Employment Litigation Issues

By now most employers are (hopefully) aware that the U.S. Department of Labor has significantly changed some of the rules governing exemptions from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”). The revised regulations will go into effect on December 1, 2016, and they will principally do the following:

  • Immediately double the minimum salary threshold for the “white collar” exemptions to $913 per week ($47,476 annualized)
  • Adjust the minimum salary threshold for inflation every three years
  • Change the way the minimum salary threshold is calculated so that employers can count certain bonuses and commissions toward as much as 10% of the threshold
  • Set the total annual compensation requirement for the highly-compensated employee exemption to the annual equivalent of the 90th percentile of full-time salaried workers nationally (i.e., $134,004)

Needless to say, these unprecedented changes present significant challenges for employers. Given the potential consequences of noncompliance it is essential that employers act immediately to ensure they have taken all necessary steps to comply with the new regulations prior to December 1st. While each workplace will be different, some general suggestions that employers should consider include the following:

  • Immediately identify exempt positions that fall below the new minimum salary threshold and consider
    • Who will get a pay raise to maintain the exemption
    • Who will be reclassified as non-exempt
  • For reclassified employees, study the employees’ average hours worked for purposes of setting new pay rates
  • Given the likelihood of increased litigation and stepped up DOL enforcement, consider reclassifying other “vulnerable” positions
  • Ensure accurate timekeeping of all hours worked
    • Train reclassified employees, many of whom will be uncomfortable with or resistant to tracking their hours worked
    • Train managers
    • Address “bring your own device” issues (e.g., after-hours e-mails, texts, and phone calls)
  • Review and update policies and procedures
    • Policies related to overtime
    • Policies related to recording hours worked
  • Communicate the changes to your workforce
  • Plan for future inflation-driven adjustments to the minimum salary threshold to the extent possible

The U.S. Supreme Court’s June 1, 2015 decision in EEOC v. Abercrombie & Fitch Stores, Inc., 575 U.S. __ (2015), signals to employers that employment decisions based upon neutral policies may run afoul of Title VII, where the policy’s application limits an individual’s religious beliefs or practices. Such is the case even when the individual has not specifically requested or otherwise discussed the need for a religious accommodation. The ruling places the onus on the employer to initiate the interactive accommodation process even when there is very little reason to believe that a religious accommodation may be needed.

Abercrombie & Fitch Stores, Inc. (“Abercrombie”) declined to hire Samantha Elauf, a practicing Muslim, because the hijab (or headscarf) that she wore for religious reasons conflicted with Abercrombie’s “Look Policy” that governs its employee dress code. While Elauf received an interview rating that qualified her to be hired under Abercrombie’s ordinary system for evaluating applicants, the retailer determined that the headscarf, like all other headwear, was prohibited under the policy.

The Equal Employment Opportunity Commission (“EEOC”) filed a lawsuit on Elauf’s behalf, claiming that Abercrombie discriminated against her in violation of the religious accommodation protections set forth in Title VII. The primary issue before the Supreme Court was whether an applicant could establish disparate treatment discrimination where the employer lacked “actual knowledge” of the applicant’s need for an accommodation.  

In an 8-1 opinion authored by Justice Scalia, the Supreme Court held that actual knowledge was not required. Rather, according to the Supreme Court, “an applicant need only show that his need for an accommodation was a motivating factor in the employer’s decision.” In so holding, the Supreme Court drew a distinction between “knowledge,” which is not required under Title VII, and “motive,” which is.

Justice Scalia wrote:

[T]he intentional discrimination provision prohibits certain motives, regardless of the state of the actor’s knowledge. Motive and knowledge are separate concepts. An employer who has actual knowledge of the need for an accommodation does not violate Title VII by refusing to hire an applicant if avoiding that accommodation is not his motive. Conversely, an employer who acts with the motive of avoiding accommodation may violate Title VII even if he has no more than an unsubstantiated suspicion that accommodation would be needed.

Thus, the Court concluded, “an employer may not make an applicant’s religious practice, confirmed or otherwise, a factor in employment decisions.”

While Justice Scalia presented the issue as a straightforward matter of statutory interpretation, the ruling seems to whittle away the long standing rule that “intent” (at least at some level) is necessary to support a claim of “intentional discrimination,” protecting even unconfirmed religious practices.

Because an employer’s lack of knowledge may no longer provide a defense as it once did in Title VII religious discrimination matters, employers are best served by initiating open dialogue around an employee’s or applicant’s perceived or suspected religious needs. Such a dialogue is particularly important where an employer is planning to take an adverse action against an employee or applicant. This strategy best positions the employer and employee or applicant to agree upon an accommodation that is reasonable for both parties.

Does your company provide email access to its employees? Are there restrictions on how and when email may be used? These issues are addressed in the National Labor Relations Board’s (NLRB) December 11, 2014 decision in Purple Communications, Inc., which affects both non-union and union employers. In Purple Communications, the NLRB reversed its position and held that “employee use of email for statutorily protected communications on nonworking time must presumptively be permitted by employers who have chosen to give employees access to their email systems.” The employer can rebut this presumption by demonstrating that special circumstances necessitate a specific restriction to maintain production or discipline. Although this special circumstances justification could encompass a total ban on nonwork email use by employees, this would be a “rare case.”

The handbook provisions at issue in Purple Communications prohibited employees from using company email to engage “in activities on behalf of organizations or persons with no professional or business affiliation with the company” or to send “uninvited email of a personal nature.” In reaching their decision, the NLRB reasoned that the ability of employees to communicate in the workplace is central to exercising their rights under the National Labor Relations Act, especially during an initial organizing campaign. Due to significant changes in technology, email is a critical means of communication which now serves as “the natural gathering place pervasively used for employee-to-employee conversations.”

This decision means that employees who have access to company email may use that email system during nonworking time in order to actively campaign on behalf of a union that is attempting to organize the company, even if such a position is contrary to the position of the company. The decision, however, does not require employers to provide email access to employees where employers have otherwise chosen not to grant any email access at all. Similarly, the decision does not require the company to provide access to the email system to third parties like a union. The decision also does not prevent employers from continuing to monitor employee use of company computer and email systems for legitimate management reasons. The NLRB specifically limited this decision to email without addressing other forms of electronic communications.

Employers who are concerned about running afoul of the Purple Communications decision should review their handbooks and any policies addressing employee use of company email systems. Employers should also review those classifications of employees to which they provide email access.

On December 9, 2014, the United States Supreme Court in Integrity Staffing Solutions, Inc. v. Busk unanimously held that time spent going through mandatory security screening at the conclusion of one’s shift is not compensable time under the Fair Labor Stands Act (“FLSA”), even if the security screening takes as long as 25 minutes. Reversing the Court of Appeals for the Ninth Circuit, the Supreme Court clarified and reaffirmed the standard for determining when pre- and post-shift activities are compensable under the FLSA.

In Integrity Staffing, the employer provided warehouse staffing to clients such as Amazon.com. In order to prevent employee theft, the employer required its employees to undergo security screening at the end of their shift for which they were not compensated. The Supreme Court noted time spent which is preliminary or postliminary to the employees’ “principal activities” is not compensable, but if the activity is “integral and indispensable” to the principal activity, then it would be compensable. The Supreme Court found that the time spent by employees going through security was not compensable because it was not their “principal activity” for which they are employed to perform or integral and indispensable to the principal activity.

The Supreme Court chastised the Ninth Circuit for focusing on whether the activity was required and for the benefit of the employer. Such a focus, reasoned the Supreme Court, would effectively negate the exemption for “preliminary and postliminary activity” and impermissibly expand the reach of the FLSA.

Although this case did not establish a new legal standard, it proves useful in understanding when pre- and post-shift activities will be considered compensable under the FLSA. Logically, activities that constitute the principal functions of an employee’s job are compensable. In addition, any other activity that is (1) integral, meaning an intrinsic element of the principal activities, and (2) indispensable, meaning necessary for the performance of the principal activities, will also be considered compensable. To illustrate, butchers sharpening their knives before a shift would be compensable time because it is both integral and indispensable for the performance of their principal activity. An employer must compensate employees for all time spent during these integral and indispensable activities. Further, once an employee has performed one compensable task in a workday, all other work performed after that task up until the last compensable task is “all in a day’s work” and must be paid (even if the task might otherwise not require compensation).

Following last year’s issuance by the EEOC of controversial criminal background check guidelines, the EEOC has filed a number of lawsuits attempting to enforce these guidelines.  Late last week, Judge Roger Titus, United States District Court District of Maryland, dismissed the lawsuit EEOC filed against Freeman, holding that the EEOC failed to present a prima facie case of disparate impact. See Article from Yahoo!Finance.

In the Opinion, the Judge is critical of the EEOC’s overbroad background check guidelines, and even more critical of the statistical evidence that the EEOC proffered in support of its claims.  The EEOC had argued that Freeman’s criminal background check and credit check policy had a disparate impact on African American males.

The Judge recognized that employers who use background checks “have a clear incentive to avoid hiring employees who have a proven tendency to defraud or steal from their employers, engage in workplace violence, or who otherwise appear to be untrustworthy and unreliable.”

The opinion contains a good summary and analysis of the disparate impact theory and the pitfalls of statistical evidence needed to support the theory.  In addition, the opinion provides a summary of the rather detailed process that this employer used in conducting background checks and determining whether offenses would disqualify employment.  The summary is helpful for employers to assess their own policies. 

The White House Office of Management & Budget has announced that it will be submitting a proposal to Congress to cap reimbursement levels for executives of federal contractors at  rates no higher than the salary of the President.  The current cap for calculating reimbursements is $763,000, and will need to be raised to $950,000 under the current formula, which is based upon surveys of pay of private sector CEO’s and other senior personnel.  While the release from OMB states that the measure, if adopted, would have the potential of saving taxpayers “hundreds of millions of dollars over what they would have to pay if the cap remains unchanged,” there are no actual statistics provided.  The OMB’s proposal brings to mind the response of Babe Ruth to a reporter’s statement that the salary of $80,000 he was demanding in 1930 was more than the President’s $75,000 pay: “I know, but I had a better year than Hoover.”

This post was co-authored by Inna Shelley.

Employers should have counsel review their non-compete agreements in order to ensure that a merger or other restructuring would not affect the successor company’s right to enforce the agreement.  On May 24, the Ohio Supreme Court decided Accordia of Ohio, LLC v. Fischel, a case in which four employees signed non-compete agreements promising not to compete with their employer for two years after leaving the company. The non-compete agreements lacked language addressing mergers, such as that the agreement extended to the company’s successors or assigns. After a merger, the contracting company ceased to exist because it was subsumed into the successor, and the four employees continued to work for the successor entity. These employees later quit and began competing with their former employer.

However, the Ohio Supreme Court held that the new entity could not enforce the non-compete agreements past the original 2-year period specified in the agreements. This 2-year period began to run after the employees stopped working for the original company when it ceased to exist in the merger. By the time the employees left the successor company, the 2-year non-compete period had expired.

The Ohio Supreme Court held that although non-compete agreements transfer as a matter of law to the successor entity in a merger between companies, they are enforceable only according to their terms. The successor will only receive the benefit of the bargain struck by the original contracting entity and nothing more. As a result, the Court concluded that enabling the successor employer to enforce the non-compete agreements would be against the agreements’ plain language, which stated that they applied only to the original company. While the successor obtained all the rights to the new contracts, it was unable to enforce them more than two years after the “old” employer disappeared in the merger.

The majority opinion insisted that the decision was consistent with long-established Ohio merger law providing that the successor company in a merger takes over all the previous company’s assets, property, and contacts. However, the dissenting justices believed that the decision departed from century-old precedent holding that a successor entity steps into the shoes of its predecessor and acquires the right to enforce agreements in its capacity as the successor. 

Employers can avoid the result in Accordia by ensuring that their non-compete agreements state that they are made between the employee and the company, plus the company’s successors and assigns. Non-compete agreements should also state that all of the company’s rights under the agreement also flow to the company’s successors and assigns and that the company’s successors and assigns may enforce the agreement.  Businesses contemplating acquisitions should review their agreements with key employees to make sure that they have appropriate language; if not, the employees can be asked to sign new agreements.  Continued employment is sufficient consideration in Ohio for non-compete agreements. 

Businesses that have made acquisitions in the past may also wish to review the covenants, representations, and warranties contained in their merger agreements to determine if they might have claims against the seller for transferring unenforceable agreements.

The United States Court of Appeals for the Seventh Circuit recently affirmed a district court’s summary judgment dismissal on behalf of our client, USF Holland.  The disability discrimination case involved a truck driver who sought to switch from a city driver to a line-haul driver position based on his claim that he could not perform the dock work duties of the city driver position. A copy of the Court’s opinion is attached.

There are good nuggets in this case for employers defending claims of disability discrimination, especially trucking industry or similar physically-demanding positions.  Plus, even though the Court applied the facts to pre-ADAAA amendments, the majority of the opinion would stand even in an ADAAA case.  In fact, as the Court notes, the ADAAA now makes it eminently clear that an individual that is not actually disabled, but only regarded as disabled, is not entitled to accommodations from his employer and cannot pursue claims related to accommodations. 

 Significant points from this decision:

  • Having work restrictions alone does not render an individual disabled under the ADA. 
  • An employer does not “regard” an individual as disabled simply because it views the employee as limited in his ability to perform his own job at the Company.  The Court held:  “Powers has not presented any evidence that Holland viewed him as limited in his ability to work for an employer other than Holland. . . .” 
  • The existence of a 100% healed policy does not serve as evidence that the employer regarded the claimant as disabled.

 My colleague, Jennifer Whitney, had the opportunity to argue this case in front of the United States Court of Appeals for the Seventh Circuit and the esteemed bench of the honorable Richard D. Cudahy, Richard A. Posner and Daniel A. Manion.  The bench was active, peppering both lawyers with detailed questions.  The Court issued its opinion nine months after the oral argument.  Judson Stelter also contributed to the appellate brief, and Lisa Jones assisted on the motion for summary judgment.

For me, the case also serves as a reminder of the significant time expended in the judicial process.  This case did not languish on the docket, and both the District Court and Court of Appeals moved the case promptly, in my experience.  Even so, this has case spent about four years and six months in litigation. 

I was called for jury duty this past week in Cuyahoga County, Ohio, and served on the jury of a brief civil trial featuring a pro se Plaintiff and a lawnmower dispute.  Years ago, I had tried an employment case before the same Judge.  The experience was fascinating.  Here is what I learned (or had reinforced for myself): 

  1. The jurors wanted to fill in the missing pieces.   Documents, witnesses, arguments.  They wanted to see a defense, regardless of the burden of proof resting with Plaintiff.  Jurors speculated why certain facts were not presented.  If the juror liked and trusted the party, he or she assumed that the party had a valid, strategic reason for not presented the evidence.  If the juror disliked the party, the juror assumed the party was hiding something.
  2. Lawyers are expected to be organized and ready, and jurors really do hold it against you if you are not.
  3. Not surprisingly, Jurors do not like when you are rude or aggressive with a witness who doesn’t deserve it.  They don’t like it when you interrupt the witness or the judge.  You lose trust quickly if you behave badly.
  4. Parties’ attitudes, gestures and facial expressions are well observed, especially when they are not on the witness stand. 
  5. Jurors expect businesses to treat customers fairly.
  6. Jurors really want to understand and apply the law. 
  7. Juries try to find a win-win.  They talk about court costs; they speculate on damages; they want to “split the baby.” 
  8. It’s hard for jurors to remember all the facts and evidence presented.  They are understandably preoccupied with everything other than your case:  their jobs and family commitments, lunch, when the next bathroom break will be.  A good lawyer should use closing to help jurors to recall the key facts and to arm the jurors who will be arguing for your side during deliberations.
  9. If the jury is taking a long time, it may not have to do much with deliberations.  Many of them are thinking about having to go back to work, or having to go back the general jury assembly, and don’t mind hanging around for a while longer with the new friends they’ve bonded with.
  10. T.V. comes up a lot in the jury room.  CSI, Law and Order, the Good Wife.  Jurors get that it’s not supposed to be like T.V., but it is a common reference point.

Actually, maybe I learned eleven things.  Lastly:  You don’t need a law degree to try a case well.  I will remember that when litigating with pro se litigants. 

The Labor Depratment’s Office of Labor Management Standards issued a release today, June 20, on its long-anticipated reinterpretation of the “Advice Exception” from mandatory reporting and disclosure requirements. The release announced that the official Proposed Rule would be published on Tuesday, June 21. Interested parties will have a month to provide comments.  Since as we described last February, the rule would drastically increase the scope and reduce the time for reporting, the employer community is likely to have a great deal to say.  The rule’s likely impact on attorney-client privilege is another area of concern for both clients and lawyers.

Meanwhile, the Supreme Court refused to permit a multi-million member class action for employment discrimination to proceed against Wal-Mart.  Finding that there was insufficient proof of uniform policies responsible for all the alleged gender-related actions, the Court reversed the Ninth Circuit’s ruling allowing the case to proceed as a class.  As a practical matter, the decision reduces the leverage enjoyed by the plaintiffs’ lawyers to extract a large settlement from Wal-mart, but does leave Wal-Mart vulnerable to multiple individual actions in courts throughout the country.  The Court also ruled that claims for monetary relief are not properly certifiable under Civil Rule 23(b)(2), but must be handled under Rule 23(b)(3),  The practical meaning of this ruling is that courts must make much more detailed findings to support class certification and cannot simply assume, as did the Ninth Circuit, that representative samples can serve as a bridge among the various plaintiffs.

All in all, June 20, 2011 is a busy Monday in the Employment field.