Oregon State Bar Bulletin — AUGUST/SEPTEMBER 2010

From new rules ushered in with the passage of federal health-care legislation to state laws protecting the privacy of job applicants, business owners and their management teams face some significant changes in the coming months, according to several Portland attorneys who specialize in employment law.

At the same time, the U.S. Department of Labor, Equal Employment Opportunity Commission (EEOC) and Oregon Bureau of Labor and Industries (BOLI) have strengthened their efforts to protect employees as tough financial conditions put workers at risk for being taken advantage of by employers.

As for the new laws that will impact employers, employment law attorneys advise their clients to learn more about the changes underway and begin preparing now so they will comply with the new statutes as they take effect.

Perhaps some of the most sweeping changes will come about because of the federal health-care legislation passed last March.

Health-care reform is expected to impact small businesses first and then truly affect larger companies in 2014, says Kelly Hagan, a shareholder at Portland’s Schwabe, Williamson & Wyatt, whose practice focuses on health-care regulation.

“The first two or three years of the program are really aimed at insuring young individuals and individuals who are working in the small-employer insurance market,” he says, noting tax credits, subsidies and other incentives will be offered to small businesses to help them provide insurance coverage for employees.

On Jan. 1, 2011, new rules will take effect to directly address the content of health-care coverage. This includes the elimination of limits on lifetime benefits and limits on what are considered to be essential benefits, such as emergency services, maternity and newborn care, drug rehabilitation, and wellness and disease management.

In addition, the changes taking effect in January 2011 include preauthorization and cost-sharing for services such as preventive care, immunizations and ob-gyn care, Hagan says.

“These are some significant changes to the content of coverage that will happen in 2011, and that’s why… we’re now seeing the insurance companies — much to the (Obama) administration’s chagrin — raising premiums. The market for equity shares in health-care businesses are falling at the moment because of these new content requirements on coverage,” he says.

“The further down the calendar you go, the further the impact of this legislation spreads to larger and larger employers,” Hagan adds. “We’ll see increasing incentives and increasing penalties for employers who are not providing coverage.”

As the current administration approves and implements health-care reform, many attorneys representing employers are apprehensive about the changes in store for their clients and what those changes will mean. By 2014, says Barran Liebman associate Iris Tilley, the impact for employers will be substantial, particularly if President Obama is re-elected and current administration policies are unchanged.

“The big effect is that we may see more employers moving away from employment-based health care,” she says. “It will be simpler for individuals to get health care under the changes, and as the exchanges start to take effect, I think employers will start to weigh the cost of penalties against the cost of providing health care for employees.”

In some cases, Tilley noted, the expense of providing health insurance for employees will outweigh the cost of paying penalties.

“It’s hard to know because the regulations aren’t out yet, but it seems like the bill is designed to move employees toward state-sponsored plans,” she says. “Also, it will play into how the economy is doing because if the economy is really strong, then employers will be in a better position to provide coverage.”

While larger employers won’t see major changes in the next couple of years, there still is plenty to do to prepare. This mostly comes in the form of underwriting changes to existing plans so they reflect the phasing out of lifetime limits, the increase in dependent care to age 26 and changes related to health savings accounts.

“We’ve definitely been advising them that there are plan changes they need to start working on now, so there is a sense of urgency,” Tilley says.

Debate Continues on Job Candidate, Employee Privacy Issues
Employers also are impacted by a new Oregon law that took effect July 1, which prohibits them from not only using a job applicant’s credit history as a factor in a hiring decision, but from even running a credit check on the applicant at all.

Signed into law by Gov. Ted Kulongoski on March 29, Senate Bill 1045 also makes it illegal for most employers to use credit history in making decisions affecting current employees.

There are a few employers who are exceptions to the new law. These include federally insured banks and credit unions, businesses required by law to consider employee credit history, and police and other public employers hiring for law enforcement and airport security.

In addition, the law includes an exception for employers conducting credit checks for “substantially job-related reasons,” so long as those reasons are disclosed to the employee in writing. BOLI is charged with enforcing the new law.

Allyson Krueger, an employment law attorney with Portland’s Hitt Hiller Monfils Williams, says that while her clients don’t typically run credit checks on their applicants or employees, she has heard it’s fairly common among large employers. The Society for Human Resource Management estimates that about 60 percent of U.S. companies conduct credit checks for prospective employees.

While employers may no longer review the credit histories of their applicants or employees — or even run a credit check on them, whether or not they look at the information — criminal background checks still are permitted.

“In my mind, that’s where an employer ought to be focused rather than whether a person has good credit or bad credit, unless a person has responsibility for overseeing transactions involving money or the financial operations of a company,” Krueger says.

The debate over just how deep employers can delve into the personal lives of their employees continues to brew as people increasingly share information about themselves through social networking, blogging and other online venues.

Tamara Russell, a partner at Barran Liebman, says employers increasingly review online content not only when making hiring decisions, but also when determining whether someone should be fired. At the same time, most employees believe they have greater privacy rights than they really do.

“The privacy issue there to me is pretty interesting,” she says. “I think there’s a conflict between employers who feel like they can look at these postings, while employees feel like that’s really none of their business.”

A survey conducted by Microsoft and released in January illustrates just how wide this chasm is. “Online Reputation in a Connected World” (www.microsoft.com/privacy/dpd/research.aspx) found that 79 percent of U.S. hiring managers and job recruiters surveyed reviewed online information about job applicants. Most of them consider what they find online to impact their selection criteria, with 70 percent saying they have rejected candidates based on what they found.

And yet, according to the survey, just 30 to 35 percent of employee respondents believe that the personal information and photos they post online, or the “online reputation” they create, impacts their professional life.

Among the biggest issues related to employers conducting online research on applicants and employees is that recruiters previously have had clear restrictions on the types of information they can ask candidates. This included restrictions on asking about their families, their affiliation to religious, political or other groups, their financial situation and their medical condition. (See also, “Digging the Dirt,” on page 48 of this issue of the Bulletin.)

Now, the survey notes, recruiters can easily and anonymously collect information that they would not be permitted to ask during an interview.

Russell, who recently presented a webinar titled, “The New World of Social Media: Business and Legal Risks,” says online content is increasingly being used in making decisions about whether to fire employees. One clear-cut case is that, if an employee posts comments that are racist or otherwise attack a protected class of people, an employer is justified in firing him or her.

“The courts have ruled that that actually has an impact on the workplace, not only the real workplace but the virtual workplace as well,” she explains.

An employer also may fire an employee who posts trade secrets or other confidential or proprietary information about a company online. And, if an employer has a policy prohibiting personal Internet use during work hours, an employee can be fired for violating that policy.

“The interesting issue is when an employee goes online and just vents. They may complain about a co-worker or say something like, ‘This company sucks,’” Russell says. “That’s a situation where employers need to step back and, rather than firing the employee, maybe give them a warning because while that behavior is not very professional, it isn’t unlawful.”

Russell says she advises her clients to consider implementing a policy that specifically addresses employee social networking and blogging. Among other things, employers can prohibit such activities during company time, prevent networking and blogging from being done on the company’s equipment, and protect the company’s reputation by defining what may or may not be said about it or its customers.

Tough Economic Times Mean Compliance Resources Often Cut
As employers search for ways to cut costs to cope with the recession, the EEOC and federal labor department have received increased funding to pursue cases against businesses that violate employment laws.

“What we are seeing a rise in, frankly, is the government bringing class-action lawsuits against businesses that are believed to be violating the law,” says Leah Lively, chair of Perkins Coie’s Labor and Employment Practice Group.

The EEOC received funding this year to handle its backlog of cases and has become markedly more aggressive about filing and litigating harassment and discrimination claims, according to Lively.

“There’s also a current push, especially by the Department of Labor, regarding the misclassification of employees,” she adds.

A growing number of companies are working with independent contractors because, among other reasons, the arrangement allows employers to save money on taxes, health coverage and other benefits. The result is that more employers, either knowingly or inadvertently, misclassify employees as independent contractors when they really don’t meet that definition, Lively explains.

Oregon State Labor Commissioner Brad Avakian says his agency is particularly concerned about employees who have been made to work for lower wages and without the benefits to which they are entitled because of misclassification as independent contractors.

“Those rights ought to be enforced, and our agency will be right at the center of that effort,” he says, noting BOLI is part of a new Interagency Compliance Network that investigates and prosecutes employers who intentionally misclassify employees.

BOLI also has received funding from the legislature to hire a technical assistance professional to educate employers so they don’t violate the law in the first place.

Unpaid internships, another vulnerable area for employees, also have received increased scrutiny from BOLI, which has bolstered its enforcement and education resources to address the matter.

“It’s very similar to the independent contractor issue,” Avakian says. “We’ve actually seen situations recently where employers will have someone work for a month or two at a time and don’t pay them a penny. Then, when the person files a complaint with us the employer says, ‘Well, they were in their internship period and we were trying to determine whether they were a good fit for our company.’”

“The economy has made it very difficult because many employers are trying to figure out how to get good people on board for the least amount of money possible,” he adds.

Another potential pitfall for employers is overtime pay for employees, and class-action lawsuits related to that issue are on the rise as well, Lively points out.

“One of the best things a company can do for that is to conduct routine audits to find out what management is doing,” she says. “The Department of Labor says it’s not what is written in your job description, it’s what you do on a daily basis and that gets reflected in compliance with wage-and-hour laws.”

Lively says employers are in a difficult situation right now because, in an effort to cut costs, they often eliminate human resources staff, training programs and other resources that help keep them in compliance with state and federal laws.

“Those may seem like luxuries or extraneous items, but those are the things that will keep your company out of legal trouble,” she says.

Conflicts Between Federal and State Employment Laws on the Rise
Another trend in employment law, says Dennis Steinman of Kell, Alterman & Runstein, relates to federal preemption of Oregon laws. One example is the recent Oregon Supreme Court ruling that employers do not have to accommodate — or even continue to employ — workers who use medical marijuana because the federal Controlled Substances Act trumps Oregon’s medical marijuana law.

“Basically this ruling eliminates the Medical Marijuana Act from the civil side. It was very clear not to do anything on the criminal side,” Steinman says. “So now, no employer has to accommodate any employee who may be prescribed marijuana for medical purposes because the Supreme Court says Congress has already spoken on this.”

Another more broadly applied preemption issue relates to domestic partners, he notes. Oregon has passed a law that requires domestic partners to be treated the same as spouses when it comes to receiving health-care coverage, tax benefits and other entitlements. However, the federal Defense of Marriage Act prohibits same-sex couples from receiving equal entitlements as married couples by requiring domestic partners to pay taxes on health-insurance premiums that married couples are not required to pay.

“It’s a very real issue that employers have to deal with right now because of preemption between the federal law and state law,” Steinman says. “I believe employers need to be very, very careful about what other laws may be hanging out there. They may only look to state law and it’s no longer safe just to rely on state law. They need to ask lawyers to take a look at the federal laws as well.”

Along with consulting closely with an employment law attorneys, the best thing employers can do to protect themselves and ensure compliance with the broad range of new requirements is to update their corporate policies and handbooks to reflect changes in statutes, from state and federal disability laws to the Lilly Ledbetter Fair Pay Act, Lively says.

In addition, business owners also should ensure that mid-level and upper-level managers are trained in current requirements, including disability laws and wage-and-hour issues, she adds.

“The belt-tightening that is going on because of the economy means employers are trying to reduce costs wherever they can. Often, training programs and human resources personnel who can provide consistent feedback and coaching are among the first things to go,” Lively says. “Of course, I’d like to see employers get that training and be fully armed to comply with the laws.”


Melody Finnemore is a Portland-area freelance writer and frequent contributor to the Bulletin. 

© 2010 Melody Finnemore

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