Supreme Court Year in Review: Union Agency Fees, Travel Restrictions, and the Retirement of Justice Kennedy

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The U.S. Supreme Court closed out its most recent term, which began in October 2017, with a number of high-profile and ground-breaking decisions. Yet aside from the typical court fanfare, perhaps the most significant news from the latest Supreme Court term is the retirement of Justice Anthony Kennedy. Justice Kennedy has often provided the deciding vote in a Supreme Court that is largely split along party lines. Justice Kennedy cast the swing vote and wrote the majority opinion in Citizens United, for example, siding with the other conservative Justices and removing election spending limits for corporations and unions. Just five short years later, Kennedy sided with his liberal colleagues when he wrote the majority opinion in the landmark case Obergefell v. Hodges, which granted marriage rights to same-sex couples across the country. Since his appointment by Ronald Reagan in 1988, Justice Kennedy has exemplified the ideals of personal liberty in his decisions on the bench.

Justice Kennedy’s retirement offers President Donald Trump the opportunity to select his second Supreme Court Justice.  President Trump is scheduled to announce his nomination the evening of July 9. Senate Majority Leader Mitch McConnell has confirmed that the Senate will hold a vote on President Trump’s nomination this fall, despite calls from Senate Minority Leader Dick Durbin to postpone Senate consideration until after the midterm elections.

Outside of the political drama surrounding Justice Kennedy’s retirement, the October 2017 Supreme Court term settled some contentious issues in labor and employment law. The Court addressed whether the use of class waivers in employee arbitration agreements violates the National Labor Relations Act, how regulatory agencies must treat sincere religious beliefs, and whether states should be allowed to tax online transactions. Equally telling are the topics that the High Court decided not to entertain this term. The Court declined to review an Eleventh Circuit case to definitively determine whether Title VII's prohibition of employment discrimination “because of . . . sex” encompasses discrimination based on an individual's sexual orientation. The Court also turned down questions about whether an individual who needs lengthy leave qualifies as a person with a disability under the Americans with Disabilities Act. This article discusses key labor and employment cases the Court decided and rejected this term, and offers a preview of some of the cases the Court will take up in the October 2018 session.

Decided Cases

Epic Systems Corp. v. Lewis

The Court’s opinion addressed three separate cases regarding whether a class action waiver contained within an arbitration agreement governed by the Federal Arbitration Act (FAA) is enforceable, in light of the protections afforded to employees to engage in concerted activity under the National Labor Relations Act (NLRA).  The Seventh and Ninth Circuits had adopted the analysis of the National Labor Relations Board in refusing to enforce class action waivers, finding that class action waivers were unenforceable because they violate the NLRA and under the FAA’s savings clause, which preserves, generally, grounds that exist at law or in equity for the revocation of any contract.  The Fifth Circuit, on the other hand, had rejected this analysis in finding that class waivers contained within FAA-governed arbitration agreements do not give way to the NLRA.  The Supreme Court concluded that the NLRA’s protection of an employee’s right to engage in “concerted activities” does not render class action waivers unenforceable or supersede the FAA’s mandates that arbitration agreements must be enforced according to their terms. This decision reinforces the validity of class action waivers in employment arbitration agreements.

For an in-depth discussion of the Epic Systems decision, see this article.

Digital Realty Trust v. Somers

Digital Realty focused on the anti-retaliation provision for “whistleblowers” in the Dodd-Frank Act. Paul Somers, who worked for Digital Realty as Vice President, reported alleged violations of securities law to senior management but did not report his concerns to the Securities and Exchange Commission (SEC). Somers was terminated and sued Digital Realty for, among other things, violating the anti-retaliation provisions of the Dodd-Frank Act. Digital Realty countered Somers' claim by arguing he never reported any violations to the SEC, so he could not be a whistleblower under the statute. The Supreme Court agreed, concluding that the definition of whistleblower required an individual to report violations to the SEC, and accordingly, Somers could not be considered a whistleblower. For employers, this conclusion means that the anti-retaliation provisions of Dodd-Frank do not automatically apply simply because an employee reports an alleged violation of securities law to the employer. To gain those protections, employees must take the step of reporting concerns to the SEC.

For more information on the reasoning and implications of the decision, view this article.

Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission

One of the most contentious cases of the session was Masterpiece Cakeshop. At the center of the dispute was Jack Phillips, the owner of a bakery who refused to create a customized cake for a same-sex couple’s wedding. According to the owner, creating the cake would violate his sincerely held religious belief against gay marriage. The couple filed a formal complaint with the Colorado Civil Rights Commission; an administrative judge found in favor of the couple. On appeal, the finding was affirmed. When the case reached the Supreme Court, the focus of the Court's decision was not on whether the owner could discriminate against the couple, but rather the Colorado Civil Rights Commission's approach to enforcing the law. The Supreme Court noted that the Colorado law required that enforcement be applied in a neutral manner with regard to religion, and that the state had a duty under the First Amendment not to express hostility toward religion or religious beliefs as a basis for laws or regulations. The Court found that the Commissioner made comments disparaging Phillips’ religious beliefs, calling into question the neutrality and fairness of the determination. The Court also pointed out that the Commission had previously protected other bakers' decisions in the past to decline to create pastries with anti-gay messages on them, demonstrating the Commission’s lack of neutrality here. The core focus of the decision is not that business owners are free to discriminate against anyone based on a protected trait, but that anti-discrimination laws must be applied neutrally. As appropriate, employers should be sure that their employees understand that this decision does not authorize discrimination against any group based on a protected trait even if religious beliefs conflict with the rights of others. This ruling merely confirmed that government agencies must not be hostile to sincere religious beliefs when attempting to determine if discrimination has occurred.

This article provides a more in depth discussion of the Court’s reasoning, and the implications of this decision for companies.

Encino Motorcars, LLC v. Navarro

The Encino Motorcars case—considered by the Court for a second time in the October 2017 term—addressed the overtime pay requirements of the Fair Labor Standards Act (FLSA) and which individuals are considered exempt from overtime requirements based on their job duties. Encino Motorcars primarily sells and services vehicles and employs individuals, such as Hector Navarro, as “service advisors.” Service advisors are required to greet customers upon arrival, listen to the customers’ concerns about their vehicles, evaluate the necessary repairs and maintenance, suggest services, create estimates, and discuss repairs with customers as they are occurring. Navarro and other service advisors alleged that Encino violated the FLSA by denying them overtime pay. A district court found the FLSA exempts service advisors, but the Ninth Circuit reversed, stating that a 2011 Department of Labor regulation determined that service advisors were not exempted from overtime regulations. The Supreme Court took up the case, and, in June 2016, rejected both the Ninth Circuit’s analysis and its reliance on the 2011 regulation.

The Court remanded the case for reconsideration, and the Ninth Circuit again found that service advisors were entitled to overtime because they do not fall within the exemption applicable to salesmen, partsmen, or mechanics. Reviewing the issue again this term, the High Court determined that service advisors are salesmen primarily engaged in servicing automobiles, putting them squarely within the exemption to overtime pay provided in Section 213(b)(10)(A) of the FLSA. The Supreme Court further rejected the Ninth Circuit's reliance on the commonly-held principle that exemptions are to be narrowly construed. For employers of similar types of service advisors, this ruling offers clarity and guidance for whether and when such workers may be FLSA-exempt. More broadly, however, individuals challenging the application of an exemption will no longer have the advantage of arguing that FLSA exemptions must be narrowly construed. 

Readers interested in more detail should consult this article for a summary of the reasoning and implications of this decision.

Janus v. American Federation of State, County, and Municipal Employees, Council 31

The opinion in Janus, issued on the final day of the term, dealt a blow to public-sector unions. The case revisited Supreme Court precedent in Abood v. Detroit Board of Education, where the Court approved the use of “agency” or “fair share” fees by unions in the public sector. In Abood, the Supreme Court reasoned that such fees were acceptable (even for employees who objected to the union’s use of those funds) because non-member employees benefited from the union’s collective bargaining agreement with the employer and related activities. In Janus, however, the Supreme Court overruled Abood. The Supreme Court held that states can no longer force public employees, who are not union members, to pay these fees because such requirements violate the First Amendment. The Court also rejected the union’s contentions that “fair share” fees were necessary to “promote labor peace” and avoid burdening the union with uncompensated representation of “free-riders.” While the full ramifications of this opinion remain to be seen, some public-sector employees have already taken steps to stop paying these fees and filed suit to recoup dues previously paid.

For more discussion on the reasoning of the High Court in Janus, see this article.

China Agritech Inc. v. Resh

The dispute in China Agritech clarified the scope of the Supreme Court’s 1974 decision in American Pipe and Construction Co. v. Utah. In American Pipe, the High Court determined that the filing of a class action suit tolls, or suspends, the running of the statute of limitations for all purported members. Thus, under American Pipe, should a judge determine that class certification is inappropriate, the class members whose statutes of limitations would have expired while they were members of the purported class can still pursue their individual claims after class certification is denied. The issue presented in China Agritech was whether the members of a failed class can pursue a separate class action suit that would then be outside the statute of limitations, rather than individual suits. In a unanimous decision, the Supreme Court foreclosed that possibility. Under China Agritech, employers defending class action lawsuits presumably cannot be subjected to multiple repeated class actions on the same subject assuming the limitations period has already expired, if they successfully move for decertification in the initial matter.

South Dakota v. Wayfair

In a 1992 case, Quill Corp. v. North Dakota, the Supreme Court held that the dormant Commerce Clause prohibited states from requiring sellers without a physical presence in a state to collect and remit sales tax for goods sold within the state. South Dakota v. Wayfair asked the Supreme Court to reconsider that holding. Despite the rule set out in Quill Corp., South Dakota passed a law requiring non-physically present sellers of goods that accrue over $100,000 in sales a year, or 200 or more separate transactions within one year, to remit sales tax. The state requested declaratory judgment that internet sellers subject to the law must comply. Wayfair, among other sellers, prevailed at summary judgment based on the Supreme Court precedent, and the Supreme Court of South Dakota affirmed. The U.S. Supreme Court, however, overturned Quill, stating that the physical presence requirement imposed by Quill no longer reflects the reality of the internet marketplace. The Supreme Court’s decision in this case opens up other states to begin collecting tax on internet transactions that occur in their boundaries.

Trump v. Hawaii

Likely the most well-known case decided by the High Court this term is Trump v. Hawaii, otherwise known as the “travel ban” case. The Trump Administration has imposed three different travel bans, through a series of executive orders. A Washington federal court quickly blocked the first set of travel restrictions by issuing a temporary restraining order. Federal district courts in both Maryland and Hawaii preliminarily enjoined the second set of travel restrictions. These preliminary injunctions were appealed to the Supreme Court, which stayed the injunctions and allowed the restrictions to take effect for the limited period established by the executive order. After that time period ended, the Trump administration issued Proclamation No. 9645 on September 24, 2017, titled “Enhancing Vetting Capabilities and Processes for Detecting Attempted Entry Into the United States by Terrorists and Other Public-Safety Threats.” The Proclamation restricts entry into the United States from seven countries, based on the nations’ close association with terrorism or failure to engage in information sharing regarding foreign nationals entering the United States.

The Proclamation was challenged, and a Hawaii federal district court granted a preliminary injunction, barring enforcement of the entry restrictions. The lower court concluded that the Proclamation violated provisions of the Immigration and Nationality Act (INA) and the Establishment Clause of the First Amendment because the Proclamation was motivated by animus towards Islam. The Ninth Circuit affirmed as to the INA claims without reaching the First Amendment question. Ultimately, the High Court rejected the INA arguments, finding that INA permits the exact type of action taken by the president. On the Establishment Clause claim, while the Supreme Court agreed to hear extrinsic evidence offered by the plaintiffs (e.g., comments made by President Trump), the Court explained that the Proclamation must be upheld “so long as it can reasonably be understood to result from a justification independent of unconstitutional grounds.” The Court concluded that the evidence suggesting the Proclamation was motivated by religious animus was insufficient to show that there was a likelihood of success on the merits of the Establishment Clause claim. For that reason, the Supreme Court vacated the preliminary injunction and sent the case back to the lower courts.  For employers, this holdings means that unless the individual is already a lawful permanent resident or dual national, the process of bringing highly qualified employees from the affected countries (Iran, Libya, Yemen, Syria, North Korea, Venezuela, and Somalia) may be more difficult, as many business visas have been suspended,.

For more information on the Supreme Court’s evaluation of the travel ban, see this article.  

CNH Industrial N.V. v. Reese

CNH Industrial reiterated principles governing how a court should interpret a collective bargaining agreement. The collective bargaining agreement in question provided insurance benefits to certain retired employees. The agreement stated that those benefits would expire in 2004. The retirees filed suit, seeking a declaratory judgment that their healthcare benefits vested for life. The district court granted summary judgment to the retirees, relying on the Supreme Court’s decision in M&G Polymers USA, LLC v. Tackett, which ruled that collective bargaining agreements must be interpreted according to ordinary principles of contract law and on pre-Tackett principles adopted by the Sixth Circuit. Consistent with its pre-Tackett precedent in International Union, United Auto, Aerospace, & Agricultural Implement Workers of America v. Yard-Man Inc., the Sixth Circuit found that the collective bargaining agreement was ambiguous, which entitled it to consider extrinsic evidence supporting the plaintiffs’ claim to vesting. The Sixth Circuit thus affirmed the lower court ruling, only to be reversed by the Supreme Court. The Court remanded the case, stating that the agreement must be interpreted by ordinary principles of contract law, without consideration of outdated Sixth Circuit precedent. The High Court determined that, under ordinary principles of contract law, there was only one interpretation of the agreement, which provided that the retiree insurance benefits expired in 2004. As this decision was focused on Sixth Circuit precedent, its effects will likely be limited to the Sixth Circuit. The ruling emphasizes, however, that the plain meaning of contractual agreements, including collective bargaining agreements, will be respected over contrary inferences that might be drawn from extrinsic evidence.

Notable Cases the Court Declined to Review

In addition to resolving the matters discussed above, the High Court denied certiorari to more than 25 employment law cases this term. Some of the prevalent topics include arbitration agreements with class waivers, Title VII discrimination cases, and antitrust claims. Below are a few highlights from the cases denied certiorari.

New England Regional Council of Carpenters v. Connecticut Ironworkers Employers Association Inc.

A collective bargaining agreement entered into by the New England Regional Council of Carpenters (NERCC) with several construction companies and managers prohibited the companies and managers from subcontracting with non-NERCC affiliates. Ironworkers across the state filed suit, alleging that the provision violates antitrust laws. While the district court sided with NERCC, the Second Circuit concluded that the antitrust claims were legitimate. The Second Circuit found that, in order for NERCC to defeat the antitrust allegations, they would have to show that anti-competitive provisions in the collective bargaining agreement furthered legitimate aims of collective bargaining in a way that will not unduly restrict market competition. The Supreme Court declined to review the question of whether such a collective bargaining agreement that limits future business partners qualifies as an impermissible violation of antitrust law, thus leaving the Second Circuit’s ruling in effect. As a result, employers (at least in the Second Circuit) involved in or considering collective bargaining agreements with such terms should be aware of this issue. Individuals advocating for such restrictions must show that there is a legitimate goal furthered by their otherwise anti-competitive actions that places the restrictions outside the reach of antitrust protections.

Evans v. Georgia Regional Hospital

The Supreme Court also denied certiorari in an Eleventh Circuit case addressing whether Title VII prohibits discrimination on the basis of sexual orientation. In Evans, a hospital security officer alleged her employer discriminated against her on the basis of sex because she is a lesbian and because she does not conform to traditional stereotypes associated with her sex. In response to the suit, her employer asserted that sexual orientation was not protected under Title VII. Consistent with its prior precedent, the Eleventh Circuit sided with the employer, concluding that Title VII does not authorize an action for sex discrimination based on sexual orientation. This holding puts the Eleventh Circuit at odds with the Seventh and Second Circuits, both of which recently recognized this type of cause of action under Title VII.

Thus far, the High Court has refused to consider this question, although two cert petitions remain pending on this subject, in Altitude Express Inc. v. Zarda (out of the Second Circuit) and Bostock v. Clayton County, Georgia (out of the Eleventh Circuit).

U.S. Equal Employment Opportunity Commission v. Catastrophe Management Solutions

Another case out of the Eleventh Circuit addresses “mutable” characteristics in racial discrimination cases. The Equal Employment Opportunity Commission (EEOC), on behalf of Plaintiff Chastity Jones, filed suit against a potential employer that denied her a job because of her dreadlocks. The Eleventh Circuit affirmed dismissal of the case, stating that her dreadlocks were not an immutable characteristic of her race. Jones petitioned the Supreme Court to answer the question of whether natural hairstyles constitute an immutable characteristic of a race that could be the subject of discrimination. The High Court declined to review her case, or the question of natural hairstyles. As a result, at least in the Eleventh Circuit, ceratin hair styles, such as dreadlocks, are likely to be considered mutable characteristics and not protected as grounds for discrimination cases.

Severson v. Heartland Woodcraft, Inc.

One of the cases the High Court has turned away this term seems to preserve a circuit split on whether an employee who cannot work is a qualified individual with a disability under the Americans with Disabilities Act. In Heartland, an employee with chronic back pain took 12 weeks of leave pursuant to the Family and Medical Leave Act (FMLA). Near the end of that period, he informed his employer that his condition had not improved, he would need surgery on the last day of his leave, and he recovery time for the surgery was typically two months. Heartland informed the employee that his employment would be terminated if he failed to return from FLMA leave as scheduled, but that he could reapply with the company after he recovered. The employee filed this lawsuit, alleging ADA violations. The district court granted summary judgement to Heartland, and the Seventh Circuit affirmed, finding that the individual who required long-term leave was not a qualified individual under the ADA. Other circuits have come to different conclusions about this issue. Employers have long grappled with determining whether and under what conditions leave may be a reasonable accommodation under the ADA. The unresolved split in the circuits means it is more important than ever for employers to continue to review the law in the jurisdictions in which they operate when making leave-related decisions.

Preview of 2018-2019 Term: Arbitration Stays in Focus

Epic Systems looks to be only the tip of a wave of arbitration cases before the Supreme Court. The High Court granted certiorari to additional cases for the October 2018 term, including a couple that further explore arbitration agreements in the employment context.

Lamps Plus Inc. v. Varela addresses whether courts can interpret common arbitration terms, under state-law principles, to authorize class arbitration in the absence of express language to that effect. There, an employee filed a class action lawsuit against his employer, alleging negligence, invasion of privacy, and breach of contract—even though he had signed an arbitration agreement as a condition of his employment. The district court and Ninth Circuit concluded that the arbitration agreement at issue was capable of two reasonable interpretations, resulting in ambiguity under California law. Accordingly, the Ninth Circuit approved construction of the ambiguity against the employer and held that arbitration could proceed on a class-wide basis. The question posed by the employer-petitioner to the High Court is whether the FAA forecloses this type of interpretation, which interprets the agreement to allow for class arbitration based on generic language frequently used in arbitration agreements. Depending on the outcome of this case, employers may need to modify and clarify the terms of any arbitration agreements, based on the applicable standards of contractual interpretation.

Meanwhile, New Prime, Inc. v. Oliveira raises two interesting questions. First, the case asks the Court to decide whether an arbitrator, pursuant to a valid “delegation clause”—a provision delegating questions of arbitrability to the arbitrator in the first instance—is authorized to decide whether an FAA exemption applies. The worker, a truck driver, sued his employer for purported FLSA violations, among other things. The employer moved to compel arbitration pursuant to the parties’ agreement. To counter that argument, the plaintiff contended that the FAA does not apply to him because he is covered by the exemption for transportation workers contained in Section 1 of the statute. In a matter of first impression for the First Circuit, the appellate court concluded that the district court (and not the arbitrator) must resolve the threshold question of whether the FAA applies in light of a potential exemption. Second, the Court will address whether that Section 1 transportation-worker exemption can apply to an independent contractor relationship. The First Circuit held that the exemption extends beyond the traditional employer-employee relationship and applies to independent contractor arrangements. The Supreme Court is slated to weigh in on these two debated questions, which will presumably affect how arbitration agreements function in the transportation industry.

Conclusion

The 2017 Supreme Court Term has been a whirlwind of change, and the retirement of Justice Kennedy will certainly cause a major shake-up, as his replacement is expected to be a consistently conservative justice. The decisions issued this past term will likely have an effect on the American workplace for years to come. How a reconstituted Court will consider employment-related matters in the next term will be equally significant.

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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