Current Updates and Legal Developments

D.C. COURT ORDERS EEOC TO RECONSIDER WORKPLACE WELLNESS RULES

IN AN ACTION BROUGHT BY THE AMERICAN ASSOCIATION of Retired Persons (AARP), the U.S. District Court for the District of Columbia has ordered the U.S. Equal Employment Opportunity Commission (EEOC) to reconsider two regulations related to employer-sponsored wellness programs. AARP v. U.S. Equal Employment Opportunity Comm’n, 2017 U.S. Dist. LEXIS 133650 (D.D.C. Aug. 22, 2017).

U.S. Judge John Bates found that the EEOC failed to adequately explain the reasoning behind the rules, which allow employers to require disclosure of health information in order to be eligible to benefit from financial incentives tied to participation in employer-sponsored wellness programs. 81 Fed. Reg. 31,126; 81 Fed. Reg. 31,143.

The AARP challenged the regulations in a suit filed on behalf of its members, contending that they are inconsistent with requirements in the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) that disclosure of health information to an employer must be voluntary. The AARP argued that employees who would not otherwise disclose health information would be forced to do so in order to obtain reductions in health coverage costs of up to 30% as permitted by the regulations, thereby rendering the disclosure involuntary.

The EEOC moved for dismissal of the action, contending that the AARP lacked standing; the AARP moved for summary judgment.

Judge Bates granted the AARP’s motion, finding that the EEOC failed to justify its adoption of the 30% incentive figure.

“EEOC has failed to adequately explain its decision to construe the term ‘voluntary’ in the ADA and GINA to permit the 30% incentive level adopted in both the ADA rule and the GINA rule,” the judge said. “Neither the final rules nor the administrative record contain any concrete data, studies, or analysis that would support any particular incentive level as the threshold past which an incentive becomes involuntary in violation of the ADA and GINA. To be clear, this would likely be a different case if the administrative record had contained support for and an explanation of the agency’s decision, given the deference courts must give in this context. But ‘deference’ does not mean that courts act as a rubber stamp for agency policies.”

However, the judge declined to vacate the rules, finding that to do so would likely cause “widespread disruption and confusion.” Instead, he remanded the rules to the EEOC for reconsideration “in a timely manner.” The EEOC has since indicated in a status report to Judge Bates that it will issue a notice of proposed rulemaking by August 2018 and a final rule by October 2019.

- Lexis Practice Advisor Journal Staff

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RESEARCH PATH: Labor & Employment > Discrimination and Retaliation > EEO Laws and Protections > Articles

THIRD CIRCUIT FINDS SHORT WORK BREAKS COMPENSABLE UNDER FLSA

THE FAIR LABOR STANDARDS ACT (FLSA) REQUIRES employers to compensate employees for all rest breaks of 20 minutes or less, the U.S. Court of Appeals for the Third Circuit ruled. The court affirmed a ruling by the U.S. District Court for the Eastern District of Pennsylvania entering partial summary judgment for the U.S. Department of Labor (DOL) in a suit against Progressive Business Publications. Sec’y, U.S. Depart. of Labor v. Am. Future Sys. Inc., 2017 U.S. App. LEXIS 19991 (3rd Cir. Oct. 13, 2017).

Progressive produces business publications that are sold by its office-based sales representatives. Members of the sales force are paid an hourly wage and receive bonuses based on the number of sales per hour while they are logged into their computers.

In 2009 Progressive eliminated its policy of providing two paid 15-minute breaks for its employees, instead allowing them to log off their computers at any time but paying them only for the time they spent logged in. The company positioned the new policy as creating more flexibility for employees by allowing them to take breaks at any time for any duration.

In addition, under the new policy sales representatives were required to estimate their hours for each upcoming two-week period and were subject to discipline, including termination, for not meeting the estimated hours.

The DOL filed suit, alleging that Progressive violated the FLSA by failing to pay the federal minimum wage to its sales representatives. The DOL sought unpaid compensation, liquidated damages, and a permanent injunction against future violations.

The district court entered partial summary judgment for the DOL, citing its Wage and Hour Division’s (WHD) interpretation of the FLSA as requiring compensation for “rest periods of short duration” and defining those rest periods as “running from 5 minutes to about 20 minutes.” 29 C.F.R. § 785.18. Progressive appealed.

Affirming the district court, the Third Circuit rejected Progressive’s argument that its policy is a “flexible time” policy, not a break policy, and that therefore the FLSA does not require it to compensate employees for times when they are logged off. The protections provided by the FLSA “cannot be negated by employers’ characterizations that deprive employees of rights they are entitled to under the FLSA,” the court said. “The ‘log off’ times are clearly ‘breaks’ to which the FLSA applies.”

Further, the appeals court said, the WHD’s interpretation is reasonable, given the language and purpose of the FLSA. “As the District Court explained, it is readily apparent that by safeguarding employees from having their wages withheld when they take breaks of twenty minutes or less ‘to visit the bathroom, stretch their legs, get a cup of coffee, or simply clear their head after a difficult stretch of work, the regulation undoubtedly protects employee health and general well-being by not dissuading employees from taking such breaks when they are needed,’” the court concluded.

- Lexis Practice Advisor Journal Staff

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RESEARCH PATH: Labor & Employment > Wage and Hour > FLSA Requirements and Exemptions > Articles

AGENCIES EASE POST-HURRICANE APPRAISAL REQUIREMENTS

IN RESPONSE TO WIDESPREAD DAMAGE CAUSED BY Hurricanes Harvey, Irma, and Maria, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the National Credit Union Administration announced that they will not require financial institutions to obtain appraisals for affected transactions if (1) the properties involved are located in areas declared major disasters, (2) there are binding commitments to fund the transactions within 36 months of the date the areas were declared major disasters, and (3) the value of the real properties supports the institutions’ decisions to enter into the transactions.

The exceptions apply to transactions in areas of Florida, Georgia, Puerto Rico, Texas, and the U.S. Virgin Islands and expire three years after the date the president declared each area a major disaster. The exceptions are being made under the Financial Institutions Reform, Recovery, and Enforcement Act and its implementing regulations.

Financial institutions that use the appraisal exception must maintain information estimating the collateral’s value that sufficiently supports their credit decision to enter into the transaction. The agencies will monitor institutions’ real estate lending practices to ensure the transactions are being originated in a safe and sound banking manner.

-Pratt’s Bank Law & Regulatory Report, Volume 51, No. 10

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RESEARCH PATH: Finance > Financial Services Regulation > Financial Institution Activities > Articles

CONGRESS VACATES CONSUMER FINANCIAL PROTECTION BUREAU’S ARBITRATION RULE

PRESIDENT DONALD J. TRUMP HAS SIGNED A CONGRESSIONAL resolution overtuning a Consumer Financial Protection Bureau (CFPB) rule that would have barred financial companies from conditioning the opening of consumer credit accounts on an agreement to resolve disputes via arbitration, not by litigation, including class actions.

The vote was largely on party lines. The House of Representatives voted 231-190 to vacate the rule, with one Republican voting no; the Senate vote was 51-50, with Vice President Mike Pence breaking a 50-50 tie. All 48 Democrats were joined by two Republican senators in voting no.

After the vote, President Trump voiced support for Congress' action, saying, "By repealing this rule, Congress is standing up for everyday consumers and community banks and credit unions, instead of the trial lawyers, who would have benefited the most from the CFPB’s uninformed and ineffective policy.”

CFPB Director Richard Cordray said in a statement that the Congressional action “robs consumers of their most effective legal tool against corporate wrongdoing. As a result, companies like Wells Fargo and Equifax remain free to break the law without fear of legal blowback from their customers.”

The rule (12 C.F.R. pt. 1040), promulgated in July pursuant to Section 1028(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, was scheduled to take effect on September 18, with mandatory compliance for pre-dispute arbitration agreements entered into on or after March 19, 2018.

The U.S. Chamber of Commerce and a number of financial institutions and organizations filed suit for injunctive relief against the rule in the U.S. District Court for the Northern District of Texas in September (Chamber of Commerce of the United States of America, et al. v. Consumer Financial Protection Bureau, et al., No. 3:17-cv-02670-D (N.D. Tex.)).

- Lexis Practice Advisor Journal Staff

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TREASURY OUTLINES WAYS TO STREAMLINE CAPITAL MARKETS REGULATION

A RECENTLY RELEASED U.S. DEPARTMENT OF THE Treasury (Treasury) report found that there are “significant reforms that can be undertaken to promote growth and vibrant financial markets while maintaining strong investor protections.”

The report details how to streamline and reform the U.S. regulatory system for the capital markets. It is the second of four Treasury will issue in response to President Donald J. Trump’s Executive Order 13772, which called on Treasury to identify laws and regulations that are inconsistent with a set of core principles of financial regulation.

“The U.S. has experienced slow economic growth for far too long. In this report, we examined the capital markets system to identify regulations that are standing in the way of economic growth and capital formation,” said Treasury Secretary Steven T. Mnuchin. “By streamlining the regulatory system, we can make the U.S. capital markets a true source of economic growth which will harness American ingenuity and allow small businesses to grow.”

Treasury found that the federal financial regulatory framework and processes could be improved by:

• Evaluating the regulatory overlaps and opportunities for harmonization of Securities and Exchange Commission and Commodity Futures Trading Commission regulations
• Incorporating more robust economic analysis and public input into the rulemaking process in order to make it more transparent
• Opening private markets to more investors through proposals to facilitate pooled investments in private or less liquid offerings and revisit the accredited investor definition
• Limiting the imposition of new regulations through informal guidance, no-action letters, or interpretation, instead of through notice and comment rulemaking
• Reviewing the roles, responsibilities, and capabilities of selfregulatory organizations and making recommendations for improvements

The report also recommends examining the impact of Basel III capital standards on secondary market activity in securitized products.

The Treasury report went on to say that “Dodd-Frank and various rulemakings implemented to address pre-crisis structural weaknesses in the securitization market may have gone too far toward discouraging securitization. By imposing excessive capital, liquidity, disclosure, and risk retention requirements on securitizers, recent financial regulation has created significant disincentives to securitization. While some changes are helpful in promoting market discipline, others unduly constrain market activity and limit securitization’s useful role as a funding and risk transfer mechanism for lending.”

- Pratt’s Bank Law & Regulatory Report, Volume 51, No. 10

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G-7 RELEASES CYBERSECURITY REPORT

THE FINANCE MINISTERS AND CENTRAL BANK governors of the G-7 countries released the Fundamental Elements for Effective Assessment of Cybersecurity for the Financial Sector. The new report advances the work of last year’s report, G-7 Fundamental Elements of Cybersecurity for the Financial Sector.

The U.S. Department of the Treasury (Treasury) and the Board of Governors of the Federal Reserve System welcomed the “continued efforts by the G-7 to promote effective practices for cybersecurity and drive greater consistency across the international financial sector.”

“A secure, safe, and strong financial sector is essential to promote real growth within the U.S. economy and across the world. Cybersecurity, particularly in the financial sector, is a top priority for the United States, and we are pleased to work with the members of the G-7 to advance a common approach that enhances resiliency,” said Treasury Secretary Steven T. Mnuchin. “Technology has become the global engine driving innovation and economic growth, and it provides a channel for the financial sector to engage customers and counterparties. However, this trend brings increased cyber risk, which is real, dynamic, and evolving.”

“The new Elements, though non-binding and non-prescriptive, provide tools for institutions to evaluate the performance and assessment of cybersecurity practices,” Treasury said. “Additionally, they detail a set of outcomes which demonstrate sound cybersecurity and process components for organizations to use when evaluating their cybersecurity.”

The Treasury and the Bank of England co-chair the G-7 Cyber Expert Group, established in 2015.

- Pratt’s Bank Law & Regulatory Report, Volume 51, No. 10

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RESEARCH PATH: Finance > Financial Services Regulation > Financial Institution Activities > Articles