Supreme Court to Decide if Prohibition on Sex Discrimination covers Sexual Orientation/Identity

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The U.S. Supreme Court has announced that it will hear three cases addressing whether discrimination on the basis of sexual orientation and transgendered status constitutes discrimination “because of sex” and therefore prohibited under Title VII. 

The Court agreed to hear two of the cases together to resolve a split in the U.S. Circuit Courts as to whether discrimination based on sexual orientation is prohibited by Title VII.  In one case, Zarda v. Altitude Express, Inc., 883 F.3d 100 (2nd Cir. 2018), the Second Circuit held that such discrimination is prohibited; in the other, Bostock v. Clayton County, 723 F. App’x 964 (11th Cir. 2018), the Eleventh Circuit held that is it not.  The third case will decide whether discrimination based on gender identity is prohibited by Title VII.

The cases have been set for argument during next year’s term.  The Court will likely issue a decision by early summer, 2020. 

Employers Must Now File EEO-1 Component 2 Data By September 30, 2019

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A district court has ordered that employers covered by EEO-1 reporting requirements must submit 2018 wage and hour data for their workforces by September 30, 2019.  The EEOC has also determined that 2017 wage and hour data must also be reported by September 30, 2019.  Employers will submit these reports as “Component 2” of the EEO-1 form.  Information regarding 2018 race/ethnicity and gender data, which employers will now submit as part of “Component 1” of the EEO-1 form, must still be provided by May 31, 2019. 

An employer must file the components of an EEO-1 form if any of the following are true:

  • The employer has 100 or more employees;
  • The employer is affiliated through common ownership and/or centralized management with other entities in an enterprise with 100 or more employees; or
  • The employer or any of its establishments has 50 or more employees and a prime contract or first-tier subcontract with the federal government of at least $50,000.

The court’s decision is subject to appeal, but covered employers should nonetheless begin the process of collecting the necessary data in order to ensure that they can report on time if no appeal is taken. 

Employers Beware: Governor to Focus on Rooting Out Misclassification of Independent Contractors

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Figuring out whether you can lawfully classify a worker as an independent contractor can be complicated.  There are different standards for different laws.  In Wisconsin, worker’s compensation and unemployment compensation laws each have their own definition of “independent contractor.”  There is yet a different test for the purposes of wage and hour laws.  Employers may not be aware of all of the applicable tests and, in many instances, misclassify workers who should be considered employees as independent contractors.  However, ensuring proper classification of workers is now even more important in Wisconsin. 

On April 15, 2019, Wisconsin governor Tony Evers issued an executive order creating a joint task force of leaders from the Wisconsin Attorney General’s office, Department of Revenue and Department of Workforce Development, including that Department’s Unemployment Insurance, Equal Rights and Worker’s Compensation divisions, among others.  The task force will “facilitate coordination of investigation and enforcement of worker misclassification” by state agencies.  It is expected that this will entail the sharing of information between agencies, the development of recommendations for pooling investigative and enforcement resources and fostering cooperation and participation from district attorneys and federal agencies.  The task force will also propose potential legislative and administrative changes in its annual report to Governor Evers. 

All of this points to increased scrutiny of independent contractor relationships going forward.  Therefore, now is the time for Wisconsin businesses to review current arrangements to determine whether they are in fact properly classifying workers.

Under Federal FMLA, Employers Cannot Allow Employees to Exhaust Other Paid Leave

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Some employers voluntarily permit employees to exhaust some or all available paid leave prior to designating the leave as federal Family and Medical Leave Act (FMLA) leave, even when the leave is clearly FMLA-qualifying.  In March, 2019, the Acting Administrator of the U.S. Department of Labor’s (DOL) Wage and Hour Division issued an opinion letter stating that doing so violates the FMLA.  The FMLA regulations require an employer to provide a written designation notice to an employee within, absent extenuating circumstances, five days after the employer has enough information to determine whether the leave is being taken for a FMLA-qualifying reason.  The Acting Administrator explained that failure to follow this notice requirement may constitute an interference with, restraint of or denial of the exercise of an employee’s FMLA rights.  Once an eligible employee communicates a need to take leave for a FMLA-qualifying reason, neither the employer nor the employee may decline FMLA protection for the leave.  Rather, the employer must provide notice of the designation within the required five-business-day time period.  The leave then counts toward the employee’s 12-week FMLA leave period (or 26-week period for military caregiver leave), even if the employee substitutes paid leave for the unpaid FMLA leave.       

Note:  the DOL opinion letter applies only with respect to the federal FMLA.  It does not apply to any state family and medical leave statutes.  Employers should check to see what rule applies with respect to the state laws when designating periods of state family and medical leave.

NLRB Further Defines Concerted Activity

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The National Labor Relations Act protects employees—even those in non-union workplaces—engaged in protected concerted activity for the purposes of mutual aid and protection.  But what does “concerted” activity mean?  A recent National Labor Relations Board decision, Alstate Maintenance, 367 NLRB No. 68, helps define the contours of the term. 

In Alstate, the employer provided skycap services at an airport.  Passenger tips made up the biggest part of the skycaps’ compensation.  The issue in this case arose when a supervisor instructed a group of skycaps to assist with a soccer team’s equipment and a skycap responded—in front of other skycaps—that “we did a similar job a year prior and we didn’t get a tip for it.”  After the comment, the skycaps initially refused to assist in loading the equipment, but later did so.  Alstate fired the employee who had complained about the lack of tip. 

In its analysis, the Board reiterated the principle that an action by an employee is only concerted if the employee brings a group complaint to management or if the employee tries to induce group action.  Considering the facts before it, the Board concluded that the skycap had not engaged in concerted activity. The fact that the employee had indicated that other employees had not received a tip either did not communicate that the group had previously discussed the soccer team’s failure to tip in the prior year.  Rather, it merely described what had happened to the group.  There was no indication that the employees had discussed it amongst themselves prior to the statement.  Further, there was no evidence that the employee was trying to induce group activity.    

In reaching its decision, the court went back to the rule that the fact that a complaint is made in front of a group of employees does not in and of itself indicate that the employee was engaging in concerted activity.  In doing so, it overruled an Obama-era decision that conflicted with the prior rule. 

The court also identified factors that would tend to support drawing an inference of concerted activity.  The factors include that:

  • the statement was made in an employee meeting called by the employer to announce a decision affecting wages, hours, or some other term or condition of employment;
  • the decision affects multiple employees attending the meeting;
  • the employee who speaks up in response to the announcement did so to protest or complain about the decision, not merely to ask questions about how the decision has been or will be implemented;
  • the speaker protested or complained about the decision’s effect on the work force generally or some portion of the work force, not solely about its effect on the speaker him- or herself; and
  • the meeting presented the first opportunity employees had to address the decision, so that the speaker had no opportunity to discuss it with other employees beforehand.

The court noted that, “of course,” other factors may be relevant, such as an express call for employees to act collectively.

Words Can Hurt You – Failing to Stop Rumors Can Lead to Liability for Sexual Harassment

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Sticks and stones may break my bones but words will never hurt me?  For employers in the United States Court of Appeals for the Fourth Circuit (governing Maryland, Virginia, West Virginia, North Carolina and South Carolina), this adage may no longer be true.  In Parker v. Reema Consulting Servs., Inc., decided February 8, 2019, the court held that an employer’s failure to stop a false rumor that a female employee had a sexual relationship with her boss in order to be promoted opened it to a claim of sexual harassment by the subject of the rumor. 

In Parker, Evangeline Parker started working for her employer as a low-level clerk.  Within two years, she was promoted six times, ultimately rising to the level of Assistant Operations Manager.  Two weeks after the last promotion, a male co-worker started a rumor that Parker received the promotion because she had a sexual relationship with her boss.  A higher-ranking manager also helped to spread the rumor around.  In fact, the manager held an all-staff meeting to discuss the rumor.  Parker was late to the meeting and had the door to the meeting room slammed in her face when she tried to come in.  However, her boss—a man—had been allowed in the meeting even though he was also late. 

As the rumor spread, Parker was “treated with open resentment and disrespect” from co-workers, including those she was responsible for supervising.  She alleged that her work environment “became increasingly hostile.”  The manager blamed Parker for “bringing the situation in the workplace” and told her she could no longer advance in the company because she complained about the rumor.  After Parker filed an internal harassment complaint, the manager fired her. 

The employer argued that the rumor was not based upon Parker’s sex, but on her conduct.  The Fourth Circuit rejected this position.  It held that, assuming Parker’s allegations were true, the employer may be liable for failing to quash the rumor on the theory that it perpetuated a “deeply rooted perception” that women, but not men, use sex to advance in the workplace.  The court explained that “because traditional negative stereotypes regarding the relationship between the advancement of women in the workplace and their sexual behavior stubbornly persist in our society,’ and ‘these stereotypes may cause superiors and coworkers to treat women in the workplace differently from men,’ it is plausibly alleged that Parker suffered harassment because she was a woman.”  The court determined that the alleged harassment was severe and pervasive enough to state a claim when the harassment lasted two months, was continuous, consumed management and employees, and was at times physically threatening, e.g., the manager slamming a door in Parker’s face.  The court denied the employer’s motion to dismiss and let the claim proceed.    

Employers in the Fourth Circuit will have to tread carefully to properly react to and address rumors without infringing on employees’ rights under the National Labor Relations Act to discuss the terms and conditions of the workplace.  It remains to be seen whether the case is an outlier or whether other circuits will follow suit.    

DOL Proposed Overtime Regulations That Increase the Salary Threshold

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Employers should take note that the U.S. Department of Labor has at long last issued proposed rules regarding “white collar” exemptions from federal overtime requirements.  Currently, the exemptions may apply if certain duties tests are met and the employee is paid on a salary basis of at least $455 per week, which comes out to $23,660 annually, assuming that some work is performed in each of the 52 weeks in the year.  The proposed regulations would raise the salary threshold to $679 per week, which comes out to $35,308 annually. 

The proposed rules would replace the Obama-era rule that set the threshold salary amount to over $57,000.  A federal court permanently enjoined enforcement of that rule.  The proposed rules mark the first effort by the Trump administration to address the white collar exemptions.

The proposed rules do not address the duties tests, but do address a few other issues.  First, the salary threshold for highly compensated employees would be raised from $100,000 to $147,414, higher than the $134,004 threshold that the Obama era regulations tried to set.

Second, employees would be able to credit non-discretionary bonuses and incentive payments (e.g., commissions) toward the minimum salary level.

Third, the salary threshold would be revisited every four years.

If adopted, the final rules would go into effect in January 2020 and would result in an estimated 1,000,000 employees losing exempt status and thus becoming entitled to overtime. The Department of Labor set a 60-day comment period to give interested parties a chance to be heard on the proposed rules.  The final rules will be issued at some point after that.  Employers should pay close attention to the progress of the proposed rules because, if adopted, they will need to determine whether to increase salaries to meet the threshold or reclassify employees as non-exempt.

Keep in mind that many states have different, sometimes more favorable, salary threshold requirements.  Where there is a difference between state and federal law on wage and hour issues, the provision most favorable to the employee must be applied.

NLRB Revises Independent Contractor Standard

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On January 25, 2019, the National Labor Relations Board (the Board) issued a decision revising the standard for determining whether a worker is an independent contractor for the purposes of the National Labor Relations Act (NLRA).  SuperShuttle DFW, Inc. and Amalgamated Transit Union Local 1338, Case 16-RC-010963 [link].  The determination is important because only those workers who are employees—and not independent contractors—have rights under the NLRA. 

In SuperShuttle, the Board overruled a 2014 decision and returned to the use of the common law test to determine independent contractor status.  That test includes consideration of: 

  • The extent of control the employer may exercise over the details of the work;
  • Whether the worker is engaged in a distinct occupation or business;
  • The kind of occupation and whether the work is usually done under the direction of the employer or by a specialist without supervision;
  • The skill required in the occupation;
  • Whether the employer or the worker supplies the instrumentalities, tools and the place of work for the work to be done;
  • The length of time for which the worker is employed;
  • The method of payment—whether by the time or by the job;
  • Whether the work is a regular part of the business of the employer;
  • Whether the parties believe they are creating an independent contractor relationship;
  • Whether the employer is or is not in business.

The Board also made it clear that entrepreneurial opportunity—the worker’s opportunity for profit and loss—will be used as an overarching interpretive device in considering whether a worker is an independent contractor under the common law test.  As the majority of the Board explained, “[w]here a qualitative evaluation of common-law factors shows significant opportunity for economic gain (and, concomitantly, significant risk of loss), the Board is likely to find an independent contractor relationship.”

The Board then applied this revised test to the facts before it.  In SuperShuttle, a union filed a petition seeking to represent the SuperShuttle van drivers who transported passengers to and from area airports.  Each of the drivers had signed a franchise agreement with SuperShuttle that required the driver to pay a flat, one-time initial fee and then a flat weekly fee thereafter to maintain the franchise.  On these facts, the Board determined that the van drivers were in fact independent contractors.  The most significant factors were:

  • The drivers were required to provide their own vehicles and cover all costs of vehicle operation and maintenance;
  • The drivers were able to accept or decline trips booked by passengers;
  • The drivers paid a weekly franchise fee unconnected to the amount of the fares they collected and;
  • The drivers’ earnings were determined by how much they chose to work, how well the managed their expenses and how well they managed the process through which they selected fares.

The standard, of course, is fact-intensive and is applied on a case-by-case basis.  Nonetheless, the decision in SuperShuttle gives some guidance as to how the standard may be applied in the future. 

Employers should keep in mind that SuperShuttle articulates the standard applied by the Board with respect to independent contractor status under the NLRA.  Different laws, for example, unemployment and workers’ compensation laws, may have different standards that must be used to determine whether a worker is an independent contractor or an employee subject to that particular law.

Employers’ Obligations When Using Third Parties to Conduct Background Checks

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An employer’s use of third-parties to conduct employment background checks on prospective and existing employees triggers numerous obligations under the federal Fair Credit Reporting Act (FCRA).  The following is a brief overview of the primary employer obligations before, during, and after conducting a background check through third-party investigators.

Covered Entities and Reports

The FCRA applies to “consumer reporting agencies,” which covers nearly all third-party investigators and most employment background reports, called “consumer reports,” the investigators produce.  Consumer reports include, but are not limited to, credit reports, criminal history reports and driving records obtained from a consumer reporting agency. 

Pre-Background Check Obligations

Employers that want to obtain a consumer report for any employment purpose must first provide applicants and employees with a written disclosure stating their intent to obtain a consumer report and must receive written authorization from the applicant or employee before obtaining the consumer report.  The disclosure and authorization of rights must be all be stand-alone documents and may not be part of the employment application or any other document.  Neither of these documents should include notification or authorization required by any applicable state law—those should be placed in a separate document, consistent with the applicable law. 

Post-Background Check/Pre-Adverse Action Obligations

After receiving a consumer report from a consumer reporting agency, if an employer is considering adverse action based on information in a consumer report, the employer must provide the applicant or employee with a copy of the consumer report, a “pre-adverse action” letter explaining that the employer is considering taking adverse employment action based on information in the report and a written “summary of rights” under the FCRA prior to taking any adverse employment action.  The U.S. Bureau of Consumer Financial Protection regulates the content that must be included in the summary of rights and can be found here.  Employers should always ensure their written summary of rights is up-to-date by checking online for any updates.  

Although the FCRA does not specify the amount of time an employer must give an applicant or employee to correct information in the consumer report, five business days or more is considered appropriate. 

Adverse Action Obligations

If an employer does take adverse employment action, it must then provide notice to the applicant or employee and provide him or her with certain information required by statute, including another copy of the summary of rights.  The notice need not be provided in writing, but best practice is to do so for documentation purposes in the event of litigation. 

Violation of the FCRA

In the event of a willful violation of the FCRA, an applicant or employee is entitled to seek damages of $100 to $1,000 per violation, punitive damages, and attorneys’ fees.  If the violation occurred as a result of negligence, the applicant or employee is entitled to sue for any actual damages, plus attorneys’ fees.

State Laws

Some states have requirements in addition to those set forth in the FCRA.

The Bottom Line

This overview generally describes some of the key employer obligations under the FCRA, and is not intended as a detailed guide.  Employers should consult with legal counsel before implementing a background check program that calls for the background check to be performed by a third party. 

U.S. Supreme Court Holds Employers May Require Individual Arbitration of Employment Disputes

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In a case that began in Verona, Wisconsin, the U.S. Supreme Court held earlier this week that the National Labor Relations Act (“NLRA”) does not prohibit employment agreements requiring arbitration of grievances on an individual basis. See Epic Systems Corp. v. Lewis, No. 16-285 (May 21, 2018). Epic Systems extends a string of cases over the past decade upholding arbitration requirements over various challenges. See, e.g., Stolt-Nielsen; Concepcion; Oxford Health Plans; Italian Colors.

The Federal Arbitration Act (“FAA”) generally requires enforcement of arbitration agreements—even those that prohibit participation in class actions by mandating arbitration on an individual basis. Epic Systems resolves a split among the federal appellate courts about whether contracts mandating individual arbitration of employment disputes violate the NLRA. After the National Labor Relations Board (“NLRB”) ruled in 2012 that that such contracts are inconsistent with the NLRA, the Sixth, Seventh, and Ninth Circuit Courts of Appeal followed suit, either deferring to the NLRB’s determination or independently reasoning to the same conclusion. The Second, Fifth, and Eighth Circuits, on the other hand, found such contracts enforceable.

Advocates for Lewis and other employees challenging individual arbitration agreements argued that class action waivers were unenforceable under the FAA’s “saving clause,” which prohibits enforcement of arbitration agreements that violate federal law. They argued that arbitration agreements prohibiting collective legal action violate section 7 of the NLRA, which allows workers “to bargain collectively . . . and to engage in other concerted activities for the purpose of . . . other mutual aid or protection.” 29 U.S.C. § 157. Alternatively, they suggested that even if the FAA’s “saving clause” does not apply, the NLRA “overrides” the FAA and makes individual arbitration requirements unlawful.

Advocates for employers, on the other hand, asserted that the NLRA and FAA do not conflict, arguing that neither the text nor the underlying purpose of the NLRA prohibit class action waivers. Alternatively, even if the NLRA and FAA did conflict, the employers argued that the FAA should control because it is the more specific statute, Congress had a history of specifically overriding the FAA only with express, clear language, and because “the enforceability of class waivers forms the core of the FAA, while such waivers are at most a peripheral concern of the NLRA.”

Decision

In a 5-4 decision written by Justice Neil Gorsuch, the Court rejected the employees’ arguments. First, the majority held the FAA’s “saving clause” was inapplicable. “[D]efenses that apply only to arbitration” do not trigger the “saving clause,” which “permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability.” Epic Systems, slip op. at 7 (internal quotation marks omitted). Given that the central challenge to the agreements was over “(only) the individualized nature” of the mandated arbitration procedure, not to the underlying validity of the provision requiring arbitration, the Court found the FAA’s “saving clause” did not apply. Id.

Second, the Court refused to view the NLRA as conflicting with and “overriding” the FAA. Longstanding precedent places a heavy burden on parties who argue that two federal statutes conflict and cannot be harmonized. See id. at 10. The majority found no “clearly expressed congressional intention” that the NLRA override the FAA regarding arbitration agreements, in contrast to examples where Congress unambiguously created statutory exceptions to the FAA’s general policy of enforcing arbitration agreements. Id. (quoting Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 533 (1995)). And it found no reason to defer to the NLRB’s statutory interpretation when that would impair the application of the FAA, which is beyond the NLRB’s subject matter expertise. See id. at 19–21.

Dissent

Justice Ruth Bader Ginsburg, writing for herself and three other Justices, dissented, calling the decision “egregiously wrong.” Id. at 2 (Ginsburg, J., dissenting). The dissent argues that the NLRA protects more than just traditional collective bargaining. This is consistent with Justice Stephen Breyer’s comment during oral argument that the NLRA represents “the entire heart of the New Deal.” Focusing on the phrase “other concerted activities for the purpose of . . . mutual aid and protection,” the dissent posits that the NLRA contemplates and protects the “right to engage in collective employment litigation.” Id. at 9 (Ginsburg, J., dissenting). It criticizes the majority’s reasoning in concluding that the NLRA did not protect collective employment litigation, pointing out the majority relied heavily on a canon of statutory interpretation, which it argues is appropriate only where congressional intent is unclear. See id. at 12 (Ginsburg, J., dissenting). Finding a clear congressional mandate to protect employees’ rights to act collectively, the dissent argues that resorting to canons of interpretation was improper and that the Court erred in construing the application of the NLRA so narrowly.

Take Away

Epic Systems Corp. v. Lewis makes clear that the NLRA does not invalidate collective legal action waivers in employment arbitration agreements, presenting employers with an even wider array of options when creating and implementing employee agreements. It also underscores that only in exceptional cases will another federal law invalidate an agreement to arbitrate. Combined with the Supreme Court’s other recent arbitration decisions, Epic Systems further cements the enforceability of arbitration requirements, even when the parties to such agreements lack equal bargaining power. Congress may revisit the policy decisions underlying the FAA, see id. at 6, 25 (Op. of the Court); id. at 2 (Ginsburg, J., dissenting), but unless and until that happens, employers have broad power to limit employees’ options in redressing complaints about the conditions of their employment.

Law Clerk Collin Weyers assisted with researching and writing this post.

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