Allyn & Fortuna LLP
Diana Uhimov, September 10, 2015
On Wednesday, September 9, 2015 the Second Circuit reinstated a sex discrimination case brought by the U.S. Equal Employment Opportunity Commission against Sterling Jewelers Inc. under Title VII of the Civil Rights Act of 1964. The suit, initiated in 2008, arose from charges from women who worked for Sterling in nine different states. The women accused Sterling, the largest fine-jewelry company in the U.S., of paying retail saleswomen less than their male counterparts and failing to give promotions to women for which they were qualified. Sterling argued in the district court that the EEOC hadn’t fulfilled its statutory obligation to conduct a prelitigation inquiry. The district court initially ruled that the agency’s investigation regarding the claims against the company prior to bringing the action was inadequate. Following oral argument in May 2015, a three judge panel sided with the EEOC in ruling that under Title VII, courts may review whether the EEOC conducted an investigation, but not the sufficiency of an investigation.
Title VII is a federal law that prohibits employers from discriminating against employees on the basis of sex, race, color, national origin, and religion. The law generally applies to employers with 15 or more employees, including federal, state, and local governments. Before the EEOC can bring a Title VII enforcement suit, it has to conduct an investigation of the employers’ employment practices. This review involves: (1) the EEOC receiving a formal charge of discrimination against an employer; (2) giving the employer notice of a formal discrimination charge; (3) investigating the charge; (4) making a determination on whether or not there is reasonable cause to believe the law was violated; and (5) making a good-faith effort to reconcile the charge. Congress empowered federal courts to review whether the agency has satisfied these pre-suit obligations. This was the first instance that the issue of the proper scope of that review has come before the Second Circuit. Other circuits have ruled on whether the EEOC conducted any presuit investigation.
A trial court granted Sterling summary judgment and dismissed the case in March 2014, adopting a report and recommendation from a magistrate judge who said there was no evidence that the EEOC investigated a nationwide class. On appeal, the EEOC argued that the magistrate judge had conducted an improper review into the adequacy of the agency’s pre-litigation investigation. The Second Circuit’s opinion stated that since the EEOC alleged nationwide discrimination, it has to show that it researched whether a basis existed for claiming such widespread bias, but it doesn’t have to go into detail about its actions or its findings with respect to its review. According to the decision, an EEOC affidavit saying that it performed its investigative obligations and laying out the steps it took to investigate “will usually suffice”. The 20-page opinion relied on the U.S. Supreme Court’s April 29 ruling in a closely watched EEOC case against Mach Mining LLC, which addressed the scope of judicial review of the EEOC’s obligation to attempt conciliation before bringing an action against an employer. In Mach Mining the high court said courts could engage only in “relatively bare-bones review” of whether the EEOC had satisfied its presuit conciliation obligation. Although Mach Mining didn’t address EEOC investigations, the Second Circuit extrapolated that judicial review of such investigations are “similarly limited.” “The sole question for judicial review is whether the EEOC conducted an investigation,” U.S. Circuit Judge John M. Walker Jr. wrote for the court.
As a result of this decision, employers facing investigations by the EEOC may not be able to assert the defense that the EEOC’s investigation into the employee’s claims was inadequate. The decision asserted that extensive judicial review would “expend scarce resources and would delay and divert EEOC enforcement actions from furthering the purpose behind Title VII—eliminating discrimination in the workplace.” Going forward, it appears that courts will afford the EEOC great autonomy in its methods of investigation of discrimination. If the EEOC is not required to do a thorough investigation before bringing the litigation, many employers would lose the opportunity to resolve complaints in the investigatory stage.
Paula Lopez, September 2, 2015.
In a 3-2 decision issued last week, the National Labor Relations Board delivered a highly anticipated decision in NLRB v. Browning-Ferris Industries of California, Inc., broadening the joint employer standard that has been in place for the last 30 years. The decision drew extreme reactions from dissenting board members and polarized pro-employer and pro-union organizations.
Browning-Ferris Industries of California, Inc. (BFI), owns and operates a recycling facility. BFI directly employs 60 employees, most of whom work outside the facility. The BFI employees are unionized and a separate bargaining unit. BFI contracts with Leadpoint Business Services to provide workers who will sort the recycling materials (sorters), clean screens on the sorting equipment (screen cleaners) and to clean the facility (housekeepers). The arrangement between BFI and Leadpoint is governed by a temporary labor services agreement, which provides that Leadpoint is the sole employer of the workers assigned to BFI and that nothing in the agreement is intended to create an employment relationship between BFI and Leadpoint-supplied workers. Leadpoint provided BFI with approximately 240 sorters, screen cleaners, and housekeepers. In July 2013, the Sanitary Truck Drivers and Helpers Local 350, International Brotherhood, which already represented other workers at the facility, filed a petition with the NLRB seeking to represent 120 Leadpoint employees. The petition sought to have BFI declared a joint employer with Leadpoint and obligated to recognize and bargain with the union. The NLRB Regional Director issued a Decision and Direction of Election that found that Leadpoint solely employed the workers and Leadpoint and BFI are not joint employers. The Decision then directed the NLRB to conduct a secret ballot election, the results of which have not been made publicly known. The case came before the full board because the Union filed a request for review of the Regional Director’s decision. In light of the NLRB’s decision finding that BFI and Leadpoint are joint employers, if the secret ballot election results are in favor of unionization, BFI would be required to negotiate with the union alongside Leadpoint.
To appeal the NLRB’s joint employer decision, BFI would have to refuse to bargain with the union. If the NLRB determines that the refusal constitutes an unfair labor practice, BFI could appeal the unfair labor practice finding to a circuit court and within the appeal obtain review of the validity of the NLRB’s joint employer decision. Until then, the majority’s newly articulated joint employer standard controls and it will be left to the NLRB’s district offices to determine how the standard will be applied. If BFI does not end up before the circuit court on appeal, the majority’s newly established joint employer standard could be reviewed at a later time by another employer in a similar circumstance to BFI.
Under the joint employer standard in place for the last 30 years, a company could be considered a “joint employer” if it had “direct control” over the employees’ working conditions. Under this test, the essential working conditions included things like hiring, firing, discipline, supervision, wages and hours, through direct and immediate control. It would not be enough to show that a company had indirect control or retained the right to exercise control. The dissent argued that under the existing standard, an employer utilizing a contingent workforce had clear parameters of what actions it could or could not take in order to not be considered a joint employer.
Following the NLRB’s recent decision, two separate and independent companies will be considered “joint employers” “if they are both employers within the meaning of common law, and they share or co-determine matters governing the essential terms and conditions of employment.” For two entities to be considered “common law” employers, the NLRB decision relies on the Restatement (Second) of Agency (1958) which states that a “servant is a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other’s control or right to control.” Based on the common law definition of joint employer, reserved control could give rise to joint employer status. Relying on this definition, the majority has broadened the factors it will consider in determining the “existence, extent, and object” of the putative joint employer’s control by no longer requiring direct control and making reserved control and indirect control determinative factors that could give rise to joint employer status.
Such a standard could transform companies that utilize staffing agencies to supply their workforce and franchisors into employers, requiring them not only to engage in the collective bargaining process, as is the case in Browning-Ferris of California, but also exposing them to liability on various fronts ranging from worker-safety violations under OSHA, to violations of worker’s rights under the NLRA.
The majority decision understates the chaos that the broader joint employer standard it has adopted will have on union organizing disputes. Instead, it describes the new standard as merely a return to the joint employer standard set out by the Third Circuit in the case NLRB v. Browning-Ferris Industries of Pennsylvania, Inc. According to the majority, the joint employer standard adopted by the Third Circuit back in 1982 embraced the common law definition of joint employer. The majority stated that the standard has been unjustifiably narrowed during the last three decades by a string of NLRB decisions that imposed additional requirements on the party asserting joint employer status. The additional requirements, according to the majority, are unsupported by the standard set out in the Third Circuit decision. The majority decision takes the position that the new standard is better suited to further the purpose of the National Labor Relations Act to protect employees’ union-organizing rights, by taking into account the increasing number of contingent employment relationships that dominate the current workforce. While the full impact of the majority’s decision is yet to be seen, employers who rely on staffing agencies for their work force should revisit their procedures, policies and day to day operations to evaluate what type of control, if any, they are exercising over such workers.
By: Megan J. Muoio, August 26, 2015
On August 17, 2015, the National Labor Relations Board issued a decision reversing the March 26, 2014 decision of NLRB Regional Director Peter Sung Ohr, which found that Northwestern University scholarship football players are employees as defined by the National Labor Relations Act. Eighteen months after the decision by the Regional Director, the NLRB dealt a blow to the Northwestern players’ quest to unionize and be recognized as employees under the National Labor Relations Act.
Northwestern University is one of 17 private schools within the NCAA Division I Football Bowl Subdivision, and the only private institution in the Big Ten Conference. The players sought recognition as employees under the NLRA and the right to collectively bargain in order to address issues such as increased scholarships, coverage for sport-related medical expenses, traumatic brain injury prevention, and assistance improving graduation rates. The athletes sought recognition as employees along with other university constituencies – graduate assistants, student janitors, and cafeteria workers, all who have successfully sought employee status under the NLRA in recent years. Upon recognizing the student athletes as employees, the NLRB Regional Director ordered an election to take place. The election was held but the ballots were sealed pending the decision of the full board.
However, the NLRB’s decision indicates that student athletes are different from other university groups because they receive scholarships to participate in extracurricular activities. Student athletes are also different from professional athletes, who are recognized as employees by the NLRB, because they are subject to both academic regulations as students and NCAA and athletic conference regulations as athletes.
In the end, the NLRB found that it did not need to determine whether the Northwestern scholarship athletes were employees within the NLRA because policy considerations demanded that the NLRB decline jurisdiction over the matter entirely. The NLRB held that considering the issue of whether the players were employees did not “promote stability in labor relations.” The fact that students from a single team sought recognition, rather than all teams in a league as in the case of professional athletes, required the NLRB to stay its hand. Even if all student athletes within a particular league were to petition for union recognition, the NLRB would be hesitant to consider the issue because it would only be able to exercise its jurisdiction over those student athletes at private universities. Student athletes at public universities would remain subject to their respective state labor laws, which would result in a patchwork of regulations governing student athletes league-wide.
Despite the fact that the NLRB’s decision ended the Northwestern University student athlete’s quest for unionization, student athletes nationwide are continuing to press for reforms and improved conditions from the NCAA. Already, the NCAA has changed its policies to require four-year guaranteed scholarships instead of one-year renewable scholarships, which provides student athletes increased protection if they are injured during the course of their college career. Although the student athletes fell short of their goal before the NLRB, student athletes have been working on other fronts to change their conditions. For example, student athletes have pursued litigation in California under federal antitrust law to end the NCAA’s monopoly regarding the use of student athletes’ names and likenesses, and are seeking to expand possible sources of compensation for student athletes under the NCAA.
Nicholas Fortuna, August 18, 2015
The Fourth Circuit Court of Appeals ruled last week that managers are not excluded from protection against retaliation under Title VII of the Civil Rights Act of 1964. J. Neil DeMasters, an employee assistance consultant at Carilion Clinic, was fired for not taking the “pro-employer side” in a sexual harassment dispute involving another employee.
Carilion terminated DeMasters because the company was angry that it had to settle a sexual harassment suit filed by an employee and told DeMasters that he failed to act in the company’s best interests regarding the matter. The dispute arose after an employee allegedly told DeMasters that his department manager masturbated in front of him twice on hospital grounds, asked him for oral sex, and asked him to show his genitals. DeMasters helped the employee file an internal complaint and urged HR to take action on the complaint. De Masters also criticized Carilion’s handling of the investigation.
After he was fired, DeMasters sued Carilion under Title VII claiming his termination amounted to retaliation. Title VII forbids retaliation against any employee who “oppose[s]” an employment practice that is unlawful under Title VII. The district court dismissed the action adopting Carilion’s position that “the manager rule” should apply and in such a case the anti-retaliation provisions of Title VII do not apply to De Masters. “The manager rule” purports to address a concern that if counseling and communicating complaints are part of a manager’s duties, then “nearly every activity in the normal course of a manager’s job would potentially be protected activity,” and “[a]n otherwise typical at-will employment relationship could quickly degrade into a litigation minefield.” Therefore, the argument goes, managers should not be afforded protection under the anti-retaliation provision of Title VII. The “manager rule” has been applied by some circuits in the context of retaliation claims under the Fair Labor Standards Act (“FLSA”). In those cases, the manager is required to step outside his role of representing the company (beyond his duties as a manager) to avail himself of protection from the anti-retaliation provisions of the FSLA.
A number of district courts have imported this categorical exception into the context of Title VII’s anti-retaliation provision. The Fourth Circuit reversed the lower court and found that DeMasters engaged in protected activity under Title VII’s opposition clause. The court found that there is nothing in the language of Title VII that would exclude a category of employees from its anti-retaliation protections. Title VII makes it unlawful for an employer to discriminate against an employee “because he has opposed any practice made an unlawful employment practice by this subchapter (Title VII), or because he has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under this subchapter.” The FLSA does not contain such broad anti-retaliation language.
The Sixth Circuit Court of Appeals is the only other Court of Appeals to address this issue in a precedential opinion. The Sixth Circuit also held that the “manager rule” did not apply in the Title VII context. Other circuits will have to address this issue given that there are a number districts courts that apply the “manager rule” to Title VII cases.
Employers should not try to justify the firing of a manager because that manager was not pro-employer enough in handling Title VII complaints. Even though all the circuits have not ruled on this issue, the broad anti-retaliation provisions of Title VII will protect managers when they are opposing employment practices that violate Title VII.
Paula Lopez, August 7, 2015.
In Brown & Brown v. Johnson, the New York Court of Appeals (New York’s highest court) rejected a choice of law provision contained in an employment agreement that designated Florida law as the law governing the agreement because it found that Florida’s employer-friendly approach in enforcing employment-related restrictive covenants is contrary to New York’s public policy. A choice of law provision in an agreement allows parties to agree that a particular state’s laws will be used to interpret the agreement regardless of where the agreement is signed or the parties reside. The Court’s holding in Brown & Brown puts employers who include choice of law provisions in their employment agreements on notice of the nuanced approach New York courts will take in determining whether such provisions will be upheld, especially when it comes to enforcing restrictive covenants.
Employers look to all available means for protecting confidential information and their legitimate business interests such as trade secrets, client relationships, and client databases. In addition, employers have an interest in preventing former employees from competing with them by raiding their key personnel and usurping their clients because of a relationship developed by the former employee during his employment. In accomplishing these goals, employers often include restrictive covenants in their employment agreements such as non-compete and non-solicitation provisions. Whether such provisions will be enforced often depends on the laws of the state where the employee-employer relationship existed or the state law the parties agreed would govern the agreement.
Determining which mechanisms to use in protecting their interests in employment agreements are key considerations for multi-state employers having headquarters in one state but operating in various states. Which state’s law is going to apply to restrictive covenants in an employment or severance agreement is crucial in determining the enforceability of the agreement because there is a drastic variation among states as to what types of post-employment restrictions an employer can contract for with its employees, if any, and whether they will be enforced.
The plaintiff in Brown & Brown is a Florida corporation that recruited Theresa Johnson to work in its New York office. At the time of hire, Johnson had been working for Blue Cross/Blue Shield. On Johnson’s first day of work at Brown & Brown, she was presented with and signed an employment contract that included a choice of law provision designating Florida as the state law governing the agreement and a non-solicitation agreement that prevented Johnson from servicing any customers of Brown & Brown’s New York office for two years after her termination. After several years working for Brown & Brown, Johnson was terminated. She found new employment with a competitor of Brown & Brown. When Brown & Brown discovered that Johnson was working with former Brown & Brown customers, it sued Johnson in a New York court for breach of the agreement and to enforce the non-solicitation covenant. Brown & Brown sought to have the New York court apply Florida’s law in determining the enforceability of the non-solicitation provision.
In refusing to apply Florida law to the agreement, despite the choice of law provision, the Court acknowledged that the laws of both states require that that restrictive covenants be reasonable in time, scope and geographical area and be intended to protect a legitimate business interest. However, the Court could not overlook the stark difference between Florida’s and New York’s approach in determining the enforceability of restrictive covenants in employment agreements.
For instance, New York applies a three-factor test to determine the reasonableness of the provision that looks at whether the restraint is (1) “no greater than is required for the protection of the legitimate interest of the employer” (2) “does not impose undue hardship on the employee,” and (3) “is not injurious to the public.” If the provision fails to meet any of the three factors it would be deemed invalid. The employer bears the burden of proof in establishing all three factors and only upon meeting these factors will the burden shift to the employee to show that the restraint is overbroad or unnecessary.
Meanwhile, Florida courts enforcing post-employment restrictive covenants only require the employer to make a prima facie showing that the restraint is necessary to protect a legitimate business interest before the burden shifts to the employee to show the restraint is unnecessary or overbroad. Florida’s law expressly prohibit the courts from considering the economic hardship that may be suffered by the employee in determining the provision’s validity.
In addition, Florida’s law and New York’s law impose different requirements as to how courts are required to construe restrictive covenants. Florida courts are required to construe restrictive covenants broadly in favor of protecting the employer’s interests and are not permitted to use rules of contract interpretation requiring that the provision be construed against the drafter. New York law, on the other hand, requires courts to strictly construe restrictive covenants because of the public policy considerations against allowing a party to deprive a person of their livelihood. Based on these differences, the Court held that the choice of law provision was unenforceable and reviewed it under New York’s framework.
In applying New York law to its review of the restrictive covenant at issue, the Court observed that many of the provisions were overbroad because they prohibited Johnson from working with customers she had never worked with while at Brown & Brown. While the Court recognized that it had the discretion to “blue pencil” (means by which courts revise overbroad provisions to be enforceable by tailoring them to be reasonable in scope, duration, and geography) the provision and limit the restrictive covenant to only cover those customers with whom Johnson directly worked, it found that there are issues of fact as to whether the provisions are unenforceable due to overreaching and coercion on the part of the Brown & Brown in getting Johnson to agree to its terms and remanded the case for further proceedings.
In light of differing state laws and differing views on the enforceability of post-employment restrictive covenants, one way employers have gotten around certain state prohibitions is by including a choice of law provision in the agreement that applies the law of a state that takes a favorable stance on these agreements. Normally, the employer or employee must have a rational relationship to the state, whose law will be governing the agreement. However, the decision in Brown & Brown demonstrates that a choice of law provision will be disregarded if the law of the state chosen is antithetical to New York’s public policy, regardless of the fact that one party to the agreement was a resident of state whose law was chosen to apply to the agreement.