Legal Compliance

1. Legal Compliance MANA 5341 Staffing and Performance Management

2. Major Staffing Laws Classifying Employees • FLSA and Internal Revenue Code Equal Opportunity • Civil Rights Acts (1964 and 1991) • ADA and ADEA Affirmative Action • Executive Order 11246 Immigration • Immigration Reform and Control Act Wages and Benefits • Equal Pay Act Many others….

3. Classifying Employees “Flexible” employment practices have risen sharply last 10-15 years. • Independent Contractors • FLSA (Salaried vs. Hourly) • Temporary Employees

4. What is an Independent Contractor? • An employer does not generally have to withhold or pay any taxes on payments to independent contractors. • W2 vs. 1099 • General rule: An individual is a contractor if the employer controls only the result of the work and not the means and methods of accomplishing the result. • Behavioral control • Financial control • Relationship with firm http://www.irs.ustreas.gov/pub/irs-utl/emporind.pdf

5. IRS Example • Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours.  • She is to receive $1,280 every 2 weeks for the next 10 weeks.  This is not considered payment by the hour.  Even if she works more or less than 400 hours to complete the work, Vera will receive $6,400.  • Vera sets her own schedule but is required to complete the work in 10 weeks subject to inspection upon completion. She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements. 

6. IRS Example • Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours.  • She is to receive $1,280 every 2 weeks for the next 10 weeks.  This is not considered payment by the hour.  Even if she works more or less than 400 hours to complete the work, Vera will receive $6,400.  • Vera sets her own schedule but is required to complete the work in 10 weeks subject to inspection upon completion. She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements.  • Vera is an Independent Contractor

7. Temporary Employees • Temps are employees of an employment agency, not the organization where they work. • Companies cannot use long-term temporary employment only to deny benefits to employees. • Vizcaino vs. Microsoft (1999) Microsoft Corp. will pay $97 million to settle a federal lawsuit from employees who claimed the software giant classified them as "temporary" workers for years to deny them standard benefits such as health insurance and the lucrative employee stock purchase plan, thereby saving the company millions. Between 8,000 and 12,000 people were eligible for a share of the settlement. LA Times 12.13.00

8. Changes at Microsoft • Guidelines to help managers figure out when a job shouldn't be given to a temporary employee. • Policy prohibiting temporary employees from working more than 12 months at a stretch without taking at least a 100-day break. • Temporary workers wear orange badges instead of the blue badges for permanent employees. • Temporary workers are not permitted to use the company health club, play on the company baseball and soccer fields or allowed to attend company parties.

9. Fair Labor Standards Act (FSLA) • Passed in 1938 and amended many times • Nonexempt workers earn a minimum wage of not less than $5.15 an hour, effective September 1, 1997. • Overtime pay at not less than one and one-half times regular pay is required after 40 hours a workweek. • An employee must be at least 16years old to work in most non-farm jobs and at least18to work in non-farm jobs declared hazardous by the Secretary of Labor. • Youths 14and 15years old may work outside school hours in various non-manufacturing, non-mining, non-hazardous jobs under certain conditions

10. New Overtime Rules • First major change to FSLA in 50 years. http://www.dol.gov/esa/regs/compliance/whd/fairpay/ • In 2003 record $212.5 million in back wages was collected from employers – a 20% increase from 2002. • RadioShack will pay $29.9 million in unpaid overtime claims of 1,300 managers in California. Similar suits at Eckerd, Starbucks, and Farmer’s Insurance • U-Haul suit by 1,200 managers was dismissed due to substantial evidence that the supervisors "spend the majority of their time performing exempt managerial tasks"

11. To be exempt from FLSA: • Salary Basis Test • Be paid a salary • Salary Level Test • Earn a minimum of $23,660/yr (old $8060/yr) • White collar workers who earn more than $100k are exempt • Blue collar workers “skilled trades” are NOT exempt • “Duties” Test • “Administrative” • “Professional” • “Executive” • “Outside Sales” • “An employee who leads a team of other employees assigned to complete major projects”

12. “Administrative Duties” • Whose primary duty (50%) is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and • Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

13. FSLA – Special Cases • Tipped employees • Domestic service workers • Teachers and administrative personnel in elementary and secondary schools • Outside sales employees • Employees in certain computer-related occupations • Employees of certain seasonal amusement or recreational establishments • Employees engaged in fishing operations • Employees engaged in newspaper delivery • Farm workers • Casual babysitters • Certain commissioned employees of retail or service establishments • Employees of railroads and air carriers • Taxi drivers • Nurses • Announcers of certain non-metropolitan broadcasting stations • Employees of motion picture theaters • Employees of certain bulk petroleum distributors • Many others….

14. What are the differences between: • Diversity • Equal Employment Opportunity • Affirmative Action?

15. EEO Laws • Title VII of the Civil Rights Act 1964 • Civil Rights Act of 1991 • Age Discrimination in Employment Act of 1967 • Americans with Disabilities Act of 1990 (ADA)

16. Protected Groups • Race • Color • Religion • Sex • National origin • Age • Disability

17. Civil Rights Act of 1964 Title VII (a) It shall be an unlawful employment practice for an employer – (1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's race, color, religion, sex, or national origin; or (2) to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual's race, color, religion, sex, or national origin.

18. Civil Rights Act of 1964 Title VII (a) It shall be an unlawful employment practice for an employer – DISPARATE TREATMENT (1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's race, color, religion, sex, or national origin; or ADVERSE IMPACT (2) to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual's race, color, religion, sex, or national origin.

19. Court Cases • Griggs v. Duke Power (1971) • McDonnell Douglas vs. Green (1972) • Connecticut vs. Teal (1982) • Watson vs. Ft. Worth Bank & Trust (1988) • Rudder vs. District of Columbia (1995)

20. Court Cases • Griggs v. Duke Power (1971) • Adverse impacts must be job related • Discriminatory intent not sufficient defense • McDonnell Douglas vs. Green (1972) • To establish prima facia in disparate treatment cases • Connecticut vs. Teal (1982) • Applies to each parts of a multi-step process • Watson vs. Ft. Worth Bank & Trust (1988) • Adverse impact applied to interviews • Rudder vs. District of Columbia (1995) • Affirm job analysis and content validity of tests

21. Civil Rights Act of 1991 • Followed Wards Cove Packing vs. Antonio (1989) • Prohibits “race norming” of tests. • Plaintiffs can sue for punitive damages in cases of intentional discrimination. • Adverse impact prohibited for each piece of a selection system. • Burden of proof on the employer. • Prohibits quotas in selection.

22. EEO Applied • Organizations with more than 15 employees. • Uniform Guidelines onEmployee Selection Procedures http://www.dol.gov/dol/allcfr/Title_41/Part_60-3/toc.htm • Principles for Validation and use of Employee Selection Procedures http://www.siop.org/_Principles/principles.pdf • EEO does NOT require preferential treatment • Quotas are illegal by Civil Rights Act of 1991 • Must keep records of applicants for 6 months

23. EEO Applied • Employer must show practices are “job-related for the position in question and consistent with business necessity” • Company Defenses • Merit • Bona Fide Occupational Qualification • Business Necessity • An “alternative employment practice” must be accepted if shown to meet the business necessity and have less adverse impact.

24. Disparate Treatment Adverse Impact Plaintiff He or She demonstrates: a) Protected class b) Was qualified c) Was rejected d) The job remained open “McDonnell-Douglas Test” 4/5’ths Rule Standard Deviations Rule Defendant Provides a clear and specific job‑based explanation for actions. Demonstrates Job relatedness (validity) and business necessity Plaintiff Must prove that rejection was discriminatory. Proves that an alternative practice is available that has less adverse impact Presentation of Evidence

25. Selection Rate Tests • 4/5ths RULE The selection rate for any protected group should be no less than 4/5ths or 80% of the selection rate for the group with the highest rate of selection. If SR1 *.8 > SR2, then Adverse Impact. • Number Hired • Selection Rate (SR) = • Number of Applicants • Std. Dev. RULE Number selected needs to be within +(-) 2 standard deviation units from the “expected” case. • % Minority applicants X % NonMinority applicants X # Selected S.D.=

26. 4/5ths Rule Assume 200 employees were selected from a pool of 500 applicants (200 black and 300 white). Of the employees selected 60 were black and 140 were white. Selection Rates: White = 140 / 300 = 46.7% Black = 60 / 200 = 30% 4/5ths Rule: .467 X .8 = .374 = 37.4% Since 30% (actual selection rate) is less than 37.4% (4/5ths comparison selection rate) evidence of discrimination exists.

27. Std. Deviation Rule # of Minority Applicants # of Non Applicants X X # Selected # of Applicants # of Applicants Assume 200 employees were selected from a pool of 500 applicants (200 black and 300 white). S.D.= 200 300 X X 200 500 500 = 6.92 S.D.= = .4 X .6 X 200

28. Std. Deviation Rule • Overall selection rate = 40% (200 out of 500) • If blacks were selected at the same rate as whites we would expect: 200 X .4 = 80 Blacks 300 X .4 = 120 Whites • Std. Rule states that the actual number selected should be within +/- 2 Std. Deviations from the expected number. S.D. = 6.93 or “7” 2 S.D. = 14 • Target Range for Blacks: 80 +/- 14 = 66 to 94 According to this, if fewer than 66 out of 200 were selected, then evidence of discrimination exists.

29. “Wal-Mart's Women Troubles” • Wal-Mart, employs 1.3 million workers at roughly 3,522 Wal-Mart and Sam's Clubs. • Certified as a class: 1.6 million women who worked for Wal-Mart's U.S. stores at any time since Dec. 26, 1998. • Women comprise over 72% of Wal-Mart's sales workforce and less than 33% of its managers.

30. The Plaintiff’s Case

31. Wal-Mart’s Defense • Wal-Mart says it classifies management positions differently from its competitors. For example, it says department "managers" are not included in the count of managers because they are not salaried positions. • "If we included these, our overall percentage would probably be close to 50%," the company says. • Wal-Mart men average higher seniority and are more willing to relocate.

32. ADEA (1967) and Age Discrimination • Age Discrimination in Employment Act of 1967 • Protects employees 70 million workers over 40 • Nearly 50% of workers • Cases most often arise from layoff or dismissal • It is legitimate to consider salary in layoffs • No standard of “reverse discrimination” for age suits • Disparate impact rules apply • Adams vs. Florida Power Corp • Dismissed by the Supreme Court 2002 • Smith vs. City of Jackson • Affirmed by the Supreme Court 2005

33. Americans with Disabilities Act (ADA) • Discrimination is prohibited against individuals with disabilities who can perform essential job functions with reasonable accommodation unless it would cause undue hardship. • Employers not required to change work rules if they are business necessity. • OFCCP vs. Ozark Airlines (1986) – employers must prove applicant could not perform the job safely.

34. Americans with Disabilities Act (ADA) • Disability is a physical or mental impairment that affects a major life activity. • Essential vs. marginal job functions • Categories of "reasonable accommodations": • changes to a job application process • changes to the work environment • changes to the way a job is usually done • employee training

35. Undue Hardship • “Undue hardship” means significant difficulty or expense. • Not only financial difficulty • Those that would fundamentally alter the nature or operation of the business. • Every request for reasonable accommodation should be evaluated separately taking into account: • Nature and cost of the accommodation needed • Overall financial resources of the business • Number of persons employed by the business • Impact of the accommodation on the business

36. Record Keeping • EEOC requires that employers keep all personnel records for one year after termination. • Written descriptions of benefits plans (such as pensions) and any seniority or merit system. • Fair Labor Standards Act (FLSA) and the Equal Pay Act, require employers to keep payroll records for at least three years. • All records relevant to wages including wage rates, job evaluations, and seniority and merit systems.

37. Employment Information Report (EEO-1) • EEO-1 survey is authorized by Title VII and the Equal Employment Opportunity Act of 1972. • All employers with 15 or more employees are required to keep employment records as. • Employers are required to file an EEO-1 report on an annual basis if they: • Employ 100 or more employees • Employ 50 or more employees and have Federal contracts totaling $50,000 or more.

38. EEO vs. Affirmative Action • Equal Employment Opportunity • Collection of laws that apply to all organizations • Aimed at ending discrimination • Affirmative Action • Executive Order 11246 • Applies only to (1) government and contractors over $10,000 (2) court orders and (3) voluntary programs. • NO affirmative action requirements for others. • Written document with targets for minority hiring.

39. Enforcement Agencies Equal Employment Opportunity Commission (EEOC) • All private employers with more than 15 employees • EEO – 1 for more than 100 employees Office Of Federal Contract Compliance Programs (OFCCP) • Government contractors or sub-contractors. • Covers approximately 26 million or nearly 22% of the total civilian workforce. • OFCCP requires a contractor to engage in a self-analysis for the purpose of discovering any barriers to equal employment opportunity. • Investigates complaints of discrimination.

40. Affirmative Action Program (AAP) • Develop a written program for each establishment • Identify potential problems in the participation and utilization of women and minorities. • Gives the specific procedures and the good faith efforts to provide equal employment opportunity. • If there is underutilization, provides gives targets (not hard quotas) and timetables. • Expanded efforts in outreach, recruitment and training.

41. AAP Statistics • Flow Statistics • Examines selection rates by group • 4/5 th’s rule / Std. Deviation Rule • Availability and utilization analyses • Employee distribution compared with local population • “Stock Statistics” • Concentration Statistics • Examining placement of women and minorities by job category

42. Availability Analysis U.T. System determines minority availability by: • The minority population in the surrounding labor market. • The minority unemployment rate in the surrounding labor market. • The percentage of the minority workforce as compared with the total workforce in the surrounding labor market and Texas. • The availability of promotable and transferable minorities within U. T. System Administration. http://www.eeoc.gov/stats/jobpat/2000/pmsa/2800.html http://www.census.gov/hhes/www/eeoindex.html

43. Utilization Analysis • Compares the % percentage of minorities and women in each Job Group with the calculated % availability of minorities and women. • "Underutilized" is defined as having fewer than would reasonably be expected by their availability.

44. Concentration Statistics

45. This all means…. • Make sure that selection criteria are fair. • Use validated selection tests. • Use the same procedure for all applicants. • Collect data and keep records. • Only ask job-related questions. • No medical exams before making job offers. • No business is ever required to hire someone not qualified for a job.

46. How to Proceed? • What can companies do to navigate the differences between targets and preferences (which are legal) vs. quotas and reverse discrimination (which are illegal)?