Paula Lopez, May 29, 2018.
The United States Supreme Court, in a 5-4 decision written by Associate Justice Neil Gorsuch, resolved a split in the circuits over the enforceability of class action and collective action waivers contained in employee arbitration agreements by holding that arbitration agreements containing class action waivers are enforceable and not in violation of the National Labor Relations Act (“NLRA”). The Supreme Court decision, Epic Systems Corp. v. Lewis, addresses appellate decision in the following three cases:
NLRB v. Murphy Oil USA Inc. (No. 16-307), a collective action against Murphy Oil USA Inc., for alleged violations of the Fair Labor Standards Act (FLSA). The district court dismissed the collective action and compelled arbitration enforcing class action waivers contained in the arbitration agreement signed by the plaintiffs-employees. The U.S. Circuit Court of Appeals for the Fifth Circuit affirmed the dismissal and rejected the National Labor Relations Board’s (“NLRB”) argument that the NLRA bans class-action waivers in arbitration agreements.
Epic Systems Corp. v. Lewis (No. 16-285), a wage and hour collective action against Epic Systems, a healthcare software company, alleging that the employer misclassified technical writers as exempt in violation of FLSA. The district court denied the employer’s motion to compel arbitration in accordance with the procedural terms of the employee arbitration agreements and the U.S. Circuit Court of Appeals for the Seventh Circuit affirmed the denial of the motion.
Ernst & Young LLP v. Morris (No. 16-300). A collective action claiming Ernst & Young misclassified employees to deny overtime wages in violation of the FLSA. The U.S. Circuit Court of Appeal for the Ninth Circuit held that the employer violated the NLRA by requiring employees to sign an arbitration agreement preventing them from bringing class and collective actions.
Justice Gorsuch rejected the two main arguments raised by the NLRB’s legal counsel, unions, and employees that the (i) saving clause in the Federal Arbitration Act (“FAA”) precludes the enforcement of class action waivers, and that (ii) Section 7 of the NLRA that affords employees the right to engage in concerted activity prohibits the inclusion of class-action waivers in arbitration agreements. With regard to the “saving clause” argument, Justice Gorsuch recognized that the FAA’s saving clause “allows courts to refuse to enforce arbitration agreements ‘upon such grounds as exist at law or in equity for the revocation of any contract.’” Long-standing precedent has widely interpreted this provision to limit the invalidation of arbitration agreements to instances that would allow the invalidation of any contract, such as “generally applicable contract defenses [of] fraud, duress, or unconscionability’.” Those defenses are not triggered by the inclusion of class-action and collective action waivers in employment arbitration agreements.
In holding that Section 7 of the NLRA does not override the FAA’s mandate of enforcing arbitration agreements as written, the majority decision relied on well-settled statutory interpretation principles. In the decision, Justice Gorsuch stated that “[w]hen confronted with two Acts of Congress allegedly touching on the same topic, the Court is not at ‘liberty to pick and choose among congressional enactments’.” The majority further found that the NLRB did not meet its burden of showing “a clearly expressed congressional intention” that the NLRA displaces the FAA. The Court also emphasized that Section 7 of the NLRA was enacted long before the class-action procedure and the FLSA’s collective-action provision existed. Moreover, there is nothing in the NLRA that disapproves of arbitration. Therefore, it is unlikely that Congress enacted Section 7 of the NLRA with the intent of endorsing or disapproving class action waivers or to limit the enforceability of arbitration agreements under the FAA.
Justice Ginsburg wrote the dissenting opinion and warned that the majority’s ruling would have a detrimental effect on the rights of employees to act collectively in enforcing their rights under the FLSA. By enforcing class and collective action waivers in arbitration agreements, employees will be dissuaded from bringing individual claims against employers for violating wage and hour laws, where the cost of bringing such claims may be greater than the recovery. Likewise, Justice Ginsburg warned that some employers “will no doubt perceive that the cost-benefit balance of underpaying workers tips heavily in favor of skirting legal obligations,” and called on Congress to take action.
The Supreme Court’s decision has been lauded as a win for employers. Employers who include class and collective action waivers in their employee arbitration agreements will have the cost benefit of arbitrating a single party’s claims and limiting its exposure of liability to a single employee’s claims as opposed to a class of plaintiffs. However, individual arbitrations will not resolve disputes class-wide and employers run the risk of having to litigate identical claims on an individual basis and ending up with inconsistent arbitration decisions. Therefore, employers interested in incorporating such waivers in their employment arbitration agreements should consider the benefits and disadvantages associated with their enforcement based on the nature of the claims being asserted by the employees.
Nicholas Fortuna, April 24, 2018
The United States Court of Appeals for the Ninth Circuit ruled unanimously on April 9, 2018 that employers cannot justify different pay for male and female employees by using salary history alone, overturning three decades of circuit case law. U.S. Circuit Judge Stephen Reinhardt wrote the decision in Rizio v. Yovino for an en banc court in one of his final opinions before his death in March.
Aileen Rizo, a math consultant for the Fresno County Office of Education, argued that a male new hire with less experience made more than she did in violation of the Equal Pay Act. The disparity in pay was based on her salary history.
The policy of Fresno County Superintendent of Schools at the time was to add five percent to previous salaries of all new hires. Fresno County asserted that the policy was gender neutral and was applied to more than 3000 employees over 17 years and had no disparate impact on female employees.
The Equal Pay Act states that men and women should receive equal pay for equal work regardless of sex. Under the Act, an employer can excuse gaps in pay between men and women performing the same work if those gaps are based on a “factor other than sex.” Because Fresno schools’ policy perpetuates existing pay differences between men and women, the court said it violates the law. The court further stated that “it is inconceivable that Congress, in an act the primary purpose of which was to eliminate long-existing ‘endemic’ sex-based wage disparities, would create an exception for basing new hires’ salaries on those very disparities – disparities that Congress declared are not only related to sex but caused by sex.” To hold otherwise, the court said, “would be to perpetuate rather than eliminate the pervasive discrimination at which the act was aimed.”
Confusingly, the court backtracked a bit on a blanket rule that salary history cannot be used by stating in the opinion that it did not decide “whether or under what circumstances past salary may play a role in the course of individualized negotiation.” The question as to what happens in negotiations and how salary history may be used was left to other courts to sort out. The answer may be as simple as that salary history can be used to establish the salary of new hires if it does not result in a wage gap between men and women.
The Fresno County plans to appeal to the Supreme Court. The situation is ripe for Supreme Court review because the circuit courts are split on whether employers are permitted to rely on salary history in justifying wage differences under the Equal Pay Act. The Ninth, Tenth and Eleventh Circuits have found that employers cannot use salary history; the Seventh and Eighth circuits have found the opposite. A Supreme Court decision in this case will resolve the split among the courts.
In the interim, employers should use salary history to negotiate the wage of new hires in a manner that does not result in a wage gap between men and women.
Nicholas Fortuna, March 7, 2018
The Second U.S. Circuit Court of Appeals ruled last week that Title VII of the Civil Rights Act of 1964’s prohibition against sex bias in the workplace also prohibits discrimination against gay employees, becoming the second federal appellate court to do so. The case was first decided by a three-judge panel of the Circuit Court and then reargued at a rare en banc hearing – before all the judges of the court. The three-judge panel ruled against extending Title VII’s reach to include sexual orientation and the full court reversed. The decision creates another avenue to bring the issue back to the U.S. Supreme Court, which declined to hear a similar case last year.
The 10-3 ruling by the Second Circuit came in the case Zarda v. Altitude Express. The employer, Altitude Express, dismissed a sky-diving instructor, David Zarda, in 2010. While Mr. Zarda was preparing for a tandem sky-dive with a female student, he told her that he was “100 percent gay.” Her boyfriend later complained to the school about the comment.
Mr. Zarda said he had made the remark to soothe the woman, who seemed uncomfortable with being so tightly strapped to him during the dive. Mr. Zarda filed a lawsuit, claiming that his firing violated Title VII. Two courts in New York, including a three-judge panel of the Second Circuit, ruled against him.
The majority opinion, written by Chief Judge Robert Katzmann, acknowledged that the view of the law around the issue had changed. Last year, the Seventh Circuit issued a decision in favor of sexual orientation protections in the workplace under Title VII.
Also, while Zarda’s claims were pending, the EEOC decided Baldwin v. Foxx, holding that “allegations of discrimination on the basis of sexual orientation necessarily state a claim of discrimination on the basis of sex.” The EEOC identified three ways to describe what it called the “inescapable link between allegations of sexual orientation discrimination and sex discrimination.” The specific examples the EEOC provided to illustrate this point were: (1) suspending a female employee for displaying a photo of her female spouse while not suspending a man for displaying a photo of his female spouse; (2) an employee alleging discrimination on the basis of sexual orientation because her employer treated her differently for associating with a person of the same sex; (3) and, discrimination based on “gender stereotypes,” most commonly “heterosexually defined gender norms.” Zarda unsuccessfully attempted to get the district court to rely on the EEOC’s decision in Baldwin to support his Title VII claims.
Chief Judge Katzman wrote that the determinative inquiry is whether an employee’s sex is necessarily a motivating factor in discrimination based on sexual orientation. The Court found that sexual orientation is a sex-dependent trait and sexual orientation discrimination will be considered “a subset of actions taken on the basis of sex,” and subject to protections under Title VII.
Accordingly, the legal framework in this Circuit for evaluating Title VII claims has evolved substantially. Traits that operate as a proxy for sex are an impermissible basis for disparate treatment of men and women. Discrimination based on sex stereotypes and association with the same sex are prohibited in the workplace.
The issue of sexual orientation discrimination has gotten enough traction to warrant intervention by the Supreme Court. If for no other reason, then to resolve the differing opinions issued by the Courts of Appeals. In the meantime, employers covered by the Second Circuit (New York, Connecticut, and Vermont) should update their policies and practices to ensure compliance with this decision.
Nicholas Fortuna, February 8, 2018
On January 29, 2018, the United States Court of Appeals for the District of Columbia sent the appeal of The Daily Grill, a restaurant chain, back to the National Labor Relations Board (NLRB) for reconsideration of its decision that the chain’s workplace rules violated federal law.
In the matter of the Boeing Co., the NLRB established a new standard governing workplace rules and policies in December 2017. In that case, the employer, the Boeing Company had a rule that prohibited employees from using camera-enabled devices to capture images or video without a valid business need and a company approved camera permit. Under the old standard, established in 2004 in the case of Lutheran Heritage, Boeing’s no-camera rule would have been unlawful. In Lutheran, the NLRB found that employers violated the National Labor Relations Act (NLRA) by maintaining workplace rules that would be “reasonably construed” by an employee to prohibit the exercise of NLRA rights.
In place of the Lutheran Heritage “reasonably construe” standard, the NLRB in the Boeing case established a balancing test for evaluating a facially neutral policy, rule or handbook provision. It will look at (i) the nature and extent of the potential impact on NLRA rights, and (ii) legitimate justifications for the rule. When legitimate justifications outweigh a rule’s potential impact on protected rights, it will be found lawful. Additionally, to provide clarity in this area, the Board provided three categories into which rules will be placed in future cases: (i) lawful (always valid); (ii) subject to case-by-case scrutiny (applying the Board’s balancing test to determine if the rule is lawful); and (iii) unlawful (the rule prohibits protected activity and is always unlawful).
The NLRB’s decision in The Boeing Co. strongly criticized the rational for the standard set in Lutheran Heritage. A majority of the NLRB pointed out that failing to consider the legitimate justifications associated with employer rules conflicts with U.S. Supreme Court rulings and the Board’s own precedents. Also, the troublesome standard of Lutheran Heritage provided that employer policies cannot be either too broad or simply stated because of a risk they might imply a restriction on protected activities. This strict standard which require an employer to consider all hypothetical permutations of protected activities concerning a given subject prior to implementation of workplace rules made managing the workplace unwieldy.
In The Daily Grill, the Board relied on the old Lutheran Heritage standard to find that the restaurant chain violated the NLRA. The Daily Grill proffered a number of workplace rules that were considered too broad and could be interpreted by employees as discouraging union activity. The rules included a “positive culture” rule that required employees to interact with management respectfully, a timekeeping rule that barred employees from loitering on the employer’s premises, and a rule governing relationships outside work. Now that the new Boeing Co. standard is being used, the DC Circuit Court of Appeals granted the NLRB’s request to send the case back for reevaluation.
The Boeing Co. standard radically changes the way the Board evaluates employer rules, including rules pertaining to conduct in and out of the workplace, such as use of social media. By balancing considerations favoring maintenance of rules, the new standard will expand the scope and type of rules the Board will find lawful and improve employers’ ability to tailor rules to suit their business needs.