International Employment Law Review: August 2013 - Issue 4: Recent Employment Law Developments in the United States

by Dechert LLP

U.S. Supreme Court Decisions

Court Limits Definition of “Supervisor” Under Federal Anti-Discrimination Law

In Vance v. Ball State University (June 24, 2013), in a 5-4 decision, a majority of the Supreme Court held that an employee is only a supervisor for employer liability purposes under Title VII if the employee is empowered to take tangible employment actions (e.g. hire, fire, promote). The central question in the case was whether an employee who occasionally directed some of the daily work activities of the plaintiff qualified as a supervisor for Title VII purposes. The majority refused to adopt the Equal Employment Opportunity Commission’s more expansive definition of a supervisor, which included workers empowered to direct the daily work activities of other employees but who could not take tangible actions against them. Under Title VII, an employer is strictly liable for any unlawful tangible actions taken by a harassing-supervisor against a victim employee, but may be able to avail a defense in circumstances where the supervisor did not take a tangible action. In contrast, if the harassing individual is the victim’s co-worker, an employer is liable only if that employer was negligent in controlling working conditions and either knew or should of known about the offensive conduct and failed to take appropriate corrective action. The majority opinion, penned by Justice Alito, explained that limiting “supervisors” for Title VII purposes to those who can take tangible action against employees is important for clarity and ease of application, particularly when faced with the EEOC’s broader definition which Justice Alito described as a “study of ambiguity.” Justice Ginsberg, in a lengthy dissent joined by Justices Breyer, Sotomayer, and Kagan, characterized that the majority’s narrow definition of supervisor as disconnected from the realities under which members of the work force labor.

Court Rules that Title VII Retaliation Claims Require “But-For” Causation Rather Than Simply Proof That Retaliation Was a “Motivating Factor”

In University of Texas Southwestern Medical Center v. Nassar, the Supreme Court held that retaliation claims under Title VII of the Civil Rights Act of 1964 (Title VII) must be proved with using a traditional “but-for causation” test, rather the more lenient “motivating-factor” standard that applies to most discrimination claims. In enacting the Civil Rights Act of 1991, Congress amended Title VII to provide that allegations of discrimination can be based on plaintiff’s claim that one of his or her protected characteristics—race, color, religion, sex, or national origin—was a “motivating factor for any employment practice, even though other factors also motivated the practice.” However, Congress did not explicitly apply the same standard to retaliation claims and in fact did not change the retaliation section, which states that an employer cannot discriminate against an employee “because he had opposed any practice made an unlawful employment practice by this subchapter...”

In a 5-4 decision drafted by Justice Kennedy, the Court rejected the lower court’s application of the motivating factor test, noting that the principle that the harm would not have occurred without the plaintiff’s conduct is “textbook tort law.” The Court then concluded that its precedent established that the text of the retaliation provision, which requires that the employer acted “because” of the protected conduct, required but-for causation. Further, the Court rejected the argument by both respondent and the United States as amicus curiae that discrimination and retaliation should be treated similarly, because “retaliation for complaining about race discrimination is ‘discrimination based on race.’” The Court determined that the plain language of the statute indicates that Congress decided to keep those claims separate and apply motivating-factor causation to only five out of seven provisions.

Court Continues Trend Strongly Favoring Enforcement of Arbitration Agreements.

In recent years, the Court has issued numerous decisions reflecting its belief in the sanctity of arbitration agreements. The Court continued this trend during its current term, issuing two decisions, Oxford Health Plans LLC v. Sutter, No. 12-135 (June 10, 2013), and American Express Co. v. Italian Colors Restaurant, No. 12-133 (June 20, 2013), that reaffirm the Court’s belief that arbitration agreements should be strictly enforced according to their terms.

In Oxford Health, the Court unanimously held that an arbitrator did not exceed his power under the Federal Arbitration Act (FAA) when he concluded that a broadly worded arbitration clause permitted class arbitration. The Court reached this conclusion despite the fact that the clause did not explicitly mention class arbitration, finding that the arbitrator’s decision was based on an interpretation of the language in the parties’ contract. Thus, the Court upheld the arbitrator’s ruling that a pediatrician could proceed with class arbitration against Oxford Health Plans. Relying on the Court’s ruling in Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., 559 U.S. 662 (2010), that “[a]n arbitrator may employ class procedures only if the parties have authorized them,” Oxford argued that the arbitration provision did not provide any basis for concluding that the parties’ agreed to class arbitration. The Court rejected this request, emphasizing that the scope of judicial review of an arbitrator’s decision is extremely narrow; specifically, the FAA only “permits courts to vacate an arbitral decision only when the arbitrator strayed from his delegated task of interpreting a contract, not when he [or she] performed that task poorly.” In this case, because the arbitrator’s conclusion that the arbitration clause permitted arbitration of class claims constituted an interpretation of the parties’ agreement, the court could not vacate that decision regardless of arguments that arbitrator committed error or serious error.

In American Express, the Court rejected an antitrust challenge by small business owners to enforcement of a class action waiver contained in an arbitration clause contained in an agreement compelling businesses accepting American Express credit cards to accept cards that have rates substantially higher than competing cards. According to the business owners, the class waiver was unenforceable because the value of each business’s claims were small and preventing the businesses from proceeding on a class basis imposed “prohibitive costs” that frustrated enforcement of federal antitrust laws. In a 5-4 decision authored by Justice Scalia, the Court sided with American Express, holding that because “the antitrust laws do not guarantee an affordable procedural path to vindication of every claim,” there was no basis for refusing to honor the Federal Arbitration Act’s directive that arbitration agreements be enforced on the same basis as other contracts. Enforcement of the class waiver did not preclude the business owners from “effectively vindicating” their statutory rights because the waiver did not eliminate the businesses “right to pursue” their claims under the antitrust laws. While American Express is not an employment law case, the principle it reflects likely applies equally to challenges to class waivers in the employment context.

Court Rejects Use of Equitable Defenses to Contravene Unambiguous ERISA Plan Language, But Holds that Equitable Principles Can Assist in Interpreting Plan Provisions

In US Airways, Inc. v. McCutchen, No. 11-1285 (April 16, 2013), the Supreme Court unanimously concluded that the equitable doctrine of unjust enrichment could not override the clear terms of a plan governed by the Employee Retirement Income Security Act (ERISA). However, a five-member majority concluded, where a plan is ambiguous, equitable principles may be used to construe it. Relying on this latter holding, the Court found in favor of McCutchen, a participant in US Airways’ medical plan who contended that application of the plan’s reimbursement language unjustly enriched US Airways. McCutchen’s dispute with US Airways arose after he was seriously injured in a car accident involving an uninsured driver. As a result of the accident, US Airways’ plan paid a total of $66,866 in medical expenses for McCutchen. After retaining counsel, McCutchen was able to obtain a payment of $110,000, 40% of which went to his attorneys. Upon learning of McCutchen’s recovery, US Airways invoked language in the plan entitling it to reimbursement of its expenses from any money recovered by McCutchen from third parties. McCutchen refused to pay, contending that requiring reimbursement would result in a net loss to him after payment of his attorneys. In an opinion by Justice Kagan, the Supreme Court rejected McCutchen’s argument, holding that equitable principles are “beside the point when parties demand what they bargained for in a valid agreement.” However, in an unexpected ruling, five members of the Court concluded that the language of US Airways’ plan was ambiguous and that equitable principles (in this case, the “common fund doctrine,” which holds that where a party recovers a “common fund” for benefit of others in addition to himself, a reasonable attorney’s fee may be paid from the fund) could be used to resolve that ambiguity. Accordingly, because the plan “does not advert to the costs of recovery, it is properly read to retain the common fund doctrine.”

Other Notable Developments

Court Holds that “Black Swan” Interns Were Employees Covered by the Fair Labor Standards Act

In Glatt v. Fox Searchlight Pictures, Inc., No. 11-6784 (S.D.N.Y. June 11, 2013), a federal district court determined that two unpaid interns who worked on production of the film Black Swan were employees for purposes of the federal Fair Labor Standards Act (FLSA) and the New York Labor Law’s wage-and-hour provisions. This case is one of several recent cases brought by unpaid interns in the media industry who claim that they should have been classified as employees and paid for all hours worked. The U.S. Department of Labor (DOL), the agency charged with administering the FLSA, has concluded that an intern must be paid for all hours worked unless all six of the following criteria are met: (1) the internship is similar to training received in an educational environment; (2) the internship experience is for the intern’s benefit; (3) the intern does not displace regular employees but works under the close supervision of existing staff; (4) the hiring entity receives no immediate advantage from the intern’s efforts and may actually be impeded on occasion; (5) the intern is not entitled to a job at the conclusion of the internship; and (6) both parties understand that the internship is unpaid. Courts, including Glatt, often focus on these factors but employ a more flexible totality-of-the-circumstances approach. In Glatt, the interns performed clerical work, such as making photocopies, running errands, and answering phones. They did not receive training similar to that of an educational program and performed work that immediately benefitted the hiring entity. Without the interns, regular employees would have performed these tasks. Accordingly, the court concluded that these unpaid interns should have been classified as employees and paid in accordance with the federal and state wage-and-hour laws.

Eleventh Circuit Holds that the ADA’s Medical Inquiry Rules Apply to Non-Disabled Employees, But Finds That Employer Validly Required Employee to Take Psychological Fitness-For-Duty Test

On May 8, 2013, the Eleventh Circuit ruled that Coca-Cola did not violate the Americans with Disabilities Act (ADA) by requiring an employee who had banged his fists on the table and stated that someone was “going to pay for this” to take a psychological fitness-for-duty examination. Owusu-Ansah v. The Coca-Cola Company, No. 11-13663 (11th Cir. May 8, 2013). In this case of first impression, the Eleventh Circuit court affirmed the lower court’s grant of summary judgment against Franklin Owusu-Ansah. The Court followed the Second, Sixth, Eighth and Tenth Circuits in its determination that an employee need not first prove he is “disabled” for the purposes of the ADA in order to claim protection under the ADA’s prohibition against unwarranted medical inquiries by an employer, 42 U.S.C. § 12112(d)(4)(A). But even though the court found that Owusu-Ansah need not first prove that he was disabled, and thus that he could state a claim under 42 U.S.C. § 12112(d)(4)(A), the court held that he could not rebut Coca-Cola’s evidence that the evaluation was “job-related and consistent with business necessity.” The ADA provides that an entity shall not make inquiries about an employee’s disability or potential disability “unless such examination or inquiry is shown to be job-related and consistent with business necessity.” 42 U.S.C. § 12112(d)(4)A). The court determined that the record showed that Coca-Cola had a “reasonable, objective concern about Owusu-Ansah’s mental state, which affected job performance and potentially threatened the safety of its other employees.”

Two Courts of Appeals Reject the National Labor Relations Board’s Requirement that All Employers Post Notice of Employees’ Right to Unionize

The National Labor Relations Act (NLRA) governs the rights of employees to form a union and otherwise act collectively “for mutual aid and protection.” On August 30, 2011, the Board issued a final rule requiring most private employers to post a notice of employee rights under the NLRA in the workplace. Significantly, the requirement applied not only to union workplaces, but also to workplaces without unions. Numerous court challenges to the Board’s statutory authority to impose the posting requirement were immediately filed, including federal court actions in Washington, D.C. and South Carolina. On May 7, the Court of Appeals for the D.C. Circuit rejected the notice requirement. National Ass'n of Mfrs. v. N.L.R.B., No. 12-5068 (D.C. Cir. May 7, 2013). The court’s conclusion was based largely on the language of § 8(c) of the NLRA, which prohibits the NLRB from finding that an employer has committed an unfair labor practice merely by “expressing any views, argument or opinion” unaccompanied by a “threat of reprisal or force or promise of benefit.” The notice-posting rule, the court held, violates § 8(c) because it “find[s] noncoercive speech to be an unfair labor practice, or evidence of an unfair labor practice.” Because “the right to speak includes the right not to speak,” the court held that the NLRB’s rule ran afoul of § 8(c). The court also found that the NLRB’s alternative remedial provision, which tolled the statute of limitations during any period when an employer failed to post the notice, was also invalid as inconsistent with the NLRA itself. More recently, in Chamber of Commerce of the United States v. N.L.R.B., No. 12-1757 (4th Cir. June 14, 2013), the Court of Appeals for the Fourth Circuit reached the same ultimate conclusion—that the notice-posting requirement was invalid—but on different grounds. In Chamber of Commerce, the court held that “the NLRA, by its express terms, only empowers the Board to carry out its statutorily defined reactive roles in addressing unfair labor practice charges and conducting representation elections upon request.” Thus, because “there is not function or responsibility of the Board not predicated upon the filing of an unfair labor practice charge or a representation petition,” the notice-posting rule, which imposed affirmative requirements upon employers that were neither the target of an unfair labor practice charge nor named in an election petition, was impermissible.

U.S. Government Contractors Warned About Use of Arrest and Conviction Records in Employment Decisions

The U.S. Department of Labor, Office of Federal Contract Compliance Programs (OFCCP) recently issued Directive No. 306, advising agency staff and federal contractors of OFCCP’s position on the use of arrest and conviction records in employment decisions, the OFCCP’s position is essentially identical to the Equal Employment Opportunity Commission’s (EEOC’s) position articulated in the agency’s 2012 Enforcement Guidance. Citing disproportionately higher rates of incarceration and conviction among African Americans and Hispanics, OFCCP noted that selection policies/practices which involve use of criminal history records to exclude individuals can run afoul of Executive Order 11246 and Title VII, which prohibit both intentional discrimination based on race, national origin, etc., and disparate impact on protected groups resulting from the application of neutral policies/practices where the policies/practices cannot be justified as job-related and consistent with business necessity. OFCCP will invariably find a policy which automatically bars everyone with an arrest or conviction record to be unlawful. Where a hiring exclusion based on criminal history has disparate impact, the employer will be required to demonstrate either that it validated the criminal conduct exclusion in accordance with the Uniform Guidelines on Employee Selection Procedures, or that it had been deploying a “targeted screen” which considered the nature and gravity of the offense, the time that passed since the offense and/or completion of the sentence, and the nature of the job sought or held. In most cases, in implementing the targeted screen, the employer will need to make an individualized assessment involving a range of factors before disqualifying a person based on past criminal conduct.

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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