May 26, 2016

How Are Banks Affected by the Employment Executive Orders?

Kentucky Banker Magazine, May 2016

While many legislative proposals have stalled in Congress, President Obama has moved forward with a variety of labor and employment initiatives by means of Executive Orders. Such orders are limited to the regulation of "federal contractors" and by their own terms. Whether banks and their employees are covered depends on a variety of factors.

The original equal employment opportunity order, Executive Order 11246, was signed by President Lyndon B. Johnson on September 24, 1965, to establish requirements for non-discriminatory practices in hiring and employment on the part of the U.S. government contractors. It "prohibits federal contractors and federally assisted construction contractors and subcontractors, who do over $10,000 in Government business in one year from discriminating in employment decisions on the basis of race, color, religion, sex, or national origin." It also requires contractors to "take affirmative action to ensure that applicants are employed, and that employees are treated during employment, without regard to their race, color, religion, sex or national origin." Although there is some dispute, the Department of Labor's Office of Federal Contract Compliance Programs takes the position that a financial institution covered by deposit insurance is a federal contractor and is required to follow the equal employment opportunity regulations that implement Executive Order 11246, the Vietnam Era Veterans' Readjustment Assistance Act of 1974 (VEVRAA), 38 U.S.C. ยง 4212 and Section 503 of the Rehabilitation Act of 1973. Acting as a depository for government funds or a paying agent for savings bonds are also bases to be covered by the EO. Covered employers must post the EEO notice. The VEVRAA prohibits discrimination against returning and disabled veterans. Section 503 prohibits discrimination against individuals with disabilities.

In 2014, President Obama signed EO 13672 to add sexual orientation and gender identity to the prohibited bases of discrimation. As an amendment to EO 11246, it will also apply to insured depositary institutions. A new EEO supplemental poster will be required. Affirmative action plans need not be revised, although the labor department states that revision of AAPs to mention sexual orientation and gender identity is considered a best practice. Other Executive Orders are also amendments to EO 11246 and so will reach banks. EO 13496 require that employees be given notice of their rights under the federal labor laws by means of another poster. EO 13665 protects job applicants and employees from discrimination based on disclosing or discussing their compensation or the compensation of other applicants or employees. Banks should revise their employee handbooks to address these issues.

Fortunately, the coverage of some Executive Orders does not track EO 11246. OFCCP guidance indicates that EO 13658, mandating a minimum wage of $10.10 per hour, will be determined by whether the work is covered by the Davis-Bacon Act, which requires payment of prevailing wages on government construction contracts, and the Service Contractors Act, which requires payment of prevailing wages to service employees in various classes. These statutes do not typically reach financial institutions, although institutions located on federal property or primarily serving federal employees may pose special circumstances. In Perez v. Mortgage Bankers Association, 135 S.Ct. 1199 (2015), the Supreme Court upheld the Department of Labor's interpretation that mortgage loan officers are not exempt from the Fair Labor Standards Act, which establishes minimum wages, overtime pay, and youth employment standards.

There is no OFCCP guidance yet on the Paid Sick Leave Executive Order (EO 13706), but it appears likely to follow the coverage of the minimum wage rules. Implementing regulations are expected to be promulgated later this year. By Executive Order 13673, President Obama mandated that federal contractors adopt Fair Pay and Safe Workplaces standards. This EO applies to procurement contracts exceeding a value of $500,000. Most employment lawyers believe that the regulations deal with procurement contracts, and not government depository relationships, deposit insurance or savings bonds activities.

Banks will need to update compliance policies and programs and revise employee handbooks to meet the requirements of these new labor and employment executive orders.