Labor Dept. Proposes Best Interest Contracts for Retirement Brokers

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Labor Secretary Tom Perez unveiled the Department’s plan to address conflicts of interest by brokers when offering retirement advice. The best interest investor contracts are meant to address problems with brokers steering customers to high-fee products when alternatives better address their client’s financial needs.

The best interest contracts require brokers to pledge they are upholding the best interests of their clients and put their clients’ best interest ahead of their own personal gain when recommending investments for 401(k) plans. Clients would be able to enforce a breach through a private right of action. The IRS could also impose an excise tax on transactions recommended because of a conflict of interest.

President Obama urged the Department of Labor to act on this issue in February when he said that billions of dollars are drained from retirement savings every year on hidden fees. A change to the current standard toward a fiduciary duty has been under consideration for about five years. In 2011, the DOL decided to table their proposal due to widespread industry criticism.

The Securities and Exchange Commission is also considering changes to unify the fiduciary standard among brokers and investment advisors, according to SEC Chair Mary Jo White. The industry has previously criticized changes that would impose different standards by different regulators. The Department of Labor regulates retirement account brokers. The SEC regulates other investment brokers.

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Paid Sick Leave will be Condition of Payment on Government Contracts

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President Obama has issued an executive order establishing paid sick leave for federal contractors. Upon implementation, government agencies will place a requirement in U.S. government contracts that contractors and subcontractors must allow employees to earn up to 7 days or more of paid sick leave annually, including for family care.

The order does not mention it but there will be implications for whistleblowers because of it. If federal contractors and subcontractors do not abide by the policy when it becomes a part of their government contracts, they will be subject to liability under the False Claims Act. As provided by the law, there will be potential penalties for each false claim submitted to the government as well as treble damages. The law provides for rewards to eligible whistleblowers reporting violations of the law like this one in a range of 15 to 30 percent of the monetary recovery by the U.S. Government.

The regulation requires implementation on contracts entered into after January 1, 2017. However, it is possible that individual government agencies will begin adding it to their contracts earlier than the date set forth in the order.

The new policy was announced on Labor Day. It provides for one hour of leave for every 30 hours of work for up to seven paid sick days a year. It is expected to impact employer policies affecting around 300,000 workers. Several states and even more municipalities have previously passed laws requiring businesses to offer their employees paid sick leave.

The use of the government’s purse strings on contracts to encourage implementation by businesses has been an increasingly popular way to effect change. For example, the Congressional Budget for FY2015 required that no federal funds be provided to entities requiring employees to sign confidentiality agreements prohibiting or restricting reporting waste or fraud to the U.S. Government.

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SEC Chair White Provides Whistleblower Program Update

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The volume and quality of tips to the SEC whistleblower program is increasing. The frequency and size of rewards is expected to grow. And the SEC is concerned about severance agreements that require whistleblowers to forgo awards or represent that they have not previously reported misconduct.

These were among the remarks made by SEC Chair Mary Jo White in her introduction to the Corporate and Securities Law Institute at Northwestern University School of Law yesterday. Her complete remarks are available on the SEC website here.

The speech offers both an interesting history of incentives for securities whistleblowers – dating back to a Dutch law in 1610 prohibiting naked short selling that predates the Tulip bubble of 1636-1637 by more than 25 years – and insight into the Dodd-Frank whistleblower program, which White calls a “game changer.”

The speech primarily discusses four areas in relation to the SEC program:

Initial Success

The securities regulator has now received tips from all 50 states and sixty foreign countries. It has made 17 awards totaling approximately $50 million. White also gave us a quick look at the first quarter of FY2015. Apparently, the number of tips has increased by more than 20 percent over the first quarter in the last fiscal year. Even with the increase in tips, they have been of even higher quality and have helped put enforcement actions on a faster timetable.

Whistleblowers have alerted the government to highly technical fraudulent schemes, explained the meaning of documents to SEC staff, and testified at TRO or asset freeze proceedings to stop fraudulent schemes.

Compliance Programs

During the debate over the Dodd-Frank rules, the effect of the program on internal compliance programs was a key concern of many. White reports that internal compliance programs are vibrant and that most whistleblowers still report internally first. The program also incentivizes companies to investigate and self-report misconduct because of concerns that someone else will report them.


The SEC will continue to make enforcement of anti-retaliation protections a high priority, according to White. The speech recaps some of its efforts, including taking its first enforcement action against retaliation and intervening in several private cases to argue that individuals internally reporting violations are protected from retaliation in addition to those filing a Form TCR.

Open Channels of Communication

White spent a significant portion of her speech discussing the recent enforcement action against KBR under Rule 21F-17, without naming the company. She downplayed concerns regarding the use of confidentiality agreements to protect trade secrets or confidential information but indicated that it was not permissible for companies to prevent employees from reporting securities violations or take other actions (like the clause requiring pre-approval of government reporting) that might chill potential whistleblowing.

The SEC is also looking at employment agreements that require employees to forgo any whistleblower award as a condition of a severance payment. White hints that these contracts are looked upon unfavorably by the Enforcement Division. I would not be surprised if we see additional rules developed by the agency in order to cover this contingency, if it is not prohibited within the scope of the current rules.

Our SEC whistleblower attorneys can provide you with additional information about the program if you have evidence of a securities law violation or a question about an employment agreement. Please contact us or call 1-800-590-4116 to speak to a lawyer at McEldrew Young Purtell Merritt.

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Halliburton Fined for Overtime Pay While California, Wisconsin Consider New Laws Against Wage Theft

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Oil and gas giant Halliburton has agreed to pay $18.3 million to more than 1,000 workers improperly classified as exempt from overtime pay in a settlement with the U.S. Department of Labor. It is one of the largest overtime settlements with the U.S. Government in recent years.

According to the Labor Department, all salaried workers at Halliburton were automatically exempted from overtime. The law instead requires employers to pay overtime even to employees receiving salaries if their job duties or income do not qualify them for the FLSA exemption.

This is one of many developments happening in the fight against wage theft across the country. In California, lawmakers this month approved a bill that would allow the labor commissioner in California to put a lien on an employer’s property for unpaid wages.

The California law would also prevent owners from closing down a business and reopening it under a new name. At the beginning of the month, a Los Angeles Times story cited this as an example of one of the many ways that businesses were circumventing the requirement that they pay wages pursuant to the law.

The L.A. Times article also suggested that the California Legislature was considering making companies jointly liable for the payment of workers providing services for them. We haven’t yet reviewed the law to see if this made it into the final approved version but this would be a huge step forward in the fight against wage theft. Other states should consider such a law.

In other news, Wisconsin Democrats have proposed a bill to strengthen enforcement against employers stealing wages, allowing fines of up to $1,000 per violation and imposing interest on the money owed. Unfortunately, the legislature is controlled by Republicans so the measure probably stands a slim chance of passing as written.

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Wage Proposals Could Benefit Philly Workers

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There are a few different wage proposals at various levels of the government which we thought we would call attention to at the conclusion of a work week of beautiful weather here in Philadelphia. Philadelphia, Pennsylvania and the Federal Governments are considering wage proposals to increase the minimum wage, stop wage theft and help unemployed workers get back to a job.

Did the Supreme Court Help Whistleblowers in EEOC v. Abercrombie?


The Supreme Court reversed the Tenth Circuit decision in E.E.O.C. v. Abercrombie & Fitch Stores, Inc. this week and allowed the employment discrimination action against Abercrombie to proceed.

The case involved a claim of intentional discrimination under Title VII. Abercrombie was accused of failing to hire an applicant because of her religion. During the applicant’s interview, she wore a headscarf. Abercrombie has a policy that “caps” are not permitted to be worn by its employees. Because of this policy, Abercrombie did not hire the applicant.

Justice Alito’s opinion focuses largely on the words “because of” in Title VII. His analysis separates the defendant’s motive and knowledge, concluding that certain motives for employment decisions are prohibited “regardless of the state of the actor’s knowledge.” “[Title VII’s] disparate-treatment provision prohibits actions taken with the motive of avoiding the need for accommodating a religious practice. A request for accommodation, or the employer’s certainty that the practice exists, may make it easier to infer motive, but is not a necessary condition of liability.”

The False Claims Act has similar “because of” language in its anti-retaliation protections. It prohibits certain adverse employment actions “because of lawful acts done … in furtherance of an action under this section ….” 15 U.S.C. 3730(h)(1). This section has generally been interpreted to require the employer’s knowledge of protected activity by an employee. See, e.g., Eberhardt v. Integrated Design & Const., Inc., 167 F.3d 861, 868 (4th Cir. 1999); U.S. ex rel. Yesudian v. Howard Univ., 153 F.3d 731, 736 (D.C. Cir. 1998).

The knowledge requirement can pose problems for a whistleblower that has not explicitly told their employer that they have engaged in protected activity. If proof of employer knowledge was not required, the law might protect an employee from actions taken against potential or suspected whistleblowers where there was not otherwise enough evidence to meet the current law’s test for improper conduct.

Of course, because the Supreme Court’s decision was interpreting Title VII, it may ultimately have no effect on whistleblower retaliation law. It will be up to federal judges to decide the extent of the impact of this decision in the coming years.

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President Obama Proposes Changes to Overtime Law

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President Obama announced changes to federal overtime regulations this week, extending overtime benefits to an additional $5 million people by doubling the minimum exempt salary for workers to $970 a week in 2016. Workers making less than $50,440 a year will automatically qualify for overtime pay under the proposed rule changes.

Previously, a worker that made more than $455 a week did not automatically qualify for overtime under the federal rules. The amount was last updated in 2004, and the Obama proposal reflects inflation over the last 10+ years. The proposal further covers adjustments based on median wage levels in the future.

This proposal has been expected for some time as President Obama announced his intention to change the nation’s overtime rules more than a year ago. Forty percent of full-time salaried workers would be eligible for overtime pay after the rule changes go into effect.

Under the current rules, employers do not need to pay employees making more than $23,660 a year if they are performing mostly executive, administrative or professional duties. Only 8% of the full time salaried workforce is currently covered by the salary threshold, whereas 60% of salaried workers were overtime eligible when the rules were put in place in 1975.

The President talked about the need for the policy change on the Huffington Post last night, and then followed that editorial up with a Fact Sheet today on Rewarding Hard Work by Restoring Overtime Pay.

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Independent Contractors Pursue Tech Startups For Wage Theft

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Popular startups that rely on freelancers to perform on-demand services in a two-sided marketplace are having to re-examine whether their workers are in fact employees amid lawsuits across the country challenging their practices. The contractors, on the other hand, are simply standing up for the wages that they should have been paid all along under the Fair Labor Standards Act and have to this point been denied at the hands of those exploiting their need for a job.

Many startups have paid these workers via 1099s, the IRS form that companies report taxable income on their independent contractors. If a worker is a contractor, then businesses do not have to pay minimum wage, overtime or benefits to them. The company also does not have to pay employment taxes to the IRS based on their income.

The Department of Labor recently issued an interpretive memorandum that expressed the opinion that most workers are actually employees under the FLSA. The Wall Street Journal article published today essentially suggested that every startup paying workers on 1099s should expect to get sued. According to the article, many are already planning to make their freelancers into employees following the lawsuits and DOL guidance.

Venture Capitalists quoted in the WSJ article suggested that it might be tough for many of these startups to continue operating if they have to absorb increased labor costs. Housecleaning service Homejoy shut down after they were unable to raise additional funds from investors under the cloud of threatened wage and hour lawsuits. Transportation app Uber has some 200,000 contract drivers and has already been the subject of both protests and lawsuits.

These aren’t the only startups that have run afoul of the nation’s employment laws. LinkedIn paid $6 million in back overtime and damages last year following a Labor Department investigation into. According to news reports, the company’s sales force, who are non-exempt workers under the law, were working off-the-clock and the company was not paying them for that time.

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Democratic Senators Push for Living Wage By Senate Contractors

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Democratic Senators sent a letter to the Chairman of the Senate Rules Committee urging the adoption of a requirement that Senate Office building contractors pay their employees a living wage. The letter does not call for a specific amount but does object to the low wages paid food and restaurant workers that must be subsidized by taxpayer-funded benefits. The letter sent by the Senators is available on Senator Sherrod Brown’s website.

Last week, federal contract workers engaged in a one-day strike to urge President Obama to allow workers to unionize and give preference to contractors that pay $15 an hour.

The living wage movement has spread around the country and has successfully changed practices in several areas, including Seattle. Implementation of Seattle’s $15 minimum wage started this month. The law will incrementally increase the minimum wage in the city over a period of years determined by the businesses number of employees. Large employers were given three to four years and small employers (less than 500 employees) were given five to seven years.

Last year, President Obama issued Executive Order 13658 establishing a minimum wage of $10.10 for workers on Federal construction and service contracts. The order applied to new contracts and replacements for expiring contracts resulting from solicitations issued on or after Jan. 1, 2015 or contracts awarded outside this process from that date as well. The order covers four major categories of agreements, including construction contracts covered by the Davis-Bacon Act, service contracts covered by the Service Contract Act, concessions contracts, and contracts in connection with Federal property or land relating to services offer to government employees and the general public.

Last week, we discussed the possibility that living wage measures such as the one called for by the Senators and the President’s Executive Order could be the subject of qui tam lawsuits under the False Claims Act in addition to the standard case by employees for wage and hour violations. This story reinforces that belief. We expect to see more employers may decide to circumvent wage and hour laws as the minimum wage increases and that there will be more lawsuits brought by employees as well as whistleblowers.

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Living Wage Whistleblowers Could Be Next For False Claims Act

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There could be more whistleblowers under state and city False Claims Act in the coming years if recent initiatives to tie the payment of a living wage to government contracts and business subsidies takes hold in other jurisdictions.

A Hudson Yards office tower in New York City is the first in the Big Apple to strike a deal for construction tax breaks since Mayor Bill de Blasio raised the hourly wage to $13.13 and expanded the living wage law to include employees of commercial tenants on construction projects receiving more than $1 million in subsidies.

Because New York City has a whistleblower law which rewards individuals for reporting false claims against the local government, whistleblowers may be able to report companies which do not follow the terms of deals like this and earn a reward. Of course, more research would be necessary into the specific terms of the law, because tax enforcement actions are sometimes excluded from versions of the False Claims Act.

Although we have used New York City in this example, it similarly apples to the Philadelphia False Claims Act and the living wage law here. The executive order issued by Mayor Michael Nutter requires contractors receiving government contracts from the City of Philadelphia to pay a specified minimum wage to its employees working on the contract. If the individuals are paid less, the submission of a payment request is a false claim.

As with any law, there are exclusions which limit the application of the rules to certain parties and certain employees. For example, individuals in summer job programs and bona fide student internships are excluded from the coverage of the law in Philadelphia. So any particular case will require careful review by an attorney to determine whether the law applies to the individual.

In the past, minimum wage laws have typically been enforced by employees bringing collective claims for their unpaid wages. However, the Federal False Claims Act has been applied in several cases where federal contractors or subcontractors are not paying the prevailing wage required by the law.

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