Oregon Bureau of Labor and Industries Memo DATE: December 13, 2016 TO: Senator Michael Dembrow, Chair, Senate Workforce Committee FROM: Paloma Sparks, Legislative Director RE: Oregon Sick Time Rulemaking and Statutory Issues The following issues pertaining to Senate Bill 454 (2015), the Oregon Sick Time Law, codified as ORS 653.601 ORS 653.661, have been identified by BOLI during the rulemaking process as potential matters to bring to the attention of the legislature for consideration in the next legislative session: Definition of employee and exemptions It has been argued by some that business owners should be exempted as employees under the law, and that it was the legislature s intent to provide such an exemption. The definition of employee in the current law 1 includes individuals for whom tax withholdings are required, however, this language does not necessarily exclude business owners, who are often paid as employees of a business. The statute also explicitly provides a number of exemptions from the definition of employee, but does not include business owners in those exemptions. 1 653.601 Definitions for ORS 653.601 to 653.661. As used in ORS 653.601 to 653.661: (1)(a) Employee means an individual who renders personal services at a fixed rate to an employer if the employer either pays or agrees to pay for personal services or permits the individual to perform personal services. (b) Employee includes, but is not limited to: (A) An individual who is paid on a piece-rate basis or the basis of the number of operations accomplished or quantity produced or handled; (B) Individuals paid on an hourly, salary, or commission basis; (C) Individuals for whom withholding is required under ORS 316.162 to 316.221; and (D) Home care workers as defined in ORS 410.600. (c) Employee does not include: (A) An employee who receives paid sick time under federal law; (B) An independent contractor; (C) A participant in a work training program administered under a state or federal assistance program; (D) A participant in a work-study program that provides students in secondary or post-secondary educational institutions with employment opportunities for financial or vocational training; (E) A railroad worker exempted under the federal Railroad Unemployment Insurance Act; and (F) An individual employed by that individual s parent, spouse or child. -1-
BOLI (and others) believe that the plain language of the statute as currently written limits the agency s ability to stretch the current exemptions in the administrative rules and exempt business owners as employees. This is a substantive policy issue more appropriately addressed by the legislature. Another issue is that the current exemption from the definition of employee for individuals employed by that individual s parent, spouse or child may only be applied to businesses that are sole proprietorships. Where a business is a corporation or an LLC, even if the corporation or LLC is owned by an individual s parent, spouse or child, the employer is the corporation or LLC--not the individual s parent, spouse or child, but rather the business entity--and the employee may not be said to be employed by the individual s parent, spouse or child. (In other words, a corporation or LLC cannot be the parent, spouse or child of an individual.) Therefore, the current exemption in the statute may only be applied to sole proprietorships because it only exempts named individuals as employers. Because most businesses are organized as corporations rather than sole proprietorships (primarily for the benefits of the corporate veil ), the availability of this exemption to most businesses is currently extremely limited. This is consistent with how similar language in ORS 659A.001 has been interpreted for the last 15 years. Payment of sick time for employees paid on a commission or piece-rate basis It has been argued by some that the sick time law is ambiguous with respect to the rate to be paid to employees paid on a commission or piece-rate basis, and that the legislative intent was that these employees should be paid minimum wage for sick time used. The current statutory language in ORS 653.606(5)(c)(B) 2 requires that employees paid on a commission or piece-rate basis be paid for sick time at the employee s regular rate of pay unless the employee does not have a previously established regular rate of pay. In most cases, employees paid on a commission or piece-rate basis have a previously established regular rate of pay. Regular rate of pay is not explicitly defined in Oregon wage and hour statutes, however, rate with respect to wages is defined in ORS 652.210 as follows: Rate with reference to wages means the basis of compensation for services by an employee for an employer and includes compensation based on the time spent in the performance of the services, on the number of operations accomplished or on the quantity produced or handled. 2 For an employee employed on a commission or piece-rate basis by an employer that employs 10 or more employees working anywhere in this state, the employer shall pay the employee for accrued sick time used at the employee s regular rate of pay. If the employee is paid on a commission or piece-rate basis and does not have a previously established regular rate of pay, the employer shall pay the employee at a rate equal to at least the minimum wage specified in ORS 653.025 (emphasis added). -2-
Additionally, existing administrative rules (OAR 839-020-0030(2)(b)) define the phrase regular rate for purposes of computing overtime due. In section (3)(b) of the same rule, the methodology to be used for calculating the regular hourly rate of pay for employees paid on a piece-rate basis is specifically explained as follows: Where an employee is employed on a piece-rate basis, the regular hourly rate of pay is determined by adding together the total earnings, (excluding commissions, spiffs, bonuses, tips or similar benefits) for the work week and dividing this sum by the number of hours worked in the week for which such compensation is to be paid. Employers who pay non-exempt employees on a commission or piece-rate basis are already required by law to calculate the hourly equivalent of the wages earned by employees each pay period in order to determine that the wages earned by each employee are no less than the amount the employees would have earned at the minimum wage rate for every hour worked over the course of the pay period. It is the opinion of BOLI and others that the plain language of the statute is clear and unambiguous 3 that such employees are to be paid for accrued sick time used at the employee s regular rate of pay and are only to be paid minimum wage in the event the employee does not have a previously established regular rate of pay. Joint employment and employer liability There is a mistaken belief on the part of some legislators, employers and the business lobby that BOLI is imposing by rule new requirements relating to joint employment and joint employer liability under the sick time law. This is not the case. Joint employment is a long-standing principle under both state and federal labor standards laws, including wage and hour and family leave laws. Joint employment exists when an employee is employed by two or more employers, in which case the employers are responsible, both individually and jointly, to the employee for compliance with a statute. Joint liability is not unique to the sick time law, and employers would already be jointly liable under certain circumstances pursuant to previously existing law even if the sick time rules were silent on the issue. In discussions of Senate Bill 454 during the legislative session, BOLI advised legislators that the agency would be guided by the Oregon Family Leave Act (OFLA) and Federal Medical Leave Act (FMLA) wherever possible. Accordingly, BOLI s sick time administrative rules are patterned after how the FMLA treats joint employment. In 3 In the absence of ambiguity in the law, agencies may not rely on legislative intent. BOLI concludes that even if the law was arguably ambiguous in this regard, (which it does not believe it is), the legislative record does not support amending the rate of pay to be paid to employees paid on a piece-rate or commission basis by administrative rule. -3-
addition, BOLI added references to joint employment in the rules to inform employers of existing requirements under state and federal wage and hour laws pertaining to joint employment. The U.S. Department of Labor has defined joint employment in its regulations. 4 In addition, the department has published multiple guidance documents for employers over the past few years pertaining to joint employment. To ensure consistency in enforcement of state and federal labor laws, BOLI has a long-standing practice of applying these federal regulations and interpretations in determining shared liability for joint employers. 4 29 CFR 791.2 Joint employment. (a) A single individual may stand in the relation of an employee to two or more employers at the same time under the Fair Labor Standards Act of 1938. A determination of whether the employment by the employers is to be considered joint employment or separate and distinct employment for purposes of the act depends upon all the facts in the particular case. If all the relevant facts establish that two or more employers are acting entirely independently of each other and are completely disassociated with respect to the employment of a particular employee, who during the same workweek performs work for more than one employer, each employer may disregard all work performed by the employee for the other employer (or employers) in determining his own responsibilities under the Act. On the other hand, if the facts establish that the employee is employed jointly by two or more employers, i.e., that employment by one employer is not completely disassociated from employment by the other employer(s), all of the employee's work for all of the joint employers during the workweek is considered as one employment for purposes of the Act. In this event, all joint employers are responsible, both individually and jointly, for compliance with all of the applicable provisions of the act. (b) Where the employee performs work which simultaneously benefits two or more employers, or works for two or more employers at different times during the workweek, a joint employment relationship generally will be considered to exist in situations such as (2) Where one employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee ; or (3) Where the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer. -4-
Application of the sick time law to substantially equivalent and PTO plans ORS 653.611 provides: (1) An employer with a sick leave policy, paid vacation policy, paid personal time off policy or other paid time off program that is substantially equivalent to or more generous to the employee than the minimum requirements of ORS 653.601 to 653.661 shall be deemed in compliance with the requirements of ORS 653.601 to 653.661. (2) If an employee of an employer that has a policy for paid sick time, paid vacation leave, paid personal time or other paid time off programs has exhausted all paid and unpaid leave available to the employee, the employer is not obligated to provide additional leave for paid or unpaid sick time as required by ORS 653.601 to 653.661. However, the employer may be obligated to provide paid or unpaid sick time by federal or state law that provides for paid or unpaid leave for similar purposes. The extent to which an employer s substantially equivalent sick time or PTO (paid time off) policy is subject to the provisions of the sick time law, however, is unclear. Nowhere in the legislation or in the legislative record is it indicated that only the first 40 hours of an employer s substantially equivalent policy is subject to the law. However, the statute also does not explicitly extend protections in the sick time law to those hours in an employer s substantially equivalent policy that exceed the amount of time required under the law. The provisions of ORS 653.606(1)(c) state that: Employers that employ at least 10 employees working anywhere in this state and frontload for employees at least 40 hours of paid sick time or paid time off at the beginning of each year used to calculate the accrual and usage of sick time or time off need not comply with subsections (1)(a) [unpaid sick time accrual] and (3)[carryover of accrued sick time]. This language would seem to indicate that a substantially equivalent plan, even a plan providing more than 40 hours of sick time, must meet requirements of the law other than those pertaining to unpaid sick time accrual and carryover of accrued sick time, including those hours provided in excess of 40 hours. This would include the law s protections against retaliation, discipline and absence control policies. It is unclear whether this was the legislature s intent. 5 5 This is not an issue in situations where an employer only front-loads 40 hours to employees in a substantially equivalent sick time or PTO plan: The employee receives and is entitled to only 40 hours of protected leave under the plan, and if and when the leave is exhausted, the employee is entitled to no additional leave or protections under the law. The issue becomes murkier when a substantially equivalent sick time or PTO plan provides more than the required 40 hours of leave time required by law. If, for example, a PTO plan provides 60 hours of time off, and an employee uses 24 hours as vacation at the beginning of the year and thereafter uses an -5-
Substitute teachers During the legislative process, representatives from the Oregon School Boards Association identified concerns about application of the law to substitute teachers. The primary concern expressed relates to the potential for abuse of the law by substitutes. For example, a substitute could accept a substitute assignment from one school, then accept a second assignment from another school, call in sick for the first assignment, and use and be paid for sick time from the first school while at the same time work and be paid for the second assignment accepted. No solution to this potential issue was reached during the legislative session, and the OSBA and its partners continued to pursue the matter in the rulemaking process. Possible solutions suggested included requiring a waiting period before a substitute is entitled to use accrued sick time, such as not allowing substitute teachers to use sick time until 24 hours after accepting an assignment. Implementing such a proposal, however, would result in different treatment for substitute teachers under the law than other workers in Oregon. BOLI is uncomfortable adopting rules that would have the effect of removing protections under the law for certain occupations or types of workers, and questions the agency s authority to do so. This issue appears more appropriately addressed as a policy matter by the legislature, if deemed appropriate. Scrivener s errors Finally, the following language in the sick time law as enacted appears to contain unintentional scrivener s errors that should be legislatively corrected: ORS 653.601(2)(c)(D): Current language: A participant in a work-study program that provides students in secondary or postsecondary educational institutions with employment opportunities for financial or vocational training; Proposed Correction: A participant in a work-study program that provides students in secondary or postsecondary educational institutions with employment opportunities for financial assistance or vocational training; additional 24 hours for sick time due to an unforeseeable illness, are any hours used by the employee for sick time taken after the first 40 hours have been used (for any purpose allowed under the plan) protected under the law? -6-
ORS 653.606(3) Current language: An employee shall begin to earn and accrue sick time on the first day of employment with an employer. The employee may carry over up to 40 hours of unused sick time from one year to a subsequent year. However, an employer may adopt a policy that limits: (a) An employee to accruing no more than 80 hours of sick time; or (b) An employee to using no more than 40 hours of sick time in a year. Proposed Correction: An employee shall begin to earn and accrue sick time on the first day of employment with an employer. The employee may carry over up to 40 hours of unused sick time from one year to a subsequent year. However, an employer may adopt a policy that limits: (a) An employee to accruing no more than 80 hours of sick time; [or] and (b) An employee to using no more than 40 hours of sick time in a year. -7-