Employment Law -- Sep 27, 2013

by Manatt, Phelps & Phillips, LLP

In This Issue:

California Minimum Wage Reaches New High

California employers should brace themselves to shell out higher wages with the state set to raise the minimum wage to $10 per hour by 2016.

Currently, the state minimum wage is set at $8 per hour. Only seven other states have a rate at $8 or higher; the federal minimum wage is $7.25.

The increase will take place in stages, with a hike to $9 by July 1, 2014, and $10 by January 1, 2016.

Both the state Senate and Assembly passed the bill and sent it to Governor Jerry Brown, who is expected to sign it into law. “The minimum wage has not kept pace with rising costs,” Governor Brown said in a statement. “This legislation is overdue and will help families struggling in this harsh economy.”

The legislation faced significant resistance. Opponents argued that employers would be unable to afford the higher wage and that the increase would slow down economic recovery in the state, possibly leading to layoffs.

But backers managed to garner enough support to pass the bill, which will make California the state with the highest minimum wage in the country (Washington currently holds the title with workers earning $9.19 per hour).

California’s passage of the bill may be indicative of a national trend, as three other states increased their minimum wage this year.

The current rate of $7.25 in New York will go up to $8 by the end of 2013, increase to $8.75 by the end of 2014, and reach $9 by the end of 2015. Connecticut employers will also pay $9 per hour beginning January 1, 2015, increasing from the current $8.25 to $8.70 by January 1, 2014. And Rhode Island workers will earn $8 per hour beginning January 1, 2014, up from $7.75.

Why it matters: While employers in California, Connecticut, New York, and Rhode Island prepare to pay their employees more, employers in other states should pay close attention. Jurisdictions such as Alaska, Hawaii, Idaho, Illinois, Maryland, Massachusetts, Minnesota, New Jersey, South Dakota, and Washington, D.C., are all considering increases to the state minimum wage, either through legislation or ballot measures.

Abercrombie & Fitch’s Refusal to Accommodate Hijab Violated Title VII

A recent decision from a California federal court provides a valuable lesson to employers about what to do when an employee seeks to wear a head covering that conflicts with a company dress code.

As a practicing Muslim female, Umme-Hani Khan wore a hijab in public or in the presence of men who are not immediate family members. When she was hired as a part-time employee at Abercrombie & Fitch, she agreed to abide by the company’s “Look Policy,” which prohibited employees from wearing headwear.

Khan wore her headscarf when she interviewed for the position and wore it for her first four months of work at the California store without incident. But a visiting district manager noticed that Khan was not in compliance with the Look Policy and reported her to Human Resources. When Khan refused to remove her hijab because of her religious beliefs, she was first suspended and then terminated.

She filed a complaint with the Equal Employment Opportunity Commission, which brought suit against Abercrombie on Khan’s behalf.

Abercrombie argued that because of its Look Policy, it could not reasonably accommodate Khan’s hijab without undue hardship. Compliance with the Look Policy “is key” to the company’s success, Abercrombie contended, and deviations from the policy detract from the in-store experience and have a negative impact on the brand.

But U.S. District Court Judge Yvonne Gonzalez Rogers disagreed. Noting judicial skepticism of “hypothetical hardships” where accommodations have never been put into practice, she said that “the record was devoid of any evidence that Abercrombie actually initiated good faith efforts to accommodate Khan. The only option offered to Khan was ‘to comply with The Look Policy’ or, put another way, to ‘wear the hijab on her own personal time but not in the store.’ ”

Abercrombie also failed to back up its claim of hardship, she wrote. The retailer presented unsubstantiated opinion testimony from its own employees, which was “not linked to any credible evidence,” Judge Rogers said. Khan actually wore her hijab for four months and yet “Abercrombie failed to proffer any evidence from those four months showing a decline in sales in the store; customer complaints or confusion; or brand damage linked to Khan’s wearing of a hijab.”

The company applied its Look Policy inconsistently, the judge added. Discovery revealed that Abercrombie granted almost 80 exceptions to the policy since 2005, allowing male employees to wear a yarmulke or baseball cap as well as more than 16 exceptions for headscarves.

“To the extent that Abercrombie argues more broadly that an accommodation for Khan would have threatened the core of its business model and the company’s overall success, the court is not persuaded,” Judge Rogers concluded. “Abercrombie must provide more than generalized subjective beliefs or assumptions that deviations from the Look Policy negatively affect the sales or the brand. The evidence presented does not raise a triable issue that a hardship, must less an undue hardship, would have resulted from allowing Khan to wear her hijab, particularly where she had already been wearing the hijab on the job for four months without any complaints, disruption, or a noticeable effect on sales.”

Granting summary judgment for Khan, the court said damages would be determined at a later date. But because Abercrombie offered Khan “just one option – to remove her hijab despite her religious beliefs,” punitive damages may be appropriate based on malice, reckless indifference, or in the face of a perceived risk that its actions violate federal law, Judge Rogers said.

To read the decision in EEOC v. Abercrombie & Fitch, click here.

Why it matters: Dress codes serve an important purpose for employers, particularly if the company wants to present a certain image, like Abercrombie & Fitch. When faced with an employee seeking to deviate from a dress code for religious reasons, employers first need to consider whether they can reasonably accommodate the request pursuant to Title VII. In Khan’s case, Abercrombie could have requested that her headscarf match company colors, for example. Employers do have some discretion and are not required to accommodate every request if it poses an undue hardship. Courts have interpreted the “undue hardship” requirement to require a showing of something more than a de minimis burden. Evidence of a disruption in the work environment or a decline in sales would suffice; unfortunately for Abercrombie, it was unable to provide more than generalized subjective beliefs, leaving the company on the hook for religious discrimination–and the potential for punitive damages.

Ninth Circuit: Employer Can Arbitrate Wage and Hour Claims

Emphasizing the importance of upholding arbitration agreements, the Ninth U.S. Circuit Court of Appeals compelled arbitration in an employee’s wage and hour suit despite the employer’s delay in asserting its rights.

Former Ernst & Young financial managing associate Melissa Richards filed suit, making various wage-related claims, seeking unpaid overtime, compensation for the failure to provide meal and rest breaks, and injunctive relief.

The case proceeded through pretrial actions, including discovery and a federal district court ruling dismissing some of Richards’ claims. Only after years of litigation (and a favorable decision from the U.S. Supreme Court in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011)) did Ernst & Young file a motion to compel arbitration based upon a provision in Richards’ employment agreement.

Richards objected. She said E&Y had waived its rights by not raising the issue in a case brought by two other employees that was consolidated with hers. She also argued that E&Y shouldn’t be allowed to switch gears at such a late date after she had already spent years incurring costs and litigating the case.

Arbitration agreements must be upheld, the federal appellate panel concluded, and the waiver of a contractual right to arbitrate is disfavored by courts. Richards failed to meet her heavy burden to overcome this presumption. Even the lower court’s ruling dismissing some of her claims was not a decision on the merits because one dismissal was based on a jurisdictional issue and the other claim was dismissed without prejudice.

Further, the money Richards spent on discovery could be useful in arbitration and constituted “self-inflicted” expenses, the court said. “Richards was a ‘part[y] to an agreement making arbitration of disputes mandatory,’ and therefore ‘[a]ny extra expense incurred as a result of [Ms. Richards’] deliberate choice of an improper forum, in contravention of their contract, cannot be charged to’ Ernst & Young,” the court wrote.

As a fallback argument, Richards suggested the Ninth Circuit rely upon a decision from the National Labor Relations Board, D.R. Horton. In that case, the Board held that an employer could not enforce an arbitration provision because it contained a class waiver, which violated the employee’s rights to engage in “concerted action for mutual aid or protection” under the National Labor Relations Act.

Joining the majority of other courts to have considered the application of Horton–including federal courts in Arkansas, California and New York, as well as the Second and Eighth Circuits–the Ninth Circuit said the Board’s decision “conflicts with the explicit pronouncements of the Supreme Court concerning the policies undergirding the Federal Arbitration Act” and declined to follow it.

Emphasizing the U.S. Supreme Court’s proarbitration stance made explicit in several recent rulings, the panel said it must “rigorously enforce” arbitration agreements according to their terms.

To read the decision in Richards v. Ernst & Young, click here.

Why it matters: For employers seeking to enforce arbitration agreements – particularly those containing waivers of class or collective rights – the Richards decision has a lot to like. Not only did the court find that a delay in asserting arbitration rights did not prejudice the plaintiff, but also the court declined to adopt the NLRB’s position disfavoring arbitration agreements. Instead, the Ninth Circuit joined the majority of courts to consider the issue and threw its support behind arbitration in the employment context. Even where employees file a lawsuit against an employer and challenge an underlying arbitration agreement, employers in the Ninth Circuit are able to compel arbitration.

What is Required of a Secondary Employer Under the FMLA?

Employers making use of staffing agency workers to fill positions may not be on the hook to provide leave pursuant to the Family Medical Leave Act, the Fifth U.S. Circuit Court of Appeals determined, but some obligations still apply under the statute.

Texas-based Keppel Amfels builds and repairs offshore drilling platforms and marine vessels. The company turned to staffing agency Perma-Temp for about half of its positions, calling when it had an opening. The staffing agency would select three or four candidates for Keppel Amfels, which would then fill the job.

Jessica Cuellar filled a position at Keppel Amfels as a material information clerk for about 14 months until she went into preterm labor. Three days later, her job was taken by another employee not from the staffing agency; no position was held open for Cuellar.

When she was released to return to work, Cuellar was told Keppel Amfels was “doing fine without her” and that she was eligible for rehire if another position opened. Perma-Temp did not refer Cuellar back to Keppel Amfels or request that the company reinstate her.

Cuellar then sued Keppel Amfels for allegedly violating the FMLA by convincing Perma-Temp not to seek her reinstatement and retaliating against her based on her exercise of rights under the statute.

But the court granted summary judgment for Keppel Amfels, finding that the company was Cuellar’s secondary employer. Businesses may be joint employers under the FMLA. Because Cuellar obtained her employment through Perma-Temp, the staffing agency was her primary employer.

Responsibility for both FMLA leave and job restoration falls to the primary employer, the three-judge panel said. “A secondary employer bears only a conditional burden: it ‘is responsible for accepting an employee returning from FMLA leave . . . if [it] continues to utilize an employee from the temporary placement agency, and the agency chooses to place the employee with the secondary employer.”

Secondary employers do have some FMLA obligations, including “compliance with the prohibited acts provisions,” which include interference with FMLA rights by discouraging the use of statutory leave or discrimination based upon the use of FMLA leave.

Cuellar argued that by replacing her, telling Perma-Temp that her employment was terminated, and informing her that she no longer had a position at the company, Keppel Amfels prevented her from fully exercising her right to be reinstated.

“The regulations permit, even expect, a secondary employer to rely on a primary employer to provide FMLA leave: a temporary employee’s relationship with a secondary employer may end and never be restored without any violation of the FMLA,” the court concluded. “[W]e agree with Keppel Amfels that to hold it liable on these facts would be to place it in the position of a primary employer and, therefore, create an employment relationship that did not exist prior to Cuellar’s leave.”

To read the opinion in Cuellar v. Keppel Amfels, click here.

Why it matters: Employers that utilize staffing companies to fill employment positions, take note: the Fifth Circuit decision reiterates that a different burden exists when FMLA rights are triggered. If an employee is employed by a staffing agency, the secondary employer is not required to provide leave under the statute and bears only a conditional burden to accept a returning employee. The court emphasized that employees are not entitled to any position to which they would not have been entitled had leave not been taken. However, some duties do remain: secondary employers may not interfere with or retaliate on account of the employee’s exercise of FMLA rights. Secondary employers should be careful not to violate these provisions by not discouraging an employee from using his or her FMLA leave, for example, or retaliating against the employee by terminating him or her at or around the time a return from leave is scheduled.

Job-Related Testing Legal Despite Disparate Impact on Older Employees

A group of over-50 security guards can’t sue their former employer based on job-related testing they repeatedly failed, resulting in their termination, the Tenth U.S. Circuit Court of Appeals recently determined.

Amtex Security, Inc., provides security guards to the United States Army. As part of the contract between the parties, the Army requires the guards to pass an annual physical agility test. Before 2010, the test divided standards based on age.

But after reviewing its regulations, the Army told Amtex that all guards had to meet the same standard–regardless of age.

Ten Amtex employees over the age of 50, working as Army-contract security guards, failed to pass the test twice and were terminated. They filed a putative class action suit pursuant to the Age Discrimination and Employment Act.

Although the plaintiffs had indeed established a prima facie case of disparate treatment in violation of the ADEA, the Tenth Circuit concluded that their termination was for a “legitimate, non-discriminatory business purpose.”

In vain, the guards argued that Amtex could have delayed implementation of the new standards, sought an exemption from the requirements, or allowed them to take an alternative test.

“Amtex presented evidence [that] the Army required implementation of the new [standards] in January 2010; that Amtex was required to comply with the new [standards], and that the Army, not Amtex, refused to allow the plaintiffs to take an alternate test,” the court wrote.

The employer similarly overcame a disparate impact claim by the plaintiffs, despite evidence that the new standards had a “significant” effect on those over 40. “Amtex met its burden of producing evidence that its use of the new [standards] was based on a reasonable factor other than age, namely to satisfy the requirements of its contract with the Army,” the three-judge panel said.

To read the decision in Dugan v. Amtex Security, Inc., click here.

Why it matters: Job-related testing that adversely affects older employees may be legal. As explained by the Tenth Circuit, the testing must be based on a reasonable factor other than age – in the Dugan case, the security guard company was required to adopt the new testing standards to satisfy the requirements of its contract with the Army. Employers relying upon job-related testing that may have a disparate impact on older employees should be prepared to establish that it is based upon a reasonable, business-related purpose and is not a pretext for age discrimination.

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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