Employment Law

December 2010

In this Issue Dodd-Frank Act Expands Whistleblower Protections 1 Dodd-Frank Act Expands Whistleblower Protections In an effortUp to encourage thosedate with inside knowledge to assist the government in prosecuting those who have violated 2 Accommodating Muslim Employees securities laws, and to provide whistleblowers with expanded 4 SOX Retaliation Claims: Recent protection from retaliation, President Obama signed the Dodd- Developments Frank Wall Street Reform and Consumer Protection Act (the “Act”) on July 21, 2010. Given the enhanced whistleblower 6 Adverse Employment Actions: protections provided by the Act, it is vital that companies have Be Consistent and Truthful When in place a strong compliance program and an effective system Providing Reasons for the reporting of financial misconduct and investigation 7 California Court Narrowly Interprets What of such reports. Note that the Securities and Exchange Constitutes an “Employment Loss” Under Commission on November 3, 2010 proposed regulations Federal WARN Act implementing certain provisions of the Act but which address only the bounty program discussed just below. 8 Recent Business Immigration Law New Whistleblower Incentive Program Developments To motivate whistleblowers to report fraudulent activity to the 9 Break Time for Nursing Mothers government, the Act amends the Securities and Exchange Act of 1934 by adding a “bounty” provision designed to provide 10 Executive Compensation and Corporate lucrative monetary incentives for individuals who provide Governance Update information to the Securities and Exchange Commission (“SEC”) 12 New York Court of Appeals Limits Who leading to a successful enforcement action. The Act requires the May Bring Claims Under the New York SEC, in any action in which it imposes sanctions in excess of State and City Human Rights Laws $1 million, to compensate whistleblowers who provide “original information” with between 10% and 30% of the monetary sanctions. “Original information” means information derived from the independent knowledge or analysis of the whistleblower which is not known by the SEC from other sources. Private Right of Action for Securities Whistleblowers Editors Section 922 of the Act amends the Securities Exchange Act to generally prohibit employers from discriminating against If you have any questions or would like more information concerning any of these topics, please contact: (e.g., discharging, harassing, threatening, etc.) an employee for providing information to the SEC; initiating, testifying Kevin B. Leblang 212.715.9306 in, or assisting in certain investigations or actions relating to [email protected] that information; or making disclosures that are required or Robert N. Holtzman 212.715.9513 protected under the Sarbanes-Oxley Act (“SOX”), the Securities [email protected] Exchange Act or another law, rule or regulation subject to the The contents of this Update are intended for general jurisdiction of the SEC. informational purposes only, and individualized advice should be obtained­­­ to address any specific situation. The Act provides a private right of action under the Securities Exchange Act for whistleblowers against retaliating employers. Whistleblowers may bring such claims up to the earlier of three Kramer Levin Naftalis & Frankel LLP continued on page 3 Attorney Advertising 2 Employment Law Update

Accommodating Muslim Employees

“Towel head,” “Osama,” and “Taliban,” are just a few of 1. Allow Prayer Breaks — Muslims pray five times a day the names that Muslim employees have been called in the and the timing of these prayers changes throughout workplace since September 11, 2001. These employees have the year based on the position of the sun. The prayers also reported that employers have refused to accommodate take approximately five to fifteen minutes and require their religious obligations. Antipathy toward Muslims a clean, quiet space. has only increased since September 11, culminating in 2. Permit the Wearing of a Hijab or Head Scarf — Many “Islamophobia” recently espoused during debates regarding Muslim women wear headscarves in accordance with the building of mosques or Islamic cultural centers, an their belief that they should cover their hair. attack on a Muslim New York City cab driver, and threats from a Florida pastor to burn the Koran. American media 3. Alter Timing of Meal Breaks — During Ramadan, from Time magazine to ABC’s This Week are exploring the Muslims fast from sunrise to sundown. Some devout hostility that Americans have expressed toward Muslims. Muslims also fast on Mondays and Thursdays throughout There is no doubt that conversations regarding these current the year. Muslim employees may request that their meal events are seeping into the workplace and commingling with break be adjusted to sundown so that they may eat as soon as permissible. Conversations regarding these current 4. Adjusting Work Schedule on Fridays — On Fridays, events are seeping into the workplace midday prayers are replaced with prayers at the local mosque or other place of worship. Muslim employees and commingling with anti-Muslim may require time beyond their meal breaks to attend comments. At the same time, reports such prayers. show that in 2009 Muslim employees 5. Allow Vacation Days for Religious Holidays — Eid al-Fitr and Eid al-Adha are two periods during which reported more discrimination complaints Muslim employees often seek time off. Eid al-Fitr is than ever before. celebrated at the end of Ramadan and Eid al-Adha takes place approximately seventy days after Ramadan. anti-Muslim comments. At the same time, reports show that The Muslim calendar does not correspond with the in 2009 Muslim employees reported more discrimination Gregorian calendar. complaints than ever before. We can only expect 2011 will 6. Permit Men To Have Facial Hair — Observant Muslim see even more complaints regarding alleged discrimination men are religiously required to maintain facial hair. If on the basis of an employee’s Islamic faith. such facial hair would conflict with health and hygiene Employers should be wary of conversations that could requirements, consider providing a beard cover. reveal discriminatory animus toward Muslims and be aware Employers must ensure that Muslim employees are of accommodations that may be requested by Muslim protected from discrimination and are provided with employees. Prohibiting bigoted speech in the workplace reasonable accommodations for their religious practices. is an obvious policy for employers, but the accommodations Not only is this the right thing to do, but employers who that may be requested by Muslim employees may not be fail to take such actions face liability under Title VII and so commonplace, given that Muslims make up only 2% of various state and local laws. Indeed, recent actions and the U.S. population. Below is a list of accommodations that investigations brought by the EEOC demonstrate that the employers may consider offering to Muslim employees, if agency is particularly focused on discrimination against such accommodations do not cause an undue hardship: Muslim employees. n

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Dodd-Frank Act Expands Whistleblower Protections continued from page 1 years after the date on which the facts material to the right of New Whistleblower Protection for Financial action are known or reasonably should have been known by Services Employees the employee or six years after the retaliation occurred. Section 1057 of the Act creates a new private right of action for employees in the financial services industry who are Under the new provision, whistleblowers can bring their subjected to retaliation for disclosing information about claims directly in federal court. Thus, whistleblowers unlawful conduct related to the offering or provision of a electing to sue under the new law can seek remedies for consumer financial product or service. retaliation while bypassing SOX’s requirement to exhaust administrative remedies with the Department of Labor Coverage applies to organizations that extend credit or before going to court. service or broker loans; provide real estate settlement services or perform property appraisals; provide financial The new provisions allow a prevailing claimant to obtain advisory services to consumers relating to proprietary reinstatement, double back pay, interest, and compensation financial products, including credit counseling; or collect, for litigation costs and attorneys’ fees. Notably, this analyze, maintain, or provide consumer report information provision differs from Section 806 of SOX, which provides or other account information in connection with any for an award of reinstatement and back pay, but not double decision regarding the offering or provision of a consumer back pay. financial product or service. The Dodd-Frank Act Also Amends SOX Section 1057 prohibits retaliation against an employee who Sections 922 and 929A contain important provisions that has engaged in any of the following protected acts: broaden the scope and clarify certain provisions of SOX, including the following: n providing or attempting to provide to an employer, the newly created Bureau of Consumer Financial Protection n Aggrieved employees will now have 180 days to file a complaint with the Department of Labor’s Occupational (the “Bureau”), or any other state, local, or federal Safety and Health Administration (“OSHA”), an increase government authority or law enforcement agency relating over the 90-day filing period previously provided under to any violation of the laws subject to the jurisdiction SOX. And the timely filing period now starts on the of the Bureau; later of the date on which the violation occurred and n testifying or intending to testify in, or filing, instituting the date on which the employee became aware of the or causing to be filed or instituted, any proceeding under violation. Previously, the clock started on the date on any federal consumer financial law; and which the violation occurred, regardless of when the n objecting to or refusing to participate in any activity the employee became aware of it. financial services employee reasonably believes is in violation n The new legislation clearly states that employees bringing of any laws subject to the Bureau’s jurisdiction. claims under SOX have a right to a jury trial. Remedies include reinstatement, back pay, compensatory n The Act provides that any rights or remedies provided damages, and attorneys’ fees and litigation costs. Where for whistleblowers under SOX may not be waived. reinstatement is unavailable or impractical, front pay may be awarded. n The new law amends SOX to expressly prohibit the use of predispute arbitration agreements for SOX claims. The statute of limitations for a cause of action under Section 1057 of the Act is 180 days and the claim must n The Dodd-Frank Act expands SOX coverage to include be filed initially with OSHA. If the DOL has not issued a employees of “nationally recognized statistical rating final order within 210 days of the filing of the complaint, organization[s],” as well as employees of subsidiaries the complainant has the option to remove the claim to or affiliates of publicly traded companies where that federal court and both parties have the right to demand subsidiary’s financial information is included in the a trial by jury. consolidated financial statements of the company. continued on page 5

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SOX Retaliation Claims: Recent Developments

Section 806 of the Sarbanes-Oxley Act of 2002 (the allege that the value the company assigned to them was ever “Act” or “SOX”) protects employees of public companies reported to the public or shareholders. Thus, the plaintiff who “blow the whistle” by reporting conduct that they failed to allege that he reasonably believed he was reporting reasonably believe constitutes a violation of federal law securities fraud, as opposed to patent-related malfeasance. relating to financial, securities or shareholder fraud. Recently, the Eleventh Circuit Court of Appeals joined Recent decisions interpreting the Act have addressed the several other circuit courts in holding that the Act requires requirement that a claimant have a “reasonable belief” a whistleblower to demonstrate both a subjective belief that the reported conduct constitutes a violation of an and an objectively reasonable belief that the company’s enumerated law, whether the 90-day limitation period conduct violated an enumerated law. Gale v. Dep’t of Labor, for filing a claim under SOX may be equitably tolled, and 2010 WL 2543138 (11th Cir. June 25, 2010). In so ruling, the Act’s application to non-public investment advisors the court agreed with the Department of Labor’s (“DOL”) for publicly-traded mutual funds. In addition, please see finding that the plaintiff did not actually believe the the article on the cover page of this Update regarding the company’s activities to be illegal or fraudulent. The court changes implemented by the Dodd-Frank Wall Street pointed to statements by the plaintiff indicating his lack of Reform and Consumer Protection Act. subjective belief. For example, although plaintiff “expressed reservations” about a proposed broker training program, he Based on the conclusion that plaintiff did not know at the time whether the company’s practices had no subjective belief that his employer were prohibited by regulatory rules or the law. Likewise, was engaging in any illegal or fraudulent although plaintiff testified that an incident made him feel “really uncomfortable” and “uneasy,” he admitted that he conduct prohibited under the Act, the court did not know at the time whether the company’s conduct affirmed the granted of summary judgment was illegal, nor did he communicate to anyone that he felt it was illegal. Based on the conclusion that plaintiff had to defendant on the whistleblower claim. no subjective belief that his employer was engaging in any illegal or fraudulent conduct prohibited under the Act, Protected Activity Under the Act the court affirmed the granted of summary judgment to Section 806 of the Act prohibits retaliation against defendant on the whistleblower claim. an employee who reports any conduct the employee “reasonably believes constitutes a violation” of (1) federal SOX’s 90-Day Filing Deadline May be Tolled in criminal law provisions prohibiting mail, wire or bank Certain Instances fraud; (2) any rule or regulation of the Securities and SOX requires that a complaint be filed with the DOL “not Exchange Commission; or (3) any provision of federal later than 90 days after the date on which the violation law relating to fraud against shareholders. 18 U.S.C. occurs.” 18 U.S.C. § 1514A(b)(2)(D). Several recent cases § 1514A(a)(1). To qualify as having engaged in “protected have addressed the issue of whether this short deadline may activity” under the Act, a whistleblower must establish be modified or tolled under certain circumstances. by a preponderance of the evidence that he or she had a In Hyman v. KD Res. Inc., 2009-SOX-020 (Mar. 31, 2010), reasonable belief that the acts complained of violated the the claimant was permitted to proceed with his SOX claims laws specified in the Act. even though he had filed his complaint with the DOL In a recent decision, the Second Circuit Court of Appeals nearly 70 days after the 90-day time limitation had expired. affirmed the dismissal of a SOX lawsuit alleging that the Finding that the 90-day deadline is “not jurisdictional in defendant terminated an in-house intellectual property the sense that noncompliance serves as an absolute bar to attorney for reporting that the company fraudulently administrative action,” the DOL’s Administrative Review obtained several patents. Vodopia v. Koninklijke Philips Board (“ARB”) held that the filing deadline is “subject Electronics, N.V., 2010 WL 4186469 (2d Cir. Oct. 25, to equitable modification, i.e., tolling or estoppel.” The 2010). The Second Circuit held that, while the complaint ARB found in Hyman that in the months following the claimed that the defendant obtained the patents by fraud claimant’s termination of employment, the respondent’s and then valued them at $50 million, the plaintiff did not officials and/or agents led the claimant to reasonably believe continued on next page Kramer Levin Naftalis & Frankel LLP Employment Law Update 5

that he would be returned to his former employment or should be equitably tolled due to psychiatric issues given a one-year consulting agreement, that he would exacerbated by Boeing’s conduct. The ALJ concluded that be financially compensated for having been wrongfully the evidence did not establish that the claimant’s medical terminated, and that the company would resolve the SOX condition constituted an “exceptional circumstance” compliance issues that he had raised. Those facts supported preventing him from filing his complaint with the DOL application of equitable estoppel to toll the running of the on a timely basis. 90-day limitation period. SOX’s Application to Contractors and Subcontractors By contrast, in Warner v. Xcel Energy, 2008-ERA-002 of Publicly-Held Companies (Mar. 29, 2010), the ARB refused to toll the limitations Liability under the Act may attach not only to a publicly- period based on the claimant’s argument that his employer traded employer, but also to any officer, employee, misled him regarding the reasons for his discharge and contractor, subcontractor, or agent of any such entity. 18 U.S.C. § 1514(A)(a). Recently, a federal judge took the rare An Administrative Law Judge rejected the step of certifying the question as to whether whistleblower protection under SOX applied to an employee of a claimant’s argument that his time to file contractor or subcontractor of a public company when that his complaint should be equitably tolled employee reports activity that he reasonably believes violates the laws enumerated in SOX and such a violation would due to psychiatric issues exacerbated by relate to fraud against shareholders of the public company. Boeing’s conduct. Lawson v. FMR LLC, ___ F. Supp. 2d ___, 2010 WL 3001185 (D. Mass. July 28, 2010). In Lawson, two former delayed providing him with a copy of his personnel file. employees of Fidelity Investments – investment advisors The ARB found that the employer did not conceal any for the Fidelity family of mutual funds – brought claims retaliatory action from the claimant and the delayed under SOX. The named defendants were privately-owned production of the personnel records did not justify organizations that provided management and administrative extending the filing deadline where the claimant waited functions for the operation of the mutual funds, which are 21 months after receiving those records to file his complaint publicly held companies supervised by a board of trustees with the DOL. that have no employees. In April 2010, the same judge had denied the defendants’ motion to dismiss the lawsuits, Finally, in Reid v. The Boeing Co., 2009-SOX-00027 and the defendants then asked that the dispositive issues (May 28, 2010), an Administrative Law Judge rejected of SOX’s applicability be certified for interlocutory appeal the claimant’s argument that his time to file his complaint to the First Circuit Court of Appeals. n Dodd-Frank Act Expands Whistleblower Protections continued from page 3 Section 1057 of the Act also expressly prohibits enforcement goal of preventing misconduct. Additionally, corporations of any (a) pre-dispute arbitration agreements and (b) pre- must encourage internal reporting of concerns of improper dispute agreements to waive rights or remedies under that conduct and must ensure that employees have clear and section of the Act. accessible avenues for reporting misconduct. Training Companies Should Carefully Reassess Compliance should be provided to those responsible for receiving Systems and Whistleblower Policies reports about improper conduct and care should be Given the monetary incentives and enhanced remedies taken to prevent retaliation against employees who make available to whistleblowers who report alleged misconduct a report. Where the company learns of actual misconduct, to either the government or to their employer, corporations appropriate disciplinary and remedial action must be taken. should expect a significant increase in such claims. Employees will be more likely to report concerns internally Employers must reassess both their compliance programs rather than to the governmental authorities when they and their whistleblower policies and practices. Emphasis believe they will be treated fairly and their concerns will n should be placed on strong compliance practices with the be addressed promptly and with care. Kramer Levin Naftalis & Frankel LLP 6 Employment Law Update

Adverse Employment Actions: Be Consistent and Truthful When Providing Reasons Employers may sometimes seek to “pull punches” when The employer appealed the judgment. Among other informing an employee of the reasons for an adverse challenges, the employer asserted that the employee presented employment action, such as when the employee’s insufficient evidence of age discrimination at the trial. The employment is being terminated, and thus provide different Eighth Circuit rejected the employer’s position, ruling that reasons if the termination is later challenged before an the employee “presented sufficient evidence for the jury administrative agency such as the Equal Employment to conclude that [the employer’s] proffered reason for the Opportunity Commission (the “EEOC”). Similarly, failure to promote was a pretext for age discrimination.” employers sometimes provide in connection with agency In so ruling, the court held that “[p]retext may be shown investigations reasons for an adverse employment action with evidence that the employer’s reason for the [adverse that are inconsistent with the testimony of the employer’s employment decision] has changed substantially over time.” representatives in a subsequent judicial action; this may In affirming the judgment, the Eighth Circuit relied heavily result from the employer’s less-than-adequate investigation on evidence that between the time of the employer’s EEOC of the claim or incomplete response to the agency. The charge response and the trial the employer had shifted its decision of the Eighth Circuit Court of Appeals in Jones reasons for failing to promote her. The court also found the v. National Am. Univ., 608 F.3d 1039 (8th Cir. 2010), following constituted evidence of pretext: (i) the employee illustrates the perils of an employer providing inconsistent had established that she was the only candidate considered reasons for an adverse employment action. who had the required recruiting experience; (ii) the candidate who received the position lacked the extensive management In Jones, an employee alleged that her employer had failed experience that the employer asserted had been its primary to promote her in violation of the Age Discrimination in qualification; (iii) the employee had consistently received Employment Act of 1967. The employee had applied for positive reviews and performance awards; and (iv) one of a director of admissions position at one of the employer’s the members of the hiring committee made two age-related campuses. The employee was not offered the position, comments to her. and she thereafter filed a charge of discrimination with the EEOC. The employer submitted a written response to the Jones illustrates how critical it is for an employer to EEOC, and in that submission asserted that the employee be consistent when providing reasons for an adverse had not been promoted due to her deficient performance. employment action, such as the termination of an employee’s employment. When informing an employee Following the EEOC’s dismissal of the charge, the employee of the decision, an employer must be honest to the filed an age discrimination action in federal court. During employee; “pulling punches” so as not to hurt an employee’s the trial, the employee presented evidence showing that feelings will likely be filed later in the “no good deed goes she was the most qualified applicant for the director of unpunished” category. If an employee later challenges the admissions position and that she had not been offered employer’s action before an administrative agency, such the position because of her age. The employer presented as the EEOC, the employer must provide reasons for the evidence that the employee had not been promoted challenged action which are consistent with the reasons because of her lack of management experience, which the provided to the employee. Thereafter, if the employee employee claimed was pretextual; the employer did not pursues a judicial action, the employer must provide reasons present evidence at trial that the employee was deficient for the adverse employment action to the court and jury in her performance. The trial court allowed the employee which are consistent with the reasons provided to the to introduce for impeachment purposes the university’s employee and the administrative agency. Being honest response to her EEOC charge, which stated that she had with the employee and consistent in later submissions will not been promoted due to her deficient performance. A help the employer avoid the fate of the employer in Jones. jury found that the employer discriminated against the Of course, if performance issues are the true reason for the employee on the basis of her age and that its conduct was action taken by the employer, having properly documented willful; judgment was entered for $35,130 in damages, as performance issues throughout an employee’s employment well as attorneys’ fees and costs. is critical. n

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California Court Narrowly Interprets What Constitutes an “Employment Loss” Under Federal WARN Act

In connection with asset transactions, purchasers sometimes employees, immediately followed by an offer of employment seek to make job offers to employees of sellers on terms by the new management company, did not qualify as an less favorable than they have enjoyed prior to the sale. In “employment loss” under the federal WARN Act even if Service Employees International Union v. Prime Healthcare the offers were on less favorable terms and conditions than Services, Inc., 2010 WL 2843942 (E.D. Cal. July 19, 2010), those provided by their former employer. Accordingly, there a federal district court in California ruled that such an was no “mass layoff” under the federal WARN Act — the action does not result in an employment loss under the number of employees who had suffered an employment loss federal WARN Act. was significantly less than 500 employees and fell far short of thirty-three percent of the total number of employees — In this case, the management company for a hospital and the plaintiff’s federal WARN Act claim was dismissed. suffered financial difficulties and the lessor of the hospital The court declined to exercise supplemental jurisdiction (i) terminated its agreement with that manager and over the plaintiff’s California WARN Act claim. (ii) entered into a lease agreement with another management There are important lessons to be discerned from this The court held that technical termination decision by purchasers and sellers involved in asset transactions. The case confirms that a technical termination of the employees, immediately followed of employment by a seller immediately followed by an offer by an offer of employment by the new of employment from a purchaser will not constitute an management company, did not qualify “employment loss” under the federal WARN Act. The case further lends support to the argument that no “employment as an “employment loss” under the federal loss” has occurred even if the seller’s offer of employment is WARN Act even if the offers were on less on terms and conditions less favorable than those enjoyed by the employees during their employment with the seller. favorable terms and conditions than those It is critical, however, for employers to consider potentially provided by their former employer. less favorable state WARN Acts when determining whether they might have potential liability in connection with a company to operate the hospital. In connection with this sale or purchase of assets. n transaction, all of the approximately 768 employees of the former manager were technically terminated and approximately 609 of these individuals were given offers of employment by the new management company. The We have global reach… offers included wage reductions for some employees, health and fringe benefit reductions, loss of seniority, loss of union As you may know, by virtue of our exclusive representation and loss of vacation. The plaintiff union membership in the Employment Law Alliance, brought claims under the federal WARN Act and the we have the capability and resources to handle California WARN Act. employment and labor law needs throughout the United States and in more than 125 countries. With respect to the federal WARN Act claim, the defendants argued that an insufficient number of employees One of the benefits we provide to our clients is free were terminated to create liability under the Act; the court access to the ELA’s Global Employer Handbook. agreed. In reaching this result, the court relied on the This one-of-a-kind online resource provides practical statutory definition of an “employment loss” as “(A) an information on hiring and firing, pay and benefits employment termination, other than a discharge for cause, and many other key employment issues throughout voluntary departure, or retirement, (B) a layoff exceeding the world. If you haven’t yet registered to use this 6 months, or (C) a reduction in hours of work of more service, we encourage you to do so by visiting than fifty percent during each month of any 6-month www.EmploymentLawAlliance.com. We believe period.” The court held that technical termination of the you will find it useful.

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Recent Business Immigration Law Developments

The United States Citizenship and Immigration Services to speak to a company official and/or the foreign national (“USCIS”) has been making unannounced site visits at and review documents, and, in some cases, for permission companies that file H or L work visa petitions for their to photograph the premises. These site visits are not limited workers. For the most part, the visits have focused on a to cases in which the USCIS has reason to doubt the bona company’s H-1B workers. The United States Department fides of the employment. of Labor (“DOL”) also has been carrying out its own Employers must make certain that they are in compliance investigations. For example, in a press release issued on with all the requirements of the H-1B and L-1 programs August 17, 2010, the DOL announced that a computer and that the statements in their H-1B and L-1 petition consulting firm in Georgia had agreed to pay nearly papers accurately reflect the nature of the job and the Employers must make certain that they are qualifications of the foreign national to fill that job. They should also have a policy in place for dealing with site in compliance with all the requirements of visits, should keep records in an easy-to-access location, the H-1B and L-1 programs and that the and should make sure that the receptionist knows who to contact in the event of a site visit. statements in their H-1B and L-1 petition Labor Condition Application Inspections papers accurately reflect the nature of the The Labor Condition Application (“LCA”), which is filed job and the qualifications of the foreign with and must be certified by the DOL, is the first step in national to fill that job. They should also obtaining H-1B, H-1B1, and E-3 status for foreign workers. When an employer files an LCA, it is attesting, among other have a policy in place for dealing with site things, that it will be paying the worker the required wage visits, should keep records in an easy-to- and providing benefits and working conditions that are no less favorable than those provided to its U.S. workers, access location, and should make sure that it has posted a notice that it intends to hire the H-1B that the receptionist knows who to contact (or H-1B1 or E-3) worker, that all the statements made in the LCA are true, and that it will maintain all required in the event of a site visit. documents in a public access file. $1 million in back wages and interest to 135 H-1B workers. I-9 Audits According to the DOL, the company did not pay some Since 1987, all U.S. employers have been required to of its H-1B workers any wages at the beginning of their complete the Form I-9 for all employees whose employment employment, paid some workers on a part-time basis even is to last more than three days. Although U.S. Immigration though they were held out to be full-time employees, and Customs and Enforcement (“ICE”), the DOL, and Office paid some workers less than the required wages. of Special Counsel are all authorized to inspect I-9s, ICE This article will review what these site visits are about is the agency most likely to do so. and provide information about immigration-related By regulation, ICE must provide at least three days written investigations conducted by other government agencies. notice to the employer prior to the inspection, normally Random H-1B Site Visits through a Notice of Inspection. No subpoena or warrant Employers should expect a continuation of random, is required for an inspection, and a delay or refusal in unannounced site visits conducted by the USCIS as part presenting the Forms I-9 is a violation of the retention of its Administrative Site Visit Verification Program. requirements set forth in the regulations. If a company does The inspectors appear without any prior notice at the not comply with the request for presentation of the I-9s, the employer’s office to verify information included in the ICE officer may compel production by issuing a subpoena. previously-approved petition. Although some site visits have Often, ICE will ask the employer to provide supporting focused on L-1 employees, the inspectors generally have documentation, which may include a copy of the payroll, concentrated on H-1B workers. To determine whether the a list of current employees, articles of incorporation, and employer is in compliance with the terms and conditions business licenses. stated in the petition, the USCIS inspectors typically ask continued on next page

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Break Time for Nursing Mothers ICE agents or auditors then conduct an inspection of the Forms I-9 for compliance. When technical or procedural This past March the Patient Protection and Affordable violations are found, an employer is given ten business Care Act amended Section 7 of the Fair Labor Standards days to make corrections, but an employer may receive a Act (“FLSA”), which now mandates lactation breaks for monetary fine for all substantive and uncorrected technical employees who are nursing mothers. The U.S. Department violations. Employers determined to have knowingly of Labor has since released Fact Sheet #73, which provides hired or continued to employ unauthorized workers will guidance regarding employers’ obligations. be required to cease the unlawful activity, may be fined, Who: All employers with more than 50 employees and in certain situations may be prosecuted criminally. without exception. The law also applies Additionally, a federal contractor found to have knowingly to smaller employers, but such employers hired or continued to employ unauthorized workers may be are exempt if (considering the difficulty subject to debarment by ICE, meaning that the employer or expense of compliance compared to an will be prevented from participating in future federal employer’s size and financial resources) contracts and from receiving other government benefits. compliance imposes undue hardship. ICE has been in the news lately for its What: Provide “reasonable break time” for an unannounced raids of employers believed employee to express breast milk for her nursing child. The employee must be to employ undocumented workers. completely relieved from work duties during this period. Monetary penalties range up to $16,000 per violation. In determining penalty amounts, ICE considers five factors: the For: Employees who are nursing a child under size of the business, good faith efforts to comply, seriousness one year old and who are not exempt from of the violation, whether the violation involved unauthorized the FLSA’s overtime pay requirements. workers, and history of previous violations. When: As frequently as is needed by the nursing Worksite Raids mother. The frequency and duration of ICE has been in the news lately for its unannounced the lactation breaks will likely vary. raids of employers believed to employ undocumented Where: Not a bathroom. The location must be workers. For example, in July 2010, five Arkansas residents “functional” for expressing milk. If the were sentenced for conspiring to harbor, transport, and space is not dedicated to the nursing employ illegal aliens, following an investigation by ICE mother’s use, it must be available at her and Homeland Security Investigations agents. The guilty need. A temporarily-created space is pleas stemmed from an investigation into the employment allowed if it is shielded from view and and transportation of undocumented foreign nationals as free of intrusions. a source of labor. The guilty pleas were based on findings that illegal aliens were knowingly hired by the defendants, How (Much): Break time may be unpaid. Break time transported to various worksites, and paid in cash. An ICE must be paid if an employee is not fully special agent explained: “ICE aggressively targets employers relieved from duty or is using already who egregiously violate immigration laws by knowingly compensated break time for the purposes employing an illegal alien workforce.” He warned that of expressing milk. “[b]usinesses that use illegal alien workers to gain Remember: Some state laws provide greater protection an economic advantage over their competition must than the FLSA. In New York, for example, understand that they will be held accountable for those an employee is allowed reasonable unpaid unlawful practices.” n break time to express milk for a nursing child for up to three years after her child’s birth. n

Kramer Levin Naftalis & Frankel LLP 10 Employment Law Update

Executive Compensation and Corporate Governance Update

The Dodd-Frank Wall Street Reform and Consumer paid to the compensation committee member by the Protection Act (the “Act”), enacted on July 21, 2010, contains company) and whether the director is affiliated with the significant executive compensation and corporate governance company, a subsidiary of the company or an affiliate provisions applicable to public companies. The following is of the company. a brief summary of the key provisions that address executive 3. Compensation Committee Advisors. The compen­ compensation and corporate governance issues. sation committee of public companies must be given Each public company must provide its the authority and necessary funding to hire, fire and pay compensation consultants, independent legal counsel shareholders with a separate nonbinding and other advisors. If the compensation committee vote to approve or reject the compensation retains the services of any such advisors, it may do so only after considering the independence of such advisor of its officers disclosed in the company’s based on factors to be indentified by the Securities proxy statements. and Exchange Commission (“SEC”). In addition, each company must disclose in its proxy materials whether 1. Shareholder “Say on Pay” Voting. Each public a compensation consultant’s services were retained, company must provide its shareholders with a separate whether the compensation consultant’s work raised nonbinding vote to approve or reject the compensation any conflicts of interest, and, if so, the nature of the of its officers disclosed in the company’s proxy conflict and how the company addressed it. Note that statements. The vote must be provided at least once the Act does not require compensation committees to every three years, with the frequency also subject to a hire outside consultants or that outside consultants shareholder vote. There is also a required non-binding hired be independent. vote with respect to compensation in connection with a change of control transaction. When a company The SEC is required to adopt rules requiring seeks its shareholders’ approval in connection with each public company to disclose in its a change in control transaction, the company must disclose the terms, conditions and amounts of its proxy materials (i) the median of the officers’ compensation that are based on or otherwise annual “total compensation” of all of its related to the transaction. If not previously subject to a “say on pay” vote, the compensation related to the employees other than the CEO, (ii) the transaction must be subject to a separate nonbinding annual “total compensation” of the CEO vote of the shareholders. While say on pay votes are not and (iii) the ratio of such two amounts. binding, directors will likely make significant efforts to avoid a negative vote through shareholder outreach 4. Additional Executive Compensation Disclosures. The and proactive use of the compensation disclosure and SEC is required to adopt rules requiring each public analysis section of proxy materials. company to disclose (graphically or otherwise) in the 2. Independence of Members of Compensation company’s proxy materials the relationship between the Committees. While both the New York Stock Exchange executive compensation the company “actually paid” and the NASDAQ Stock Market generally require and the company’s financial performance (taking into members of a board’s compensation committee to be account changes in stock value, dividends and other independent and provide definitions of independence distributions). for this purpose, the Act requires the national securities The SEC is also required to adopt rules requiring each exchanges and associations to draft new rules that base public company to disclose in its proxy materials (i) the independence on factors such as the source of each median of the annual “total compensation” of all of its compensation committee member’s compensation employees other than the CEO, (ii) the annual “total (including any consulting, advisory or other fees continued on next page

Kramer Levin Naftalis & Frankel LLP Employment Law Update 11

compensation” of the CEO and (iii) the ratio of such there was no bad behavior, and applies to the excess two amounts. “Total compensation” for this purpose incentive-based compensation received during the is to be determined based on the rules applicable to three-year period preceding the date the restatement the summary compensation table included in proxy is required. As enacted, the clawback is mandatory materials as in effect on July 20, 2010. Obtaining the and not subject to a board’s discretion. Companies compensation data related to the company’s employees may want to immediately consider the implications will be a significant undertaking for many companies. of this clawback provision on severance arrangements and release agreements now being entered into. 5. Clawbacks of Incentive-Based Compensation. The SEC is required to adopt rules requiring each public 6. Hedging Disclosure. The SEC is required by the Act to adopt rules requiring each public company to The SEC also is required to adopt disclose whether it permits its employees or directors rules requiring each public company to purchase financial instruments that are designed to hedge or offset any decrease in the market value of the to develop and implement a policy company’s equity securities held by the employees or for the recovery of incentive-based directors. The disclosure must be made with respect to compensation paid to its executive all equity securities held by employees and directors, whether or not the equity securities were received as officers if the company is required to compensation. restate its accounting statements as a 7. Chairman and CEO Structure Disclosure. The SEC is result of material noncompliance with required by the Act to adopt rules requiring each public company to disclose in its annual proxy statement the financial reporting requirements. reason why the company has either chosen to have the same individual or different individuals serve as the company to develop and implement a policy for the CEO and chairman of the company’s board. recovery of incentive-based compensation paid to its executive officers if the company is required to There are many unanswered questions as to how the restate its accounting statements as a result of material foregoing provisions will be implemented. Accordingly, noncompliance with financial reporting requirements. it is difficult for a public company to currently make The clawback is applicable to incentive-based adjustments needed to comply with the provisions. compensation received by current and former executive However, public companies should consider how the officers within the three-year period preceding the date Act will impact their compensation and governance the company is required to restate its statements. The structures, whether a broader than normal review of their amount required to be clawed back is the difference compensation structure and programs is appropriate between the amount awarded to the executive officer and the employee compensation information needed to and the amount that would have been awarded based comply with the new disclosure rules. Most significantly, on the restated data. This clawback will apply whether public companies need to focus on the “say on pay” or not the material noncompliance that caused the rules, which will be in effect in 2011, and whether and restatement was the result of wrongdoing. Note that to what extent incentive structures should be adjusted this clawback provision applies to all executive officers, for the upcoming year. n including former executive officers, and even where

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New York Court of Appeals Limits Who May Bring Claims Under the New York State and City Human Rights Laws

Certain court decisions had afforded employees with no City office and that the defendants’ decision to terminate connection with New York State or New York City the him was made and executed in New York City. right to pursue claims under the New York State Human The Court of Appeals held that a “nonresident of the Rights Law (the “State Human Rights Law”) and/or the city and state must plead and prove that the alleged New York City Human Rights Law (together with the State discriminatory conduct had an impact within those Human Rights Law, the “State and City Human Rights respective boundaries.” Because the employee was not a Laws”) on the basis that the alleged discriminatory decision resident of, or employed in, New York City or New York was made within New York State and/or New York City. State and did not otherwise state a claim that the alleged In Hoffman v. Parade Publications, 15 N.Y.3d 285, 907 discriminatory conduct had any impact in either of those N.Y.S.2d 145 (2010), the New York Court of Appeals locations, the Court of Appeals ruled that the employee’s overruled these decisions and limited the class of potential age discrimination claims under the State and City Human plaintiffs under the State and City Human Rights Laws. Rights Law were properly dismissed by the trial court for In Hoffman, the plaintiff was informed that the Atlanta, lack of subject matter jurisdiction. Georgia office in which he worked would be closed by In establishing this rule, the Court of Appeals relied on year’s end and that his employment was being terminated. the text of each of the State and City Human Rights Laws The employee was informed of this via telephone by the and deemed the “impact requirement” as practical and president and publisher of the employer who was based simple to apply: in the employer’s New York City headquarters. The employee thereafter commenced an age discrimination The Appellate Division’s rule that a plaintiff need action, asserting that his termination violated the State only plead and prove that the employer’s decision and City Human Rights Laws. to terminate was made in the city is impractical, would lead to inconsistent and arbitrary results, Because the employee was not a resident and expands [City Human Rights Law] protections of, or employed in, New York City or New to nonresidents who have, at most, tangential contacts with the city . . . . In contrast, the impact York State and did not otherwise state requirement is relatively simple for courts to a claim that the alleged discriminatory apply and litigants to follow, leads to predictable results, and confines the protections of the [City conduct had any impact in either of those Human Rights Law] to those who are meant to locations, the Court of Appeals ruled that be protected — those who work in the city. the employee’s age discrimination claims Unsurprisingly, the Court of Appeals ruled that nonresidents under the State and City Human Rights who worked in New York State and/or New York City could invoke the protection of the applicable statutes. Law were properly dismissed by the trial New York-based employers with operations outside of court for lack of subject matter jurisdiction. New York State and/or New York City are the major beneficiaries of the Hoffman decision. Generally, non- The plaintiff was a resident of Georgia who did not service resident employees who work outside of these territorial any accounts in New York. The employee claimed that boundaries will be unable to invoke the protections of the he attended quarterly meetings of the employer in New State and City Human Rights Laws. When confronted with York City, his group was managed from, and all corporate claims by such non-residents, employers should quickly contracts were negotiated through, the employer’s New York attack the sufficiency of these complaints. n Kramer Levin Naftalis & Frankel LLP