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Posts Tagged ‘DOL’

Coffee, Water, Less Than 20 Minutes

Posted on: June 19th, 2018

SCOTUS KICKS THE CAN ON SHORT BREAKS COMPENSATION

By: John McAvoy

On June 11, 2018, the U.S. Supreme Court refused to entertain the appeal of a Pennsylvania employer that could have resolved the emerging split of authority between the federal appellate courts and the U.S. Department of Labor (DOL) as to the compensability of employees’ short rest breaks.

In American Future Systems, Inc. d/b/a Progressive Business Publications v. R. Alexander Acosta, Secretary, U.S. Department of Labor, the Secretary of Labor filed suit against Progressive Business Publications, a company that publishes and distributes business publications and sells them through its sales representatives, as well as the company’s owner, alleging they violated the Fair Labor Standards Act (FLSA) by paying their salespeople an hourly wage and bonuses based on their number of sales per hour while they were logged onto the computer at their workstations, and by not paying them if they were logged off for more than 90 seconds.

The U.S. District Court for the Eastern District of Pennsylvania previously found that the employer’s policy had violated the FLSA, relying on a DOL regulation which states that “[r]est periods of short duration, running from 5 minutes to about 20 minutes, are common in industry.  They promote the efficiency of the employee and are customarily paid for as working time.  They must be counted as hours worked.”  In so holding, the District Court found that the employer was liable for at least $1.75 million in back wages and damages.

On appeal to the Third Circuit Court of Appeals, the employer argued that that it provided “flex time” rather than “breaks,” which allowed workers to clock out whenever they wanted, for any reason.  In other words, that the employees were not “working” after they logged off of their computers since they could do anything they wanted, including leaving the office.  The appellate court rejected this argument, reasoning that to dock the pay of employees who can’t manage a bathroom sprint is “absolutely contrary to the FLSA,” and affirmed the lower court’s decision.

The Third Circuit’s reliance on DOL regulation was contrary to the holdings of some of the other circuit courts which opted to assess the circumstances of the break in lieu of interpreting the DOL regulation as a bright-line rule that fails to take into consideration the facts of a particular situation.

The employer asked the U.S. Supreme Court to clarify how compensability for breaks should be determined.  Citing the circuit split, the employer posited that the question of break pay should be determined by assessing the circumstances of the break, rather than adopting the DOL regulation as a bright-line rule.  In its reply brief, the DOL fervently defended its regulations and denied the existence of the alleged circuit split, arguing that “hours worked [are] not limited to the time an employee actually performs his or her job duties.”  Unfortunately, this remains an issue for another day as the Supreme Court refused to hear the case and/or resolve the alleged split.

Absent a decision from the Supreme Court to the contrary, employers in Pennsylvania, New Jersey, and Delaware are bound by the Third Circuit’s decision. As such, employers in these states must continue to comply with DOL regulations with respect to the compensability of short breaks.

Fortunately, the applicable DOL regulations are designed to protect employers’ rights. For starters, the regulations recognize that meal periods serve a different purpose than coffee or snack breaks and, as such, are not compensable.  Second, an employer need not count an employee’s unauthorized extensions of authorized work breaks as hours worked when the employer has expressly and unambiguously communicated to the employee that the authorized break may only last for a specific length of time, that any extension of the break is contrary to the employer’s rules, and any extension of the break will be punished.

Although an employer will have to compensate an employee who repeatedly takes unauthorized breaks lasting less than 20 minutes in order to comply with the Third Circuit’s ruling and the applicable DOL regulations, the employer is nevertheless free to discipline the employee for such indiscretions by whatever means the employer deems appropriate, including termination.

Prudent employers should prepare themselves to address such issues through smart planning and proper training of employees, including managers, supervisors and HR personnel to ensure the employer’s break, discipline, and termination policies and procedures comply with all applicable DOL regulations.

Want to know whether your company’s break, discipline, and termination policies and procedures comply with DOL regulations? Let me help. Please call or email me (215.789.4919; [email protected]).

Loss of SEC Commissioners Piwowar and Stein May Wreak Havoc on SEC’s Proposed Fiduciary Regulations

Posted on: June 1st, 2018

By: Ted Peters

On May 7, 2018, Republican SEC Commissioner Michael Piwowar announced that he will resign effective July 7, 2018.  Piwowar’s five-year term expires on June 5, but SEC commissioners are permitted to remain in office for up to 18 months following the end of their term.  Democratic Commissioner Kara Stein’s term expired in 2017 and she too is expected to leave the Commission this year.

Piwowar was admittedly a harsh critic of the U.S. Department of Labor’s fiduciary rule (calling it a “terrible, horrible, no good, very bad” rule), which has since been struck down by the Fifth Circuit Court of Appeal.  He also expressed significant misgivings with the Commission’s April 18, 2018 proposals which attempt to establish standards of conduct for financial advisors.  Despite such concerns, Piwowar wholeheartedly voted in favor of putting the proposals out for public comment lest anyone criticize the SEC for failing to take action.  Stein, however, voted against the proposals, finding them too weak and suggesting they be called “Regulation Status Quo.”

Regardless of their personal views, the loss of Commissioners Piwowar and Stein will undoubtedly put further pressure on the SEC as the agency takes comments on the proposals. On the other hand, the SEC might have an easier go in reaching a compromise with the decision being left to just three commissioners.  In theory, the White House and Senate could quickly take action to replace Piwowar and Stein, as it is customary for the Senate to consider commissioners in pairs (Republican and Democrat).  In the meantime, between the departures of Piwowar and Stein, the SEC will operate with four commissioners including two Democrats, which could lead to deadlocked votes, something for which the SEC is well known.

If you have questions or would like more information, please contact Ted Peters at [email protected].

DOL Fiduciary Rule Suffers a Slow Death

Posted on: May 15th, 2018

By: Ted Peters

In 2016, the U.S. Department of Labor (“DOL”) promulgated a set of rules and regulations now infamously referred to as the “Fiduciary Rule.”  After multiple criticism and legal challenges, the Fifth Circuit Court of Appeal struck down the Fiduciary Rule effective May 7, 2018.  Surprising many, the DOL elected not to challenge the Fifth Circuit ruling.  Even more surprising, however, was the bulletin issued by the DOL on the effective date of the court’s order.

The court’s ruling, which was not opposed by the DOL, left many unanswered questions.  Enter the DOL’s field bulletin.  Rather than admitting the total defeat of the Fiduciary Rule, however, the DOL seeks to maintain the status quo.  Specifically, the DOL announced that pending further guidance, advisors will not be penalized for either complying with the Fiduciary Rule, or ignoring it in favor of pre-existing standards.  Unfortunately, this announcement leaves the single most important question unanswered – what is the standard to which advisors will be held?  With the U.S. Securities and Exchange Commission working on its own set of rules, and the wait-and-see approach embraced by the DOL notwithstanding, only time will tell.

If you have questions or would like more information, please contact Ted Peters at [email protected].

DOJ Fails to Challenge 5th Circuit Ruling Striking Fiduciary Rule

Posted on: May 3rd, 2018

By: Theodore C. Peters

On March 15, 2018, the Fifth Circuit Court of Appeal stuck down the “fiduciary rule” proposed by the Department of Labor (DOL), which required brokers to act in the best interests of their clients in retirement accounts.  Subsequently, there was much speculation as to whether the Department of Justice (DOJ), acting on behalf of the DOL, would appeal that decision.  The April 30, 2018 deadline for the DOJ to appeal came and went, but …. nothing.  The Fifth Circuit’s ruling, therefore, is slotted to take effect on May 7, 2018.

In late April, AARP and several state attorneys general (including California, New York and Oregon) joined forces in seeking the court’s permission to intervene as defendants in the case, and also sought an en banc hearing before the entire 17-judge circuit. AARP contends that the court’s decision striking down the DOL rule puts Americans’ retirement security at substantial risk, resulting in an “issue of exceptional importance.”  The plaintiffs in the case, opponents of the DOL rule, formally opposed the motions to intervene on April 30.  Counsel for the plaintiffs charged that the “last-minute motions do not come close to justifying their unprecedented bid to intervene…”

On May 2, the Fifth Circuit denied the intervenors’ motions.  The court’s decision looks to be the final nail in the coffin holding the DOL’s fiduciary rule.  Despite this ruling, however, the DOL still has one more card it could play – it can file a petition by June 13 to have the Supreme Court hear the case. Even if the DOL stands quietly by and does nothing, the Supreme Court could conceivably take the case up on its own.

Ultimately, this legal brouhaha focuses attention on the SEC, which is currently taking public comment on newly proposed standards of conduct for brokers and advisors.

If you have questions or would like more information, please contact Ted Peters at [email protected].

SEC Fiduciary Rules Proceeds on Split Vote

Posted on: April 19th, 2018

By: Theodore C. Peters

The Securities and Exchange Commission (“SEC”) conducted a public hearing on April 18, 2018 to address a series of SEC proposals governing securities professionals.  Recall that the Department of Labor previously sought to promulgate a “fiduciary rule” which encountered numerous legal hurdles and ultimately was struck down by the Fifth Circuit.  Concurrently, over the last 11 months, the SEC has been working on its own set of rules to provide the securities industry with more clarity concerning advice standards.  After a two hour hearing, the SEC Commissioners split over whether to proceed with the next step in the rule making process.  Chairman Jay Clayton and Commissioners Michael S. Piwowar, Robert J. Jackson Jr. and Hester M. Peirce voted in favor of the proposals; Commissioner Kara M. Stein vociferously rejected the proposals.

At issue were three proposals: (1) a rule to establish a standard of conduct for broker-dealers and their associated persons when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer; (2) a rule requiring registered broker-dealers and registered investment advisers to provide a brief relationship summary to retail investors; and (3) a formal SEC interpretation of the standard of conduct applicable to investment advisers.  Various SEC staffers introduced each of the proposals with candid remarks, tacitly admitting that there was room for improvement with respect to each component of the proposal package.

The so-called “Regulation Best Interest” would mandate that broker-dealers and their registered representatives who make recommendations to a retail customer act in the best interest of the customer at the time the recommendation is made, without putting the financial or other interest of the broker-dealer ahead of the retail customer.  To comply with this obligation, a broker-dealer would need to do three things: (1) disclose key facts about the relationship (including material conflicts of interest); (2) exercise reasonable diligence/care/skill to i) understand the product, ii) have a reasonable basis to believe that the product is in the customer’s best interest, and iii) have a reasonable basis to believe that a series of transactions is in the customer’s best interest; and (3) establish/maintain/enforce policies and procedures designed to identify and disclose and then mitigate or eliminate material conflicts of interest.

The Form CRS (customer relationship summary) rule would require investment advisers and broker-dealers (and their associated persons) to provide retail investors with a short-form (4 pages maximum) disclosure summary that would identify key differences in the principal types of services offered, the legal standards of conduct that apply to each, applicable fees and conflicts of interest.

In connection with the proposal regarding a Commission interpretation of the standard of conduct for investment advisers, the SEC seeks a Commission-sanctioned interpretation as to the duty owed by an investment adviser to his/her clients.  The proposed interpretation reaffirms, and in some cases clarifies, certain aspects of the fiduciary duty owed by an investment adviser.

Republican Commissioner Michael Piwowar candidly admitted that the failed DOL Fiduciary Rule was “terrible,” “horrible,” and “very bad.”  He expressed greater faith in the SEC proposals, though he said that the proposals could be improved in several respects.  He stated that the proposed Regulation Best Interest represented a “solid building block,” but noted that there was much room for improvement.  As for the proposed Form CRS template, Piwower suggested that it was “as comprehensible as Herman Melville’s Moby Dick.”  Despite having misgivings as to all three proposals, he voted in favor of them.

Democratic Commissioner Robert Jackson, who admitted being an advocate of the DOL Fiduciary Rule, also professed to have concerns over the proposals.  He stated that the standard set forth in Regulation Best Interest was too ambiguous and he feared that such ambiguity would be used by lawyers to defend transgressing brokers.  As for the proposal concerning mitigation of conflicts of interest, Jackson stated that “some conflicts should simply be banned outright.”  Despite his concerns, Jackson stated that he was “reluctantly voting to open the proposals for comment.”

Republican Commissioner Hester Peirce concurred with many of the prior comments concerning clarity (or the lack thereof) of the proposals.  She stated that “disclosure should be the centerpiece of reform,” and that she was in favor of requiring brokers to provide more details in connection with their disclosures of services offered and fees charged. Peirce believes that the proposed Regulation Best Interest was mislabeled, stating that it would be more accurate to call it a “suitability-plus” standard.  Lack of clarity in the proposal leads to increased cost of compliance, Peirce said, and suggests an “impossible standard” to satisfy which could lead to a decline in the number of registered broker-dealers. Commissioner Peirce stated that the proposals were an “excellent start toward reform,” and voted in favor of them.

Democratic Commissioner Kara Stein blasted the proposals as too weak.  She said the Commission had the opportunity to propose meaningful proposals, but failed to do so.  Critically, Stein said the Regulation Best Interest provided broker-dealers with a safe harbor and did nothing to require that they put customers’ interests first.  Noting that the proposed regulation lacked any definition of “best interest,” Stein said the proposal might mislead investors and might as well be called “Regulation Status Quo,” because it simply reaffirms that broker-dealers are required to meet their suitability obligations.  Not surprisingly, Commissioner Stein voted against the proposals.

Chairman Jay Clayton acknowledged his fellow Commissioners’ comments and stated that “much work” was still needed before the proposals could be adopted as final rules.  Calling for a vote, Commissioners Piwower, Jackson, Peirce and Clayton voted in favor; Commission Stein voted against.  With majority approval, the SEC’s rule package will now be submitted for a 90-day public comment period.

If you have questions or would like more information, please contact Ted Peters at [email protected].