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Archive for September, 2019

DOL Releases New Overtime Rule And Increases Minimum Salary To $35,568

Posted on: September 30th, 2019

By: Brad Adler

On Tuesday, September 24, 2019, the U.S. Department of Labor released its long-awaited new minimum salary threshold for the Fair Labor Standards Act’s white collar exemptions (i.e., executive, administrative and professional exemptions).  Under the new rule, which is set to take effect on January 1, 2020, the DOL has set the minimum salary threshold at $684 per week, or $35,568 per year (up from $23,660).  The DOL anticipates that the updated threshold will expand overtime pay obligations to an estimated 1.3 million additional workers.

Commenting on the new rule, acting U.S. Secretary of Labor Patrick Pizzella stated: “For the first time in over 15 years, America’s workers will have an update to overtime regulations that will put overtime pay into the pockets of more than a million working Americans. . .This rule brings a commonsense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers.”

Here are the highlights of the new rule:

  • The minimum salary threshold will be $684 per week, which equates to $35,568 per year.
  • Employers will still be able to use a nondiscretionary bonus, incentive pay or commissions to satisfy up to 10% of the standard salary level for the white collar exemptions (and the highly compensation exemption)
    • A one-time “catch-up” payment of up to 10% of the total standard salary level may be made within one pay period falling at the end of the 52-week pay period for those employees who have not earned enough to maintain their exempt status.
  • The highly compensated employee exemption’s additional total annual compensation requirement will increase to $107,432 per year.
  • The new rule did not make any changes to the duties test of the white collar exemptions
  • There are no automatic increases included within this new rule

Finally, while it seems inevitable that employee advocate groups are going to challenge the threshold, which they wanted to see much higher, we still believe it makes sense for employers to prepare for this new rule now.  As a part of their preparation, employers should be assessing whether they have employees they are classifying as exempt, but are making less than the new $35,568 requirement.  If so, employers need to decide whether to increase the employee’s salary, convert the employee to a non-exempt employee paid on an hourly basis or consider use of the fluctuating workweek method.

Please reach out to Brad Adler (Chair of FMG’s National Labor & Employment Practice Group) at [email protected] if you have any questions or need any assistance in navigating the new overtime rule.

Consent-to-Settle Clauses Under Review in Massachusetts

Posted on: September 30th, 2019

By: David Slocum

Earlier this month, the Massachusetts Supreme Judicial Court (the SJC), the state’s highest court, heard oral argument in a case which presents the question whether consent-to-settle clauses typical to most professional malpractice insurance policies should be deemed unenforceable as against public policy.

The case, Rawan v. Continental Casualty Co., places before the SJC an important issue of first impression in Massachusetts, the outcome of which will have significant implications for professional liability insurers and their insureds throughout the state.

The case arises out of an underlying engineering malpractice lawsuit in which plaintiff homeowners alleged the defendant professional engineer negligently designed their home.  The engineer was insured by Continental Casualty Co. (CNA) under a professional liability policy, which contained a standard consent-to-settle clause providing: “We [CNA] will not settle any claim without the informed consent of the first Named Insured.”

Consistent with its insured’s wishes, CNA made no settlement offer during the underlying engineering malpractice litigation.  At trial, the jury found the engineer was negligent and awarded $400,000 in damages.

Thereafter, in a separate follow-on lawsuit against CNA, the plaintiff homeowners alleged CNA had violated Massachusetts’ unfair settlement practices statute, Chapter 176D §3(9)(f), which requires insurers to effectuate a prompt, fair and equitable settlement when an insured’s liability has become reasonably clear.  Plaintiffs alleged CNA had failed to properly investigate and settle the plaintiffs’ claims against the engineer during the underlying litigation.

CNA moved for, and was granted, summary judgment in its favor on the grounds that its insured had not consented to settlement of the claims.  Thus, CNA argues, it was contractually bound under the consent-to-settle clause of the policy not to effectuate a settlement of the plaintiffs’ claims against the insured, irrespective of whether the insured’s liability had become reasonably clear.

In asking the SJC to overturn the trial court’s grant of summary judgment in CNA’s favor, the plaintiffs argue that such consent-to-settle clauses undermine the purpose of Chapter 176D by ceding settlement authority to insureds who potentially may unreasonably refuse to settle valid claims against them.  Plaintiffs contend that such clauses therefore should be deemed unenforceable as against public policy in Massachusetts.

CNA and a number of bar and professional associations, which have filed amicus briefs in its support, argue the grant of summary judgment in CNA’s favor should be affirmed because consent-to-settle clauses in noncompulsory professional liability insurance policies are compatible with insurers’ obligations under Chapter 176D.  They contend Chapter 176D’s purpose of preventing insurance company overreach is not implicated in such situations, and a professional insured’s important reputational interest also supports the enforceability of consent-to-settle clauses.

The SJC is expected to issue its decision in this important and closely-watched case later this term.

If you have any questions or would like more information, please contact David Slocum at [email protected].

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Arbitration and Class Action Waivers Upheld in ERISA Plans, but an Industry Shift Toward Arbitration Remains to be Seen

Posted on: September 26th, 2019

By: Justin Boron

The judicial trend in favor of arbitration and class action waivers continues—this time in employee benefit plans.

Last month, a Ninth Circuit Court of Appeals panel validated an arbitration and class action waiver agreement contained in an employee retirement plan, and in doing so, it overturned a 1984 precedent holding that fiduciary claims under the Employee Retirement Income Security Act (“ERISA”) could not be arbitrated.

In a pair of opinions issued in Dorman v. Charles Schwab Corp.,[1] the panel found that the reasoning in Amaro v. Continental Can Company,[2] was irreconcilable with recent opinions from the U.S. Supreme Court, including American Express Co. v. Italian Colors Rest., which had endorsed an arbitrator’s competence to interpret and apply federal statutes.[3]

The Dorman decision arose from a plan participant’s class action alleging a breach of fiduciary duty that resulted from the inclusion of Schwab affiliated investment funds in the 401k plan.  As yet another affirmation of arbitration and class action waiver agreements, it is sure to attract the attention of plan sponsors and plan fiduciaries.

But it might not necessarily be the game changer that previous class action waiver decisions have proven to be in the consumer and employment context, where companies have rushed to fold class action waivers into sales and employment agreements.

For one, several other circuit courts of appeal had already upheld arbitration agreements in plan documents.[4]  So at least in these circuits, plan sponsors have already been free to include arbitration agreements in employee benefit and retirement plans like the 401k plan at issue in Dorman.  Plaintiff also requested en banc rehearing earlier this month, so Amaro could still be revived.

Other reasons are more practical.  Including class action waivers in arbitration agreements might stave off a class action asserted in federal court.  But in contrast to their effect on wage-and-hour and consumer-protection class actions, class action waivers might not necessarily limit exposure on fiduciary claims under ERISA, which are themselves a kind of representative action brought on behalf of the plan for monetary relief.[5]  The Dorman and other appellate decisions have not expressly addressed whether a plan’s arbitration agreement could confine the action to individual monetary relief as opposed to plan-wide relief.  As a result, any judgment might benefit the plan and plan participants as a whole regardless of whether the action is styled as a class action.

Additionally, the cost savings attributed to arbitration of employment and consumer claims might not be present in ERISA claims, which are often decided on the papers in federal court. In contrast, arbitration likely requires the same amount of attorney time as in federal court, with the added costs of the arbitrator(s) and an arbitration hearing.  Combine the added costs with a limited standard of review, and it might not net a more favorable result than proceeding in federal court in a class action.

If you have any questions or would like more information, please contact Justin Boron at [email protected].

[1] Dorman v. Charles Schwab Corp., No. 18-cv-15281, 2019 U.S. App. LEXIS 24735 (9th Cir. Aug. 20, 2019), No. 18-cv-15281, 2019 U.S. App. LEXIS 24791 (9th Cir. Aug. 20, 2019).
[2] 724 F.2d 747 (9th Cir. 1984).
[3] 570 U.S. 228, 233 (2013).
[4] See, e.g., Williams v. Imhoff, 203 F.3d 758 (10th Cir. 2000); Kramer v. Smith Barney, 80 F.3d 1080 (5th Cir. 1996); Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, 7 F.3d 1110 (3d Cir. 1993); Bird v. Shearson Lehman/American Express, 926 F.2d 116 (2d Cir. 1991); Arnulfo P. Sulit, Inc. v. Dean Witter Reynolds, Inc., 847 F.2d 475 (8th Cir. 1988).
[5] 29 U.S.C. § 1132(a)(2); 29 U.S.C. § 1109.

In Praise of Folly: When Legal Advice Includes Business Issues

Posted on: September 24th, 2019

By: Paul Boylan

A recent case involving a highly compensated executive shows the pitfalls of getting what you want in a business deal.  In 2002, a sophisticated business executive negotiated a stock buyback provision in his executive employment agreement using a skilled and experienced corporate law attorney.  Jenkins v. Bakst, 95 Mass. App. Ct. 654 (2019).

The 2002 employment agreement was drafted and signed on an expedited basis because the board of directors of the employer, a high-tech company, wanted to announce the hiring of this key executive at an already-scheduled meeting of the board of directors.  The executive was a close friend of the founder of the company, and the company was very excited to bring him on board. Much later, after 13 years of successful work, the executive resigned.  At that point, he was very disappointed with the valuation formula he had negotiated as to the stock buyback price in his 2002 employment agreement.  That formula had been proposed to the executive by his attorney.  The formula used was based on fixed asset value plus goodwill.  The company at the time was routinely using, with other key executives, a stock buyback valuation formula based on revenues per month.

When the executive resigned after 13 years of service the payout under the fixed asset plus goodwill formula was $200,000.  The payout under the monthly revenue formula which the executive had chosen not to use would have been between 1.6 and 3.4 million dollars.  The revenue per month formula was far more profitable 13 years later because the high-tech company had developed a large but ever-changing sales base and did not have substantial fixed assets.

The executive resolved all claims against the former employer and sued the lawyer he had used in the 2002 negotiations for malpractice.  He recovered nothing against the lawyer because the attorney had explained the asset value plus goodwill formula to the executive before he signed the 2002 agreement, he read the agreement before signing, and put his initials on the page which included the buyback formula.  The court also held that the executive could not prove loss causation because it ruled there was no sufficient evidence to show that the company would have agreed to the monthly revenue formula as to this executive despite the fact that the company had concurrently done so in multiple instances with other key executives that same year.  The malpractice claim failed separately because counsel for the executive in the malpractice case did not offer expert testimony as to liability or loss causation.

If you have any questions or would like more information, please contact Paul Boylan at [email protected].

California Lawyers Now Have Duties To Clients “Who Got Away”

Posted on: September 24th, 2019

By: Greg Fayard

Under Rule 1.18 of California’s Rules of Professional Conduct, lawyers must now protect the confidences of prospective clients–even if a formal lawyer-client relationship never materializes.

That is, confidential information conveyed by a would-be client to a California lawyer, but where the potential client does not retain the lawyer, must be protected and can impact other matters handled by another lawyer in the firm.

For example, in a law firm that does family law, if Wife consults lawyer A in a divorce case and says she has a secret bank account, but Wife does not retain lawyer A, and Husband then consults lawyer A, lawyer A would need the informed written consent from both Husband and Wife to represent Husband.

Lawyer B in the law firm could represent Husband, but only if lawyer A is screened from Husband’s case and written notice is provided to both Husband and Wife. Consent from Wife is not needed.

This is an example of duties to the prospective client, the Wife—the client “who got away.” Just know that in situations where prospective clients meet with a lawyer, but no official attorney-client relationship results from that meeting, for future matters, sometimes informed written consent is needed, and sometimes notice and screening is needed.

If you have any questions or would like more information, please contact Greg Fayard at [email protected], or any other member of our Lawyers Professional Liability Practice Group, a list of which can be found at www.fmglaw.com.