On August 30, 2010, the U.S. Department of Labor’s Employee Benefits Security Administration (”EBSA”) published a proposed rule in the Federal Register that would update and clarify exemption procedures for ERISA’s prohibited transactions provisions.

ERISA generally prohibits plan fiduciaries from causing their plans to engage in certain transactions that could potentially lead to conflicts of interest or self-dealing. However, Congress has provided certain limited exceptions to ensure that this prohibition does not prevent plans from engaging in harmless customary business practices, including loans to plan participants, payment of reasonable compensation for services necessary for the operation of the plan, loans to employee stock ownership plans, and routine deposits of plan funds in certain financial institutions.

Additionally, the current rules provide that the Secretary of Labor may grant administrative exemptions on an individual or class basis if the Secretary or her delegate finds that such an exemption is administratively practical and would benefit the plan and protect the interests of its participants and beneficiaries. The recently proposed rule would streamline and modernize the process for granting such administrative exemptions, by consolidating the procedures for exemptive relief in a single, comprehensive final regulation, and clarifying the types of information and documentation generally required for an exemption filing. It further aims to improve transparency for plan participants and other interested parties, while removing outdated disclosure requirements.

The proposed rule also accounts for technological developments which have arisen since the establishment of the original procedures in 1990. This includes providing for electronic filing and the use of email for certain required submissions.

The deadline for public comments is October 14.

Signaling that reversal of two employer-friendly precedents of the George W. Bush-era NLRB is a serious possibility, the NLRB released a series of split decisions granting review over two groupings of cases concerning union recognition. In a series of 3-2 decisions dated August 27, but released on August 31, the full Board opened the door to revisiting two key precedents of the Bush-era NLRB:  Dana Corp., 351 NLRB No. 298 (2007) and MV Transportation, 337 NLRB No. 129 (2002), which themselves reshaped the recognition bar doctrine and the successor bar doctrine, respectively.

In its Dana Corp. decision, the then-majority Republican Board determined that under the “recognition-bar” doctrine, employees possessed a 45-day window to file a petition for an election or decertification after being notified that the employer has voluntarily recognized a union based on a union’s showing of majority support through union-authorization cards signed by employees (i.e., “card-check”). This represented a departure from a 1960s-era precedent that limited challenges after voluntary recognition for a reasonable period of time.

In Dana Corp., the Board held that a petition for a formal Board election is barred only where (1) unit employees have been notified via a Board-authorized posting of the employer’s recognition of the union and have been notified of their right to file decertification petitions or to support petitions of rival unions, and (2) no valid petition is filed within 45 days from the date of notice.  It is possible that the current majority Democratic Board would seek to return to the pre-2007 standard.

In its MV Transportation decision, the then-majority Republican Board held that, a rival union, the successor employer, or the employees themselves may challenge an incumbent union’s majority status in successorship situations. Under this decision, which overturned a Clinton-era NLRB precedent, St. Elizabeth Manor, Inc., 329 NLRB No. 36 (1999), the majority status of the incumbent union in a successorship situation is tenuous, receiving nothing more than a rebuttable presumption going forward.  The majority Democratic Board could return to the St. Elizabeth Manor, Inc. standard, in which employees of a newly-acquired unionized employer could not seek to decertify the union until after “a reasonable period of time for bargaining” with the new employer has passed.

Democratic Members Craig Becker and Mark Pearce, and Chairman Wilma Liebman voted in favor of the decisions to review, which were issued over the vigorous dissents of Republican Members Peter Schaumber (on the final day of his term) and Brian Hayes. In advance of its review, the NLRB has invited interested parties to file amicus briefs to address both lines of cases.

After eight years of service on the NLRB, including a year as its chairman, Member Peter C. Schaumber left office upon the expiration of his second term on August 27, 2010.

Confirmed to the NLRB as a Republican appointee of President Bush in 2002, and reconfirmed for a second term in 2005, Schaumber, a Washington, D.C. labor arbitrator, served as chairman of the panel from March 2008 until January 2009. His term was notable for the prolonged 27-month period in which he served on a depleted two-member Board with Democrat Wilma B. Liebman, who succeeded him as chairman. The roughly 600 decisions issued by the two-member Board were invalidated by the Supreme Court in June 2010 in New Process Steel LP v. NLRB.  Schaumber, along with Liebman and President Obama’s three recent NLRB appointments, have begun to review and resolve these decisions.

Schaumber’s departure reduces the Board’s composition to four members, and leaves Member Brian Hayes as the sole remaining Republican Board member. 

The Wage and Hour Division of the U.S. Department of Labor recently issued an Administrator’s Interpretation expanding the definition of “son” or “daughter” under the FMLA. The FMLA entitles an eligible employee to take up to 12 work-weeks of leave for “the birth of a son or daughter,” “the placement of a son or daughter with the employee for adoption or foster care,” or “because of the son or daughter’s serious health condition.” 29 U.S.C. § 2612 (a)(1). The FMLA defines “son or daughter” to include the child of a person standing “in loco parentis.” 29 U.S.C. § 2611(12). In the recent Interpretation, the Administrator expands the definition of “son or daughter” by broadly interpreting who qualifies as acting “in loco parentis.”

The Administrator concluded that an employee acts “in loco parentis” by having day-to-day responsibilities to care for the child or by financially supporting the child.  The FMLA regulation concerning the definition of “son” or “daughter” suggests that standing in loco parentis requires both the responsibilities of care and the financial responsibility. 29 C.F.R. § 825.122(c)(3).  In requiring that only of these two factors be met, the Administrator crafted the Interpretation with an eye toward the non-traditional family, such as, for example, “an employee providing day-to-day care for an unmarried partner’s child” or “an employee who will share equally in the raising of an adopted child with a same sex partner” who lacks a legal relationship to the child.  

The Administrator noted that that while a grandparent who assumes responsibilities for a grandchild while the parents are incapable of providing care would meet the definition, a employee who cares for a child while the child’s parents are away on vacation would not be considered to in loco parentis to that child.  Should an employer question the parental status of an employee, the employee will only be required to give the employer a simple statement of the family relationship as documentation.  

While benefitting the non-traditional family, this new Interpretation might produce incongruous results for the “traditional” family. FMLA regulations limit a husband and wife who work for the same employer to a total of 12 weeks of leave. Since no similar regulations exist for “non-traditional” parents, such parents may have access to twice the amount of leave.

Although the Administrator’s Interpretation purports to limit itself to employees standing “in loco parentis” who seek leave to care for minors, the definition of “son” and “daughter” being interpreted is the general definition for the FMLA statute. Thus, this new Interpretation could apply not only to non-traditional parents caring for minors, but also to other actions encompassed by the FMLA, such as children taking leave to care for their elderly and ailing “in loco parentis” parents.

On July 15, 2010, the Employee Benefits Security Administration (”EBSA”) of the U.S. Department of Labor announced an interim final rule governing disclosure of conflicts of interest and fees to 401(k) and retirement plan fiduciaries. The rule will assist fiduciaries in determining both the reasonableness of compensation paid to plan service providers and any conflicts of interest that may impact a service provider’s performance under a service contract or arrangement.

The interim final rule implements ERISA, Section 408(b)(2) and requires disclosure of direct and indirect compensation received by 401(k) and pension plan service providers receiving or expecting to receive $1,000 or more for fiduciary and investment services. The interim final rule applies to service providers receiving such compensation in connection with investment advisory services for specified 401(k) and pension plans, brokerage or recordkeeping services related to such plans, and indirect compensation received in providing other related services. Additionally, the interim final rules include a class exemption from ERISA’s prohibited transaction provisions for plan fiduciaries entering into service contracts without knowledge of non-compliance by service providers.

The interim final rule is a result of collaboration between House and Senate legislators, who highlighted the risks of nondisclosure and offered improvements, and the Department of Labor.

The interim final rule was published in the Federal Register on July 16, 2010 at 29 C.F.R. Part 2550 and the final rule will be effective within one year of publication. The Department of Labor is accepting public comments through August 30, 2010.

In a July 1, 2010 press release, in response to the Supreme Court’s June 17 decision in New Process Steel v. NLRB, the NLRB announced that it will seek to review 96 cases currently pending in the federal appellate courts that had been issued by a two-member Board.  The Supreme Court’s decision invalidated nearly 600 decisions issued while the Board was operating with only two members.

The Board is seeking remand of the cases that were pending at the time of the New Process Steel decision - 6 cases in the Supreme Court and 90 cases in federal courts of appeal - and will consider each before a three-member panel comprised of Chairman Wilma Liebman and Member Peter Schaumber (who made up the two-member panel that initially ruled on each case), as well as a third member chosen at random from among Republican member Brian Hayes and Democrat members Mark Pearce and Craig Becker. Consistent with Board practice, the two members not selected to preside over a particular case may nonetheless elect to participate in the case.

With the June 30, 2010 swearing-in of Hayes, the Board has now been restored to its full compliment of five members.  Members Hayes and Pearce were confirmed on June 22 by the Senate.  Becker, who along with Member Pearce received a recess appointment in March 2010, has not been confirmed for a full term and will serve until the Senate adjourns its 2011 session.

It remains uncertain whether or how the Board will address the approximately 500 decisions of the two-member panel which were not challenged in the federal courts.

On June 22, 2010, the Senate, by voice vote, approved Mark G. Pearce (D) and Brian E. Hayes (R) for full terms as members of the NLRB, along with 63 other of President Obama’s stalled nominees. The deal followed a year-long impasse over the nomination of union attorney Craig Becker (D), who was initially nominated to the Board by President Obama in July 2009, along with Pearce and Hayes.

Becker, who, along with Pearce, was provided a recess appointment by President Obama in March 2010, was excluded from the package of 65 nominees after Senate Minority Leader Mitch McConnell (R-KY) and Senate Republicans raised objections to his inclusion. Pro-labor Senate Democrats initially balked at Becker’s exclusion, but eventually relented to the compromise package.

Becker’s nomination previously stalled in the Senate after opposition by Senate Republicans and business groups. His nomination for a full term on the Board is still pending, but his exclusion from the compromise likely ends any chance of overcoming a Republican-led filibuster to that nomination.

Pearce, a labor lawyer in private practice in Buffalo, New York, had not drawn significant opposition, but his nomination had been held up by the impasse over Becker’s nomination.  Hayes, a Republican Senate staffer whose nomination has been pending since July 2009, did not receive a recess appointment.

The compromise follows last week’s Supreme Court decision in New Process Steel L.P. v. NLRB, striking down hundreds decisions by the depleted two-member Board. The confirmations of Pearce and Hayes, along with the recess appointment of Becker, returns the Board to its full compliment of five members.

The terms of Hayes and Pearce run until Dec. 16, 2012 and Aug. 27, 2013, respectively. Becker’s recess appointment expires when the Senate adjourns its 2011 session.

The Department of Labor has issued a final rule implementing President Obama’s Executive Order 13496 of January 30, 2009, which aims to ensure that “workers employed in the private sector and engaged in activity related to the performance of Federal government contracts are informed of their rights to form, join, or assist a union and bargain collectively with their employer.” Effective June 21, 2010, federal contractors and subcontractors are required to post a new DOL notice informing employees of their rights as employees under the National Labor Relations Act.

The notice informs employees of their rights under the NLRA to organize and bargain collectively with their employers and to engage in other protected concerted activity, provides examples of illegal conduct by employers and unions, and provides contact information for the National Labor Relations Board.  Federal contractors and subcontractors must post the notice in “conspicuous places in and about its plants and offices” where employees covered by the NLRA perform contract-related activity, including all places where notices to employees are customarily posted both physically and electronically. 

An employee performs contract-related activity if the duties of the employee include work that fulfills a contract obligation, is necessary for fulfillment of the contract’s provisions, or the cost or portion of the cost of the employee’s position is an allowable cost of the contract. Employers with a significant number of employees who are not proficient in English must post a version of notice in the languages spoken by employees. The Office of Labor-Management Standards (OLMS) has provided versions of the notice that comply with the physical and electronic posting requirements in English, Spanish, and Mandarin Chinese.

On June 17, 2010, in a 5-4 decision, the Supreme Court declared that the National Labor Relations Board lacked the statutory authority to issue orders once its membership fell to two members in January 2008. The Board operated with two members until March 2010, when President Obama made two recess appointments. A summary of the Court’s opinion in New Process Steel, LP v. NLRB is available at SCOTUSblog.

In a press release, the current Board defended its effort under “difficult circumstances” to delegate the Board’s powers to a two-member quorum to prevent a “Board shut-down,” but stated it “will now do [its] best to rectify the situation in accordance with the Supreme Court’s decision.” The Board indicated that the issue had been raised in five other cases pending before the Supreme Court and 69 cases pending before the Courts of Appeal. Expecting these cases to be remanded to the Board, “[t]he now-four member Board will decide the appropriate means for further considering and resolving them.” The sole Republican member’s term expires in August.

The Supreme Court gave no guidance as to how the Board should proceed, but noted that “[i]f Congress wishes to allow the Board to decide cases only with two members, it can easily do so.” While Congress could legislatively overrule the Supreme Court, as it did in passing the Lilly Ledbetter Fair Pay Act in 2009 to overrule Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007), it is not clear whether there is the time or the votes for such action. Any legislative fix is likely complicated by the controversial recess appointment by President Obama of Board chairman Craig Becker, whose nomination had been returned at the end of the 2009 Senate session after Majority Leader Harry Reid was unable to muster 60 votes to move the nomination forward.

Absent a legislative cure, the Board now faces novel and potentially complicated questions regarding the nearly 600 orders affected by the Supreme Court’s ruling. One possible solution would be for the Board to just re-affirm or re-issue its prior orders without further reconsideration. In general, the orders handed down by the Board involved non-controversial issues where Democrat member Wilma Liebman and Republican member Peter Schaumber were able to agree, and thus the result would not likely change with an additional Democrat vote. But there were instances where Liebman signed on to orders “solely for institutional reasons and to expedite final resolution of [a] case,” even though she disagreed with the underlying Board precedent. See, e.g., Fluor Daniel, Inc., 353 NLRB No. 15 (Sept. 25, 2008). With a Democrat majority, the Board may be interested in revisiting some orders which applied precedent it would no longer apply.

In addition, in situations where an unfair labor practice charge has been resolved through withdrawal or settlement, the Board may lack jurisdiction to issue new orders affirming the prior unlawful orders. For example, the Fluor Daniel case discussed above was subsequently settled during compliance proceedings, and so the issues decided by the Board are now moot. In situations where orders are not re-issued, ALJs will not be bound to follow the original orders, but as a practical matter, they may find such opinions persuasive until told otherwise.

The Board may also need to address quickly decisions that either remanded a case to the ALJ for further proceedings or led to a compliance proceeding before an ALJ. If, for example, the Board found a violation of the Act and the General Counsel initiated a compliance proceeding, the ALJ may suddenly be without jurisdiction to proceed. If the Board reissues an order, the Board will have to work out the mechanics of reinstituting compliance proceedings.

Finally, the Board may face continued litigation over whether its delegation of certain powers to the General Counsel (such as the ability to approve the commencement of litigation seeking section 10(j) injunctions) was lawful. While the Court’s opinion stated that its decision did not address that question, the dissent noted that the Court was not rejecting such a view.

On Thursday, June 17, the Senate Health, Education, Labor and Pensions (HELP) Committee held a hearing on preventing employers from misclassifying employees as independent contractors. The hearing focused on the Employee Misclassification Prevention Act (EMPA), a recently introduced bill intended to reduce instances of worker misclassification through new record-keeping requirements, notice requirements, and the imposition of civil penalties for employer violations.

Chairman Harkin (D-IA) opened the hearing by arguing that independent contractors are not afforded sufficient protections under the labor law, such as those provided by minimum wage standards, overtime requirements, unemployment compensation, workers’ compensation, safety and health laws and antidiscrimination provisions. Harkin asserted that a few “unscrupulous” employers thus make economic challenges “even more difficult for their workers by intentionally misclassifying them as ‘independent contractors’ to gain an advantage over their law-abiding competitors.” Harkin also argued employee misclassification costs federal and state governments “billions of dollars in unpaid revenues.” For example, it deprives governments of the payments that support unemployment and workers’ compensation systems, as employers are only required to make these payments on behalf of employees and not independent contractors. Accordingly, Harkin posited that while employer misclassification laws are currently in place in several states, a federal legislative response is necessary.

The committee’s Ranking Member, Senator Enzi (R-WY), responded by calling EMPA an example of “what’s wrong with Washington today.” He argued that the bill would saddle small businesses with additional administrative work and needless costs. Enzi also expressed concerns that EMPA would punish honest business owners for accidental administrative mistakes, while allowing employers that intentionally misclassify workers to remain under the radar. Senator Sherrod Brown (D-OH), who introduced EMPA in the Senate, acknowledged Enzi’s concerns and stated he would work to ensure the bill’s provisions do not overly burden small businesses. He emphasized, however, his belief that employers cannot be left to “self-police,” as without any regulation employers will continue to avoid and manipulate misclassification laws in order to gain a competitive advantage. He further stated that hard economic times particularly call for labor law protections, as many individuals will “do anything” to get a job and are thus at the mercy of unscrupulous employers. Senator Isakson (R-GA) also weighed in, arguing that Congress should be “very careful” not to “demonize” those employers who are currently trying to comply with employee classification laws.

The committee first heard from Seth Harris, Deputy Secretary of the U.S. Department of Labor, who testified in support of EMPA. While Harris acknowledged some employee misclassification may be the “result of uncertainty or misapplication of often complicated laws,” he asserted that “much worker misclassification is intentional.” Harris detailed the Obama administration’s efforts to combat employee misclassification, noting that the president’s fiscal year 2011 budget proposes a $25 million enforcement initiative that includes “close cooperation” between the Department of Labor and the Internal Revenue Service on misclassification issues. Harris also cited a proposed rule currently under consideration by the DOL’s Wage and Hour Division, which mirrors EMPA by requiring employers to perform written analyses and to disclose those analyses to employees before classifying them as independent contractors. Harris underlined the DOL’s belief that federal legislation is important to support these agency efforts, citing three provisions of EMPA as particularly crucial: (1) codifying employee misclassification as a violation of the Fair Labor Standards Act, (2) creating civil monetary penalties for employer recordkeeping violations, and (3) creating a legal presumption that an individual is an employee if the employer fails to keep accurate records.

The committee also heard testimony in support of EMPA from New York State Department of Labor Commissioner Colleen C. Gardner, who detailed her own state’s efforts to combat the problem of employee misclassification, and Legal Co-Director of the National Employment Law Project, Catherine Ruckelshaus, who urged the members to pass the legislation in order to afford greater protection to low-income workers. Business owners Frank Battaglino, representing the Sheet Metal and Air Conditioning Contractors’ National Association and the Campaign for Quality Construction, and Gary Uber, on behalf of the Private Care Association, Inc., a member of the Coalition to Preserve Independent Contractor Status, also testified before the committee. Battaglino testified in support of the legislation, detailing the problems his own construction business faces with “unfair, low-wage competition,” resulting from competitors’ misclassification of workers. Uber, in contrast, cautioned the committee against passing EMPA, noting the difficulties his own business would have meeting the bill’s record-keeping requirements.

Senator Brown introduced EMPA in the Senate on April 22, 2010 (S. 3254). Rep. Lynn Woolsey (D-CA) introduced parallel legislation in the House on the same date (H.R. 5107). The House version of EMPA is currently before the House Committees on Education and Labor and Ways and Means.

A webcast of the hearing, as well as written witness testimony, is available on the HELP Committee’s website.