EEOC Cites Return to Work Discrimination in Two Different Texas Disability Lawsuits

Posted on

In September, the EEOC filed lawsuits against two Texas employers – 151 Coffee in Fort Worth and Faben’s Pharmacy in El Paso County — for discrimination against employees who asked for reasonable COVID-19 accommodations at work. The employees had medical conditions that the employer had previously recognized as “qualifying disabilities” under the Americans with Disabilities Act (ADA). All were ready, willing, and able to work.

151 Coffee allegedly violated the ADA by refusing to allow two baristas to return to work until a COVID vaccine was developed. One had a heart condition and the other suffered from multiple sclerosis. They asked if they could avoid customer contact as much as possible when the stores reopened in the Spring of 2020. One had specifically asked not to work the drive-thru window. They were told they could not come back to work until there was a vaccine for COVID-19. The company ultimately terminated their employment.

Fabens Pharmacy refused to allow a pharmacy technician with asthma to wear a facemask. The employee was allegedly harassed, taunted, and humiliated for questioning the policy prohibiting masks and was sent home twice. He quit.

Do You Have a Similar Story? Call a Texas Employment Disability Discrimination Lawyer at Kilgore & Kilgore

If you suspect that you have been the victim of disability discrimination at your workplace, reach out to us. Covid-19 has been rough on employees and employers throughout Texas. Individuals with disabilities who have been harassed and/or denied reasonable accommodations face challenges. Click on this link to find out about our workplace discrimination practice. Use this link to Contact Kilgore Law to get the conversation started. We offer no-cost case evaluations.

Federal and Texas Workplace Disability Discrimination Laws

The federal Equal Employment Opportunity Commission (EEOC) has the principal responsibility for enforcing the ADA, under which both lawsuits were brought. Under the ADA, workplace discrimination may occur when an employee is terminated, suspended, denied training or a promotion, or anything else that negatively affects the terms and conditions of employment because the employee is disabled or needs a reasonable accommodation.

Texas Labor Code Chapter 21 also prohibits employers from discriminating against applicants or employees with disabilities in job applications, procedures, conditions, and privileges of employment. Chapter 21 applies to private employers with 15 or more employees and to all state government and local government entities no matter how many employees they have.

The Thorny Issue of “Reasonableness” in Disability Lawsuits

Although both the 151 Coffee and Faben’s Pharmacy lawsuits were brought under the ADA, it is noteworthy that the issue of whether a requested accommodation is “reasonable” is important under both Texas and federal employment law. That is the issue on which these cases often turn.

An employer need not grant an accommodation that would cause it “undue hardship.” “Undue hardship” is further construed to mean causing “significant difficulty or expense.” An employer may not reject any accommodation that costs money, but it may weigh the cost of an accommodation against its current budget and constraints created by the pandemic.

Even under those constraints, there may be a third way involving other no-cost or very low-cost accommodations. The question of reasonableness quickly becomes a fact-specific process of balancing equities. Negotiations are so specific that it is often hard to extract general principles from preceding lawsuits.

Employers are also required to engage with the employee in what the law describes as an “interactive process.” If it is not obvious or already known, an employer may ask questions or request medical documentation to determine whether the employee’s disability necessitates either the accommodation requested by the employee or any other. An employer may ask an employee:

  • whether another form of accommodation could effectively address the health and safety concerns raised; and
  • how a proposed accommodation will enable the employee to continue performing the fundamental job duties of the position (and whether those job duties are actually essential).

If the employer does not initiate this discussion, a court may infer that there was no real exploration of reasonableness.

It should be noted that fear of contracting COVID-19, by itself, without another condition that substantially limits one or more life activities, does not qualify as a disability. That was not, however, the situation with any of the plaintiffs in the 151 Coffee or Faben’s Pharmacy lawsuits.

The Ugly Facts of Harassment and Retaliation and Disability

In addition to requiring reasonable accommodation for disabled employees, the ADA also prohibits employers from retaliation against employees who request accommodation under the ADA. The EEOC defines retaliation as an adverse action against a covered individual because he or she seeks reasonable accommodation under the law.

Harassment, taunting and humiliation, as the Faben’s Pharmacy employee reported, falls into the catch-all category of “anything else that negatively affects the terms and conditions of employment.” It can be the most damaging aspect of employment discrimination, especially for someone already coping with a disability.

Legally speaking, disability harassment includes behavior of any kind that fosters a hostile environment that severely restricts an individual with a disability. Disability harassment covers a range of behavior. These include abusive jokes and crude name calling – think about middle school at its worst. But it also includes escalating incidents like threats and sexual and physical assault.

Retaliation is effectively the institutional embodiment of one-on-one harassment. Think about negative evaluations, demotions, hours cuts, denied promotions, terminations. It may be decorated in corporate language concerning priorities, productivity, and goals. Harassment and retaliation often go hand-in-hand.

The legal distinctions are sometimes less than useful in describing what has occurred. Nonetheless, workers are protected from both disability discrimination and the harassment and retaliation that sometimes follow from raising the issue.

Reach out to our Employment Disability Discrimination Attorneys for Legal Help

Our Texas employment lawyers have extensive experience with employment disputes, including disability discrimination, and other discrimination claims. Use this link to reach out to us Contact Us with your questions and concerns.

Texas Sexual Harassment Law Protects Employees of Small Businesses and Makes Supervisors, HR, and Third Parties Liable

Posted on

Effective September 1, 2021, Texas employees who work for businesses with fewer than 15 employees have remedies under the Section 21.141 to the Texas Labor Code for sexual harassment. And sometimes, these small businesses can be the most dangerous for workers, particularly regarding employee rights. Contrary to common understanding, there were no remedies for sexual harassment of employees in the Texas Labor Code before September 1. Imagine that you work in a two-person office, just you and the boss. The boss begins to act in inappropriate and unwelcome ways – lewd comments, unwanted touching, asking you out on a date, even suggesting that you could get a raise that way — or that you could get fired otherwise. This harassing activity can escalate. But there are no witnesses, no potential allies and certainly no HR Department. Under prior law, your only realistic choice might be to find another job.

For conduct on and after September 1, 2021, however, you may have another choice – to make a claim under the Texas Labor Code for sexual harassment or discrimination. In combination with two other recent changes to Texas law, SB 45 (as this new law is also known) considerably expands the protections that Texas employees have against sexual harassment.

If You Have Experienced Sexual Harassment, Our Texas Employment Lawyers Can Help

If you find yourself in this uncomfortable and potentially dangerous situation, reach out to our experienced Texas employment lawyers by clicking on this link and sending us your contacts information Contact Kilgore & Kilgore. We offer a free Initial consultation to help you explore your options. Click this link if you would like to know more about our employment law practice.

Legal Definition of Sexual Harassment

It has been said many times before, but it bears repeating. Sexual harassment does not happen just to women. The law protects men, women, and our LGBTQ brothers and sisters. It even applies in cases of mistaken perceptions about sexual orientation. In addition, not all sexual conduct is harassment. The key concepts for a legal sexual harassment definition include unwelcome, unwanted, or conduct that creates a hostile atmosphere in the workplace.

Under the new statute, sexual harassment means an unwelcome sexual advance, a request for a sexual favor, or any other verbal or physical conduct of a sexual nature if any one of the following four things is also true:

  • Submission to the advance, request, or conduct is made a condition of an individual’s employment, either explicitly or implicitly; or
  • Submission to or rejection of any of these behaviors is used as the basis for a decision affecting the individual’s employment; or
  • Any of these behaviors has the purpose or effect of unreasonably interfering with an individual’s work performance; or
  • The behavior has the purpose or effect of creating an intimidating, hostile, or offensive working environment.

That fourth element applies even to employees who are not the target of the harassment. Suppose that the boss harasses an employee, Bob, because she thinks Bob is gay. She leaves Mary, the other employee alone, but Mary is very upset by what is happening to her friend Bob. Mary may also have claim for sexual harassment — in addition to Bob’s claim.

The New SB 45 Holds Contractors, Supervisors, Managers, and HR Personnel Also Responsible for Sexual Harassment, Going Farther Than Federal Law

In addition to expanding the reach of the Texas Labor Code’s prohibition of sexual harassment to employers of any size, SB 45 also expands the definition of employer. In this context, the term also includes “a person who acts directly in the interests of an employer in relation to an employee.” Thus, it may cover the kind of behavior described above if it is done by an outside contractor or a fellow employee. The contractor or colleague may be individually liable for sexual harassment.

In addition, after September 1, supervisors, managers, HR professionals, other employees and third parties may be named individually as defendants in an employee’s sexual harassment complaint and held personally liable for damages. This change may also limit an out-of-state employers’ ability to remove sexual harassment claims under Texas law to federal court in cases where an in-state manager or supervisor is also sued. This is significant because the lower employee-threshold for Texas law is now stricter than that of federal law.

To avoid liability, an employer or person acting in the interest of an employer may be liable if he or she knew or reasonably should have known of the harassing behavior and did not take “immediate and appropriate corrective action.” The previous standard called for “prompt” action, which was presumably not as fast.

Two More Changes to the New Texas Sexual Harassment Law

Two additional changes to Texas law may also be important for employees. HB 21, which also went into effect on September 1, 2021, lengthens the time within which sexual harassment claims may be brought. For a sexual harassment complaint based on conduct occurring on or after September 1, employees will be allowed to file their charge with the Texas Workforce Commission within 300 days after the date the alleged sexual harassment occurred. This is almost twice the 180-day time limit previously in effect. But bear in mind that it is still extremely short. It is very important to act promptly.

Secondly, and of perhaps more limited consequence, SB 282 amends Texas law by prohibiting the Texas legislature from appropriating money and state agencies from using appropriated money to settle or otherwise pay a sexual harassment claim against an elected or appointed member of the executive, legislative, or judicial branch of state government. This includes school districts, open-enrollment charter schools, counties, municipalities, special districts, and other subdivisions of the state.

This is indirectly important to employees because it increases the incentive for these employers to police compliance with sexual harassment laws. It may also lessen any potential political sentiment against sexual harassment settlements as being paid from taxpayer money.

If You Have Experienced Sexual Harassment at Work, Our Employment Lawyers May be Able to Help

What should you do if you have been the target of workplace sexual harassment? First, make detailed notes about the conduct – time, place, date, who else was there, and who knows about it. Keep this record at home. Second, act promptly. Even under the new provisions of the law, you do not have much time. And finally, get in touch with an experienced employment lawyer. Reach out to Kilgore & Kilgore by filling out a form and sending it to us for a free initial consultation. Click here to get the conversation started contact Kilgore & Kilgore.

My Former Employer Has Enforced a Non-Compete Agreement against Me. How Can a Lawyer Help?

Posted on

Although your services were once seen as essential to the company’s success, your former employer has now terminated your employment contract. Unfortunately, the only job prospects you have are in the same industry and same geographical area. Your former company nonetheless insists that it will enforce the terms of the non-compete, non-solicitation, or forfeiture provisions in your employment agreement. After years of building a career, the prospect of starting over is less than appealing, and retirement is still a long way off.

Should things get to the lawsuit stage, the former employer’s first move might be to seek a temporary restraining order (TRO). A TRO would prevent you, the departing executive, from taking a new job pending resolution of the lawsuit. That may be more than enough to scare a new employer away. It can seem like an impossible bind.

This is a tough situation. Texas, unlike some other states, favors enforcement of these restrictive covenants. This remains true even in the face of the Biden administration’s recent Executive Order Promoting Competition in the American Economy, signed on July 9, 2021, directing the FTC to examine potential federal rule changes affecting non-competes. To date, the employer-friendly rules remain in place, but there are still strategies that may soften the blow. This is the time to explore your legal options.

Our Texas Employment Lawyers Help Executives Negotiate, Review and Defend against the Enforcement of Non-Compete Agreements

First, a word to the wise. Do not sign an employment agreement until you have had a Texas employment lawyer review it. That is the best chance you have to avoid these problems.

The Texas employment lawyers at Kilgore & Kilgore may be able help protect you against harsh or unfair enforcement of a non-compete agreement. Click this link to learn more about our Executive Compensation law practice. Use this link to read more about non-compete agreements. To get the conversation started about your situation, click here, and submit your information Contact Kilgore & Kilgore.

Employment Contract Details and the Non-Compete Agreement

Restrictions on competition come up in a variety of circumstances, and non-compete clauses are not always labeled as such. It is important, therefore, to have an employment lawyer evaluate your full employment agreement.

Start With the Letter of the Law

Paragraph 15.50(a) of the Texas Business and Commerce Code provides that:

“[A] covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.”

There are a lot of terms to parse here, but the bottom line is that a non-compete agreement is enforceable in Texas if it is:
  • supported, at the time the agreement was made, by something of value (often money);
  • reasonable in time;
  • reasonable in geographic scope; and
  • reasonable in the activities to be restrained.

It would be misleading to announce a bright-line rule for any of these criteria. The court decisions on these issues are extremely fact and industry specific. This is the kind of detail about which you need to talk to an attorney. No two situations are the same.

Some other potential defensive strategies come from the basic common law of contracts. Among these (and this is not, by any means, an exclusive list) is the doctrine of “unclean hands,” which addresses issues about whether a contract may be assigned to another entity, and choice-of-law questions.

The Doctrine of Unclean Hands in Employment Agreements

The doctrine of unclean hands argues that the party claiming a breach of contract (in this case the former employer) is not entitled to a remedy (the TRO) if it was also responsible for committing the breach. The availability of this defense may depend on evidence of knowing and deliberate misdeeds.

Examples might include:

  • deception as to the terms of the contract or the consequences of the breach;
  • purposely and knowingly not responding to correspondence from the other party on time; or
  • breaking the contract with the employee on the assumption that the employee will not fulfill his or her side of the deal.

Assignability of an Employment Contract

Imagine a situation in which you went to work for ABC Corporation and signed an employment contract that included restrictive covenants. ABC Corporation is thereafter acquired by XYZ Company. As part of the purchase agreement, XYZ acquired all ABC’s contract rights, including your employment agreement. After valiant efforts, you decide that you hate working for XYZ, and so begin to look for another job.

You get an offer from LMNO Ltd., which is a direct competitor of XYZ, but was not of ABC. XYZ sues you and seeks a TRO to prevent you from working for LMNO. Can they do that? The answer is that it may depend on the nature of the services you provided to ABC and XYZ.

Some courts have found that, where an employee does not explicitly agree that his or her employment contract is assignable to a purchaser, and the services provided to the company are personal services – unique to the employee – then the employment agreement may not be assignable. As above, this is a highly fact-specific situation.

Choice of Law and the Non-Complete Agreement

Another interesting wrinkle has to do with which state’s law is to be applied in determining the enforceability of the employment contract. When it comes to non-compete agreements, Texas law is particularly employer friendly. Some other states, like California, hold that non-compete agreements are unenforceable. Many states’ laws fall somewhere in between these poles.

Most Texas non-compete agreements specify that Texas law is to be applied. In Cardoni v. Prosperity Bank, the Fifth Circuit Court of Appeals determined that Oklahoma law applied, rather than Texas law, as provided in the parties’ choice-of-law provision. The decision was the product of a two-step analysis.

First, the court determined that Oklahoma law had a more significant relationship to the employment agreements in question. Therefore, Oklahoma law would have applied had there been no Texas choice-of-law provision in the agreements.

Even with the choice-of-law provision in place, however, Oklahoma had a materially greater interest than Texas because of a fundamental public policy in Oklahoma against enforcement of non-compete agreements. The decision, although it dates from 2015, seems to suggest some possible avenues for employees hamstrung by the consequences of their employment agreements.

Our Employment Lawyers Can Help You Negotiate, Review, and Challenge Enforcement of a Non-compete Agreement or an Employment Agreement

Executives who are subject to restrictive covenants as part of their employment agreements may face unintended consequences when their employment situation changes. For an evaluation of your situation and help with responding in the best way, reach out to our employment lawyers by clicking on this link and submitting your contact information Contact Kilgore & Kilgore.

Termination for Cause Provisions in Employment Contracts

Posted on

Employment agreements for executives and other key employees typically address issues such as compensation and benefits, equity grants, length or term of employment and termination. The termination provisions, especially those dealing with termination for cause and the resulting forfeiture of severance benefits, may be the single greatest source of disputes between employers and executives whose employment is defined under the terms of a negotiated contract.

Even boilerplate termination for cause provisions, which allow the employer to terminate an executive’s employment early if he or she engages in certain acts or omissions against the employer’s interest, can erupt into hot legal controversy when dollars and reputation are on the line. It only gets worse when economic conditions or business conditions force tough decisions about downsizing.

Our Texas Employment Lawyers Help Executives and Employees with Employment Contracts, Negotiations, and Termination Disputes

If you are an executive anticipating the opportunity to work under a negotiated employment agreement, the Texas employment lawyers at Kilgore & Kilgore can help bargain for the best possible arrangement. Remember that problems, including termination issues, are best prevented. If, however, that opportunity has come and gone, our attorneys can help you and your employer resolve disputes. Click this link to learn more about our Executive Compensation law practice. Use this link to get the conversation started about your own compensation Contact Kilgore & Kilgore.

Termination for Cause Provisions in Employment Contracts

There are variations, of course, but a typical termination for cause clause in an employment contract might read something like this:

“Termination by the Company for Cause. The Company may, at any time and without notice, terminate the Executive “for cause.” Termination by the Company of the Executive “for cause” shall include but not be limited to termination based on any of the following grounds: (a) failure to perform the duties of the Employee’s position in a satisfactory manner; (b) fraud, misappropriation, embezzlement or acts of similar dishonesty; (c) conviction of a felony involving moral turpitude; (d) illegal use of drugs or excessive use of alcohol in the workplace; (e) intentional and willful misconduct that may subject the Company to criminal or civil liability; (f) breach of the Employee’s duty of loyalty, including the diversion or usurpation of corporate opportunities properly belonging to the Company; (g) willful disregard of Company policies and procedures; (h) breach of any of the material terms of this Agreement; and (i) insubordination or deliberate refusal to follow the instructions of the President of the Company.”

Undefined Terms in Employment Contracts That Can Help an Executive or Employee

Some of the triggering causes mentioned, like “conviction of a felony” are clearly identifiable. Others are far more subject to interpretation. Does “refusal to follow instructions” include refusal to commit an illegal act or refusal to commit an act that is unethical, for instance? What about retaliation against a whistleblower? What about termination that follows a pattern of conduct that is arguably discriminatory or harassing? What about the fallout from an office romance gone toxic?

The net effect is the same, however. Usually, no severance is payable to the executive when he or she is terminated for cause. The severance provisions in an employment contract are often key elements of the negotiation, particularly if the executive left a secure position to join a new organization. The damage to an executive’s professional reputation by a termination for cause can also have considerable impact as the executive finds himself or herself back on the job market.

Getting an Employment Contract into a Defensible Posture

It is best to prevent a dispute before one arises. The best opportunity is at the initial negotiation of the employment contract. The executive or employee should seek to have the termination for cause provisions drafted as narrowly as possible, to reduce the risk of undefined terms that could be interpreted expansively against the interests of the employee.

Another possible approach is to seek to include an “indemnity clause” in the employment contract. Indemnification is a legal concept in which one party is contractually obligated to compensate and defend the other party for any damage or liability incurred due to certain acts. Indemnity clauses are a way to shift financial liability. For example, an employer who agrees to indemnify an individual who is wrongly accused of breaching the terms of an employment contract might be required to pay the costs, expenses, and fees (including legal fees) incurred by the executive or employee. At best, an executive or employee should negotiate for advancement of attorney fees rather than reimbursement of expenses. Advancement is indemnification up-front for expenses incurred, with a promise to repay the amounts advanced if it is judicially determined that the executive or employee was not entitled to be indemnified.

A third defensive approach is to resist a growing trend among employers to contractually require that all disputes be submitted to arbitration. Although arbitration on its face seems to be a relatively neutral method of reducing the costs and time that employment disputes can cause, it may work against the complaining party. Arbitrators are often chosen by defendant employers. Their neutrality may be implicitly compromised by an understandable desire to be hired again in the future by that employer. Arbitration proceedings create no precedent. There is often little if any record of the proceedings and the decision of an arbitrator is difficult to appeal.

Of course, none of these approaches is foolproof and the suggestions may come too late for those already engaged in a dispute about for cause termination. Sometimes aggressive legal representation is the best, and perhaps only, remaining alternative.

Our Employment Lawyers Can Help You Craft and Negotiate a Mutually Acceptable Employment Contract or Deal with the Consequences of a For Cause Termination

Executives and employees whose compensation is determined on a negotiated contract basis may face unique challenges. For an evaluation of your situation, help in crafting the best possible employment contract, effective legal representation, and negotiation coaching, should you wish to handle you own negotiation, click this link to reach out to our employment lawyers at contact Kilgore & Kilgore.

Workplace Discrimination Based on Perceived Disability is Illegal

Posted on

For the last year, you have worked from home, as have all the employees at your job. Your employer has now required that all employees come back to the office. You are happy and eager to do so. In the meantime, however, you have been diagnosed with cancer, which is now finally controlled and in remission. Perhaps instead, you became pregnant. Rather than welcome you back to the office, your boss fires you. You are not disabled and have not asked for accommodations, but you experience discrimination as if you were. Frankly, from your employer’s point of view, you have become a bit of a burden. What now?

Call a Texas Employment Discrimination Lawyer at Kilgore & Kilgore

If you have questions about discrimination at work, even if you are not disabled, reach out to us. Click on this link to find out about our workplace discrimination and our pregnancy discrimination law practice. Use this link Contact Kilgore Law to get the conversation started. We offer no cost case evaluations.

The Law in Texas Regarding Workplace Disability Discrimination

Texas Labor Code Chapter 21 and the Americans with Disabilities Act (ADA) prohibit employers from discrimination against applicants or employees with disabilities in job application, procedures, conditions, and privileges of employment. Chapter 21 applies to private employers with 15 or more employees, and to all state government and local government entities no matter how many employees they have.

To be clear, disability discrimination may occur when an employee is terminated, suspended, denied training, denied promotion, or anything else that negatively affects the terms and conditions of employment because the employee is disabled or needs a reasonable accommodation. Disability discrimination can also occur in the job application process. For example, an employer cannot refuse to hire an applicant simply because the employee is disabled or is regarded as having a disability. Similarly, an employer may not be able to withdraw a job offer on learning that a prospective employee is pregnant.

The law places strict guidelines around an employer’s ability to ask about disabilities during the hiring process. In most cases, an employer cannot ask about an employee’s medical condition or disability as a contingency on making a job offer. An employer can only ask whether the employee can perform the job with or without reasonable accommodations. Someone may bring a lawsuit under the Texas Labor Code and the ADA if he or she has been discriminated against due to:

  • a physical or mental disability that substantially limits one or more major life activities;
  • a record of having a disability; or
  • is regarded as having a disability.

Discrimination Occurs When a Worker is Mistakenly Believed to Have a Disability

Under the Americans with Disabilities Amendments Act of 2008 (ADAAA), the rules surrounding the third of these fundamental requirements, often referred to as the regarded as or perceived as prong, are a little different than they are for other situations.

Ordinarily, to succeed in a workplace disability discrimination case, claimants must first show that they have a condition that limits their ability to perform a major life activity. Thereafter, the inquiry is about whether they are qualified and able to do the job with reasonable accommodations, whether the accommodations will cause undue hardship to the employer, and whether the employer engaged them in an interactive process to answer these questions.

In regarded as cases, an employee may allege discrimination without having to show that she is limited in a major life activity. However, regarded as claims are subject to two important limits. First, someone with an impairment that is transitory, and minor will not qualify as regarded as having a disability. That is presumably what sick leave is for. Secondly, an employer need not offer reasonable accommodations. In the imaginary scenario proposed at the outset, it is important that the employee did not claim to have a disability and was willing to return to the office.

Recent Regarded as Situations That Resulted in Discrimination Lawsuits with Favorable Court Decisions

Several cases shed light on how these claims work. In early 2021, for example, Pirtek USA LLC, a fluid power system company based in Florida agreed to pay $85,000 and furnish other relief to settle a perceived disability discrimination lawsuit filed by the EEOC. In late 2015, the employee was hospitalized for several weeks with pancreatitis, acute respiratory distress syndrome, and pneumonia. In March 2016, the employee’s physician cleared him to return to work without restrictions. Nevertheless, Pirtek fired him, claiming that he was a liability and that it was afraid he would be injured on the job.

“Too often employers rely upon unfounded assumptions about an employee’s ability to do his job, rather than the results of a medical examination,” said Robert Weisberg, regional attorney for the Miami District EEOC Office. In addition to the $85,000 in monetary relief, the three-year consent decree settling the lawsuit required Pirtek to develop and distribute a written policy against disability discrimination and to conduct anti-discrimination training for management and human resources personnel.

Another case, Cannon v. Jacob Field Servs. N. AM., Inc. serves as an example of the way perceived disability cases that do not settle may proceed through the court system. The Fifth Circuit, without resolving an underlying discrimination claim, ultimately held that a job applicant whose condition did not qualify as a disability could claim that he had been discriminated against based on a perceived disability. Jacobs Field Services (JFS), a construction company, offered Michael Cannon a job as a field engineer at a Colorado mine site. It revoked the offer shortly after learning that Cannon had a rotator cuff impairment that prevented him from lifting his right arm above the shoulder.

Cannon filed a complaint with the EEOC, which ultimately concluded that JFS engaged in disability discrimination because, among other things, it had failed to engage with Cannon in an interactive process that would have allowed further fact finding about his injury and any job limitations. The EEOC, on Cannon’s behalf, filed suit in the District Court. The District Court granted summary judgment in favor of JFS, holding that Cannon’s rotator cuff injury was not a disability under the ADA. It also found that even if he were disabled, he was not qualified for the job because of his movement limitations. The District Court never reached Cannon’s claim that JFS had failed to grant him reasonable accommodations.

The Fifth Circuit reversed the District Court, holding that internal communications at JFS supported a finding that the construction company viewed his shoulder injury as a disability, however erroneously, under the terms of the law. Cannon was therefore permitted to claim that he had experience discrimination in the job application process because he was regarded as having a disability. The Fifth Circuit remanded the case to the District Court for further proceedings.

What About COVID-19 Implications?

That is the looming question. The pandemic and work from home arrangements have scrambled the employment landscape in ways that are still to be fully understood. Some employees will be reluctant to give up the benefits of work from home arrangements; employers may re-think the need for large and expensive office space. The issue of workplace accommodations seems to have taken on a life separate from disability discrimination law. Employment lawyers with extensive experience may be better positioned to represent employees creatively in this rapidly changing situation.

Reach out to our Employment Discrimination Attorneys for Legal Help

Our Texas employment lawyers have years of far-ranging experience with employment disputes, including disability and other discrimination claims. Use this link to reach us Contact Us with your questions and concerns.

2021 Executive Compensation Considerations and Strategy Challenges for CEOs and Other Top Executives

Posted on

With the pandemic and associated business disruptions, employers are widely advised to take a hard look at executive compensation. If your executive compensation is determined on a negotiated contract basis, now is an excellent time to review it. Employers are reviewing details like salary, deferred compensation agreements, performance-based awards, non-compete agreements, severance packages, stock options, stock prices, retirement, and equity incentives.

Many businesses face extraordinary challenges in 2021. Last year was one that a lot of Texans and companies located in Texas would like to forget. This year has not been smooth sailing either. The February freeze, the personal suffering, and business disruption it caused made a rough start to the year for the energy sector and many companies in Texas. Uncertain remains the watchword, not just in the Texas economy, but also worldwide. CEOs and other top executives should prepare themselves with plans of their own. The best survival strategy may be information, planning, and negotiating based on experience and expertise.

Our Texas Employment Lawyers Help CEOs and Other Top Executives Negotiate Their Executive Compensation Packages

If your company has or may be planning to restructure your compensation arrangement, the Texas employment lawyers at Kilgore & Kilgore can help you assess your situation and craft the best possible package for the future. Click this link to learn more about our Executive Compensation law practice. Use this link to get the conversation started about your own compensation Contact Kilgore & Kilgore. Every situation is different, so there is no one strategy. Here, however are some of the challenges and opportunities we see on the horizon.

Salary Reductions and Strategies for Executive Compensation

A study by the Corporate Governance Research Initiative at the Stanford Graduate School of Business and the Rock Center for Corporate Governance at Stanford University reported that, among those surveyed, many companies have cut CEO salaries. A smaller percentage reduced either deferred salary payments or required or offered an exchange of salary for equity. Many a company receiving stimulus aid under the CARES Act were subject to significant limits on the compensation paid to officers and other highly paid employees.

Executives, appreciating that temporary reductions may not be avoidable, should still look for an end date and for plans to restore lost compensation. Employers, equally sensitive to the risk of losing key executives to competitors, may be willing to consider creative ways for top employees to earn back salary reductions through future incentive payments.

Bonus Awards and Incentive Payments – Moving the Measure in Executive Compensation

Annual bonus awards and longer-term incentive payments are generally dependent on the achievement of certain pre-set goals. The economic climate may have made some of these simply impossible; so, it may be to an executive’s benefit – at least for 2021 – to change the measuring stick used to assess performance.

To motivate and retain key executives, many companies have been willing to amend critical metrics – for instance, by changing financial performance metrics to strategic metrics, including the achievement of diversity, equality, and inclusion goals. Other companies agree to re-set goals later in the year or in on an adjustable scale that considers stock prices, revenue projections, and extraordinary events. Others may be willing to set a broader range for performance targets. When confronted with a lower maximum payout, executives may be able to argue for a decrease in the eligibility threshold for receiving a performance award. As uncertain as the economy may look, there may be work-arounds.

Stock Awards and Stock Options

Many executives have suffered significant losses because the value of their employer stocks dropped. Executives holding shares of employer stock cannot often sell their interest in company stock at will, so they are, in a sense, captive investors. Some commentators have suggested that it is unfair to expect them to bear these losses without mitigation of some sort, such as supplemental awards later. The rate at which an executive’s interest in equity vests is often performance-based, rather than time-based. Usually this works to an executive’s benefit. In extraordinary situations like a pandemic, however, negotiating for time-based vesting may be the better choice.

Change in Control and Severance Agreements

The grim truth, though, is that the financial challenges of 2020 will force some companies to face painful restructuring decisions. Others may have become acquisition targets. Unwanted as these changes may be, there is no need for them to be a surprise. Now may be the time for high-level employees to review their financial protections in the event of a change in control or termination. It may also be time to review the terms of non-compete agreements.

With respect to severance agreements, it is important to consider whether and how the benefit plans are subject to the Employee Retirement Income Security Act (ERISA) and Internal Revenue Service Code Section 409A, and, depending on how post-termination health benefits are provided, determine any continuing health benefits compliance issues under COBRA.

Our Employment Lawyers Can Help You Develop Personalized Executive Compensation Strategies

Those whose compensation is determined on a negotiated contract basis are challenged in 2021 because of the fluctuations in the 2020 economy. There is no assurance that the new normal will look much like the old one. For an evaluation of your compensation package and developing a negotiating strategy favorable to you, reach out to our employment lawyers at contact Kilgore & Kilgore.

Fifth Circuit Strikes a Blow Against Wage and Hour Lawsuits – More Than Ever, Workers Need Good Legal Help to Win in Court

Posted on

On January 12, 2020, the Fifth Circuit Court of Appeals handed down a decision that will likely make it more difficult for Texas workers to make minimum wage, overtime, and other claims under the Fair Labor Standards Act (FLSA). The case, known as Swales v. KLLM Transport Services, is so recent that its impact has yet to be fully felt in upcoming lawsuits. One thing is clear, though: this is going to take some strategic legal thinking for workers who prevail better in court when they can join in FLSA collective action lawsuits. For those seeking the protection of wage and hour laws, good legal help is more important than ever before.

Texas Wage and Hour Attorneys at Kilgore & Kilgore Know How to Try FLSA Collective Action Lawsuits

If you have questions about your wages, hours, overtime compensation, tips, or whether you have been incorrectly classified as an independent contractor instead of an employee, reach out to the employment lawyers at Kilgore & Kilgore. Click on this link to find out about our Wage and Hour Law Practice. If you think your employer is not paying you everything you are owed, contact us using this link Contact Kilgore Law to get the conversation started. We offer case evaluations at no cost.

What Happened in a Recent Lawsuit that Went to Appeal, and Why it Matters to Workers

Between 2015 and 2017, Harry Swales drove a refrigerated truck for KLLM Transport. He, like the other drivers who joined in the lawsuit, worked as an independent contractor for the company. The drivers were paid by the number of miles driven. The drivers’ claim is that KLLM controlled their work to such an extent that they should have been classified as employees and paid at least the federal minimum wage of $7.25 per hour.

The federal statute known as the Fair Labor Standards Act (FLSA) protects employees, but not independent contractors, by establishing a minimum hourly wage, maximum work hours, and overtime compensation for work beyond 40 hours per week. It also permits similarly situated employees to form a group litigation, described in the law as a “collective action.” This is roughly analogous to a class action lawsuit, but not quite the same.

FLSA collective actions often involve violations such as:

  • misclassifying employees as managers or other employees not protected by law;
  • making improper deductions from employee salaries;
  • failing to pay employees as required from a “tip pool”;
  • requiring employees to work “off the clock”; and
  • miscalculating overtime.

The ability to sue in collective actions is hugely important because most of these claims are relatively small – too small, many workers think, to be worth pursuing on their own. If workers could not join a collective action, these FLSA violations would become a wrong without a remedy.

The Fifth Circuit’s decision in Swales is not about whether the drivers were employees or independent contractors. That has yet to be decided. It is about how courts in Texas and throughout the Fifth Circuit should decide who can join in a collective action lawsuit under the FLSA as members of a court certified class of plaintiffs. The new process designed by the Court may make it more difficult and expensive for all similarly situated workers to join collective action lawsuits under the federal wage and hour law.

Is this a Wage and Hour Class Action Lawsuit?

It is similar, but with two important differences. First, unlike the Federal Rules of Civil Procedure, which provide quite a bit of guidance on who can join in a class action lawsuit, the FLSA is silent about certain important issues, such as what the term “similarly situated” means. Courts have had to devise their own rules, which has led to some differences in interpretation.

Second, to participate in a collective action under the FLSA, individuals must affirmatively choose to participate, or “opt-in.” With class action lawsuits, individuals must affirmatively choose to “opt-out” if they do not want to participate.

New Rules for Collective Actions in Wage and Hour Lawsuits

Since 1987 most federal district courts, including those in Texas, have applied a two-step process to determine who is “similarly situated” and may be potentially included in the class of plaintiffs. This process was first established in a lawsuit known as Lusardi v. Xerox Corporation.

The first step involves a conditional certification or notice stage determination where the court decides whether the proposed members of a class of employees are similar enough to receive notice of and the right to opt-in to the pending action. This “first cut” is often based on initial pleadings. If the plaintiffs meet this burden, the court conditionally certifies the collective action, authorizes counsel for the representative plaintiff to send notice of the case inviting potential members to participate in the lawsuit, and permits the parties to proceed with further fact-finding. Step one casts a wide net to locate all possible workers whose circumstances may be akin to that of the initial plaintiffs.

As the second step, the defendant employer will likely object to the inclusion of some persons who have opted in. The court then applies a stricter standard to decide whether the members in question are, in fact, similar enough to proceed to trial as a group. The “second cut” reduces the size of the potential class previously identified.

Swales does away with this two-step process in the Fifth Circuit. It requires courts to take a hard look at whether workers are similarly situated in the first place. This initial review:

  • identifies what facts and legal considerations will be material to determining whether a group of employees that is similarly situated; and
  • authorizes preliminary discovery necessary to make that determination, which will vary according to the facts on hand.

Only those in the resulting group can be sent an invitation to opt-in to the lawsuit. The Swales process reduces the size of the class from the beginning, rather than waiting until the second step.

Good Wage and Hour Legal Help Will Benefit the Collective Action and Avoid Potential Pitfalls

The new process for certifying who is eligible to participate in an FLSA collective action clearly takes some strategic thinking. Following are only a few of the potential pitfalls of the new process:

  • It seems designed to produce a smaller class of employees at the outset. There is simply a greater risk of missing a group of similarly situated employees by notifying too few.
  • There is a greater risk that potential plaintiffs will see their recoveries limited or may be barred entirely by the statute of limitation. The statute of limitation for FLSA collection actions is two or three years from the date the violation. The time continues to run until an individual opts into the lawsuit. That could be delayed if the initial process of identifying facts and legal considerations becomes protracted.
  • The Swales decision establishes a new process that shifts the costs of initial discovery from the defendant employer to the presumably shallower-pocketed worker-plaintiffs because of the stage of the process in which it occurs.
  • The novel process introduces a new level of uncertainty. With different federal courts interpreting and applying the same federal law differently, challenges are a near certainty. Will other federal Circuits adopt the Swales process? Is a Supreme Court challenge around the corner?

As FLSA collective actions are brought in the Fifth Circuit, other concerns will undoubtedly emerge. Now, more than ever, workers need the help of employment lawyers who have deep experience with wage and hour claims, including overtime and misclassification disputes.

Reach out to our Wage and Hour Lawyers for Legal Help

Our Texas employment lawyers have a depth of experience with wage and hour, overtime compensation, employee rights, tip, and other wage claims. We are well prepared to handle the new changes created by the Swales case to help our clients. Use this link to get started Contact Us. We offer a free evaluation of the facts of your case.

New Final Rule from the DOL Clarifies the Differences Between Employees and Independent Contractors

Posted on

On January 6, 2021, the U.S. Department of Labor issued a final rule intended to clarify who is an independent contractor and who is an employee under the Fair Labor Standards Act (FLSA). This rule would supersede all previous federal guidance on the issue but does not affect other state or federal tax laws. The new federal rule was to take effect on March 8, 2021.

On January 20, President Biden reportedly issued a freeze on all new regulations to give the incoming administration an opportunity to review how it should respond. The new administration had been expected to oppose the final independent contractor/employee rule.

The distinction between employees and independent contractors is important, though, because only employees are protected by the FLSA’s minimum wage and overtime provisions. This is even more urgent as questions swirl about initiatives to raise the federal minimum wage to $15. So, how are workers to know whether they are being correctly classified – or more to the point – correctly paid?

Kilgore & Kilgore Employment Lawyers Can Help You Enforce Your Rights

If you have questions about your wages or other workplace issues like discrimination, we are here to help. Click here to learn more about our employment law practice. Our case evaluation is free. Click here Contact Kilgore Law reach out to us.

Employee or Independent Contractor under the FLSA

The FLSA requires covered employers to pay their nonexempt employees at least the Federal minimum wage (currently $7.25) for every hour worked and overtime pay for every hour worked over 40 in a workweek. The FLSA sets a floor for hourly wages. Some states require a higher minimum; but Texas uses the federal rules. The law also mandates that employers keep certain records regarding their employees. None of these requirements apply to independent contractors, whose only legal protections come from the contract under which they work.

The FLSA does not define either “employee” or “independent contractor.” It defines “employ,” however, as “suffer[ing] or permit[ing] to work.” Courts have parsed the meaning of those words according to a multifactor test designed to determine whether, as a matter of economic reality, a worker is dependent on a particular individual, business, or organization for work (and is thus an employee) or is in business for him- or herself (and is thus an independent contractor). Different states have developed their own interpretations of this multifactor inquiry.

In Texas, perhaps the most user-friendly tool for applying this multifactor test is set forth in a chart adopted by the Texas Workforce Commission pursuant to the Texas Payday Law. It sets out 20 factors, including whether:

  • The worker receives instructions from the employer.
  • The worker is trained by the employer or another worker.
  • The worker’s services are integrated into the operation of the business.
  • Services are rendered personally, or whether the worker may delegate them to someone else.
  • The worker may hire, supervise, or pay helpers.
  • The relationship is continuing.
  • There are set hours of work.
  • Full time is required.
  • Services are performed at a location determined by the employer.
  • The employer sets the order or sequence of tasks.
  • The worker must submit oral or written reports.
  • The worker is paid by the period worked (hour, week, or month) or the job.
  • The employer reimburses business expenses and travel expenses.
  • The worker furnishes his or her own tools and equipment.
  • The worker has a significant investment in the business.
  • The worker can realize profit or loss.
  • The worker may work for more than one business at a time.
  • The service is available to the public.
  • The employer may discharge the worker without liability.
  • The worker has the right to quit without liability.

The ultimate results are not uniform from situation to situation, and they are hard to predict. This is a problem the new final rule proposes to fix.

Two Core Factors and Three Guideposts – Pros and Cons – Independent Contractor or Employee

The new guidance replaces the old multifactor test with two core factors for courts to consider. If the result is still unclear, it posits three additional guideposts to ponder.

First, the two core factors examine the control that a person has over his or her own work and second, the opportunity for profit or loss because of personal investment. The three additional factors, which may be applied if necessary, consider the amount of skill required for the position, the permanence of the working relationship, and how integrated the worker’s role is to the organization’s overall operation.

If the DOL’s final rule goes into effect, it would presumably compress the twenty-factor determination that Texas employers and courts now use to five. Proponents argue that this will be simpler than the old test and will produce more uniform results.

Opponents argue that it tips the scale heavily in favor of employers, who would often prefer to consider workers as independent contractors. In particular, the new final rule abandons the analysis of whether the worker has a significant investment in the business (number 15 on the list above). In this way, the January 6 rule makes it easier to classify an individual as an independent contractor. A former DOL official and director of policy at the Economic Policy Institute has suggested that the new rule could cost U.S. wage workers at least $3.7 billion annually.

What about Unemployment Compensation, Workers Compensation and Tax Withholding?

But the guarantee of a minimum wage and overtime are not the only legal protections that workers get when they are classified as employees rather than independent contractors. The new DOL guidance has no effect on the Texas Unemployment Compensation Act (TUCA). The TUCA uses a broadly inclusive test, known as the “direction or control” or “common law” test, for deciding who is an employee. By implication, an independent contractor would be a person whose services do not meet the above test. It is possible, if unlikely, that an individual might be an independent contractor for wage and hour questions but an employee when it came to unemployment compensation.

Texas employers are generally responsible for withholding federal taxes, including Social Security and Medicare tax for employees, but not independent contractors. The Internal Revenue Service has its own criteria for determining who is an employee. This multi-factor test focuses on behavioral control, financial control, and relationship, and looks at some of the same factors considered by the DOL. It would also not be affected by the new DOL guidance.

Texas does not require most private employers to have workers’ compensation. Employers who contract with government entities must, however, provide workers’ compensation coverage for employees working on a project. Independent contractors are generally responsible for their own coverage. Courts generally look at whether the employer has the right to control the progress, details, and methods of operations of the employee’s work.

The issue of who is an independent contractor and who is an employee and for what purpose is clearly complex. But complexity tends to be the problem of employers and those charged with administering the law. Wage workers face the far more immediate problem of how to get paid what they are entitled to.

Reach out to our Employment Lawyers for Wage Help for Independent Contractors and Employees

If you think you are being improperly paid as an independent contractor rather than an employee, call us to talk about your situation. The same is true if you have encountered other workplace problems, such as harassment or unfair hiring practices. Our Texas employment lawyers know the law and understand your situation. We offer a free evaluation of the facts of your case. Use this link Contact Us to get the conversation started.

Supreme Court Decision Interprets Racial Discrimination Litigation Under Prevailing Civil Rights Law

Posted on

In a recent decision, the Supreme Court held that to succeed in a racial discrimination claim brought under the Civil Rights Act of 1866, or Section 1981 claim (as opposed to a claim brought under Title VII or under the Texas Human Rights Act), a plaintiff must show that race was the prime cause, not just one of many causes, of the plaintiff’s legal harm. Unlike much recent racial discrimination litigation, this is not an employment case. It rises from the law of contracts and tortious interference with those contracts.

This case is known as Comcast Corp. v. National Association of African American-Owned Media. However, torts and contracts are so fundamental to American law that the decision may have consequences for buyers and sellers of goods and services. For example, in the post-COVID-19 legal landscape, will independent contractors — gig workers who sell their work under the terms of a contract— have fewer legal protections from racial discrimination than employees who do similar work under the protections of common and statutory law? Will the Comcast decision further prompt employers to hire work out rather than building a permanent workforce?

The Future of Gig Workers and Independent Contractors

Whether independent contractor protections will turn out to be the cutting edge of racial discrimination law is anybody’s guess. But employers are already sensible to the benefits of the flexible and contingent workforce that independent contractors present. The disruptions in work and business triggered by COVID-19 containment efforts may make contracting even more attractive to employers once the dust has settled. Independent contractors, however, are far more vulnerable to employer misdeeds than employees are. More than ever, those who face racial discrimination issues should rely on the depth of legal expertise offered by the experienced attorneys at Kilgore & Kilgore.

Our Business and Employment Lawyers May be Able to Help Those Who Experience Racial Discrimination

If you believe that you or your business has suffered from racial discrimination or false allegations of racial discrimination, the Texas lawyers at Kilgore & Kilgore can help you assess your legal situation and fight for your rights. Click this link to learn more about workplace discrimination. We offer a free review of the facts of your case. Use this link to get the conversation started Contact Kilgore & Kilgore.

Comcast Corp. Refused to Contract with ESN – Was It Racial Discrimination?

African American entrepreneur Byron Allen owns Entertainment Studios Network (ESN), the operator of seven television networks. ESN had long sought to have Comcast Corp. carry its channels. Comcast Corp. refused, citing many reasons. ESN finally sued, claiming that Comcast Corp. systematically disfavored African American-owned media companies. ESN conceded that Comcast Corp. had offered legitimate business reasons for refusing to carry its channels but argued that these reasons were pretexts.

The trial court concluded that ESN failed to show that, but for racial animus, Comcast Corp. would have contracted with ESN. It dismissed the case. On appeal, the Ninth Circuit Court of Appeals reversed, on the rationale the plaintiff had to plead only that race played “some role” in the decision-making process. The Supreme Court sided with the trial court, opting for the “but for” test and sent the case back to the Ninth Circuit Court of Appeals for reconsideration under that standard of causation.

That may seem pretty far down in the legal weeds, but the bottom line is that it is much harder for someone claiming racial discrimination in a contract case to win under the “but for” standard than it would be under the “motivating factor” test.

A Tale of Two Racial Discrimination Laws

There are many federal and state anti-discrimination laws and each may have different standards for proving causation. The two laws at the heart of Comcast are 42 U.S.C. §1981, originally enacted during Reconstruction as part of the Civil Rights Act of 1866, and Title VII of the Civil Rights Act of 1964. Actually, only the first is at issue in Comcast, but how we understand its meaning is affected by more recent experience with the latter.

Civil Rights Law and Racial Discrimination

On its face, §1981 relates to rights and responsibilities that are specifically relevant to the conduct of a business, including the right to contract and to access the court system. The Civil Rights Act of 1866 granted citizenship to the freed slaves and provided the following guarantee, now codified as §1981(a):

“All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, and shall be subject to like punishment, pains, penalties, taxes, licenses, and exactions of every kind, and to no other.”

Title VII Relates to Employment Discrimination

On the other hand, Title VII relates specifically to employment. It prohibits employerment discrimination based on race, color, national origin, sex, and religion. Under the facts of Comcast, Title VII seems inapplicable. Byron Allen was not suing over employment rights. He and other litigants sued because Comcast Corp. refused to carry ESN channels.

There are other differences between the two statutes, including the length of the statute of limitations and the right of private action, but the critical one in Comcast is the standard of causation. In its analysis, the Supreme Court rejected the suggestion, attributed to Comcast Corp., that the “motivating factor” standard of Title VII should be imported into the understanding of §1981. The Supreme Court relied heavily on the historical differences between the two statutes, stating:

“[I]t’s hard to see what [the history of any of Title VII] might tell us about §1981. Title VII was enacted in 1964; this Court recognized its motivating factor test in 1989; and Congress replaced that rule with its own version two years later. Meanwhile, §1981 dates back to 1866 and has never said a word about motivating factors. So, we have two statutes with two distinct histories, and not a shred of evidence that Congress meant them to incorporate the same causation standard.”

The history of the application of the two different standards of causation in the two laws has been anything but a model of clarity. Title VII, for example, uses the “but for” standard for certain causes of action and at certain stages of Title VII lawsuits. Nonetheless, today, the law of the land is that to succeed in a §1981 claim, a plaintiff must show that racial bias is the principal, the “but for,” cause of the legal injury that is the subject of the lawsuit.

Racial Discrimination – How It Plays in Texas

The Texas Commission on Human Rights Act (TCHRA) is the Texas version of Title VII and was closely modeled after federal law. Generally, Texas courts look to federal precedents for guidance in determining the proper interpretation of the statute. Similarly, civil rights law in contexts other than employment also seems to rely on federal law. The big question is what is the impact of the Comcast decision likely to be in Texas courts and in the Fifth Circuit?

Predicting the future is perilous work. But the simple answer to that question appears to be that the bright line distinction between Title VII and §1981 on which the Supreme Court relies may represent a shift in the way §1981 is understood in Texas.

The Distinction Between Contract and Employment Law

Perhaps the distinction is not so clear. At least, that was what federal courts found in the past. An example is a 2005 case known as Johnson v. Crown Enterprises. The Fifth Circuit explicitly rejected the trial court’s rigid distinction between Title VII and §1981. The case turned on the statute of limitations rather than the standard of proof, but it continues to be cited as good law in many contexts.

An amicus brief filed in support of ESN makes a similar argument, grounding §1981 in the history of labor contract issues confronted by newly freed slaves. The brief quotes extensively from a Yale Law Journal note from 2006, which further advances the proposition that, when understood in context, §1981 could provide legal protection from racial discrimination for independent contractors who are not covered by Title VII. That, in fact, was the situation faced by Johnny Johnson in the Fifth Circuit case cited herein.

Learn More about Your Rights and Racial Discrimination

Click this link if you wish to know more about racial discrimination claims. For a free evaluation of the facts of your case, click here and let’s get the conversation started contact Kilgore & Kilgore.

Legal Help for Servers in Texas Restaurants Earning Tips but Not Getting Paid by Owners for What They are Owed

Posted on

Talk about complicated compensation schemes, some of the most complex rules of the Fair Labor Standards Act (FLSA) apply to people who work for tips like a waitress, bartender, dishwasher, barber, hairdresser, babysitter, caregiver, housecleaner, etc. In Texas, the minimum wage for tipped workers is $2.13, exactly as it has been for three decades.

Furthermore, when employers abuse, or innocently misapply, the rules for paying tipped workers, such employees often feel powerless. People who receive tips assume they cannot afford legal help. This is not necessarily true. Many tipped workers have valid pay claims under the FLSA, and federal courts in Texas and throughout the country are now hearing more and more of these cases. To make such cases more economic, workers can unite to bring a collective action under the FLSA. If you suspect that something is not right with the way your employer is calculating your wage and tips, our employment lawyers may be able to offer legal help.

Kilgore & Kilgore Employment Lawyers Understand What Tipped Workers Should Get Paid

If you have questions about your wage, tips, or other problems at your job, including discrimination, harassment, wrongful termination, or other employee rights issue, we are here to listen. Click on this link to find out about our employee rights law practice. If you think your employer is not paying you everything you are owed, reach out to us using this link Contact Kilgore Law. We offer free case evaluations.

The Issue of Tips, Salaries, and Compensation is Complicated and Often Requires Legal Help

The recent Fourth Circuit case, Wai Tom v. Hospitality Ventures LLC, is a useful illustration of the kinds of questions that people who work for tips have. The decision is not yet controlling precedent in Texas and is so recent that its implications have yet to fully percolate through Texas courts. The questions it raises are hotly debated, though. They can be expected to come up again.

Mr. Tom, and others who ultimately joined the collective lawsuit, worked as servers and server assistants at Ãn Asian Cuisine, an upscale sushi restaurant in North Carolina. Their pay came from four sources:

  • A guaranteed hourly wage of at least $2.13 plus tips or employer pay to reach at least the federal minimum wage of $7.25 per hour;
  • cash tips;
  • credit card tips; and
  • automatic, non-discretionary gratuities of 20 percent for parties of six or more.

In July 2014, the restaurant instituted a tip pool for its evening shifts, pooling together all tips and automatic gratuities. This pool was distributed among the servers and others, who did several different kinds of jobs. To determine whether the restaurant violated the FLSA minimum wage and overtime requirements, the Fourth Circuit Court looked at several persistent questions:

  • whether the automatic 20 percent gratuity was actually a tip;
  • who should be included in the tip pool;
  • for whom was the restaurant entitled to claim tip credit; and
  • who was entitled to a minimum wage of $7.25 plus overtime, rather than the minimum tipped wage of $2.13 plus tips?

Basic FLSA Rules Regarding Tipped Workers

As with much employment law, the FLSA lays down basic rules, but states may be more generous to employees, as each state chooses. Texas stays close to the federal minimum wage but has developed its own interpretive rules.

The FLSA currently sets the minimum wage at $7.25 an hour. The law permits employers to take a credit towards their minimum wage obligation for amounts above a $2.13 floor for workers who qualify as “tipped workers.” In Texas, some employers choose to pay the $7.25 minimum wage, rather than contend with the accounting challenge of topping up pay to reach $7.25.

To qualify as a tipped worker under the FLSA, an employee must customarily and regularly receive more than $30 per month in tips. If an employee’s tips combined with the employer’s direct wages of at least $2.13 per hour do not equal the $7.25 per hour, the employer must make up the difference. Tipped workers who work more than 40 hours per week are eligible for overtime calculated at one and one-half times $7.25 (NOT $2.13).

Tips are the property of the employee under both the FLSA and the Texas Payday Law. However, an employer may establish a tip pool. A valid tip pool may not include employees who do not customarily and regularly received tips, such as dishwashers, cooks, chefs, and janitors. Only tips received by the employee may be counted in determining whether the employee is a tipped employee and in applying the tip credit.

According to the FLSA, when is a Gratuity not a Tip? If It is Not a Tip, what is It?

As a rule, mandatory gratuities are not considered tips for purposes of the FLSA. Whether a gratuity is actually “mandatory” or just strongly suggested is very dependent on the evidence in a particular situation. In Wai Tom, the Court decided that the gratuity was mandatory, even though the workers presented evidence that it had been waived on occasion.

If gratuities are considered mandatory, they are considered part of the employer’s gross receipts. If an employer pays a portion of the mandatory gratuity to the employee, it counts as wages. This has three consequences:

  • Employers must withhold Social Security and Medicare tax from wages.
  • The mandatory gratuity must also be factored into the calculation of overtime unless it qualifies as a commission – a new argument to which the Fourth Circuit appeared receptive in Wai Tom.
  • If the mandatory gratuity counts as wages, an employer may not count any portion of it toward the tip credit.

In Wai Tom, the restaurant’s argument that the compulsory gratuity was a commission earned by the servers seems to be new and may not have yet been considered by the Fifth Circuit. If successful, it would have other far-reaching implications since workers who receive commissions may not be eligible for overtime. If you are feeling confused, we sympathize.

Legal Help to Determine Who can Participate in the Tip Pool?

This question comes up often in Texas courts. Only workers who customarily receive tips can participate in a tip pool. Ordinarily this would include those who interact with the customer, but not back-of-the-house employees. Managers and owners can never participate in the tip pool, even if they periodically chip in to serve customers or tend bar. This is another very fact-specific inquiry. If a tip pool includes ineligible employees, the entire pool may be found to be invalid.

The consequences for an employer can be serious. In 2016, the District Court for the Northern District of Texas ordered a Japanese restaurant to pay more than $166,000 for including ineligible employees in the tip pool. In 2009, the District Court for the Southern District of Texas ordered Chili’s restaurant to pay $270,000 to workers for a similar infraction. Under a recent U.S. Department of Labor rule, however, an employer may permit non-tipped workers to participate in a tip pool if the employer does not take the tip credit.

Deciding Who is a Tipped Worker in the Court’s Opinion Could Require Legal Help

This is really a two-sided question. To qualify as a tipped employee, a worker must perform certain kinds of jobs and make a certain minimum amount of money each month in tips. An employer can generally claim the tip credit of up to $5.12 per hour only for someone who legally qualifies as tipped worker, and only if it notifies the worker in advance.

In 2015, in a case known as Montano v. Montrose Restaurant Associates, the Fifth Circuit concluded that a worker cannot qualify as a tipped worker solely because he or she participated in the tip pool. That would be circular reasoning. However, in Texas, an employer may claim the tip credit for non-tipped work if the latter work is closely related to the tipped work an employee does. Think about a server who steps to the back of the house briefly to make coffee during a slow time. The credit might not be available if the server picked up extra shifts doing the books.

Reach out to our Employment Lawyers for Legal Help about Wages and Tips

People who work for tips perform difficult and sometimes underappreciated work. You should not also have to have an accounting degree to get paid what you are owed. Our Texas employment lawyers understand your situation and the intricate ins-and-outs of the law. We offer a free evaluation of the facts of your case. Use this link to get started Contact Us.