In 2015, there were important developments in New Jersey employment law. This newsletter examines some of those developments in ten key areas— background checks, whistleblowing, paid sick leave, wage and hour, Law Against Discrimination (“LAD”) litigation, arbitration, workplace injury, “Faithless Servant” Doctrine, Family Medical Leave Act, and Title VII of the Civil Rights Act of 1964.

Background Checks

The Opportunity to Compete Act

On March 1, 2015, New Jersey’s “ban the box” law, the Opportunity to Compete Act (OTCA), took effect. The law prevents employers in the State with more than fifteen employees from asking about a prospective employee’s criminal history on the initial job application.

After the initial employment application process has concluded, an employer may inquire into an applicant’s criminal record (consistent with applicable state and federal law) and may refuse to hire the applicant based on the results, unless the record was expunged or erased through executive pardon and provided that the refusal does not run afoul of any other laws, rules, or regulations. The law permits an employer to inquire into an applicant’s criminal history during the initial employment application process when the applicant voluntarily discloses (whether orally or in writing) his or her criminal record.  Further, the law exempts any inquiry into an applicant’s criminal background if employment sought or being considered is for positions in law enforcement, corrections, the judiciary, homeland security or emergency management.

The New Jersey Division on Civil Rights, the division that enforces the OTCA, can impose a monetary penalty of no more than $1,000 for a first violation, $5,000 for a second violation, and $10,000 for each subsequent violation against an employer. Notably, under the OTCA, job applicants cannot bring suit against a prospective employer for alleged violations.

On December 7, 2015, the New Jersey Department of Labor and Workforce Development (NJDOL) issued regulations that clarify the requirements under the OTCA. The regulations state that the “initial interview process” begins when the employer makes inquiries to an applicant about the position or when the applicant makes inquiries about the job.  The “initial interview process” ends after the employer conducts the applicant’s first interview.  According to the regulations, New Jersey employers may include questions about criminal history if they are using a standard application in multiple states; however, the application must state “[t]hat an applicant for a position the physical location of which will be in whole, or substantial part, in New Jersey is instructed not to answer this question.”  The regulations also state that all employers with fifteen or more employees over twenty calendar weeks are covered by the OTCA, regardless of whether those fifteen employees work in New Jersey.  For more coverage on the OTCA, please see our previous blog post.

Credit Checks

On December 14, 2015, the New Jersey State Assembly advanced Bill A2298, moving the bill forward. The bill, if enacted, will place new limits on an employer’s ability to conduct credit checks in the workplace.  The proposed legislation restricts when employers can require credit checks, both of existing or potential employees, and bar employers from using credit card information to discriminate against those individuals.  Under the bill, employers are also prohibited from requiring potential employees to waive or limit any protections afforded by the bill as a condition of their employment.  Employers may conduct credit checks, however, when they are required to by law or when they reasonably believe that an employee has committed a specific financial crime.  The bill provides that any individual who alleges discrimination under the law can bring an action in court for injunctive relief and damages, including attorneys’ fees and court costs.  In addition, the bill provides for civil penalties—collectible by the Commissioner of Labor and Workforce Development—up to $2,000 for the first violation, and $5,000 for each subsequent violation.

Conscientious Employee Protection Act

In Lippman v. Ethicon, 222 N.J. 362 (2015), the New Jersey Supreme Court ruled that an employee who monitors corporate compliance—a so-called “watchdog” employee—can engage in protected activity under the New Jersey Conscientious Employee Protection Act (“CEPA”) by blowing the whistle in the course of performing the tasks and functions of the job for which he or she was hired.  In reaching its decision, the Court rejected a well-established line of lower court cases holding that activities which are part and parcel of an employee’s assigned responsibilities cannot amount to whistleblowing—otherwise known as the “job-duties” exception.  In addition to holding that watchdog employees are eligible for whistleblower protection under CEPA, the Court also rejected the Appellate Division’s “exhaustion requirement,” finding that neither precedent nor the statutory language requires a watchdog employee to demonstrate pursuit and exhaustion of all internal means of securing compliance.  For more on Lippman, please see our previous blog post.

Paid Sick Leave

2015 was another year of many developments regarding sick leave laws. In March 2015, Bloomfield became the ninth locality in the State of New Jersey to require employers to provide paid sick leave to their employees, joining Jersey City, Newark, Passaic, East Orange, Paterson, Irvington, Trenton, and Montclair.  Bloomfield’s law, which is quite similar to the other paid sick leave laws in New Jersey, mandates employers with ten or more employees to provide up to forty hours of paid sick leave per calendar year.  Employers with fewer than ten employees must provide up to twenty-four hours of paid sick leave per calendar year, subject to certain exceptions.  For more on Bloomfield’s paid sick leave law, please see our previous blog post.

In October 2015, Jersey City also expanded the scope of the City’s existing sick leave ordinance. Under the Ordinance as amended, employers with less than ten employees now will be required to provide employees with up to twenty-four hours of paid sick leave and up to sixteen hours of unpaid sick leave per year.  Small employers were previously required to provide employees with up to forty hours of unpaid sick leave per year.  For a detailed list of other changes under the new ordinance, please see our previous blog post.

In November 2015, Elizabeth became the tenth municipality to require employers to provide paid sick leave. Under Elizabeth’s law, employees can accrue up to one hour of paid sick time for every thirty hours worked.  Employees working for employers with ten or more employees have a year cap of forty hours.  For employers with nine or less employees, their employees have a cap of twenty-four hours per year.  Notably, Elizabeth’s law would apply to all of Newark International Airport, due to one of its three terminals being located in Elizabeth.

In New Jersey Business and Industry Association, et al. v. City of Trenton, L-467-15 (N.J. Super. Apr. 16, 2015), Mercer County Superior Court Judge Mary C. Jacobson granted Trenton’s motion to dismiss, thereby rejecting the business groups’ challenge to Trenton’s sick leave law.  The New Jersey Business and Industry Association, along with five other employer-side organizations, had asked the court for a preliminary injunction, arguing that the law exceeds Trenton’s police powers by tackling a statewide concern.  Judge Jacobson granted Trenton’s motion to dismiss based on her finding that there was a rational basis for the ordinance and on Trenton’s representation that the ordinance would only apply to employers in the municipality.

The most recent development in sick leave laws was the New Jersey Senate’s passing of Bill S785, which, if enacted, would entitle all employees in New Jersey to paid sick leave. Under the Senate’s bill, which was passed on December 17, 2015 by a narrow 22-17 margin, employers in New Jersey with ten or more employees would be required to let employees earn at least seventy-two hours of paid sick leave.  Employers with less than ten employees would be required to allow employees at least forty hours of sick leave at a time.  Employees would accrue one hour for every thirty hours worked.  Meanwhile, Bill S2865/A4363, which, if enacted, would prohibit local units of government from adopting increased minimum wage and mandatory paid sick leave for private employers, was introduced and referred to the Assembly and Senate Labor Committees on May 7, 2015.

Wage and Hour

State Court – Independent Contractors

In Hargrove v. Sleepy’s LLC, 220 N.J. 289 (2015), the New Jersey Supreme Court addressed the question—submitted by the Third Circuit Court of Appeals—of “which test a court should apply under New Jersey law to determine an employee’s status” for purposes of New Jersey’s Wage Payment Law (WPL) and Wage and Hour Law (WHL).  Based on its conclusion that the same test should determine an employee’s status under the WPL and WHL, the Court held that “the ‘ABC’ test derived from the New Jersey Unemployment Compensation Act . . . governs whether a plaintiff is an employee or independent contractor for purposes of resolving a wage-payment or wage-and-hour claim.”  In order to be considered an independent contractor under that standard, an individual must:  (1) be free from direction and control in connection with the performance of the service; (2) perform services either outside the usual course of business of the employer or outside all the employer’s places of business; and (3) be customarily engaged in an independently established trade, occupation, profession or business of the same nature as the service performed.  In light of the New Jersey Supreme Court’s decision, the Third Circuit Court of Appeals reopened the matter in May 2015 and instructed the district court to apply the “ABC” test in determining the status of Sleepy’s delivery workers under New Jersey’s WPL and WHL.

Federal Court

In May 2015, the United States District Court, District of New Jersey, addressed and decided an issue of first impression regarding nonpayment of overtime work under WHL. In Thompson v. Real Estate Mortgage Network Inc., No. 2:11-1494, 2015 WL 2453726 (D. N.J. May 22, 2015), the District Court denied the mortgage company’s motion to dismiss an underwriter’s WHL claim, in which she alleged that she was denied overtime pay after working in excess of forty hours per week.  The court rejected Real Estate Mortgage Network Inc.’s argument that the provision in the WHL that allows employees to recover from their employers for failing to pay “the minimum fair wage” only allows employees to recover for being denied minimum wage, not overtime pay.  According to the District Court, WHL gives employees the express right to recover unpaid overtime pay.

LAD Litigation

In Aguas v. New Jersey, 220 N.J. 494 (2015), the New Jersey Supreme Court embraced the federal Faragher-Ellerth defense for vicarious liability claims for supervisory sexual harassment under the LAD.  The Faragher-Ellerth defense, which was crafted by the Supreme Court of the United States in 1998, provides that an employer may assert an affirmative defense to vicarious liability if the employer “exercised reasonable care to prevent and correct promptly any sexually harassing behavior,” and “the plaintiff employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise.”  The defense is available provided that the employer has not taken an adverse tangible employment action against the employee.  For more on Aguas, please see our prior blog post.

In State v. Saavedra, 222 N.J. 39 (2015), the New Jersey Supreme Court ruled that its decision in Quinlan v. Curtiss-Wright Corporation, 204 N.J. 239 (2010), does not bar criminal prosecutions arising from an employee’s removal of confidential company documents to support a discrimination claim.  Plaintiff, after filing a lawsuit under the LAD against her employer, took hundreds of documents containing confidential medical and educational information concerning minors to support her discrimination claims.  She was later indicted for that conduct by a grand jury.  She argued that her indictment should be dismissed because Quinlan established a right for employees to take confidential employer documents to support discrimination claims.  The Court rejected her argument, declining to afford employees absolute protection from prosecution for improperly taking confidential documents from their employers to support discrimination claims.  For more on Saavedra, please see our prior blog post.

The high court also heard oral argument in Smith v. Millville Rescue Squad, No. A-19-14, which involves the issue of whether an employer violated the LAD provision that protects employees from discrimination based on marital status, when it allegedly fired an employee because of his pending divorce.  The Appellate Division reversed the lower court’s dismissal of plaintiff’s claim that he was discriminated against based on his marital status because it found that divorcing employees are protected from discrimination under LAD.  Before the Supreme Court, counsel for plaintiff argued that Millville Rescue Squad “intends to terminate a person because that person intends to change his marital status from married to separated to divorced.”  On the other hand, counsel for defendant explained that defendant’s decision to terminate plaintiff was not based on his marital status.  It was based on legitimate non-discriminatory concern about the possible adverse impact on the workplace that plaintiff’s divorce could have, since plaintiff’s in-laws were his coworkers.  We will cover the Court’s forthcoming decision on this matter.

Arbitration

In C.M. v. Maiden Re Insurance Services, LLC, A-2913-13T1 (App. Div. Sept. 18, 2015), the Appellate Division held that an employee’s acknowledgement of receipt of her employer’s handbook was insufficient to constitute a binding agreement to arbitrate claims arising out of her employment.  In Maiden Re Insurance Services, the handbook at issue stated that any employment-related claim would be resolved through arbitrations.  However, the handbook also contained a disclaimer explaining that the handbook was not intended to create contractual obligations between the parties.  The court found that due to the disclaimer language found in its handbook, the employer could not contractually bind the employee to the arbitration policy.  Every employer that has an arbitration policy should examine their policy and related documents due to the potential impact of this decision.

Workplace Injury

In Estate of Kotsovska v. Liebman, 221 N.J. 568 (2015), the New Jersey Supreme Court held that the Superior Court has concurrent jurisdiction with the New Jersey Division of Workers’ Compensation when resolving a genuine issue of fact regarding a worker’s employment status.  In Estate of Kotsovska, the administratrix of decedent Myroslava Kotsovska, who was defendant Liebman’s caretaker and who died from injuries sustained when Liebman inadvertently struck her with his car, filed a wrongful death lawsuit against Liebman in Superior Court and did not file a claim in  workers’ compensation court.  Defendant sought to dismiss the case and have it transferred to the workers’ compensation court, arguing that because of decedent’s employee status, Superior Court lacked jurisdiction over the matter.  Plaintiff argued that decedent had been an independent contractor and therefore, Superior Court had jurisdiction.  The matter proceeded in Superior Court and a jury found that decedent had been an independent contractor, awarding plaintiff $525,000 in damages.  In concluding that the Superior Court had jurisdiction to determine decedent’s employment status, the New Jersey Supreme Court explained that “parties cannot be presumed to have accepted the provisions of the compensation act, including the exclusive remedy provision, until a threshold determination is made as to whether the worker was an employee or independent contractor.”

“Faithless Servant” Doctrine – Breach of Duty of Loyalty

In Kaye v. Rosefielde, 223 N.J. 218 (2015), the New Jersey Supreme Court reaffirmed the faithless servant doctrine, which provides that employees who breach their duty of loyalty may be required to disgorge the compensation they received during the period of their disloyalty, and held that even in the absence of economic harm, an employer may be entitled to this disgorgement. Kaye involved an employee who allegedly committed legal malpractice, illegally practiced law in New Jersey, and engaged in a series of fraudulent transactions to improperly enrich himself at the expense of his employer.  The Court noted that “[t]he disgorgement remedy is consonant with the purpose of a breach of loyalty claim:  to secure the loyalty that an employer is entitled to expect when he or she hires and compensates an employee.”

Family Medical Leave Act

In Bonkowski v. Oberg Industries, Inc., 787 F.3d 190 (3d Cir. 2015), the Third Circuit found that an employee’s hospital stay that lasted from shortly after midnight to later that same day did not constitute an “overnight stay,” a requirement for a “serious health condition” under the Family Medical Leave Act (FMLA).  In reaching its decision, the Third Circuit determined that for purposes of the FMLA, an overnight stay is “for a substantial period of time from one calendar day to another calendar day as measured by the individual’s time of admission and time of discharge.”  Thus, according to the Third Circuit, an employee who is admitted to a hospital and discharged on the same calendar day cannot, without more, satisfy the serious health condition requirement for protection under the FMLA.

Title VII of the Civil Rights Act of 1964

In Jones v. SEPTA, No. 14-3814, 2015 WL 4746391 (3d Cir. Aug. 12, 2015), the Third Circuit considered whether a suspension with pay qualifies as an “adverse employment action” under Title VII.  In Jones, plaintiff, who had been suspended with pay after her employer discovered that she had been submitting falsified timesheets, filed suit against her employer alleging sexual harassment and retaliation.  The Third Circuit found that her suspension with pay does not constitute an “adverse employment action,” because the suspension neither changed compensation nor effected a “serious and tangible” alteration of the “terms, conditions, or privileges of employment.”

In another significant case, Fausch v. Tuesday Morning, Inc., No. 14-1452, 2015 WL 7273268 (3d Cir. Nov. 18, 2015), the Third Circuit held that employers contracting with staffing agencies can be held liable for discrimination towards temporary employees.  The court’s decision was based on its reasoning that there was sufficient evidence to find that defendant was plaintiff’s “joint employer” along with the staffing agency.  In determining that plaintiff had been an employee of defendant, the court looked to the test outlined in Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318 (1992), which is used to determine whether a hired party is an employee.