholds under the FLSA, expect noteworthy differences between any new standards promulgated by the DLI and the DOL.

Employers and employees should anticipate these likely changes in the law and the compliance challenges that shall follow.  Attorneys at Goldstein Law Partners offer a full array of employment law services to help manage your business and mitigate risks, including compliance assessment and counseling, internal investigations, transactional assistance, regulatory support and litigation.

UPDATE:

On March 22, 2019, the DOL published a proposed rule that updates the exemptions for the overtime and minimum wage standards under the FLSA.  Specifically, among other modifications, the proposed rule plans to increase the minimum salary requirement and the annual compensation amount under the definition for the “highly compensated employee.”

The proposed increase to the minimum salary requirement is much lower than the previous rule issued by the DOL in May 2016, referenced above.  Before being struck down by the U.S. District Court in Texas, the rule increased the minimum salary requirement for white-collar exemptions from $455 per week, and $23,660 annually, to $913 per week, and $47,476 annually, with automatic increases every three years.

The current proposed rule sets the minimum salary requirement at $679 per week and $35,308 annually.  Unlike the unsuccessful 2016 changes, this proposed rule does not mandate automatic increases; rather, it provides for proposed updates to the minimum salary requirement every four years.  The proposed rule allows employers to satisfy ten percent (10%) of the minimum salary requirement with non-discretionary bonuses, incentives and commissions (which may be paid on an annual basis).  Although these proposed increases to the minimum salary requirement are similar to Pennsylvania’s proposed increases, they are not identical and employers must be cognizant of how the intersection of these laws may affect their employment policies and practices.

The DOL’s proposed rule also plans to increase the total annual compensation threshold under the FLSA’s definition and exemption for a “highly compensated employee” from $100,000 to $147,414.  As discussed above, the “highly compensated employee” exemption remains a significant distinction between the FLSA’s white-collar exemptions and those under the PMWA.

The notice and comment phase for the FLSA’s proposed rule recently ended on May 21, 2019; however, the DOL is not expected to publish a final rule until early in 2020.  Employers are not required to take any action until the DOL publishes the final rule.  Attorneys at Goldstein Law Partners are fully equipped to advise and prepare you and your business for these impending changes to the requirements under both federal and state law.

2. Pennsylvania Recognizes Cause of Action for Employer’s Failure to Protect Employees’ Personal and Financial Information 

In Dittman v. UPMC, 196 A.3d 1036 (Pa. 2018), the Pennsylvania Supreme Court addressed whether employers have an affirmative duty to protect the personal and financial information of their employees from cyber attacks.  The Court held that such a duty exists at common law in Pennsylvania, and that employers risk liability exposure for breaching this duty if they neglect to undertake reasonable measures to safeguard sensitive data within their control.  Id. at 1047.  Notably, the Court found also that the economic loss doctrine did not serve as an independent bar to liability.  Id. at 1054.

Employees of the University of Pittsburgh Medical Center (UPMC) filed a class action lawsuit against their employer, after cyber criminals stole sensitive information from UPMC’s computer system – including “names, birth dates, social security numbers, addresses, tax forms, and bank account information[.]”  Id. at 1038.  Criminals then used the employees’ stolen information to file fraudulent tax returns, causing the employees to suffer actual damage as a result.  Id. at 1039.  The employees alleged, “as a condition of employment, UPMC required them to provide certain personal and financial information[.]”  Id. at 1047.  UPMC collected and stored this data “on its internet-accessible computer system without use of adequate security measures, including proper encryption, adequate firewalls, and an adequate authentication protocol.”  Id.  Employees pursued a theory of liability based upon negligence, arguing that UPMC had a duty to exercise reasonable care in protecting their sensitive information and breached that standard by failing to implement and maintain adequate security measures.  Id. at 1039.

The trial court dismissed the employees’ complaint, and the Superior Court affirmed.  On discretionary appeal, the Pennsylvania Supreme Court vacated the dismissal and remanded to the trial court for further proceedings.

The Supreme Court’s decision is significant for two reasons, both of which carry repercussions for employers and for any entity that collects individuals’ personal information.  First, the Court ruled that UPMC owed its employees “a duty to exercise reasonable care to protect them against an unreasonable risk of harm arising” from UPMC’s act of “collecting and storing [its] [e]mployees’ data on its computer systems[.]”  Id. at 1047.  The Court acknowledged that a defendant owes “no duty to protect or rescue someone who is at risk on account of circumstances the defendant had no role in creating[.]” Id. (citation omitted).  According to the Court, however, the facts in Dittman did not present such a circumstance.  Id.  To the extent that UPMC (i) required employees to supply personal and financial information, and (ii) stored that information on its computer systems without adequate safeguards, “UPMC’s affirmative conduct created the risk of a data breach.”  Id.  Moreover, the criminal nature of the third-party cyber attacks did not release UPMC from its duty of care.  Id. at 148.  The Court concluded, “the data breach was ‘within the scope of the risk created by’ UPMC.”  Id.  “The alleged conditions surrounding UPMC’s data collection and storage,” the Court explained, “are such that a cybercriminal might take advantage of the vulnerabilities in UPMC’s computer system and steal Employees’ information[.]”  Id.

Second, the Court was forced to determine the scope of the economic loss doctrine in Pennsylvania and, specifically, whether the doctrine “preclud[es] all negligence claims for solely monetary harm.”  Id. at 1049.  The Court emphatically rejected UPMC’s argument that Pennsylvania precludes all negligence claims seeking solely economic damages.  Id. at 1054.  “[A] tort action will not lie from a breach of [a] duty[,]” which “arises under a contract between the parties,” the Court explained.  Id.  “However, if the duty arises independently of any contractual duties between the parties, then a breach of that duty may support a tort action.”  Id.  In other words, the Pennsylvania Supreme Court dramatically narrowed the factual circumstances under which the economic loss doctrine now applies.  For example, in Dittman, the employees asserted that UPMC breached a common law duty to protect their sensitive information from cyber threats.  The Court concluded, “this legal duty exists independently from any contractual obligations between the parties” and, therefore, “the economic loss doctrine does not bar Employees’ claim.”  Id. at 1056.

The Court’s decision will have far-reaching affects for employees, employers and, likely, businesses in general.   Although the Court stated Dittman merely “involv[ed] application of an existing duty to a novel factual scenario,” the impact of this decision will cause a sizeable increase in litigation based upon data breaches.  Dittman specifically addressed the issue of cyber security within the narrow setting of the employer-employee relationship, but litigants will certainly attempt to extend the Court’s rationale to other contexts where an entity stores individuals’ personal and financial information.  Employers and business who interact with Pennsylvania and its residents must be aware of this newfound duty of care, and learn the best methods of complying with the standard annunciated by the Supreme Court.  Similarly, the Court’s lengthy discussion of Pennsylvania’s economic loss doctrine has grave implications across many disciplines in the law.  As the Court acknowledged, Pennsylvania’s lower courts have applied the economic loss doctrine broadly and recognized only a select number of exceptions to the general prohibition.  Dittman changes that entirely, and redefines what is possible under negligence law in Pennsylvania.

3. NLRB Returns to Pre-Obama Era Test to Define Protected Concerted Activity

Section 7 of the National Labor Relations Act (NLRA) guarantees the right of workers to engage in protected concerted activity.  For employers, compliance with the law depends upon type of activities that fall within this statutory definition.  In 2011 with WorldMark by Wyndham, 356 NLRB 765 (2011), the National Labor Relations Board (NLRB) ruled that a single employee’s complaint to a supervisor could be considered protected concerted activity under certain circumstances – namely when such a complaint occurs in the presence of other co-workers.  There, a salesman protested a newly implemented change to the employer’s dress code policy.  The salesman lodged his complaint with his supervisor while other employees gathered around to watch the exchange.  The Board found that this encounter constituted protected concerted activity because (a) the employee’s complaint occurred in the presence of co-workers, and (b) the complaint challenged terms and conditions of employment that were common to all employees.  WorldMark allowed employees to file charges for unfair labor practices based on ostensibly individual activity.  This decision placed employers on notice, as it included many forms of conduct that had not been previously been considered concerted activity.

On January 11, 2019, the NLRB overruled this Obama-Era decision and returned to a prior analytical framework.  In Alstate Maintenance, LLC, 367 NLRB No. 68 (January 11, 2019), the Board clarified the conduct necessary for an employee’s action to be considered ‘concerted.’  The Board determined that an individual employee (i) “must either bring a truly group complaint regarding a workplace issue to management’s attention,” or alternatively, (b) make a statement “seeking to initiate, induce or prepare for group action” based upon “the totality of circumstances[.]”  Accordingly, under the Alstate Maintenance decision, concerted activity no longer incorporates purely individual complaints made in a group setting.

In Alstate Maintenance, a skycap at Kennedy International Airport filed a charge alleging he was terminated after complaining to his supervisor about not being tipped for his services.  The skycap’s employer contracts with the airport to provide ground services at the terminal.  Specifically, a skycap’s job entails providing “assist[ance to] arriving airline passengers with their luggage outside the entrance to the terminal.”  The Board acknowledges that skycaps receive a “bulk of  [their] compensation … from passengers’ tips.”  A supervisor approached the petitioner and requested that he assist members of a soccer team in handling their equipment.  “We did a similar job a year prior and we didn’t receive a tip for it,” petitioner responded.  Three other skycaps were present for the exchange.  When airport personnel signaled for the skycaps to assist the soccer team, petitioner and the other skycaps walked away without complying.  After other baggage handlers began unloading the team’s equipment, the petitioner and the other skycaps returned and helped to complete the task.  All four skycaps were terminated for their behavior.

In upholding the Administrative Law Judge’s decision to dismiss the skycap’s complaint, the Board announced that it would return to the Meyers Industries[2] analytical framework as it existed prior to WorldMark.  Meyers I defined ‘concerted’ activity as activity “engaged in with or on the authority of other employees, and not solely by and on behalf of the employee himself.”  In Meyers II, the Board responded to several questions posed by the D.C. Circuit Court of Appeals.  First, the Board recognized in Meyers II that concerted activity could be found where a single individual brought a group complaint to management, even if the individual was not a designated spokesperson.  “When the record evidence demonstrates group activities, whether ‘specifically authorized’ in a formal agency sense, or otherwise,” the Board concluded in Meyers II that such conduct is “concerted.”  Meyers II requires contemporaneous evidence of “group activities,” which can be contrasts with a single employee’s personal grievance.  Second, the Meyers II Board ruled that an individual’s efforts to induce group action was also deemed “concerted” for purposes of Section 7.  The Board explained that activity consisting only of verbal communication “must, in order to be protected, be talk looking toward group action,” otherwise “it is more than likely to be mere ‘griping.’ ”

The significance of Alstate Maintenance lies in its return to the case-by-case analysis that had existed for three decades under Meyers I and Meyers II.  In doing so, the Board overruled WorldMark, which disrupted the status quo and created significant compliance problems for employers.  WorldMark fashioned a seemingly per se rule that all complaints from individual employees constituted concerted activity so long as the complaint was lodged before a group of co-workers.  Now, once again, there are no per se rules for determining whether certain conduct is ‘concerted.’  Employers may rely upon the individual circumstances of each case and the thirty years of precedent as guidance.

Although Alstate Maintenance represents a positive trend for employers, the circumstances that constitute protected concerted activity remain complex and factually diverse.  This is especially true in the age where social media is prevalent both inside and outside the work environment.  Whether statements made by employees on social media are “protected concerted activity” under Section 7 of the NLRA is often a fertile area for controversy.

Attorneys at Goldstein Law Partners offer a full array of employment law services to help manage your business and assist with fashioning policies and best practices for compliance and counseling, as well as litigation services.  Our attorneys are experienced in representing clients before federal, state courts and administrative agencies on all areas related to employment law.

[1] Comments of Independent Regulatory Review Commission (IRRC) of Department of Labor and Industry Regulation #12-106 (IRRC #3202), September 21, 2018, URL: http://www.irrc.state.pa.us/docs/3202/IRRC/3202%2009-21-18%20COMMENTS.pdf

[2] Meyers Industries, 268 NLRB 493 (1984) (Meyers I), remanded sub nom. Prill v. NLRB, 755 F.2d 941 (D.C. Cir. 1985), cert. denied 474 U.S. 948 (1985); Meyers Industries, 281 NLRB 882 (1986) (Meyers II), affd. sub nom. Prill v. NLRB, 835 F.2d 1481 (D.C. Cir. 1987), cert. denied 487 U.S. 1205 (1988).