Posts filed under ‘HR’
The most important proposal of the year has nothing to do with Risk-Based Capital or Field of Membership. It has nothing to do with overdraft fees or payday loans. In fact, it hasn’t even been released yet for comment. Nevertheless, your fearless blogger is going to go out on a limb and tell you that the most important regulatory proposal you will be confronted with this year is one that is expected to be issued by the Department of Labor this summer.
What I am referring to is the release of regulations redefining what constitutes an exempt or non-exempt employee under the federal Fair Labor Standards Act (FLSA). At the very least the regulations could impact the operation of your credit union; in a worst case scenario it will be another one of those unfunded government mandates.
Under the FLSA, employees are entitled to a minimum wage and to at least time and one-half overtime pay for every hour they work over 40 hours per week. As many of you are aware, however, so-called exempt employees are not entitled to overtime. As a gross over-simplification, an exempt employee is generally defined as someone whose duties involve supervising or exercising independent judgment.
In March of last year, President Obama directed the Department of Labor to scrutinize the existing DOL regulation. To give you a sense of where this is headed, a fact sheet that accompanied the President’s directive argued that “the overtime rules that established a 40-hour work week, a lynchpin of the middle class, have eroded over the years. As a result, millions of American workers have been left without the protections of overtime” even though they are expected to work 50-60 hours a week.
One way the DOL is expected to attack this perceived problem is to restrict the so-called primary duty test, which could have a profound impact on many smaller credit unions. For example, let’s say you have a four person branch. Your manager’s primary duty is to manage the entire branch. But, on any given week, he may spend a good deal of his time pitching in at the teller window or helping out originating mortgage loans. Under the existing regulations, you still can treat that manager as an exempt employee, but it is quite possible that the DOL will seek to limit the exempt designation solely to managers who spend the majority of their time taking on purely supervisory tasks. You may want to take a look at 29 CFR 541.106.
Technology can also influence the DOL’s proposal. A recent article in the Wall Street Journal reports an increase in lawsuits in which employees are suing employers who provide them cell phones with the expectation that they perform uncompensated work outside the work day. This is an issue I have always found intriguing. It’s one thing to send your top managers an email at 6:00 a.m., it’s another to send that same email to all of your employees irrespective of their work status.
These are just two examples of how the DOL’s regulation could impact your credit union. Regulations haven’t even been proposed yet, so we are a long way from seeing any of my worst case scenarios become realities. Nevertheless, given the potential scope of the proposal, you should all be keeping an eye out for the DOL regulations once published. It could have a uniquely negative impact on small businesses like credit unions.
New York City is about to impose restrictions on employers that will help answer this question.
Last Thursday the City Council passed by a 47-3 vote legislation that bars employees from requesting or using for employment purposes the consumer credit history of an applicant for employment or otherwise discriminating against an applicant or employee “with regard to hiring, compensation, or the terms, conditions or privileges of employment based on the consumer credit history of the applicant or employee “
“Surly there must be an exception for the financial services industry?” you say. After all we are talking about the capital of world finance where unethical financial gurus can hide billions of dollars easier than I misplace my cell phone.
Not really. The prohibition against credit reports does not apply to an “employee having signatory authority over third-party funds or assets valued at $10,000 or more; or that involves a fiduciary responsibility to the employer with the authority to enter financial agreements valued at $10,000 or more on behalf of the employer.”
Since there is no categorical exception for banks and credit unions those of you in the city seeking to utilize this exception will have to parse the quoted language on a case-by-case basis. I would suggest it is worth doing so only for the most senior positions with the most direct control over your credit union
Another exception applies to a position “with regular duties that allow the employee to modify digital security systems established to prevent the unauthorized use of the employers or client’s networks or databases.”
This does seem broad enough to cover a good portion of but not all of your I.T. staff but it is also vague enough to raise some troubling questions. For example, does the exception apply to persons whose duties authorize them to modify data security networks, or, more broadly, to individuals whose jobs enable them to access sensitive computer networks? If the narrower definition applies than you won’t be allowed to do credit checks on the Edward Snowden wannabes of the world who have no compunction against gaining unauthorized access to employer systems.
If you’re saying to yourself that, since you live outside of the Big Apple, you don’t have to worry about this measure you are wrong. Similar bills are already floating around the state legislature and the support for this measure will provide a real push to getting a similar measure approved on the state level.
Supporters of this proposal argue that credit checks don’t have any kind of direct relationship to a person’s competency. Over the last eight years many people have had their credit battered by flat wages and layoffs having nothing to do with how well they do their job. I get that. But at the end of the day, when you work for a bank or a credit union, you do take on an added obligation to handle money properly whether you are a teller, branch manager or a CEO. Credit unions should be able to decide for themselves what they need to know when evaluating applicants free of government micro managing. Here is a copy of the bill which is awaiting the Mayor’s signature. http://legistar.council.nyc.gov/LegislationDetail.aspx?ID=1709692&GUID=61CC4810-E9ED-4F16-A765-FD1D190CEE6C
Cyber Sharing Bill passes House
A strange thing is happening in the House of Representatives: It’s starting to pass substantive bills with bipartisan support. Is our long national nightmare of legislative ineptitude coming to an end?
Yesterday, the House passed HR 1560 which extends liability protections to businesses that voluntarily share cyber threat information. The legislation positions the government as a central clearinghouse for cyber threats.
The bill is consistent with a growing shift in emphasis away from cyber threat prevention and towards more quickly responding to cyber-attacks after they occur. (Your credit union will be subject to a data breach; the question is how quickly will you spot it?) The quicker a network of potential targets can talk to each other the quicker they can respond to data breaches. Here is a copy of the bill which has not yet been passed by the Senate. http://thomas.loc.gov/cgi-bin/query/F?c114:2:./temp/~c114VL7VIk:e2869:
Whether or not you work in a unionized workplace, the National Labor Relations Board has used an expansive view of federal law to insert itself into , and implicitly attempt to micromanage, the American workplace in a way that is directly impacting your credit union operations.
Those of you who think I’m exaggerating and\or those of you whose job it is to manage employees would be well advised to review the NLRB’s recent guidance outlining language that can and can’t be in workplace handbooks(http://www.nlrb.gov/reports-guidance/general-counsel-memos Report of the General Counsel Concerning Employer Rules). On the one hand the memorandum is an attempt to provide a concise compendium of handbook dos and don’ts based on its prior rulings; on the other hand it reads like an “April Fools” joke. Unfortunately it isn’t.
First, the NLRB correctly reminds us that handbook language violates federal law when “employees would reasonably construe the rule’s language to prohibit” concerted activity be it in a unionized or non-unionized workplace. The problem is that the mythical employee the NLRB is protecting apparently has a law degree, is utterly devoid of commonsense, behaves like an out-of-control teenager who has just been told she has to be home by 11:00PM and works for the NLRB. No other workplace could function in the workplace as pictured by the Board
In the-“ You can’t make this stuff up category” the NLRB explains that a workplace policy “that prohibits employees from engaging in. “disrespectful,” “negative,” “inappropriate,” or “rude” conduct towards the employer or management, absent sufficient clarification or context, will usually be found unlawful… Moreover, employee criticism of an employer will not lose the Act’s protection simply because the criticism is false or defamatory.”
Apparently the NLRB doesn’t think your average employee has a rudimentary grasp of the English language or can be expected to have the etiquette of a kindergartener.
But wait there’s more. Did you know that a policy banning “Disrespectful conduct or insubordination, including, but not limited to, refusing to follow orders from a supervisor or a designated representative.” Or another prohibiting “Chronic resistance to proper work-related orders or discipline, even though not overt insubordination will result in discipline.” Is illegal?
I want to give the NLRB the benefit of the doubt. Maybe it is so committed to protecting the Norma Rae’s of the world chafing under employer misconduct that it wants to give complaints about management malfeasance the widest possible protection. The problem is that its prohibitions also prohibit language intended to regulate employee to employee civility. For example it found the following policy to also violate the FLSA.
“Material that is fraudulent, harassing, embarrassing, sexually explicit, profane, obscene, intimidating, defamatory, or otherwise unlawful or inappropriate may not be sent by e-mail. …”We found the above rule unlawful because several of its terms are ambiguous as to their application to [concerted] activity—”embarrassing,” “defamatory,” and” otherwise . . . inappropriate.” We further concluded that, viewed in context with such language, employees would reasonably construe even the term “intimidating” as covering Section 7 conduct”
Finally even where the NLRB tries to be reasonable the distinctions it draws between lawful and unlawful conduct is so paper-thin that a properly designed handbook needs more qualifiers than a Viagra Ad. For example the following language is unlawful “ Do not discuss “customer or employee information” outside of work, including “phone numbers [and] addresses.” But this policy is legal “Misuse or unauthorized disclosure of confidential information not otherwise available to persons or firms outside [Employer] is cause for disciplinary action, including termination.”
If you are a board member helping select candidates to be your next CEO or you’re an Executive filling a slot on your management team, are you more likely to hire George Bailey or Mr. Potter? Be totally honest. George Bailey is a much nicer guy, but who’s more likely to be running a growing credit union ten years down the line? For that matter, should character even matter when making hiring decisions?
These questions came to mind recently after reading an intriguing bit of research in the most recent Harvard Business Review. According to at least one recent survey, the higher character ratings a CEO is given by his staff the better a company tends to perform.
According to the research, CEOs whose employees gave them high marks for character had an average return on assets of 9.35% over a two-year period. That’s was almost five times higher than the return generated by Executives given the lowest ratings. The cynics might be wrong after all.
The findings are based on research performed by a leadership consultancy. They identified what they considered to be the most universally identified moral principles – integrity, responsibility, forgiveness and compassion. They then sent anonymous surveys to employees at 84 companies and not-for-profits and followed up by interviewing many of the Executives. The highest performing Executives, both based on their character and financial performance, were given high ratings on all four principles. For example, they were described as standing up for what’s right, expressing concern for the common good, letting go of mistakes and showing empathy.
On the flip side, the ten worst performing management teams – euphemistically described as self-focused – were described as warping the truth for personal gain and caring mostly about themselves “no matter what the cost to others.”
Ultimately, it may be impossible to objectively quantify character. After all, we would all have a intriguing enough to ponder next time you start looking for a top executive.
NYS Budget Plan Set
Late last enough, the smoke rose from the State Capitol. It’s been reported that a budget plan has been agreed to for the 2015-2016 State Fiscal Year. It doesn’t look like this will have much of a direct impact on your credit union. More generally, budget negotiations in NYS begin and end with an annual struggle over state aid to education. The “framework agreement” reportedly includes a school aid increase of $1.6 billion and ethics reforms.
On that note, enjoy your Monday. They say Spring will arrive any day now. I am not holding my breath.
As readers of this blog know, last week the Supreme Court unanimously reversed a lower court decision and upheld the U.S. Department of Labor’s authority to issue an opinion letter classifying mortgage loan officers as non-exempt employees for purposes of the Fair Labor Standard Act (Perez v. Mortgage Bankers Ass’n, No. 13-1041, 2015 WL 998535, at *4 (U.S. Mar. 9, 2015). What kind of impact will this have on your credit union? I can’t answer that for you, but the question you should be asking is: What are my employees’ primary duties? If an employee’s job is to act as a mortgage loan officer, then the decision may change the way he is classified and compensated. In contrast, if your supervisors originate the occasional mortgage, but spend most of their day supervising staff, then the decision won’t impact your operations. The key point is that labels don’t matter: it’s what the employee actually does that you and your HR person have to look at in the aftermath of this ruling.
First-with apologies for those of you for whom this is real basic stuff-federal law divides us up into two basic categories of workers: exempt and nonexempt. Nonexempt employees are entitled to overtime whereas exempt employees are not. The distinctions made sense in 1938 when it was obvious who the blue collar factory worker was and who was the white collar boss, but in the information age, the distinction isn’t as easy to figure out. Regulations recognize five categories of exempt employees including professional, administrative, executive, outside sales, and computer-related professions. In 2010, the Obama Administration’s DOL reversed an earlier DOL opinion letter. It ruled that mortgage loan officers were not administrative employees and had to be given overtime. Last week’s decision upheld the DOL’s right to issue this ruling.
The distinction can be tricky for credit unions, particularly smaller ones. For example, since many branch managers wear multiple hats-they not only manage staff but they sign off on most of the mortgage loan originations-does this decision mean that they are now automatically non-exempt employees? No, it comes down to what an employee’s “primary duties” are. Nothing in the Court’s decision changes this erstwhile test. As explained on the DOL’s website, the primary duty “means the principal, main, major or most important duty that the employee performs.”
Remember, the label you give a job doesn’t mean all that much. For example, our small branch manager who helps out with an occasional mortgage loan is considered a Mortgage Loan Originator under other federal regulations; after all she sometimes offers, arranges, or assists a member in obtaining or applying for a mortgage at the credit union. ( 12 CFR 1026.36.) But, while the CFPB doesn’t care what an originator’s primary duty is, the DOL sure does
Here are three things you should know if you want to be one of the cool kids at the water cooler this morning.
Yesterday, the Supreme Court issued one of the handful of decisions each year that directly impact your credit union’s operations. Most importantly, if you have employees whose job is to assist prospective borrowers in applying for various mortgage offerings, the Supreme Court upheld a Department of Labor interpretation mandating that such persons be treated as non-exempt employees. This means, for example, that originators are entitled to overtime for the time they work over forty hours.
If you don’t do mortgages, I have some bad news and some good news for you. The bad news is that the Court gave agencies like the NCUA the green light to continue and arguably expand their practice of issuing guidance “reinterpreting” existing regulations. The case decided by the Court yesterday (Perez, Secretary of Labor, et al v. The Mortgage Bankers Association, et al) involved the validly of a legal interpretation issued by the Department of Labor in which it opined that mortgage originators should be treated as non- exempt employees. The mortgage bankers argued that the DOL’s interpretation amounted to a new rule and could only be imposed following a formal rule making process. The Court overturned lower court precedent and concluded in a unanimous decision that a formal rulemaking notice and comment period is only required when an agency amends – i.e. changes the wording – a regulation. It can issue all the interpretations it wants and the only remedy for the regulated is to argue that an interpretation is “arbitrary and capricious.” Don’t be surprised if you see amending the Administrative Procedures Act become a major component of Republican regulatory reform efforts.
The good news? You also have three Justices begging for future challenges to the APA. In the short run, the agencies won a major victory yesterday with the Court giving them expanded powers to interpret their own regulations. But, in the long run, the Court will probably give less deference to agencies drafting their own regulations. In the meantime, your credit union faces the potential of more regulatory oversight. Oh Boy!
Regulatory Relief On The Way?
There was some good news on the regulatory front yesterday. Chairwoman Matz dubbed 2015 “the year of regulatory relief.” (I think she stole that from the Chinese calendar) while outlining an impressive-sounding list of reform proposals. The list Includes expanded use of supplemental capital, authorization for large credit unions to securitize mortgage loans and greater Field of Membership flexibility.
All of this sounds promising, but let’s not get too excited until we see the detail. Let’s not forget that NCUA has already proposed changes to FOM requirements that make it more, not less, difficult for credit unions to expand their associational based memberships. In addition, even with yesterday’s Supreme Court ruling, it’s far from clear how much the use of supplemental capital can be expanded without amendments to the law.
Schneiderman Secures Credit Rating Agency Reform
NY AG Eric Schneiderman continued to raise his profile on consumer protection issues yesterday when he announced what is being described as a national settlement with the three major credit rating agencies: Experian, Equifax, and Transunion. Under the agreement, the CRA’s will, among other things, agree to enhanced dispute resolution procedures and delay the recording of medical debt for 180 days. One passage of the press release really got my attention: the settlement “prohibits the CRAs from including debts from lenders who have been identified by the Attorney General as operating in violation of New York lending laws on New York consumers’ credit reports.”
Although the settlement involves the reporting agencies, furnishers of credit information such as credit unions aren’t completely off the hook: “The Attorney General’s agreement requires the three CRAs to create a National Credit Reporting Working Group (“Working Group”) that will develop a set of best practices and policies to enhance the CRAs’ furnisher monitoring and data accuracy.” Stay tuned.