In November 2022, the world of employment law saw notable employee compensation cases – ranging from the compensation of the world’s richest executive down to local fast food service employees – and more ugly workplace allegations coming out of the NFL.  Read the latest in the updates below.

Tesla shareholder lawsuit examines Elon Musk’s unprecedented Tesla pay package

In 2018, EV automaker Tesla awarded Elon Musk a compensation package of stock options that helped secure his title as the world’s richest person.  Today, the package is worth approximately $50.9 billion, and is now being challenged in a shareholder lawsuit filed in the Delaware Court of Chancery that alleges that it was the product of Musk’s exploiting his control of Tesla and its board of directors.  The lawsuit alleges that the pay package was unjust enrichment, and that the board failed to meet its legal duty to act in the best interest of Tesla shareholders.

Among other things, the lawsuit alleges that Musk secured the compensation to fund his personal ambition to colonize Mars through another company of which Musk is CEO, SpaceX, and that the pay package was not needed to incentivize Musk as he was already the largest shareholder of Tesla.  According to expert for the shareholder plaintiff, the Tesla board was not sufficiently independent from Musk, citing instances of personal friendship, vacationing together, and a lack of oversight of Musk notwithstanding Musk’s skirmishes with the SEC over issues such as tweeting about the financial condition of the company.  By contrast, an expert witness testified on behalf of Tesla that the compensation package was reasonable, while the Tesla Board members testified that the compensation was necessary to keep Musk engaged, noting that Musk has ideas for many other companies he may want to pursue in time.  

Although the trial took place this month, the court cautioned that it could be months before a ruling occurs.  Regardless of the outcome, given the high profile of the case, it will likely create significant precedent in the field of executive compensation, and also serve as a reminder of the many complex components involved in establishing executive compensation packages.

Pennsylvania Wendy’s Franchise Owners Alleged to have Edited Timesheets to Short Their Employees Full Wages and Overtime Pay

The owners of approximately a dozen Wendy’s franchise locations in Pennsylvania have been sued in a federal class action lawsuit for allegedly incorrectly compensating their non-exempt (hourly wage) employees by improperly editing the employees’ time sheets to omit hours worked, including regular hours as well as hours in excess of 40 hours subject to overtime pay.  If the allegations prove correct, the conduct would constitute a violation of both the federal Fair Labor Standards Act and the Pennsylvania Minimum Wage Act.  Both laws require employers to properly track hours worked by nonexempt employees as well as to pay at least 1.5 times the employee’s regular rate of pay for all hours over 40 worked in a workweek.  The proposed classes under the federal and state laws consist of individuals who worked for the Wendy’s franchisors as nonexempt employees in the past three years.  The action serves as a reminder to employers that any practice that applies broadly to a class of employees must be carefully and lawfully vetted and administered, and that failure to do so can lead to widespread legal actions from many employees with significant legal exposure.

The case is Stump v. Harrisburg LIV Bacon LLC et al., case number 1:22-cv-01770, in the U.S. District Court for the Middle District of Pennsylvania.

Washington D.C. Attorney General sues the NFL and Washington Commanders for allegedly misleading the Public over Toxic Workplace

In an unusual twist following a year-long investigation into allegations that the NFL’s Washington Commanders franchise fostered a toxic workplace, the Washington D.C. Office of Attorney General is using the findings of the investigation to support a lawsuit against the NFL, its commissioner Roger Goodell, the Washington Commanders, and Washington team owner Daniel Snyder, alleging violations of the D.C. Consumer Protection Procedures Act.  The D.C. law requires businesses selling goods or services to District residents to comply with consumer protection laws, including consumers’ right to accurate information about the products they purchase. The lawsuit claims that the league and the team have profited off their connection to Washington, D.C. for years by selling tickets and memorabilia to residents bolstered by lying about the team’s knowledge of the alleged environment of perpetual sexual harassment as well as the team’s willingness to comply with the league-led investigation.  According to outgoing Attorney General Karl Racine, the lawsuit will pursue statutory fines of $5,000 for each false statement made by Goodell, Snyder, the Commanders or the NFL.

The lawsuit comes on the heels of $10 million fine implemented by Goodell in 2021 following the investigation’s findings that the team enabled a toxic workplace culture that included bullying and sexual harassment of female employees, particularly the team cheerleaders.  The instances of inappropriate conduct highlighted in the investigation included “parading” the cheerleaders around for team executives, Snyder allegedly ordering the filming the cheerleaders during a photo shoot during breaks without their knowledge, and Snyder allegedly putting his hand on the thigh of a cheerleader during a dinner and trying to pull her into his limo afterwards.  

Both the NFL and the Commanders have issued statements attacking the lawsuit.  According to the Commanders, the “lawsuit repeats a lot of innuendo, half-truths and lies”, and the organization welcomes the “opportunity to defend the organization…and to establish, once and for all, what is fact and what is fiction”.  The NFL pushed back, stating that the “investigation into workplace misconduct …was thoroughly and comprehensively conducted” and that “[f]ollowing the completion of the investigation, the NFL made public a summary of [the] findings and imposed a record-setting fine against the club and its ownership.”

The lawsuit represents a creative use of consumer protection laws.  If successful, it could open the door to similar lawsuits against other large companies alleged to have mislead the public about allegations of misconduct in their workplace.

Jeff Burke is an attorney at MacElree Harvey, Ltd., working in the firm’s Employment and Litigation practice groups. Jeff counsels businesses and individuals on employment practices and policies, executive compensation, employee hiring and separation issues, non-competition and other restrictive covenants, wage and hour disputes, and other employment-related matters. Jeff represents businesses and individuals in employment litigation such as employment contract disputes, workforce classification audits, and discrimination claims based upon age, sex, race, religion, disability, sexual harassment, and hostile work environment.  Jeff also practices in commercial litigation as well as counsels business on commercial contract matters.

The IRS has released numerous inflation adjustments affecting individual income tax brackets, deductions and credits for the 2023 tax year.  Due to outrageous inflation during 2022 increases in the various adjustments is very large.

For instance, the standard deduction for a married couple filing a joint tax return will increase to $27,700.00 in 2023 from $25,900.00 in 2022.  For singles and couples and filing separately it will rise to $13,850.00 from $12,950.00 and for a head of household it will rise to $20,800.00 from $19,400.00.

Also, the various tax brackets all will be increasing by approximately 7%.  In that regard, I have attached a chart showing all of the new brackets for ordinary income in 2023.  

Inflation also means that individuals will be able to transfer more to their heirs tax-free during life or upon death.  Starting in 2023, you will now be able to give $17,000.00 in gifts not utilizing your lifetime gift and estate tax exemption for paying gift tax.  That amount was $16,000.00 in 2022.  Also, the lifetime exemption will be increasing to $12,920,000.00 in 2023 up from $12,060,000.00 in 2022.  That is an increase of $860,000.00 that an individual can leave to their heirs without incurring any federal estate taxes.  However, please note that the exemption is due to expire by the year 2026 and in the event a taxpayer would like to utilize this exemption it is imperative that they do so before then.

Married Individuals Filing Jointly and Surviving Spouses (Joint) Tax Rates 2023

If taxable Income Is The Tax Due is

$0 – $22,000 10% of taxable income

$22,000 – $89,450 $2,200 + 12% of the amount over $22,000

$89,450-$190,750 $10,294 + 22% of the amount over $89,450

$190,750 – $364,200 $32,580 + 24% of the amount over $190,750

$364,200 – $462,500 $74,208 + 32% of the amount over $364,200

$462,500 – $693,750 $105,664 + 35% of the amount over $462,500

over $693,750 $186,601.50 + 37% of the amount over $693,750

Heads of Household Tax Rates 2023

If taxable Income Is The Tax Due is

$0 – $15,700 10% of taxable income

$15,700 – $59,850 $1,570 + 12% of the amount over $15,700

$59,850-$95,350 $6,868 + 22% of the amount over $59,850

$95,350 – $182,100 $14,678 + 24% of the amount over $95,350

$182,100 – $231,250 $35,498 + 32% of the amount over $182,100

$231,250 – $578,100 $51,226 + 35% of the amount over $231,250

over $578,100 $172,623.50 + 37% of the amount over $578,100

Individual Taxpayers (Single) Tax Rates 2023

If taxable Income Is The Tax Due is

$0 – $11,000 10% of taxable income

$11,000 – $44,725 $1,100 + 12% of the amount over $11,000

$44,725-$95,375 $5,147 + 22% of the amount over $44,725

$95,375 – $182,100 $16,290 + 24% of the amount over $95,375

$182,100 – $231,250 $37,104 + 32% of the amount over $182,100

$231,250 – $578,125 $52,832 + 35% of the amount over $231,250

over $578,125 $174,238.25 + 37% of the amount over $578,125

Married Filing Separately Tax Rates 2023

If taxable Income Is The Tax Due is

$0 – $11,000 10% of taxable income

$11,000 – $44,725 $1,100 + 12% of the amount over $11,000

$44,725-$95,375 $5,147 + 22% of the amount over $44,725

$95,375 – $182,100 $16,290 + 24% of the amount over $95,375

$182,100 – $231,250 $37,104 + 32% of the amount over $182,100

$231,250 – $346,875 $52,832 + 35% of the amount over $231,250

over $346,875 $93,300.75 + 37% of the amount over $346,875

Trusts & Estates Tax Rates 2023

If taxable Income Is The Tax Due is

$0 – $2,900 10% of taxable income

$2,900 – $10,550 $290 + 24% of the amount over $2,900

$10,550-$14,450 $2,126 + 35% of the amount over $10,550

over $14,450 $3,491 + 37% of the amount over $14,450

 

If you need any additional information in regard to the 2023 IRS inflation adjustments, please contact Joseph A. Bellinghieri, Esquire at 610-840-0239 or via email at [email protected].

The June 2022 employment law update addresses the potential impacts on employers of the Supreme Court’s June 24 decision overruling Roe v. Wade.

Even with the leak of a draft opinion this May, the release this past Friday of the Supreme Court’s decision in Dobbs v. Jackson Women’s Health came as a shock to many.   In Dobbs, the Supreme Court approved 6-3 a Mississippi law banning most abortions after 15 weeks, and in a 5-4 opinion held that Roe was wrongly decided and that the U.S. Constitution does not provide a right to abortion.  The ruling, in effect, gives states far greater ability to impose restrictions on the procedure or to impose outright bans, and the legal landscape is already changing.  13 states had in place “trigger bans,” designed to take effect if Roe were struck down, other states acted to ban abortions the day the opinion was released, and still other states are expected to act based upon their historical position on the issue. By contrast, in many other states the political demographics and existing legislation suggest that the legality of abortion is not likely to change.

Dobbs leaves employers facing numerous questions.  Most notably, from a health insurance standpoint, employers will need to examine what kind of plan the company offers, as this could impact the degree to which new state laws restricting abortions could apply.  Notably, in fully insured plans, where employers purchase insurance through a commercial provider subject to state regulation, new state regulations will likely impact what plans do and do not cover.

For self-funded plans where an employer assumes financial risk for providing care to its workers, the Employee Retirement Income Security Act (ERISA) federal preemption provisions may apply and, therefore, block the application of state insurance laws that might restrict access to abortion.  However, ERISA generally preempts state laws that “relate to” an ERISA plan but does not preempt “generally applicable” state laws, such as criminal laws. Some states have laws that criminalize abortion, while others, such as Oklahoma and Texas, have state laws imposing civil penalties on any person or entity that “aids or abets” an abortion procedure.  Such laws could be used to target employers who, for example, provide workers reimbursement to travel to a jurisdiction where the procedure is legal.  The issue (and nuances) of ERISA preemption may take years to be litigated, and in the interim employers should be cognizant of the risks of potential legal action if they want to keep abortion access in states with bans.

Another issue is whether the company, or employees, can (or should) voice their opinions either in favor or against the ruling.  To some degree, this would be a public and employee relations question.  From a legal standpoint, although the First Amendment right to free speech generally does not extend to the private workplace, employee expression can be covered by other protections.  This includes Title VII of the Civil Rights Act, which bars discrimination based on religion, and the National Labor Relations Act, which protects employees’ ability to discuss the terms and conditions of their employment.  Therefore, review and potentially updating policies in areas such as social media and dress code may be beneficial for employers in order to address concerns over activism or things like wearing political t-shirts or buttons to work.

Ultimately, employers would be wise to think through the potential impacts of the Dobbs decision on their business now so that they are prepared to handle the issues that arise in the new legal landscape.

Jeff Burke is an attorney at MacElree Harvey, Ltd., working in the firm’s Employment and Litigation practice groups. Jeff counsels businesses and individuals on employment practices and policies, executive compensation, employee hiring and separation issues, non-competition and other restrictive covenants, wage and hour disputes, and other employment-related matters. Jeff represents businesses and individuals in employment litigation such as employment contract disputes, workforce classification audits, and discrimination claims based upon age, sex, race, religion, disability, sexual harassment, and hostile work environment.  Jeff also practices in commercial litigation as well as counsels business on commercial contract matters.