Washington Enacts Salary History Ban

By: James P. Sikora

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Associate

Washington recently amended its Equal Pay and Opportunities Act (EPOA), effective July 28, 2019, to generally prohibit employers from inquiring about a job applicant’s wage or salary history and require employers to provide wage and salary information to job applicants and employees in certain circumstances.

The amended EPOA prohibits employers from seeking the wage or salary history of an applicant from the applicant or his or her current or former employer. This prohibition also applies to current employees who apply for new positions with their current employer. The amended EPOA further prohibits employers from requiring that an applicant’s prior wage or salary history meet certain criteria (e.g., a prior salary threshold).

The law contains two exceptions. An employer may confirm an applicant’s wage or salary history (1) if the applicant has voluntarily disclosed his or her wage or salary history, or (2) after the employer has negotiated and made an offer of employment with compensation to the applicant. These provisions of the amended EPOA apply to all Washington employers, regardless of the number of employees.

The amended EPOA also requires employers with 15 or more employees to disclose certain salary information upon the request of a job applicant. More specifically, the employer must provide the minimum wage or salary information for a position upon the request of an applicant. The employer is obligated to provide this information only after making an initial offer of employment to the applicant.

For a current employee who is offered an internal transfer to a new position or promotion, the employer must provide the wage scale or salary range for the employee’s new position upon request of the employee. If the employer does not have a wage scale or salary information for the position at the time of the request, the employer must provide the minimum wage or salary expectation set by the employer prior to posting the position, making a position transfer, or making the promotion.

Employees who are alleging violations of the EPOA may file a complaint with the Washington Department of Labor and Industries or bring a civil action. A prevailing employee may recover actual damages and statutory damages as well as attorneys’ fees and costs.

Employers should consider taking several steps in anticipation of the quickly approaching effective date of the amended EPOA. This includes reviewing job applications and other hiring documents to ensure that any requests for an applicant’s salary or wage history are removed. Employers should also train managers and others involved in the hiring process on the amended EPOA’s prohibitions and requirements. Finally, employers should also consider reviewing salary ranges and pay scales or setting a minimum salary expectation before positing a position to ensure they are able to adequately respond to requests for this information under the EPOA.

For more information, contact attorney James P. Sikora at james.sikora@landerholm.com.

(The above should not be construed as specific legal advice and is intended for general information purposes only).

Veronica Whitney
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Employment law is constantly changing, resulting in an increasingly complex legal environment for businesses to navigate. We know how challenging it can be to stay on top and keep track of these evolving laws, which is why Landerholm, P.S. attorneys James P. Sikora and Phillip J. Haberthur have started sending employment law updates as a complimentary service to you. We want to assist you in both complying with the latest developments in employment law and continuing to run a business that stays true to your vision in this evolving environment.

Veronica Whitney
New Guidance On Tips, Gratuities & Service Charges
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Associate

In recent years, employers have faced increased litigation, government enforcement and regulatory activity related to tips, gratuities and service charges. This trend continued with the Washington State Department of Labor and Industries’ (L&I) issuance of a new administrative policy, effective March 6, 2019, on tips, gratuities and service charges.

Tips and gratuities are defined as amounts freely given by a customer to an employee. L&I’s administrative policy confirms that employers may establish mandatory tip pooling among employees who are non-exempt under the Washington Minimum Wage Act. This means that both back-of-the-house and front-of-the-house employees may participate in the tip pool so long as they are non-exempt.

Employers must exclude any employee who is exempt under the Minimum Wage Act, such as managers and supervisors, from these tip pools. This prohibition on management participation generally aligns with federal law. L&I’s administrative policy notes that managers and supervisors may accept tips only for services they directly provide.

L&I’s administrative policy explains that an employer may adopt a policy prohibiting an employee from accepting tips and gratuities. However, if a customer leaves a tip or gratuity despite the policy, the employer cannot confiscate the tip or gratuity. In these cases, the employer must allow the employee to retain the tip or gratuity. Employers should consider developing and maintaining written tip pooling policies and requiring participating employees to sign an acknowledgment of the policy. Employers who have such policies are encouraged to review their tip pooling practices to ensure their policies and practices are compliant.

L&I’s administrative policy also addresses service charges. Some employers have considered using service charges as an alternative to tips or gratuities. Service charges are defined as automatic charges added to a customer’s bill. Washington law requires employers to disclose the percentage of the service charge that is paid to the employee(s) serving the customer. This is known as the “employee portion” of the service charge. The employee portion of the service charge must be paid to employees who served the customer (e.g., servers, bussers, bartenders and bar backs), and cannot be distributed to managers or supervisors. L&I excludes back-of-the-house employees from its description of employees to whom the service charge may be distributed.

The required disclosure for service charges must appear on an itemized receipt and in any menu provided to the customer. L&I’s administrative policy provides examples of appropriate disclosure statements. For example, an appropriate disclosure statement on a restaurant menu may read: “A service charge of % / $ will be added to your bill. __% of this service charge is paid to the employee or employees who served you today.” Failure to disclose the percentage paid to the employee(s) servicing the customers causes the entire service charge to become due to those employee(s). Employers who use service charges should review their service charge practices and policies to ensure they are compliant.

L&I’s administrative policy also addresses issues related to payment of tips, gratuities and service charges. L&I notes that employers may allow employees to simply retain tips, gratuities or the employee portion of the service charge received in cash. If an employer collects tips, gratuities or service charges (e.g., tips paid by credit card), the employer must pay the employee portion no later than the pay period in which they were earned. Employers may not count tips, gratuities or service charges towards the employee’s hourly minimum wage. L&I also explains that employers may not deduct cash register shortages or other business expenses from tips, gratuities or service charges paid to employees.

The increased litigation, government enforcement and regulatory activity related to tips, gratuities and service charges creates an environment in which compliance is critically important for employers. L&I’s administrative policy provides useful guidance for employers, and employers should carefully review their current practices and policies in light of this guidance.

For more information, contact attorney James P. Sikora at james.sikora@landerholm.com.

(The above should not be construed as specific legal advice and is intended for general information purposes only).

Veronica Whitney
Changes in Overtime Rules are on the Horizon
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Associate

Washington businesses have experienced many changes in employment laws over the past several years.  Paid sick leave became effective in January 2018.  Paid family and medical leave will be fully effective in January 2020, when eligible employees may begin applying for benefits under that law.  And changes to equal pay laws have limited a business’s ability to use pay history to set employee compensation. 

It now appears that more changes are looming on the horizon as updates to Washington and federal overtime rules are being considered.  If the proposed changes go into effect, the salary threshold for exempt employees in Washington may increase by more than 200%, resulting in a significant increase in the number of employees eligible for overtime pay in Washington. 

An employee in Washington must be paid overtime for hours worked in excess of 40 hours in a workweek, unless the employee is exempt from overtime requirements.  The most common overtime exemptions are the so-called “white collar” exemptions for professional, administrative, executive, and outside sales employees.  To qualify for an exemption, an employee must perform certain job duties and be paid a salary that meets a salary-specific threshold.  The current salary threshold applicable to most businesses is $455 per week ($23,660 per year.) 

The most significant potential change in overtime rules looming is an increase in the salary threshold.  The Washington Department of Labor & Industries has proposed raising the salary threshold to between two and two and one-half times the state minimum wage for a 40-hour workweek.  This would result in a salary threshold of $960 to $1,200 per week ($49,920 to $62,400 per year), which is a significant increase over the current salary threshold applicable to most Washington businesses.  If a multiplier tied to the state minimum wage is used, each increase in the state’s minimum wage would result in automatic increases in the salary threshold.  This would necessitate businesses having to adjust exempt employee salaries following each minimum wage increase to continue to meet the salary threshold. 

The Department of Labor & Industries also proposed updates to the job duties requirements for white collar exemptions.  The proposed updates seek to bring Washington’s job duties requirements in line with the federal rules.  This is good news for most businesses because the proposed updates to job duties requirements would simplify compliance for most businesses by eliminating the current differences between Washington and federal law on job duties requirements.  Although these proposed updates are not yet final, businesses should monitor rule-making developments as the year progresses.  An effective date of January 1, 2020 is currently being targeted for these Washington updates.      

Washington is not alone in seeking to update overtime rules.  The U.S. Department of Labor recently released proposed updates to the overtime rules under the FLSA.  The proposed updates seek to increase the federal FLSA salary threshold from $455 per week ($23,660 per year) to $679 per week ($35,308 per year).  If it goes into effect, the new federal threshold will likely take effect in early 2020.  The proposed federal increase is significantly less than Washington’s proposal.  This means that exempt employees’ salaries in Washington will need to reach the Washington threshold, assuming the final rules are similar to those proposed.  The U.S. Department of Labor has not proposed changes to the job duties requirement. 

While the details of the final rules in Washington and at the federal level won’t be revealed for several months, businesses should know that change is coming and begin preparing accordingly.  Businesses can start evaluating current salaries of exempt employees in anticipation of a meaningful increase in the salary threshold level.  For those employees whose salaries are at or close to the current salary threshold of $455 per week or $23,660 per year, reclassifying those employees as non-exempt is one option to keep wage costs in check.  Implementation of strict overtime policies and the shifting of work to exempt employees are additional options.  But businesses should be cognizant of the potential downstream impact of these options, including potential loss of benefits as a result of reclassification and decreased employee morale caused by restrictive policies and work shifting.  In contrast, for those exempt employees with higher salaries, increasing salaries above the updated threshold will allow businesses to maintain the exempt classification.  Increasing salaries may also be a good option when an employee regularly works significantly more than 40 hours per week.   

These updates also present a good opportunity to complete a comprehensive audit of exempt classifications, including assessing whether exempt employees also satisfy the job duties requirements.  It is important to remember that exempt employees must satisfy both the job duties and salary requirements of the exemptions.  Proactive planning should help businesses adjust to these forthcoming changes in overtime rules.

For more information, contact attorney James P. Sikora at james.sikora@landerholm.com.

(The above should not be construed as specific legal advice and is intended for general information purposes only).

Veronica Whitney
What Does State’s Amended Equal Pay Act Mean for Employers?
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Associate

By: James P. Sikora

Originally written and published for the Vancouver Business Journal on August 3, 2018.

Washington’s Equal Pay Act (EPA) has prohibited discrimination in compensation on the basis of sex since it was enacted in 1943. Despite the existence of similar laws for many years at the state and federal levels of government, studies continue to find a persistent pay gap of approximately 20 percent between men and women in the United States. Several states have expanded equal pay laws in recent years to address this persistent gap.

Washington joined this trend when it amended the EPA, effective June 7, 2018, to expand equal pay protections and promote pay transparency. Washington’s amended EPA contains three key provisions – equal pay protections that prohibit gender-based discrimination in compensation; limitations on an employer’s ability to use pay history to set current compensation; and pay transparency protections for employee discussions of and inquiries into compensation.

The equal pay provision of Washington’s amended EPA prohibits gender-based discrimination in compensation between employees who are similarly employed. Compensation is broadly defined to include all wages and benefits paid to an employee. Employers should be mindful that this broad definition probably encompasses bonuses, paid time off, vacation pay and other employer-provided benefits.

Employees are similarly employed if the employees work for the same employer, the jobs require similar skill, effort and responsibility, and the jobs are performed under similar working conditions. Job titles are not determinative in assessing whether employees are similarly employed. For example, a janitor and a housekeeper for a hotel may be similarly employed, despite having different job titles, because the jobs require similar skill, effort and responsibility, and are performed under similar working conditions.

Not all wage differentials are discriminatory under the amended EPA. A wage differential between employees who are similarly employed will not be discriminatory if it is based in good faith on bona-fide job-related factors that are (1) consistent with business necessity, (2) not based on or derived from a gender-based differential and (3) account for the entire difference. Bona-fide factors include:

  • Education, training, or experience;

  • A seniority system;

  • A merit system;

  • A system that measures earnings by quantity or quality of production; or

  • A bona fide regional difference in compensation levels.

An employee’s wage or salary history is not a bona-fide factor upon which an employer can justify a wage differential.

The amended EPA also prohibits employers from limiting or depriving an employee of career advancement opportunities on the basis of gender. The EPA does not define the phrase “career advancement opportunities,” but possible examples include internal job opportunities and training provided by or sponsored by the employer.

By amending the EPA, the Washington Legislature sought to promote pay transparency and make it easier for employees to discuss wages. Employers may not do the following: require an employee not to disclose his or her wages as a condition of employment; or require an employee to sign an agreement that prevents the employee from disclosing his or her wages.

The amended EPA further prohibits employers from discharging or retaliating against an employee for the following: inquiring about, disclosing or discussing his or her wages or the wages of another employee; asking the employer to provide a reason for the employee’s wages or lack of opportunity for advancement; or aiding or encouraging an employee to exercise his or her rights under the amended EPA.

Employers should consider several steps in response to these developments. A good starting point is to review job applications and interview questions to eliminate inquiries into pay history or questions that may elicit pay history from job applicants. This will help reduce the possibility of an employer considering pay history in setting compensation in violation of the amended EPA.

Employers should also review criteria used to set compensation for employees to ensure those criteria comply with the amended EPA. This includes ensuring that pay differentials between similar positions are based on business necessity and bona-fide factors. Any differences based, even in part, on an employee’s pay history warrant particular scrutiny. Employers should be careful when determining compensation to that compensation is broadly defined to include benefits.

Employers should revise policies and practices that restrain an employee’s ability to discuss his or her wages or the wages or subject employees to discipline for those activities. This includes updating employee handbooks to revise any that restrain those activities. Finally, employers with employees in other states, including Oregon, should be mindful of any changes to pay equity laws in those states to ensure compliance. Taking proactive steps to ensure compliance provides employers with the dual benefit of reducing the risk of claims and promoting pay equity for employees.

For more information, contact attorney James P. Sikora at james.sikora@landerholm.com.

(The above should not be construed as specific legal advice and is intended for general information purposes only).

Veronica Whitney
Business Alert! Changes to Washington Paid Sick Leave Start January 1, 2018

Associate

By: James P. Sikora

Beginning January 1, 2018, all employers in Washington State must allow non-exempt employees to use paid sick leave.  Employers may comply with the new law by maintaining a paid sick leave policy or PTO policy that provides paid sick leave as long as the PTO policy satisfies all requirements of the law, including the rate of accrual and carryover.  

The Basics

  • Employees must accrue paid sick leave at a rate of 1 hour for every 40 hours worked. Accrual begins January 1, 2018, for existing employees or upon start of employment for new employees.

  • The law does not apply to employees who are exempt from minimum wage and overtime requirements under the Washington Minimum Wage Act, which includes those employees who satisfy the requirements for the professional, administrative, and executive exemptions.

  • Employers may require employees to wait up to 90 days after the start of employment to use paid sick time.

  • Employees may use paid sick time for: to care for themselves or family members; when the employee’s workplace or their child’s school or place of care has been closed by a public health official for any health-related reason (not including inclement weather); and for absences that qualify for leave under Washington’s Domestic Violence Leave Act.

  • The law does not provide for caps on accrual or use of paid sick time. This means that employees may use as much paid sick time per year as he or she has accrued.

  • Employers must always allow employees to carryover up to 40 hours of accrued, unused paid sick time from year to year.

  • Employers may require employees provide verification for absences that exceed three consecutive work days for the employee.

  • Retaliation for use of paid sick leave is prohibited.

The law requires employers to provide notices to employees of their rights and responsibilities under the law so it is important to take steps now to ensure compliance in anticipation of the January 1 effective date.

The above is a summary of the main elements of the new law.  Employers are encouraged to carefully review existing policies to ensure compliance or adopt new policies as needed to come into compliance.  

For more information, contact attorney James P. Sikora at james.sikora@landerholm.com.

(The above should not be construed as specific legal advice and is intended for general information purposes only).

Veronica Whitney
Businesses Beware: New City Rules May Cost You
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Associate

By: Erin C. Lambley

Originally written and published for the Vancouver Business Journal on August 4, 2017.

Most Vancouver businesses are likely aware of the need for a City of Vancouver Business License. Businesses may not, however, be aware that the city business licensing rules have recently changed, with more changes to come.

Currently, the Vancouver Municipal Code states that those engaging in “any business or activity” within Vancouver’s city limits must have a valid city business license, absent an exemption. “Business” includes virtually everything a person does with the object of gain. In other words, anyone who is generating (or attempting to generate) income in Vancouver needs a license, unless an exception applies. The license applies to home-based businesses as well, even if customers do not frequent the home. The current exemptions from the license requirement include businesses generating less than $12,000 per year and businesses engaged in casual or isolated sales. In addition, while nonprofit businesses need to obtain a license, they are not required to pay license fees. Virtually all other businesses operating within the city limits (even if those businesses do not have a physical location within the city limits) are required to hold a license.

Under the current licensing regime, the base annual fee for a business license is $125 for every location within the city limits, with an additional fee of $80 per employee (including owners), for up to a total of 400 employees ($32,000 maximum per year). If a business has more than 400 employees, there is no fee for those additional employees. Employee fees will increase to $90 per employee beginning January 1, 2018, for up to a total of 400 employees ($36,000 maximum per year). The number of employees is calculated based on the number of hours worked by employees in the city limits. For example, a business with three full-time employees and two half-time employees working in the city limits would only need to pay for four employees per year (the two half-time employees equal one full-time employee).

According to the Vancouver Municipal Code, the employee surcharge was increased from $60 per employee to $80 per employee in December of 2016 to fund police staffing based on the recommendation of the Community Resource Team, and the employee surcharge increase in 2018 will be used to fund a street initiative.

Despite the hefty surcharge for employees, not all may be lost for a large business. In particular, in order to promote business development, the city may waive the employee surcharge for certain larger employers for five years (this may be extended for two subsequent five-year periods) if the business has recently moved to Vancouver or expanded its existing business and meets certain other requirements.

While the current fees are generally understood and may not have a large financial impact on many local businesses, recent changes to the Vancouver Municipal Code increase business licensing fees and could significantly impact local businesses in the near future.

Beginning on January 1, 2019, businesses with locations in the city limits will be required to pay an additional surcharge based upon the “net square footage” of indoor space used by the business. “Net square footage” includes all square feet in excess of 5,000 square feet. The fee is calculated based on the indoor “net square footage” that is either used by the business or that is leased to others, meaning that both landlords who own the space and tenants who lease the space appear to be required to pay the surcharge.

The surcharge applies to the following types of businesses: retail (direct on-premises sales to customers) – $0.10 per square foot beginning January 1, 2019, and $0.20 per square foot beginning January 1, 2020; industrial (an on-site activity that makes, processes, or stores a tangible thing) – $0.05 per square foot beginning January 1, 2019, and $0.10 per square foot beginning January 1, 2020; and commercial (any activity that does not qualify as retail, industrial or residential) – $0.07 per square foot.

Perhaps the most surprising change is a surcharge for businesses with multi-family residential units (a building with more than one residential unit). These businesses will be required to pay $90 per residential unit beginning on January 1, 2019, which could quickly become expensive for those owning or operating multi-family apartment complexes.

While it may seem easier to ignore the licensing requirements altogether, businesses should not act too hastily in doing so. In particular, the city code contains a provision criminalizing violations of the city’s business licensing rules, and violators may be assessed monetary fines or imprisoned, or both.

The new licensing rules clearly illustrate the impact that budget tensions in Olympia and federally have had on our region. As a prudent business owner, it is important to not only understand but abide by the local licensing rules applicable to the business. For those businesses with a large footprint in Vancouver, it will be important to plan for the financial impact the new rules will have on the business.

For more information, contact attorney Erin C. Lambley at erin.lambley@landerholm.com.

(The above should not be construed as specific legal advice and is intended for general information purposes only)

Veronica Whitney