Allyn & Fortuna LLP
Contributed by Paula Lopez, March 24, 2020
A New Orleans restaurant, operating under the name Oceana Grill, filed the first of its kind lawsuit against its insurer, Lloyd’s London, for an order declaring that the civil authority provision contained in its insurance policy affords coverage for physical losses caused by Covid-19 (“coronavirus”) contamination and business income coverage in the event the insured premises is contaminated by the coronavirus.
Oceana Grill normally operates 365 days of the year, from 8 a.m. to 1:00 a.m, and has a seating capacity of 500 guests. At the time of filing the lawsuit, the Governor of Louisiana had issued a state-wide Civil Authority Order banning gatherings of 250 people or more and the Mayor of New Orleans had imposed restrictions on full-service restaurants directing them to operate at 50% seating capacity and to close by 9:00 p.m. Oceana Grill relied on the significant losses it would likely suffer as a result of these restrictions in bringing the action prior to filing a claim with its insurer. Since the filing of the lawsuit, New Orleans passed restrictions similar to New York, requiring restaurants to limit operations to take-out or delivery services.
Oceana Grill has an all-risk policy. Commercial all-risk policies cover risk of loss or damage to the insured’s property including related losses like business interruption losses, lost profits, and other costs, unless expressly excluded. Of note, Oceana Grill’s policy does not contain an exclusion for losses due to viruses or a global pandemic. The issue for the court to decide in the Oceana Grill case will be whether an all-risk policy extends to losses related to a business closure by order of a Civil Authority. Insurance policies typically define a “covered loss” as a direct physical loss or damage to property. Oceana Grill alleges in its complaint that the coronavirus is physically impacting public and private property and physical spaces because the virus lasts on the surface of objects and materials for varying periods of time and that contamination by the virus would require extensive remediation. While the current coronavirus pandemic and its long-term impact on businesses across all industries is unprecedented, the court’s decision in the Oceana Grill case will have a significant impact on the torrent of coverage cases likely to be filed around the country.
Cases involving coverage disputes related to civil authority orders were prevalent following 9/11 and the Ebola outbreak in 2014. While the coverage decisions were determined by the policy language and the specific facts of each case, civil authority orders issued as precautionary measures to prevent property damage or injury that has not yet occurred, generally failed to trigger civil authority coverage. In the context of the current coronavirus pandemic, insurers will likely try to avoid civil authority coverage by claiming that local, state and federal directives ordering businesses to close or to significantly reduce operations in order curtail the spread of the virus does not trigger the “physical loss” coverage requirement under general policies because such orders are intended to prevent the spread of the virus and an overburdening of the healthcare system; not because of an identifiable physical loss or damage to the property. However, if a coronavirus infected person enters the premises, resulting in contamination to the property which, in turn, results in a forced shut down, an insured may be able to establish the “direct physical loss” requirement for triggering coverage.
Generally, insureds may have difficulty establishing the existence of a “physical loss” due to the absence of a scientific consensus on the manner of transmission, and on how long the virus can survive on different surfaces and materials. However, this may change as a result of further research and testing of the virus and its transmission. While the Oceana Grill coverage dispute is focused on losses caused by civil authority orders and coverage under its civil authority policy provision, an all-risk insurance policy may afford businesses with other policy provisions on which they can base a claim for financial losses caused by coronavirus-related business closures. These include coverage provisions related to business interruptions if an insured is forced to close, or contingent business interruptions if a supplier or vendor of parts or materials necessary for the continuation of the insured’s business is forced to close. Additionally, an insured can argue that the coronavirus affected the functionality of the business property by forcing a shutdown. For instance, courts have found that insureds’ have suffered a direct physical loss or damage to property in instances where the release of dangerous gases or bacteria render an insured’s premises uninhabitable in the absence of structural damage[1].
Therefore, it is important for businesses to review their
insurance policies to assess whether some or all of the business losses
suffered as a result of the coronavirus can be curtailed.
[1] Gregory Packaging, Inc. v Travelers Prop. Cas. Co. of Am., 2014 WL 6675934, at *6 (DNJ Nov. 25, 2014).
Contributed by Paula Lopez.
On November 8, 2018, the U.S. Department of Labor (“DOL”) issued several opinion letters, one of which provides clarity for employers as to when they may claim a tip credit on wages paid to tipped employees for time spent on non-tip-generating duties. Opinion Letter FLSA2018-27 addresses the application of 29 U.S.C. § 203(m) to tipped employees involved in performing related “dual jobs” and/or duties related to their tipped position. The DOL Opinion Letter eradicates what was known as the 80/20 rule by eliminating the time limitations for how long a tipped employee may spend performing non-tip-generating duties before the employer loses the right to claim a tip credit. Previously, DOL and court’s adhering to DOL guidance took the position that under the Fair Labor Standards Act “tipped employees who spend a substantial amount of time or more than 20% of their [working time], engaged in related but non-tipped producing work must be paid the full minimum wage for the time spent performing the non-tipped work.”
Pursuant to the recent DOL Opinion Letter, the DOL will not place a limitation “on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties and all other requirements of the Act are met.” In determining whether a particular duty is related to a tipped occupation, the DOL states that “[d]uties listed as core or supplemental for the appropriate tip-producing occupation in the Tasks section of the Details report in the Occupational Information Network (O*NET), https://oneline.onecenter.org or 29 C.F.R. § 531.56 (e) shall be considered directly related to the tip-producing duties of that occupation.” The DOL will not place a limitation “on the amount of these duties that may be performed, whether or not they involve direct customer service, as long as they are performed contemporaneously with duties involving direct service to customers or for a reasonable amount of time immediately before or after performing such direct-service duties.” The DOL’s opinion letter also states that employers may not claim a tip credit for tasks not included in the O*NET task list but did leave an opening for employers to argue that the amount of time spent on such tasks are de minimis. Lastly, the DOL noted that in instances where there is no O*NET task list, “the duties usually and customarily performed by employees in that specific occupation shall be considered “related duties” so long as they are consistent with duties performed in similar O*NET occupations.”
In a press release announcing the issuance of the opinion letter, the U.S. DOL expressed an intent to provide “meaningful compliance assistance to help employees understand their rights and ensure employers have the tools they need to comply with federal labor law.” While the DOL Opinion Letter is favorable to employers in the restaurant industry, many states, like New York, have adopted their own regulations setting limitations on the time a tipped employee may be required to perform non-tip-generating duties. Employers in such jurisdictions should be mindful to ensure their policies comply with both State and Federal law.
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.