Earlier this year I wrote a six-part series of articles on the weaknesses of Oregon’s pay equity law. The 2019 Legislature fixed some of the primary challenges, including removing inadvertent incentives for employers to inquire into employees’ private lives and allowing pay differences based on worker light-duty programs. However, the law continues to foster systemic discrimination by embracing potentially biased factors as justifications for pay differentials and ignoring important nondiscriminatory factors.

Oregon’s Equal Pay Act prohibits employers from paying employees who work in comparable jobs different compensation based on their protected class. The protected classes include race, color, religion, sex, sexual orientation, national origin, marital status, veteran status, disability and age. Employers may pay employees in comparable jobs different compensation if the difference is based on one or more bona fide factors, such as a seniority, merit or productivity system; work location; education; etc.

The unique beauty of Oregon’s pay equity law is the safe harbor it provides to employers. If employers conduct an equal-pay analysis every three years and make progress toward eliminating wage differentials, the law offers protections against emotional distress and punitive damages.

2019 fix No. 1: Employers no longer have to inquire into employees’ private lives

This was the most important “fix” of 2019. Under the law’s prior version, employers could only take advantage of this defense if their pay-equity analysis considered the plaintiff’s protected class and made strides to eliminating pay differentials for everyone in that class. To accomplish this, employers had to ask employees private questions about religion, sexual orientation, disability, etc., and categorize workers according to protected class. Without such inquiry and categorization, the employer could not prove that it reviewed the plaintiff’s protected class.

Now, a pay-equity analysis need only include “a review of practices designed to eliminate unlawful wage differentials.” Therefore, if an employer reviews and eliminates pay disparities among all employees regardless of protected class, it should fulfill the requirements of the statute. And employers need no longer make uncomfortable inquiries and categorize workers.

2019 fix No. 2: Employers can pay different rates to workers in light-duty jobs

Another improvement is that an employer may pay a different level of compensation to an employee performing modified work due to a covered workers’ compensation injury or other medical condition. Many employers allow employees to work in light-duty jobs while they recover from injuries and pay the worker his or her regular pay rate instead of the often lower light-duty rate. This allows the employee to maintain their income during recovery and allows the employer to avoid workers’ compensation charges.

But under these circumstances, an injured male electrician who is performing light-duty office work in an environment with mostly women may be making more money than the women. Under the law’s prior version, that could have violated the statute. However, the new “fix” allows such disparities to exist if based on a bona fide light-duty type program for injured workers.

Hopeful 2020 fix: New non-discriminatory factors to justify pay differences

Unfortunately, the law continues to foster systemic discrimination by embracing potentially discriminatory factors to support pay differentials and ignoring nondiscriminatory factors. The law allows employers to justify pay differentials between workers performing the same jobs if the difference is based on a seniority, merit or productivity system; education; travel; workplace locations; training; experience; or a combination of the above. These factors have the potential to cultivate systemic discrimination in the workplace.

For example, an employer pays superintendents with college degrees more than those with high school diplomas. Perhaps in that community, fewer minority superintendents have college degrees due to lack of access to education for minority students. Oregon’s law allows the employer to carry that systemic racism (that the employer had nothing to do with) into the workplace and justify its continuation by paying superintendents with less education less compensation.

Basing pay differentials on experience and seniority may work against women who may take more time away from the workforce to care for their families due to society’s deeply engrained gender-biased familial system. And a disabled person may be less likely to work in remote locations where pay may be higher. Paying more to workers who engage in remote jobs may inadvertently discriminate against the disabled, but such discrimination is justified under Oregon’s law.

The only bases that fairly justify pay disparities are those that have to do with job performance, market demands, contract requirements, skills, knowledge, and similar factors that deal with who the employee is now and the job he or she has to perform. Pay differences should not be based on factors that implicate the opportunities available to the worker as a child, the length of time the worker has been in the workforce, the workers’ disabilities, or other inherent characteristics.

Rather, a superintendent with a high school diploma may have greater knowledge and skill than the one with a college degree. The employee with the most seniority may be a mediocre performer. The worker hired as a laborer in a building boom may have negotiated a higher wage, giving him enough financial stability to climb the ladder. The workers on the public project site may get paid more than the ones across the street on the private site because of factors having nothing to do with skin color, country of origin, gender, financial resources or health.

The employer that pays more to workers who do the best job, enter the market at a profitable time, or work under a more favorable contract is not allowing systemic discrimination to be carried into the workforce because these factors have nothing to do with the workers’ history. Rather, these factors focus on what the employee brings to the job at hand.

Amanda Gamblin is a shareholder in the Portland office of Schwabe, Williamson & Wyatt. She focuses on real estate and construction law. Contact her at ‎‎503-796-2903 or ‎agamblin@schwabe.com.

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Oregon courts have repeatedly punished general contractors (GCs) for paying workers when a subcontractor fails to. The courts use the GC’s payment to the workers, or joint payment to the subcontractor and worker, as proof that the GC is a “joint employer” of the workers. As a joint employer, the GC is liable for the workers’ unpaid wages, penalties, interest and taxes. These holdings have the absurd effect of discouraging GCs from paying workers stiffed by subcontractors.

The Oregon Legislature went a step further. In its short session, the Legislature attempted to push through House Bill 4154, which would have made general contractors liable for a broad range of employees’ claims against their employer-subcontractor. Like the court holdings, HB 4154 failed to accomplish its primary goal: to get workers paid for work performed. While HB 4154 did not pass, something like it will undoubtedly reappear next session. When it does, the Legislature should consider the failings of HB 4154 and craft a bill that gets workers paid.

HB 4154 failed to get workers paid because it would have made the GC liable for claims that have nothing to do with paying workers for work performed, incentivized GCs and subcontractors to try and move money to each other instead of into workers’ pockets, and encouraged protracted bureaucratic litigation instead of straightforward resolutions between parties.

Under HB 4154 the GC would have been liable for any kind of wage claim brought by the subcontractor’s employees. For example, if the subcontractor took an improper deduction from the employee’s paycheck, the employee could collect from the GC. And if the subcontractor failed to provide an earned income tax credit notice to its employees and an employee suffered losses, the employee could collect from the GC. No one in the Legislature appeared to understand the breadth of the bill under consideration. But parts of it had nothing to do with a subcontractor’s failure to pay its employees’ wages.

In addition to its over-breadth, the bill did not require the GC to pay the workers if it had already paid the subcontractor in full for the project. While this is a crucial piece, this alone fails to put money in workers’ pockets. Giving the GC immunity against the employees if it pays the subcontractor – and not the workers – incentivizes the GC to figure out a way to pay the subcontractor immediately upon hearing of BOLI’s investigation into a wage claim.

Instead, a bill should give the GC immunity if it pays the workers. And it should go a step further and prohibit courts from using that payment as a factor to find the GC as a “joint employer” with the subcontractor and hold it liable for additional wages, penalties, interest, etc. Motivating the GC to pay the workers would ensure that workers not only are paid immediately, but also continue to work – thus avoiding project delays.

Finally, under HB 4154, the GC would have received no immunity unless the workers filed a claim with the Oregon Bureau of Labor and Industries. This shows a lack of understanding about how this really works. In the real world, workers more often go straight to the GC and threaten to walk off the job unless they are paid. Under HB 4154, the workers would have no access to the GC’s funds unless they involve BOLI, thereby launching a time-consuming and antagonistic process.

So, how does the Oregon Legislature ensure that workers get paid immediately instead of the subcontractors and BOLI investigators? Any bill should:

• apply only where a subcontractor fails to pay workers for work already performed;
• provide the GC broad immunity from wage claims, attorney fees, interest, penalties, etc. if the GC pays the workers what it reasonably believes is owed regardless of whether the workers call BOLI;
• limit the GC’s liability to the amount it owes the subcontractor for work already performed;
• reduce the amount the GC owes the subcontractor by the amount the GC paid the subcontractor’s workers and require subcontractors to issue lien releases for that amount; and
• prohibit courts from using the GC’s payment to the workers as a factor in finding that the GC is a “joint employer” of the workers for the purposes of any other claims.

Such a bill would incentivize GCs to put money into workers’ pockets immediately without expensive bureaucratic processes and keep projects moving forward.

Amanda Gamblin is a shareholder in the Portland office of Schwabe, Williamson & Wyatt. She focuses on real estate and construction law. Contact her at ‎‎503-796-2903 or ‎agamblin@schwabe.com.

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The Oregon Legislature in 2017 was, as usual, busy regulating employers. Two new laws ‎are particularly significant to the construction industry: a pay equity law (HB 2005) and an overtime law (HB 3458).

The new pay equity law fails to provide workers with significant additional protections, but does provide employers with new tools to avoid pay discrimination claims. The overtime law, however, if broadly applied by the Bureau of Labor and Industries (BOLI), could have devastating effects on construction industry employers.

House Bill 2005‎

The pay equity law is duplicative of other Oregon and federal laws that already prohibit employers from paying employees less because they belong to a protected class, such as, a certain race, gender, national origin, sexual orientation, veteran’s status, age, disability, etc. Under these existing laws, pay discrimination cases could be difficult to defend.‎

For example, an employee sues her employer, alleging she is paid less because she is a woman. The employer responds ‎that she is not paid less because of her gender, but rather because pay is based on production and she does not install roofing as quickly as the other workers (who all happen to be men). The ‎employee responds that the employer’s productivity standard is veiled discrimination because the ‎average woman could never install roofing as quickly as the average man, and therefore, women will predominantly be paid less than men.

The new pay equity law could eviscerate the employee’s argument that payment based on productivity is discriminatory because the law lists productivity as a statutorily permissible basis upon which to pay employees differently. HB 2005 lists other nondiscriminatory bases upon which an employer is permitted to pay different wages to classes of employees for the same or similar work, including: a seniority or merit system, a system that measures earnings by quantity or quality of production (including piece-rate work), workplace locations, travel, education, training, experience, or any combination of these factors.

Because the Oregon Legislature has declared these pay systems to be nondiscriminatory, employees may have a more difficult time arguing that these systems are discriminatory. This list of permissible reasons to pay workers differently applies only to claims made under the new pay equity statute. However, it could be persuasive for employers who are sued other discrimination statutes as well.

The new law also gives employers a partial affirmative defense. If an employer performs an equal pay analysis of their practices and eliminate any discriminatory differentials, the plaintiff may not collect compensatory or punitive damages and the employee may have to pay the employer’s attorneys’ fees.

The law contains a statutory framework for this self-analysis. Therefore, employers should seek legal advice on the best way to structure such an analysis. Once it is established, if an employer conducts the self-analysis every three years and makes required adjustments, it will have a strong defense if sued.

There are two additional requirements of HB 2005 to be aware of: 1, employers cannot reduce any employee’s pay to comply with the law, and 2, employers cannot ask for wage history on employment applications.

House Bill 3458

The biggest negative impact of the new overtime law is that it limits a manufacturing worker’s total weekly work hours to 55. Why does a construction employer care about manufacturing? Because the definition of “manufacturing establishment” is so broad, it could apply to certain construction industry employers and restrict their workers to a 55-hour workweek.

Under HB 3458, a “manufacturing establishment” is a company that uses power-driven equipment to transform materials, substances or components into new products. A paving company uses power-driven equipment to turn raw materials into roads. A roofing company uses power guns to transform roof tiles (components) into a new roof. The list goes on with flooring, siding, HVAC, etc.

The need for HB 3458 arose after BOLI imposed a new interpretation of a long-established law and began requiring manufacturing establishments to pay both daily and weekly overtime, forcing employers to pay time and a half twice for hours worked over 10 in one day and 40 in the workweek. HB 3458 was a compromise fix.

HB 3458 fixed BOLI’s erroneous interpretation by requiring ‎manufacturing employers who owe daily and weekly overtime to calculate the two amounts and ‎pay the greater of the two – but not both. The compromise is that HB 3458 also caps workers’ number of weekly work hours to 55, with ‎five more hours allowed if the employee agrees or requests to work them.

This could have a devastating impact on the Oregon construction industry, which has limited productive months throughout the year and is suffering from a shortage of workers. It’s too early to tell where this may lead, but given that BOLI was willing to reinterpret a long-standing overtime rule applicable to the manufacturing industry, it certainly could apply this new “fix” to a broad swath of employers.

These are but two of the many new employment laws passed by the Legislature in this session. To find out more, call your human resources professional or employment attorney.

Amanda Gamblin is a shareholder in the Portland office of Schwabe, Williamson & Wyatt. She focuses on employment law. Contact her at ‎‎503-796-2903 or ‎agamblin@schwabe.com.‎

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Oregon’s Measure 91 will go into effect July 1. It allows personal, non-public use and possession of small amounts of marijuana. What does this mean for employers? Not much. An employer can prohibit an employee from coming to work high, just like it can prohibit an employee from coming to work drunk. Impairment is impairment. Keep an eye out for changes in the laws as Measure 91, and perhaps marijuana use, becomes more socially acceptable. The following points can help employers prepare for those changes.

1. Despite Measure 91, employers do not have to accommodate a disabled employee’s marijuana use.

Measure 91 expressly states that it does not affect state or federal employment laws or the Oregon Medical Marijuana Act. Under Oregon’s Medical Marijuana Act, some disabled employees have attempted to persuade courts that an employer should accommodate their off-duty use of marijuana by allowing them to continue working (or to escape discipline) if they test positive for marijuana in violation of the employer’s drug and alcohol policy.

The Oregon Supreme Court has held that employers have no such obligation to make exceptions to their policies or otherwise accommodate a disabled employee’s marijuana use. This is true, in part, because marijuana is illegal under federal law. The law makes sense because the sophistication of marijuana testing makes it difficult to identify if an employee is impaired. An employee could say he or she smoked marijuana the night before, and the employer currently has no way to verify. Because Measure 91 expressly does not affect state or federal employment laws, the law should remain that an employer has no obligation to allow a disabled employee to fail its drug test.

2. Over time, the law may change if federal law changes and social attitudes change.

Measure 91 contains language that appears to be intended to get around the Oregon Supreme Court’s ruling.  And although marijuana is illegal under federal law, the federal government is currently refraining from enforcing that law.  If recreational use results in a shift of public opinion and/or federal law and testing improves such that employers can more accurately test for current impairment, a future court could hold that an employer must accommodate a disabled employee’s off-hours marijuana use.  Even if a change does occur, it will not be immediate.

3. Federal contractors and federal grant recipients must continue to comply with federal laws.

Measure 91 expressly does not require anyone to break federal law, exempt a person from federal law, or change a federal contractor’s obligations under a federal contract or a federal grant recipient’s obligations under a grant. Therefore, companies that are required to comply with federal drug-free workplace laws must continue to do so.

4. Review drug and alcohol testing policies and procedures.

Federal contractors, federal grant recipients, maritime industry employers, the manufacturing industry, drivers regulated by DOT, and employers with other safety-sensitive positions, such as in construction, may need to maintain a zero tolerance drug and alcohol policy. A company that employs a zero-tolerance policy should review it and:

• Do not use an “under the influence” standard. Rather, use a “no detectable amount” standard. Therefore, any positive urine test could result in discipline up to and including termination.

• Use random testing in addition to post-accident and reasonable suspicion testing.

Other employers may wish to have more tolerance. If so:

• Consider an “under the influence” standard or a mixture of an “under the influence” and a “no detectable amount” standard. For certain drugs, any detectable amount could result in termination, but for others the employer could have the discretion to reasonably discern impairment.

• Consider blood or breath tests. Blood tests allow the employer to more accurately test for impairment. If a company decides to include the option of blood tests, be sure to include a notice that the employer may use a blood test. Otherwise, a blood test could be considered an invasion of an employee’s privacy. Reportedly, a breath test is coming out soon that is claimed to test current impairment without the invasion and expense of a blood test.

• Remember that even with a tolerance policy, possession, distribution and use at the workplace should be prohibited. Marijuana is still illegal under federal law.

• Ensure no safety risks and no federal contracts or grants.

• Consider limiting testing to only post-accident or reasonable suspicion.

For all drug and alcohol policies, consider the following in light of Measure 91:

• Call it a “drug and alcohol policy,” or something similar. Avoid calling it an “abuse” policy.

• Clearly state that it covers drugs illegal under local, state or federal law.

• Explicitly state that marijuana, cannabis extracts or cannabis-related substances including synthetic marijuana are prohibited. Employees are confused because of Measure 91. Make it clear.

• Include a prescription drug policy to avoid an employee arguing that he or she has a “prescription” for marijuana. Employees may not use prescription drugs that may cause impairment, or use (or test positive for) drugs for which they do not have a prescription.

5. Update the driving policy

Measure 91 includes a specific provision prohibiting marijuana use while driving. Revise policy to prohibit marijuana use in company vehicles or while driving on company time.

Amanda Gamblin is a shareholder in the Portland office of Schwabe, Williamson & Wyatt. She focuses on employment law. Contact her at ‎‎503-796-2903 or ‎agamblin@schwabe.com.‎

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One of a business’s most valuable assets is its people. The single most important factor giving rise to a company’s higher value, other than increasing cash flow, is the existence of a stable, motivated management team that will remain in place after the owner exits.

Yet in many transitions, owners don’t address the future of their employees in time to maximize value. In many cases, because of a failure to plan and anticipate, key employees become fearful of looming changes, and the company experiences reduced productivity and cash flow, a loss of good talent, or possibly sabotage – and all directly reduce a business’ sale price.

Putting the right employment incentives and agreements in place will help ease employees’ worried minds, protect the company’s assets, and increase the value of the business.

The scenario: Frightened key employees quit and compete

Consider a baby-boomer business owner who wants to transition into retirement, and enters into discussions with a buyer. The buyer begins its due diligence, reviewing the company’s financials, customer contracts and relationships, etc. The prospective buyer’s goal is to purchase a good business and make it even more profitable.

Key employees Alex, Brenda and Claudio become frightened for the future of their jobs. They inevitably distrust the buyer and don’t see what’s in this sale for them. Alex, Brenda and Claudio have the direct customer relationships, and Claudio holds the necessary state licenses to engage in business in the industry. The three key employees leave the company and start a competing business, leading to an immediate revenue loss of $50,000 per month. Amid the turmoil, the potential buyer walks away.

The unprepared owner is left not only with a botched sale, but also too few key employees to continue running the business, reduced market value, a lack of adequate licensing, and a new competitor that will make regaining market value difficult.

Plan ahead with precautionary and incentive agreements

While most employees fear change, they also realize change is inevitable. The smart owner can maximize the value of the business by ensuring that key employees are prohibited from competing and are incentivized in the short run to see the company through a profitable sale and years of smooth operation under the new owner.

• Nonsolicitation/noncompete/nondisclosure agreements

Many companies experience a direct increase in value if key employees and those with crucial client relationships are bound by an agreement that restricts what employees can do with the company’s proprietary information and relationships. Owners will want to bind key employees to noncompete agreements. Sales employees and others with key client relationships should be bound, at least, by nonsolicitation agreements to prevent them from moving to a competitor and calling on the company’s customers. And all employees should be bound by nondisclosure agreements that require employees to keep the company’s secrets confidential.

Restrictive agreements are highly regulated by state laws. An attorney is needed to evaluate the enforceability and assignability of existing agreements and a company’s options if no agreements are in place.

• Bonus retention and/or severance agreements

Unlike with long-term incentive programs, key employees may be comforted if they are promised financial gain in exchange for effectively transitioning operations to a buyer. These agreements typically motivate a key employee to: 1, maintain or increase the company’s income stream in the years leading up to a sale; 2, ensure a smooth due diligence process; and 3, provide successful management and operations after a change in control.

There are many ways to draft short-term incentive plans to meet these goals, like a bonus plan, retention or stay plan, or other golden handcuff plans. By way of example, a company could create an escrow account. When the sale closes, a percentage of the sale price is deposited into the account, with a small percentage vesting immediately and then greater percentages vesting each year for three years.

The first vested payment from the account, made at closing, would be large enough that the key employees would feel fully rewarded for their hard work preparing the company for sale, but not so large that they choose to follow the owner out the door. The annual payments thereafter are paid provided the employee remains with the buyer. Any money left in the account at the end of three years reverts to the owner.

With an agreement like this, the key employees are encouraged to build maximum value in the company in the years leading up to a sale so that a larger amount of money is placed into the account. If they are not hired by the buyer, they still receive their first vested payment, which is large enough to make them feel compensated for their hard work. If they are retained by the buyer, they are motivated to continue working hard to maintain and increase cash flow because if they remain employed by the buyer, they receive additional cash from the account.

There are many other examples of short-term bonus plans that can achieve an owner’s goal to maximize, capture and keep the value of his or her business in a sale. Regardless of how the incentive plan is structured, it is essential to begin planning early.

Such agreements add value to the company in the buyer’s eyes because it ensures consistency in operations during a transition. The last thing a buyer wants is for the employees to jump ship just before or after the transaction closes. And perhaps one of the greatest advantages to an owner is the assurance that if a deal falls through, the key employees will still be around to operate the company until the next transition opportunity arises.

Amanda Gamblin is a shareholder in the Portland office of Schwabe, Williamson & Wyatt and a ?member of ?its business transitions group. She focuses on employment law. Contact her at ??503-796-2903 or ?agamblin@schwabe.com.?

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