Divided Supreme Court Rules That FLSA Exemptions Should Not Be Construed Narrowly

This morning, a divided 5-4 Supreme Court rejected an Obama-era FLSA regulation and found that automobile service advisors were exempt under the FLSA.    Encino Motorcars LLC v. Navarro, No. 16-1362 (4-2-2018).    Section 213(b)(10)(A) of the FLSA exempts  “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” and “if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers” at a covered dealership.  The question presented was whether this exemption covered service advisors—employees at car dealerships who consult with customers about their servicing needs and sell them servicing solutions.  After decades of this exemption covering services advisors, the Obama Administration determined in 2011 that it did not.  Notably, the Court explicitly rejected the rule that FLSA exemptions are to be construed narrowly. “Because the FLSA gives no ‘textual indication’ that its exemptions should be construed narrowly, ‘there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.’”

The Court observed that when the FLSA was enacted in 1938, all car dealership employees were exempt.  That exemption was narrowed over the years until the current version was enacted in 1974.  A number of courts found this exemption to cover service advisors and the DOL agreed in an opinion letter in 1978.   In 2011, the Obama DOL reversed course and issued a formal regulation finding that service advisors were not exempt under the FLSA.  The plaintiffs filed suit for unpaid overtime over the prior three years.  The Ninth Circuit found the statute to be ambiguous and deferred to the Obama 2011 regulation.  The Supreme Court previously reversed this decision on the grounds that the regulation was procedurally defective by changing decades of reliance on the prior determinations without a reasoned explanation.  The Court remanded the matter to determine whether service advisors were covered under the statute.  Although it found that service advisors were “salesmen” engaging primarily ‘in servicing automobiles,” the Ninth Circuit again determined that they were not covered by the statutory exemption because they did not actually service the cars themselves.  A divided Supreme Court again reversed.

The parties agreed that if the service advisors were covered, it was as salesmen (i.e., someone who sells goods or services).   They also agreed that service advisors were not engaged in the selling of automobiles.  The only question was whether they were primarily engaged in the servicing of automobiles when they never actually repaired or serviced the automobiles themselves.    The Court found that the service advisors sold customers services for their automobiles.  The Court also found that the service advisors were involved in servicing the automobiles even if they never repaired the vehicles because they met and listen to the customer, suggested repair and maintenance services,  and explained the work.  That the advisors did not physically repair the cars was not important when partsmen were similarly exempt even though they spent little time under the hood.

In other words, the phrase “primarily engaged in . . . servicing automobiles” must include some individuals who do not physically repair automobiles themselves but who are integrally involved in the servicing process. That description applies to partsmen and service advisors alike.

This conclusion was reinforced by the statutory language:

The text of the exemption covers “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements.” §213(b)(10)(A). The exemption uses the word “or” to connect all of its nouns and gerunds, and “or” is “almost always disjunctive.” United States v. Woods, 571 U. S. 31, 45 (2013). Thus, the use of “or” to join “selling” and “servicing” suggests that the exemption covers a salesman primarily engaged in either activity.

Unsurprisingly, statutory context can overcome the ordinary, disjunctive meaning of “or.”  The distributive canon, for example, recognizes that sometimes “[w]here a sentence contains several antecedents and several consequents,” courts should “read them distributively and apply the words to the subjects which, by context, they seem most properly to relate.”  2A N. Singer & S. Singer, Sutherland Statutes and Statutory Construction §47:26, p. 448 (rev. 7th ed. 2014).

But here, context favors the ordinary disjunctive meaning of “or” for at least three reasons.  First, the distributive canon has the most force when the statute allows for one-to-one matching.  But here, the distributive canon would mix and match some of three nouns—“salesman, partsman, or mechanic”—with one of two gerunds— “selling or servicing.”  §213(b)(10)(A).  We doubt that a legislative drafter would leave it to the reader to figure out the precise combinations. Second, the distributive canon has the most force when an ordinary, disjunctive reading is linguistically impossible.   . . .But as explained above, the phrase “salesman . . . primarily engaged in . . . servicing automobiles” not only makes sense; it is an apt description of a service advisor.  Third, a narrow distributive phrasing is an unnatural fit here because the entire exemption bespeaks breadth.  It begins with the word “any.”  . . .   And it uses the disjunctive word “or” three times. In fact, all agree that the third list in the exemption—“automobiles, trucks, or farm implements”— modifies every other noun and gerund.  But it would be odd to read the exemption as starting with a distributive phrasing and then, halfway through and without warning, switching to a disjunctive phrasing—all the while using the same word (“or”) to signal both meanings.

The Court also rejected the Ninth Circuit’s opinion on the grounds that FLSA exemptions should be construed narrowly:

We reject this principle as a useful guidepost for interpreting the FLSA.  Because the FLSA gives no “textual indication” that its exemptions should be construed narrowly, “there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.”  Scalia, Reading Law, at 363.  The narrow construction principle relies on the flawed premise that the FLSA “‘pursues’” its remedial purpose “‘at all costs.’”   . . .  But the FLSA has over two dozen exemptions in §213(b) alone, including the one at issue here.  Those exemptions are as much a part of the FLSA’s purpose as the overtime-pay requirement.  . . . .(“Legislation is, after all, the art of compromise, the limitations expressed in statutory terms often the price of passage”).  We thus have no license to give the exemption anything but a fair reading.

The Court also rejected the Ninth Circuit’s reliance on legislative history, which that court had initially found to be inconclusive, because the legislative history never specifically noted the existence of “service advisors.”   As would be true with respect to “sex” in Title VII, the silence of legislative history cannot overcome clear statutory language:

Even for those Members of this Court who consider legislative history, silence in the legislative history, “no matter how ‘clanging,’” cannot defeat the better reading of the text and statutory context. If the text is clear, it needs no repetition in the legislative history; and if the text is ambiguous, silence in the legislative history cannot lend any clarity.   . . . Even if Congress did not foresee all of the applications of the statute, that is no reason not to give the statutory text a fair reading.   . . .

The dissent found that only three automobile employees were exempt: salesmen, partsmen and mechanics.  It refused to create a fourth category for service advisors.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Omnibus Budget Bill Amends FLSA to Address Tip-Credit Debate

On Friday, Congress passed and President Trumped signed a $1.3T omnibus budget bill.  To reach this compromise, a number of substantive legal provisions were enacted, including a resolution of the tip-credit debate that has been raging since at least when I began practicing law.    This debate involves whether employees who receive tips (but are paid at least minimum wage and overtime without the benefit of a tip credit) must share (or “pool”)  their tips with back-of-the-house employees (like hostesses, dish washers, bus boys, cooks, hair-washers, etc.) and whether those back-of-the-house employees may include supervisors (who can be required to work 80 hours per week without overtime and receive little more than $23K per year in annual salary) and managers.  The Obama DOL had issued regulations in 2011 answering both questions in the negative, but those regulations were challenged in litigation that is currently pending before the Supreme Court (for arguably being inconsistent with the FLSA), were suspended in July 2017 for 18 months by the Trump Administration and were the subject of new APA rulemaking announced in December 2017 to formally rescind and replace them.  Some states responded by eliminating the tip credit altogether.   The new amendments to the Fair Labor Standards Act in Title XII of the Omnibus Bill clarify that employers may never require employees to share tips with managers and supervisors and create explicit new penalties to enforce this.  The former Obama Era regulations are also formally repealed (to the extent that they regulate tip pooling).  While the Trump DOL has announced that this will permit sharing of tips with the remaining back-of-the-house employees, the statutory language may create an argument for wait staff who object to sharing any of their tips with any other employees.  Of course, most restaurant employees likely work for “fast food” restaurants these days and never get tips, so this statute really only affects hotel, resort, and sit-down restaurant and diner employees and other tipped employees, like hair dressers.

The DOL has lauded this compromise as permitting back-of-the-house employees (“cooks, bussers, dishwashers”) to share in tips in certain circumstances (i.e., when the employer is not relying on the tip credit to satisfy its minimum wage obligations), while excluding employers from keeping any portion of the tip for itself.    Let’s face it, the amount of the tips often reflects more than the quality of the wait staff’s service; it also reflects the cost and quality of the food and ambient surroundings (i.e., cleanliness and décor).   

Nonetheless, the language of the amendment is less than clear about resolving this issue.  While it seems clear that rescinding the Obama era rule forbidding all tip pooling means that tip pooling is permissible in certain circumstances, the language in the statue provides: 

An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit. (italics added for emphasis).

By prohibiting “keeping” of tips for “any” purpose, “including” but not limited to distributing to managers and supervisors, this will likely lead to litigation about whether requiring the sharing of tips with cooks and other back-of-the-house employees is “keeping” of tips and is prohibiting as an “any” purpose that is clearly not limited to just sharing with supervisors and managers.  I do not think that this is what was intended, but decades of litigation about whether tip pooling is legal was based on less than this.   To further confuse the matter, the repeal language only repeals those tip-pooling regulations that are not addressed by this new amendment (because the clearly inconsistent language has just been superseded by statute) and leaves it to the DOL to fill in the rest because those 2011 regulations “shall have no further force or effect until any future action taken by the Administrator of the Wage and Hour Division of the Department of Labor.”  As I mentioned earlier, this debate has been waging for decades, so it seems that this may just be kicking the can a little farther down the road.  But, maybe I am just being a little too cynical .  . .  How many employers are going to risk getting sued to find out?

I am including a edited version of the amendments as well as the actual language of the Omnibus bill.   These are how the amendments will look (without the strike-outs, red letters or bolding) in Chapter 29 of the U.S.  Code:

§203 (m) (1)“Wage” paid to any employee includes the reasonable cost, as determined by the Administrator, to the employer of furnishing such employee with board, lodging, or other facilities, if such board, lodging or other facilities are customarily furnished by such employer to his employees: Provided, That the cost of board, lodging, or other facilities shall not be included as a part of the wage paid to any employee to the extent it is excluded therefrom under the terms of a bona fide collective-bargaining agreement applicable to the particular employee: Provided further, That the Secretary is authorized to determine the fair value of such board, lodging, or other facilities for defined classes of employees and in defined areas, based on average cost to the employer or to groups of employers similarly situated, or average value to groups of employees, or other appropriate measures of fair value. Such evaluations, where applicable and pertinent, shall be used in lieu of actual measure of cost in determining the wage paid to any employee.

(2)(A) In determining the wage an employer is required to pay a tipped employee, the amount paid such employee by the employee’s employer shall be an amount equal to—  (1) (i) the cash wage paid such employee which for purposes of such determination shall be not less than the cash wage required to be paid such an employee on August 20, 1996; and

(2) (ii) an additional amount on account of the tips received by such employee which amount is equal to the difference between the wage specified in paragraph (1) clause (i) and the wage in effect under section 206(a)(1) of this title. The additional amount on account of tips may not exceed the value of the tips actually received by an employee. The preceding 2 sentences shall not apply with respect to any tipped employee unless such employee has been informed by the employer of the provisions of this subsection, and all tips received by such employee have been retained by the employee, except that this subsection shall not be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips.

(B) An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.

§216 (b) Damages; right of action; attorney’s fees and costs; termination of right of action 

Any employer who violates the provisions of section 206 or section 207 of this title shall be liable to the employee or employees affected in the amount of their unpaid minimum wages, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages. Any employer who violates section 3(m)(2)(B) shall be liable to the employee or employees affected in the amount of the sum of any tip credit taken by the employer and all such tips unlawfully kept by the employer, and in an additional equal amount as liquidated damages.  Any employer who violates the provisions of section 215(a)(3) of this title shall be liable for such legal or equitable relief as may be appropriate to effectuate the purposes of section 215(a)(3) of this title, including without limitation employment, reinstatement, promotion, and the payment of wages lost and an additional equal amount as liquidated damages. An action to recover the liability prescribed in either of the preceding sentences may be maintained against any employer (including a public agency) in any Federal or State court of competent jurisdiction by any one or more employees for and in behalf of himself or themselves and other employees similarly situated. No employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought. The court in such action shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney’s fee to be paid by the defendant, and costs of the action. The right provided by this subsection to bring an action by or on behalf of any employee, and the right of any employee to become a party plaintiff to any such action, shall terminate upon the filing of a complaint by the Secretary of Labor in an action under section 217 of this title in which (1) restraint is sought of any further delay in the payment of unpaid minimum wages, or the amount of unpaid overtime compensation, as the case may be, owing to such employee under section 206 or section 207 of this title by an employer liable therefor under the provisions of this subsection or (2) legal or equitable relief is sought as a result of alleged violations of section 215(a)(3) of this title.

§216 (c) Payment of wages and compensation; waiver of claims; actions by the Secretary; limitation of actions

The Secretary is authorized to supervise the payment of the unpaid minimum wages or the unpaid overtime compensation owing to any employee or employees under section 206 or section 207 of this title, and the agreement of any employee to accept such payment shall upon payment in full constitute a waiver by such employee of any right he may have under subsection (b) of this section to such unpaid minimum wages or unpaid overtime compensation and an additional equal amount as liquidated damages. The Secretary may bring an action in any court of competent jurisdiction to recover the amount of unpaid minimum wages or overtime compensation and an equal amount as liquidated damages. The right provided by subsection (b) to bring an action by or on behalf of any employee to recover the liability specified in the first sentence of such subsection and of any employee to become a party plaintiff to any such action shall terminate upon the filing of a complaint by the Secretary in an action under this subsection in which a recovery is sought of unpaid minimum wages or unpaid overtime compensation under sections 206 and 207 of this title or liquidated or other damages provided by this subsection owing to such employee by an employer liable under the provisions of subsection (b), unless such action is dismissed without prejudice on motion of the Secretary. Any sums thus recovered by the Secretary of Labor on behalf of an employee pursuant to this subsection shall be held in a special deposit account and shall be paid, on order of the Secretary of Labor, directly to the employee or employees affected. Any such sums not paid to an employee because of inability to do so within a period of three years shall be covered into the Treasury of the United States as miscellaneous receipts. In determining when an action is commenced by the Secretary of Labor under this subsection for the purposes of the statutes of limitations provided in section 6(a) of the Portal-to-Portal Act of 1947 [29 U.S.C. 255(a)], it shall be considered to be commenced in the case of any individual claimant on the date when the complaint is filed if he is specifically named as a party plaintiff in the complaint, or if his name did not so appear, on the subsequent date on which his name is added as a party plaintiff in such action. The authority and requirements described in this subsection shall apply with respect to a violation of section 3(m)(2)(B), as appropriate, and the employer shall be liable for the amount of the sum of any tip credit taken by the employer and all such tips unlawfully kept by the employer, and an additional equal amount as liquidated damages.

§216 (e) Civil penalties for child labor violations

(2) Any person who repeatedly or willfully violates section 206 or 207 of this title, relating to wages, shall be subject to a civil penalty not to exceed $1,100 for each such violation. Any person who violates section 3(m)(2)(B) shall be subject to a civil penalty not to exceed $1,100 for each such violation, as the Secretary determines appropriate, in addition to being liable to the employee or employees affected for all tips unlawfully kept, and an additional equal amount as liquidated damages, as described in subsection (b).

The Omnibus Act uses the following language:

Title XII – TIPPED EMPLOYEES

11 SEC. 1201. TIPPED EMPLOYEES. 12 (a) PROHIBITION ON KEEPING TIPS.—Section 3(m) 13 of the Fair Labor Standards Act of 1938 (29 U.S.C. 14 203(m)) is amended—

                (1) by redesignating paragraphs (1) and (2) as clauses (i) and (ii), respectively;

                (2) by inserting ‘‘(1)’’ after ‘‘(m)’’;  

                (3) by striking ‘‘any employee. In determining’’ and inserting the following: ‘‘any employee.  ‘‘(2)(A) In determining’’;  

                (4) in clause (ii) of paragraph (2)(A) (as so re-designated), by striking ‘‘paragraph (1)’’ and inserting ‘‘clause (i)’’; and

                (5) by adding at the end the following:

(B) An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.’’.

                (b) PENALTIES.—Section 16 of the Fair Labor 6 Standards Act of 1938 (29 U.S.C. 216) is amended—

                (1) in subsection (b)—

                                (A) by inserting after the second sentence the following: ‘‘Any employer who violates section 3(m)(2)(B) shall be liable to the employee or employees affected in the amount of the sum of any tip credit taken by the employer and all such tips unlawfully kept by the employer, and in an additional equal amount as liquidated damages.’’; and

                                (B) by striking ‘‘either of’’;

                (2) in subsection (c), by adding at the end the following: ‘‘The authority and requirements described in this subsection shall apply with respect to a violation of section 3(m)(2)(B), as appropriate, and the employer shall be liable for the amount of the sum of any tip credit taken by the employer and all such tips unlawfully kept by the employer, and an additional equal amount as liquidated damages.’’; and

                (3) in subsection (e)(2), by adding at the end  the following: ‘‘Any person who violates section 3(m)(2)(B) shall be subject to a civil penalty not to exceed $1,100 for each such violation, as the Secretary determines appropriate, in addition to being liable to the employee or employees affected for all tips unlawfully kept, and an additional equal amount as liquidated damages, as described in subsection 10 (b).’’

                (c) EFFECT ON REGULATIONS.—The portions of the final rule promulgated by the Department of Labor entitled ‘‘Updating Regulations Issued Under the Fair Labor Standards Act’’ (76 Fed. Reg. 18832 (April 5, 2011)) that revised sections 531.52, 531.54, and 531.59 of title 29,  Code of Federal Regulations (76 Fed. Reg. 18854–18856) and that are not addressed by section 3(m) of the Fair Labor Standards Act of 1938 (29 U.S.C. 203(m)) (as such section was in effect on April 5, 2011), shall have no further force or effect until any future action taken by the Administrator of the Wage and Hour Division of the Department of Labor.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Reminds Employees that Unfairness is not the Same as Discrimination

Last month, the Sixth Circuit affirmed the dismissal of Title VII discrimination and constructive discharge claims even though the plaintiff was treated unfairly because she could not show that she had been treated differently than a comparable male.  Gosbin v. Jefferson County Commissioners, No. 17-3441  (2/23/18).   The plaintiff had been publicly reprimanded and suspended for “insubordination” even though she had never been explicitly told to take a particular course of action.   The employer’s law firm had also been told to cease working with her or telling her why.  Realizing that she might be fired, she resigned and was replaced almost a year later by a male subordinate who lacked her qualifications.   While the Court agreed that she may have been treated unfairly, that unfairness was not discriminatory in the absence of evidence that she was treated differently than a comparable male.   Her efforts to compare herself to her male predecessor and successor were futile because the employer was unaware of the predecessor’s adoption of the challenged practice and he was paid more than her because he possessed additional professional licenses and responsibilities.  Her successor actually resolved the employer’s concerns taking bids for the hauling work and paying the lowest bidder.  Without a more favorable comparator, she could not prove her prima facie case.  In any event, while she may not have been technically insubordinate in the absence of a specific directive, the employer was still entitled to the honest belief defense because for two months she had continued a practice that they had informed her was legally inappropriate and needed to be corrected by placing the matter out for competitive bidding.

According to the Court’s opinion, the plaintiff had been promoted to department director in 2010 shortly after the long-time director retired.  A few years later, following a complaint and her investigation, the board of county commissioners learned that her predecessor had a verbal hand-shake deal with a local hauler to dump  septic waste at the sewage treatment plant at half-price in return for cleaning up emergency septic spills throughout the county.  While this might be acceptable in the private sector, public sector contracts must be bid so that everyone can compete for the business and opportunities.  She was directed to put the work and opportunities out for public bid.  While she took a few steps towards doing so, she did not discontinue the private arrangement or actually put the emergency septic work out for bid.  Upon learning this two months later, the Board explicitly directed her to cease permitting any haulers to dump until they had approved a policy.   She explained that she thought that they had merely directed her to put the arrangement out for bid, but until the bidding process was complete, that they current arrangement could continue.  Nonetheless, she terminated the arrangement the next day.   The Board then suspended her for 30 days for insubordination.  Following her suspension, her male subordinate took bids for the emergency septic work, and then paid the lowest bidder – the same company as before – for the work instead of letting him dump at half price.  The Board then directed its law firm to cease working with her and not tell her why.    The plaintiff resigned a few months later, was replaced by her male subordinate almost a year later, and brought suit for discrimination and constructive discharge.

The Court initially observed that the employee could not prove a prima facie case of discrimination because she could not identify any comparable male employees who were treated better than her.

In the end, whether deserved or not, there is no proof that the suspension was based on Plaintiff’s gender . . .  Plaintiff must show that the adverse action was not simply unfair, but a pretext for discrimination.  Absent any comparators, the only other evidence is [Commissioner] Gentile’s comment in early 2010 denying that he wanted Plaintiff out of management and his subsequent explanation that “it’s not because you’re a woman.”  But an isolated stray comment, three and one-half years before she was suspended, does not create an inference of discrimination. . . .

Even if Plaintiff had made out a prima facie case,  she has not shown that the Board’s reason for suspending her had no basis in fact, was not the actual reason, or was insufficient to explain the Board’s action.   . . .  Although the Commissioners did not issue a direct “cease and desist” order, they clearly asked Plaintiff to begin a public bidding process to replace the unbid hauling arrangement tout de suite; thus they had an “an honest belief” that Plaintiff did not follow their orders.

The Court also rejected the constructive discharge claim on the grounds that she could not prove any hostility was related to her gender and because the public reprimand and suspension were an insufficient basis for resigning.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Rejects Religious Objections to Sexual Stereotyping Claims

Earlier this month, the Sixth Circuit rejected an employer’s religious objections to complying with Title VII’s prohibitions against discrimination on the basis of sexual stereotypes.  EEOC v. Harris Funeral Homes, Inc., No. 16-2424.  In that case, the Court unsurprisingly (based on its prior opinions) held that it violated Title VII to terminate an employee who was preparing for sexual reassignment surgery by dressing and presenting as the opposite gender. “Discrimination on the basis of transgender and transitioning status is necessarily discrimination on the basis of sex.”   The Court rejected the employer’s argument that its gender-specific dress code requirements did not violate Title VII.  While not prohibiting outright sex-specific dress codes, the Court noted that the employer could not terminate the plaintiff for refusing to confirm to its “notion of her sex.”  The Court refused the invitation to overrule prior precedent and hold that Title VII covered sexual orientation discrimination.  Nonetheless, the Court ruled that the Religious Freedom Restoration Act did not exempt the employer from Title VII in this situation.  In particular, rejecting the employer’s argument that its grieving patrons would object to the plaintiff, the Court held that “a religious claimant cannot rely on customers’ presumed biases to establish a substantial burden under RFRA.”  The Court also held that toleration of gender identity is not the same as supporting it and mandating toleration is not a substantial burden on a religious practice.   Finally, the Court held that the EEOC had a compelling government interest in enforcing Title VII.

According to the Court’s opinion, the plaintiff had been born male and was hired as a funeral director in 2008.  The plaintiff was fired  in 2013 shortly after informing the defendant employer that he intended upon  returning from his upcoming vacation to transition to a female and begin presenting (and dressing) as a female at work for a year  before surgery.  The owner later testified that gender is a gift from God, that it would violate God’s natural order to change birth gender, and he did not want to be complicit in providing clothing or authorizing a man to dress as a woman while representing his company.   He explained to the plaintiff that the public would not accept his transition to a female.  During the subsequent EEOC investigation, the agency learned that the employer provided its male public facing employees with clothing that conformed to its dress code, but did not provide similar clothing or even an allowance to its public facing female employees.  It brought suit against the employer on behalf of the terminated employee and to challenge the clothing allowance policy.  Although noting that the plaintiff had been fired for failing to conform to gender stereotypes, the trial court granted summary judgment to the employer on both claims.

The employer immediately modified its clothing allowance policy when the lawsuit was filed to provide female employees with a comparable clothing stipend.  It had not had a female funeral director since the owner’s grandmother retired in the 1950’s and only one (unqualified) female applicant had applied for a director position since that time.  The plaintiff’s charge had not raised the clothing allowance issue in her Charge of Discrimination.  Nonetheless, the Court found that the EEOC could still bring a legal challenge to the policy in its lawsuit.

The employer argued that Title VII permits employers to utilize common gender specific dress codes.  Most employers have differing expectations for men and women based on pants, skirts, hair length, jewelry, etc.  However, the Court rejected the argument that Title VII permits gender specific dress codes and noted that the employer’s legal authority pre-dated the Supreme Court’s plurality Price-Waterhouse decision in 1989 which prohibited sex-based stereotyping (when that plaintiff had been passed over for partnership in part for not wearing make up like women are supposed to do).

We are not considering, in this case, whether the Funeral Home violated Title VII by requiring men to wear pant suits and women to wear skirt suits.  Our question is instead whether the Funeral Home could legally terminate Stephens, notwithstanding that she fully intended to comply with the company’s sex-specific dress code, simply because she refused to conform to the Funeral Home’s notion of her sex.

                 . . . .

In short, the Funeral Home’s sex-specific dress code does not preclude liability under Title VII.  Even if the Funeral Home’s dress code does not itself violate Title VII—an issue that is not before this court—the Funeral Home may not rely on its policy to combat the charge that it engaged in improper sex stereotyping when it fired Stephens for wishing to appear or behave in a manner that contradicts the Funeral Home’s perception of how she should appear or behave based on her sex.

The Court also rejected the defendant’s argument that “sex” under Title VII was a binary concept (“which classification arises in a person based on their chromosomally driven physiology and reproductive function”) that did not include transitioning from one to another. The defendant characterized transgender status as a “’a person’s self-assigned ‘gender identity’ rather than a person’s sex.”  “We also hold that discrimination on the basis of transgender and transitioning status violates Title VII.”

First, it is analytically impossible to fire an employee based on that employee’s status as a transgender person without being motivated, at least in part, by the employee’s sex.  The Seventh Circuit’s method of “isolat[ing] the significance of the plaintiff’s sex to the employer’s decision” to determine whether Title VII has been triggered illustrates this point. . . . In Hively, the Seventh Circuit determined that Title VII prohibits discrimination on the basis of sexual orientation—a different question than the issue before this court—by asking whether the plaintiff, a self-described lesbian, would have been fired “if she had been a man married to a woman (or living with a woman, or dating a woman) and everything else had stayed the same.”  Id.  If the answer to that question is no, then the plaintiff has stated a “paradigmatic sex discrimination” claim.  See id.  Here, we ask whether Stephens would have been fired if Stephens had been a woman who sought to comply with the women’s dress code.  The answer quite obviously is no.  This, in and of itself, confirms that Stephens’s sex impermissibly affected Rost’s decision to fire Stephens.

                 . . . .

Thus, an employer cannot discriminate on the basis of transgender status without imposing its stereotypical notions of how sexual organs and gender identity ought to align.  There is no way to disaggregate discrimination on the basis of transgender status from discrimination on the basis of gender non-conformity, and we see no reason to try.

While Congressional intent in drafting Title VII may not have included this interpretation of Title VII, “to anticipate that Title VII would cover transgender status is of little interpretive value, because “statutory prohibitions often go beyond the principal evil to cover reasonably comparable evils, and it is ultimately the provisions of our laws rather than the principal concerns of our legislators by which we are governed.”  It similarly rejected the argument based on drafting differences that statutes “such as the Violence Against Women Act, expressly prohibit discrimination on the basis of “gender identity,” while Title VII does not.”

 The Court also rejected the argument that because both men and women can be transgendered, it cannot constitute discrimination to treat transgendered individuals the same.

Because an employer cannot discriminate against an employee for being transgender without considering that employee’s biological sex, discrimination on the basis of transgender status necessarily entails discrimination on the basis of sex—no matter what sex the employee was born or wishes to be.  By the same token, an employer need not discriminate based on a trait common to all men or women to violate Title VII.  After all, a subset of both women and men decline to wear dresses or makeup, but discrimination against any woman on this basis would constitute sex discrimination under Price Waterhouse.

While the employer’s owner is religious, the company is not affiliated with any religious organization, serves patrons of various faiths and hires employees of various (or even no) faiths.  While several amici had argued that the defendant was entitled to Title VII’s ministerial exception, the defendant and the Court agreed that it was not applicable in this situation.

The Court rejected the employer’s RFRA defense on the grounds that complying with Title VII was not a substantial burden on his religious exercise in administering to mourners and that enforcing Title VII in this case is the least restrictive means of furthering a compelling government interest.  The Court opted to treat religious objections in this situation as though they were similar to objections based on working with women or people of a different race.  It also concluded that he was not required to provide clothing to any of his employees and could eliminate that benefit on a non-discriminatory basis.  The employer “is not being forced to choose between providing [the plaintiff] with clothing or else leaving the business; this is a predicament of [his] own making.”

The Funeral Home’s first alleged burden—that [the plaintiff] will present a distraction that will obstruct [his] ability to serve grieving families—is premised on presumed biases. . . . The factual premises underlying this purported burden are wholly unsupported in the record.  [The owner] testified that he has never seen [the plaintiff] in anything other than a suit and tie and does not know how [the plaintiff] would have looked when presenting as a woman. . . . [His] assertion that he believes his clients would be disturbed by [her] appearance during and after her transition to the point that their healing from their loved ones’ deaths would be hindered. . . at the very least raises a material question of fact as to whether his clients would actually be distracted, which cannot be resolved in the Funeral Home’s favor at the summary-judgment stage. . . .

But more to the point, we hold as a matter of law that a religious claimant cannot rely on customers’ presumed biases to establish a substantial burden under RFRA.

                 . . . .

 . . .We could agree that courts should not credit customers’ prejudicial notions of what men and women can do when considering whether sex constitutes a “bona fide occupational qualification” for a given position while nonetheless recognizing that those same prejudices have practical effects that would substantially burden [his] religious practice (i.e., the operation of his business) in this case.  But the Ninth Circuit rejected similar reasoning in Fernandez, and we reject it here.

As for the burden on his religious practice by being required to employ the plaintiff as a public representative of his company, “simply permitting [the plaintiff] to wear attire that reflects a conception of gender that is at odds with [the owner’s] religious beliefs is not a substantial burden under RFRA. . . . . tolerating Stephens’s understanding of her sex and gender identity is not tantamount to supporting it.”  (emphasis added).

 The Court noted that it had required religious organizations to comply with the ObamaCare’s opt-out provisions on the grounds that they were not a substantial burden on their religious practices.

We view the Funeral Home’s compliance with antidiscrimination laws in much the same light.  Rost may sincerely believe that, by retaining Stephens as an employee, he is supporting and endorsing Stephens’s views regarding the mutability of sex.  But as a matter of law, bare compliance with Title VII—without actually assisting or facilitating Stephens’s transition efforts—does not amount to an endorsement of Stephens’s views. Similarly, here, requiring the Funeral Home to refrain from firing an employee with different religious views from Rost does not, as a matter of law, mean that Rost is endorsing or supporting those views. . . . .  Indeed, Rost’s own behavior suggests that he sees the difference between employment and endorsement, as he employs individuals of any or no faith, “permits employees to wear Jewish head coverings for Jewish services,” and “even testified that he is not endorsing his employee’s religious beliefs by employing them.”

At bottom, the fact that Rost sincerely believes that he is being compelled to make such an endorsement does not make it so.

The Court also found that the EEOC had a compelling government interest in preventing workplace discrimination.  “The Supreme Court has already determined that RFRA does not, in fact, “effectuate . . . the First Amendment’s guarantee of free exercise,” id., because it sweeps more broadly than the Constitution demands. . . . We therefore decline to hoist automatically Rost’s religious interests above other compelling governmental concerns.”

The Court also found that enforcing Title VII was the least restrictive means.  “Where an alternative option exists that furthers the government’s interest “equally well,”  . . ., the government “must use it.”    Indeed, “[t]he district court found that requiring the Funeral Home to adopt a gender-neutral dress code would constitute a less restrictive alternative to enforcing Title VII in this case, and granted the Funeral Home summary judgment on this ground.”

The district court’s suggestion, although appealing in its tidiness, is tenable only if we excise from the case evidence of sex stereotyping in areas other than attire.  Though Rost does repeatedly say that he terminated Stephens because she “wanted to dress as a woman” and “would no longer dress as a man,”  . . .the record also contains uncontroverted evidence that Rost’s reasons for terminating Stephens extended to other aspects of Stephens’s intended presentation.  For instance, Rost stated that he fired Stephens because Stephens “was no longer going to represent himself as a man,”  . . ., and Rost insisted that Stephens presenting as a female would disrupt clients’ healing process because female clients would have to “share a bathroom with a man dressed up as a woman,”  . . .  The record thus compels the finding that Rost’s concerns extended beyond Stephens’s attire and reached Stephens’s appearance and behavior more generally.

  . . .

The Funeral Home’s proposed alternative—to “permit businesses to allow the enforcement of sex-specific dress codes for employees who are public-facing representatives of their employer, so long as the dress code imposes equal burdens on the sexes and does not affect employee dress outside of work,”  . . .is equally flawed. . . . the EEOC does have a compelling interest in ensuring that the Funeral Home does not discriminate against its employees on the basis of their sex.  The Funeral Home’s proposed alternative sidelines this interest entirely.

 . . .
To start, the Supreme Court has previously acknowledged that “there may be instances in which a need for uniformity precludes the recognition of exceptions to generally applicable laws under RFRA.” . . .

The Court seemingly recognized Title VII’s ability to override RFRA in Hobby Lobby, as the majority opinion stated that its decision should not be read as providing a “shield” to those who seek to “cloak[] as religious practice” their efforts to engage in “discrimination in hiring, for example on the basis of race.”   . . .

While the Hobby Lobby Court permitted a RFRA exemption to ObamaCare’s contraception mandate, ObamaCare’s statute already provided an exemption mechanism, unlike Title VII’s prohibition on sex discrimination in this case.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Ohio Appellate Court Finds Dismissal Without Cause of Probationary Civil Service Employee Violates Public Policy

Editor's Note:  This case was reversed by the Ohio Supreme Court on August 20, 2019.

Earlier this month the Franklin County Court of Appeals reversed the 12(B)(6) dismissal of the wrongful discharge claim of a civil service employee who was fired during his probationary period only six days after receiving a satisfactory performance evaluation allegedly because of the negative publicity that surrounded his hiring and prior employment.  Miracle v. Ohio Dept. of Veterans Servs., 2018-Ohio-819.  The Court found that the complaint stated a valid claim as a matter of law that it is illegal to terminate a civil service employee during his or her probationary period when the employee is performing his or her job duties satisfactorily.  In other words, the Court found a just-cause termination standard to be implied as a matter of public policy from the civil service statute during the initial probationary period even if the employee does not have the right to appeal to the applicable civil service commission.  Therefore, while civil service employees who successfully survive their probationary period can appeal only to the Board of Review or civil service commission, probationary employees can challenge their terminations in court.  That being said, this case illustrates one of my favorite practice pieces of advice: it is always risky to terminate an employee without a good reason following a satisfactory performance evaluation.

According to the Court’s opinion and based on the allegations of the complaint, the plaintiff allegedly explained during his job interview that he had been fired by another state agency following an investigation into an earlier prison escape where he formerly worked.    Assured that was not a problem for the current position, he was hired and received a satisfactory performance evaluation four months later.  Six days after that, he was terminated and refused any explanation because he was still a probationary employee.  He alleged that he was fired because an employee in the Governor’s office sought his dismissal to end negative publicity surrounding his hiring after his earlier termination by a different state agency.  There were apparently no allegations that anyone at the State benefitted personally from his termination or that it was in retaliation for engaging in protected conduct which a statute seeks to encourage.   The State moved to dismiss, which the Court of Claims did on the grounds that the complaint failed to state a claim upon which relief could be granted, even if the allegations were true.

In evaluating public policy wrongful discharge claims, “[t]he clarity and jeopardy elements, which involve relatively pure legal and policy questions, present questions of law” which are reviewed on a de novo basis.  The plaintiff alleged that:

"there exists a clear public policy in favor of retaining probationary employees who are satisfactorily performing their duties and against arbitrary termination of such employees."   . . .  In other words, [the plaintiff] derived from R.C. 124.27 a clear public policy against the discharge of civil service employees who provide satisfactory service during the probationary period.

The trial court had evaluated the allegation to preclude any termination of a probationary employee and found there to be no such public policy.  While the Court agreed that was true, it also found that the trial court misconstrued the alleged public policy, which – as an appellate court reviewing an issue of law de novo – it concluded did exist.  Therefore, it sustained the plaintiff’s claimed error and remanded the case to proceed with discovery. 

The civil service statute at issue – R.C. §124.27(B) -- provides in relevant part:

(B) All original and promotional appointments in the classified civil service, including appointments made pursuant to section 124.30 of the Revised Code, but not intermittent appointments, shall be for a probationary period, not less than sixty days nor more than one year, to be fixed by the rules of the director for appointments in the civil service of the state . . . . No appointment or promotion is final until the appointee has satisfactorily served the probationary period.   If the service of the probationary employee is unsatisfactory, the employee may be removed or reduced at any time during the probationary period.  If the appointing authority decides to remove a probationary employee in the service of the state, the appointing authority shall communicate the removal to the director. A probationary employee duly removed or reduced in position for unsatisfactory service does not have the right to appeal the removal or reduction under section 124.34 of the Revised Code.  (italics added for emphasis).

In a slightly different claim, the plaintiff alleged that Ohio public policy prohibits the abuse of power by officials, which the State conceded.  The Court then observed that the plaintiff would need to allege and prove that the alleged public policy was jeopardized by his discharge, but that the defendants had made a different argument in moving to dismiss.   Although the State argued that there was no private right of action under R.C. 124.56, the Court observed that this is whole point of public policy claims – to create a remedy where none otherwise exists when the public policy would be jeopardized.  Also, the complaint sufficiently alleged misconduct by the named defendants when they complied with the directions to resolve inconvenient “political optics.”  Finally, the fact that the defendants had the power and authority to dismiss probationary employees did not resolve the jeopardy question when it was alleged that their exercise of that power and authority violated the public policy against abuse of power.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.