Employment Law - February 2018 #2

by Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

In This Issue:
  • In Massachusetts, ‘Wages’ Don’t Include Sick Time
  • EEOC Drives ADA Settlement Against Volvo
  • OSHA Fines Don’t Protect Employer From State Law Claims
  • Grubhub Scores Victory in Independent Contractor Suit
  • Texas Court Halts EEOC’s Background Check Guidance

In Massachusetts, ‘Wages’ Don’t Include Sick Time

Why it matters

Accrued, unused sick time does not count as “wages” under state law, Massachusetts’ highest court has determined in a matter of first impression. A longtime Massachusetts Port Authority (MPA) worker, Tze-Kit Mui was in the process of being discharged for cause when he retired instead. Pursuant to MPA policy, Mui was paid a percentage of his accrued, unused sick time; but because of a delay due to the disciplinary proceedings against him, it wasn’t paid in accordance with the timelines of the state’s Wage Act. He sued, seeking treble damages. Before the Supreme Judicial Court, the issue was whether the state law encompassed sick pay. The statute does not define “wages,” nor does it mention sick pay, the court said, declining to broaden the scope of the law to include sick time. The unanimous court added that construing sick pay as wages in the instant case would lead to an absurd result, as Mui was in the process of being discharged for cause when he retired.

Detailed discussion

In 2013, the Massachusetts Port Authority (MPA) initiated disciplinary proceedings against Tze-Kit Mui, a longtime employee, in connection with charges of arson and multiple counts of attempted murder as a result of actions he took during a suicide attempt.

Mui responded by applying for retirement. Despite the fact that disciplinary proceedings had not been resolved, the employees’ retirement system set Mui’s retirement date retroactively. The MPA later discharged Mui for cause, although the termination was overturned pursuant to a grievance procedure.

According to the MPA’s sick pay policy, eligible employees receive payment for a percentage of the value of their accrued, unused sick time upon separation from the agency. Employees who are discharged for cause are not eligible for sick pay.

Once the arbitrator reversed Mui’s termination (finding that it was not possible to discharge an employee who had already retired), the MPA paid the value of Mui’s accrued sick time pursuant to its policy, a total of $46,755.41. However, because of the grievance proceedings, the payment was made more than one year after Mui’s effective retirement date.

Mui then sued the MPA, claiming that the agency violated the state’s Wage Act by failing to compensate him for his accrued, unused sick time within the time frame mandated by the statute. A trial court judge agreed and granted the plaintiff’s motion for judgment on the pleadings.

The employer appealed, and the state’s highest court transferred the case on its own initiative. In a unanimous opinion, the Supreme Judicial Court (SJC) reversed.

Intended “to protect employees and their right to wages,” the Wage Act does not define “wages” but it does include any holiday or vacation payments due an employee, the court noted. The statute does not mention sick pay. While the absence of an explicit reference to sick pay in the statute did not end the inquiry, the court was reluctant to add language to a statute where the legislature has not done so.

“Further, we have previously declined to expand the meaning of ‘wages’ under the act to other types of compensation not expressly mentioned in the statute,” the SJC wrote, such as discretionary bonuses, severance pay and tax-exempt deferred compensation. “Upon review, we discern no reason to conclude that the Legislature intended to include sick pay as ‘wages’ under the Wage Act.”

Although sick time is similar to vacation time in that it often accrues as an employee works for an employer, it can be used only when the employee or a family member is ill.

“Thus, because its usage is conditional, i.e., employees do not have an absolute right to spend down their sick time, employees are not typically compensated for accrued, unused sick time,” the court explained. “And although an employee may use accrued sick time under appropriate conditions, such time may be considered ‘lost’ if not used. Such ‘use it or lose it’ sick time policies are common. Because accrued, unused sick time is not compensable under a ‘use it or lose it’ sick time policy, such time clearly is not a wage under the act.”

The MPA’s policy of paying a certain percentage of that sick time is essentially a contingent bonus paid to separating employees for not having used all of their accrued sick time and not engaging in conduct warranting termination for cause, the SJC said, declining to broadly construe the term “wages” to encompass such a contingent form of compensation.

Under the circumstances of the case, reaching a contrary conclusion would be an absurd result, the court added. The question of whether the agency owed Mui any sick pay at all was in dispute at the time of his separation, and the issue was not resolved until well after the Wage Act deadline had passed.

The SJC reversed and remanded the case for the trial court to enter judgment on the pleadings for the employer.

To read the opinion in Mui v. Massachusetts Port Authority, click here.

EEOC Drives ADA Settlement Against Volvo

Why it matters

In a deal with the Equal Employment Opportunity Commission (EEOC), Volvo agreed to pay $70,000 plus equitable relief after the agency accused the carmaker of rejecting an applicant because he was a recovering drug addict enrolled in a medication-assisted treatment program. A qualified applicant received a conditional job offer to work at Volvo’s Hagerstown, MD, facility. During his post-offer physical exam, he explained that he was taking Suboxone as part of a supervised treatment program as a recovering drug addict. When the applicant reported for his first day of work, Volvo told him he couldn’t be hired because of his Suboxone use. The EEOC filed suit. Volvo should have conducted an individualized assessment to determine what effect, if any, the Suboxone would have on the applicant’s ability to perform the job, the agency said, and the failure to do so violated the Americans with Disabilities Act (ADA). To settle the suit, Volvo agreed to pay the applicant $70,000. The employer also promised to avoid future violations of the statute, amend its policy on post-offer medical and drug evaluations, and provide additional ADA training to its employees.

Detailed discussion

An individual applied for an hourly manufacturing position at the Hagerstown, MD, Volvo facility in October 2014. After an interview, the applicant was offered a job with a Feb. 9, 2015, start date, contingent upon his successful completion of a post-offer, pre-employment physical exam, drug screen, and background check.

During his exam, the applicant disclosed to a nurse that he was taking Suboxone as part of a medication-assisted treatment program as a recovering drug addict. When he reported for his first day of work, the applicant was informed that Volvo was unable to hire him due to his use of Suboxone.

The Equal Employment Opportunity Commission (EEOC) filed suit on the applicant’s behalf, asserting the carmaker violated the Americans with Disabilities Act (ADA). Instead of flatly rejecting the applicant based on his Suboxone use, the employer should have conducted an individualized assessment to determine what effect, if any, the Suboxone had on the applicant’s ability to perform the job, the EEOC said.

Had Volvo looked closer, it would have discovered the applicant had been enrolled in the program since at least 2010, the agency said, undergoing monthly counseling and urine testing to prevent relapse into dependence on opioids and heroin. During this time, he worked as a dockworker and a sanitation worker without incident. At all relevant times, the applicant was qualified to perform the essential functions of the position at Volvo, the EEOC said.

To settle the charges, Volvo agreed to provide $70,000 in monetary relief to the applicant.

In addition, the carmaker entered a three-year consent decree prohibiting future violations of the ADA. The company will amend its policy on post-offer medical and drug evaluations to explain how it will assess whether an employee’s or applicant’s lawful use of prescription medication poses a direct threat as defined by the ADA, including providing a reasonable accommodation as required by the statute.

Volvo will distribute to its Hagerstown workers an ADA policy that explains the right to a reasonable accommodation for a disability unless it would pose an undue hardship and will provide additional ADA training—with time spent on how the law relates to drug screening and the use of lawfully prescribed medications—to its employees.

“Employers should make hiring decisions based on the qualifications of an applicant, not his disability or participation in a medically supervised treatment program,” EEOC Philadelphia District Office Director Jamie R. Williamson said in a statement about the action.

To read the consent decree in EEOC v. Volvo Group North America, LLC, click here.

OSHA Fines Don’t Protect Employer From State Law Claims

Why it matters

Employers may face civil fines under California’s false advertising and unfair competition laws even where violations of the federal Occupational Health and Safety Act (OSH Act) have occurred, the California Supreme Court recently ruled, holding the federal statute does not pre-empt the state laws. After an electric water heater intended for residential use was installed at Solus Industrial Innovations and exploded, killing two employees, the company was cited for five OSH Act violations. The district attorney of Orange County followed up with a lawsuit alleging violations of the false advertising and unfair competition statutes. Solus moved to dismiss, arguing that OSH Act pre-empted the state law claims. But in a unanimous opinion, the state’s highest court disagreed, reversing dismissal of the DA’s suit after concluding there was no implied or express pre-emption of the state law claims.

Detailed discussion

Solus Industrial Innovations operates a facility in Orange County that manufactures plastics. In 2007, the company installed at the facility an electric water heater that was designed for residential use. Two years later, it exploded and killed two employees.

The California Division of Occupational Safety and Health (Cal/OSHA) investigated and charged Solus in an administrative proceeding with five violations of state occupational safety and health regulations. Cal/OSHA also forwarded its investigation results to the district attorney of Orange County.

In 2012, the DA filed criminal charges against Solus’ plant manager and maintenance supervisor as well as a civil action against the company. The complaint alleged four causes of action all based on the same worker health and safety standards placed at issue in the administrative proceeding, seeking civil penalties under the state’s unfair competition law (UCL) and false advertising law (FAL).

Solus demurred on the ground that the causes of action were pre-empted by the federal OSH Act. A trial court disagreed, but an appellate panel reversed, concluding that the UCL and FAL claims were pre-empted by the federal statute.

But in a unanimous opinion, the California Supreme Court reversed. When there is a state plan for workplace safety and health violations approved by the federal Secretary of Labor, the federal act does not pre-empt UCL or FAL claims, the court decided.

The court began with a detailed analysis of the relevant federal and state laws. Under the federal OSH Act, the federal Secretary of Labor shall adopt standards for occupational safety and health, but federal law does not pre-empt state authority when there is no federal standard or there is a state plan for occupational safety and health that has been approved at the federal level, the court explained.

OSH Act was meant to supply a nationwide floor of protection for workers, and states may supply their own standards, the court said. Even where federal standards exist, a state may assume responsibility for developing and enforcing state standards, with the approval of the federal Secretary of Labor.

California’s Division of Occupational Safety and Health submitted a Cal/OSHA plan that was approved in 1973. There was no dispute that violations of the Cal/OSHA standards approved by the federal Secretary of Labor were the basis for the district attorney’s UCL and FAL claims, the court said.

Turning to the question of pre-emption, the court noted that in enacting the federal OSH Act, Congress entered a field that traditionally had been occupied by the states. As a result, the statute does not employ broad language pre-empting all state regulation, laws or remedies with regard to occupational safety and health.

Instead, the statute appears to have pre-empted a “narrow” field, the court found, given that no federal standard previously existed and that states are permitted to assume responsibility for development and enforcement provided they gain approval for the plan. Overall, the federal OSH Act “contemplates a cooperative system of workplace safety regulation, not an exclusively federal one,” the court wrote.

The UCL and FAL claims do not fall within this narrow field of pre-emption, as they are a means of enforcing the law claimed to have been violated, the court said, providing a remedy for economic damage suffered as a result of violations of a wide array of other laws.

“Furthermore, to the extent these claims may be considered an enforcement mechanism with respect to the state plan’s substantive standards, these claims merely supplement enforcement of state standards,” the court wrote. “Federal OSHA’s provisions related to the enforcement of state plans are concerned with ensuring enforcement that is at least as effective as the federal standards; nothing in the federal act suggests a concern with enforcement that exceeds federal requirements.”

Under the circumstances, “there is no ‘clear and manifest evidence’ of a congressional intent to displace state authority over unfair competition and consumer claims that are premised on Cal/OSHA standards,” the court said. “In the absence of a clear and manifest congressional purpose to preempt claims such as the UCL and FAL claims asserted in this action, such claims are encompassed in the presumption against preemption that arises upon a state’s assumption of responsibility under the federal OSH Act to regulate worker safety and health.”

The court reversed the judgment of the appellate panel and remanded the case to the trial court for further proceedings.

To read the opinion in Solus Industrial Innovations, LLC v. Superior Court of Orange County, click here.

Grubhub Scores Victory in Independent Contractor Suit

Why it matters

In a closely watched case, a California federal court judge ruled that a Grubhub driver was correctly classified as an independent contractor. Raef Lawson claimed that he was misclassified by the company and was actually an employee entitled to additional benefits, including minimum wage and overtime. But the court sided with the company, finding that Lawson was not supervised or told when to work, what kind of transportation to use or what routes to drive when he made deliveries. Therefore, Grubhub did not control his work, the court said, although the judge noted the issue likely warrants additional review by the legislature. “Under California law whether an individual performing services for another is an employee or an independent contractor is an all-or-nothing proposition,” the court wrote. “With the advent of the gig economy, and the creation of a low wage workforce performing low skill but highly flexible episodic jobs, the legislature may want to address this stark dichotomy.”

Detailed discussion

Raef Lawson worked as a restaurant delivery driver for Grubhub in Southern California for four months in late 2015 and early 2016. He was added as a plaintiff to a putative wage and class hour action against the company in California state court. The case was bifurcated: The first phase involved a trial on Lawson’s individual claims and whether he was an “aggrieved employee” under the Private Attorneys General Act (PAGA). Assuming the court found in the affirmative, the second phase would resolve the PAGA claim after additional discovery.

A weeklong bench trial was held in September, 2017 before U.S. Magistrate Judge Jacqueline Scott Corley. After considering all the relevant factors, the court ruled Lawson was an independent contractor, not an employee.

“While some factors weigh in favor of an employment relationship, Grubhub’s lack of all necessary control over Mr. Lawson’s work, including how he performed deliveries and even whether or for how long, along with other factors persuade the Court that the contractor classification was appropriate for Mr. Lawson during his brief tenure with Grubhub,” the court said.

Lawson executed a Delivery Service Provider Agreement with Grubhub in August 2015 that stated he was an independent contractor. The company placed no limits on Lawson doing business with others, even competitors, set no minimum period of time for availability, and permitted the use of subcontractors to perform the delivery services. Although Lawson had to provide a description of his vehicle, there were no requirements about what it needed to be. The term of the agreement was 60 days, with automatic renewals for additional 60-day periods.

Grubhub did not require Lawson to undergo any type of mandatory training or onboarding. Although Lawson signed the agreement in August, he did not actually begin making deliveries until two months later. Lawson was paid on a per-order-delivered basis, plus tips and a nominal amount for mileage to the delivery location from the restaurant. If drivers accepted at least 75 percent of the orders offered during their scheduled block of time, Grubhub guaranteed $15 per hour. Lawson took advantage of this “true-up” option on multiple occasions.

Lawson was free to choose the particular route he took to a restaurant as well as for the delivery itself. He could make stops along the way or bring along a friend, with no amount of time specified in which he had to complete the delivery. Although Grubhub provided a shirt and hat that Lawson was supposed to wear in return for the use of the company’s insulated bags, he did not always wear the uniform, and the company did not check whether it was being worn.

The court also noted that Lawson “gamed the system” on multiple occasions. This involved accepting an offer he did not intend to deliver to maintain his acceptance rate and eligibility for the true-up minimum. Lawson would then contact the driver hotline and ask that the delivery be reassigned, which did not affect his acceptance rate.

After reviewing the evidence, Judge Corley applied the multifactor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, a 1989 California Supreme Court opinion. In that case, the court found the principal test of an employment relationship “is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.”

Secondary factors include “(a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee.”

Beginning with the most important factor, the court said Grubhub exercised little control over the details of Lawson’s work. “Grubhub did not control how he made the deliveries—whether by car, motorcycle, scooter or bicycle,” the court wrote. “Nor did it control the condition of the mode of transportation Mr. Lawson chose. Grubhub never inspected or even saw a photograph of Mr. Lawson’s vehicle.”

Nor did the company control Lawson’s appearance, who could be with Lawson in his vehicle, or his work schedule. “Mr. Lawson’s gaming of the Grubhub driver app further illustrates how little control Grubhub had over the details of Mr. Lawson’s work,” the court said. “For weeks, if not months, Mr. Lawson was able to perform little to no deliveries and yet get compensated as if he had been available for entire blocks—and sometimes even past his scheduled blocks—because Grubhub was not supervising his performance.”

Examining the secondary factors, the court found some weighed in favor of an employment rather than an independent contractor relationship. Lawson was not engaged in a distinct occupation or business and needed no special skills to deliver for Grubhub. The method of payment weighed slightly in favor of an employment relationship, as did the fact Lawson’s work was part of Grubhub’s regular business.

Some of the factors tilted in Grubhub’s favor, however, as Lawson did not perform his work under direction or supervision, he provided his own mode of transportation and smartphone, and the engagement was short-lived. The intent of the parties was a neutral factor, the court said.

After considering all the facts and the Borello factors, “the Court finds that all the factors weighed and considered as a whole establish that Mr. Lawson was an independent contractor and not an employee,” Judge Corley wrote. “Of primary significance, Grubhub did not control the manner or means of Mr. Lawson’s work, including whether he worked at all or for how long or how often, or even whether he performed deliveries for Grubhub’s competitors at the same time he had agreed to deliver for Grubhub.”

The court did include a note of caution about the application of the traditional independent contractor/employment test in a changing workforce.

“Under California law whether an individual performing services for another is an employee or an independent contractor is an all-or-nothing proposition,” the court said. “If Mr. Lawson is an employee, he has rights to minimum wage, overtime, expense reimbursement and workers compensation benefits. If he is not, he gets none. With the advent of the gig economy, and the creation of a low wage workforce performing low skill but highly flexible episodic jobs, the legislature may want to address this stark dichotomy.”

To read the opinion in Lawson v. Grubhub, Inc., click here.

Texas Court Halts EEOC’s Background Check Guidance

Why it matters

The Equal Employment Opportunity Commission’s (EEOC) guidance on the use of background checks will remain on hold in Texas after a federal court judge granted partial summary judgment in favor of the state, holding that the agency violated the Administrative Procedure Act (APA). In 2012, the EEOC released guidance warning employers that the blanket use of criminal background checks to block the hiring of those with criminal records could have a disparate impact on minorities, in violation of Title VII. Instead, employers should use background checks on a case-by-case basis, the agency advised. The state of Texas sued, arguing that the EEOC overreached. Considering cross-motions for summary judgment, a federal court agreed that the guidance was a substantive rule that was issued without notice and the opportunity to comment, in violation of the APA, and issued an injunction against enforcement in the state. However, the court also declined to declare that Texas has a right to maintain and enforce its laws and policies that bar convicted felons from serving in any job it deems appropriate. Nor did the court enjoin the EEOC from issuing right-to-sue letters in relation to the denial of employment opportunities based on the criminal history of the job applicant.

Detailed discussion

In 2012, the Equal Employment Opportunity Commission (EEOC) released “Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964.” The guidance emphasized that while the use of criminal justice history information does not violate Title VII per se, an employer may run afoul of the law if the checks result in systemic discrimination based on race, color, national origin, religion or sex.

The state of Texas challenged the guidance and sought declaratory and injunctive relief, arguing that the guidance directly interfered with its authority to impose categorical bans on hiring felons and the ability to discretionarily reject felons for certain jobs. The two-count complaint requested a declaration that Texas has a right to maintain and enforce its laws and policies that absolutely bar convicted felons (or certain categories of convicted felons) from serving in any job the state or legislature deems appropriate. It also sought an injunction preventing the EEOC from enforcing the interpretation of Title VII that appears in the guidance, as well as issuing right-to-sue letters against the state.

Brought under the Administrative Procedure Act (APA), the second count asked the court to find the guidance unlawful and to set it aside as a substantive rule issued without notice and the opportunity for comment.

The EEOC countered that the case was not ripe because the guidance had yet to be enforced against Texas. In addition, the guidance did not violate the requirements of the APA because its only purpose was to update and consolidate all of the EEOC’s prior policy statements about Title VII and the use of criminal records in employment decisions, not expand Title VII’s prohibition against hiring policies that have a disparate impact on protected classes.

U.S. District Judge Sam R. Cummings issued a split decision. He disagreed with Texas that the state has a right to maintain and enforce its laws and policies that absolutely bar convicted felons from serving in any job the state or legislature deems appropriate.

“There are certainly many categories of employment for which specific prior criminal history profiles of applicants would be a poor fit and pose far too great a risk to the interests of the State of Texas and its citizens,” the court said. “However, there may well be instances in which otherwise qualified job applicants with certain felony convictions in their criminal histories pose no objectively reasonable risk to the interests of the State of Texas and its citizens. To find otherwise would be illogical. Thus, a categorical denial of employment opportunities to all job applicants convicted of a prior felony paints with too broad a brush and denies meaningful opportunities of employment to many who could benefit greatly from such employment in certain positions.”

The court also declined to enjoin the EEOC from issuing right-to-sue letters, which are “not a determination by the agency that a meritorious claim exists.”

Although the court granted summary judgment in favor of the EEOC on count one, it did the opposite for the second count, ruling the guidance “is a substantive rule issued without notice and the opportunity for comment,” in violation of the APA. Judge Cummings enjoined the EEOC from enforcing the EEOC’s interpretation of the guidance against Texas “until the EEOC has complied with the notice and comment requirements under the APA for promulgating an enforceable substantive rule.”

To read the order in Texas v. EEOC, click here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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