On April, 24, 2017, the New York State Department of Labor (“NYSDOL”) has filed an appeal to the February 16, 2017 decision by the New York State Industrial Board of Appeals (“Board”). The Board’s ruling held that the NYSDOL’s regulations regarding employer payments via payroll debit cards and direct deposit were invalid, thereby revoking the regulations, which were set to become effective on March 7, 2017. While the regulations remain ineffective, we will continue to provide updates on New York’s payroll debit card and direct deposit rules.
Our colleague Sharon L. Lippett, a Member of the Firm at Epstein Becker Green, has a post on the Financial Services Employment Law blog that will be of interest to many of our readers in the technology industry: “Potential Impact of Trump Tax Reform Plan on Retirement Plans: What’s Old Could Be New Again.”
Following is an excerpt:
While Congress’ attention has most recently been focused on the American Health Care Act, that bill will most likely not be the only proposed legislation that Congress will consider in 2017. It appears that a tax reform plan (the “2017 Tax Proposal”), which could also have a wide-reaching impact, is also on the agenda.
If the 2017 Proposal includes provisions relating to defined contribution retirement plans sponsored by private employers, such as 401(k) plans, the impact will be felt by employers and investment managers, as well as by plan participants. While the Trump Administration has stated that the current version of its 2017 Tax Proposal does not reduce pre-tax contributions to 401(k) plans, speculation continues that a later draft may include curtailment of these contributions or other changes with a similar impact. …
On Tuesday, April 18, 2017, the Trump Administration signed an Executive Order (“EO”) titled, Buy American and Hire American. The EO directs the US Departments of Labor, Justice, State, and Homeland Security to look into ways to reform the current H-1B process used by companies, but in particular, the hi-tech industry, to prevent fraud and abuse. Nothing in this EO’s wording changes or limits the current H-1B visa program. Any future EO that tries to drastically change the current H-1B program will be met with industry opposition and legal action since much of the current H-1B program is statutory or defined by regulation. Only Congress can change the laws, and any regulatory changes must first require legal vetting through proper notice and commentary procedures required by the Administrative Procedure Act.
The current H-1B visa program has been in place since 1990. Since that time, some of the program’s weaknesses and vulnerabilities have reared its ugly head. Unfortunately many of these weaknesses have been exposed and manipulated by the ‘bad apple’ employers who refuse to follow the rules while using the process to hire only the lowest-paid employees. Other noted weaknesses of the program include the arbitrariness and unfairness of the annual cap lottery; the inability to differentiate between employers that try to hire the best minds compared to those that recruit lower-paid, entry-level professionals; and the use by some employers to outsource their IT work overseas while having their U.S. counterparts train them only to terminate the U.S. workers thereafter.
There also is considerable xenophobia that H-1B visa workers are all taking US jobs or that H-1B workers are being paid lower than their US counterparts. The real facts show there are only 85,000 new cap-based H-1Bs issued every year and that the H-1B regulations require payment of wages commensurate with the local job force. Unfortunately the use of the H-1B program by a small number of unscrupulous employers continues to generate bad press resulting in the current Administration’s EO focus on the H-1B program.
So what does this EO mean going forward? For the immediate future, nothing more than further scrutiny and press for possible abuses. The Trump Administration lacks the legal authority to unilaterally change the H-1B program without Congressional legislation or proper promulgation of new regulations under the Administrative Procedure Act. But it still can implement directives to prevent abuse and fraud, including increased policing through random onsite inspections confirming companies are adhering to the H-1B program; increased filing fees to pay for such onsite inspections; increased investigation of potential high-risk employment violators that do not follow the H-1B regulatory requirements to pay the required wages; and implementing a fairer type of selection system, other than a random lottery, for choosing new H-1B cases for each fiscal year.
In this regard, the added scrutiny of the H-1B program actually may work to the advantage of the ‘good employers’ that follow the rules and try to hire the “best and the brightest.” Much of recent H-1B focus and bad press are attributable to the foreign consulting companies that consume nearly half of the allotted H-1B numbers each year and are part of the U.S. outsourcing controversy. By decreasing the number of H-1Bs issued to these companies, more H-1Bs will be available for employers that follow the rules and seek to fill truly hard-to-find positions.
Our colleagues Patrick G. Brady and Julie Saker Schlegel, at Epstein Becker Green, have a post on the Retail Labor and Employment Law blog that will be of interest to many of our readers in the technology industry: “Beyond Joint Employment: Do Companies Aid and Abet Discrimination by Conducting Background Checks on Independent Contractors?”
Following is an excerpt:
Ever since the National Labor Relations Board (“NLRB”) issued its August 2015 decision in Browning-Ferris Industries of California, Inc., holding two entities may be joint employers if one exercises either direct or indirect control over the terms and conditions of the other’s employees or reserves the right to do so, the concept of joint employment has generated increased interest from plaintiffs’ attorneys, and increased concern from employers. Questions raised by the New York Court of Appeals in a recent oral argument, however, indicate that employers who engage another company’s workers on an independent contractor basis would be wise to guard against another potential form of liability, for aiding and abetting acts that violate various anti-discrimination statutes, including both the New York State (“NYSHRL”) and New York City Human Rights Laws (“NYCHRL”) and the New Jersey Law Against Discrimination (“NJLAD”).
Many of the most successful businesses are the product of the investment of its founder’s time, energy and money. Often, this investment may be the most significant source of their retirement income or personal wealth. Yet at some point, whether due to political or market conditions, or more personal reasons, it may become time to sell the business and unlock the value of this investment.
Here are some important considerations for selling a closely held business, especially for those founders who have never been through a sales process, to achieve a successful exit.
- Know the value of your business – and how a buyer might value it. There is not one standard metric used to value a business, and a valuation may take a variety of factors specific to the business or its industry into consideration. Often, buyers will be willing to pay a multiple of earnings or revenue, though the specific multiple will vary based on industry, size, growth potential, as well as other factors. Sellers, who at times tend to overvalue their company, could benefit by engaging a professional valuation firm for an independent perspective. Also, having multiple years of financial statements that have been audited by a reputable CPA firm will enhance the reliability of any buyer price proposal and reduce the likelihood of the buyer lowering its initial offer once it gets “under the hood.”
- Anticipate likely transaction structures and acceptable forms of consideration. Buyers typically will propose deals on a “cash-free, debt-free” basis and insist on sellers delivering a pre-determined level of working capital. Buyers may offer all cash or some combination of cash, promissory notes and/or equity in buyer. Equity can be a useful mechanism for aligning the parties’ interests and incentivizing the founder post-closing, typically when the founder is asked to remain with the business. Buyers might propose an “earn-out” arrangement, whereby a portion of the purchase price will get paid only upon the attainment of pre-determined financial or operational milestones. These arrangements are typically more palatable to founders who are staying with the business post-closing and thus have some ability to impact the achievement of those milestones.
- Identify factors that can undermine value, and work to clean them up. Especially if valuation is based on an earnings multiple, eliminating or reducing a several hundred thousand dollar expense can result in a multi-million dollar increase in purchase price. Similarly, buyers may seek “dollar for dollar” indemnification (i.e., without any deductibles) for certain matters, such as pending or likely litigation. Sellers often try to resolve these issues before a sale to reduce the likelihood of an indemnity claim post-closing. To the extent such issues cannot be resolved, founders should be forthright about them with the prospective buyer.
- Identify third-party approvals – including that of your board. In many deals, a consent or approval from a third party is required before the transaction can close. These can take the form of consents required by contract with a private party, government approvals, or even board approval of the seller. Obtaining these consents or approvals can be time-consuming and expensive, even when founders have enjoyed harmonious relationships with their customers, vendors, lenders, and regulators. Often, consent in a sale transaction requires separate legal review by these parties, which could result in delays. Sometimes other equity holders have a right of first refusal (ROFR) giving them the opportunity for a defined period of time to buy the business on the terms offered by a third party. When a ROFR exists, an eventual sale to a third party could be delayed to allow for the ROFR period to lapse or to obtain a waiver of the ROFR from the holder. Identifying required third party approvals as soon as possible will better enable sellers to realize a timely closing. And, aside from being good corporate practice, to facilitate a smooth and timely board approval process, founders should keep their boards of directors involved and informed as to the sales process at every stage.
- Consider your next move (personally); know that restrictions could be imposed. Many founders envision riding off into the proverbial sunset without looking back. Others are already planning their next venture. Others wish to remain in place to see their life’s work flourish post-closing. Of course, buyers may have something else in mind altogether. Buyers may require founders to stay on with the business for a period of months or years and, in any event, will often insist on non-compete and non-solicitation agreements from founders for a number of years post-closing. Founders may also be able to negotiate exceptions to these restrictions that are acceptable to buyers.
- Tax matters (very much!). Different transaction structures – for example, asset sales vs. stock (or membership interest) sales, or the inclusion of accounts receivable in the deal – may result in vastly different tax effects to the seller. Founders may avoid “seller’s remorse” by understanding the after-tax value of the deal consideration, especially in light of their anticipated post-closing financial needs. Sellers are well-served to seek the advice of tax and accounting specialists as early as possible to identify a tax-advantageous deal structure.
- Take steps to maintain the value of the business. To preserve the value of the business prior to the transaction’s signing and closing, and to facilitate a smooth sales process, sellers may offer retention bonuses to key employees. Variations of these arrangements could entail employees receiving a percentage of the transaction consideration, aligning their interests and those of the founders. Especially where earn-outs are utilized, these arrangements can be tailored to provide for bonuses post-closing, benefiting the business and the founder for years.
- Remember to keep your toys! Exit transactions, regardless of structure, do not automatically involve the transfer to the buyer of every last item on the seller’s premises. Often, certain items are actually owned by the founder outright and not the business. Personal effects such as sports memorabilia, artwork, family heirlooms (such as antique furniture located at the business), and similar items should not be overlooked, and the founder will want the definitive agreement to expressly provide that these items will remain with the founder in the sale of the business.
A founder’s decision to sell will surely be momentous both for the business and for the founder. Hopefully that decision can be easier knowing in advance some key considerations for a successful exit transaction.
In the latest HR headline from the start-up world, the offending executive doesn’t fit the typical mold, but the lesson remains the same: don’t ignore human resources.
Miki Agrawal, the self-proclaimed “SHE-eo” of THINX, and her “boundary pushing” workplace demeanor are the focus of a New York City Commission on Human Rights complaint by the former head of public relations, Chelsea Leibow. Leibow alleges that Agrawal created a hostile work environment through her constant discussion of sex, nudity around employees, and inappropriate touching of employees’ breasts.
THINX, the “period underwear” company that seeks to disrupt the menstrual products world, intentionally pushes boundaries with its marketing strategies. In her role, Leibow was responsible for PR emails, which were the subject of media attention highlighting the emails’ casual, “millennial-speak.” According to Leibow in an interview with New York Magazine, the company also pushed internal boundaries of professionalism. Leibow alleges that, just a few months after she joined THINX Agrawal, “helped herself” to Leibow’s breasts and engaged in a variety of other sexualized conduct. Leibow asserts that Agrawal drove a casual culture, and that many employees engaged in more casual (and often sexually-inappropriate) conversations out of fear of losing their jobs.
Leibow alleges that she made multiple internal complaints, including to the CFO and CCO, about Agrawal’s behavior, but those complaints were ignored. Rather than establish a formal HR function, Agrawal introduced “Culture Queens” to manage internal disputes. Neither of these individuals had HR experience, and the reporting line brought all complaints back to Agrawal – even those complaints about her. In fact, Leibow alleged that it was ingrained into the culture that the employees and the executive team “operated on different planes.”
In response to Leibow’s complaint and subsequent publicity, Agrawal published a blog acknowledging that THINX failed to appropriately establish a human resources function early enough in the formation of the company. Like many start-ups, when THINX had only 15 employees, Agrawal did not make hiring an HR professional a priority. She acknowledges that the failure to address human resources was a “problem area,” but “to sit down and get an HR person and think about [health insurance, vacation days, benefits, and maternity leave] were left to the bottom of the pile of things to get done.” THINX has commissioned an employment law firm to investigate these claims, along with several other allegations being anonymously reported to various news outlets.
Following the complaint, Agrawal has stepped down as CEO, and THINX is hiring a new CEO and a HR manager. Our attorneys have seen a continuing pattern of successful start-up companies ignoring human resources functions in favor other responsibilities to launch the business. But as this example teaches, start-ups and other small businesses should not leave HR-planning to the end. Although managing the HR function early on seems less important than getting the business off the ground, failing to establish basic workplace rules, including a harassment complaint procedure, can lead to major problems.
- President Trump Issues Revised Executive Order on Travel
- USCIS Suspends Premium Processing for H-1B Petitions Starting April 3, 2017: All H-1B Petitions, Including H-1B Cap Petitions, Are Affected!
- Use of New Form I-9 Is Now Mandatory
- IRS Announces That Delinquent Taxpayers Face Revocation/Denial of U.S. Passports
- DHS Issues Two New Memos on Enforcement/Border Security
A new post on the Management Memo blog will be of interest to many of our readers in the tech industry: “‘A Day Without’ Actions – How Can Employers Prepare?” by our colleagues Steven M. Swirsky and Laura C. Monaco of Epstein Becker Green.
Following is an excerpt:
[T]he same groups that organized the January 21, 2017 Women’s March on Washington – an action participated in by millions of individuals across the county – has called for a “Day Without Women” to be held on Wednesday, March 8, 2017. Organizers are encouraging women to participate by taking the day off from paid and unpaid labor, and by wearing red – which the organizers note “may be a great act of defiance for some uniformed workers.”
Employers should be prepared to address any difficult questions that might arise in connection with the upcoming “Day Without Women” strike: Do I have to give my employees time off to participate in Day Without events? Can I still enforce the company dress code – or do I need to permit employees to wear red? Can I discipline an employee who is “no call, no show” to work that day? Am I required to approve requests for the day off by employees who want to participate? As we explained in our prior blog post, guidance from the National Labor Relations Board’s General Counsel suggests that an employer can rely on its “lawful and neutrally-applied work rules” to make decisions about granting requests for time off, enforcing its dress code, and disciplining employees for attendance rule violations. An employer’s response, however, to a given employee’s request for time off or for an exception to the dress code, may vary widely based upon the individual facts and circumstances of each case. …
As I continue to follow developments regarding the future of work, I recently attended an event co-sponsored by Cornell/ILR’s Institute for Workplace Studies in NYC and the McKinsey Global Institute (MGI) addressing MGI’s report last Fall entitled Independent Work: Choice, Necessity and the Gig Economy. The report examines the increasing numbers of self-employed, freelance and temporary workers in the U.S. and Europe which are currently estimated to comprise 30 percent of the working-age population and rising. The report notes that many workers have chosen this autonomous path as their primary means of income, while others follow it to supplement income, and yet others have no other choice and would prefer a traditional job with fair wages and benefits. Many factors have led to the return to this pre-industrial revolution independent worker model including the recession and the emergence of The Digital Age as workers are more mobile and have increasing access to new technologies which transform how work is performed and goods and services are bought and sold.
The independent model of work is not without its critics. Not everyone is capable of managing themselves as an independent business. Many fear that this model is more appropriate for highly-skilled workers who have special skills and can manage multiple engagements which they have cultivated and that are well paid. For the majority of entry-level or non-specialized workers, however, this model may drive down wages and leave many others unemployed. Further, it is unclear how independent workers will be protected from pay disparities, discrimination, work injuries, unemployment and how they will obtain benefits for such needs as health care, retirement, or disability. Many have argued that employers have moved toward retention of independent workers to avoid employment and benefits legal responsibilities and erode the traditional employer-employee relationship and benefits.
Shifting worker models are also caused by advances in automation and will accelerate with the transformations that will be ushered into the workplace with artificial intelligence, machines and robots that perform many current jobs and will perform jobs of the future. In a December 2016 report from the Obama administration entitled Artificial Intelligence, Automation, and the Economy, it was noted that while the industrial revolution led to the disruptions to the lives of many agricultural workers, the technological revolution has led, and will continue to lead, to disruptions for workers in all industries. This will also continue to impact the professions (e.g., financial services, education, journalism, sales, accounting, law and medicine). The increased use of automation and the demand for highly-skilled workers and those capable of abstract thinking and creativity will result in the displacement of many workers who perform routine tasks and in lower-skilled jobs. Further, it is only a matter of time before robots are built with the manual dexterity to perform physical labor jobs. As society advances and deploys AI-driven automation, a re-thinking of worker models, our educational system and the social safety net is crucial.
With this confluence of events, it is imperative that swift policy action is taken to prepare for the transition that lies ahead and employers have an important role to play. As we have seen with the passage of the Affordable Care Act and proposals for automatic payroll-IRAs managed by states or local governments, there have been movements afoot for several years calling for more government-run forms of benefits in the U.S. which lend themselves to portability without attachment to an employer, but these models are also controversial for numerous economic and political reasons and are under attack. Policy makers continue to put forth ideas to require employers and independent contractor agencies to contribute toward a system of portable benefits for independent workers which may include multiple employer programs, pooled associations, and various types of government funds. The shifting tides will also require individuals to be financially educated and to save in their own health, retirement, and other insurance type vehicles apart from any employer-provided benefits. Employers in all industries will need to contribute to these debates and should consider the following:
- Develop a Workplace Transition Policy. As employers manage multiple generations in the workforce from the traditionalists, baby boomers, Generation X, Millenials, and Generation Z, and as society shifts to new models in the workplace, including use of AI-driven automation, impact on existing traditional-model workers should be carefully addressed. Immediate issues to consider include proper management of employee reductions and retirements (including fair and reasonable severance and related benefits (including career transitioning and re-training assistance), incentives for transfer of knowledge between generations (which may require ongoing consulting arrangements or staggered retirements), guidance for younger generations managing older generations and/or cobot relationships (which may require leadership training or new models of management training which address the newly envisioned workplace), integration of flexible work arrangements and job sharing, and deployment of AI and workplace technologies (with commensurate training and accommodations for their use). Improper handling of these issues can implicate allegations of violations of various employment laws from age, gender and disability discrimination to interference with rights to certain employee benefits.
- Pay a Fair and Competitive Wage. The call for fair wages, including a rise in the federal minimum wage, is not new. As more of the economic burden will fall on individuals to not only afford to live but also to save for all of their needs including health care, retirement, and periods of unemployment without employer assistance, fair wage initiatives are imperative and provide one way for employers to contribute to the eroding social safety net for all workers. If this can be combined with financial wellness and literacy type programs, employers can play a significant role in assisting their workers understand and meet their financial needs.
- Provide Employee and Independent Worker Benefits. It is widely noted that the erosion of employer provided pensions has contributed to the retirement crisis. Further, employer provided health care also continues to be under attack. Employer sponsored programs that address retirement savings and health care benefits provide a crucial safety net for workers and should be maintained lest these needs fall on the government to provide in order to fill the void. Policy makers are also evaluating ways to make these benefits more flexible and portable and these developments should be monitored. Consideration should also be given to making these benefits available to independent workers, which would resolve many of the worker misclassification analyses as it relates to impermissible exclusions of eligible workers for plans. Among the many other types of employer-provided benefits, additional benefits such as tuition reimbursement and student loan debt repayment programs will also assist workers to train for future job skills and ease burdens of existing debts.
- Contribute to Pipeline Development of Workers. Educational systems are in dire need of reform. Employers should consider how to partner with high schools, colleges and universities for job training, internships, and research endeavors to prepare next generations for the future of work. Thought should also be given to re–tooling the current workforce to obtain the skills needed for the marketplace. Ensure that the pipeline of workers obtains the needed skills for future jobs.
- Carefully Deploy AI-driven Automation and New Technologies into the Workplace. The increased use of machines, robots and AI in the workplace will lead to new legal questions concerning data privacy and security, workplace safety, and far ranging employment and labor issues as individuals are required to work with, or be displaced by, these tools. Whether a worker is an employee, an independent contractor, or another yet–to– be determined classification, the co-working relationship between humans and machines has yet to be defined and will require thoughtful planning.
Businesses that have goods and services to sell will need individuals to buy them. If independent work becomes more of a necessity than a choice, the social and economic consequences can be dire. As businesses gain from the increased profitability that is promised by the use of AI-driven automation, impending tax reform, and shifting worker models, it is imperative for employers to contribute to the policy debates and find ways to contribute to the economic security of the individual workers.
A recent blog post by Susan Fowler, a former software engineer at Uber, and the author of two books regarding software engineering, has once again drawn national attention to the issue of the underrepresentation of women in the technology industry. Her story has received extensive media coverage, and Uber has retained former U.S. Attorney General Eric Holder to investigate Ms. Fowler’s allegations. Further, the allegations appear to have reinvigorated the #DeleteUber social media campaign.
Ms. Fowler’s account describes a plethora of employment law issues, in particular the risks employers face when employees lose confidence in management and HR as partners to combat workplace harassment and discrimination and take it upon themselves to police antidiscrimination compliance issues.
To summarize the allegations, shortly after joining Uber, Ms. Fowler alleges she was sexually harassed by her manager and reported the incident to HR. She found HR’s response inadequate, alleging that rather than address her concerns, HR defended the alleged harasser’s conduct saying that it was the “man’s first offense” that it was “probably just an innocent mistake” and that because he was a “high performer” they “wouldn’t feel comfortable punishing him.” Ms. Fowler also alleges that she was given the option to switch teams, and that she risked being subject to retaliation if she chose not to switch. The alleged incident appears to have destroyed Ms. Fowler’s confidence in her employer’s commitment to protecting women from discrimination. She explains in her blog post that “[e]very time something ridiculous happened, every time a sexist email was sent, I’d sent a short report to HR just to keep a record going.” Ms. Fowler explains that the last straw leading to her resignation was a dispute over alleged iniquities in which employees received company branded merchandise.
As a best practices matter, employers are well-served from having employees who have been educated as to how to identify and report incidents of improper behavior. However, employees committed to carrying on unauthorized personal investigations can be problematic. By appropriately handling an employee’s first credible complaint, employers have an opportunity to build trust and allow the employee who raised the complaint to continue focusing on his or her job duties. On the other hand, if employees perceive that the investigations are not conducted appropriately, there is a risk they will take the task upon themselves. This distracts employees from their actual job functions and risks creating a more confrontational and acrimonious workplace atmosphere. Employees actively searching for evidence of workplace discrimination may interpret legitimate constructive criticism as retaliation and file further complaints to that effect. This increases the litigation risk associated with taking adverse employment actions against such employees. In short, employees who decide to conduct unauthorized investigations will likely be difficult to manage and expensive to terminate.
Employers can take steps to avoid this situation by both (1) maintaining appropriate workplace policies; and (2) adequately investigating credible complaints that these policies have been violated. These investigations must not only effectively discover the truth, they need to be viewed as fair and credible by employees. Key components of a credible investigation are:
- Assign an objective fact-finder to lead the investigation: best practice is to assign someone to investigate who will not come in with preconceptions about the persons involved. For example, retaining outside counsel or assigning a HR representative ordinarily assigned to a different business unit demonstrates that the investigation is being undertaken with an open mind.
- Conduct formal witness interviews: make it clear to employees that they are being asked questions in connection to a formal investigation, rather than casual or informal information gathering.
- Provide updates regarding the progress of the investigation through a single point person: there should be a single point person the complaining employee can contact who is knowledgeable about the status of the investigation. Avoid a situation where the complaining employee feels the need to investigate the status of the investigation.
- Proceed with reasonable speed: by conducting an expeditious investigation, employers demonstrate that they care about employee concerns and can be trusted to handle the investigation. The complaining employee should not feel responsible for prompting HR to move forward.
- Conclude the investigation with a close-out meeting: (1) apprise the complaining employee that the investigation has been concluded and whether disciplinary action has been taken; (2) advise as to what if any steps the employer is taking to prevent improper conduct in the future; and (3) regardless of the final outcome of the investigation, reiterate the employer’s commitment to its policies prohibiting retaliation. Employers should avoid equivocating or offering excuses for misconduct or otherwise suggesting that any disciplinary actions taken as a result of the investigation reflect factors other than the gravity of the misconduct such as an employee’s status as a high performer or the employee’s large book of business.