Employment Law -- May 22, 2013

by Manatt, Phelps & Phillips, LLP

Welcome to the first installment of our bi-monthly employment newsletter. Every two weeks we will highlight recent court decisions and upcoming legislation that impact California employers. We hope you will find the content useful.

In This Issue

The Transition Is Over: Time For The New I-9

The transition to the new I-9 form should now be complete for employers, with the U.S. Citizenship and Immigration Service (USCIS) declining to accept old forms after May 7.

The Employment Eligibility Verification Form I-9 is used to verify the identity and employment authorization of individuals hired for employment in the United States. Both the employee and the employer must complete the form; employers must also examine the employee’s documentation establishing his or her identity and employment authorization and determine if the documents “reasonably appear to be genuine.”

The revised I-9 includes new fields (for employee telephone number, e-mail address and foreign passport information), new formatting intended to reduce errors, and clearer instructions, according to the USCIS. Accompanying the revised form is a new “Handbook for Employers” (M-274), which offers an FAQ section with guidance on the proper completion of the form. The agency estimated that the now two-page form will take roughly 21 more minutes to complete. Employers do not need to complete a new form for existing employees with a valid I-9 on file.

One wrinkle for employers: The fields for employee e-mail and telephone number are actually optional, although the form itself does not indicate that. The request for the contact information has led some commentators to wonder if the agency plans to use it in the course of an audit. Employers must decide whether to inform employees they are not obligated to fill in those fields.

The new forms were released on March 8, but employers had a 60-day grace period to transition to the new forms. Now that the deadline has passed, employers should only be using the revised I-9 or face penalties ranging from $110 to $1,100 per form.

To view the new I-9 form and accompanying instructions, click here.

To review the USCIS Handbook for Employers, click here.

Why it matters: With the use of the new forms now mandatory, employers should be up to speed on the changes. The transition to the new form also provides the opportunity to remind managers and human resources representatives not to treat employees disparately or discriminately during the process of I-9 completion – for example, demanding more documentation than the law requires or rejecting documents that appear to be genuine on their face. Such actions could lead to a discrimination claim, as well as fines from the USCIS.

NLRB Memo Offers Guidance On Confidentiality Policies

Employers may not maintain a blanket rule requiring confidentiality during employee investigations, the National Labor Relations Board (NLRB) recently cautioned – but the NLRB memo also offered guidance on how to properly draft a confidentiality policy.

In an Advice Memorandum from the NLRB’s Office of the General Counsel, the agency considered the confidentiality policy of Tennessee-based Verso Paper, a national paper mill operation. According to the company’s employee code of conduct:

“Verso has a compelling interest in protecting the integrity of its investigations. In every investigation, Verso has a strong desire to protect witnesses from harassment, intimidation and retaliation, to keep evidence from being destroyed, to ensure that testimony is not fabricated, and to prevent a cover-up. To assist Verso in achieving these objectives, we must maintain the investigation and our role in it in strict confidence. If we do not maintain such confidentiality, we may be subject to disciplinary action up to and including immediate termination.”

The NLRB found the policy overbroad and in violation of employee rights pursuant to the National Labor Relations Act (NLRA).

“Employees have a Section 7 right to discuss discipline or disciplinary investigations involving their fellow employees,” according to the memo. “An employer may prohibit employees’ discussion during an investigation only if it demonstrates that it has a legitimate and substantial business justification that outweighs the Section 7 right.”

A blanket policy prohibiting employees from discussing investigations in all cases was therefore invalid, the NLRB determined. Instead, employers must demonstrate “a particularized need for confidentiality in any given situation.” Such a need may arise where there are concerns regarding whether witnesses need special protection, evidence is in danger of being destroyed, or testimony is in danger of being fabricated.

In a footnote, the memo offered specific language to guide employers in drafting a legally sufficient policy. The first two sentences of Verso’s policy validly set forth the interest in protecting the integrity of investigations, the NLRB said. But to lawfully address confidentiality, the memo suggested changing the next two sentences to read:

“Verso may decide in some circumstances that in order to achieve these objectives, we must maintain the investigation and our role in it in strict confidence. If Verso reasonably imposes such a requirement and we do not maintain such confidentiality, we may be subject to disciplinary action up to and including immediate termination.”

To read the NLRB’s advice memorandum to Verso Paper, click here.

Why it matters: Although the NLRB memo is not binding or precedential, it does offer meaningful guidance to employers, particularly in light of last year’s NLRB decision in Banner Health Systems and James A. Navarro. In that case, the Board held that a company violated the NLRA by imposing a blanket policy requiring confidentiality from all employees as a matter of course during internal investigations. The Verso Paper memo now provides model language for employers seeking to craft a legally permissible policy that will both express their interest in protecting the integrity of an employee investigation as well as the importance of confidentiality, determined on a case-by-case basis.

California Employee Bound By Arbitration Agreement

A California Court of Appeal determined that an arbitration agreement in an employee handbook was valid even though the employer could change the handbook at its discretion.

A bail bond investigator for California Surety Investigations signed an acknowledgement that she received an employee handbook which included an agreement to arbitrate all employment-related disputes. When Valerie Serpa later filed suit alleging employment discrimination, wrongful termination and sexual harassment, the company moved to compel arbitration.

Finding that the agreement lacked mutuality, i.e., it only bound employees and not the company, the trial court denied the employer’s motion. But the appellate court disagreed.

The arbitration agreement was not invalid simply because the employer had the right unilaterally to alter the agreement, the court said. The implied covenant of good faith and fair dealing operated as a “fundamental limit” on the employer’s ability to amend the agreement, and therefore it was neither illusory nor unconscionable for lack of mutuality, the panel concluded.

Although plaintiff Serpa argued that the obligation to arbitrate was one-sided, “the agreement’s incorporation of the arbitration policy in the employee handbook salvages the agreement by establishing an unmistakable mutual obligation on the part of [the employer and the employee] to arbitrate ‘any dispute’ arising out of her employment,” the court said.

The court found no merit in the employee’s contention that the obligation to arbitrate was illusory because of the employer’s right to unilaterally change the policy in the handbook at any time. The application of the implied covenant operates to “rein in and restrict” the employer’s otherwise unilateral rights, even where the agreement is silent as to whether notice must be provided. “[I]mplied in the unilateral right to modify is the accompanying obligation to do so upon reasonable and fair notice,” the court said.

The arbitration agreement was not perfect, however. The court found that the attorney fee provision – which required each party to bear its own attorney fees – deprived Serpa of available statutory remedies, like reimbursement of attorneys’ fees, should she prevail on her state law claims under the California Fair Employment and Housing Act. As the offending provision was “plainly collateral” to the main purpose of the contract, the court severed it, leaving the remainder of the arbitration agreement intact.

To read the decision in Serpa v. California Surety Investigations, click here.

Why it matters: The court’s decision strengthens the ability of California employers to enforce binding arbitration agreements with employees. Even though the court found that the arbitration agreement at issue was procedurally unconscionable, the panel determined that it was not substantively unconscionable and, therefore, was enforceable because the obligation to arbitrate was mutual and the implied covenant of good faith and fair dealing restricts the employer’s right to modify the agreement unilaterally.

EEOC Files, Settles First GINA Discrimination Claim

In the Equal Employment Opportunity Commission’s first suit alleging discrimination in violation of the Genetic Information Nondiscrimination Act (GINA), a fabric distribution company agreed to pay $50,000 and stop the use of allegedly illegal inquiries into family medical history.

Rhonda Jones was a temporary employee at Fabricut in Oklahoma. After she was offered a permanent position as a memo clerk, Jones was sent to the company’s medical examiner for a drug test and physical. She was also given a questionnaire that asked about her family history for a number of disorders like cancer, heart disease, diabetes and arthritis, as well as “mental disorders.” The examiner expressed concern that Jones might suffer from carpal tunnel syndrome and instructed her to be evaluated by her personal physician. After testing her, Jones’ doctor concluded that she did not have carpal tunnel syndrome. She notified Fabricut but the company rescinded its offer, relying upon the diagnosis from the medical examiner.

Jones then filed a charge with the agency, alleging violations of Title I of the Americans with Disabilities Act (ADA). During the course of the EEOC’s investigation, the agency discovered the questionnaire completed by Jones. Finding that the questionnaire “reflected an unlawful inquiry for genetic information” on its face, the EEOC added one count of GINA discrimination to the suit filed in Oklahoma federal court.

The parties filed a proposed consent decree the same day. Fabricut did not admit to a violation of the ADA, GINA or any other law. But the company agreed to pay Jones $50,000 and initiate various ADA and GINA antidiscrimination measures, including management and human resources training, as well as the dissemination of company policies on GINA and the ADA to employees.

In addition, Fabricut promised to stop the practice of inquiring into the genetic information of applicants and their family members and will only refer applicants to post-offer health assessments in compliance with the law – i.e., to evaluate the applicant’s present ability to perform the essential functions of the job with or without a potential reasonable accommodation and to determine whether the individual may pose a direct threat to his or her own safety or that of others.

To read the complaint in EEOC v. Fabricut, click here.

To read the proposed consent decree, click here.

Why it matters: The EEOC’s first suit alleging a violation of GINA puts employers on notice that the agency is ready to take action under the statute. “Although GINA has been law since 2009, many employers still do not understand that requesting family medical history, even through a contract medical examiner, violates this law,” EEOC regional attorney Barbara Seely said in a statement about the case. The agency also noted that fighting genetic discrimination is one of six priorities identified in the EEOC’s Strategic Enforcement Plan. With enforcement action on the agency’s radar, employers should review their policies to ensure compliance with GINA, particularly the prohibition on requesting family medical history.

How Will The Supreme Court’s Decision Impact FLSA Collective Actions?

A recent decision from the U.S. Supreme Court has left employment attorneys scratching their heads about the future of collective actions under the Fair Labor Standards Act.

In a 5 to 4 decision the Court held that, by extending an offer of judgment to the named plaintiff in a wage-and-hour collective action, an employer mooted her FLSA claims even where the plaintiff did not accept the offer.

A Pennsylvania-based nurse, Laura Symczyk, claimed that she and her fellow employees had 30 minutes of time automatically deducted from each shift even if they continued to work. When her employer, Genesis Healthcare, answered the complaint, it also served Symczyk with an offer of judgment pursuant to Federal Rule of Procedure 68 for $7,500 for alleged unpaid wages, in addition to “such reasonable attorneys’ fees, costs and expenses … as the Court may determine,” which purportedly fully satisfied her claim. Symczyk failed to respond to the Rule 68 offer within the allotted ten days and the employer then moved to dismiss the suit, arguing that it was moot. The plaintiff no longer possessed a personal stake in the outcome of the litigation, the employer argued. A federal district court agreed.

On appeal, the 3rd Circuit reversed. The panel agreed with Symczyk that the employer should not be allowed to strategically “pick off” a lone named plaintiff and effectively end a FLSA collective action before certification.

But the Supreme Court reversed. Writing for the majority, Justice Clarence Thomas noted that it had been undisputed that the Rule 68 offer fully satisfied Symczyk’s individual claim. He further noted that Symczyk had conceded below that an unaccepted Rule 68 offer that fully satisfies a plaintiff’s claim rendered the plaintiff’s individual claim moot. Accordingly, the Court was assuming that issue without deciding it. Based on that assumption, the Court held that the plaintiff “has no personal interest in representing putative, unnamed claimants, nor any other continuing interest that would preserve her suit from mootness.”

“A straightforward application of well-settled mootness principles compels our answer. In the absence of any claimant’s opting in, respondent’s suit became moot when her individual claim became moot, because she lacked any personal interest in representing others in this action,” the Court held. Distinguishing the nature of an FLSA collective action from a true class action suit, the justices said that “the mere presence of collective-action allegations in the complaint cannot save the suit from mootness once the individual claim is satisfied.”

Parties to a collective action must file written consent with the court to join the suit so that even conditional certification under the FLSA does not produce a class with an independent legal status, or join additional parties to the action, the Court clarified.

As to concerns that employers could mimic Genesis Healthcare’s strategy to pick off plaintiffs, the majority effectively shrugged. “[A] full settlement offer addresses plaintiff’s alleged harm by making the plaintiff whole.”

Justice Elena Kagan authored a spirited dissent, writing that the majority “resolve[d] an imaginary question, based on a mistake the courts below made about this case and others like it.”

Justice Kagan – supported by Justices Ruth Bader Ginsburg, Stephen Breyer and Sonia Sotomayor – said that an unaccepted offer cannot moot a case. “When a plaintiff rejects such an offer – however good the terms – her interest in the lawsuit remains just what it was before. And so too does the court’s ability to grant her relief. An unaccepted settlement offer – like any unaccepted contract offer – is a legal nullity, with no operative effect.” Therefore, she said, the “majority’s decision is fit for nothing” and “serves only to address a make-believe problem.”

To read the decision in Genesis Healthcare v. Symczyk, click here.

Why it matters: The full impact of the decision remains to be seen. The majority opinion affirms one employer strategy for avoiding the fertile area of FLSA litigation – making a full offer of judgment and then moving to dismiss the suit as moot. This tactic could lead to plaintiffs seeking certification earlier in the case, which would allow them to get notice of the suit to other potential plaintiffs and join additional parties to avoid dismissal. But the Court failed to weigh in on a pivotal point: whether the plaintiff’s claim becomes moot if the employer offers a full settlement and the employee fails to respond. According to the dissent, nothing happens and the suit continues. With a split in the federal appellate courts already in place, the issue will likely continue to play out until the justices agree to consider the issue again.

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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