Hugs — Bearable or Unbearable?

Many will recall the famous tagline from Erich Segal’s novel and the subsequent movie, Love Story — “Love Means Never Having to Say You’re Sorry.” Within a few years, Procter & Gamble appropriated the phrase for its line of disposable diapers with “Huggies Means Never Having to Say You’re Soggy.” With the recent report from the New York Times that John Lasseter, the Pixar co-founder and animation wizard behind “Toy Story,” “Cars” and “Frozen,” will no longer be employed by the Walt Disney Company “following complaints about unwanted workplace hugging,” one must wonder whether the appropriate catchphrase in this era of #MeToo and Time’s Up is “Hugs Means Having to Say You’re Sorry.”

A close reading of the article about Lasseter shows that describing his behavior as simply involving hugs may be understating things. It was reported that he was known to greet anyone near him with “lengthy bear hugs.” Another quoted source reported that his recurring behavior included “grabbing, kissing and making comments about physical attributes.” Even so, complaints by employees about hugging in the workplace can leave employers and human resources personnel scrambling for guidance about behavior that many people find innocent and a normal part of day-to-day camaraderie and many others find offensive. Is some hugging acceptable? Do some hugs cross the line into sexual harassment? How should employers react to hugging in the workplace?

In the wake of the news about Harvey Weinstein, Mario Batali, Garrison Keillor, Matt Lauer and many others, employers are reviewing and dusting off their sexual harassment policies. A well-crafted policy generally explains that illegal sexual harassment includes conduct that has the purpose or effect of substantially interfering with an individual’s work performance or creating an intimidating, hostile, humiliating or offensive work environment. It may go on to list behaviors and conduct that are prohibited by the policy. The list may include:

• Lewd, off-color, or sexually oriented comments or jokes; grabbing, groping, kissing, or fondling; jokes, sarcasm, slurs or innuendo sex; intimidation; violating another’s personal space; catcall or wolf whistling; foul or obscene language; leering, staring, or stalking; sexually suggestive or lewd t-shirts, posters, calendars, photographs, graffiti, cartoons, or websites; wearing sexually suggestive or provocative clothing, unwanted or offensive letters or poems; sitting or gesturing sexually; harassing or offensive email, voice mail or text messages; sexually oriented or explicit remarks, including written or spoken reference to sexual conduct, gossip about one’s sex life, body, sexual activities, deficiencies or prowess; questions about one’s sex life or experiences; repeated requests for dates; requests for sexual favors in return for employment rewards; threats if sexual favors are not provided; sexual assault or rape; assault or battery motivated by the victim’s gender.

Notably absent from this list is “hugging.” The exclusion should not be understood, however, to mean that all hugging is acceptable. Rather, hugs must be construed within the context of the policy — is the hug interfering with an employee’s work performance or is it creating a hostile or offensive work environment? Has the hug crossed the line from a friendly greeting or gesture to one that is sexually charged or intimidating? The latter plainly is covered by the policy. Consider all the circumstances and the nature of the hug when evaluating whether it may constitute harassment.

When dealing with claims of sexual harassment, it is best not to lose sight of common sense. The law recognizes that for behavior to qualify as illegal harassment it must be objectionable to both the victim and a reasonable person. It also must be sufficiently severe or pervasive. An overly sensitive person cannot dictate the norms of the workplace and require the absence of behaviors that are perfectly acceptable to the reasonable person. A prudent employer, however, will recognize that some employees are simply uncomfortable with any physical interaction and instruct its employees not to hug those persons who say they do not like it or do not want to be touched.

And, it is wise to instruct supervisors not to hug their subordinates under any circumstances. Not only might supervisors’ hugs lead to claims of a hostile work environment, but also employees may believe that they have to submit to such hugs as a term or condition of employment or for favorable employment actions, such as promotion, desired work assignments, or pay increases. This may put the employer at risk for viable claims of quid pro quo harassment. Those claims may come from the victim of an intended hug, who resisted and did not receive a sought-for benefit. They may also come from other employees who were not the targets of hugs but allege that although qualified they did not receive a benefit provided to the willing target.

The sexual harassment policy should make clear that if one must question whether a comment or action, including hugging, will be deemed harassment and violate the policy, then they should consider it best not to make the comment or take the action. After all, there is never a need to say you’re sorry for a hug you did not give.

— Melanie S. Tuttle

Many well-intentioned people join nonprofit boards. They may share a passion with the nonprofit’s mission or they may have friends on the board. They may have been told, perhaps by a nominating committee member, that they will not have to do much, “It’s just a couple of meetings a year. No sweat.” Too often, they do not understand the role of nonprofit boards and what duties and responsibilities they, as board members, have as directors. The following is a brief summary — a cheat sheet, if you will — of corporate governance concepts for nonprofit directors:

Good board members monitor, guide and enable good management.

Duties of directors: Due care, loyalty and obedience

Duty of due care: A director must take the care and exercise the judgment that an ordinarily prudent person would use when making decisions. Directors who are acting with due care are attentive, diligent, thoughtful, active, informed and participating.

Duty of loyalty: A director must act in the best interests of the organization, to advance the organization’s interests and not the director’s private interest.

Interested directors must disclose their interest in a matter or transaction to the other directors and then recuse themselves from deliberations. The remaining directors must analyze the matter or transaction for fairness to the organization, consider alternatives, including obtaining competing bids, and document the review and process undertaken by the board in considering the conflict and matter or transaction.

A duty of confidentiality is an inherent part of the duty of loyalty.

Duty of obedience: A director must adhere to the organization’s mission, articles of incorporation, bylaws, and applicable laws, rules and regulations.

Good faith: A director has an overarching obligation to do what he or she truly and sincerely believes to be in the organization’s best interests.

Rights of directors: Directors have the right to information (e.g., financial and other corporate records), notice of meetings, adherence to quorum and unanimous consent requirements, and a record of their dissent.

Recap ­— How to avoid trouble as a director:

• Attend board meetings
• Adhere to articles of incorporation and bylaws
• Review meeting minutes and committee reports
• Promptly disclose any conflict of interest
• Ask that experts be retained as and when necessary
• Review the financial statements
• Review the IRS Form 990
• Insist on annual budgets, internal accounting systems and controls, and frequent financial reports
• Review audit reports and management letters prepared by independent auditors
• Foster an atmosphere of openness in the organization
• Insist on compliance with all applicable laws
• Beware of the one-person show

— Melanie S. Tuttle

“Governance shortcomings sometimes arise not because the organization lacks sound policies and procedures, but rather because it lacks an enforcer to make sure they are communicated, understood and followed – even at the cost of some personal embarrassment, discomfort, or disfavor with those in charge.”  

The above quote, from Good Counsel: Meeting the Legal Needs of Nonprofits by Lesley Rosenthal, was written with lawyers in mind, asserting that independent and effective counsel is important to good corporate governance of nonprofits. Many nonprofits, however, do not have general counsel or lawyers on their boards who will act as watchdogs, ensuring that corporate bylaws and policies, as well as applicable statutes, are followed. But lawyers are not essential to a board’s following good procedures; any board member may act as an enforcer. Indeed, it is each board member’s obligation to do so. Lacking legal counsel does not excuse directors from engaging in good governance practices.

Nonprofit board members are fiduciaries, owing several duties to their organizations – the duty of care, the duty of loyalty and the duty of obedience – all while acting in good faith. The duty of due care requires the director to take the care and exercise the judgment that a reasonably prudent person would use when making decisions. Directors must be informed, ask questions, participate in deliberations, and exercise judgment. Key words to describe a board member who is acting with due care include attentive, diligent, thoughtful, active, informed, and participating.

Directors meet their duty of loyalty by acting in the best interests of the organization. They work to advance the organization’s interests and not their own private interests. They recognize conflicts of interest and deal with them openly and appropriately. The duty of obedience requires that the directors adhere to the organization’s mission, articles of incorporation, bylaws, and applicable laws, rules and regulations. All directors should have copies of their organization’s mission statement, articles and bylaws. They should be well acquainted with their contents. Without such knowledge, it can only be by happenstance that compliance is achieved.

All too often, a board will take on as a project the updating of its organization’s bylaws, and then put the bylaws away in the drawer to be neither consulted nor followed. The board may believe that it has done a good job because it has updated its bylaws – it has checked the box for having performed a governance review. This, however, is insufficient. The bylaws are the board’s road map for how it is to govern itself and the organization. They provide no direction or instruction if they remain in the glove compartment.

The nonprofit’s bylaws set forth many items that boards must consider and adhere to on an ongoing basis, such as requirements for calling, holding and giving notice of meetings, quorum and vote requirements, elections, officers, committees, term limits, and acting outside of meetings. Without knowing, understanding and following the bylaws, directors may be unaware that committees have been improperly formed and hence are without authority to act, or an executive director has been hired without the approval of the board of directors, or a meeting was not properly called or noticed and therefore any action taken at the meeting may be invalid, or too few directors were present at a meeting to take action, or an action taken by majority vote by email does not constitute valid board action. I have seen boards in these types of situations and others without any awareness that there were problems with proceeding.

I have acted as the enforcer, which is welcomed by most boards but, unfortunately, not all. As a corporate lawyer, the role of enforcer comes easily to me. I may play the role as outside counsel or as a board member. Where the enforcer is welcome and listened to, policies and procedures are followed or reevaluated or both. Boards at which an enforcer is not welcome, however, have serious governance work to do. One or more members of those boards must step up, be involved and diligent, and work to ensure that its organization’s policies and procedures are understood and followed. That stepping up is inherent in the director’s fiduciary duties. If the enforcing director’s efforts are ignored, the director may wish to consider resigning from the board of directors.

A director who is truly fulfilling his or her fiduciary obligations to the organization will necessarily become the enforcer mentioned in the above quote, ensuring that the organization’s policies and procedures are followed. A thoughtful, diligent, and informed director who is attentive to the nonprofit’s policies and procedures and who puts the interests of the nonprofit ahead of his or her own will provide untold value to the organization. If all directors are acting with due care, in good faith and in the best interests of the organization, and in accordance with the organization’s governing documents, no one director need suffer embarrassment, discomfort, or disfavor with fellow directors or others when speaking up to ensure compliance.

— Melanie S. Tuttle

Schedules are busy; time is short. You serve on the board of directors for your favorite charity, your friend’s business or another corporation that has sought your expertise. You cannot make it to an important upcoming meeting but you want to make sure that there is a quorum and your vote counts. You decide to give another director your proxy or a power of attorney to vote in your place. Problem solved, you think. Unfortunately, the problem is not solved and too many directors and corporate boards – whether for-profit or nonprofit – are not aware that they may be taking actions without appropriate authority.

It is a basic tenet of corporate law that a board member may not give his or her proxy to another person, including a fellow director, to appear and vote in his or her place. The rule is grounded in a director’s duties of due care and loyalty to the corporation and obligation to act in good faith. These duties are personal to the director and may not be delegated to another. Although a director may seek out, consider and rely on the reports and opinions of experts and others, he or she may not ask another to vote for him or her.

In North Carolina, that rule is supported by language contained in provisions of both the corporation and nonprofit corporation statutes. Directors may act in only one of two ways: in a meeting or not in a meeting. There is no hybrid of the two. A meeting may be conducted through the use of any means of communication that permits the participating directors to simultaneously hear one another. This means in a face-to-face meeting, telephone conference call, Skype, or other teleconference. A director who is not there cannot hear the other directors and therefore cannot be said to be participating in the meeting.

Directors who are acting outside of a meeting – meaning they are acting by a means that does not permit them to simultaneously hear each other – must do so by unanimous written consent. Email actions require the affirmative response of each and every board member. Without unanimity, the action fails. The action of a majority of directors is insufficient, notwithstanding the usual comment, “well, majority rules.” Unanimity is required because the directors are not afforded the benefits of deliberative interaction and possible airing of dissenting views in real time that are inherent in a meeting.

At times, a board of directors must act quickly and there is no certainty that all the directors will respond to an email request for approval in a timely manner. This is a situation where an executive committee of the board may be useful. The committee may be authorized to act between board meetings with the full authority of the board. As long as the executive committee has a quorum at its meeting or acts by unanimous written consent and the action does not, by its nature, require full board action and approval, the executive committee may act on behalf of the board. It should report its actions to the other directors at the next board meeting.

Another, albeit risky, alternative taken by some boards is for the action to be taken on the basis of the consents of a majority of the directors, followed by approval and ratification by the board at its next meeting. Why risky? At the ensuing meeting, directors who already indicated their consent to the action may have their minds changed by the dissenting views of their persuasive fellow directors or subsequent events and information that was not available earlier. What was thought to be majority support for the action may evaporate after the action was already taken. At that point, the board may best resemble Wile E. Coyote in mid-air just off the cliff, with nothing but churning legs working to keep him from the canyon floor below.

If your board must take action quickly, has no committee authorized and available to act on the matter, and is unable to muster affirmative consents in writing from all of its directors, it is best to call a board meeting promptly and work to make sure that a quorum will be in attendance. Make it easy for your directors to attend by setting up a conference call or other communications method that permits them the ability to hear one another at the same time. Do not, however, accept the notion that an absent member voted earlier or is represented by proxy held by someone else. That, like Wile E. Coyote, will not fly.

— Melanie S. Tuttle

Nonprofit employees are oftentimes considered different from their for-profit counterparts. For the sake of the mission of their nonprofit, employees may work longer hours, for less pay, and with greater responsibilities. Budgets are thin at many nonprofits. In too many cases, those thin budgets and perceived differences between nonprofit and for-profit businesses translate into a misunderstanding of the fact that federal and state employment laws generally apply equally to both for-profit and nonprofit organizations. The nonprofit’s mission and limited funds do not override its obligation to comply with applicable employment laws, including minimum wage and overtime pay requirements. And those overtime requirements have just been made more onerous for many small businesses and nonprofits.

The federal Department of Labor recently adopted under the Fair Labor Standards Act a new rule, which updates the salary level required for the so-called white-collar exemptions and becomes effective on December 1, 2016. Although a number of nonprofits and employees in many states will not be affected by the new rule, all nonprofit corporations in North Carolina will have to comply.

Why such a result in North Carolina? Where the Fair Labor Standards Act covers enterprises – those organizations with at least $500,000 in annual revenues – or employees who are engaged in interstate commerce or in the production of goods for interstate commerce, the North Carolina Wage and Hour Act applies to all employers in North Carolina, including nonprofits, and its white-collar exemptions are taken directly from the Fair Labor Standards Act. Therefore, a nonprofit corporation in North Carolina with less than $500,000 in revenues must comply with the new federal rule even if some or all of its employees are not engaged in interstate commerce.

What does the new rule do? It increases the salary level under which most white-collar workers are entitled to overtime from $455 per week ($23,660 per year) to $913 per week ($47,476 per year). The other requirements to qualify for a white-collar exemption from overtime pay requirements are unchanged. In addition to meeting the salary level test, executive, administrative and professional employees must be paid on a salary basis and must meet a duties test to be exempt. Salaried workers who do not primarily perform executive, administrative or professional duties are not eligible for the white-collar overtime exemption. The new rule also raises the minimum annual compensation level for highly compensated employees, who are subject to a less stringent duties test, from $100,000 to $134,004. Last, it establishes a mechanism for updating the salary and compensation levels every three years, commencing in 2020.

What can a nonprofit do to insure compliance with the new rule? There are a number of options available to nonprofits and other employers:

• Make No Changes. The employer should review the hours worked by its white-collar employees to determine which, if any, work more than 40 hours in a week. Otherwise exempt employees making more than $47,500 per year are unaffected by the rule no matter the number of hours they work. Employees who do not work overtime will not be affected by the new rule even if they do not make more than the minimum salary level of $913 per week. For example, a manager paid a fixed salary of $40,000 per year may continue to be paid on that basis. Even though the manager is not exempt from the overtime pay requirements, if the manager works no overtime, there will be no overtime amounts payable.

• Raise Salaries. The employer may opt to raise the salaries of its employees who meet the duties tests, whose salaries are close to the new salary level, and who typically work overtime, to a level at or above the new level to maintain their exempt status.

• Pay Overtime. The employer may continue to pay newly overtime-eligible employees a salary and pay overtime for hours worked in excess of 40 in a week. The new rule does not require that salaried employees making less than $913 per week be converted to hourly pay status. There are various ways of paying overtime above a salary, including paying a salary for 40 hours per week and overtime for hours in excess of 40 or, for employees who regularly work more than 40 hours weekly, paying a salary based on more than 40 hours per week and overtime for hours over 40, with those overtime hours already included within the salary being compensated at an additional half time premium and those hours beyond those included in the salary compensated at time and a half.

An employer and employee may also agree to a fixed salary for workweeks in excess of 40 hours; the salary includes overtime compensation. However, the salary must be adjusted to reflect the actual hours worked in the week. Employers and employees may also reach agreement for the payment of a fixed salary in the event of fluctuating workweeks. Such arrangements are valid only where the salary is designed to cover both short and long weeks.

As noted, overtime-eligible employees may be paid a salary. The employer must, however, pay overtime compensation and keep appropriate tracking records to ensure that hours worked are paid at the proper rates.

• Reorganize Workloads, Adjust Schedules, or Reallocate Work Hours. An employer may choose to reorganize its employees’ workloads or adjust employee schedules to avoid the necessity of paying overtime. For example, employees who start work at 8 in the morning but must be at work late in the day may have their schedules readjusted to start later in the day. Additional employees may be hired or work reallocated to employees who typically work less than 40 hours per week.

• Adjust Wages. An employer can adjust the amount of an employee’s earnings to reallocate it between regular wages and overtime so that the total amount paid to the employee remains largely the same. The employer may not, however, reduce the employee’s regular wage to a level below the minimum wage or adjust wages frequently to manipulate the regular rate.

What about getting more volunteer help? Some nonprofits may look to volunteers to mitigate some of the overtime burden imposed by the new rule. Some may seek to have their paid employees also serve as unpaid volunteers. Although, and unlike their for-profit counterparts, nonprofit organizations have some latitude to use volunteers, certain conditions must be met. Failure to satisfy these conditions could cause volunteers to be classified as employees, subject to the minimum wage and overtime laws as well as other laws protecting employees.

The risk of violating federal and state wage and hours laws is high. An unpaid or improperly paid employee may be awarded back pay, including overtime pay, and the employer may be subject to fines under federal law. North Carolina courts are required under the state wage and hour laws to assess an award of double back pay to employees who prevail on a claim that their employer intentionally failed to pay them wages due. Nonprofits should tread carefully when enlisting volunteer help.

To satisfy the wage and hour laws, volunteers must give their time freely for civic, religious, charitable or humanitarian objectives. They generally serve on a part-time basis and must perform their work without compensation or the expectation of compensation. They should not displace employees or perform work that is or would otherwise typically be performed by employees. In other words, a nonprofit may not avoid the new rule and its overtime pay requirements for executive, administrative or professional employees who do not receive the requisite salary level by off-loading their responsibilities or duties to volunteers.

Looking to the nonprofit’s current employees as a source of volunteer hours also poses significant issues. Nonprofit employees may not volunteer to provide for free the same or similar types of services to their nonprofits that they are typically paid to provide. Also,nonprofits may not request or require employees to perform volunteer work during their normal working hours, even if the requested duties differ from their regular job responsibilities. Whether the nonprofit employee – committed to the organization’s mission — wants to work “off-the-clock” is irrelevant.

What should a nonprofit do now? Nonprofits that have not yet started to prepare for the new rule should begin immediately. Here are suggested steps:

• Evaluate which employees will no longer meet the minimum salary level and determine how much overtime they typically work.

• Evaluate each employee’s job description to determine whether the duties test for a white-collar exemption is satisfied.

• Determine what steps will be taken to ensure compliance with the new rule, considering the actions described above, such as raising salaries, wage adjustment, paying overtime, reallocating work, etc. Some employees may be reclassified as non-exempt and will be entitled to overtime; they may continue to be paid a salary.

• Review or implement time-tracking systems to ensure that all working hours are appropriately captured and paid. Such systems may already be in place for the organization’s current non-exempt employees.

• Communicate any changes to the employees.

The increase in the salary level for the white-collar exemptions will have a significant impact on many businesses, particularly small nonprofits. The new rule will be effective on December 1, 2016 and the risk of noncompliance is high. If they have not already done so, organizations must begin now to review and evaluate all categories of their white-collar employees to determine who will be affected by the rule change and how best to comply.

— Melanie S. Tuttle