Uber Settlement Maintains Drivers are Contractors, not Employees

Tracey Lien

April 23, 2016

http://www.latimes.com/business/la-fi-tn-uber-labor-20160423-story.html

After a morning spent driving for Uber in his Huntington Beach neighborhood last October, James Welton returned from lunch to find he couldn't get back into the ride service app. Without warning, he'd been deactivated.

"I wasn't expecting it," said Welton, 44, who had been driving for Uber full-time for a month.

Uber was Welton's only source of income. How was he going to make rent? Pay the bills? Pay the loan on his car?

When he contacted Uber, the company told him his driver rating had fallen too low. His only reprieve was to take a $60 driver training class, and even then there was no guarantee he would be allowed back on the platform.

This week, as part of a $100-million class-action lawsuit settlement with drivers who sought to be classified as employees rather than contractors, Uber agreed to be more transparent in its discipline. The policy changes include alerting drivers if their rating falls, no longer terminating drivers without warning, and instituting appeal panels that consist of highly rated drivers. The San Francisco start-up, which is valued at $62.5 billion, also agreed to pay for an arbitrator to hear appeals not settled by the panels.

The move could prove useful to drivers like Welton who have been deactivated, and, according to plaintiff attorney Shannon Liss-Riordan, will make a "significant difference to drivers' livelihood and pay."

"I've been in touch with Uber drivers every day for the last three years, so I'm very aware of what their concerns are," she said. "That's why I'm proud of these non-monetary changes, in particular the parts regarding tips and termination."

If a judge approves the settlement, Uber drivers in California and Massachusetts could receive payments of $8,000 or more from the settlement, based on miles driven. In another concession, they will for the first time be able to solicit tips.

But the settlement does not change their employment status as independent contractors — meaning they will not receive any protections commonly reserved for employees, such as health insurance, expense reimbursement or overtime wages.

This has spared Uber and other companies in the on-demand economy the financial burden of offering benefits to their growing ad hoc workforces. But it has also left labor lawyers and on-demand workers wondering what this means for the future of workers' rights in the burgeoning gig economy.

He wishes, for example, that Uber would listen to drivers when they say fares are too low."Uber calls us partners, but we don't have any influence at all on policy, and I'd like to see that change," said Michael Goodman, 59, of Northridge, who has been driving for Uber since December 2014.

As part of the settlement, the company is helping drivers form an association that will meet with Uber management to air grievances. The association is not the same as a union, but Liss-Riordan said it is hoped to be an avenue through which drivers' voices are heard. Drivers will elect leaders who will meet quarterly with Uber management for "good faith" discussions.

It remains to be seen how effective the association will be in lobbying the interests of drivers. A bill introduced to the California legislature that would have given gig workers the right to organize was nixed this week after receiving strong pushback. Assemblywoman Lorena Gonzalez (D-San Diego), who introduced the bill, plans to bring it back next session.

From a legal perspective, Richard Reibstein, an attorney who heads up the independent contractor practice at law firm Pepper Hamilton, said the settlement is a huge victory for Uber because the company gets to keep the business model — the same model that made it one of the most valuable private companies in the world. He believes that most of the changes are cosmetic, and that the policies that affect drivers day-to-day — such as how fares are determined and how drivers should conduct themselves — still fall under Uber's control.

Since the settlement doesn't actually decide the case, the proper classification of Uber drivers as independent contractors or employees remains up in the air. This leaves a lot of questions, according to Todd B. Scherwin, a partner at law firm Fisher & Phillips, and a lot of room for more lawsuits."It's still very much 'Play by my rules if you want to be an Uber driver,'" Reibstein said. "This is very valuable to Uber, and well worth the $84 [million] to $100 million they're paying."

"Most other companies in the gig economy were hoping Uber would fight this thing all the way, win it, and give everyone peace of mind," Scherwin said. "So this leaves a lot of unsettled questions. Someone eventually is going to have to fight it and get a court ruling on it."

At the very least, the changes Uber implemented represent a new floor for worker protections in the gig economy, according to Steve Hirschfeld of law firm Hirschfeld & Kraeme, who advises on-demand start-ups in the Bay Area. In consulting with companies, he says many firms are already looking for ways to improve their relationship with workers in order to avoid costly litigation.

For Welton, Uber's changes come a bit too late. After he was deactivated last year, with no way to appeal the decision, he went looking another job. Uber might have the coffers to settle lawsuits. The smaller "Uber for food" or "Uber for laundry" start-ups do not.

He now drives for on-demand delivery company DoorDash. Like Uber, it also classifies its drivers as independent contractors. And it's also being sued.

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Employees May Soon Have the Right to Sue Their Employers Without Forced Arbitration

Alan pyke

may 26, 2016

http://thinkprogress.org/economy/2016/05/27/3782701/forced-arbitration-workplace-ruling/

Workers cannot be prohibited from bringing class-action lawsuits against their employers, an appeals court panel ruled Thursday, even if the boss makes them sign away that right in order to keep their job.

The case involves Epic Systems, one of the largest medical software companies in America. Founded in the late 1970s, the billion-dollar business only recently began making workers agree to so-called “forced arbitration” clauses in which they forswear their rights to go to court either individually or collectively.

By doing so, the judges found, Epic violated its workers’ federal labor rights to take collective action, making the clauses unenforceable.

The decision breaks a pattern of appeals courts repeatedly validating such forced arbitration clauses, bringing America closer to a reckoning over a deep and pervasive imbalance of power. Corporations of all kinds could soon lose their ability to tie the little guy’s hands and effectively guarantee they’ll never face serious legal challenges to potentially abusive business practices. In addition to Thursday’s rejection of arbitration clauses in the workplace, federal regulators are also working to annihilate them from all consumer finance products — the other major area of the law where they hold sway.

Epic is one of the titans of the digital medical systems industry. The Wisconsin-based company has enjoyed the kind of media buzz that's become cliche out in Silicon Valley: a lighthearted workplace culture with freewheeling, well-paid young staff that's revolutionizing the world for everyone else's benefit.

But the past couple years have been tough for Epic. It missed out on a multi-billion-dollar contract to build health records for the Pentagon and had another large deal with Veterans Affairs suspended recently.

And in late 2013, a group of workers sued the company demanding back pay and arguing they were eligible for overtime. At that point, Epic didn't require workers to waive their courtroom rights.

Epic only imposed its forced-arbitration clause for employees in April 2014, sending an email notifying workers that if they continued in their positions they agreed to be bound by the new contract conditions. Lewis' lawyers say he would have been fired if he had tried to refuse the arbitration clause. The firm later paid $5.4 million to settle the 2013 lawsuit that appeared to have prompted the new arbitration clauses now at issue in 2016.

Thursday's ruling doesn't necessarily mean the workers suing Epic today will get a similar payday. Their claims for overtime pay will ultimately hinge on a different corner of the employment law landscape, involving the exact nature of their duties and specific statutory language about what kinds of salaried workers do and don't have a right to overtime.

But even if Epic's writers do not ultimately score a big payday, they have already helped workers across the country. The legal ground underneath forced arbitration clauses just started to quake.

Until Thursday, American bosses were undefeated in the appeals court system on forced arbitration clauses with their workers, despite years of effort from the National Labor Relations Board (NLRB). The agency argues that taking away workers' right to sue as a class over workplace abuses is a direct violation of labor law, which protects collective action whether or not the workers have a union. But the past few years have been whack-a-mole: The board bangs a company for depriving workers of collective action rights through arbitration, the company appeals, and judges take the company's side.

By breaking that pattern on Thursday, the Seventh Circuit created a dispute within the appeals court system -- one of the very things the Supreme Court exists to address. The decision means that Epic can either yield and take the narrower questions of overtime law to court as Lewis wants, or ask the Supreme Court to vindicate their forced-arbitration clauses.

The outcome of such a high-court showdown over employment contract arbitration clauses is hard to guess. Some employment lawyers write derisively about the NLRB's legal argument that class-action suits are a protected form of substantive collective action. Analysts who are more friendly to labor interests see a lot of good reasons for the Supreme Court to validate the agency's interpretation of how labor and arbitration law intersect here.

And if the court were to take on the case before a ninth justice is seated, and come back in a 4-4 tie, then the Seventh Circuit ruling striking down employment arbitration clauses would carry the same precedential weight as the previous anti-worker rulings in other parts of the country. That would make it easier for the NLRB to keep going after bosses who threaten to take away somebody's job unless they sign away their right to go to court.

At the same time the legal system weighs the future of workplace arbitration rules, the Consumer Financial Protection Bureau (CFPB) is getting ready to wipe out the other main category of arbitration clauses. Sen. Elizabeth Warren's (D-MA) brainchild announced this month that it intends to outright ban forced arbitration language from all consumer financial products, from credit cards to checking accounts to nearly every type of loan a person can take out.

The CFPB's action alone would affect tens of millions of Americans. If combined with a potential unraveling of workplace arbitration rules, there could soon be a staggering rebound in the sheer number of people who stand a chance of exposing and punishing corporate wrongdoing.

For more information, please visit www.BeverlyHillsEmploymentLaw.com

Senate Committee Hearing Examines Job Creation Under NLRB Joint-Employer Standard

By Joy P. Waltemath, J.D.

June 21, 2016

http://www.employmentlawdaily.com/index.php/news/senate-committee-hearing-examines-job-creation-under-nlrb-joint-employer-standard/

The Senate Committee on Small Business and Entrepreneurship held a hearing June 16 to examine the impact of the NLRB’s joint-employer standard on small businesses. According to Chair David Vitter (R-La), the committee has held numerous hearings this year “to highlight the need for regulatory reform in light of how federal agencies have issued new rules and regulations that cause undue burden on small businesses.”

In his published remarks, Vitter described the NLRB’s ruling in Browning-Ferris Industries that merely “indirect control” or even “unexercised potential” to control working conditions will now make two separate employers a joint employer. “This means that multiple employers will now have to jointly negotiate working conditions with unions and share liability for labor law violations,” he pointed out, noting that the ongoing litigation between McDonald’s and the NLRB over a joint-employer labor dispute is certain to have huge ramifications for many small businesses that operate as franchises.

“Despite the fact that franchisors are not responsible for hiring employees or even overseeing their day-to-day operations, they are still responsible for protecting the franchisee’s workers from any labor violations under the new standard that is being aggressively litigated by the NLRB’s General Counsel,” Vitter remarked, stressing the high level of uncertainty created by the NLRB’s decisions.

Franchise rule “Catch-22.” Testimony from Ms. Ciara Stockeland, Founder and COO, MODE, a discount retailer of designer fashions that operates under a franchise model, highlighted some of the challenges faced by franchisors under the joint-employer standard. She said that the Federal Trade Commission’s Franchise Rule requires her, as the franchisor, to exert significant control over her franchisees in order to qualify as a franchise and to ensure brand quality. The Franchise Rule operates in tandem with the federal Lanham Act, which requires persons holding a trademark to police and control third party licenses who are operating under the trademark (or brand name) to ensure brand consistency.

“Under these rulings, an action by a federal agency–such as the new joint employer standard–that prevents a franchise business from protecting its brand standards not only undermines the value of the owner’s trademark, it may also interfere with the small business owner’s ability to comply with the FTC’s Franchise Rule. Thus, on one hand, federal trademark law requires franchisors to protect their brand standards; but due to expanded joint employer policy, now federal labor law effectively prohibits franchisors from protecting their brand standards through any action or even potential action. What an extremely frustrating Catch-22 for small business job creators across the country.”

A modest decision. Mr. Keith R. Bolek, partner at the union-side law firm of O’Donoghue & O’Donoghue LLP, took issue with the hearing’s title: “The Challenge to Create Jobs under the NLRB’s New Joint Employer Standard.” He stated that the idea that the new standard will make it more difficult for small businesses to create jobs “is certainly not the case.” Rather, he characterized the Board’s decision as “a modest, carefully crafted decision that keeps pace with the evolving nature of employer and employee relationships.”

Not an attack on franchise model. More specifically, he called fears of the impact of the Board’s joint employer decision on various employer relationships other than the one at issue in that case “enormously overblown. The Board expressly stated that it was not addressing relationships such as contractor-subcontractor and franchisor-franchisee.” Bolek also pointed out that the General Counsel’s complaint against McDonald’s was made under the old joint employer standard because of evidence that “McDonald’s controlled the terms and conditions of employment for its franchisees’ employees to an extraordinary degree. Such control goes far beyond the typical franchisor-franchisee relationship.”

At the same time, Bolek emphasized that the General Counsel refused to issue a complaint involving the franchisor Freshii because it did not exert sufficient control over the terms and conditions of employment of the franchisee’s employees. “The differing treatment of McDonald’s and Freshii shows that the NLRB is not looking to upend the traditional franchise model, but to ensure that workers that choose to organize can meaningfully engage in collective bargaining where a franchisor decides to go beyond the traditional franchise model and exert control over the wages, hours, and working conditions of its franchisees.”

Business-to-business contracting at risk. Mr. James Sherk, a Research Fellow in Labor Economics at The Heritage Foundation, speaking on his own behalf, also testified at the hearing. Most of the media attention on the joint-employer standard has focused on its considerable implications for franchised businesses, he said, but his focus was on the equally large effect on non-franchise businesses. “This new standard will considerably impede business-to-business contracting,” he stressed, pointing out that the Board decision in Browning-Ferris itself had nothing to do with franchising but involved a standard businesses service contract. “Virtually all such contracts specify quality standards and prices. By law every company has potential control over another firm’s employees operating on their premises. The NLRB has ruled that these standard service contract provisions create a joint employment relationship. This will make business contracting significantly more difficult.”

Sherk suggested that the new joint-employer standard would undermine one of the major innovations in business management: the shift to having businesses focus on their core competencies and contract out for the services necessary to support these operations. “The NLRB’s new joint employer standard threatens all these business arrangements. ‘Indirect’ and ‘potential unexercised’ control are very vague and elastic terms that could encompass most business services contracts.” Consequently, businesses will no longer know whether contracting creates a joint employment relationship or not, Sherk pointed out, but if the NLRB decides it does, they will lose most of the benefits of business contracting, which he posited “will reduce American businesses’ competitiveness and their productivity.”

Threat to unionized contractors. Another point made by Sherk was that the new joint employer changes also threaten many existing unionized contractors, since the new doctrine “only has practical effects on contractors that are or may become unionized. It has little effect on businesses that hire non-union contractors. They would have no obligation to bargain over re-bidding their contracts. Nor would they have to engage in multi-employer collective bargaining negotiations. As long as employers do not do business with unionized contractors they do not risk semi-permanent entanglement with them. This will strongly incentivize firms to hire only non-union contractors, and to change contractors if they suspect their current contractor may unionize,” Sherk concluded.

For more information, please visit www.BeverlyHillsEmploymentLaw.com

Microsoft Opposes U.S. Labor Board Ruling on Contract Workers

Deborah Todd & Robert Iafolla

June 15, 2016

Microsoft Corp has asked a federal court to throw out a ruling by a U.S. labor board extending the responsibility of companies for contract workers, arguing that the case would have big implications for the technology company.

An August 2015 decision by the National Labor Relations Board expanded the definition of a "joint employer", which could require more companies to bargain with and have liability for workers hired by contractors.

The decision expanded the test for joint employment beyond whether a company had “direct and immediate” control over employment conditions of another company’s workers, to consider indirect or unexercised control. The case is now before the U.S. Court of Appeals for the D.C. Circuit.

Microsoft and industry group HR Policy Association submitted a joint brief on Tuesday opposing the NLRB ruling in a case involving California waste management company Browning-Ferris Industries, a subsidiary of Republic Services Inc.

In its brief Microsoft said the 2015 ruling was too broad and the decision would discourage Microsoft and others from directing contractors to provide benefits to their employees, for fear the directive would make Microsoft a joint employer under the new standard.

Business groups say the ruling has the potential to disrupt a range of business-to-business relationships, including those that companies have with vendors, staffing agencies, subcontractors and subsidiaries, as well as franchisees.

Silicon Valley companies frequently use contract workers for tasks from security to writing software.

Microsoft had nearly 113,000 employees at the end of last year, it said. A spokeswoman declined to say how many temporary and contract workers it employed, but the Seattle Times quoted an unnamed source as saying there were 81,000 at one point in 2015.

In the labor board's 2015 ruling, it said Browning-Ferris was a joint employer of workers hired through a staffing agency at a recycling facility and had to negotiate with workers.

Browning-Ferris has said the U.S. labor board standard for "joint employment" is so broad and vague that it makes it impossible for employers to structure their business relationships with contractors.

Microsoft has been praised by President Barack Obama for restricting its work contracts to suppliers who give employees at least 15 days of paid leave annually, part of its so-called Corporate Social Responsibility, or CSR, policy.

"Companies with existing CSR initiatives now have a strong incentive to terminate them, and others considering such policies will be more likely to table their plans," Microsoft said of the consequences of the 2015 ruling.

Some labor law experts told Reuters that such corporate social responsibility policies calling for minimum employee benefits are unlikely to make companies a joint employer under the NLRB’s ruling in Browning-Ferris.

“The board’s decision could use some clarification but does not jeopardize a company’s corporate responsibility policy for its vendors and suppliers, providing Microsoft or other brands do not control or purport to control day-to-day labor and personnel decisions of the suppliers,” said Samuel Estreicher, director of New York University’s Center for Labor and Employment Law.

In any event, Microsoft argued, the court should make clear that such CSR plans did not make a company a joint employer.

An NLRB spokesman was not immediately available for comment.

* For more information, please visit www.BeverlyHillsEmploymentLaw.com

It's Not Illegal to Fire Someone for Being 'Too Cute,' Manhattan Trial Court Rules

Attractive women are not a protected class under employment laws, even the expansive laws in place in New York City, the New York Law Journal reported Friday.

Lorelei Laird

May 20, 2016

http://www.abajournal.com/news/article/its_not_illegal_to_fire_someone_for_being_too_cute_manhattan_trial_court_ru

Dilek Edwards had sued her former employer for gender discrimination, alleging she was fired because her boss, Stephanie Adams, was concerned that her husband found Edwards attractive.

Edwards was hired as a yoga instructor and massage therapist by chiropractor Charles Nicolai. She says their relationship was strictly professional, and she had met Adams—Nicolai’s wife and co-owner of the practice—on one occasion. That encounter was cordial, Edwards says.

More than a year after Edwards started the job, Nicolai told Edwards his wife might be jealous because Edwards was “too cute.” Four months later, Adams sent Edwards a text telling her she was no longer welcome at the business and to “stay … away from my husband and family. And remember I warned you!”

Adams also allegedly reported to police that Edwards had made threatening phone calls, leading Edwards to make a defamation claim.

The lawsuit argued that under New York City’s Human Rights Law, the firing was gender discrimination because gender includes “a person’s gender identity, self-image, appearance, behavior or expression.” But Manhattan Supreme Court Judge Shlomo Hagler found this applies only to matters involving gender identity or transgender issues.

Hagler was unable to find a case in the city or state New York holding that spousal jealousy alone constitutes gender discrimination. In other jurisdictions, the judge wrote, courts have held that attractive females are not a protected class under anti-discrimination laws.

“With respect to whether appearance can be the basis of a discrimination claim under other statutory authority, courts have not found discrimination when the subject conduct or policy was not applied differently to men and women,” Hagler wrote.

The Iowa Supreme Court ruled in 2012 and 2013 that a dentist from Fort Dodge was within the law when he fired his assistant of 10 years, after growing worried that he might have an affair with her. That court rejected a claim that this was gender discrimination because the assistant “did not do anything to get herself fired except exist as a female.”

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In Scalia's Absence, Unions Get a Big Supreme Court Win

Lauren Camera

March 29, 2016

http://www.usnews.com/news/articles/2016-03-29/in-scalias-absence-unions-get-a-big-supreme-court-win

The Supreme Court on Tuesday announced it had deadlocked on a challenge to organized labor, handing unions a huge win in a case many anticipated would not go in their favor.

The 4-4 decision in Friedrichs v. California Teachers Association upholds a lower court ruling dealing with union fees and is a crushing blow for union opponents, who lost the potentially deciding vote in their favor when conservative Justice Antonin Scalia died in February.

"The U.S. Supreme Court today rejected a political ploy to silence public employees like teachers, school bus drivers, cafeteria workers, higher education faculty and other educators to work together to shape their profession," National Education Association President Lily Eskelsen García said in a statement following the ruling. "In Friedrichs, the court saw through the political attacks on the workplace rights of teachers, educators and other public employees. This decision recognizes that stripping public employees of their voices in the workplace is not what our country needs.

Agency fees are collected in 25 states, including California and the District of Columbia. Under federal law, unions cannot use the money for political purposes, like lobbying or voter registration drives.

The plaintiffs in the case argued that agency fees are an infringement on their First Amendment rights of free speech and free association, since collective bargaining is by nature political. In negotiating with school boards, for example, unions can take positions on things like tenure that nonmembers may not support, and therefore, teachers who decide not to join their local union should not have to contribute to those costs.

Meanwhile, the California Teachers Association and its parent union, the NEA, argued that the fees are not a violation of First Amendment rights because a portion of them is reimbursed annually, and also because the money covers things that benefit non-union members. Were it not for the fees, they said, nonmembers would be freeloading off of union members.

---

The 4-4 split from the justices upholds the Supreme Court's 1977 decision in Abood v. Detroit Board of Education, which held that no one can be forced to join a union or contribute to its political activities, but that teachers unions can charge nonmembers a fee to cover the costs of nonpolitical activities, including collective bargaining.

In recent years, public sector unions have suffered blow after blow, with Republican governors and state legislatures successfully challenging collective bargaining rights in historic labor strongholds like Michigan and Wisconsin.

The Friedrichs case was not the first to challenge union fees. Last year, in Harris v. Quinn, the justices ruled 5-4, that Medicaid home health workers were not full public employees and therefore could not be compelled to pay collective bargaining union fees – a narrow decision but one that many Supreme Court watchers said was a sign the court seemed poised to overturn the longstanding precedent set by Abood.

As a result, the Friedrichs case was slated to deal the most serious blow yet to unions, overturning more than four decades of legal precedent and effectively converting every state into a right-to-work jurisdiction overnight.

For more information go to: BeverlyHillsEmploymentLaw.com

Fiduciary Rules Change for Investment Planning

By Jacklyn Wille

June 9, 2016

http://www.bna.com/labor-department-faces-n57982073912/

June 9 — The Department of Labor is fighting a multi-front war to defend its recently finalized fiduciary rule, which attempts to cut down on the supposedly conflicted investment advice given to retirement savers.

As of press time, five separate lawsuits now attack the rule from seemingly every angle, from the way the department approached the rule-making process to the way the rule restricts the speech of investment professionals. Congressional Republicans also tried to undo the rule by passing a resolution, which President Barack Obama vetoed on June 8.

Far from being copycats of one another, these lawsuits raise a variety of claims against the rule itself and the department's efforts to pass it. Three of the lawsuits bring free speech claims under the First Amendment and one claims that portions of the rule are unduly vague in violation of the Fifth Amendment's Due Process Clause.

A common thread running through each lawsuit is dissatisfaction with the department's decision to subject fixed indexed annuities to the new best-interest standard governing investment advice. This move came as a surprise to many in the financial industry because the DOL's proposed rule provided an exemption for these products.

Notably, three of the five lawsuits were filed in the same federal court in Dallas, a move that may be strategic.

“Judges generally tend to reflect the dominant beliefs of the people in the region where they serve, and it’s fair to say that the people in Texas are more skeptical of federal regulation these days, than the people in, say, Massachusetts,” Richard J. Pierce Jr., a law professor at George Washington University, told Bloomberg BNA June 9.

The groups leading the legal challenges against the fiduciary rule include the U.S. Chamber of Commerce, the National Association of Fixed Annuities, the American Council of Life Insurers, the Indexed Annuity Leadership Council and Kansas-based insurance companyMarket Synergy Group Inc.

Groups Suing DOL Over Fiduciary Rule

U.S. Chamber of CommerceFinancial Services Institute Inc.

Financial Services Roundtable

Greater Irving-Las Colinas Chamber of Commerce

Humble Area Chamber of Commerce

Insured Retirement Institute

Lubbock Chamber of Commerce

Securities Industry and Financial Markets Association

Texas Association of Business

National Association for Fixed Annuities

American Council of Life Insurers

National Association of Insurance and Financial Advisors

NAIFA-Texas

NAIFA-Amarillo

NAIFA-Dallas

NAIFA-Fort Worth

NAIFA-Great Southwest

NAIFA-Wichita Falls

Indexed Annuity Leadership Council

Life Insurance Co. of the Southwest

American Equity Investment Life Insurance Co.

Midland National Life Insurance Co.

North American Co. for Life and Health Insurance

Market Synergy Group Inc.

Odds Favor DOL

Pierce, who has written more than 20 books on administrative law, said that lawsuits seeking to invalidate federal regulations are successful only about 30 percent of the time.

“With any case of this type, my starting point is pretty simple: There’s about a 70 percent chance that the rule will be upheld and a 30 percent chance that it will be rejected,” Pierce said.

According to Pierce, judges weighing these lawsuits typically focus on three questions: (1) is the rule consistent with the language of the statute? (2) does the data considered in the rulemaking process support the final rule? and (3) has the agency adequately explained why the data supports its decision?

Pierce also pointed out a factor that could give the challengers in one lawsuit an additional boost.

“For half a century, the D.C. Circuit has been tougher on agencies than the other circuits,” Pierce said. “Its rate of rejecting agency rules is about 10 percent higher than the rate of rejection of agency rules in other circuits.”

Only one of the groups chose to file its lawsuit in a Washington federal court: the National Association of Fixed Annuities.

That lawsuit is already shaping up to be an unusual one: Less than a week after it was filed, an individual investment adviser unconnected with the lawsuit asked the court for permission to file a brief arguing that age and racial discrimination caused federal regulators to ignore his expert advice on these issues.

‘It's About Money.'

Andrew D.W. Hill, a registered investment adviser in Naples, Fla., characterized the lawsuits as an attempt by some segments of the financial industry to protect fat profit centers that do little to benefit individual savers.

“It's about money,” he told Bloomberg BNA June 9.

According to Hill, the department's rule will make it nearly impossible for advisers to continue selling certain variable annuities, which he said generate big profits and carry commissions as high as 7 percent. Hill said that these annuities are virtually never in clients' best interests because they offer no additional value beyond the underlying mutual funds contained in the annuity.

Hill supports the DOL rule and its effort to curb these practices.

“Obama has done a lot of things that have frustrated the heck out of me, but this may be the one thing he's gotten right,” Hill said.

Law Firms Litigating Against DOL

Gibson Dunn & Crutcher LLPBryan Cave LLP

McKenna Long & Aldridge LLP

Wilmer Cutler Pickering Hale & Dorr LLP

Thompson Coe Cousins & Irons LLP

Sidley Austin LLP

Carlton Fields Jorden Burt P.A.

Walters Bender Strohbehn & Vaughan P.C.

What's an Adviser to Do?

Greta E. Cowart, an employee benefits attorney in Winstead PC's Dallas office, said that entities subject to the DOL rule shouldn't look at these legal challenges as a reason to delay moving toward compliance in time for the April 2017 effective date.

“If a regulated entity does not make changes to become compliant and the litigation challenges do not succeed or get resolved by April 10, 2017, they may be in the position of giving up a segment of their business opportunities and potential revenues or risking being non-compliant with the resulting taxes on the prohibited transactions and the potential breach of fiduciary duty lawsuits,” Cowart told Bloomberg BNA in a June 9 e-mail.

According to Cowart, complying with the rule is likely to be a significant undertaking involving multiple steps, including: identifying the relationships subject to the rule and the compensation structures of those relationships; retraining advisers and customer service representatives; creating new documentation and record retention rules; and revising agreements and compensation structures.

“The short deadline to accomplish so much may have been intended to force some industries to change their practices in hopes that once changes were made, they would not revert to old ways if the litigation challenges do prove successful,” Cowart said.

Cowart isn't involved in any of the lawsuits.

Specific Allegations

Taken together, the lawsuits lob an impressive 28 legal claims against the DOL, the rule and the rule-making process. In addition to challenging the department's regulation of fixed income annuities, the lawsuits allege that the DOL:

•  exceeded its authority under the Administrative Procedure Act by adopting an expanded definition of the word fiduciary that contradicts existing law;
•  unlawfully created a private right of action that would allow individual lawsuits to proliferate without proper authorization from Congress;
•  didn't provide sufficient notice of certain of its decisions and didn't adequately consider the comments it received from industry players;
•  impermissibly extended fiduciary obligations under the Employee Retirement Income Security Act to individual retirement accounts;
•  violated the First Amendment's free speech protections by unduly restricting the speech of investment advisers;
•  violated the Due Process Clause by adopting an unduly vague regulation;
•  failed to consider the rule's effects, particularly on small businesses; and
•  unfairly disfavored certain retirement products without reasonable justification.

The Chamber of Commerce's lawsuit was filed June 1 in the U.S. District Court for the Northern District of Texas by Gibson Dunn & Crutcher LLP.

The National Association for Fixed Annuities' lawsuit was filed June 2 in the U.S. District Court for the District of Columbia by Bryan Cave LLP and McKenna Long & Aldridge LLP.

The American Council of Life Insurers' lawsuit was filed June 8 in the Northern District of Texas by Wilmer Cutler Pickering Hale and Dorr LLP and Thompson Coe Cousins & Irons LLP.

The Indexed Annuity Leadership Council's lawsuit was filed June 8 in the Northern District of Texas by Sidley Austin LLP.

Market Synergy Group Inc.'s lawsuit was filed June 8 in the U.S. District Court for the District of Kansas by Carlton Fields Jorden Burt P.A. and Walters Bender Strohbehn & Vaughan PC.

*For more information go to: www.BeverlyHillsEmploymentlaw.com