Employment Litigation Issues

On March 7, 2018, the U.S. Court of Appeals for the Sixth Circuit determined in a landmark ruling that federal law protects transgender individuals from employment discrimination. The Sixth Circuit also determined that private employers cannot use their religious beliefs to justify discrimination against transgender individuals.

The Sixth Circuit’s decision case in the case of EEOC v. R.G. &. G.R. Harris Funeral Homes involved Aimee Stephens, who was born biologically male, and who was working as a funeral director. After working for some time, Aimee told the company’s owner of plans to transition to female and to begin dressing as a woman at work due to a gender identity disorder. The owner then fired Aimee on the basis that “he was no longer going to represent himself as a man.” The owner further explained that he disapproved of gender transition as part of his sincerely held religious beliefs because it “violat[es] God’s commands.”

Aimee filed a complaint with the U.S. Equal Employment Opportunity Commission (EEOC) to challenge the termination on the basis that it amounted to unlawful sex discrimination under Title VII of the Civil Rights Act of 1964 (Title VII). The EEOC sued the company, and a district court in Michigan ruled that the company had engaged in sex discrimination against Aimee because the termination was based on unlawful sex stereotypes.  The district court further ruled that the company nonetheless legally terminated Aimee because a federal law called the Religious Freedom Restoration Act (RFRA) permits private employers to discriminate against workers when their personal religious beliefs compel them to do so.

The case went to the Sixth Circuit on appeal, where the Court held unequivocally that Title VII does protect transgender individuals from employment discrimination. As a result, the company’s decision to terminate Aimee due to Aimee’s transgender status and plans to transition did amount to illegal sex discrimination. The court explained that discrimination based on transgender status improperly punishes an employee based on sex stereotyping, or failing to confirm to gender norms. The court rejected the company’s argument that transgender discrimination is not sex-based discrimination and explained that it is analytically impossible to fire an employee based on transgender status without taking the employee’s sex into account.

After resolving the first issue, the Sixth Circuit turned to the issue of whether the company could justify its discrimination against Aimee by pointing to the owner’s religious beliefs. This was significant because the Sixth Circuit was the first federal court of appeals to address the religious defense in a case of this nature. The Sixth Circuit evaluated all of the issues and ruled that the owner’s religious beliefs did not provide a defense and therefore did not excuse Aimee’s discriminatory termination. The Sixth Circuit rejected the company’s argument that Aimee’s presence as a transgender individual would create a distraction for the company’s customers and explained that this argument was based on assumptions about the customers’ “presumed biases” and it was therefore inadequate. The Sixth Circuit also rejected the company’s argument that employing Aimee would substantially burden the owner’s religious practices, since merely employing Aimee was not tantamount to supporting Aimee’s sex or gender identity.

These issues are sure to spark further debate and litigation, especially in light of statements made by Attorney General Jeff Sessions and others in the administration and the legislature. We will continue to monitor the developments.

On November 21, 2017, the Financial Industry Regulatory Agency (“FINRA”) fined J.P. Morgan Securities, LLC, $1.25 million for HR due diligence failures from 2009 until May of this year. Pursuant to federal securities laws, broker-dealers must fingerprint certain non-registered associated persons to help determine if any of them have been convicted of a disqualifying criminal offense. According to FINRA, J.P. Morgan did not “conduct timely or adequate background checks on approximately 8,600, or 95 percent, of its non-registered associated persons.”

Over the last few years, there has been a “Ban the Box” legislative movement designed to provide greater employment opportunities to job applicants with criminal histories. As background, “Ban the Box” laws usually require employers to delay inquiries into an employee’s criminal history until later in the hiring process, and not have a “box” on the employment application. These criminal inquiries would then be made after a conditional offer of employment has already been extended based on the prospective employee’s qualifications, and then the prospective employee would be given a chance to explain any criminal history.

The “Ban the Box” movement has spread nationwide, with 27 states having some sort of policy which regulates the use of criminal history in state-employment applications, and with some localities extending such policies to government contractors and even private employers. Although the motives behind the “Ban the Box” movement may be noble, “Ban the Box” may not always be the safest policy. As is made clear by the significant fine that FINRA administered to J.P. Morgan, employers must ensure that they are aware of applicable laws in their industry with respect to the required HR due diligence. In the financial services industry particularly, employers must not delay too long in performing adequate checks, or worse yet, fail to do them at all.

While many convicted felons are rehabilitated and can be valuable employees, others do pose real risks. Employers owe it to themselves and all their employees and stakeholders to make decisions based upon the most accurate and complete information available.

More information on FINRA’s fine of J.P. Morgan can be found at: http://www.finra.org/newsroom/2017/finra-fines-jp-morgan-125-million-failing-screen-its-employees.

In recent weeks, reports of sexual harassment allegations against high-profile individuals have emerged on an almost daily basis. From Hollywood A-listers, to politicians, to celebrity chefs, the list of powerful individuals accused of sexual harassment and assault continues to grow. As a result, the national conversation surrounding the topic of sexual harassment in the workplace shows no signs of abating.

This focus upon workplace harassment is not unprecedented. In 1991, Senate hearings related to Clarence Thomas’ appointment to the Supreme Court highlighted these issues after the testimony of Anita Hill. The impact on U.S. workplaces was unmistakable. In the years immediately following the Thomas hearings, the number of sexual harassment charges filed annually with the Equal Employment Opportunity Commission (EEOC) more than doubled.

There should be no question that the recent media attention focused upon issues of workplace harassment will yield similar results. An increase in harassment charges and litigation, particularly those involving claims of sexual harassment, is inevitable.

Employers seeking to protect their employees from unlawful harassment and to avoid resultant liability should heed the clear warnings from recent, high-profile cases. Employers should immediately review and update their workplace policies relating to all forms of unlawful harassment. This includes ensuring that employees are provided a clear, effective, and accessible reporting mechanism for complaints of harassment. Employers should then re-promulgate their policies and take steps to meet with and educate their workforce about its provisions. Employers also should regularly train supervisors on how to prevent and appropriately respond to instances of workplace harassment.

Of course, upon receiving any complaints of harassment, employers must immediately conduct a thorough investigation and take appropriate remedial action based upon the results of the investigation. When dealing with a complaint of harassment, employers also must take steps to prevent any retaliation against the accuser or any of the participants in an investigation, regardless of whether the complaint is determined to be valid.

Finally, given the particular focus upon the relative power that an alleged harasser may hold over a victim of harassment, employers that have not already done so may want to re-think their policies and practices related to workplace relationships. Even consensual relationships where one employee is arguably subordinate to the other may present too much risk for all involved.

Yes, federal law prohibits employers from discriminating against employees and applicants based on their sexual orientation. Yes, employers who allow discrimination or harassment based on sexual orientation can be forced to pay a full range of damages, including punitive damages.

Employment and civil rights lawyers have struggled to find clear answers to these questions for years, and until last week, no federal court of appeals had ever answered them in the affirmative. That all changed, however, when the U.S Court of Appeals for the Seventh Circuit issued its decision on April 4 in Hively v. Ivy Tech Community College of Indiana.

Although the Hively decision is 69 pages long and discusses a number of important legal issues, the key holding is a simple one – Title VII of the Civil Rights Act of 1964 prohibits employment discrimination based on sexual orientation. The decision is being lauded as a “gamechanger” by civil rights and LGBT advocates, and is being characterized as judicial overreach by others. Regardless of which side is correct, the underlying issue will almost certainly end up before the U.S Supreme Court sometime in the foreseeable future due to the fact that two other federal appeals courts have ruled against Title VII coverage for sexual orientation discrimination.

Although some media commentators have been quick to attack the Seventh Circuit’s decision because its author, Chief Circuit Judge Diane Wood, was appointed by President Clinton, the decision was supported by strongly worded concurring opinions written by Circuit Judge Richard Posner and Circuit Judge Joel Flaum, both President Reagan appointees. In fact, Judge Posner went so far as to write that “The position of a woman discriminated against on account of being a lesbian is thus analogous to a woman’s being discriminated against on account of being a woman. That woman didn’t choose to be a woman; the lesbian didn’t choose to be a lesbian.”

The Hively decision technically only applies to employers within the Seventh Circuit, which covers Indiana, Illinois and Wisconsin. Nonetheless, employers elsewhere will be wise to take steps to protect their employees from discrimination on the basis of sexual orientation because the EEOC has made it clear that it will use the Hively decision to support its long-standing position that sexual orientation discrimination is a form of sex discrimination and is therefore illegal. Employers in many jurisdictions are also covered by state and local laws that already prohibit sexual orientation discrimination.

The Hively decision provides a good reminder to employers that they should review and update their anti-discrimination and anti-harassment policies with the employment counsel on a regular basis.

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.”