Morningstar Law Group CLE 2016 © Morningstar Law Group

GET BACK TO BUSINESS
Best Practices for
Dispute Management
February 2016
Shannon Joseph
www.morningstarlawgroup.com

1. Good practices
2. Early dispute resolution
3. Litigation

GOOD PRACTICES

Good Practices
E-MAIL ETIQUETTE
Look for Opportunities
Talk about Tone

Good Practices

Good Practices
DOCUMENT MANAGEMENT
Document Retention
Policies and Practices

Good Practices
Document Retention
Policies and Practices
• Where docs kept
• What form
• How organized
• How long

Good Practices
Other Document Policies
• Litigation Hold
• Document Gathering
• Contracts, waivers, confidentiality
agreements

Good Practices
CULTURE OF COMMUNICATION

Good Practices
CULTURE OF COMMUNICATION
Culture of Helpfulness
Make Candor Safe

Good Practices
How do organizations think?

EARLY DISPUTE RESOLUTION

Early Dispute Resolution
1. ENOUGH
2. EVALUATE
3. ENGAGE

ENOUGH

EVALUATE

T A Y C
EVALUATE

EVALUATE: Your Side
1. What does loss look like
2. What does investment look like
3. What is a favorable outcome

EVALUATE: Other Side
1. What does loss look like
2. What does investment look like
3. What is a favorable outcome

Most lawsuits settle.

ENGAGE

Bargaining Power

Asymmetrical Expectations

Do not get angry.

Do not STAY angry.

Point Person

Pre-lawsuit Mediation

WHO IS RIGHT?
dd

Tolling Agreement

LITIGATION

Litigation

Shannon Joseph, Of Counsel
919-590-0360
sjoseph@morningstarlawgroup.com
40

Tips for Avoiding and Resolving
Technology Contract Disputes
JENNIFER COLLINS, CHRISTOPHER JACKSON AND SWAIN WOOD
PARTNERS

Jennifer Collins

Intellectual Property Assignments
When does this come up?
Software/IT Services Agreements
Prototype Development
Joint Development Arrangements
Marketing Materials
Photographs

Intellectual Property Assignments
Drafting Tips:
Include present Assignment language – “hereby irrevocably assigns…”
For copyrighted works (including software), it’s not enough to say it’s a “work
made for hire.”
Carve-out for pre-existing or independently developed works within work
product. (A license may be required for these works).
Further assurances to obtain other documents.

Intellectual Property Licenses
When does this come up?
Software
Life Sciences Products (pharmaceuticals, seeds and other agri-bio
products)
Online subscriptions to data or publications
Trademarks

Intellectual Property Licenses
Key drafting points:
Exclusive, non-exclusive, co-exclusive?
Which of the many IP rights are being licensed?
Is there a territory limitation?
Is there a field limitation?
Transferability and right to sublicense?

Christopher Jackson

Limitations of Liability
Contractual clause that attempts to reduce or eliminate certain kinds of damages in the event of
a breach, tort, or other wrongful conduct, i.e., a way to apportion potential liability and allocate
risk
Standard in technology contracts/licenses
Often heavily negotiated
Most litigated

Key Drafting Considerations:
1. What kinds of damages should be limited?
2. What kinds of damages should be recoverable?
3. Should recovery of certain damages be capped?
4. Should “lost profits” or other particular types of damages be called out separately?
5. Are there any necessary carve-outs (e.g., unlawful/illegal acts, indemnification obligations,
confidentiality breaches, negligence or willful misconduct, etc.)?
6. Should recovery be expressly limited to a specific amount?

“The Million Dollar Comma”
“In no event shall either party be liable for any loss or damage to revenues, profits, or goodwill
or other special, incidental, indirect, or consequential damages of any kind, resulting from its
performance or failure to perform under this agreement or any of the attachments hereto, and,
in the case of [Plaintiff], resulting from the furnishing, performance, or use or loss of use of any
[Plaintiff] solution or other materials delivered to [Defendant] hereunder, including, without
limitation, any interruption of business, whether resulting from breach of contract, breach of
warranty, or any other cause (including negligence), even if such party has been advised of the
possibility of such damages. ... ”

“In no event shall either party be liable for any loss or damage to revenues, profits, or goodwill
or other special, incidental, indirect, or consequential damages of any kind, resulting from its
performance or failure to perform under this agreement or any of the attachments hereto, and,
in the case of [Plaintiff], resulting from the furnishing, performance, or use or loss of use of any
[Plaintiff] solution or other materials delivered to [Defendant] hereunder, including, without
limitation, any interruption of business, whether resulting from breach of contract, breach of
warranty, or any other cause (including negligence), even if such party has been advised of the
possibility of such damages. ... ”

Plaintiff claimed that this provision prevented the recovery by either party of:
1. special, incidental, indirect, or consequential damages of any kind including (to the extent
they are consequential) revenues, profits and goodwill.
2. Therefore, “direct damages” – including perhaps lost profits – are NOT precluded.

Defendant claimed that this provision prevented recovery by either party of:
1. Lost revenues;
2. Lost profits; and
3. Lost goodwill or other special, incidental, indirect, or consequential damages.

Drafting Tips:
1. Use short, declarative sentences in the active voice.
2. Semi-colons are better than commas. Periods are better than semi-colons. Consider using
bulleted lists.
3. Call-out what is available as the exclusive remedy and disclaim everything else, rather than
vice versa. In many cases, it is much easier to define what is recoverable rather than
everything that is not recoverable.
4. Get a second opinion when possible.

Alternate Drafting:
Neither party shall be liable in contract, in tort, or otherwise for:
1) Loss of revenue or profits of any kind whatsoever; and
2) Loss of goodwill or other special, incidental, indirect, or consequential damages of any kind.
… The total cumulative liability of either Party with respect to this Agreement shall not exceed
the total fees paid to such Party during the time period from the execution of this Agreement
through the date on which the first claim of liability arises.

Swain Wood

ARBITRATION PROVISIONS
Arbitration vs. Court
Defining the scope: What kinds of disputes will be arbitrable?
Defining the rules: What procedural rules will apply? What
substantive law will apply?

“Any dispute arising out of or in connection with this
agreement shall be finally settled by binding
arbitration in Raleigh, North Carolina in accordance
with the Rules of the American Arbitration
Association (AAA) before a panel of three arbitrators
appointed by the AAA. This agreement shall be
governed by, and construed in accordance with, the
law of the State of North Carolina without regard to
principles of conflict of law. The prevailing party
shall be awarded its costs and attorneys’ fees in
connection with the arbitration.”

“This Agreement requires, and you agree to, binding arbitration of
any and all unresolved disputes relating to this Agreement. Under
this arbitration provision, you give up your right to bring an action
in court based on claims within the scope of this arbitration
provision, including giving up your right to a jury trial. You also
agree not to participate as a class representative or class
member in any class action litigation, any class arbitration or any
consolidation of individual arbitrations. The arbitration will be
conducted by a panel of three independent, neutral third-parties.
Each party will separately select a single arbitrator, and those two
arbitrators will jointly select a third arbitrator. Unless otherwise
agreed by the parties, the arbitration will take place in the county
and state in which you reside. The arbitration shall be governed by
the Federal Arbitration Act (9 U.S.C. § 1 et seq.) and not by any
state law concerning arbitration, and the rules of the AAA shall
apply. All issues relating to the construction, interpretation,
validity, or enforcement of this Agreement will be governed by
the law of the state in which you reside.”

Jennifer Collins | Partner
919-590-0374
jcollins@morningstarlawgroup.com
Christopher Jackson| Partner
919-829-4974
cjackson@morningstarlawgroup.com
Swain Wood | Partner
919-829-7001
swood@morningstarlawgroup.com

Moving or Expanding? Concepts and
Considerations in Corporate Facilities
Development in North Carolina
MACK PAUL, MICHAEL BIRCH AND MICHAEL OVSIEVSKY
PARTNERS

Michael Ovsievsky

Decisions … Decisions …
Lease of existing facilities
◦ Ready to go + limited initial outlay
Acquisition of existing facilities
◦ Ready to go, but greater initial costs
‘Build to Suit’ development
◦ Typically a longer term
◦ Acquisition and land use considerations
◦ High degree of design input
◦ Can maximize space and tailor to needs (now and in the future)

‘Build to Suit’
Increasing, corporate end-users are embracing build to suit (BTS) structures in
order to efficiently leverage the capital, resources, and expertise of commercial
real estate developers, while maintaining significant control over design and
specific use needs. Whether in the context of owned raw land which is ground
leased to, and developed by, a third party, or raw land of a third party which is
developed and then leased to the corporate user, build to suit development
can be a valuable tool in addressing needs for purpose-built buildings and
facilities.
BTS structures are typically comprised of two (2) components:
1. Development Agreement / Construction Agreement
2. Lease (and sometimes Ground Lease)

Construction/Development
Agreements - Considerations
RFP Process; Work Letter vs. Stand Alone Agreement
Completion Guaranties / Letters of Credit
Selection of Professionals
Approval of Plans
◦ Rent Structure in Underlying Lease is Critical
Change Orders
KEY ISSUE: Timing and Delays (and penalties)

Lease Considerations
Term: Typically longer to permit recoupment of Landlord/Developer
investment
Rent Calculation [Fixed vs. a Function of Development Costs]
◦ What gets included / excluded?
Commencement Date
◦ Substantial Completion; Tenant Delays; Force Majeure
Repairs and Replacements (Warranties)
Assignments (“Permitted Transfers”)
Defaults and Remedies
Options – Purchase; ROFO; ROFR

Michael Birch

Land Use/Entitlement Considerations
Zoning
Subdivision/Site Plan
Nonconformities
Phased Developments

Zoning Issues
Permitted uses – consider how your current and prospective
activities align with the code
Site Layout – consider how your desired or needed site layout
(building/parking location) is impacted by the code
Intensity – consider how your space current and prospective
space needs are constrained by the code
Consider process for greenfield development, redevelopment of
site or occupancy of existing facility

Subdivision/Site Plan Issues
Primary issue when involved in new development project
This process is when the local government extracts dedications
of land, requires construction of public facilities and imposes
impact fees
Approval process may be time consuming and uncertain

Nonconformity Issues
Primary issue when occupying developed site
Nonconforming use, structure, site features
Local governments treat nonconformities in different ways
Impact on ability to expand within existing building or add new floor area
What happens when there is a casualty to the facility

Phased Development Issues
Primary issue when developing phased plan or when seeking new space in
already approved phased development
Consider whether approval is still valid, and the timing requirements for
development
Consider implications when approvals have sunset

Mack Paul

North Carolina Incentives
Art. 3J Tax incentives (against state income and franchise)
 For creating jobs
 For investing in business property
 For investing in real property
JDIG (discretionary)
 Net increase in jobs (claw back)
 Competition with other states
 Criteria for quality of jobs, strategic goals, etc.
One NC Fund (discretionary)

Means of creating a revenue stream to finance public infrastructure
When a district is created, a base property valuation is established
◦ This base value is used for general tax revenue purposes
New public investment is then made, creating “new value”
◦ This “incremental” increase in assessed value issued to finance bonds used for additional
public improvements.
PDF Overview

Synthetic TIF
N.C.G.S. 158-7.1, local government is authorized to make appropriations for purpose of
increasing business prospects of locale
Funded by property taxes and allocation of other revenues
Use to assemble property, construct buildings, extend utilities and water, and other purposes
Public hearing

Utilizing SAD’s and PDF’s
May be used for:
◦ Renewable energy (only SAD’s)
◦ Many uses authorized for General Obligation Bonds
◦ Any purpose for which a municipal service district may be established in N.C.G.S. 160A-536
 airport facilities
 auditoriums, arenas,
stadiums, civic centers
 art galleries and museums
 parking facilities
 sanitary sewer systems
 storm sewers and flood
control facilities
 water systems
 public transpiration facilities
 industrial parks
 community college facilities
 school facilities
 low or moderate income
housing
 electric systems, gas systems
 streets and sidewalks

PDF’s and SAD’s are not mutually
exclusive
Combination of financing techniques can be used
◦ PDF
◦ SAD
◦ Land contribution
◦ Grants
◦ Traditional bank financing

Economic Development Examples
Examples in North Carolina:
◦ Roanoke Rapids $21,500,000 in financing approved for entertainment complex
◦ Kannapolis $95,000 in public infrastructure financing approved for Phase 1 of the North Carolina
Research Campus
◦ Waterstone
◦ Langtree by the Lake

Questions??

Michael Ovsievsky | Partner
919-590-0355
movsievsky@morningstarlawgroup.com
Michael Birch | Partner
919-590-0388
mbirch@morningstarlawgroup.com
Mack Paul | Partner
919-590-0377
mpaul@morningstarlawgroup.com

2016 Workforce Challenges
for In-House Counsel
AMIE FLOWERS CARMACK
PARTNER
82www.morningstarlawgroup.com

DISCLAIMER
• The information contained herein is for training purposes only.
• It is not intended to be full legal advice on any issue, but rather to identify
issues requiring legal analysis.
• In the event of a real situation involving a legal issue, we would need to
evaluate all of the facts in light of the existing law in order to provide full legal
advice.

Topics
1. Annual Performance Evaluations Out, Continuous Development
In
2. Bring Your Own Device (BYOD) – Growing Trend
3. Recent cases, legislation, rule changes and federal agency trends
and tactics you should know about

Annual Performance Evals Out,
Continuous Development In
Research has shown annual evals are ineffective, unreliable and unsatisfactory for employee, managers and
employer.
◦ Too time consuming
◦ Widely variant among reviewers and points in time
◦ Rarely accurate, create more harm than good in defending terminations
◦ Forced categories that may or may not apply
◦ Too detached in time from actual performance
◦ Too much weight on weaknesses, leaving workers deflated
◦ Too much focus on abstract goals, without concrete solutions for forward progression
So, what then? No reviews? Just “way to go!” when employees get something right?

Deloitte Ditched Annual Performance
Ratings
Deloitte conducted a self-study and ditched its annual ratings, in an effort to switch from
"talking about the ratings to talking about our people.“ (Reinventing Performance Management, by Marcus Buckingham and
Ashley Goodall, Harvard Business Review, April 2015)
Now, at the end of every project, or once a quarter if employees have long-term assignments,
managers answer four questions:
◦ 1. Given what I know of this person’s performance, and if it were my money, I would award this person
the highest possible compensation increase and bonus. (Scale of 1 - 5)
◦ 2. Given what I know of this person’s performance, I would always want him or her on my team. (Scale
of 1 - 5)
◦ 3. This person is at risk for low performance. (yes or no)
◦ 4. This person is ready for promotion today. (yes or no)
Deloitte is testing how much of this data to give employees, and how to use these responses to
develop employees for the future given their current performance (a BIG GAP in this program’s
usefulness).

Create Your Own Continuous Performance
Development Program
ONE OPTION:
• Foundational touch points (one-size-fits-one focus):
• What essential functions do you need this position to accomplish (accurate, up-to-date job description) and is the employee delivering on those?
• What strengths and weaknesses/challenges has the employee demonstrated?
• What does the employee need to do to cure any deficiencies and/or rise to the next level?
• What resources has the company provided (or will the company provide ) to empower the employee’s success?
• Develop your four (or five, or whatever) performance questions
• The questions do not have to be the same for every position, but they can be
• They can be broad like Deloitte’s or more granular (e.g., what went well or not on this particular project/task)
• Collectively, they should answer the foundational question: How is the employee is doing on the foundational touch points above?
• The questions have to be quick and easy to answer– five minutes, max (another 5 to update foundation if things have changed)
• Develop a Process
• How often? No less than quarterly (ideally project or task based), answer performance questions and update foundation
• Who is involved? Team leader (obtain feedback from others if relevant) and employee
• Uncorrected deficiencies should lead to a more intense or formal PIP
Keys: CONSISTENCY! DOCUMENTATION! Words may be few, but reports must be regular.

Create Your Own Continuous Performance
Development Program
ANOTHER OPTION (ultra-simplified version):
◦ Make sure you have an accurate, up-to-date and clear job description that identifies the essential functions of
the job (the foundation)
• Develop 1 – 5 simple questions, e.g.,:
• Employee demonstrated strengths (scale of 1 – 5 , strongly agree to do not agree, room to explain)
• Employee experienced challenges (scale of 1 – 5 , strongly agree to do not agree, room to explain)
• Employee demonstrated continuous performance development (yes or no, with room to explain);
• Employee must correct weaknesses to remain in position long-term (yes or no, room to explain)
◦ Employee is performing optimally, with no room for improvement (yes or no, with room to explain)
◦ Develop a Process
• How often? No less than quarterly (ideally project or task based)
• Who is involved? Team leader (obtain feedback from others if relevant) and employee
• Uncorrected deficiencies should lead to a more intense or formal PIP
Keys: CONSISTENCY! DOCUMENTATION! Words may be few, but reports must be regular.

Bring Your Own Device (BYOD) – Growing
Trend
•Growing trend
• cost savings – equipment and maintenance
• Flexibility & convenience – employees use the devices they prefer
• With or without employer-issued devices
•Options – wide range
• All employees, all devices, all access
• Limits on who, what, when, where
•Need clear policy to mitigate risks
• Security
• Conflicting apps and software, vulnerabilities
• Loss of control of data and devices
• Ownership of accounts and data may become unclear, access restricted
• Devices may be lost, stolen or forgotten with confidential info on them
• Tracking of work time outside regular work hours

BYOD Policies
•Policy should contain
• Ownership rights to data accessed or transmitted via company resources
• Required security measures (details next slide)
• Limits on personal use during work time
• Requirement for non-exempt employees to record all work time
• Limits on types of devices, uses and content on company time/premises or using company resources
• Limits on use while operating a vehicle or heavy machinery
• No expectation of personal privacy (right to monitor, inspect, copy)
• Consequences for breach of policy
• Consider statement to be signed by employee who wants access to company resources on personal
device, acknowledging and agreeing to policy terms

BYOD Policies: drilling down to
ownership and security provisions
• Make clear that all Company Communication Resources (defined term), use of them, and information
transmitted via or sored therein are company property (regardless of whose device is used to access
them).
• Require passwords, time outs, firewall and security software
• Restrict accessing, downloading and transmitting of Confidential Information
• Define Confidential info to include all company and client data that is not made available to 3d parties without a confidentiality
agreement
• Confidential Info only to be accessed for business purposes and via secure networks
• Transmission only via approved venues (e.g., messaging, FB, twitter, etc.)
• Right and capability to monitor use of (and any data accessed via) company resources (comply with
state privacy regs)
• Passwords, etc.
• Right and capability to remotely wipe the device when use discontinued (and duty to inform of
discontinued use while engaged with Company)

Recent Cases, Legislation, Rules, and Federal
Agency Trends and Tactics You Should Know
About

$100 Consideration for NC
Non-Compete, Non-Solicitation
Employment Staffing Group v. Little, 777 S.E.2d 309 (N.C. Ct. App. 2015):
NC Court of Appeals found that $100 was sufficient consideration for:
◦ 1-year non-competition covenant (50 mile radius around company’s base locations); and
◦ 2-year non-solicitation of certain customers covenant.
The employee alleged she was pressured to sign to keep her job.
NC law requires “new consideration” for non-competition and non-solicitation covenants.
Shows that the court is willing, at least on these facts, to uphold fairly meager consideration for
restrictive covenants.

NC Computer Trespass Case
Spriax Sarco, Inc. v. SSI Eng’g, Inc., EDNC 2015:
Departing employee who intentionally used his employer-issued laptop to download computer
files to his own media devices and Dropbox account and deleted many files, was acting “without
authorization” under the NC Computer Trespass Act.
The Act defines “without authorization” to include circumstances where either the employee
has no right or permission to use a computer, or the employee uses a computer in a manner
exceeding the right or permission given by the employer.
Prior to this case, due to split-circuit interpretations of the federal Computer Fraud and Abuse
Act, there was some question as to whether moving or deleting files the employee had authority
to access was “without authorization” under the NCCTA.

NC AG-Gag Law
NC’s new Ag-Gag Law, effective Jan 1 (House Bill 405, passed over Gov’s veto makes NC 5th state
with ag-gag law):
Unauthorized photographs or recordings on non-public business premises, or removing
documents or other information from the business can result in civil penalties of up to $5,000
per day.
Pork and Poultry lobby pushed the legislation, but it applies to all employers.
Potential legal challenge to the law: NLRB is likely to challenge the new law as contrary to NLRA
Section 7 rights to concerted activity – activity aimed at improving working conditions.
Duty of Loyalty?: North Carolina Supreme Court has held that there was no common law duty of
loyalty by non-officer employees in North Carolina. This law may change that by referencing a
“duty of loyalty” to employers in its language.

Joint Employer Relationships
In its August 2015 Browning-Ferris decision, the National Labor Relations Board (NLRB)
announced a new standard for “joint employer” status under the NLRA.
Under the new standard, a company is a joint-employer if it exercises “indirect control” over
working conditions or if it has “reserved authority” to do so.
The decision runs counter to prior NLRB precedent, extending NLRA protection to many more
contingent workers. With more than 2.87 million of the nation’s workers employed through
temporary agencies in August 2014, the Board held that its previous joint employer standard has
failed to keep pace with changes in the workplace and economic circumstances.
It is feared that this decision will lead to more findings of joint employment relationships in
other venues (e.g., state courts, DOL, EEOC, IRS, etc.) with impacts in other contexts (Wage &
Hour, FMLA, ADA, taxes, benefits, etc.).

Expansion of State and Local Paid Sick
Leave Laws
4 states: Oregon, California, Connecticut, Massachusetts
Many municipalities. NJ has 11 municipalities with PSL ordinances
Montgomery County, MD = first county PSL law
Where?
◦ PSL laws west of the Mississippi are in CA, OR and WA.
◦ East of the Mississippi, PSL laws are in CT, D.C., MA, NJ, NYC, MD, Philadelphia (Pittsburgh’s PSL law was
struck down by a judge who said PA cities do not have the authority to enact it under PA law) and Puerto Rico.
◦ San Diego voters will vote on PSL in a referendum in June. Voters likely to approve (per usual).
Executive Order 13706 (Sept 2015): requires certain federal contractors to provide employees with
up to seven days of PSL. The Secretary of Labor must issue regulations to implement the Order by
September 30, 2016.
Cost of Doing Business with us: A growing number of large employers voluntarily require contractors
doing business with them to provide PSL to employees.

EEOC Enforcement Priorities
According to its 2015 Performance and Accountability Report (PAR), the
EEOC secured more than $525 million in private, state and local
government and federal workplace discrimination cases.
• $356.6 million was secured through mediation, conciliation and settlements.
• $33.5 million from settlement of systemic investigations (patterns or
practices of discrimination or policies that have a broad impact).
•The EEOC's efforts center around the goals in its Strategic Plan for Fiscal
Years (FY) 2012-2016, which the EEOC will extend through FY 2018 after
receiving Office of Management and Budget approval.
• These enforcement goals include addressing issues regarding vulnerable
workers, underserved communities and new statutory responsibilities.

EEOC Enforcement Priorities
Of the 142 lawsuits alleging discrimination the EEOC filed during FY 2015, 53
(or 37%) were disability cases.
Areas to watch in 2016:
• Continued focus on disability and leave compliance
• Inflexible leave policies or no-fault attendance plans;
• The interactive process in handling requests for reasonable accommodation;
• Employer wellness policies that may not be viewed as "voluntary" by the EEOC ;
• Religious discrimination
• Pregnancy and lactation discrimination
• Increased scrutiny of recruiting, hiring (including use of independent contractors
and contingent workers)
• Systemic investigations – all areas
Per Se violations on the rise.

EEOC Guidance: Muslim or Middle
Eastern Discrimination
December 28, 2015, the EEOC issued guidance addressing discrimination against employees who
are, or are perceived to be, Muslim or Middle Eastern.
Employee Notice: anti-discrimination and anti-harassment rights
http://www.eeoc.gov/eeoc/publications/muslim_middle_eastern_employees.cfm
Employer Notice: examples of discrimination on the basis of religion, race, or national origin,
and identifies steps employers can take to prevent and correct discrimination in the workplace.
http://www.eeoc.gov/eeoc/publications/muslim_middle_eastern_employers.cfm

Religious Discrimination Based on
Assumption
EEOC v. Abercrombie & Fitch Stores, Inc.: US SCt, July 2015, held that Title VII is violated where
an applicant’s need for a religious accommodation is “a motivating factor” in the employer’s
decision not to hire., even without proof that the employer actually knew of the applicant’s
need for a religious accommodation.
The case involved an applicant who wore a headscarf to an interview. Hiring manager assumed
the applicant wore the headscarf for religious reasons. The candidate was not hired because the
company had a “Look Policy” that forbids caps.
The Court concluded that “[a]n employer may not make an applicant’s religious practice,
confirmed or otherwise, a factor in employment decisions.”

EEOC Guidance: HIV/AIDS
accommodation
December 1, 2015, in conjunction with World AIDS Day, the EEOC issued guidance addressing
anti-discrimination and accommodation rights available to employees with HIV/AIDS under the
Americans with Disabilities Act (“ADA”).
Employee Notice: Assures employees of privacy in most situations, and provides examples of
reasonable accommodations (e.g. altered break and work schedule, changes in supervisory
methods, unpaid time off, permission to work from home, etc.).
Doctor/Patient Notice: Explains how doctors may assist employees in obtaining
accommodations that help them stay employed. Suggests that if the patient desires privacy the
doctor may describe the condition as an “immune disorder.”

Wellness Program Survives EEOC ADA
Challenge
In EEOC v. Flambeau, Inc., WI District Court, the agency challenged provisions of the wellness
program that required employees to undergo a health risk assessment and biometric screening
as a condition of participation in the self-insured group medical plan.
The EEOC contended that this mandate violates the ADA’s requirement that any employee
medical examination be conducted only in cases of business necessity, and that it imposes
excessive penalties for non-compliance.
The court adopted the Eleventh Circuit’s reasoning in a 2012 case, concluding that the wellness
safe harbor provision overcomes the more general ban on certain employee medical
examinations.
◦ The court noted that the employer was not provided with any of the individual medical information
gathered, only aggregate statistics.
The EEOC is working on regulations intended to define when such wellness plan provisions
become unacceptable penalties.

EEOC, FLSA, DOL Enforcement: Lactation
2015 EEOC Guidance (June 25, 2015) made clear that the EEOC considers discrimination on the basis of
lactating or breastfeeding violates Title VII.
Existing FLSA regulation already provided that employers shall provide:
◦ (A) a reasonable break time for an employee to express breast milk for her nursing child for one year
after the child's birth each time such employee has need to express the milk; and
◦ (B) a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers
and the public, which may be used by an employee to express breast milk.
(Employers with fewer than 50 employees are not required, if providing would be an undue hardship)
Existing DOL Guidance already required that "[w]here an employer already provides paid breaks, an
employee who uses that break time to express milk must be paid in the same way that other employees
are compensated for break time."

US Department of Labor (DOL)
Enforcement Priorities
Wage and hour enforcement
◦ FLSA class actions are expected to hit a record high in 2016
Independent Contractor misclassification
◦ July 2015 Administrator’s Interpretation: states that the FLSA’s defines the term “employ” as “to suffer
or permit to work.” Based on that definition, the DOL concludes that “most workers are employees.”
Exempt/Non-exempt classifications for minimum wage and overtime
Proposed Rule Changes for White Collar Exemptions
Case law win for DOL - Calderon v. GEICO Gen. Ins. Co., 4th Circuit

DOL Targets Worker Classification:
Independent Contractors
In July 2015, DOL issued an “Administrator’s Interpretation” of the definition of “Independent
Contractor” under the FLSA.
◦ Focused on “economic dependence or independence"
DOL says employers should consider the following when classifying workers:
◦ Is the work an integral part of the employer's business?
◦ Does the worker's managerial skill affect the worker's opportunity for profit or loss?
◦ How does the worker's relative investment compare to the employer's investment?
◦ Does the work performed require special skill and initiative?
◦ Is the relationship between the worker and the employer permanent or indefinite?
◦ What is the nature and degree of the employer's control?
Limited to FLSA coverage.
◦ The DOL interpretation does not address the tax code, and does not impact state employment laws.

Worker Classification: Independent
Contractors
◦ Worker contract does not determine status under any of the applicable laws
◦ Multiple laws, multiple tests (employee under one does not = another)
◦ DOL test
◦ 11 federal employment laws define “employee”
◦ IRS 20--factor test, simplified 3-factor test
◦ NLRB (UBER case, Seattle)
◦ State employment laws (common law control)
◦ Federal (IRS, DOL, EEOC) and state agencies cooperate to enforce the laws
◦ Issue arises when things go awry, e.g.,
◦ Worker seeks ADA or FMLA accommodation
◦ Worker treated differently from employees w/r/t compensation, overtime, benefits, etc.
◦ Terminated worker files unemployment insurance claim

Worker Classification: Independent
Contractors
◦ Re-Classification is not simple, consequences can be severe.
◦ Result of not getting it right / re-classification:
◦ Past federal and state tax withholdings, interest, penalties
◦ IRS Classification Settlement Program
◦ Worker’s compensation premiums, interest, penalties
◦ Benefits (e.g., paid leave, supplemental pay, insurance, etc.)
◦ ERISA-qualified plan compliance issues
◦ E.g., Retroactive participation in pension plans, and in some cases disqualification of the plan
◦ Reimbursement for business expenses
◦ Right to pursue employment claims (FLSA, FMLA, ADA, etc.)
◦ Most worker claims expire in 2 – 3 years, absent fraud.

DOL’s Proposed New Overtime
Exemption Rules
New federal overtime regulations are coming in 2016 that raise the salary threshold for certain
“white collar” and “highly compensated” employees to qualify as exempt from the requirement
to pay them overtime (time and a half) for hours worked in excess of 40 hours per week.
The DOL estimates that 4.6 million workers who are now classified as exempt under the current
regulations will become overtime-eligible under the proposed regulations without some
intervening action by their employers.
Under the New Rule some employees previously designated as exempt (and therefore not
eligible for overtime) will be eligible for overtime pay unless their employer raises their rate of
pay to meet the new thresholds.
Employers will either have to raise these employees’ salaries to meet the threshold, or re-
categorize them as non-exempt and start tracking their work hours and pay them time and a
half for work in excess of 40 hours/week:

Proposed Changes to White Collar
Exemptions
White Collar Exemptions Affected: executive, administrative and professional employees:
Current: employees must make at least $455 per week (annualized: $23,660) to qualify for these exemptions, regardless
of whether their duties would otherwise qualify them. (See 29 C.F.R. 541.601)
Proposed: The proposed salary threshold is equal to the 40th percentile of weekly earnings for full-time salaried
employees (projected to be $50,440 annually or $970/week in 2016, and increased annually after that).
Examples :
◦ Executive employees (e.g., C-level employees)
◦ Administrative employees (e.g., HR Generalist, Project Accountant, Marketing Coordinator, IS Specialist)
◦ Learned Professionals (e.g., lawyers)
◦ Creative Professionals (e.g., creators of original works such as patentable technology)
◦ *Note: Certain outside sales and computer professional employees also may qualify for a white-collar exemption, but there is no
salary threshold for these exemptions. Therefore, they are not affected by the proposed change in the salary threshold.
Note: this is the first increase since 1975, other than automatic inflation increases

Proposed Changes to Highly
Compensated Exemptions
White Collar Exemptions Affected: executive, administrative and professional employees:
• Current: certain highly compensated employees are exempt from the FLSA’s overtime pay requirements
if they are paid total annual compensation of at least $100,000, receive at least $455 per week paid on
a salary or fee basis, perform office or non-manual work, and customarily and regularly perform at least
one of the exempt duties or responsibilities of an executive, administrative, or professional employee.
(See 29 C.F.R. 541.601)
• Proposed: The DOL also proposes to increase the minimum total annual compensation required to
qualify for the highly compensated exemption to be equal to the 90th percentile of earnings for full-
time salaried employees ($122,148 per year as of 2013; the DOL has not estimated what this is
expected to be for 2016, increased annually after that).
◦ Examples:
◦ Executive, Administrative, Learned Professional or Creative Professional employees (e.g., C-level employees) receiving non-cash or
deferred compensation (stock, options, deferred comp, etc.)

Process & Timing of Exemption Rule
Changes
In March 2014, President Obama instructed the US Department of Labor (DOL) to “modernize
and streamline” the rules governing overtime.
On June 30, 2015, as part of this directive, the DOL issued a 295-page proposed rule to raise the
overtime threshold from $455/week (annualized: $23,660) to a “standard salary level equal to
the 40th percentile of earnings for full-time salaried workers,” which is estimated to be $50,440
in 2016.
◦ It is within the power of the DOL to do this because Congress granted the DOL the authority and
responsibility to periodically redefine this salary level when the Fair Labor Standards Act was enacted in
1938. The Regulations were last updated in 2004.

Result of Comment Period
There was a 60-day comment period ending September 4, 2015 for the public to comment on
the Proposed Rule, which was published in The Federal Register July 6, 2015:
https://www.federalregister.gov/articles/2015/07/06/2015-15464/defining-and-delimiting-the-
exemptions-for-executive-administrative-professional-outside-sales-and
As many of 270,000 individuals and businesses submitted comments to the DOL on the
proposed regulations, which has caused the DOL to postpone the release date of the final
regulations until late 2016.
At this point it is unclear when the final regulations will be issued and when they will become
effective. The final regulations are expected to be published in late 2016 or early 2017, with an
effective date at least 30–60 days after publication.

Additional Exemption Rule Changes?
• The DOL also sought comments on whether to allow incentive compensation and nondiscretionary
bonuses to be considered in determining whether the salary-level test is satisfied.
◦ The DOL noted that if this change is made, it is likely to cap the amount of incentive pay and nondiscretionary income that could be
considered and is considering capping at 10% of the standard weekly salary level.
◦ The DOL also noted that in order for employers to be permitted to credit such compensation toward the weekly salary
requirement, it envisions requiring employees to receive the bonus payments monthly or more frequently.
• The DOL also expressly requested comments on whether commissions should be included as part of
nondiscretionary bonuses and other incentive payments that could partially satisfy the standard salary-
level test.
◦ The DOL made clear that it is not considering adding discretionary income, board, food, lodging, or benefit payments as a credit to
satisfy salary-level requirements.

Changes to FLSA Duties Test for
Exemption Qualification?
The proposed rule does not include changes to the FLSA’s duties test, but the DOL nevertheless
sought comments on whether the duties test is working to effectively screen out employees
who are not bona fide white collar exempt employees.
◦ Specifically, the DOL asked:
◦ what, if any, changes should be made to the duties test;
◦ whether employees should be required to spend a minimum amount of time performing work that is their primary duty in or to
quality for an exemption (i.e., a requirement similar to California’s 50% requirement for exempt employees);
◦ whether the DOL should reinstitute the long/short duties test used prior to the 2004 revisions to the regulations;
◦ whether additional examples of how the exemption may apply to specific jobs should be included in the regulations;
◦ whether the concurrent duties regulation for executive employees should be changed; and
◦ suggestions regarding further examples of the application of white collar exemptions to employees in computer-related fields.

Insurance Investigators Not Exempt from
Overtime
Calderon v. GEICO Gen. Ins. Co.: 4th Circuit held that insurance investigators do not qualify for
the administrative exemption from overtime under the FLSA.
The investigators claimed their work was not exempt because their primary duties did not
involve tasks directly related to GEICO’s management or general business operations.
The court agreed that the investigator’s functions largely involve routine, day-to-day business
operations, without the required degree of responsibility or control over business policies or
strategies.
The Fourth Circuit distinguished the inspectors from insurance claims adjusters who can be
recognized as exempt employees.

OSHA Enforcement Tactics: Dollar Tree
OSHA Settlement
Employers with multiple sites, beware: OSHA has employed a serial site inspection tactic under the current
administration.
An OSHA inspector visits a site and issues citations, and soon thereafter visits other sites for the same employer,
issuing citations for the same violations found at the first site, along with costly repeat violation citations, which
carry fines as much as ten times higher than the current limit on citations classified as serious.
Dollar Tree entered a corporate-wide settlement to resolve citations resulting from 13 separate inspections,
paying $825,000 in fines. DT also was required to agree to
◦ immediately abate the violations,
◦ provide safety training to employees,
◦ issue a quarterly safety and health newsletter to its employees,
◦ submit to multiple safety audits at its stores,
◦ implement administrative and engineering safety controls, and
◦ adopt an intense safety and health program based on OSHA’s Safety and Health Program Management Guidelines.
NOTE: “Bipartisan Budget Act of 2015”increased OSHA fines by nearly 52%, effective no later than August 1, 2016

OSHA Bathroom Guidance
In 2015, OSHA issued guidance: Employers are required to provide all employees, including
transgender employees, access to restrooms that correspond to their gender identity.
◦ OSHA concluded that requirements that transgender employees use restrooms inconsistent with their
gender identity, or use gender-neutral restrooms or other specifically designated restrooms, interferes
with their rights.
Other employees may be uncomfortable with this decision. In this circumstance, consider providing
training to all employees involved, to explain the requirements and reasoning behind them.

Federal Agency Focus on Cyber Security
The Financial Industry Regulatory Authority (“FINRA”) released its annual Regulatory and Examination Priorities
Letter on January 5, listing cybersecurity as a 2016 examination priority.
◦ The letter broadly identifies new and recurring areas of concern important to FINRA’s regulatory programs and investor risk
protection, including cybersecurity risk management and preparedness.
◦ Though cybersecurity has received strict regulatory scrutiny in 2015, the inclusion as a 2016 priority indicates that it will
continue to be a top area for enforcement attention
Cybersecurity also remains a top examination priority for the Comptroller of the Currency (“OCC”).
◦ National banks and federal savings associations likely to receive “heightened” focus by OCC examiners in critical areas of
cybersecurity risk including banks’ third-party and vendor relationships.
On December 30, 2015, the Department of Defense (DoD) issued a second interim rule on Network Penetration
Reporting and Contracting for Cloud Services, amending an earlier version issued on August 26, 2015.
◦ The amended DoD interim rule prescribes cybersecurity requirements, including mandatory cybersecurity-related contract
clauses in all DoD contracts subject to the Defense Federal Acquisition Regulations Supplement (DFARS).
◦ Despite its narrow title, the rule remains expansive in scope and prescriptive in application, mandating specific data security
controls for sensitive unclassified information throughout the DoD supply chain.
◦ The rule will affect both Defense Industrial Base (DIB) Sector and other companies.
Similar focus may expand to other agencies.

Executive Order: Pay Transparency for
Gov’t Contractors
Executive Order 13665 – the Pay Transparency Executive Order., effective Jan 11
◦ Obligations trigger when enter a new or modified contract of $10,000 or more.
Designed to address pay gap and pay discrimination (along with the Agency’s recently revised
scheduling letter and the proposed Equal Pay Report.)
The Order amends prior Executive Order 11246 and the Equal Opportunity Clause (EO Clause) to
prohibit:
◦ Policies/practices that prevent applicants and employees from freely discussing their pay; and
◦ Discrimination or retaliation against employees or applicants for discussing pay .
Note: Contractors and contractor employees are not required to disclose information to
applicants or employees regarding the pay of other employees or applicants.

Executive Order: Pay Transparency for
Gov’t Contractors
What do federal contractors need to do to implement the Pay Transparency regulations?
No changes are required to existing contracts.
Employers must distribute a proscribed Pay Transparency Policy Statement. The Statement
cannot be substantively modified and must be:
◦ Included in employee handbooks or manuals (to the extent they exist); and
◦ Disseminated to applicants and employees by either posting it electronically or conspicuously posting it
physically where applicants and employees can see it.
The form OFCCP Equal Employment Opportunity poster will be updated to include a provision
regarding pay transparency.
◦ For now, the Agency has released a supplement which contains both pay transparency as well as LGBT
notices.

How to Navigate a Risky
Dismissal
Miller v. Metrocare Services, 5th Circuit Court of Appeals, Jan 5, 2016: Upheld termination of HR Dir. who claimed he was fired in
retaliation for raising issues regarding FLSA and FMLA compliance and that he was denied a reasonable accommodation and terminated
because of his disability (dyslexia).
LESSONS:
• Conduct a thorough investigation. The basis for termination was a report that the HR director had excluded himself from required
background checks. Investigation showed he also had falsified data to make it look like he was included.
• The company’s investigation was well-documented. The CFO summarized his findings and rationale in a memorandum before
terminating, and attached backup data from the database proving misconduct.
• The company’s decision was prompt. It was critical to proceed with discipline shortly after misconduct was discovered, to make a tight tie
between the two. Delaying action would have diluted that link and provided worker time to take intervening action (FMLA request,
workers’ comp claim, FMLA/ADA retaliation complaint, sexual harassment complaint, etc.).
• The CFO sought legal counsel, documented it, and followed it.

QUESTIONS?

Amie Flowers Carmack| Partner
919-590-0394
acarmack@morningstarlawgroup.com
124

Morningstar Law Group CLE 2016 © Morningstar Law Group

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