Employment Law - July 2014 #2

by Manatt, Phelps & Phillips, LLP

In This Issue:

  • High Court’s Fall Docket Includes Major Employment Issues
  • Arbitrator, Not Court, Should Decide Whether Class Arbitration Permitted
  • Worker Can Bring FEHA Claim Despite False Papers, California Supreme Court Rules
  • Employer Scores Rare Win After NLRB ALJ Considers Social Media Policy
  • Walgreens Pays $180,000 For Bag Of Potato Chips – And ADA Violation

High Court’s Fall Docket Includes Major Employment Issues

Why it matters: While the 2013-2014 U.S. Supreme Court term may be over, the justices have granted certiorari in two major employment cases slated for the fall. First, the Court will review the Seventh U.S. Circuit Court of Appeals’ decision in EEOC v. Mach Mining, where a three-judge panel held that an employer may not escape a suit filed by the Equal Employment Opportunity Commission (EEOC) by arguing the agency failed to conciliate. The decision broadened a split among the other federal appellate courts (the Second, Fifth, and Eleventh Circuits conduct a three-part review of the conciliation process while the Fourth, Sixth, and Tenth Circuits ask whether the EEOC’s efforts met a minimal level of good faith). In the second case, the justices will consider whether – and to what extent – an employer must provide pregnant employees with work accommodations pursuant to the Pregnancy Discrimination Act (PDA). The Fourth U.S. Circuit Court of Appeals held in Young v. UPS that employers are not required under the PDA to provide pregnant employees with light duty assignments as long as the employer treats pregnant employees the same as non-pregnant employees with respect to offering accommodations. The Young panel reached the opposite conclusion from the Sixth Circuit, creating a split among the federal appellate courts.

Detailed Discussion
In Mach Mining, the Seventh Circuit struck out from its sister circuits to reject an employer’s “failure to conciliate” defense. The case involved a 2008 charge of sex discrimination filed by a female employee of the Illinois-based coal mining company. She claimed that Mach Mining refused multiple applications for coal mining jobs because she was a woman.

The agency investigated and found reasonable cause to believe the company had discriminated against a class of female job applicants. The EEOC then notified the parties of its intent to begin the conciliation process. Although the parties discussed possible resolution, they failed to reach an agreement. In September 2011, the agency informed Mach Mining that it had determined the conciliation process had been unsuccessful and filed suit two weeks later.

Mach Mining responded to the complaint with a motion to dismiss, arguing that the EEOC failed to conciliate in good faith. The agency moved for summary judgment on the ground that failure to conciliate does not provide an affirmative defense to an unlawful discrimination lawsuit.

The Seventh Circuit agreed

“[T]he statutory directive to the EEOC to negotiate first and sue later does not implicitly create a defense for employers who have allegedly violated Title VII,” the panel wrote. The court based its conclusion on the language of Title VII, which does not include even an “outline” for a judicial standard of review, adding that judicial review of the conciliation process could undermine the EEOC’s efforts to enforce the law.

The U.S. Supreme Court granted certiorari on June 30 to hear the case in the fall, agreeing to answer the question: “[w]hether and to what extent may a court enforce the EEOC’s mandatory duty to conciliate discrimination claims before filing suit?”

In a second major employment case, the justices will review a 4th Circuit opinion in a case brought by a part-time driver for UPS. Jeannette Young submitted a doctor’s note that she could not lift more than 20 pounds due to her pregnancy and asked for a light duty accommodation. Citing a company policy not to offer light duty assignments to employees – male or female – because of medical conditions unrelated to work injury, the shipping company refused.

Young sued, arguing that the employer had a duty to accommodate her request under the Pregnancy Discrimination Act, but a federal court in Maryland and the Fourth Circuit both sided with the employer. UPS’s policy was lawful under the statute because “where a policy treats pregnant workers and nonpregnant workers alike, the employer has complied with the PDA,” the federal appellate panel wrote.

With a contrary holding from the 6th Circuit, the decision created a split in the federal appellate courts.

The justices agreed to answer “[w]hether, and in what circumstances, an employer that provides work accommodations to nonpregnant employees with work limitations must provide work accommodations to pregnant employees who are ‘similar in their ability or inability to work.’”

To read the Seventh Circuit’s decision in EEOC v. Mach Mining, click here.

To read the 4th Circuit’s decision in Young v. UPS, click here.

Arbitrator, Not Court, Should Decide Whether Class Arbitration Permitted

Why it matters: An arbitrator should decide whether the parties agreed to allow class arbitration – not a judge, a California appellate court has ruled. In the case, which involved an employee at California Bank & Trust, the handbook at issue mandated binding arbitration of any “controversy or claim arising out” of employment. Pursuant to the handbook, the “arbitrator has exclusive authority to resolve any dispute relating to the interpretation, applicability, or enforceability of this binding agreement.” Reviewing the state of case law addressing arbitration in California, the panel concluded that portions of prior opinions finding delegation clauses unconscionable were no longer viable and that the remaining good law in the cases was insufficient to find the agreement at issue unconscionable. Notably, the court said the former employee’s contention that the delegation clause was unconscionable because arbitrators have a financial interest in finding an agreement arbitrable “discriminates against arbitration, putting agreements to arbitrate on a lesser footing than agreements to select any judicial forum for dispute resolution, and is therefore preempted” by the Federal Arbitration Act (FAA). Employers seeking to uphold arbitration agreements will find much to like in the unanimous decision.

Detailed Discussion
A “wires specialist” at California Bank & Trust, Keeya Malone began working for the financial institution in 2007. At the time, she accepted an employee handbook that contained an arbitration agreement providing for mandatory binding arbitration of “[a]ny legal controversy or claim arising out of” employment.

Governed by the FAA, the agreement also contained a delegation clause providing that “The arbitrator has exclusive authority to resolve any dispute relating to the interpretation, applicability, or enforceability of this binding arbitration agreement.”

After Malone was terminated, she brought a class action wage and hour action against the bank. Relying on the agreement, the bank moved to compel individual arbitration.

Malone argued that the delegation clause itself (as well as the agreement as a whole) was unconscionable. She relied upon three cases from the California appellate courts: Murphy v. Check ‘N Go of California, Bruni v. Didion, and Ontiveros v. DHL Express.

Concluding that portions of the decisions – from 2007 and 2008 – were no longer good law in light of the U.S. Supreme Court’s 2011 decision in AT&T Mobility v. Concepcion, the unanimous panel disagreed. Further, even the law that remained valid from those decisions was insufficient to find the delegation clause unconscionable.

The court reviewed the three California decisions that rejected delegation clauses for three reasons: they were not bilateral, the clause was outside the reasonable expectations of the parties, and the potential for an arbitrator’s self-interest.

The argument regarding an arbitrator’s financial self-interest was preempted by the FAA, the court said, while the bilateral argument was inapplicable to Malone’s agreement. The remaining argument, that the delegation clause was outside the reasonable expectation of the parties, “standing alone, is not sufficient to render the clause unconscionable,” the court said.

Addressing FAA preemption, the court noted that Concepcion emphasized the judicial commitment to treating arbitration agreements as no less than any other contracts. Therefore, the argument that an arbitrator would be more likely to rule in favor of enforceability so that the arbitrator would then be paid to resolve the dispute on the merits is “based on a belief that an arbitrator would be more likely to rule on enforceability issues in favor of a ‘repeat player’ who would have further business for an arbitrator,” the court said.

“This analysis is nothing more than an expression of a judicial hostility to arbitration, based on the assumption that a paid decisionmaker cannot be unbiased, and it, therefore, is wholly barred by the FAA,” the panel wrote. “Indeed, taken to its logical conclusion, this analysis of bias questions the objectivity of arbitrators as a whole, as the very same argument can be made that an arbitrator will tend to rule on the merits in favor of an employer who is a ‘repeat player,’ as opposed to an employee who is not.”

The FAA prevents courts from accepting that view, the court said. With the delegation clause at issue not one-sided, the only remaining argument against arbitration was the fact that it was a contract of adhesion and not within the reasonable expectation of the parties.

“Even if this is true, it is not sufficient to establish unconscionability in the instant case,” the panel said. The clause was clear and unmistakable, not overly harsh or so one-sided as to shock the conscience, and not inherently unfair. The court affirmed the order to compel arbitration, permitting the arbitrator to resolve Malone’s challenges to the validity and enforceability of the arbitration agreement as a whole.

To read the decision in Malone v. Superior Court, click here.

Worker Can Bring FEHA Claim Despite False Papers, California Supreme Court Rules

Why it matters: An immigrant could bring a Fair Employment and Housing Act (FEHA) claim against his employer even though he falsified his employment status to obtain the job, the California Supreme Court recently decided. The court did limit the employee’s potential damages, however, only allowing recovery of lost wages for the time period prior to the employer’s discovery of the misconduct. Ruling that federal law criminalizes the falsifying of federal employment documents but does not prohibit the employee from protecting other rights by filing suit, the court emphasized the legislative goals of FEHA to safeguard workers from “invidious employment discrimination.” Allowing employers to dodge liability would encourage the use of illegal immigrants and subvert the intent of FEHA, the court said. A concurring and dissenting opinion took the position that the U.S. Supreme Court has spoken definitively that an illegal immigrant cannot recover lost wages even where other employment rights have been violated. Could high court review be in the future for the case?

Detailed Discussion
For three years, Vicente Salas worked as a seasonal employee of Sierra Chemical Co. The company takes on more employees in spring and summer as demand increases for its water treatment chemicals, used in swimming pools; the employer then lays off the workers in the fall.

In April 2003, Salas was first hired by Sierra. He provided a Social Security number and resident alien card and completed and signed, under penalty of perjury, Immigration and Naturalization form I-9, as well as the Internal Revenue Service’s W-4 form. Salas later suffered multiple work-related injuries. He was not hired again in the spring of 2007 and he filed suit against Sierra.

Salas made two allegations under California’s FEHA: that he was wrongfully denied employment in violation of the statute as retaliation for filing a workers’ compensation claim and that Sierra failed to make reasonable accommodations for his disability.

During discovery, Salas indicated that he would testify at trial and assert the Fifth Amendment privilege against self-incrimination if asked about his immigration status. In response, Sierra filed a motion for summary judgment (along with a declaration from a man in North Carolina whose Social Security number had been used by Salas without permission).

Based on the doctrines of after-acquired evidence and unclean hands, Sierra argued Salas’ fraudulent use of another person’s Social Security number to obtain employment prevented his lawsuit.

The court began its analysis with the federal Immigration Reform and Control Act (IRCA), which sets forth penalties for both employers and employees for immigration-related fraud. In response to the statute, California enacted Senate Bill 1818, which declared: “All protections, rights and remedies available under state law, except any reinstatement remedy prohibited by federal law, are available to all individuals regardless of immigration status who have applied for employment, or who are or who have been employed, in this state.”

Neither FEHA nor Senate Bill 1818 are completely preempted by IRCA, the court concluded, distinguishing a case from the U.S. Supreme Court, Hoffman Plastic Compounds, Inc. v. NLRB, as focused on the federal statute’s impact on a federal agency applying federal law.

The court divided the issue into two time periods: post-discovery and pre-discovery. “Because under federal immigration law an employer may not continue to employ a worker known to be ineligible, any state law award that compensates an unauthorized alien worker for loss of employment during the post-discovery period directly conflicts with the federal immigration law prohibition against continuing to employ workers whom the employer knows are unauthorized aliens,” the panel wrote.

While IRCA preempted state law for lost pay awards to unauthorized alien workers for the post-discovery period, the pre-discovery period was a different story. The statute “does not prohibit an employer from paying, or an employee from receiving, wages earned during employment wrongfully obtained by false documents, so long as the employer remains unaware of the employee’s unauthorized status,” the court said.

The opposite conclusion – not allowing unauthorized workers to obtain state remedies for unlawful discharge – would “effectively immunize employers that, in violation of fundamental state policy, discriminate against their workers on grounds such as disability or race, retaliate against workers who seek compensation for disabling workplace injuries, or fail to pay the wages that state law requires,” according to the panel.

Employers would be encouraged to hire unauthorized aliens and create a black market for illegal labor while simultaneously frustrating the intent of FEHA by creating a loophole to liability for discrimination actions, the court said.

Analyzing the application of the doctrines of after-acquired evidence and unclean hands, the court held that equitable defenses like unclean hands may not be used “to wholly defeat a claim based on a public policy expressed by the legislature in a statute.”

However, the employee’s wrongdoing should be taken into account when fashioning a remedy under the after-acquired evidence doctrine. “Generally, the employee’s remedies should not afford compensation for loss of employment during the period after the employer’s discovery of the evidence relating to the employee’s wrongdoing,” the court explained.

In the case at hand, the employee presented evidence that a manager assured employees who received letters from Social Security questioning their documents that they would not be terminated if their work was satisfactory. If true, this evidence could support a finding that the employer looked the other way about employees’ unauthorized status and could make more remedies available to the employee, the court said.

Although the decision was unanimous, two judges filed a concurring and dissenting opinion, disagreeing with the majority’s holding on the issue of federal preemption as the U.S. Supreme Court “has made crystal clear that federal immigration policy, as set forth in IRCA, is critically undermined by the award of post-termination lost wages to an alien who is not legally present or authorized to work in this country, and who committed criminal immigration fraud to obtain the job, even when the alien was wrongfully terminated in violation of another law generally intended for the protection of workers’ rights.”

To read the decision in Salas v. Sierra Chemical Co, click here.

Employer Scores Rare Win After NLRB ALJ Considers Social Media Policy

Why it matters: Employers have lately faced tough scrutiny from the National Labor Relations Board (NLRB) and the agency’s administrative law judges (ALJ) about employment policies. Employee handbooks and other policies addressing issues ranging from social media to confidentiality to hats have all been struck down as violations of employee rights under the National Labor Relations Act (NLRA). In a rare win, an ALJ recently held that a social media policy drafted by Landry’s, Inc. – the parent company behind restaurants including Bubba Gump Shrimp Co. – did not violate the NLRA. The policy featured cautionary language, the decision explained, and did not explicitly prohibit workers from posting job-related information. Instead, the employer warned employees to think long and hard before posting comments that might hurt or defame co-workers or cause a decrease in morale. “In other words, it is not the job-related subject matter of the postings that are of concern to the [employer], but rather the manner in which the subject matter is articulated and debated among the employees,” the ALJ wrote.

Detailed Discussion
Based on a charge filed by a former employee, the NLRB investigated Bubba Gump Shrimp Co., a wholly owned subsidiary of Texas-based Landry’s, Inc. A former server at a Bubba Gump restaurant in Monterey, California claimed that she was illegally terminated because of a Facebook post.

The Regional Office determined that Sophia Flores was not fired in violation of the NLRA. But the Regional Office also concluded that the social media policy in place at the time of Flores’ employment was unlawful and issued a complaint.

The policy stated: “While your free time is generally not subject to any restriction by the Company, the Company urges all employees not to post information regarding the Company, their jobs, or other employees which could lead to morale issues in the workplace or detrimentally affect the Company’s business. This can be accomplished by always thinking before you post, being civil to others and their opinions, and not posting personal information about others unless you have received their permission.…”

“Be also mindful that if the Company receives a complaint from an employee about information that you have posted about that employee, the Company may need to investigate that complaint to insure that there has been no violation of the harassment policy or other Company policy. In the event there is such a complaint, you will be expected to cooperate in any investigation of that complaint, including providing access to the posts at issue.”

A later section added that prior written approval was required to “use any words, logos, or other marks that would infringe upon the trademark, service mark, certification mark, or other intellectual property rights of the Company or its business partners.”

Could employees reasonably construe the policy to prohibit activity protected by the NLRA?

After briefing and a hearing, ALJ Gerald A. Wacknov answered in the negative.

The policy did not explicitly prohibit employees from posting their own job-related information or information regarding the jobs of coworkers, personal information regarding coworkers, or information regarding the company, he said.

“Rather it urges employees not to do so if such information is likely to create morale problems,” Wacknov wrote. “[T]he cautionary language is modified by the language in the next sentences which may be understood to clarify that the avoidance of morale problems may be ‘accomplished’ by simply being civil to others and their opinions.”

In other words, “it is not the job-related subject matter of the postings that are of concern to [the employer], but rather the manner in which the subject matter is articulated and debated among the employees,” he added. “Forethought and civility in the exercise of protected concerted or union activity are not mutually exclusive concepts.”

Lacking restrictions against posting “personnel” information or “payroll information,” the policy does not violate the NLRA, the ALJ said.

Turning to the prohibition on using the “words, logos, or other marks” of Landry’s without preauthorization, the decision rejected the NLRB’s argument that legal training was necessary to understand the implications of such language. “A critical reading of [the paragraph] would cause a conscientious employee to carefully evaluate its applicability to union-related or concerted activity-related media postings,” Wacknov wrote. “As infringement is not defined, the employee is placed in the position of having to exercise his or her best judgment in determining whether postings that include particular ‘words, logos, or other marks’ may run afoul of the provision.” The provision could more accurately be characterized as encouraging employees to respect the laws, the ALJ said.

Finally, he noted that the policy is no longer in effect, having been updated in a later edition of the employee handbook, and that no evidence existed that any of the social media provisions were actually enforced against any employee.

Based on these findings, the ALJ dismissed the complaint in its entirety.

To read the ALJ’s decision in the case against Landry’s, Inc., click here.

Walgreens Pays $180,000 For Bag Of Potato Chips – And ADA Violation

Why it matters: A bag of potato chips just cost Walgreens $180,000. The national pharmacy chain agreed to the payment to avoid an Equal Employment Opportunity Commission (EEOC) suit alleging discrimination in violation of the Americans with Disabilities Act (ADA) after terminating an employee who ate the chips without paying for them. The employee said she took the $1.39 bag of chips off the shelf and ate it because her blood sugar was low and she was trying to stabilize herself to avoid a hypoglycemic attack. Although the EEOC alleged that Walgreens knew about the employee’s Type II diabetes, she was terminated. The payment includes both emotional distress and lost wages for the former employee, and the company will also update its policies and provide additional training to employees regarding compliance with the ADA.

Detailed Discussion
Josefina Hernandez worked as a cashier at a South San Francisco Walgreens. An employee of the company for 18 years with no disciplinary record, Hernandez took a $1.39 bag of potato chips off the shelf in September 2008 and ate them to stabilize her blood sugar level during a hypoglycemic attack while stocking shelves.

She claimed that after she started feeling better, she went to pay for the chips but no one was at the register. She put the chips under the counter and returned to restocking items.

When asked for an explanation by a security officer about why she took the chips without paying first, Hernandez wrote, “My sugar low. Not have time.” The guard later testified that he did not understand why she ate the chips nor did he ask for clarification of her written statement. Hernandez was terminated for violating a Walgreens “anti-grazing” policy that no matter the cost, employees may not eat any food from the shelves without first paying for it.

But Walgreens knew Hernandez suffered from Type II diabetes, the EEOC said in its subsequent lawsuit, filed in California federal court. The company had allowed her to keep candy nearby in case of low blood sugar, keep her insulin in the break room refrigerator, and take additional breaks to test her blood sugar or eat because of her diabetes. The agency alleged Walgreens committed a twofold violation of the ADA: terminating a qualified employee due to a disability and failing to make a reasonable accommodation.

Denying Walgreens’ motion for summary judgment in the suit, U.S. District Court Judge William Orrick wrote that the company “failed to allege any misconduct that is unrelated to [Hernandez’s] disability.” The parties then reached a deal.

In addition to the $180,000 payment – which includes both lost wages and emotional distress – the agreement requires Walgreens to update its policy regarding the accommodation of disabled employees and post it on the employee intranet site as well as conduct anti-discrimination training.

Walgreens did not admit fault in the consent decree.

To read the summary judgment order in EEOC v. Walgreen Co., click here.

To read the consent decree, 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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