Employment Litigation Issues

One of the strongest trends in human resource management is the dramatic increase in the use of mandatory employment arbitration agreements. In late 2017, a study by the Survey Research Institute at Cornell University determined that the number of private sector, non-union employees subject to mandatory arbitration agreements had dramatically increased in recent years. The study was conducted on a national level and secured responses from more than seven hundred employers. Between 1992 and the early 2000’s, the percentage of employees subject to mandatory arbitration agreements had risen from just over two percent to almost one quarter of the U.S. work force. The study concluded that as of the fall of 2017, the percentage of private sector, non-union employees subject to mandatory arbitration had more than doubled and now exceeded fifty-five percent. Thus, over sixty million American employees are now likely subject to mandatory employment arbitration agreements.

This dramatic growth preceded the landmark decision handed down in May, 2018 by the U.S. Supreme Court in Epic Systems Corp. v. Lewis. In this decision, the Supreme Court held that under the Federal Arbitration Act, an arbitration agreement that provides that an employee waives the right to bring a class action in court must be enforced. This decision is widely expected to increase even further the use of mandatory arbitration agreements by private sector employers. The decision put to rest a potential stumbling block to the enforcement of class action waivers in arbitration agreements that had been created by a decision of the National Labor Relations Board during the Obama administration and by the decisions of several federal Courts of Appeals. Thus, the Supreme Court has made the use of such agreements even more desirable by employers who now can generally be assured that their employees cannot bring class action arbitration or court cases against them. In other words, such agreements are now an even more effective means for employers to cope with the rapid increase in recent years in the numbers, costs and risks posed by employment-related lawsuits.

The advantages that the use of mandatory arbitration agreements offer private sector employers are several and are quite substantial:

  • Generally speaking, these agreements can be used to prohibit covered employees from bringing class actions against their employers
  • These agreements can require employees to waive their right to a jury trial; indeed, this has long been the principal advantage of the use of mandatory arbitration agreements
  • Instead, these agreements typically establish a procedure that permits employers and employees to select a decision maker from a panel of experienced former judges and/or licensed attorneys or other respected neutrals to hear and decide their cases, rather than juries
  • Because these procedures remove the risk of runaway jury awards and reduce the cost of litigation, employers are much more likely to be in a position of declining to agree to unreasonable settlement demands in cases that they believe involve meritless claims
  • Indeed, some studies indicate that employers are somewhat more likely to prevail in arbitration than in court proceedings
  • At the very least, and as alluded to above, the use of arbitration agreements will enable employers and employees to resolve their claims in a less costly manner than in courts; typically such agreements involve limited amounts of discovery and fewer procedural disputes
  • Claims are typically more quickly resolved in arbitration than in courts; faster resolutions benefit both employers and employees – they both avoid the years of discovery and delay that often characterize court proceedings
  • Conventional wisdom and some anecdotal evidence indicate that some plaintiffs’ attorneys are deterred from even pursuing employment-related claims once they become aware that doing so will involve arbitration rather than a potential jury trial
  • As opposed to court trials that are matters of public record and sometimes involve considerable publicity, arbitration procedures are private processes and are not as likely to result in the damage to goodwill, reputation and brand as may public trials
  • While arbitration agreements are indeed contracts, these contracts typically provide that the employees who sign them remain employees at will
The very real and apparent advantages to employers of the use of arbitration agreements is confirmed by the opposition to their use, especially since Epic Systems. Recent writings and publicity have often cast these agreements as vehicles designed to “destroy workers’ rights”. Arbitration agreements are strongly opposed by plaintiffs lawyers groups, civil rights organizations, and some politicians. Some plaintiffs law firms now espouse the filing of hundreds of individual arbitration demands on behalf of employees of an employer in order to pressure such employers to settle rather than having to absorb the costs of defending against large numbers of such claims. Opponents of arbitration agreements have recently argued that claims of sexual discrimination and sexual harassment should not be subject to arbitration. Significant political pressure not to utilize arbitration agreements has been applied against law firms, law schools and some private sector employers. The American Bar Association has adopted a resolution urging legal employers not to require mandatory arbitration of claims of sexual harassment. The State of New York has recently passed legislation that would prohibit private sector employers from requiring arbitration of sexual harassment claims. California will soon follow suit, and other states are considering similar legislation. Such state laws may well be found to be preempted by the Federal Arbitration Act and, thus, unenforceable.

Some courts will find arbitration agreements to be unenforceable if they are both “procedurally and substantively unconscionable”. But the bottom line is that well drafted and carefully implemented arbitration agreements will be enforced, and will provide employers with a much improved context in which to defend against claims. [1] Thus, the surge in the use of arbitration agreements documented by the 2017 Cornell study is likely to continue and indeed to expand rapidly.


[1] For example, well drafted agreements should place most if not all the costs of arbitration fees on employers; the obligation to settle disputes by arbitration should apply to employers as well as employees; the process for selecting an arbitrator must be fair; the waiver of the right to a jury trial must be clear and unambiguous; and so forth. The implementation of an arbitration agreement must be preceded by adequate notice, the ramifications of such agreements must be clearly summarized for employees in some appropriate fashion; the method utilized to secure employee consent to an agreement must be considered; and analysis must be accomplished as to what form of consideration is necessary to render such consent binding.

A federal court of appeals recently ruled that, standing alone, full-time presence at the workplace is not an essential function of a job. In the case, an HR Generalist returned to work part-time while suffering from postpartum depression and separation anxiety. Initially, the employer accommodated the employee by allowing her to work five half-days per week and perform some work from home. However, after the employee sought to extend her part-time work, the employer determined it could no longer accommodate her and discharged the HR Generalist. In response, the former employee filed a lawsuit under the Americans with Disabilities Act (“ADA”).

To prove a disability discrimination case, a plaintiff first must show that he/she is an individual with a disability and is otherwise qualified for him/her job. A plaintiff can demonstrate he/she is otherwise qualified for a job if he/she can perform the position’s essential functions with or without an accommodation. Essential job functions are core job duties which, if removed, would fundamentally alter the position. For most jobs, courts have found that “regular, in-person attendance is an essential function.” However, determining a job’s essential functions is a fact-intensive analysis which may include a review of: the time spent on a function; the employer’s judgment; written job descriptions; and the consequences of not performing a particular function.

Here, the Court concluded that “full-time presence at work” is not an essential job function on its own. According to the Court, the HR Generalist presented sufficient evidence that she could perform the core tasks of her position in a part-time role. In particular: the HR Generalist testified she completed all her work on time; a former colleague confirmed she was effective on a half-time schedule, and she received a “very positive” performance evaluation while working part-time (which made no reference to full-time work). Furthermore, the HR Generalist had not received discipline, written criticism, a performance improvement plan, or complaints about her work. For all these reasons, the Court ruled that an employer must show why an employee needs to work on a full-time schedule.

This case substantively impacts and provides a useful lesson for many employers. Issued by the Sixth Circuit Court of Appeals, the decision directly applies to employers with a presence in Kentucky, Michigan, Ohio, and Tennessee. In addition, the case offers several takeaways. First, documentation is key. An employer should include all of a job’s essential functions in the job description. Employers also should document the need for those functions and an employee’s ability (or inability) to meet them.  Here, the Court placed significant weight on the HR Generalist’s positive performance evaluation.  In another case, the employer documented specific duties that could not be performed remotely and an employee’s failure to complete work in other telework situations. Furthermore, employers should be consistent with providing accommodations. Here, the Court also considered the employer’s decision to initially accommodate the HR Generalist’s part-time work before later changing course. For all these reasons, employers should be prepared to explain why a job function is essential, remain consistent in their decision-making, and contact counsel with questions.

With the position of its director finally filled (by Arthur F. Rosenfeld), the U.S. Department of Labor’s Office of Labor Management Standards (OLMS) is able to turn its attention to reviewing its rules and interpretations. While the main focus of attention at OLMS during the years of the Obama Administration was the “Persuader Rule” that would have imposed onerous reporting requirements upon both employers and law firms that advised employers about their legal rights during union organizing campaigns, OLMS also made other, less well-known changes. The Competitive Enterprise Institute, a free market think tank, has identified three items that it believes OLMS should address.

The first is the status of “Worker Centers” as labor organizations. In many cases, Worker Centers are set up and financed, and sometimes staffed, by recognized unions. The reason for doing so is to avoid various requirements or restrictions that are imposed upon unions. These Worker Centers are set up as not for profit organizations and engage in picketing, pro-union educational campaigns, advocacy and other forms of pressure upon employers and public officials. By avoiding characterization as labor organizations, they escape the reporting and disclosure requirements of the Labor Management Reporting and Disclosure Act of 1959, as amended (the LMDRA).  As described in an analysis by the U.S. Chamber of Commerce, the Obama Administration took a very narrow view of the definition of “labor organization” which has allowed these Worker Centers to operate without regulation or disclosure of their funding and expenditures. CEI has recommended clarifying that Worker Centers existing to deal with employers in the interest of employees are subject to the LMDRA’s requirements.

Second, OLMS changed the LM-30 form, which unions must file, to eliminate a number of financial disclosures, including union work paid by employers, credit union transactions, and payments to union officials from union benefit trusts. CEI recommends reinstating the 2007 version of the LM-30 form.

Third, in 2010, OLMS issued a rule rescinding the requirement that unions file form T-1, the Trust Annual Report, which disclosed what union trusts spent their money on. These trusts are set up to funds things like apprenticeship training programs. Sometimes, they are used to fund improper activities, such as payments for personal expenses of union officials. Form T-1 is a tool that could protect union members from having their benefit trust funds used for improper purposes, so CEI recommends its reinstatement.

Whether OLMS will act on these recommendations remains to be seen. The Worker Center issue can be handled as a matter of guidance, which would not require formal rulemaking. Additionally, Worker Centers are extremely irritating to many business organizations, such as those in the restaurant industry and the cleaning/janitorial industry, so correction of the Obama interpretation may be an early focus.

In a memorandum issued last week, NLRB General Counsel Peter Robb offered important guidance on how his office plans to prosecute claims of unlawful workplace rules in the wake of the Board’s restorative Boeing decision (365 NLRB No. 154 (Dec. 14, 2017)). As we discussed here last December, the Boeing decision created a sensible standard for determining the lawfulness of work rules. This was a welcome change for employers, given the flurry of handbook-related activity under the Obama-era Board. Unfortunately, though, Boeing gave little guidance on how to actually implement the new standard. Mr. Robb’s memo adds some clarity. Recall that Boeing established three different categories for evaluating employer work rules:  (1) rules that are generally lawful (known as “Category 1” rules); 2) rules that merit a case-by-case determination (“Category 2” rules); and (3) rules that are plainly unlawful (“Category 3” rules). Click here to read the full client alert.

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.