AI in HR Under the Microscope in California

Alastair Mactaggart, who spurred the enactment of the California Consumer Privacy Act with a ballot initiative, has submitted a new measure that would “require much-needed transparency around automated decision-making and profiling, so consumers can know when their information is used to make adverse decisions that impact lives in critical ways, including employment.”

The initiative would require companies to disclose to California residents when they are the subject of automated “profiling,” defined in the initiative as: “any form of automated processing of personal information . . . to evaluate or predict certain personal aspects relating to a consumer, and in particular to analyze or predict aspects concerning that consumer's performance at work, economic situation, health, personal preferences, interests, reliability, behavior, location or movements.”

AI under scrutiny: Employers would further have to disclose to California residents “meaningful information about the logic involved in using consumers’ personal information for [the above] purpose.”

“A handful of giant corporations know almost everything about us,” Mactaggart said in a press release, “chronicling everything we’ve searched for, following every one of our digital footprints, and analyzing that to control what we see every day.  These are perhaps the most powerful tools for influence in human history…shouldn’t consumers have a choice about how their own data is used?”

"What this new law comes down to is giving consumers the right to take back control over their information from thousands of giant corporations."  (According to the initiative, "'Consumer' means a natural person who is a California resident.")  Mactaggart notes that the new initiative, which would significantly expand and strengthen the CCPA, is needed due to some companies' efforts to dilute the CCPA as well as advances in technology. 

Why it matters:  Two years ago, Mactaggart leveraged a ballot initiative with overwhelming public support into forcing California lawmakers to pass the hastily-written California Consumer Privacy Act.  While this new initiative contains language from AB 25, which largely exempts HR data from the CCPA, it contradicts AB 25 in a number of its provisions.  More importantly, AB 25 sunsets on January 1, 2021—the date Mactaggart’s new initiative would take effect.  Looking ahead, it remains to be seen whether this new initiative can duplicate the success of its predecessor.  What is certain is that the first foray into regulating HR data in California has begun.

Contact Daniel Chasen

Harvard's "Race-Conscious" Admissions Process Ruled Constitutional

In a highly scrutinized case with implications for employer diversity programs, a federal district court judge found “no persuasive documentary evidence of any racial animus or conscious prejudice” in Harvard University’s “race-conscious” admissions process.

The case stems from a lawsuit filed in 2014 by Students For Fair Admissions (SFFA), an anti-affirmative action group which has initiated legal action against other universities in the past.  SFFA alleged that Harvard's admissions process was too race conscious and discriminated against Asian-American applicants, using illegal "racial balancing" that held Asian-Americans to a higher standard than other applicants.

Harvard steadfastly defended its admissions process which it claimed was a holistic review of the "whole person" in which race was only one factor.  Harvard argued that using a completely race-blind admissions process would result in many minority applicants being shut out and campus diversity being greatly reduced.  Judge Burroughs agreed, finding race is only a "plus" factor in Harvard's admissions process, is adequately narrowly tailored so as not to penalize anyone for their race, and that such "racial categorizations are necessary to achieve [the goal of student body diversity]."

Outlook:  Even though the discrimination rules in academia involve different criteria than employment, employers are nevertheless watching this case closely to see whether the attitudes of the judiciary are shifting.  While it will likely be eventually considered by the U.S. Supreme Court, the decision is certainly a victory for affirmative action and those institutions that utilize race-conscious programs to achieve greater diversity, whether it be on a college campus or in the workplace.

Contact Greg Hoff

Sanders Proposes Progressive “Income Inequality” Corporate Tax Based on Pay Ratios

Democratic presidential candidate Sen. Bernie Sanders (I-VT) unveiled an “income inequality plan” that would impose tax hikes on all public and private companies—up to 5%—based on the company’s pay ratio.

“Workers in this country should not be paid totally inadequate wages while CEOs make outrageously high compensation packages,” stated Sen. Sanders in announcing his plan.

The plan would apply to both private and public companies with more than $100 million in annual revenue, would make private company pay ratios a public disclosure “in the same manner that it is currently disclosed for [public companies]," and would require the Treasury Department to “issue regulations to prevent tax avoidance, including by changing the composition of a firm’s workforce.”

Portland precedent:  The blueprints for Sen. Sanders’ income inequality plan have been seen previously in Portland, Oregon—where the city council implemented a progressive pay ratio tax that raises taxes for companies with high pay ratios.  A similar bill has been introduced in California.  Like those bills, the proposal would increase the corporate tax rate for companies with pay ratios on the following scale.

  • Between 50 and 100: +0.5%
  • Between 100 and 200: +1%
  • Between 200 and 300: +2%
  • Between 300 and 400: +3%
  • Between 400 and 500: +4%
  • Higher than 500: +5%

Contrasts with Sen. Elizabeth Warren’s (D-MA) governance-focused approach:  Sen. Sanders’ progressive rival for the Democratic nomination has introduced her own approach aimed at curbing executive pay.  Sen. Warren’s approach focuses on preventing executive stock sales and limiting share buyback programs while also requiring workers to hold 40% of board seats.

Income inequality set to grow as campaign theme:  With some economic indicators and pundits flashing warning signs of a recession, the issue of executive pay—and income inequality—will serve as a steady campaign theme, with more legislative proposals sure to follow.

Contact Henry Eickelberg

HR Policy Vice Chair David Rodriguez Named HR Executive of the Year

Marriott Executive Vice President and Global Chief Human Resources Officer David Rodriguez, who serves as a Vice Chair of the Association and Chair of our American Health Policy Institute, has been named 2019 HR Executive of the Year by HR Executive magazine.

Rodriguez, who has been involved in the Association since 2006, and is one of our longest-serving Directors, has made corporate culture and employee engagement a high priority within the company, noting: “Could you imagine somebody in the U.S. telling somebody in India or Japan, 'This is how you behave, this is your core value?'  Businesses do it all the time.  I think it should be the opposite.  You state, ‘Here’s what we stand for,’ and let employees express that in a way that’s culturally relevant to them.  That way, you’ll never have to worry about your culture going stale.”

HR Policy Association President Tim Bartl noted the important role Rodriguez has played in guiding the Association’s policy agenda:  “David has been heavily involved in our major initiatives over the years.  Today, it goes without saying that, for large companies, the health care policy landscape will pose significant challenges in the months and years ahead.  With the onset of the 2020 campaign, those issues are heating up, and the business community will need agile and creative leadership to ensure the viability of employment-based health care.  As AHPI Chair, David is continuing his long service to the Association in helping us navigate those turbulent waters.”

In the HR Executive article on the award, HR Policy CEO Emeritus Jeff McGuiness said:  “Don’t let people in your organization or consultants tell you that there’s only one certain course of action for a particular situation. … David looks at everything from a fresh angle and is always willing to step outside the lane to try and improve the HR profession.”

Contact Daniel Yager

EEOC Extends Deadline for Pay Data Collection

The Equal Employment Opportunity Commission announced in a court filing that the September 30, 2019 deadline to report EEO-1 pay data will be extended until the commission has collected the court-ordered number of responses.

As of September 25, 39.7% of EEO-1 filers had submitted pay data, while the court ordered response rate is 72.7%

The low response rate is likely due to many employers waiting until September 30th to report their data.

EEOC is encouraging all filers to submit their data as soon as possible if they haven’t done so already.

Outlook:  The EEOC has announced that it does not plan to require employers to submit pay data in the future until it can reexamine the potential benefits and costs of collecting the data.  Moreover, it is unclear whether the current commission will do anything with the data it collects as it has previously told the court that it will likely be unreliable.  This posture could change with a different administration.

Contact D. Mark Wilson

HR Policy Examines California’s New Law Imposing Strict Limitations on Independent Contractor Status

Pitney Bowes Executive Vice President and Chief Human Resources Officer Johnna Torsone kicked off an Association-wide call on California's attempts to clamp down on the use of independent contractors by stating, “This measure has implications for any company that uses independent contractors anywhere.”

“Even if you don’t have any independent contractors in California,” Torsone, who chairs our Employment Rights Committee, continued, “you need to pay attention because this is a public policy issue that is not going to go away, with some other states already adopting the ABC test.  In fact, there is legislation in Congress codifying the ABC test that could be made a priority by the next president, depending on the election.”

California’s AB 5 codifies a strict three-part "ABC" test for determining independent contractor status, which was established recently by the state Supreme Court’s Dynamex decision.

The call featured Michael Lotito, Co-chair of Littler’s Workplace Policy Institute, Roger King, Senior Labor and Employment Counsel for HR Policy, and Mark Wilson, Chief Economist and Vice President, Health and Employment Policy for HR Policy.

King noted that in the wake of the Dynamex decision, AB 5 “failed to provide any clarity or relief for employers” despite containing several exemptions from the ABC test, many of which “could be litigated on a ‘void for vagueness basis.’”

Lotito, who walked through the details of the new law, observed: “We are going to see a litigation explosion in January when the bill becomes law.  By adopting the ABC test, all of the unresolved issues with the test are now in the statute."

Wilson highlighted the uncertainty surrounding the issue in California, saying, “Among the many questions that remain to be answered is whether the DOL’s recent opinion letter, which states that workers who use a virtual marketplace to connect with consumers are independent contractors, will apply in California.”

Meanwhile, the House Subcommittee on Workforce Protections held a hearing on the misclassification of workers as independent employees and the Payroll Fraud Prevention Act of 2018, which would require employers to provide written notice to all workers regarding their status as either an employee or non-employee.  The measure is now part of the Pro Act (H.R. 2474).

Alexander J. Passantino, partner at Seyfarth Shaw, testified the result of such legislation “is bad for employees and employers alike; rather the focus should be on developing a legislative solution that protects innovation and flexibility while protecting those most in need of protection.”

Contact Daniel Chasen

Federal Court Issues Key Joint Employer Ruling

In an important development in the continuing saga of joint employer status, the Ninth Circuit ruled that McDonald's was not liable for wage and hour violations committed by a California franchisee.

A three-judge panel upheld the district court's decision that McDonald's did not exercise the requisite amount of control over the franchise workers to be deemed a joint employer.  The case stems from a class action lawsuit involving nearly 1,500 workers at eight different franchises in California, which alleged that McDonald's owed a duty of care as a joint employer and violated that duty of care by not exercising proper supervision to prevent the wage and hour violations, including miscalculated pay and restrictions on meal and rest breaks.

The Ninth Circuit found that McDonald's exercise of control over its franchises was generally limited to "quality control" and "maintenance of brand standards," and did not extend into control over "wages, hours, or working conditions."

Outlook:  The standard for finding joint employer status remains a hot topic in labor and employment law, with proposed rules on the books at both the Department of Labor and the National Labor Relations Board.  It is possible that the Ninth Circuit will send some of the issues in the case to the California Supreme Court, which could take a less employer-friendly stance on joint employer liability and throw yet another wrench into the ongoing fight over the proper standard for determining joint employer status.

Contact Greg Hoff

Job and Wage Gains Moderate as Unemployment Rate Falls to 50-Year Low

Employers added 136,000 jobs in September (compared to an average monthly gain of 223,000 in 2018), the unemployment rate dropped to 3.5%—its lowest level since 1969—and average weekly earnings increased well above the 1.7% inflation rate to 2.6% over last year.

Employers across a broad spectrum of industries appear to be taking a cautious approach to hiring with job gains focused in four industries accounting for over 80% of the September increase:

  • Health care (+38,800),
  • Professional and business services (+34,000),
  • Government (+22,000), and
  • Transportation and warehousing (+15,700).

Most other industries were little changed except for retail trade (-11,400), which has lost 60,900 jobs over the past year.

Wage growth is moderating too.  Average weekly earnings for all employees rose 2.6% in September down from the average monthly gain of 3.2% in 2018.

However, the labor market remains fairly tight as the broadest measure of underemployment fell to its lowest level (6.9%) since the bubble in 2000 and is now near its record low of 6.8%.

Looking ahead:  According to the latest ManpowerGroup report, U.S. employers expect the hiring pace to remain positive in Q4 2019, with hiring intentions improving one percentage point compared to a year ago.

Contact D. Mark Wilson

House Committee Chairman Proposes Negotiated Rulemaking Solution for Surprise Medical Bills

With bipartisan legislation on surprise medical bills stalled in Congress, a letter from House Ways and Means Committee Chairman Richard Neal (D-MA) proposes to punt to the executive branch the question of how payment disputes are to be resolved.

To address the “disagreement among stakeholders over reimbursement rates for out-of-network surprise bills and the extent to which a dispute resolution process can determine those rates,” Rep. Neal is proposing to:

  • Protect patients from unexpected costs; and
  • Require HHS, DOL, and Treasury to engage in a “negotiated rulemaking process to require stakeholders to work out their differences” and identify standards for rates for surprise medical bills.

Stakeholders on the rulemaking committee would also determine how and if dispute resolution should be included, within certain predefined parameters that ensure health care costs will not increase from the process.

Ways and Means Committee staff will draft legislative language for the committee to consider before the end of October.

Outlook:  While the House Energy and Commerce Committee has passed a bipartisan bill addressing surprise medical bills, the Education and Labor Committee has delayed action because of a split among its members.  Rep. Neal’s proposal could appeal to those members looking to pass some bill ahead of the 2020 election, without having to make a difficult decision over provider reimbursement rates.  However, it is unclear at this point which approach, if any, will make it into some year-end omnibus bill.

Contact D. Mark Wilson

HR Policy Urges Supreme Court to Maintain DACA

HR Policy joined several member companies in filing an amicus curiae brief urging the U.S. Supreme Court to affirm the three federal court judgments finding the Trump administration’s rescission of DACA to have been unlawful.

“Eliminating DACA will inflict serious harm on U.S. companies, all workers, and the American economy as a whole,” the brief reads.

A press release by the Coalition for the American Dream, of which HR Policy is a part, notes, "The brief, which includes a number of U.S. companies that employ workers protected under the DACA program, illustrates the immense support from the U.S. business community for Congress to provide permanent protections for DACA recipients, for the benefit of employers and the economy more broadly."  

Looking ahead: Arguments are set to begin November 12, with a decision likely sometime next year.

Contact Daniel Chasen

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