Allyn & Fortuna LLP
Diana Uhimov, July 16, 2014.
The U.S. Supreme Court unanimously invalidated three of President Obama’s recess appointments to the National Labor Relations Board (NLRB) as unconstitutional in its June 26, 2014 decision in National Labor Relations Board v. Noel Canning. Despite the fact that these Board members’ positions were filled by valid Senate-confirmed members in August 2013, this decision voids hundreds of NLRB decisions issued between January 2012 and August 2013, because the Board did not have a quorum. The current Board is now obligated to revisit those decisions and either reject or reissue them. Employers largely recognize this as a victory, since many of the NLRB decisions called into question by Noel Canning interpreted the National Labor Relations Act to advance employee and union rights.
The Recess Appointments Clause in Article II of the Constitution is an exception to the requirement that the President obtain Senate approval before appointing officers of the United States. The clause states that the President has the authority to fill vacancies that may happen during the recess of the Senate by granting commissions that expire at the end of their next session. Although the Court interpreted the clause as giving the President the power to make appointments during a recess, it cautioned that the clause does not offer “the authority routinely to avoid the need for Senate confirmation.”
Noel Canning arose out of President Obama’s recess appointments of Members Block, Griffin and Flynn to the NLRB Board. Although the majority opinion broadly interpreted the President’s power under the Recess Appointments Clause, it found the three-day recess during which the President made the appointments to the NLRB was too short. President Obama made the appointments on January 4, 2012 after the five-seat Board was left with only two members following Member Craig Becker’s departure from office the day before. Since a three-member quorum is needed to issue decisions, Obama sought to prevent an effective shut-down of the NLRB for an extended period of time. A prolonged Senate confirmation process was likely because of an anticipated filibuster of the President’s appointments.
The validity of the recess appointments was challenged by Noel Canning, a soda bottler and distributor. Noel Canning appealed an NLRB decision that the business engaged in unfair labor practices to the United States Circuit Court for the District of Columbia. The Supreme Court had previously held in New Process Steel that the NLRB must have a valid quorum of board members before it can take action. Thus, Noel Canning argued that the NLRB lacked a quorum because President Obama’s appointment of three recess board members was unconstitutional, and without the requisite quorum the Board did not have the power to issue decisions or prosecute cases. It is estimated that between 400 and 800 NLRB decisions from January 2012 to August 2013 involved the recess-appointed members, more than 100 of which were appealed to federal courts.
The consequences of the decision remain to be seen. The current NLRB has been pushing to expand its reach, increase union organization, and overturn NLRB precedent. Thus, the current Board will likely adopt the majority of the invalidated NLRB decisions. Nonetheless, Noel Canning’s potential positive impact on employers is twofold: (1) review of the cases decided by the invalidated appointees may lead to better outcomes for the entities involved, and (2) the NLRB will be forced devote its resources to revisiting the invalidated decisions, which may delay or altogether halt divisive items on the Board’s agenda that included expanding its powers and implementing pro-union decisions. Until more information is available, employers should continue to follow those decisions to avoid future unfair labor practice findings.
Megan J. Muoio, July 10, 2014
The Supreme Court has already begun to line up cases for its term that will begin in October 2014. One of the petitions for certiorari (the formal request for Supreme Court appellate review) that the Court has approved recently is Mach Mining, LLC v. Equal Employment Opportunity Commission. The Court’s review will focus on the law regarding the steps the EEOC must take before filing a lawsuit in federal court against an employer. The case, which comes to the Supreme Court on appeal from the Seventh Circuit Court of Appeals, concerns the EEOC’s obligations under Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination on the basis of race, color, religion, sex, or national origin.
When an individual files a charge with the EEOC claiming that an employer has engaged in an unlawful employment practice, such as terminating an employee on the basis of race or denying an employee the right to a promotion because of the employee’s gender, the EEOC has several legal obligations under Title VII. First, the EEOC must serve notice of the charge to the employer and must investigate the charge within ten days of service. If, after the investigation, the EEOC reasonably believes that the charge is true, then Title VII states that the EEOC should “endeavor to eliminate any such alleged unlawful employment practice by informal methods of conference, conciliation, and persuasion.” If the EEOC is unable to obtain a conciliation agreement from the employer, it may bring a civil action against the employer. The conciliation policy is an effort to attempt to resolve claims under Title VII without litigation. The cases where the EEOC ultimately brings a civil action against an employer are extremely rare, so the eventual decision by the Supreme Court may ultimately affect only a few hundred cases per year.
In Mach Mining, the Seventh Circuit held that the failure of the EEOC to conciliate with the employer was not a valid affirmative defense to a claim of employment discrimination and refused to permit district courts within the Seventh Circuit to make any inquiry into the conciliation process to determine whether the EEOC’s efforts had been sufficient under Title VII. This decision is at odds with the decision of several other Circuit Courts.
The Fourth, Sixth, and Tenth Circuit Courts permit employers to assert the affirmative defense and allow the EEOC to rebut the defense by showing that its conciliation efforts were made with a minimum level of good faith. These Circuits require the EEOC to show that it has made a genuine effort at conciliation. Some instances where the EEOC’s conciliation efforts were found not to have been made in good faith includes cases in which the EEOC did not give the employer a reasonable time to respond to an offer, or where the EEOC attempted to conciliate claims regarding only race discrimination but brought an action regarding sex discrimination as well.
Meanwhile, the Second, Fifth, and Eleventh Circuit Courts require the EEOC to meet a three-part test to determine whether its conciliation efforts were sufficient. Those Circuit Courts require the EEOC to: (1) outline to the employer the reasonable cause for its belief that Title VII has been violated; (2) offer an opportunity for voluntary compliance; and (3) respond in a reasonable and flexible manner to the reasonable attitudes of the employer. This standard would prohibit the EEOC from making a take-it-or-leave-it offer to the employer and then rushing to file a civil action right away. These Courts make a more structured inquiry into the conciliation process, and require that the EEOC provide the employer with sufficient information to be able to evaluate the potential claims against it and the conciliation offer with due deliberation.
However, the Seventh Circuit disagreed with both of these approaches by prohibiting any inquiry into the conciliation process and denying the employer the right to use the lack of conciliation as an affirmative defense to the claims brought by the EEOC. This ruling tilts the balance of power in cases between employers and the EEOC strongly in favor of the EEOC and in effect relieves the EEOC of its conciliation obligations under Title VII. Employers who are concerned with the lack of information provided by the EEOC during the conciliation process and what they perceive as the EEOC’s rush to litigation are hoping that the Supreme Court will reverse the Seventh Circuit’s decision. If the Supreme Court reverses the Seventh Circuit and permits employers to defeat a lawsuit brought by the EEOC because the EEOC did not fulfill its conciliation obligations, employers will retain a powerful weapon against increased litigation.
Employers Should Exercise Caution in Light of the EEOC’s Recent Action Against Separation Agreements
Megan J. Muoio, June 19, 2014
The Equal Opportunity Employment Commission has recently filed multiple claims challenging employers’ standard separation agreements. On February 14, 2014, the EEOC filed suit against CVS Pharmacy in the United States District Court for the Northern District of Illinois. The EEOC alleged that CVS’s standard separation agreement deters employees from exercising their rights to file discrimination charges and participate in EEOC investigations. The separation agreement in question contained standard, boilerplate language common to separation agreements and provisions that are commonly used by employers nationwide. The case, Equal Employment Opportunity Commission v. CVS Pharmacy, Inc., is notable because the EEOC previously only restricted employers from utilizing separation agreements that prohibited former employees from filing charges of discrimination with the EEOC or participating with an EEOC investigation. In the CVS case, by contrast, the EEOC claimed that these common provisions contained within CVS’s severance agreement deterred employees from filing EEOC charges or participating in an EEOC investigation, even though it did not prohibit those actions outright.
Employers have long presented departing employees, either those who have been terminated, laid off, or asked to retire early, with separation agreements at the conclusion of their employment. The purpose of these agreements is to provide the employer with a measure of protection against future employment-related litigation brought by a disgruntled former employee who has accepted and received severance pay. To that end, most separation agreements ask the former employee to waive his or her right to file a lawsuit and recover monetary damages based on various civil rights laws such as the Civil Rights Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act, or the Equal Pay Act in exchange for severance pay. The EEOC had long condoned the use of these agreements if they contained language such as: “Nothing in this agreement shall be construed to prohibit you from filing a charge with or participating in any investigation or proceeding conducted by the EEOC or a comparable state or local agency.” However, in 2012, the EEOC issued its FY 2013-2016 Strategic Enforcement Plan, in which the EEOC stated that it intended to “target policies and practices that discourage or prohibit individuals from exercising their rights under employment discrimination statutes, or which impede the EEOC’s investigative or enforcement efforts…includ[ing] retaliatory actions, overly broad waivers, settlement provisions that prohibit filing charges with the EEOC or providing information to assist in the investigation or prosecution of claims of unlawful discrimination, and failure to retain records required by EEOC regulations.” The EEOC’s Strategic Enforcement Plan and the cases the EEOC has commenced recently mark an aggressive new stance on the part of the EEOC.
The EEOC attack on CVS’s separation agreement has created a fear among employers because the challenged provisions are commonplace in most standard post-employment agreements. The CVS separation agreement was presented to non-store employees at the time of separation and required an employee’s signature in order to receive severance pay. The EEOC alleged that CVS’s agreement violated Title VII of the Civil Rights Act of 1964 on the grounds that it is overbroad and interferes with employees’ rights to file charges, communicate voluntarily and participate in investigations with the EEOC. The provisions that the EEOC flagged as violating Title VII are as follows:
- A cooperating clause that required the employee to notify CVS’s General Counsel of contacts relating to legal proceedings, including administrative proceedings by an investigator, attorney or third party.
- A non-disparagement clause prohibiting the employee from making disparaging statements about CVS, its officers, directors or employees.
- A non-disclosure clause prohibiting the disclosure of confidential information to any third party without prior written permission from CVS’s chief human resources officer.
- A general release of claims that requires the employee to release CVS from all causes of action, lawsuits, proceedings, complaints, charges, debts contracts, judgments, damages, claims and attorneys fees, including any claim of unlawful discrimination of any kind.
- A covenant not to sue clause, in which the employee represents that there are no pending complaints, claims, actions or lawsuits in any federal or state court or agency; that prohibits the filing of any action, lawsuit, complaint or proceeding; and that requires the employee to reimburse CVS for breach of this covenant.
- A breach by the employee provision which, if the employee breaches the agreement, entitles CVS to injunctive and other relief, including attorneys’ fees.
The EEOC alleges the single qualifying sentence that nothing in the separation agreement was intended to interfere with the employee’s right to participate in a proceeding with an agency enforcing discrimination laws in the CVS separation agreement nonetheless denied employees the full exercise of their Title VII rights. The EEOC additionally noted that the agreement was five single-spaced pages, indicating that a single sentence preserving an employee’s rights within a long document was insufficient to protect the employees.
As a result of the EEOC’s recent aggressive stance, employers should reevaluate their separation and post-employment agreements with employment law counsel. Employers should first review their separation agreements to consider whether to highlight provisions regarding the employee’s right to file administrative charges and participate in investigations commenced by agencies enforcing any laws, not just employment laws. Employers may want to specifically refer to each paragraph containing a possible restriction of an employee’s rights with qualifying language such as “except as otherwise stated in paragraph x” to ensure that it is clear that nothing in that section limits the employee’s rights. Second, employers should consider setting off statements regarding employee’s rights in a separate paragraph and possibly in larger or bold font so that the employee’s rights are clearly discernible, and make sure that the agreement clearly states that no other provisions of the agreement limit the employee’s right to engage in protected activity. Third, employers can continue to require that employees waive their right to monetary damages even though they retain the right to file a discrimination charge. Fourth, employers should reevaluate provisions in their agreements that require cooperation with the employer in light of the EEOC’s recent focus on such issues and be prepared to modify such provisions. Finally, employers should also review the length and readability of their form separation agreements in order to ensure that they can be easily comprehended by employees.
Diana Uhimov, June 11, 2014.
Eastern District Judge Nicholas Garaufis’ decision last month in United States v. American Express held that a plaintiff is not required to establish a defendant’s market power to prove a vertical restraint in violation of Section 1 of the Sherman Act. A firm with market power has the ability to influence the price of an item by exercising control over its demand, supply, or both. The U.S. Department of Justice brought this action against American Express, among other credit card companies, disputing their practice of prohibiting merchants from “steering” customers to use less expensive payment cards. Visa and MasterCard settled the lawsuit, but American Express refused to settle. Instead, it moved for summary judgment and was defeated.
Vertical restraints are agreements between entities at different levels of the production and distribution chain to restrict competition, as opposed to agreements between competitors, which are horizontal restraints. There are numerous types of vertical restraints, from a requirement that dealers accept consumer returns of a manufacturer’s product, to resale price maintenance agreements that set the minimum or maximum price that seller’s can charge for a product, and exclusive dealing arrangements.
Vertical restraints are prohibited under federal law pursuant to Section 1 of the Sherman Act. The Sherman Act challenges anticompetitive activity and monopolies with the aim of protecting the public by preventing the artificial raising of prices. Three elements must be present to establish a Section 1 violation:
1. An agreement
2. which unreasonably restrains competition
3. and which affects interstate commerce.
Historically, courts were opposed to most vertical restraints, practically declaring them unlawful per se, or automatically illegal. More recently, however, courts have reversed this rigid precedent, analyzing such restraints under the “rule of reason” in accordance with the 2007 U.S. Supreme Court case Leegin Creative Leather Products v. PSKS. The rule of reason evaluates the reasonableness of a restriction of competition. It involves a fact-specific inquiry into the restraint’s overall competitive effect, taking into account facts particular to the business, the history of the restraint, and the reasons why it was imposed.
In American Express, the defendant argued that the plaintiffs failed to establish an essential element in proving a Section 1 violation—market power in the relevant market. But the plaintiffs prevailed based on their argument that Leegin allowed a plaintiff to satisfy its burden in a Section 1 claim by either: (1) proving that the defendant has market power, or (2) proving that the defendant’s challenged behavior had actual detrimental effects on competition. They demonstrated that the anti-steering rules could have an actual adverse effect on competition by positing that given the high fees that American Express imposed on merchants, competition would exist if these rules were not in place.
Circuit courts are currently split on this issue of market power. The Fifth, Seventh, and Eighth circuits uphold American Express’ position that a defendant’s market power is essential to establishing that a vertical restraint is unlawful. However, Judge Garaufis’ decision confirmed the Second Circuit’s view that while market power is a factor, an actual negative effect on competition is enough to demonstrate a vertical restraint. The Fourth and Eleventh circuits also take this approach.
Additionally, Judge Garaufis’ decision provided that market power can exist even absent market share, subjecting to suit defendants who are not dominant in a market, but hold enough power to adversely impact competition. Thus, this decision is advantageous for plaintiffs in the Second Circuit because it sets forth various ways to prove a Section 1 violation, and eases the burden of proving market power. As of now, American Express has not appealed this decision. However, further monitoring is suggested to see if the issue comes before the Second Circuit or Supreme Court to further clarify the standard for vertical restraint cases.
Nicholas Fortuna, June 4, 2014.
The federal courts are struggling with what type of claims may be brought as a class action after the Supreme Court decisions in Comcast v. Behrand, (2013) and Wal-Mart v. Dukes, (2011). The latest battle is in the Second Circuit Court of Appeals in the matter of Jacob v. Duane Reade, Inc. regarding class certification of a wage and hour case.
Wal-Mart established a stricter standard for what constitutes the required common claims within a class by mandating that the acts and/or decisions giving rise to the claimed liability must be the same among the class members. The plaintiffs in Wal-Mart brought a class action asserting that Wal-Mart Stores, Inc. discriminated against female employees with respect to pay and job promotions. The Supreme Court decertified the class stating that the issues were not common to all class members because the resulting discrimination involved thousands of individual employment decisions by many different managers across the country. The fact that the results of the decisions had the same discriminatory impact was insufficient to support the commonality element required to litigate a case as a class action.
In Comcast, a class of cable subscribers brought an action against Comcast, alleging violations of federal antitrust law. In that case, Comcast entered an agreement with Adelphia communications to swap cable subscribers. Comcast took Adelphia’s Philadelphia area subscribers in exchange for ones Comcast had in California and Florida. The Comcast’s share of subscribers increased in the 16 counties surrounding Philadelphia to 69.5 percent. The district court certified the class on the theory of liability that Comcast’s activities reduced the level of competition from “over-builders” – companies that build competing cable networks in areas where an incumbent cable company already operates. The Supreme Court decertified the class because the damage calculation used by the plaintiffs did not connect the harmful event with the economic impact of that event. The plaintiffs presented expert testimony comparing actual cable prices with hypothetical prices that would have prevailed without anticompetitive activities. The plaintiffs’ expert admitted that his model for calculating damages did not isolate the amount of damages resulting from the reduction of “over-builders,” but rather the damages were based on the accumulation of four different theories of liability. The Court explained that when certifying a class, any model supporting a plaintiff’s damages case must be consistent with its liability case, particularly with respect to the alleged anticompetitive effect of the violation.
The lower federal courts around the country have been dealing with Comcast in three distinct ways: (1) courts distinguishing Comcast in a way to find a common formula at the class certification stage; (2) courts applying Comcast to require a heightened damage inquiry at the class certification stage, and reject class certification where no common formula exists for the determination of damages; (3) courts embracing a middle ground by maintaining class certification as to liability only, and leaving damages for a separate, individualized determination. The courts applying the third approach rely on Federal Rule of Civil procedure 23(c)(4) which permits a class action to be maintained with respect to particular issues. Courts rejecting the third approach read Rule 23(c)(4) as only a case management tool and hold that the heightened damage analysis under Comcast is still required and cannot be avoided by separating liability from damages.
The Second Circuit Court of Appeals took argument in Duane Reade, Inc. on the issue of whether claims in a wage and hour case may be certified as a class for liability purposes, while leaving the damages analysis for individual determination. Assistant Store Managers of Duane Read Stores brought a class action claiming that they were misclassified as exempt employees and not paid overtime wages as required under federal and state law. The district court certified the class for liability purposes only relying on Rule 23(c)(4) and left damage calculations for individualized determinations. There are approximately 700 members of the class. Duane Reade appealed asserting that the district court failed to apply Comcast’s heightened damage analysis to the class as a whole and could not bifurcate liability and damages. Duane Reade argues that Rule 23(c)(4) does not authorize the court to ignore the dictates of Comcast and certify the class for liability only. The Second Circuit will decide the matter in the next several months. No matter what the outcome is there remains a split in approaches among the different circuit courts which the Supreme Court may be called on to resolve.